The Housing Bubble

It’s Friday desk clearing time for this blogger. “The price cuts at Extell’s One57 just keep coming. Last week, $2 million was lopped off the asking price of apartment 65A. It’s now on the market for $25.9 million, $3.3 million less than what the seller paid in 2014. It’s far cry from 2014, when a penthouse in the building sold for $100 million, a New York City condominium record. 53 West 71st Street was listed back in March for $14.9 million, and sat on the market for nine months. Last week, the asking price was dropped by $1.4 million, or 10 percent. ‘We didn’t have buyers at that price. It’s just pretty simple,’ said listing broker Dexter Guerrieri of the reduction.”

“There isn’t much construction work left in Freer, Texas, a little town in South Texas whose fortunes turned south with the oil bust. But still, contractor John Hogan is stuck there — he’s got a house that nobody’s willing to buy. ‘Everything I had is paid for, so it’s hard to run off somewhere,’ Hogan told me. ‘And you can’t sell it, there’s no market.’ There’s lots of work in San Antonio, where he’s from, but it’s not easy to pick up his wife and three kids and go back. ‘I don’t have nowhere to live,’ Hogan says. ‘It’s $2,000 or $3,000 just to start out. Every time you get close to having money, something breaks down.’”

“According to local real estate broker Kim Stewart, homes in Freer now sit on the market for years before selling, if they ever do. ‘I went through the mortgage meltdown, and that bounced back so much faster than this last downward slide,’ she says. ‘This is the worst that I’ve ever seen it.’”

“The Raffaello Hotel’s rocky detour into condominium ownership is about to end, and it won’t be a happy ending for many investors in the Streeterville property. A decade after converting the 175-room boutique hotel into condos, Miami developer Crescent Heights is buying back the building for $34.5 million, according to a person familiar with the transaction. Condo-hotels—in which developers sell off individual rooms to investors, who can both use the rooms and rent them out—were a brief fad during the last boom in downtown Chicago. But most projects fizzled here amid a cooling market and growing skepticism of the investment concept.”

“At the Raffaello, many owners have sold their hotel units for huge losses in recent years, and some have lost their condos to foreclosure. Many, if not most, of the investors are selling their units back to Crescent Heights for well below what the developer sold the condos for back in 2006 and 2007. A lot of owners in the building are facing big losses in the pending sale back to Crescent Heights. That includes Richard Lowney, who bought his condo from the developer for $425,000 in 2006. His buyout price: $344,000, 19 percent less. ‘We’re getting screwed,’ said Lowney. ‘There’s no doubt about it.’”

“Angus home sellers who risk being hit by a double council tax whammy are being offered a lifeline. Arbroath councillor David Fairweather said it would stop people being ‘crucified’ during a difficult time for the housing market. There are around 1,000 long-term empty properties in Angus with many proving tough to shift in the current economic climate. Mr Fairweather said: ‘I know of a resident who was trying to sell a flat for £75,000 and was having real difficulties in selling the property. Virtually out of desperation he put it up for auction and at the third time of asking got £29,000.’”

“An ultra-luxury apartment with a sea view at Sentosa Cove has made the largest loss in the property market so far this year. Originally bought for $11 million in 2011, the condominium unit at Seascape was sold for $6.35 million in October at a loss of $4.65 million. A high-end property in Cairnhill Road made the second-largest loss-making deal of $3.7 million in March. Another Sentosa Cove unit at Turquoise came in third, in a transaction that made a loss of more than $3.3 million in June.”

“Statistics from property portal SRX show that sales of condo units with losses of more than $1 million each rose substantially this year, with 48 such transactions, compared with 31 in 2015. Most of these luxury homes were bought during the property boom years of 2007, 2011 and 2013. Up to November this year, more than 800 transactions involving non-landed private properties were loss-making, double the figure in 2015. CBRE’s head of research Desmond Sim said: ‘The slew of government policies are put in place to ensure investors don’t bite off more than they can chew, or they will choke. Those who made such huge losses are not in need of a Heimlich manoeuvre, but they are spitting it out now.’”

“Westpac acting chief economist Michael Gordon said there are at least three compelling arguments for a softer housing market over 2017. ‘One is that the latest round of LVR restrictions has finally broken the back of the market. Another is that mortgage rates are now rising instead of falling. Lastly, some have argued that the housing market is simply a bubble ready to burst.’”

“Gordon said that in recent years mortgage rates have been steadily declining and this has underpinned the price that investors are willing to pay for properties. But the situation is changing, with global interest rates turning higher in the last few months and New Zealand being taken along for the ride, he said. ‘In our view, higher mortgage rates will have a more meaningful – and sustained – impact on house prices than lending restrictions alone ever could.’”

“Property developers are discretely offering discounts on apartments in Brisbane, Melbourne and Perth to Chinese buyers for the first time, in a sign lending restrictions and over-supply are beginning to affect prices. The price discounts of up to 7 per cent were offered to clients of China’s biggest online real estate agency, Fang.com, late on Friday night in an effort to clear stock before year’s end. ‘This is the first time we have offered cash discounts,” said Fang.com agent Edward Shang.”

“A director at ACProperty.com.au, Esther Yong, said one developer was offering Chinese buyers a 25-year rental guarantee in Melbourne in an effort to move unsold apartments. ‘The market has slowed down a lot over the past six months and recently the only deals that are moving are those with big incentives,’ said Ms Yong.”

“Chinese bond yields soared and authorities halted trading in some futures contracts for the first time on Thursday, as a global bond-market selloff worsened a day after the Federal Reserve signaled a quicker pace of interest-rate increases next year. Between Election Day and this past Wednesday, the global bond selloff has wiped out $1.45 trillion in market value from the Bloomberg Barclays Global Treasury index, which tracks government bonds in both developed and developing countries.”

“Chinese investors were able to benefit by borrowing cheap money and pouring it into assets from bonds to housing to commodities, producing what some economists have described as a series of unsustainable bubbles. Some of these bubbles have burst over the past 18 months, with the crash in China’s stock market in the summer of 2015 the most notable example. Now the pain has spread to the $9 trillion bond market, which remains overwhelmingly driven by domestic investors.”

“‘People woke up to the fact that the bond bubble is too large,’ said Hao Hong, co-head of research at BoCom International, which is owned by Hong Kong’s Bank of Communications. ‘The bond market in China is under severe pressure, across the board.’”