December 30, 2016

Housing Bubble Predictions For 2017

What’s your housing bubble prediction for 2017? Nashville Public Radio, “Home sales in Nashville have surged in recent years. The median price for a single family home is up by nearly half since 2012. Most realtors and analysts don’t see the market slowing down anytime soon. But we talked to one who says he can predict the exact month that will happen. ‘The Nashville market is probably one of the best housing markets in the United States,’ says Edsel Charles, the chairman of Franklin-based MarketGraphics Research Group Inc.”

“Charles projects Nashville’s home sales will stay strong until 2020. Actually, May of 2020 to be exact. That’s when the economic cycle nationwide will begin to wane, pulling Nashville down with it. Until then, he describes the next few years as going something like this. ‘So we’re going to go from today, grow, come down a little bit and then go back up,’ he says.”

The multifamily market? “This year Nashville has seen a tidal wave of apartments being built and coming up for rent. And experts say the market is starting to get water-logged. Longtime apartment developer Marty Heflin says Nashville’s hit the peak of its apartment building boom. ‘I think we’re headed to the bottom right now,’ Heflin says.”

“Recent data from Colliers International, a commercial real estate firm, show more than 10,000 apartments are slated to come online over the next year — yet another record for new supply. And Germantown is ground zero for the onslaught, with roughly 4,000 of those apartments. But research shows the rate at which they’re being rented is beginning to wane. And Heflin says developers are working hard to find tenants as fast as possible.”

“‘In some of the higher-end developments around town, you are starting to see one, two, three months free,’ Heflin says. ‘We are not quite to clowns twirling signs in the streets yet for ‘come on in a lease right away.’ But I would say it’s definitely becoming a concessionary environment right now.’”

From Pound Sterling Live. “It may be the great irony of Trump’s presidency that when a property developer came into office the first thing that happened was that the bottom fell out of the property market. Yet that appears to be exactly what may be happening if recent data and forecasts from certain analysts are anything to go by.”

“Nordea Bank analyst Aurelija Augulyte has been expecting a slump in housing, and has forecast a full-scale downturn in the sector in 2017. She notes how history shows that it only takes a 100 basis point rise, or 1.0%, in interest rates (and mortgage rates) to cause a recession. A steady decline in residential investment is another early indicator of a slowdown in the sector.”

“‘Housing market is key, residential investment is one of the best leading indicators for the US economy. The recent rise in yields will dampen the housing market activity. In fact, it doesn’t take much – just another 100bp rise in mortgage rates, and we have a US recession? Yes, I think in some form or shape, we will have a word ‘recession’ as a theme and driver during 2017,’ said Augulyte.”

From six months ago. “Predictions: Major political or economic shock hits US in August/September. Recession is belatedly found to have begun in Q2 2016. High end housing inventory continues to pile up, putting downward pressure on mid-level housing prices. Median sales prices start to drift downward as high end properties taken out of the mix. Entry-level housing remains in high demand, especially in desirable neighborhoods.”

“Presidential election is close; Hillary prevails albeit not without scandals. Brexit is shelved…”

Another said, “This is the top and there is nowhere to go from here but down, I called it in ‘07 and I’m calling it now. Inventory is loading up in the key markets: Miami, Phoenix, Atlanta, Las Vegas. SF And NY are starting to see some inventory.”

One had this, “I predict that Donald Trump will continue to be Donald Trump and his campaign will continue imploding from now through November 2016 Election Day.”

From one year ago. “How much liquidity will they drain out, that is the trillion dollar question. I still think that NIRP is coming. From some of the articles I’ve read, surveys say that people will tolerate up to negative 10% interest rates before they really get upset.”

Another said, “I was thinking of a gold price target of $1,300 for the end of 2016. $1,500 in 2017. Low in 2018 or 2019 of $890. Up from there. Not sure on oil. Probably range bound closer to $50. Stocks: Slightly new lows by March. Sluggish but up a bit by the end of the year from there. New highs by late 2017, but a Fall CRASH. BONDS: not in good shape. Getting worse. Real Estate becomes more sluggish in the vast majority of areas. The Real Estate Wealth Effect goes into reverse. TRUMP wins.”

And another, “The more likely it is that Trump wins the Republican nomination, the more likely it becomes that the Democrats will win the 2016 presidential election. I still suspect that Trump and all you Trump trolls secretly work for the Clinton campaign. I predict that Trump will continue to tap into the populist anger vibe, but the Republican base will dump him at the convention through a brokered procedure.

And finally, “At the end of The Big Short, they revealed that new irresponsible bets on housing were introduced in 2015. If that is true, the bubble in housing has not fully even reignited yet. There is no way we are anywhere near the mania I saw in 2015, so nobody here has an ounce of proof that housing is in the process of crashing. Oh yeah, Hillary will win. That’s a hard prediction.”

A Very Widespread, False Belief

It’s Friday desk clearing time for this blogger. “Looks like all those reports of a luxury slowdown weren’t just speculative after all: The final Olshan Realty report of the year is out, and according to the real estate trackers there, ‘the golden years of new condo development’ are over. As Curbed New York columnist Jonathan Miller has noted in the past, ‘there’s too much development being built at 2014 prices, and that buyer isn’t there.’”

“Most of Edgerton’s tobacco warehouses were demolished years ago after the tobacco industry dried up. But in the past five years three of the cream-colored buildings were converted to apartments. All are full. Contrast that with the Orchard Heights subdivision for single-family homes on the city’s southern edge. It’s 12 years old but only about 20 percent full, developer Don Cosgrove said. ‘When we started out, we built maybe 30-some houses in the first few years, but it just went to nothing,’ Cosgrove said. ‘We thought it would be several years ago to fill the lot … Who knows when it will be filled?’”

“In the Bay Area housing market, supply and demand means not much supply and way too much demand. As a result, the cost of a single-family home has skyrocketed in recent years. Yet there were cracks in the market’s red-hot edifice; the volume of sales was way down from the previous year. New peak prices were recorded in April, May, June and July — and then the ’sluggish’ word set in and didn’t go away for the rest of the year. Sales were down. Buyers were digging in their heels. By fall, outside of hotly contested areas, sellers were making price adjustments unseen in a long time.”

“A new tax brought in to replace stamp duty is holding down house prices on the west coast, according to a leading estate agent. Will Banham, of Bell Ingram’s Oban office, said the Land and Buildings Transaction Tax has had unusual and unintended consequences for the west coast of Scotland. Mr Banham said: ‘This has simply caused downward pressure on prices, with most buyers explicitly discounting their offers by the exact amount of extra tax due. It is very much a buyers’ market, with vendors losing out.’”

“In the Yamuna Expressway authority area, 20 builders have failed to complete their projects and the investments of around 20,000 homebuyers is at stake. Noida, Greater Noida and Yamuna Expressway authorities are to recover a total of around ₹25,000 crore from builders in land dues. Many have turned defaulters, citing a dip in sales of flats. In Noida, the investments of around one lakh buyers are stuck in 50 delayed projects. There are 95 under-construction realty projects in Greater Noida. Around one lakh homebuyers in 80 of these projects are estimated to be impacted.”

“Australia’s booming market for purpose-built student accommodation, having caught the attention of some of the world’s largest investors, could be on the precipice of oversupply, with concerns among some of the industry’s largest outfits over the number of new beds in Brisbane. A report produced by commercial realtors JLL shows about 10,000 beds proposed in Brisbane, ‘the largest pipeline of beds in the country,’ adding to the existing supply of 9325 beds by 2020.”

“Iglu, which runs two ­student accommodation facilities in Brisbane, including one that opened months late, said it was ‘always a challenge’ to fill the properties. ‘There are a limited number of students, particularly at the higher price points,’ said company’s director Richard Smith. ‘Most of the new product is ­targeting a similar student demographic and we are concerned about the depth of the market to support all this new product. In our view Brisbane is the most oversupplied market in Australia … the student market is about half the size of Sydney and Melbourne yet has the largest development pipeline in Australia.’”

“Prices of completed private condominiums continued to fall in November suggesting recovery is still some way off for resale homes. November’s price fall was led by units in the central region, according to flash estimates from the NUS Singapore Residential Price Index. Mr Wong Xian Yang, head of research and consultancy at OrangeTee, said: ‘With rents still on a downtrend and the outlook on interest rates remaining unclear, buyers will continue to negotiate hard for lower prices.’”

“In China’s two-speed property market, prescriptions for deflating big-city bubbles are having unintended side-effects in smaller towns. ‘China’s property market has complicated, structural problems,’ said Wen Bin, a researcher at China Minsheng Banking Corp. in Beijing. ‘Bubbles in big cities have much to do with financial leverage, whereas oversupply in third- and fourth-tier cities epitomizes the lukewarm economy.’”

“Curbs are just buying time for policy makers and won’t fundamentally solve the crucial problem of regional imbalances, said Tommy Xie, an economist at OCBC Bank in Singapore. ‘They need to push forward the combined reforms as they’ve pledged in the statement,’ Xie said. ‘But to deflate a bubble while cutting oversupply really isn’t easy.’”

“Real estate prices will eventually collapse in Edmonton and prospective homeowners should consider renting for a few years, says an Alberta investment manager. ‘There’s lots and lots of issues with the Alberta economy, being a boom-and-bust economy. We’re not through the worst part of it yet,’ said Hilliard MacBeth, an Edmonton-based portfolio manager.”

“He expects some homeowners will be hit harder than others. For example, high-end properties on the outskirts of Calgary have already experienced a sudden drop. ‘Home bubbles and bubbles bursting and the explosion in the level of debt in Canadian society are totally tied together,’ MacBeth said in an interview with CBC Radio’s Edmonton AM. Because the market has been strong for decades, many Edmontonians believe the sector is recession-proof. MacBeth says this optimism is misplaced.”

“‘One of the big surprises to me is how widespread the belief is that owning a home is a really good thing to do,’ he said. ‘It goes through all levels of society, all kinds of people. The idea that prices always go up, it’s a very false belief, but it’s a very widespread belief.’”

“Renting is currently a bargain in Edmonton, MacBeth said. ‘If people think of a house as an investment, then everybody should sell their house and live in a rental place or move to a trailer,’ MacBeth said. ‘But if you think of it as a place to live, and accept that you will be consuming the value of that home over your lifetime, then it’s OK. It’s a speculator’s game, not an investor’s game.’”