The Housing Bubble

It’s Friday desk clearing time for this blogger. “Combine a strong local economy that’s attracting new residents from other states with a shortage of homes for sale — and that means housing prices are going up across North Texas. Steve Brown reports on real estate for The Dallas Morning News. He talks about the price of finding a home in Dallas-Fort Worth. On the concern that rising prices could lead to a bubble: ‘No one wants to use the ‘B word.’ There is concern because home prices and apartment rents in Dallas-Fort Worth are growing at a many multiple-of-wage increases, and have done so for the last few years. You can’t just keep increasing the price of a commodity of housing faster than the ability of people to pay for it.’”

“‘So a lot of analysts and even the builders themselves recognize that ‘Yeah, this has worked for a while, but we can’t keep growing the price of stuff faster than peoples ability to pay for it.’ And there is a lot of discussion about that worry about that; it’s just right now no one is willing to do anything about because the demand is so strong.’”

“Manhattan resale home prices tumbled by the most in more than four years, a sign that sellers are lowering their expectations in a slowing market where buyers have the option to walk away. ‘Maybe we’re heading out of the period when there was no shame in overpricing your home,’ Jonathan Miller, president of Miller Samuel, said in an interview. ‘We’re moving away from that and into something more pragmatic: Do you want to actually sell your property or do you want to pretend?’”

“Renaissance Place, a big mixed-use property in downtown Highland Park, has sold for about $33 million, generating a big loss for the German investor that bought it more than a decade ago. A venture of Metzler Real Estate sold the retail-office-apartment complex to affiliates of Tabani Group, a Dallas-based shopping center investor. Metzler, the North American unit of German bank Bankhaus Metzler, sold Renaissance Place for just $32.7 million, about 38 percent less than the $53.1 million it paid for the property in December 2006, county records show.”

“The sale shows the rising real estate market hasn’t lifted all landlords, especially those that paid up for properties as prices peaking about a decade ago. Though commercial real estate values broadly have bounced back from the financial crisis, plenty of investors that bought just before the crash still would take a hit if they sold today.”

“In an interview with BNN, Sun Life’s Chief Investment Officer Sadiq Adatia said that there is a housing bubble in Toronto and Vancouver and that it’s already starting to burst. ‘I think if you look at Vancouver, we’ve already seen the bubble burst there,’ Adatia told BNN. ‘A lot of people think it’s just the foreign players and that tax that came through, but it actually started before the tax actually got implemented. So, what we’re seeing is probably a further extension of that downturn as result of the foreign tax.’”

“For Toronto, meanwhile, Adatia says the trouble still lies ahead. ‘Eventually we are going to see this market kind of stop and then come off a cliff,’ he said. ‘The longer we stay in this run-up, the bigger the downturn is going to be.’”

“In another indication of Phnom Penh’s oversaturated real estate market, a report says that a third of individual houses in gated communities launched for sale last year have yet to sell, in addition to tens of thousands of units still in various stages of completion soon to hit the market. An industry report released earlier this month warns that Phnom Penh is set to be flooded with condominiums. U.S.-based real estate services company CBRE Group’s Cambodia affiliate said the total condominium supply was set to quadruple in just two years.”

“The new report shows that the construction of so-called cluster landed houses—gated communities of separate, individual living units—is also energetically underway in an uncertain market. ‘There have been strong signs over the past few years that the housing market, especially in Phnom Penh, is in oversupply,’ said Miguel Chanco, the lead analyst of Asean’s Economic Intelligence Unit.”

“The value of a luxury apartment in Dazhi has dropped by half its original price amid the slipping property value of other buildings and apartments in greater Taipei. According to a Taiwan Realty statement released Wednesday, a top-of-the-market Dazhi luxury apartment sold recently for NT$1.445 million per ping (3.3 square meters) last December, whereas it sold for 50.28 percent more, at NT$2.906 million, at its peak. Another luxury apartment in Zhongzheng District experienced a similar drop in prices.”

“While the drop in both property value are seen as a good sign for buyers in the market, it also means, as some have pointed out, that those who bought off-plan property back in 2013 will be posting a loss. This is of course because of the payments they have already made for their purchases, which with the looks of prices now, were more than what they would have had to pay had they bought later on.”

“Senior analyst Chen Ping-chen at Taiwan Realty advised people looking to invest in the luxury housing market to hold off, saying that ‘the time is not here yet.’ According to experts, prices for non-luxury apartments should fall even more back to the level seen in 2005.”

“House prices in the once-thriving mining town have plummeted at an eye-watering pace, taking the fortunes of many a mum and dad investor with them. Those in the mining towns are left with mortgages that can be as much as triple the value of their homes. Piles of red dust rendered virtually valueless. One Moranbah house that sold for $589,000 as the boom was still climbing to its peak in September 2011, sold through mortgagee auction in November for just $118,000.”

“Over in the iron ore centre of Port Hedland, in Western Australia’s north, it’s a similar story. A three bedroom 1960s home in the town centre, once earmarked as a development site when accommodation was in chronically short supply, sold to a first homebuyer in October for $235,000. Just four years ago, in November, 2012, it commanded $1600 per week in rent. The following year it was listed for sale for just under $1.1 million.”

“Morag Lowe, principal of First National Hedland Real Estate, said no-one expected the prices of the boom to last. But, equally, no-one expected the speed of the crash. ‘A lot of people have been caught out, people very experienced in real estate were also caught out,’ she said. ‘I think everyone in our town knew the abnormally high prices were not sustainable into the future and saw it as a windfall or bonus. What we didn’t see was how quickly the downturn happened and the enormity of it. We might have expected a period of adjustment, maybe a 10 to 20 per cent drop in value but the world seemed to change overnight.’”

“‘95 per cent of our sales are bank repossessions,’ said Bella Exposito, a real estate agency owner in the Queensland coal heartland of Moranbah. Ms Exposito echoed similar sentiments. ‘We went to bed with the high of the boom and then woke up in the downturn,’ she said. Both women have been forced to watch, again and again, as everyday people endure the heartbreak of declaring bankruptcy. ‘We’re seeing mortgagee sales and not an insignificant number,’ Ms Lowe said. ‘It’s absolutely horrendous but don’t make the mistake of thinking this is just something typical of mining towns. I have an apartment in Perth I bought around height of demand six years ago when I was getting $680 per week rent. Now, it’s down to $480. In fact, I’m talking to an agent today and it’s on the market.’”

“Ms Lowe said everyone knew the construction phase, that which saw thousands more people flood to the west and mining companies paying once-in-a-lifetime wages, would end. What they did not anticipate was that it would coincide with a dramatic plunge in Chinese demand for iron ore — an appetite that had once seemed insatiable — meaning a free fall in the resource price and mass job losses.”

“What is causing so much dissatisfaction with the housing market? Well, the provision of housing these days in large part, no longer fulfils a social function to provide people with homes within their budget. Instead, it has become a tool of wealth creation – for ‘investors’, financial institutions, speculators, and of course the developers. Investors and speculators buy the finished luxury houses and condominiums in the hope of long-term wealth accumulation. Speculators count on rising land prices. The banks earn loads of interest. The developers earn their profits and run.”

“This wealth accumulation from property has contributed to high income and wealth inequality. It didn’t matter if these luxury homes were left vacant or unoccupied by their wealthy buyers; in the past, rising prices more than made up for any lack of rental income – even as many ordinary Malaysians could only dream of buying their own homes.”

“This problem of property-based wealth accumulation is hitting cities around the world. It was only yesterday that I saw an ad in a local newspaper advertising real estate as an investment in the Kensington area of London. Coincidentally, the Guardian carried an article about a UN report on housing a couple of days ago, pointing out that the number of vacant units in the Kensington area had risen by 40 per cent.”

“The UN special rapporteur on housing Leilani Farha is due to present a damning report on the commodification of housing at the UN Human Rights Council in Geneva: ‘Housing has lost its social function and is seen instead as a vehicle for wealth and asset growth. It has become a financial commodity, robbed of its connection to community, dignity and the idea of home.’”

“Her report examines how housing, representing almost half of all global assets and more than twice global GDP, has become a repository for global capital, and the impact of the commodification of housing on affordability and homelessness. ‘The financial world has essentially operated without any consideration of housing as a human right and States are complicit: they have supported financial markets in a way that has made housing unaffordable for most residents.’”

“‘This is an issue of accountability,’ she says. ‘Government accountability to international human rights obligations has been replaced with accountability to markets and investors.’ Very little of this is likely to be reported in the corporate mainstream media, which earn a lot of ad revenue from developers and are loathe to say anything negative about the property market. Even today, property gurus are still talking up the market, despite the visible evidence of so many unoccupied high-end homes and commercial or retail lots pointing to a slump. Hardly anyone in the property sector will use the S-word (Slump) or the G-word (Glut).”