April 21, 2017

Responding Rationally To Loose Money

It’s Friday desk clearing time for this blogger. “The slumbering housing market in Greenwich, the Connecticut town favored by Wall Street’s financial elite, jolted awake in the first quarter as buyers emboldened by the rising stock market committed to purchases — as long as they didn’t have to pay full price. Prices remain 20 percent below the town’s peak in the second quarter of 2006, when the median was $2.33 million. ‘That kind of market no longer exists,’ said Jonathan Miller, president of Miller Samuel. ‘If it comes back, it’s not tomorrow.’”

“‘Too much luxury product’ says one broker as a glut of ultra-high-end condos sparks price cuts, including on Gwyneth Paltrow’s pad, which she sold for 30 percent below its original price. Paltrow’s pad wasn’t an outlier. In 2015 and 2016, a confluence of events, including a glut of luxury units and uncertainty surrounding the presidential election, forced many sellers to slash their prices as buyers took harder and longer looks at properties. ‘The New York market became very overpriced,’ Donna Olshan, whose eponymous brokerage specializes in properties costing more than $4 million, tells THR. ‘Buyers became very cost-conscious.’”

“Though the residential slowdown continues in South Florida, sellers may finally be adjusting to market conditions by lowering their prices. Residential properties sold for bigger discounts during the first quarter compared to the same period of last year in Miami Beach, continuing a trend from the fourth quarter of 2016, according to Douglas Elliman. Properties in Miami Beach spent 143 days on the market during the first quarter of this year, up from 97 days the previous year. Listing discounts also continued to increase, which makes sense given that ‘pricing was too high to begin with,’ said Jonathan Miller, whose firm Miller Samuel authored the reports. ‘The spread is widening. The seller is traveling farther to meet the buyer, and I don’t believe it’s the buyer coming up to meet the seller.’”

“According to the latest FipeZAP Index, residential real estate sale prices in Brazil remained relatively stable in March. Eleven of the twenty cities included in the Index showed a decline in sale prices from February to March. ‘What I tell the owners I work with is that if they want to sell they property in a short array of time they must indicate a price that is below market value. If not they must be patient,’ said Charlie Jonas from luxury real estate agency, Rio Exclusive.”

“The best rental deals on residences in Abu Dhabi could be on the new one ones as landlords ramp up on incentives. Landlords are facing a stark choice - stick to their demands and see their tenants moving out and having to keep the units unoccupied for longer. Or they can give in to market forces and sign up tenants for the best they can get under the circumstances. They have to as rents in Abu Dhabi remain under extreme duress, particularly at the top end of the residential leasing space. On many counts, the level of stress on asking rents is much higher than what landlords in Dubai’s freehold zones are facing. What is remarkable about Abu Dhabi is that it is happening within a much lower residential base.”

“Alpon Abu of Vase Solutions says rental prices in Nairobi recorded a drop in the final quarter of 2016 caused by an oversupply of apartments and falling demands, citing available reports. ‘It seems there is an oversupply of A class commercial spaces as well as expensive apartments that is causing a drop in prices, rental yields,’ he says. ‘Moreover, several banks have gone down within the last 12 months. With a weak banking system that cannot provide sufficient finance support for further growth, the future does not look bright for developers.’”

“International Real Estate Federation vice-president Michael Geh said only owners who could no longer bear the hefty mortgage repayment were willing to let go of their high-end properties at 20 to 30 per cent less. ‘If you have two to three luxury condominiums and there is no rental coming from either and people not wanting to buy, then it seems necessary for owners to give about 25 per cent off the asking price to let go of at least one property. But for the buyer, it is a good deal. So, I wouldn’t say the property market is crashing because there is still a willing buyer for a willing price tag,’ said Geh who represents the Malaysian chapter of the International Real Estate Federation.”

“Geh likened the situation to the English folklore Robin Hood, noting that the rich would not like the current situation while the ‘poor’ would be happy being at the receiving end.”

“A meeting has heard the reason Newstead-based builder CKP Constructions collapsed, leaving four projects around the city uncompleted. CKP Construction director Craig Petersen told a meeting of creditors that an unpaid debt owed by a developer called Gabba Holdings had lead to cash flow problems from which the company was unable to recover. The company’s collapse is the latest in a series of building company failures and comes as the Reserve Bank of Australia singled out the Brisbane property market as an area of concern.”

“Housing and Public Works Minister Mick De Brenni said the CKP collapse meant subcontractors had once again been left exposed. Brisbane/Gold Coast-based Cullen Group collapsed just before Christmas, owing subbies an estimated $18 million and leaving a string of uncompleted projects. ‘MEA Chief Executive Malcolm Richards said that the collapse would leave many sub-contractors out of pocket. ‘This is devastating news for the many mum and dad sub-contracting businesses who will now be left out of pocket due to the collapse of CPK Constructions,’ Mr Richards said.”

“Fresh from their triumphs on energy, health and other files, the Ontario Liberals plan to extinguish an ‘overheated’ Toronto housing market. Chesterton once said the modern world consists of formerly coherent virtues wandering about in mad isolation. Let us soften our scorn for the credulity of past ages long enough to consider that the major thrust of government policy over the past decade has been to ’stimulate’ the economy by keeping interest rates artificially low.”

“The point is, the whole idea behind cheap money, other than (a) government can alter real interest rates because the market is full of dopes who don’t know from nominal and (b) to hold down interest payments on runaway public debt, is to make citizens borrow and spend. Then when we do, responding rationally to loose money by taking out big mortgages, they say hey, we wanted you to spend like maniacs but not on significant assets. Dawk.”

“Part of the argument is that if the housing ‘bubble’ were to ‘burst’ it would hurt the economy. But that’s only true if government has foolishly socialized risk by backing unsound mortgages. So having made the whole system dangerously unstable and inflated it recklessly, they now want to do us another favour based on their superior enlightenment, capacity and compassion.”

“So why not simply mandate that no house in the Greater Golden Horseshoe can sell for more than its MPAC valuation, at least to a stinking foreigner? Because it would be central planning, which we know always causes unfair disaster. So while they devise other central planning to cause unfair disaster, please hit the roof as hard and often as possible especially if you live in Toronto. Putting holes in it with your head will reduce its value. Which your government actually wants.”