May 13, 2017

Think Back To The Old Days - Just A Couple Of Years Ago

A report from the Mercury News in California. “At a Silicon Valley of Realtors meeting this month, Carole Rodoni, president of Bamboo Consulting, said realtors need to educate buyers that this market is not a negotiation market; rather, it is a competitive market. ‘Buyers have to be quick, fast and ready to perform, or the house will be gone. Price is not price; it’s just a number,’ said Rodoni. She said to realtors, ‘Tell your buyers ‘If you can’t go higher, then you need to go somewhere else. If you want to live here, the key is to get in and pay the price because that’s the way it is.’”

From WOWT News in Nebraska. “Brian and Allie Casavant are getting adjusted to their brand new surroundings. On Friday, the young people got to finally call a house in west Omaha home. For the first time buyers, though, it was not an easy journey. ‘Every house we went to, it looked like we were going to be in multiple offer situations,’ Brian Casavant said. Metro realtors said the way things were going, you need to act fast. ‘It’s very busy,’ Mike Story said. ‘Waiting around a few days or thinking about it is not working for most houses right now.’”

From Barrie Today in Canada. “After months of surreal prices and frantic bidding wars, the head of the Barrie and District Association of Realtors says things are settling down in the city. ‘We’re not seeing quite the frenzy that we had been seeing in terms of multiple offers and homes selling radically over list,’ said Rob Alexander, President of the Barrie and District Association of Realtors.”

“Prices are still staying ‘very, very strong’ but homes are sitting on the market a little bit longer, which Alexander says is a good thing. ‘In April Barrie residential detached was up 36 percent over April of last year. Year to date we’re up about 38 percent over the same time last year,’ he said. ‘In terms of what we’re facing there are no signs at this point of weakness in the market from a price perspective. I think we’re getting into this being the new normal. Homes are just going to cost just that much more than they did a year ago.’”

“Think back to the old days - just a couple of years ago - when buyers might look at up to 10 homes before making a decision.”

From Bloomberg. “The story Canada has been telling itself about its economy is starting to sound like wishful thinking. It’s too early for the meltdown at Home Capital Group Inc. to show up in the data — and, with just 1 percent of the national market, the mortgage lender may be too small to do so anyway. But it’s already had a big impact on how investors and analysts are weighing the country’s weaknesses against its strengths.”

“Housing is exhibit no. 1. Estimates of its direct contribution to the economy exceed 20 percent. The figure is much higher when secondary effects are included, from lawyer fees to higher government revenue to increased retail spending driven by homeowners’ inflated sense of their own wealth, as house prices in some regions shot up more than 20 percent a year. Consumer spending as a share of gross domestic product is hovering around the highest since possibly as far back as the 1960s.”

“‘The question is just how will the economy look as that ceases to contribute quite so forcefully,’ said Eric Lascelles, chief economist at RBC Global Asset Management Inc. ‘All bubbles come to an end. I think it could be an interesting year or two ahead.’”

From “The new bank levy has opened a Pandora’s box that leaves Australia’s biggest financial institutions exposed to a potential disaster, analysts warn. In a note to investors, UBS says the levy could pose a risk to what it sees as a housing bubble, threatening the stability of an economy reliant upon the $6 trillion property market.”

“‘If the banks reprice their mortgage books this would put further pressure on household cash flows which are already suffering from near record low income growth, higher mortgage payments and higher power bills,’ said UBS analyst Jonathan Mott. ‘While the implication on the ‘animal spirits’ in the housing market is difficult to predict, we see substantial risk to the Australian Housing Bubble.’”

From Forbes Magazine by John Vail. “Coming up on my 33rd year in the investment management business, I am increasingly reflecting on my experiences. One that stands out was Japan in 1989. At a time when the West was seen as in deep decline, most thought that Japan was in the process of becoming the world’s greatest economic power. To many, its combination of wise central government power and quasi-free market corporate acumen justified PER multiples at fifty to seventy times earnings.”

“Ultra-low interest rates and fiscal spending had fueled a liquidity-driven housing bubble, coupled with strong macro-economic domestic demand, with nothing seen likely to slow down the juggernaut despite years of pessimistic cries from certain market gurus. Once, when I asked a Western broker at a cocktail party if he would believe a hallowed major brokerage firm if it told him that the moon was made of cheese, he replied in the affirmative.”

“The mood there was obviously ebullient, except among fundamentally-based portfolio managers like myself trying to keep up with the speculatively-driven Nikkei, which often bounced on the pronouncements of the similarly hallowed Government. And we were told that if the market were somehow to decline, ‘MOF would certainly not let it go too low and a rebound was certain.’”

“In mid 1989, an ultra-hawkish BOJ-sourced Governor was nominated, declaring his intention to crack down on the shadow banking system and reduce inflation, particularly in housing prices. By the time he took power several months later, equities were already in retreat and even after declining by 50% over the next two years, he was still keeping policy rates high. The financial engineering, called ‘zaitech,’ which was actually a term of veneration at the time, used during the bubble era went badly awry.”

“Investors and pundits simply had too much faith in the ‘new’ system, partially because it had excelled via fiscal and monetary stimulus, although coupled with egregious speculation, for so long that they thought it normal and acceptable. The Japanese were so proud of their new status as a rising world power that they forget about the risks of high equity and property valuations, industrial overcapacity and excessive private sector leverage, including a recent surge in personal mortgage exposure in what were then called ‘two-generation loans.’”

“The Lesson: fortunately, Japanese investors and policymakers have learned the lesson that normal levels of confidence are usually fine, but global investors should always be wary of excessive market confidence when huge deviations from norms are considered acceptable just because they have lasted for a few years.”