The Housing Bubble

A report from York Region in Canada. “What went way up just had to come way down. Lauren Haw, CEO of Zoocasa, who crunched York Region’s real estate numbers, said the biggest story is the steep drop from April 2017 through June 2017. ‘Over that period, we saw a 55.5 per cent decline in sales for detached homes and a 19.3 per cent decline in condo sales, as well as an 11.7 per cent decline in house prices and a 19.3 per cent decline in condo prices.’”

“Veteran realtor Darryl King said the reason for the drop was simple: a huge glut in housing supply on the market compared to earlier in the year and late last year. ‘The supply increased by 47 per cent. Everybody was waiting and wanted to cash out but some waited too long. Where before you only had one house, now you’ve got 10 on the market and now you can’t sell that house,’ said King.”

From Bloomberg on Israel. “Housing prices in Israel have been rising for so long that many residents don’t remember what it’s like when they fall. They may be about to find out. Signs are growing that Israel’s housing boom is sputtering, with fewer investors snapping up homes as mortgage rates rise. It costs about $920,000 on average to buy a three-bedroom apartment in Tel Aviv — more than in London or Amsterdam — and more than double the nominal cost a decade ago. That has priced many people out of the market in a country where the average salary is about $35,000 per year.”

“‘At some point, something’s gotta give,’ said Rafi Gozlan, chief economist at Israel Brokerage & Investments Ltd. ‘We’re now seeing the first signs of a market that’s starting to digest that prices can’t go up forever.’”

From The Hindu on India. “The National Capital Region was one of the worst-hit real estate markets in the country in the first half of 2017, with new launches, sales as well as prices seeing a sharp contraction, realty consultancy Knight Frank said. The overall inventory in the NCR could take over four years to liquidate, while this typically used to be just two years. Coinciding with a 20% correction in residential property prices in the NCR over the past 18 months, the current situation doesn’t make much sense for prospective real estate investors, as Gulam Zia, Knight Frank’s executive director said he is still not sure if things have ‘bottomed out’.”

“NCR prices are seeing lower growth rates than retail inflation, so effectively real estate in the region is giving negative returns, he said.”

The Epoch Times on China. “When the economy started to cool in the beginning of 2016, China opened up the debt spigots again to stimulate the economy. After the failed initiative with the stock market in 2015, Chinese central planners chose residential real estate again. And it worked. As mortgages made up 40.5 percent of new bank loans in 2016, house prices were rising at more than 10 percent year over year for most of 2016 and the beginning of 2017. Overall, they got so expensive that the average Chinese would have had to spend more than 160 times his annual income to purchase an average housing unit at the end of 2016.”

“Research by TS Lombard now suggests the housing bubble may have burst for the second time after 2014. ‘First- and second-tier cities have enacted such draconian measures that it is nigh impossible to buy or sell a property,’ states the report. ‘Unlike 10 years ago, when most Chinese households made a 50 to 70 percent down payment to buy a new apartment, more than 80 percent of borrowers in the past two years have put down 30 percent or less. With reduced mortgage funding availability, we believe it is unlikely that households will be able to finance their purchase through savings.’”

The New Zealand Herald. “Wow, what a day for property news - a one-two punch to the Auckland market. Just as QV data was confirming that the Auckland market is well and truly stalled, along come the Barfoot & Thompson statistics showing the average sales price in June dropped 3.1 per cent on the average for the previous three months, and was only 0.6 per cent higher than it was 12 months ago.”

“Boom, Auckland house sales have hit the canvas. When our optimistic friends in the real estate industry start to acknowledge a trend, we can be sure it has become an unavoidable reality. Most Aucklanders have been well aware of the change for a few months now. To use a slightly unscientific term, the vibe had changed. The conversation around central Auckland sports fields and dinner parties still gravitates to property because someone is always selling a house or knows someone who is.”

“Those property stories are now tinged with seller panic. The Barfoot & Thompson data confirmed the anecdotes. Peter Thompson’s commentary was clear and insightful. The slump in sales numbers has finally translated into prices. In other words, people who needed to sell were holding on, hoping that buyers would return to the market. They haven’t and now prices are falling.”

From News.com.au in Australia. “From Chinese billionaires through millionaires down to everyday workers trying to build a pot for their futures, the choice of investment had been expanded from apartments in Beijing and Shanghai to property in Melbourne and Sydney — and London and New York, Vancouver and Toronto, etc etc. Now, it seems property prices in some of those places have turned down: so, is the global property boom over and will ours be dragged down with it?”

“There is no easy answer to what is really a very complicated question but there’s a really easy way to start. To a real estate agent or a speculator, the ‘norm’ — indeed, the very expectation as a right — of not just prices going up every year, but the certainty they will. That is over. But that does not mean that instead of prices going up by, say, 10 per cent every year, they will now fall by 10 per cent every year. They could well go sideways for an extended period. To a speculator that would seem like a total bust — especially if the interest rate on their borrowings rose.”

“Oversupply in new apartments and cuts to the tax savings on off-the-plan buying could see apartment prices fall. But demand-supply dynamics should mean established property prices go sideways at worst. What happens in those — linked — overseas markets and inside China will be even more significant over the longer term. If prices plunge in, say, Vancouver or Auckland, their property will become more attractive to foreign investors. If the Aussie dollar plunges, an unchanged Aussie dollar price is suddenly discounted to a Chinese buyer. Bottom line: the easy rise-and-rise days are over. It’s become more ‘complicated.’”