July 22, 2017

A Glut Few Can Afford

A weekend topic starting with CNBC. “If the speculation bears out and the White House’s chief economic advisor, Gary Cohn, a Goldman Sachs alum, were to become the next Federal Reserve chairman, the Trump administration would be gaining a steady hand at the central bank, but perhaps losing support from one of Wall Street’s most influential firms, veteran banking analyst Chris Whalen told CNBC. Regardless of how Goldman would feel if Cohn were to leave the White House for the Fed, ‘I’m one of those who believes that there’s nothing wrong with having bankers, people from industry on the Fed board,’ Whalen said. ‘We have been dominated by academic economists. And you know what, they’ve gotten it wrong.’”

“Whalen said nobody should be surprised that inflation has yet to rise to the Fed’s 2 percent target level. ‘Low interest rates [and] quantitative easing are deflationary. So, of course, we haven’t hit our inflation targets. But nobody at the Fed understands that.’”

From Property Guru on China. “With luxury condos in Shanghai selling at rates comparable to London or Manhattan, it is small wonder that the Chinese residential market is a source of endless speculation. ‘It’s a high-growth market. You can see prices grow by 30 or 40 percent in a year,’ says James Macdonald, head of research for China at Savills. ‘That is the primary appeal: to be able to make quite a lot of money in a short amount of time.’”

The Weekly Times on Australia. “Homeowners in parts of Melbourne are making as much as $1200 a day just by holding on to their houses, new research shows. Figures reveal northeastern fringe suburb Kinglake West recorded massive 51.6 per cent median house price growth in the year to June 30, to $580,000. Ray White Carrum Downs’ Maggie Raad said Frankston North offered similar lures for first-home buyers and investors, including rare 600sq m blocks: ‘Eight months ago, the average house cost $400,000. Now we’re getting another $100,000 on top.’”

The Orangeville Citizen in Canada. “While a much-documented drop in the national housing market in recent months has left potential investors across the province in a frenzy, one local realtor has poured cold water on the suggestion the proverbial bubble could be set to burst in Orangeville. And while prices appear to be down pretty much across the board – the $504,458 average sale price in June is a near ten percent drop from the $559,317 average price posted in April – values appear to be going only one way in Orangeville. John Walkinshaw of Royal LePage RCR Realty did however offer some hope to those in the community looking to invest or finally purchase their first home.”

“‘I would say that the market here is stabilizing right now in the respect that the hype is no longer in the market. It’s still a very active and a very solid market, but the hype, in my opinion has gone. The days of people paying ridiculous amounts of money over value, getting into bidding wars with other interested parties, has come and gone for the most part,’ Mr. Walkinshaw said.”

From Bloomberg on the UK. “You don’t have to spend much time looking in the windows of estate agents to see Britain’s housing market has an affordability problem. Homes in England cost eight times workers’ wages; 13 times in London; and 30 times in the capital’s poshest neighborhood, according to the Office for National Statistics. Construction of new homes in London rose 42 percent in the second quarter, according to a report by Molior London. But the stock of unsold units still under construction reached the highest level since Molior started collecting data in 2009.”

“That supports estimates by Savills that although London will see a record number of new homes in 2017, more of those homes won’t have found buyers by the time they’re completed than at any point in the past decade. And luxury house prices are showing signs of suffering. Data released by Lonres on Thursday showed sales values per square foot of properties priced between 2 million pounds and 5 million pounds fell by 8.4 percent in the second quarter.”

“It appears that the real problem in the market isn’t so much a shortage of supply, but a glut of luxury homes few can afford.”

The Los Angeles Times in California. “California’s economic engine quieted in June as employers reduced their payrolls by 1,400, according to a report by the state’s Employment Development Department. It was the second month this year that the state lost jobs. ‘These numbers are problematic, I think this is a wakeup call for everybody,’ said Chris Thornberg, co-founder of consulting firm Beacon Economics.”

“On the surface, California’s economy seems healthy enough; the jobless rate is rock bottom and wages are growing much faster here than in the rest of the country. But most sectors in the state have either lost jobs in the first half of the year or are growing more slowly than they had been. Economists say that’s largely because businesses cannot find applicants to fill open jobs, because rank-and-file workers can’t afford to live in the Golden State.”

“The trouble for California is that the slowdown appears to be touching almost every corner of the economy. ‘I have to assume this is housing,’ Thornberg said. ‘Where do you put bodies? We don’t have houses. The state has run out of labor supply.’”