The Housing Bubble

A report from CBC News in Canada. “Canada’s addiction to real estate goes far beyond our obsession with talking about it. Our economy actually relies more on the fees associated with buying and selling houses than it does on agriculture, fishing, forestry and hunting combined. In Canada, upcoming data will likely show those fees have already started to fall, as the number of home sales across the country fell in June by the most in seven years. ‘This is a stunning 1.9 per cent of GDP,’ said Macquarie analyst David Doyle. Doyle says Canada’s increased reliance on real estate fees can be blamed on years of ultra-low interest rates, worsened during the oil price slump when the Bank of Canada cut rates even further. ‘I think they felt that the lesser of two evils in that situation was to cut interest rates,’ Doyle said.”

“But that fix has helped put Canada in another tricky situation, where the economy relies to an unusual extent on home transactions. That could have particularly negative consequences as the central bank begins to raise rates again. ‘The drag on the economy that’s going to flow from [higher rates], I think, will prove to be much more severe than it’s been in the past,’ he said. ‘It’s not something that, as an economy, you would look at as a position we want to be in.’”

From the Guardian on the UK. “Aroom in a friend’s rented north London houseshare came up recently. Usually, this would mean an instant queue of prospective tenants waiting for their 10-minute interview slot, followed by an unpleasant few hours of decision-making. This time, my friend reported, whole days passed without anyone getting in touch. We wondered if it might be the first hairline crack in some huge chasm about to rip through life as we know it – if, in the future, we would look back on the empty wasteland of the city and remember that day as The Day London Turned.”

“The news last week that the number of people leaving the capital has reached a five-year high will come as no surprise to anyone trying to house themselves in the capital. Whatever the political shocks of the last year, some things are unchanged: house prices continue to bear no relation to earnings, private landlords remain largely unregulated and rents continue to eat up two-thirds of the average Londoner’s wages. Plus, it’s dirty, noisy, overcrowded.”

From Reuters on China. “Luxury lakeside homes and high-rise condominiums are coming up fast in China’s sleepy inland town of Bengbu, a clear sign that a home-buying frenzy sweeping across the country’s major metropolises and provincial capitals has reached even its smaller cities. The increase in demand is welcome news for smaller cities that have a massive overhang of unsold houses left from the last real estate downturn three years ago. However, the surge in construction threatens to outpace or match the increased demand for housing, leaving housing inventories untouched.”

“The hidden danger, analysts say, is that real estate inventories are often higher than indicated by official figures. Official inventory data only counts completed homes, while private estimates include homes that are being built but not completed yet. Official data showed nationwide inventories stood at 646 million sq m as of end-June. Private estimates, which tend to lag official data, can be several times bigger than that.”

“A Bank of China estimate that includes not-yet-built projects shows China’s real estate inventories stood at 8.28 billion sq m at end-2016, most of which - 5.8 billion - in tier-three and four cities.”

From Interest.co.nz in New Zealand. “The number of homes newly listed for sale on Realestate.co.nz fell to the lowest level on record last month, and asking prices for Auckland properties continued to slide for the third consecutive month in July to $608,143. That means it has now fallen by $40,619, or 6.7%, since it peaked at $648,762 in February. The slide in average asking prices is most pronounced in Auckland, where it has fallen for the last five consecutive months and was $903,752 in July, down by $74,900 (7.7%) from its peak of $978,652 in February.”

“That suggests vendors are starting to accept that the market has weakened and are being more realistic with their asking prices. The drop in prices in Auckland may be starting to spread to other regions, with July’s average asking price being lower than June’s in 11 of Realestate.co.nz’s 18 sales districts.”

The Morning Bulletin in Australia. “In good news for rental tenants and bad news for landlords and property developers, Rockhampton has an oversupply of vacant rental properties according to the latest REIQ property data. REIQ data for the June quarter revealed that although Rockhampton rental vacancies levels had dropped, they still sat at the highest level of all of the Queensland regional centres.”

“‘Developers were coming in and building rental properties and selling them in a lot of cases to interstate buyers with guaranteed rental returns over a 12 month period,’ said REIQ zone chairman for Rockhampton Noel Livingston. ‘The demand was there for a period of time but those good times don’t last forever. To me that was never sustainable and that’s proven that it was never sustainable.’”

“Rockhampton Mayor Margaret Strelow said it was pleasing to see the rental market settling down now but the vacancy rate was still way too high. ‘As Noel Livingston has said before, we’re bearing the pain that comes from ill-informed out of state investors buying into a ‘guaranteed rental return’, she said.”