The Housing Bubble

It’s Friday desk clearing time for this blogger. “North Texas home prices have seen some of the biggest gains in the nation during the last few years. And homeowners who are sitting on top of billions of dollars of new equity are pulling some of it out of the house. ‘This past month, cash out [refinances] were 48 percent of our business,’ said Rodney Anderson with Supreme Lending. ‘People have gotten lucky with appreciation, and it’s time to tap into that.’”

“‘Every single day I see at least five to 10 people who have at least $50,000 in credit card debt,’ Anderson said. ‘I have people who have Wal-Mart credit cards that owe 12 grand.’ But he also finds some borrowers who are back in the same condition two years later having run up credit cards again. ‘They are using their house like an ATM machine — something I advise people against,’ Anderson said.”

“Frank Nothaft, chief economist with CoreLogic, said it isn’t just North Texas homeowners who are doing more cash-out refinancing. ‘We have seen this trend in others markets as well,’ Nothaft said. ‘The other phenomenon is a pickup in home equity line of credit volume, too.’”

“The number of existing homes for sale in Jackson County has risen for the first time since March 2016. New houses are going up in Eagle Point and several parts of east Medford. Even custom home builders are keeping busy. In some cases, however, there has been a leveling off, said Ron Galbreath of Coldwell Banker Pro West Real Estate in Medford. He thinks a combination of heat, smoke and political uncertainty are putting a drag on activity going into August.”

“‘We’ll still have a surge of houses on the market before winter,’ Galbreath said. ‘That new inventory is going to cause the old inventory to get in line or take it off the market.’”

“Pacific Park, the 22-acre mixed-use megadevelopment which borders five neighborhoods in Brooklyn, has been battered by a slew of internal and external troubles since its inception. ‘Best plans are often run awry by market conditions,’ said Ronald Dickerman, head of the real estate fund manager Madison International Realty, which jointly owns a New York retail portfolio with Forest City. He noted that softening rental rates and the ‘extraordinary’ amount of new residential supply in Brooklyn are two of the project’s biggest challenges.”

“Home prices in Toronto have fallen 19 per cent since the market’s peak in April, sliding further in July as buyers continued to sit on the sidelines. The recent price drop came as the number of homes sold fell 40.4 per cent in July compared to the same month last year, TREB said. The number of detached home sales fell 47.4 per cent during the month, while sales of semi-detached houses fell 38.6 per cent, townhouse sales dropped 36.5 per cent and condo sales slid 30.7 per cent.”

“‘There’s nothing positive – there are no really great signs out there,’ said realtor John Pasalis, president of Realosophy Realty Inc. in Toronto. Mr. Pasalis said some of areas where average prices are now lower than they were a year ago – including Richmond Hill and Whitchurch-Stouffville north of Toronto – are also regions that appeared to have the highest number of speculators and foreign buyers prior to the downturn.”

“Despite the increased number of prime lets agreed across north London, higher levels of rental stock have seen weekly rents fall, according to the LonRes Summer 2017 review. In areas of prime London, including St John’s Wood, Hampstead and Primrose Hill, rental stock was up 25 per cent in January to March compared with the same period of 2016. Accidental landlords who can’t sell homes that command higher rates of stamp duty are renting them out to recoup their losses.”

“William Carrington, chairman of LonRes, blamed the slowdown on this miscalculated ‘tax grab’ from the Treasury. ‘They forgot that the London residential market is part of the economy, not a cash cow needing to be milked,’ he said. ‘There are better ways to deflate the market than this.’”

“The Norwegian housing market is expected to cool further this year after prices declined for the third consecutive month in July, but economists see it having little effect on the central bank’s interest rate policy. Tighter mortgage regulations, lower population growth and a boom in construction, flooding the market with new homes, have all contributed to the recent market turnaround. The government was not planning to take any additional measures, the country’s Finance Minister Siv Jensen said. ‘What we see now is a natural cool down of a housing market which has been very heated for a long time,’ she told reporters.”

“Across Auckland values are rising in some parts and dropping in others. QV Auckland valuer James Steele said, ‘The Auckland residential property market is still cooling, with sales volumes down more than 30 per cent below the same period last year while there are twice as many properties listed on the market as there were this time last year.’”

“Much of the slowdown in the markets was being caused by high prices and banks’ stricter lending criteria, said QV national spokeswoman Andrea Rush, ‘meaning it’s difficult for many buyers to raise finance to purchase and this is now constraining the market.’”

“One of the key engines of Australia’s five-year housing boom is losing steam. Property investors, who have helped stoke soaring home prices in Australia, are being squeezed as regulators impose restrictions to rein in lending. The changes ‘reduce investors’ ability to pay, and means they have to pay owner-occupier values rather than investor values,’ said Angie Zigomanis, senior manager, residential property, at BIS Oxford Economics in Melbourne. The restrictions will take ’some of the bubble and froth’ out of the market, he said.”

“In a complete about face from a year ago, my friends these days are pessimistic whenever the topic of real estate prices is broached. There’s the friend who owns a large luxury apartment in Beijing’s Miyun District. Last year, they put it on the market for 40 million yuan (nearly $6 million) but found no takers. This year, they dropped the price to 30 million, but still no luck. Back when the place was valued at 18 million, some buyers expressed interest, but my friend chose not to sell, figuring the price was bound to rise. They were right: It did rise — but now the house is priced out of its own market. Its value may be 40 million yuan, but even at 30 million no one is willing to buy.”

“There are many reasons for this phenomenon, with one being the fact that the number of people who can put together so much cash is exceedingly small. Add in all the new purchasing and lending restrictions that have been implemented, and the number of willing buyers shrinks even further. The property’s 30 million-yuan valuation exists in name only: In the absence of cash, it may as well be a pile of concrete.”

“Another friend — this one from Shanghai — has had a similar experience. They listed a house of theirs on the Pudong side of the city. The residence was valued at over 10 million yuan, but they listed it for 9 million. Recently, they dropped the price by 10 percent, to 8.1 million, and still no interest! My friend is in a rush to sell but can’t find a buyer. They say they regret not selling at the peak of the market in 2016.”

“In reality, these two friends of mine aren’t the only ones filled with regret right now. Many of the speculators who entered the Chinese real estate market when it was at its peak last year — especially those who bought properties in first-tier cities such as Beijing, Shanghai, and Guangzhou — in hopes of flipping their purchases for profit after a year or two doubtless were not expecting so many new purchase and loan restrictions to be implemented. They’ve all ended up sustaining major losses.”

“Over the past year, I have repeatedly warned of the dangers posed by this round of housing price increases and called for caution against being the one caught holding the baby. Some listened, but most thought of me as the boy crying wolf. Anyone with a basic understanding of market operations knows that slow rises in value can persist over longer periods of time, while sharp jumps precipitate equally sharp drops.”

“The monetary gains in real estate prices over the past few years are of course closely tied to a shift in debt leveraging. They are linked to the massive increase in lending by banks, as well as to the rising levels of debt held by both developers and individuals. To be honest, it’s no wonder piling up capital and money in this fashion led to a bubble. Now, access to funds has tightened, and while you weren’t looking, some of the richest families in China have quietly become some of the most indebted.”