August 12, 2017

All Signs Pointing Toward Dollar Signs

A weekend topic on public perceptions, media coverage, and ramifications of a housing bubble. From Mortgage Professional America, “Americans are becoming increasingly concerned about the housing market with many expecting a price correction. The Modern Homebuyer Survey from ValueInsured reveals that 58% are expecting a housing bubble and price correction within the next two years, a rise of 12 percentgage points since April. Those in Washington (71%), New York (68%), Florida (63%), California (59%) and Texas (58%) are the most concerned.”

“Unsurprisingly given these figures, 83% of owners think that now is a good time to sell while 63% of potential homebuyers are concerned that they might be buying high if they do so now. This rises to 72% among millennial buyers. More than half of homeowners nationwide believe that homes in their area are overvalued and consider prices unsustainable, rising to 65% among urban homeowners.”

From ABC 4 Utah. “It’s official–homes on the Wasatch Front cost more than ever before. The Salt Lake Board of Realtors sent out numbers this week that show staggering growth and a staggering home shortage. Troy Peterson is the President of the Salt Lake Board of Realtors. He says, ‘I’ve been selling real estate for 22 years and I’ve never seen anything like this. What’s driving the numbers is there’s no inventory.’”

“Some are worried about a ‘bubble effect’ like we saw in 2007 and 2008, but realtors are confident that we have a few more years of stability. They say without enough inventory, a bursting bubble is nearly impossible.”

From WUNC in North Carolina. “The Cotton Mill is emblematic of the entire Raleigh housing market, says Ann-Cabell Baum, who works with Wood at the Glenwood Agency, a real estate agency. Houses are on market for hours, not weeks. In rare cases, buyers make unsolicited offers on houses not yet on the market. ‘To describe the Raleigh housing market right now, 2017, would be, ‘Oh my goodness!’ Baum said. ‘We have seen some accelerated home prices.’”

“With all signs pointing toward dollar signs, it’s only natural for people to remember the last time the housing market went gangbusters. Even if the Raleigh housing market is more than a bubble, agents say they still deal with another hurdle: that of high expectations. Homeowners in the $600,000 market and above market see big increases and begin to dream about early retirement.”

From CNBC titled, ‘Luxury home prices soar as sellers come back down to earth’. “The slump in the swankiest sector of the housing market appears to be over, and, ironically, it may be due to a dose of reality among sellers. While some point to the recent runup in the stock market, the real reason for the luxury recovery may be a shift in the mind of sellers. They were asking too much, and now that they’re asking less, there is more action in the market, in turn boosting prices again.”

“Jonathan Miller, CEO of Miller Samuel, a real estate appraisal and consulting firm, points to a recent $15 million sale of a Brooklyn, New York, home. While the closing price was high, it sold at a 40 percent discount to its original list price, and the home took seven years to sell. The sales surge has caused a decline in the supply of luxury homes. ‘The housing shortage is now affecting the top of the housing market,’ said Redfin’s chief economist, Nela Richardson. ‘Yet despite the strong uptick in prices, the luxury market is not nearly as competitive as the rest of the market. Only 1 in 50 luxury homes sold above list price in the second quarter, compared to more than 1 in 4 homes in the bottom 95 percent.’”

“The same is true in Aspen, Colorado, where a surge in sales is overpowering supply. Single-family sales more than tripled in the second quarter of this year compared with a year ago, and condo sales nearly doubled. Sellers are meeting the reality of the market. ‘The buyers are in the driver’s seat,’ added Miller.”

From CBC News in Canada. “The cost of homes in Regina may be about to fall. Housing sales in Regina were down in the month of June. Meanwhile, listings were at a 10-year high. ‘That means there’s excess supply hanging around — not enough demand,’ said University of British Columbia business professor Thomas Davidoff. ‘Usually, that is a precursor to a decline in prices.’”

From the Telegram in Canada. “The Canada Mortgage and Housing Corp. recently released its third-quarter housing market assessment for St. John’s, and while there’s little change from the first half of the year, there are some small signs of strength. Chris Janes, senior market analyst in this province, says year-to-date housing starts in the St. John’s area are down 35 per cent from this time last year and the market as a whole is down 60 per cent from its peak in 2014. ‘That’s a big pull back, but if builders had continued to build, then we’d be in a massive oversupply situation as well and we’d see a lot more downside pressure on new home prices.’”

“Buyers are also much more patient and shopping around more than they were in the past, Janes says. ‘People have a lot of inventory to choose from, in a lot of cases high-quality homes, where they may have been looking for a bit of a fixer-upper and getting in at a lower price point and doing some renovations,’ he says. ‘The cycle from start to finish is longer between thinking about buying, intentions to buy and actually buying.’”

From ABC News in Australia. “Australia’s economy holds the world record for the longest recession-free run thanks, in large part, to a record home-building boom that offset the pain of the mining bust. But that boom is already past its peak and there is much worse to come, according to the latest Building in Australia forecast from BIS Oxford Economics. ‘As we move into 2018, particularly as those big high-rise apartment projects come off — commencements have been falling for nearly 12 months in Brisbane and they’ll start falling in Sydney and Melbourne — 12 months down the track, the level of work being undertaken will decline significantly,’ said the economic forecasting firm’s managing director, Robert Mellor.”

“BIS Oxford is forecasting the number of dwelling starts will decline from a peak above 230,000 to a trough around 160,000 within three years — a 31 per cent slump. The news is far worse in the high-rise apartment sector, which is predicted to face a 50 per cent collapse nationally, with falls in new building of up to 70 per cent in Brisbane and 60 per cent in Melbourne.”

“The steep declines are a direct result of the record construction boom, which has wiped out housing undersupply nationally, leaving only pockets of shortage in Sydney and Melbourne. ‘The underlying level of demand for dwellings, based on population growth [and] the level of household formation, is probably about 184,000 dwellings per annum,’ he observed. ‘So we’re basically overbuilding in a long-term sense.’”

“That means that Australia also faces a serious oversupply of construction workers, with the mining boom gone and the residential building boom set to fade fast. Mr Mellor said tens of thousands could find themselves unemployed. ‘If you’re seeing a decline in the order of the peak of 230,000-plus dwellings to a trough somewhere between 160-170,000 dwelling commencements that’s a pretty significant decline in the required level of employment,’ he warned.”

“He said the downside risk to BIS Oxford’s forecast is the danger of a downward spiral that this decline in employment could trigger through increased mortgage defaults, falling home prices and further cuts to development plans. Another risk is the reliance on investors to underwrite the current apartment boom. ‘Overseas investors are now facing significantly higher taxes as well as maybe there’s still restrictions upon funds being able to come into the country from overseas, or overseas investors being able to get local funds,’ he said. ‘Coupled with that, you’ve got local investors finding it harder and paying significantly higher interest rates, particularly for interest-only loans.’”