September 15, 2017

The Attractive Easy Returns Are Under Threat

It’s Friday desk clearing time for this blogger. “About that house in Sunnyvale — you know, the one that just sold for $782,000 over its listing price? In Cupertino, 10 houses sold for $200,000 or more above the asking price. One sold for — get this — $507,000 over the listing price. The young couple who spent $507,000 above the asking price ‘wanted to start in a good school district, planning the future for their family,’ said agent Mary Tan, who listed the property. They work in tech ‘and wanted a good location — just for the appreciation.’”

“News reports about homes selling for well over the asking price – like one in Sunnyvale that sold for $800,000 more than was needed – may seem like a dream come true, but the trend is making things difficult for both buyers and sellers. Realtor Lynsie Gridley doesn’t think the housing bubble will burst. ‘We don’t see that happening,’ Gridley said. ‘All the economists are looking at the job market and all of our growth around here and though it seems unsustainable, we don’t foresee it coming down.’”

“A money manager who was among the few to predict a housing bust a couple of years before it happened now sees disturbing signs that history is about to repeat itself. James Stack, president of Stack Financial Management, has dusted off the same Housing Bellwether Barometer that raised red flags more than a decade ago. That barometer, Stack explained, is an index of ‘the most sensitive stocks in the housing industry’. Over the past 12 months, Stack said in an interview, it ’started to go up like a rocket ship again, similar to what it did back in 2004-2005.’”

“That tracks the anecdotal evidence he’s seen of frantic bidding wars in some of the nation’s hottest markets. ‘It’s that kind of nuttiness that defines the psychology of a bubble,’ he said.”

“It was once the city’s priciest listing asking $120 million, but a 12,000-square-foot co-op at 834 Fifth Avenue is back on the market with a significantly reduced price tag of $76 million. Susan Gutfreund listed unit 7/8a in April 2016. She sliced the price back to $96 million five months later but, even with that discount, one broker described that price tag as ‘absurd.’”

“HOAs are foreclosing on a record number of homeowners for as little as $1,200 in missed maintenance payments, according to an Arizona Republic investigation. And homeowners who thought only their mortgage lender could seize property are losing their houses at sheriff’s auctions, sometimes for just $100 more than they owe. Cynthia Levine, 65, is facing foreclosure on a Maricopa home that she bought in 2006. She owes at least $24,000 in back payments, interest and legal fees to the Cobblestone Farms HOA.”

“Levine remains in her home, waiting for the outcome of her bankruptcy. ‘The HOA is heartless,’ she said. ‘Literally I’m going to be homeless.’”

“Purchases of Toronto homes by foreign buyers dropped over the summer after a new tax in Ontario began targeting international property investment. At the time the tax was introduced, the region’s housing market looked to be overheating as average home prices soared to nearly $1-million. Catherine To, a real estate agent specializing in the suburbs of Markham and Richmond Hill, where sales have plummeted since the tax was implemented, said the levy took away home buyers’ confidence in the market, causing many to retreat because they expected future bargains.”

“‘This is purely psychological,’ said Ms. To, who called the government’s decision to introduce the tax ‘irresponsible.’”

“The national housing market remains in the doldrums, weighed down by Brexit-related uncertainty and stamp duty increases, according to the latest report from surveyors. The reading for London is well in negative territory and hit its weakest level since 2008. ‘Brexit uncertainties [are] not helping [the] market, also stamp duty levels not helping,’ said Robert Ikin of surveyors Wright Marshall in Cheshire.”

“As widely expected, the introduction of higher stamp duty rates for foreign investors and the Australian Prudential Regulation Authority’s tightening of bank lending regulations on investment loans have reduced new investor housing demand especially for apartments. Market reports suggest that apartment prices have fallen by 10 per cent or more in several locations with growing concern about the impact on prices from projects yet to be completed.”

“Depending on whether and, if so, how quickly property prices fall, the prospect of future tax changes adds to the attractions of purchasing new investment properties before the next election. Even then, there’s the risk that major tax changes could kill the goose that laid the golden egg for many past investors by reducing the long run attractions of residential property investments.”

“The clear message is that the attractive easy returns from residential property investments are under threat from apartment oversupply and proposed major tax changes.”

“The number of houses being sold has dropped a whopping 20 percent compared to this time last year - and it’s also not just in Auckland - the slump is happening all over the country. Southland led the way down, 37 percent. Northland is down almost 30 percent, and Taranaki and Waikato both down 25 percent. Sales in our biggest market, Auckland, are also off by 21 percent.”

“BNZ Bank’s economist Tony Alexander believes sales volumes will continue to fall so he has a message for real estate agents. ‘Maybe for some of them - start looking for alternative job in the next few years,’ he says.”