The Housing Bubble

A weekend topic on Canada and Australia starting with the Toronto Star. “The cost of a newly constructed detached home in the Toronto region dipped slightly in September to $1.6 million, down from about $1.8 million in August as more new low-rise housing came onto the market. Nevertheless, Building and Land Development Association says the inventory of new homes remains, ‘well below what is considered a healthy level.’”

“Its September statistics show that sales of new construction low-rise homes — a category that includes detached houses, semi-detached and town homes — fell 73 per cent, compared to the same month last year. Although they continue to dominate Toronto-area new home sales, condos — including high rises, low-rise apartments and stacked town homes — also saw a 37 per cent drop in the number of sales.”

The Saskatoon Star Phoenix in Canada. “Home sale prices per square foot in Saskatoon have nearly tripled over the last two decades, and Regina was close behind, according to a new survey. The Saskatoon Region Association of Realtors (SRAR) reported earlier this month that September sales fell 19 per cent year-over-year, while year-to-date sales were down six per cent compared to the first nine months of last year. ‘In a buyers’ market with elevated inventory levels it is critical to understand pricing and to properly prepare your home to compete against other homes in your price range,’ SRAR chief executive Jason Yochim said in a statement.”

“Century 21 said in the survey that while homes priced between $300,000 and $400,000 are selling ‘actively,’ a ‘huge supply’ of condominiums remains on the market. That echoes statements made by the Canada Mortgage and Housing Corp. earlier this year, when it reported record levels of ‘completed and unabsorbed’ condos in Saskatoon. The country’s mortgage insurer made similar comments earlier this month.”

The Fort Saskatchewan Record in Canada. “The Fort is expected to see continued realty growth because of strength of industrial jobs and its family-friendly appeal with various amenities. This gives the city an advantage over other municipalities in Alberta. ‘It’s an indication that over the next five years, Fort Saskatchewan’s real estate market is either more protected from downturn and the demand and the prices will increase more quickly then the rest of the city’s in the province,’ said REIN senior analyst Don Campbell.

“The average residential housing price to be $385,214, according to REIN. Fort Saskatchewan Re/Max owner and agent, Ken Jackson agreed with that number. He noted that a house built in 2000 or later averages $400,000 while houses built in the 1970’s average between $325,000 to $350,000. ‘Since mid-2015 until now, there’s been a drop of about 10 per cent in the market place on prices but it seems to have bottomed out and now it’s just a matter of too much inventory,’ said Jackson.”

From CBC News in Canada. “Edmonton is one of three cities in Canada where a surplus of new housing is becoming a problem, the Canada Housing and Mortgage Corporation has found. Two quarterly reports by the CMHC show more housing units have been built than are needed in Edmonton, Calgary and St. John’s, N.L. The CMHC Housing Assessment said ‘evidence of overbuilding’ went from moderate to high in the Edmonton market in the past quarter.”

“A building boom that started before the recession in 2015 is largely to blame, said Brent Weimer, CMHC’s principal in market analysis for Edmonton. A lot of construction that began two or three years ago is now approaching completion, while demand has dipped, he said. ‘Large projects, apartment buildings, have a very long lead-lag time,’ he said. ‘So the planning process, the construction process, the completion and then the occupancy takes several years sometimes.’”

“‘We have a lot of competition in the rental market,’ he said. ‘We also have a large number of condo apartments just sitting on the market, just trying to find a buyer.’”

The Port Stephens Examiner in Australia. “There are less new homes are under construction in Port Stephens than in quite some time, the latest housing approval data shows. There’s been little to grumble about since 2013 when construction approvals hit 388 for the calendar year. It slowed to 224 in 2014 but raced back to 377 in 2015 and remained strong at 342 for 2016; for a five-year average of 315.”

“The Housing Industry Association said it wasn’t overly concerned. ‘We’ve had a good few years in Port Stephens so its probably coming off the boil a bit,’ HIA Hunter director Craig Jennion said.”

“Closer analysis of the data revealed it was unit construction that had slowed the most. In the 12 months to August 2017 there was 37 multi-unit approvals compared to 71 in the same period last year. That’s a 48 per cent downturn. In the three months to August 2017, detached housing eased from 61 approvals to 45 – down 26 pc. At the same time unit approvals went from 33 back to 20. ‘We’re down a third overall in Port Stephens,’ Mr Jennion said. ‘Unfortunately it has softened a little.’”

The Queensland Country Life in Australia. “Brisbane’s rental market has performed poorly for another quarter, with rents totally stagnant for houses, falling for units and yields falling for both. Belle Property Bulimba principal Tony O’Doherty said the news was not surprising. ‘From the unit point of view there’s two obvious reasons, there’s the oversupply and there’s the competition because of the oversupply,’ he said.”

The Sunshine Coast Daily in Australia. “Banks are playing catch-up with a resurgent Mackay economy, and aspiring home owners still face excessively restrictive policies, a local real estate guru says. There were multiple signs the housing market had improved in the last year, REIC Mackay zone chair Peter McFarlane said. But the agent said head office bankers in Sydney or other state capitals were yet to acknowledge the regional resurgence.”

“Mr McFarlane said in recent years the Mackay housing market took a severe pounding. ‘Property values in 2015 were the equivalent of what they were in 2005,’ the Mackay Property and Management Services director said. For a while, banks lent ‘willy nilly’ and the market ballooned beyond reasonable levels, he said. And when the local economy hit obstacles, ‘the bottom of the hole was a long way down.’”

“So banks became less willing to lend to buyers, he said. During the downturn, Mackay became known as ‘a very high mortgage delinquency area’ and lenders viewed the entire 4740 postcode zone as somewhat taboo. Where prices plummeted and home loans exceeded a property’s value, banks sold houses at a loss. That loss for banks was generally recoverable from the mortgage insurer, he said.”

“Insurers had to go after borrowers, but to the chagrin of insurers, those borrowers frequently declared bankruptcy, he added. ‘The banks are being very very strict now in their lending and a lot of that does come from the mortgage insurers,’ Mr McFarlane added.”

“NAB said it considered multiple factors when assessing a customer’s lending application. ‘And we take into account local economic and market conditions for the security against which the customer wishes to borrow,’ an NAB spokesperson added. ‘This is the responsible and right thing to do for our customers, for our business, and for the Australian property market.’”

The Australian Financial Review. “Property industry veterans have started raising concerns about the build-up of retail and residential property construction along the east coast of Australia. Speaking at the Property Council of Australia’s annual congress in Cairns, Folkestone managing director Greg Paramor said the snapshot of new investor-style apartments was looking risky.”

“‘We look at all the major cities on the eastern seaboard and we see a genuine oversupply of investment-grade property,’ Mr Paramor said. ‘In the overbuilt areas of Melbourne and Sydney and Brisbane, there is a lot of rubbish that is coming through there.’”

The Sydney Morning Herald in Australia. “Treasury secretary John Fraser has said Australian banks could face further restrictions and warned regulators should guard against excessive debt in the financial system. He warned the Australian household sector’s assets are around five times greater than its debts, holding over $2 trillion in debt while maintaining $12 trillion in assets. ‘Asset values can always fall, and often do, while debt values generally don’t, squeezing net worth in the process and perhaps more importantly, around 75 per cent of household assets are in housing and superannuation,’ he said.”

“Treasurer Scott Morrison in March ordered the Australian Prudential Regulation Authority to slam the brakes on investor lending by restricting interest-only loans to less than 30 per cent of new home loan approvals while also tightening access to high-risk loans. ‘While banks’ progress against these measures has been positive, regulators will need to think carefully about whether future efforts to maintain financial stability should lean against cyclical excesses or address structural risks within the financial system,’ he said.”