The Housing Bubble

A report from Kamloops This Week in Canada. “Federal authorities have loosened incoming rules for new homebuyers who sign deals this year, allowing them to qualify under current mortgage rules. The issue was highlighted by the Canadian Home Builders Association, which said as many as 20,000 Canadians who purchased homes this year could be caught in the new mortgage stress test. The Office of the Superintendent of Financial Institutions is imposing the new stress test on buyers of uninsured mortgages — those with more than 20 per cent down — to ensure they can handle the shock of higher rates. Those rules will be in place as of Jan. 1.”

“But the industry argued buyers who ink deals before that date should not come under the rules. If so, they may not be able to get mortgages for contracts they entered. The Kamloops-based Central Interior branch of the association was one of those calling for an exception. The CHBA forecast up to 11 per cent of buyers who purchase a new home would fail the test — thus imperilling deals already made. ‘The CHBA was concerned that this issue could also trigger significant oversupply in certain markets, as unsold homes re-entered the market, potentially at distressed prices,’ the organization said in a statement.”

From Chiswick W-4 on the UK. “Chiswick’s estate agents appear divided as to whether the first rise in interest rates in the UK is a good or bad thing for the moribund local property market. Christian Harper of Harper Finn said, ‘It’s so easy to be doom and gloom however let’s try to focus on the positive rather than the current obvious. It will remain buyers’ market so please consider that you will have competition when you try to sell, something that none of us as sellers are used to in Chiswick.’”

From Reuters. “Sweden’s financial watchdog has proposed a further tightening of mortgage repayment rules to keep a lid on spiralling debt that could spell danger for the cooling property market and the wider economy. A surge in building and tougher mortgage rules have put the brakes on a 20-year bull run in the Swedish property market, but authorities remain concerned that debt levels among the highest in Europe are still rising.”

“Monday’s Housing Price Indicator from banking group SEB registered its second-biggest drop ever, falling by 39 points. The only steeper fall was at the start of the global financial crisis 10 years ago. Some worry there is a risk authorities will go too far. ‘Poorly thought out political decisions could hurt the property market and in a worst-case scenario spark a housing crisis,’ Norwegian builder Veidekke said in a report on the Swedish housing market.”

From Bloomberg. “To address imbalances, regulators passed a number of measures in Sweden, Norway, Denmark and Finland. Nordea characterises Sweden’s housing market as ‘wobbly’ and asks the question whether we’re seeing ‘the beginning of the end of the 20-year bull market?’ The bank notes that housing starts for apartment buildings are at the highest level since the beginning of the 1970s, but there are signs demand is cooling down.”

“Economist Andreas Wallstrom also says it’s ‘questionable’ whether a general housing shortage exists. ‘Looking at the trend in the number of homes and comparing this with population growth over an extended period, we find a housing surplus,’ with the exception of Stockholm, he said. In Norway, Nordea sees signs of a ‘cool down, no meltdown.’ House prices have risen more than 200pc since the beginning of the 2000s, but the average median household income after tax is up just 90pc over the same period, while home-loan rates are considerably lower than they were back then.”

“Since April, home prices in Norway have dropped about 3pc. ‘We believe home prices will fall somewhat further before they bottom,’ Joachim Bernhardsen wrote in the report. ‘But even if we take an aggressive view and assume that prices fall 5pc beyond our forecast, they are still at the spring-2016 level and still 20pc above the bottom.’”

From News.com.au on Australia. “Sydney real estate has finally emerged from what economists are calling the ‘perfect storm’ — a five-year boom period when wave after wave of home price rises turned the city into the least affordable housing market in the world behind only land starved Hong Kong. Real estate mogul John McGrath says the shift away from the ‘crazy’ price rises of the past is a positive for buyers and sellers because it is providing a soft landing from the boom. ‘It would have been more concerning if the prices were still going up by 15 per cent or more,’ McGrath says. ‘Instead, the market is finally taking a breather.’”

“Upsizers Elissa Edwards and Janis Auzins recently discovered this first hand when they bagged a new home on the northern beaches after having struggled to get into the market for months. The purchase has allowed the couple to finally sell their apartment on the north shore, something they hadn’t wanted to do until they had found a new property.”

“‘It felt like it’s got easier as we went,’ Edwards says. ‘We had been priced out of a lot of auctions but we started to feel like we could walk away from more sales knowing there was something else. Knowing all this, now we kind of wish we had sold six months ago.’”

From Newshub on New Zealand. “Auckland house prices have tumbled in the biggest fall since 2010. A new Real Estate Institute (REINZ) report shows median prices in Auckland fell by 3.2 percent year-on-year to $850,000 - the largest decline since December 2010. The only other New Zealand regions to experience a fall in the median price was Nelson, which saw a decrease of 6.8 percent to $447,500 - its biggest drop since April 2012.”

“‘The Auckland Region’s decrease of 3.2 percent year-on-year is predominantly the result of a large number of apartments being sold in the old Auckland City boundary, which has therefore brought the median price down for the entire region,’ says REINZ CEO Bindi Norwell. ‘Auckland City’s median fell by 17 percent to $850,000, the lowest price it’s been for 16 months.’”

“The largest decreases in median prices were in the Maungakiekie-Tamaki and Albany wards, which experienced a decrease of 14 percent and 4 percent respectively. Ms Norwell says part of the fall in prices is due to the effects of the Reserve Bank’s loan-to-value lending restrictions (LVRs) and the REINZ is looking forward to the bank’s review of possibly removing these. ‘Uncertainty post-election remains as it did pre-election, with concern as to how the policies of the new Government will play out,’ she continues. ‘There is much discussion about the effects new immigration policies and potential Overseas Investment Act changes may have on the market going forward.’”