November 28, 2017

A Lot Of Half-Truths Told During The Boom

A report from Inman News. “When sellers get multiple offers on their home, my practice is to email every offer to the seller as it comes in, and then I prepare a multiple offer spreadsheet so that they can compare offers side-by-side. I recently met with sellers to go over multiple offers and came to a new realization: sellers are doing their homework on a whole other level. They were discussing each prospective buyer in great detail, in fact. Puzzled, I asked how they know so much about each buyer. ‘That’s easy,’ they said. ‘We checked out each one online as the offers came in.’”

“With an extreme shortage of inventory plaguing many housing markets, some sellers are looking to the internet to increase their control over exactly who will purchase their home. Confronted with similar multiple offers, sellers want more than just an awesome price and great terms. ‘If more than one of these offers meets our goals,’ they reason, ‘Then we are going to select the winning buyer based not on the terms, but on who we want living in our property after we leave.’”

“After my first encounter with sellers vetting prospective buyers online, I began hearing of similar practices from others. Although many buyer wannabes submit biographical letters with their offers, the level of information desired by the many sellers is on the rise. Emulating practices prospective employers have utilized for years, some sellers are now performing extensive online searches for buyers submitting offers for their property.”

“Some sellers are even upping the ante by paying for information. Disturbing? Get over it. It’s the new reality. This genie is out of the bottle and will not be returning any time soon.”

From Reuters on Canada. “A drop in Canadian home prices has put some recent buyers under water, particularly in Toronto, the nation’s largest market, just as rising interest rates and record levels of household debt have put the squeeze on borrowers. With homeowners’ equity falling in tandem with a 15 per cent drop in the average Toronto house price since April, and lenders tightening credit in response to tougher regulation, the ability of people to borrow against the value of their home is shrinking. Toronto debt adviser Scott Terrio said a 40 per cent surge in home equity lines of credit since 2011 has helped mask a credit crisis created by consumers who tap their home equity to pay their bills.”

“‘The insolvency business is cyclical, and the last five-year peak was in 2009,’ said Terrio. ‘We’re now into the eighth year of a 5-year cycle because of people’s equity in their homes and low interest rates.’ ‘I think 2018 is going to be a scary year,’ said Douglas Hoyes, an insolvency trustee in Toronto.”

“Terrio and Hoyes both said they have seen a chill in recent months from banks and other lenders looking to cut the riskiest clients from their balance sheets before a crisis hits. Hoyes said many lenders check credit scores quarterly to see which clients are overextended – and then raise interest rates or deny a request for more HELOC money in a bid to drive the riskiest clients elsewhere. ‘That’s how lenders de-risk themselves … they don’t want to tip you over the edge but would kind of like to get rid of you as a client,’ said Hoyes.”

From The New Daily in Australia. “Economists have long argued that ‘perfect information’ is a prerequisite for an efficient market, but there seems to be precious little of that at present in the rental market. Landlords and renters have been told there is a housing shortage one minute and a surplus of dwellings the next. After years of ‘housing shortage’, researchers now argue Australia has too many dwellings. ANU researchers Ben Phillips and Cukkoo Joseph have published a study that compares data on the composition of Australian households with construction data on the number and type of dwellings built over the past 16 years.”

“The difficulty for landlords and renters is they tend to rely on their real estate agent to tell them whether an area is in over- or under-supply. For instance, a landlord contacted me last week to point this out in relation to two dwellings he owned within a few hundred metres of each other – one tenanted, and one vacant. His agent first wrote to him saying the rent on the tenanted unit was too low and he agreed to increase it – only to receive notice the following week that his tenants were moving on.”

“That takes a chunk out of his cash-flow, but allows the agent to re-let the property and collect a letting fee. He was then advised to cut the asking rent on the second, already vacant property. The landlord in question told me: ‘The agent makes these decisions without consulting either tenant or landlord, so it could be a situation where both would be happy with things are they are. In retrospect I think my agent was trying to maximise their letting fees and commission rather than keep the properties tenanted.’”

“Agents have been become expert during the property-boom years at creating a sense of urgency and competition between home hunters. But if they tell you there’s a ‘shortage of properties’ and ‘rents are rising’ they could be using national or city-based averages to talk up an oversupplied area. ‘If you’re talking about renting an apartment in the Melbourne, Sydney or Brisbane CBDs, those would be ridiculous statements,’ Mr Phillips told me.”

“There have been a lot of half-truths told during Australia’s extraordinary two-decades-long housing boom. But as the market swings to oversupply, it’s more important than ever for renters – and landlords – to get the deal that they want, rather than letting the price be set by a stressed, commission-starved agent.”

From Voxy New Zealand. “Property Institute of New Zealand Chief Executive Ashley Church says that the time has come to dump Loan-to-Value lending restrictions (LVRs) following a dramatic drop in house price growth expectations throughout the country. His comments, which parallel similar comments made by the Finance Minister earlier today, are backed up by the latest Property Institute poll of public perceptions which shows that most people are no longer expecting big capital gains from housing - and he says that should signal a relaxation in Loan to Value Ratio restrictions.”

“‘We’ve been running this poll for a year now and since last November there’s been a massive swing away from people expecting price rises, with almost 50% picking prices to stay the same and another 25% expecting prices to decrease.’”

“Mr Church says that In November last year 56% of those polled were expecting prices to rise in the next six months. In November 2017 that figure had dropped to 18%. ‘This has been the trend for sometime now, and it’s clearly a reflection of these artificial lending restrictions - so the Reserve Bank should be taking steps sooner rather than later to relax its loan-to-value ratios to ensure the engineered slowdown in the housing market doesn’t turn into an out-of-control slump.’”