The Housing Bubble

A report from Global News in Canada. “It was tough at the top for people who sold their luxury homes in Vancouver last yea, according to Sotheby’s International Realty Canada’s 2017 Year-End Top-Tier Real Estate Report. When you break those sales down into three price segments, the most expensive of them saw the biggest drop in any major Canadian city that the report covered. Out of all three, sales of Vancouver homes that cost $4 million or more fell by 33 per cent, steeper than either of the other two price segments in Vancouver, and more sharply than homes worth $4 million or more in Calgary, Toronto and Montreal. The total number of sales in this category — including condos and townhouses — fell from 573 in 2016 to 382 in 2017, marking their lowest level in three years.”

“Brad Henderson, president of Sotheby’s International Realty Canada, said there’s a ’stalemate’ going on, ‘particularly in the higher end of the market.’ ‘I think there’s a fear of heights, and that the Vancouver prices have gotten to a point where many in the market are concerned that there isn’t necessarily the bandwidth for it to be able to continue going higher,’ Henderson said.”

From City AM on the UK. “The price of London homes coming to market fell sharply over the last year, as properties in Zones 2 and 3 slumped. Homes brought to market in the capital are now an average of £21,000 cheaper, a 3.5 per cent fall over the last year, according to Rightmove. The £8,800 fall in the asking prices of sellers new to the market in the last month comes as a ’bout of realism rather than the usual New Year optimism,’ according to Miles Shipside, Rightmove director and housing market analyst.”

From Bloomberg. “Sweden is in the worst housing-market downturn since the global financial crisis. But with bigger bank buffers and an economy that’s growing much faster than the rest of Europe, analysts, regulators and politicians all say everything will be just fine. First, there’s the reason behind the price correction. It’s not caused by economic or financial distress, but by a surge in construction (initially to meet excess demand). Sweden is now a buyers’ market, with construction at its highest since the 1990s.”

“Data showed that home prices continued to slide in December, dropping 2 percent in the month, according to the Nasdaq OMX Valueguard-KTH Housing Index, HOX Sweden. The three-month drop was 7.8 percent, the steepest decline since late 2008. Prices were down 2.5 percent from a year earlier, the biggest drop since March 2012.”

From Arab News on Dubai. “Higher interest rates and falling property prices could hit Dubai developers’ transaction volumes linked to the purchase of properties off-plan, warn experts. Jesse Downs, managing director of Phidar Advisory, a real estate consultancy in the UAE, said developers have been offering generous off-plan purchase deals. These often involved offers to pay between 40 percent and 60 percent of the sale price two years or more after completion, she said.”

“Such deals have grown more popular since the introduction of a mortgage cap that has depressed the secondary sales market — with buyers spotting an easier way to get on the property ladder, said Downs. But if the market falls too sharply and sentiment turns, there may be danger ahead. ‘Potentially, there would be a bigger impact when less of a percentage has been paid down on the product,’ said Downs. That’s because with less to lose, some buyers may be tempted to cut their losses and run, if they think prices won’t recover.”

“Downs said: ‘These … deals are artificially driving supply up … encouraging overbuilding which drives up market risks.’”

From Quartz on India. “Even plummeting prices haven’t been able to entice India’s home-buyers. Home purchases in the country fell to a seven-year low in 2017 despite sliding prices, according to real estate consultancy firm Knight Frank. A new tax regime and a regulation introduced last year have pummelled a sector already reeling under the aftermath of demonetisation in late 2016.”

“While other parts of India suffered, even Mumbai, India’s most expensive housing market, bled as property prices fell in 2017—the first time in nearly a decade. Yet, the price-to-buyer’s income ratio (the average number of annual incomes required to own a house) in Mumbai remains at a prohibitive 7.8—much higher than in other major Indian cities—even though it is off its peak of 11 in 2010.”

To counter the slump, developers have been offering discounts, and waiving stamp duty, and floor-rise and other charges. ‘At the end of 2017, India’s residential sector appears to have shrunk to a fraction of the size it was less than a decade ago,’ said Shishir Baijal, chairman of Knight Frank.”

From the Singapore Business Review. “Singapore’s construction sector could still be in the red for at least one to two years, because of excess stocks in the residential and non-residential market, BMI Research said. The vacancy rate for private residential units in Singapore stood at 8.4% at the end of September 2017, compared to the 5.5% average between 2010 and 2013, prior to the recent boom in housing construction. The group also suggested that because sales remained relatively weak, there is an ongoing oversupply despite the pick-up in demand.”

The Sydney Morning Herald in Australia. “Is it a bird? Is it a plane? No, the crane invasion of Sydney’s skyline has been visible for several years – a 65 per cent increase in just the last two years. But experts warn Sydney’s pattern of development is failing to deliver the relief first home buyers need. Amid a record apartment building boom, a suburb by suburb breakdown of the Rider Levett Bucknall Crane Index reveals Sydney’s emerging crane hotspots, spreading wings across the northern, western and southern corridors of the city.”

“‘Residential cranes soared to 298 around Sydney, which amount to 43 per cent of total cranes erected within Australia and 54 per cent of all cranes supporting the residential sector in Australia,’ said director of research at Rider Levett Bucknall, Stephen Ballesty. Building work began on a record number of new apartments in NSW last year, figures from the Australian Bureau of Statistics show.”

“Work began on 74,000 new homes last year, including 29,000 free standing homes and a record 44,000 apartments. But experts warn that the state’s record apartment boom is not delivering the price relief that first time buyers need. The head of Urban and Regional Planning and Policy at the University of Sydney, Peter Phibbs, said high land prices meant developers were building apartments in the million dollar mark range, out of reach of typical first time buyers.”

“Overall, Professor Phibbs said the Sydney experience showed the error of simply focusing on supply to improve housing affordability. ‘We have run an international experiment about the inability of supply really to moderate housing price increases in a context of declining interest rates and a very tax friendly environment for investors. We will probably never see that supply response in Sydney again.’”

From Smart Property in Australia. “House values saw declines in Australia’s major property markets as well as Perth and Darwin, according to CoreLogic’s latest Hedonic Home Value Index. CoreLogic head of research, Tim Lawless, said the transition towards weaker housing market conditions has been gradual, but clear. He also said these conditions are likely to continue throughout 2018.”

“He said the biggest drags are in Sydney and Darwin. ‘From a macro perspective, late 2016 marked a peak in the pace of capital gains across Australia. In 2017 we saw growth rates and transactional activity gradually lose steam, with national month-on-month capital gains slowing in October and November before turning negative in December,’ Mr Lawless said.”