The Housing Bubble

It’s Friday desk clearing time for this blogger. “This week, 10 years ago, Americans learned that the U.S. had its largest single-year drop in home prices in a quarter century. It began, in many ways, in people’s heads. That is, after all, where hopes ultimately reside. The belief that housing prices could only, permanently, inexorably, go up was a collective hallucination, but it felt very real. ‘Oh, it was so hot!’ said Heidi Kasama, president of the Nevada Association of Realtors. ‘Literally, I remember one time I was entering a listing into the computer and the phone rang — I’m not kidding — less than a minute after I hit enter, and somebody asked me, ‘Is it still available?’ That’s how frantic people were.’”

“The Bay Area’s red-hot housing market is showing no signs of cooling. Ken Robertson of San Jose found this out recently. He and his wife listed their three bedroom, two and a half bath house in San Jose’s Willow Glen neighborhood last Thursday. Asking price: One-point-five million. hundreds of people came over the weekend, and as recently as Monday night, to see and wish upon a star. Five days later, he’s accepting one-of-seven offers, according to Intero realtor Alicia Duarte.”

“In some cases, realtors say properties are selling even sooner, when the sign goes up announcing an impending sale. For buyers, the future holds higher prices pushing the dash for new digs to new heights.”

“The median sales price for a single-family home in Brevard County rose more than 19 percent in December 2017, to $227,789 from the same point a year earlier. But what were once whispers of an overheated housing market are turning into more of an open debate between the ‘yes, we are’ vs. the ‘no, we’re not even close’ camp of a housing bubble.”

“There’s no question of a similar over-exuberance when it comes to real estate, said Scott Ellis, the Brevard County Clerk of Courts. Ellis goes back to headlines between 2005-2008 that dismiss any talk of a significant bubble, or a correction, and they’re eerily similar to what he’s hearing today. ‘The problem is the underlying sound pricing economics have fallen prey to the intense belief prices will relentlessly surge,’ Ellis wrote.”

“Michael Slotkin, associate professor of economics at Florida Institute of Technology, doesn’t think Brevard is in a housing bubble. ‘We still haven’t seen anything like the manic production of housing units that occurred in 2004-06, where we saw phantom demand with no population increase to support it,’ Slotkin said.”

“‘Over the last few years residential and commercial construction has nearly tripled in the Edwardsville area,’ stated Mike Rathgeb, owner of Spencer Homes, one of the metro east’s premier builders. Spencer Homes is filling a void in the housing market at a more affordable price with their latest home development, @Cloverdale. The high quality, low maintenance homes now start at $289,000, a more than 20 percent price reduction from 2017.”

“The hot market for mega mansions in Los Angeles has cooled. Fewer blockbuster sales caused the median price to dip while inventory shrunk as owners pulled stale, overpriced listings from the market. ‘One of the things we’re seeing in high-end markets across the country, the inventory is dropping … because the overpriced inventory that’s been sitting for a couple of years are being left to expire,’ said Jonathan Miller, president of appraisal firm Miller Samuel.”

“The sale is most certainly on. J. Crew chairman Mickey Drexler has cut the price of the Manhattan loft he has been trying to sell for around two and a half years almost in half. The TriBeCa apartment has been put back on the market this week with a new price of $18.5 million, close to half the original asking price of $35 million when it was first listed for sale in April 2015. Drexler is just one of the many high-end sellers who are struggling against a backdrop of Manhattan’s weakening luxury property sector, where a flood of high-end condos coming to market has meant that buyers have a slew of options to choose from.”

“The 2018 Toronto housing market is off to a slow start, and buyers’ market conditions prevail. According to mid-month data collected from the Toronto Real Estate Board (TREB), numbers indicate sales are down annually across every housing type — with the exception of semi-detached homes. A number of factors could be influencing January real estate, which, so far, is in sharp contrast to the frantic activity witnessed in early 2017 when Toronto real estate ramped up towards the March peak. This year, buyers and sellers prove trepidatious as new mortgage rules — which have slashed affordability for the average buyer by 20 per cent — are absorbed.”

“There is little sign the cuts to stamp duty announced in the 2017 Budget are stimulating demand among first time buyers. Shore Capital analyst Robin Hardy says: ‘The market net balance has fallen again with demand (new buyer enquiries) slipping faster than supply (new vendor instructions) once again pushing us more towards a deflationary buyers’ market.’”

“Housing prices were on the decline in Sweden at the end of 2017. The fall in prices has been most dramatic in major cities like Stockholm where the prices in January 2018 were down 12% from the peak in August 2017. According to a report from Swedbank published Wednesday the market will fall still further. The combination of a large supply of new built housing in 2018 and the stricter amortization rules mean that the market has not stabilized yet.”

“Property owners in Dubai better be willing to cut their asking prices if they want to sell. If not, they are staring at future disappointments. With off-plan sales from developers overwhelming demand in the secondary market, individual owners have limited options on pricing their properties. ‘We are seeing declines in secondary market listings, especially in the price ranges where new supply has been added in 2017,’ said Lynnette Abad, Partner at Cavendish Maxwell. ‘In 2017, sellers held firm to their pricing in the secondary market … while their units sat empty. We are starting to see units priced a little closer to realistic selling levels. However, the asking prices are still far higher than the achieved.’”

“An Auckland property developer has admitted to his part in a $50 million mortgage fraud case. Kang Huang pleaded guilty to 10 criminal charges in the High Court at Auckland before Christmas, the Herald can reveal. He was one of a quartet charged by the Serious Fraud Office in a case involving more than 70 Auckland and Hamilton properties - and mortgages of about $50m. The SFO alleges the accused provided false information or documents, or withheld information from either the BNZ or ANZ to obtain loans to purchase properties between December 2011 and October 2015.”

“The SFO alleges, according to court documents, that false salary payments were made as part of the applications for some of the loans. Banks were also allegedly provided with false income and employment information. Those defending the case include Huang’s wife, Yan (Jenny) Zhang. Zhang, who is also known as Kang Xu, is facing charges for obtaining by deception. Lawyer Gang (Richard) Chen is also facing charges for obtaining by deception. The third defendant heading to trial is former bank worker Zongliang (Charly) Jiang. Jiang is facing a Secret Commissions Act charge of accepting gifts and charges for obtaining by deception.”

“‘From our point of view, they [foreign buyers] are disappearing severely. The banking policies, stamp duty surcharge and Chinese government control have created the perfect storm,’ Country Garden Australia managing director Guotao Hu said. The comments echo those of Meriton’s Harry Triguboff who told the Financial Review last week that the sharp drop in foreign buyers was not just bad but ‘very bad.’”

“Chinese developer Starryland’s managing director Hao Liu who sold out his Parramatta Promenade apartments in 2014 said it was not only counter-intuitive but unfair to introduce stamp duty surcharges and lending cuts so late in the cycle.”

“‘The foreign buyer correction has come during the downturn in the market. When it was hot in 2014, the government happily allowed foreigners to buy but only when people complained they increased taxes,’ he said. ‘Many developers entered the market excitedly only to be trapped further down the development cycle.’”