The Housing Bubble

It’s Friday desk clearing time for this blogger. “It’s been the most consistent trend the city has seen over the last three years: Chicagoans leaving Chicago to move elsewhere. Yet the building boom that has curiously grown in reflection of the downward population doesn’t appear to be letting up. If anything, it’s kicked into another gear as more cranes have been raised skyward with the slowly thawing temperatures. When looking at the point of intersection for the rising rents and skyscrapers against the dwindling local population, one has to wonder; when exactly will this bubble burst?”

“Luxury homes in Manhattan are selling at the biggest discounts on record as owners grow tired of waiting for buyers to match their price. Homes priced at $4 million or more that went into contract in the first 12 weeks of the year had their asking prices cut by an average of 10 percent, the most in data going back to 2012, according to Olshan Realty Inc. Final sale prices, which won’t be known until the deals close, will probably reflect even greater reductions, said Donna Olshan, president of the brokerage that compiled the report. ‘Most things at $4 million and above are selling 15 to 20 percent below the original ask,’ Olshan said. ‘It’s a data point that screams: The market is overpriced! People are still being delusional about their real estate.’”

“We’re continuing to take a look at the impact of failing schools in the city of Birmingham and now looking into how it’s playing a role on the housing market. Tracy Wright, a local realtor with Barnes and Associates, showed us a home zoned for Wenonah High School that’s been on the market for about a year. Wright says the seller may end up dropping the price or it could go into a short sale meaning selling a home for less than the existing mortgage on it. ‘We have to drop our values below market which then causes house prices to decline which then turns into foreclosure which then turns into short sale. So it’s kind of like a cycle that keeps going and going,’ Wright said.”

“Back in September 2007 at absolute peak frenzy of the Housing Bubble in San Francisco, the co-founder of YouTube, Steve Chen, purchased a two-level 3,030 square foot condo at the high-rise Ritz-Carlton Residences for $4.85 million. At the time, it was an unfinished empty shell. He then built it out with a budget ‘estimated to have been nearly as much as the shell.’ At this point, not counting HOA fees, property taxes, insurance, mortgage interest, and other expenses, he has plowed $8.85 million in it.”

“But then, without ever having lived in his trophy condo, he got married, had kids, and moved down the Peninsula. A few days ago, according to Reator.com and Zillow, the still unlived-in condo came back on the market but at a big discount from what the aspirational price had been in 2012. Now the asking price has been cut to $5.95 million. This loss would be almost equal the original purchase price of $4.85 million. Let that sink in for a moment: to lose $4.53 million on real estate that had original been acquired for $4.85 million! This assumes that he didn’t insure it and that he didn’t finance any part of it, and that he can sell it at the current asking price.”

“Buying a first home together is a milestone for many young couples. Like so many other buyers looking to purchase property in the Lower Mainland, Ines Min and her husband faced the challenge of buying a home in a red-hot market in which prices for even a modest apartment-style condominium exceed $680,000. Despite the cost, the couple were undaunted, figuring it was now or never. ‘The condo market was on fire last year when we bought, but we were reassured by the fact that our investment was only going to appreciate over time,’ says Min, 30, who works in public relations.”

“Now this new supply could hit the market just as these dampening measures take effect, says Cameron Muir, chief economist with the British Columbia Real Estate Association. ‘It’ll mean we probably bought at the worst possible time,’ Min says.”

“Rental prices in Rio have recorded a drop of over seven percent in the last twelve months. Charlie Jonas of Rio Exclusive, a luxury real estate firm in Rio de Janeiro confirms, ‘Nowadays for R$5,000 you can get a decent three-bedroom in Copacabana or a two-bedroom in Ipanema and maybe even in Leblon.’”

“The rate of construction of new homes in Sweden is expected to fall significantly in the coming years, dropping from 55,000 new buildings in 2018 to 46,000 in 2019, according to the Swedish Construction Federation’s economic forecasts, which suggest a decline of just over 30 percent from the peak in 2017. In its report, the federation warned that credit restrictions like tightened amortization requirements could accelerate a downturn. ‘It’s starting to reduce very drastically now,’ Swedish Construction Federation CEO Catharina Emlsäter-Svärd said.”

“Last week’s figures showing a fourth consecutive month of declining housing prices did not surprise Meitav Dash Investments Ltd. chief economist Alex Zabezhinsky. Q: So real estate will drag down the entire Israeli economy? A: ‘Accumulated experience from around the world shows that a halt in the real estate market following a rapid and prolonged boom has almost always led to slower growth. Real estate is a very large section of the economy, and when it cools off, it has a collateral effect.’”

“Osaz Enobakhare, an award winning structural engineer and CEO of Heavens Contractors Limited, said the lull in the market that may not likely bounce back soon is due to the recession in the economy, which is yet to be fully exited. ‘Most properties above N100m are difficult to sell because of the absence of money bags who usually buy them. Most corporate bodies are not doing well either, hence they cannot buy properties as they used to do. Their patronage for high rental properties has also stopped; therefore, you see so many blocks of flats in Ikoyi and Victoria Island remaining vacant for long,’ he said.”

“In the weaving alleys of Shanghai’s Laoximen district, swathes of residential buildings sit empty. The historic area in the heart of the city is being slowly demolished, and many residents have already abandoned it, leaving behind rows of traditional terraced houses with boarded-up windows and demolition signs on the doors. The redevelopments are a reaction to the city’s runaway growth, and key contributors to the first population falls in Shanghai and Beijing for decades.”

“‘What used to hold four families is now the luxury ground floor on a building for one rich person,’ says Saskia Sassen, professor of sociology at Columbia University and author of the book Expulsions. ‘China’s government is moving people out of its top cities to its underused cities – not the likes of Shanghai or Guangzhou, but really overbuilt half-empty cities that were just projects for the construction companies to make money.’”

“Paul Ellender, Property Consultant at Freer Properties, said rental prices (at least in Daun Penh) are stagnating, if not dropping. He noted that prospective tenants are negotiating quite ruthlessly. Mr Ellender explained that the glut of condos on the market is contributing to this as tenants can get a brand new space, with gym, pool, city views and roof terrace for $50/week more than an older colonial building with street views. Just like in other countries, oversupply in the market is often the cause of rental price stagnation in Cambodia, particularly in Phnom Penh.”

“For condominiums alone, the supply for 2018 is expected to increase by 87 percent, from 16,300 to 30,500 units, in addition to another 1,200 serviced apartments.”

“Khor Yu Leng from Segi Enam Advisors Pte Ltd said Johor had seen a property boom with per square foot prices in some enclaves reaching Kuala Lumpur city centre levels. Yet, it had also witnessed a major slowdown with a marked drop in transaction volume and property value since 2017. The Penang Institute concluded that ‘Chinese investments in southern Johor have split the property development into a high-end market with excess supply targeted at foreigners as buyers, and a lower-tier market driven by local developers targeting mostly local buyers.’”

“Khor said Johor residents were reasonably insulated from the property enclave ‘boom-glut dynamics targeted at foreigners.’ However, he warned that they were not immune to domestic-driven affordability problems.”

“If you were at a party with 20 or 30-something Sydneysiders four years ago, the dominant conversational topic was getting into the property market. Now things have changed. People aren’t trading tips on how to buy in Sydney. They’re comparing notes on how to leave. When my wife and I started telling our friends about our plans to move our family out of Sydney and head for the wider spaces and less aggressive rents of Adelaide, something unexpected happened. Around three quarters of the people confessed that they too had an exit strategy planned.”

“The people who were determined to stay in Sydney weren’t sure how they could manage long term. Even those who weren’t fearing a budget-busting rent increase spoke darkly of rumoured developments or shared stories of compulsory acquisitions that didn’t come close to paying for an equivalent property. Everyone seemed to feel like they were one unexpected redundancy or medical crisis away from their entire economic system collapsing.”