Uncertainty Over How ‘Bad’ This Could Become
A report from the Corridor News. “Federal Reserve officials came and left on Wednesday. They came with an interest rate increase. They increased the range on the federal funds rate 25 basis points. The toastier the market, the more abrupt the cooling, so dictate the laws of financial physics. We refer to a recent update from Grant’s Interest Rate Observer that featured the Toronto housing market (which regular viewers of HGTV’s Love It or List It are likely familiar). Grant’s tells us that Toronto home prices – once white-lava hot – have dropped 12.4$ year over year; active listings have nearly tripled. We’re not saying similar toasty burgs in the States are in imminent danger of an abrupt cooling. We are saying to at least be alert to the possibility.”
From the Vancouver Sun in Canada. “Throughout history, politicians and the public have hated speculators on the grounds that they create scarcities, raise prices and cause hardships for consumers. This view is behind the recent decision by the B.C. government to impose a tax on unoccupied housing presumed to be owned by speculators and which is expected to lower the cost of housing.”
“The implementation of this policy has run into a number of problems that can be solved by some tweaking of the law, but it will do nothing to reduce prices in the long-run. Speculators raise house prices when they buy and keep them empty or rent them out. The speculators realize profits only when they sell them later, at which time they lower prices. In effect, speculators do not add to the demand for and cost of housing, but only smooth it through time. The real cause of the high and rising cost of housing is a continuous excess of demand over supply.”
From the Daily Herald Tribune in Canada. “Grande Prairie’s new home starts were down year-over-year as of February, as the city gradually recovers from the economic turndown and an oversupply of homes. Year-over-year declines were also seen in the Lethbridge census metropolitan area (CMA), Red Deer, Wood Buffalo, and the Edmonton CMA. Housing prices are a bit lower than last year, but that’s to be expected, given the oversupply. ‘With prices, we’re not expecting a lot of growth … What we’re expecting is the price not to move a lot as the oversupply situation resolves itself,’ said Timothy Gensey, CMHC analyst for the Grande Prairie region.”
From CBC News in Canada. “A well-known Saint John developer is being sued by 40 out-of-province investors over real estate deals in Saint John and Fredericton. John Rocca, the estate of his brother, the late Pat Rocca, several family companies, and a Montreal-area real estate investment promoter are named in the suit. The investors allege they purchased condominiums at artificially inflated prices after the units and a number of promised extras were misrepresented by the sellers.”
“Most of the buyers live in Ontario but others are from British Columbia, Alberta and Quebec. The 40 owners purchased a total of 57 units. Their statement of claim describes a rental agreement that was purchased on top of the price paid for the unit itself. ‘Due to the various misrepresentations made by the defendants, the Plaintiffs now own units which are actually valued far below the mortgages being carried on those units,’ said the claim. ‘Some of the Plaintiffs have been forced to sell their units at significant losses and are still carrying mortgages as a result of the Defendants’ blatant overvaluation of their units.’”
“The allegations have not been proven in court and are described as ‘false and outrageous’ by John Rocca, who promised an aggressive defence.Rocca said the claimants in the suit are suffering from ‘buyers remorse.’ ‘The vast majority of the individuals who purchased a condo had their condos appraised before the closing date by an appraiser picked by their bank,’ said Rocca. Rocca describes the group as ‘experienced investors’ who want to be reimbursed because the units are worth less today than when they were purchased.”
From ABC News in Australia. “It has been going just two weeks but the royal commission into the banks has had a vastly more material impact than most observers expected. Banks have been absolutely crunched as evidence of all manner of dodginess and outright fraud mounted up. The big investment bank UBS has marshalled its banking and economic analysts to look at the impact on future credit conditions that will inevitably tighten as banks are forced to become more responsible with the loans they have been selling.”
“UBS’s George Tharenou said the ‘credit crunch’ scenario could not be ruled out, even though it would clearly be unintended by regulators and policy makers — and banks for that matter. Under this scenario, house prices would likely fall over a prolonged period across a few years, according to UBS. ‘There is a great deal of uncertainty over how ‘bad’ this could become, simply because Australia has never had a fall in house prices of 10 per cent or more. Even during the GFC prices ‘only’ fell to 8 per cent over the year, but the RBA slashed rates by 4.25 percentage points and reflated the housing market, and neither have we had a domestic recession in almost three decades,’ he said.”
The Herald Sun in Australia. “Home seekers have been gifted a once in a decade opportunity to nab properties for less as Sydney’s slowing housing market puts pressure on sellers to set more realistic price expectations. With the city having largely shifted to a buyers’ market, industry figures revealed home sellers in some parts of the city have been dropping their asking prices by 10 to 30 per cent, a major departure from a year ago when vendor discounting was rare.”
“In Eastlakes, the sellers of a four-bedroom duplex on Universal St have cut $100,000 off their original price and are now expecting $1.725 million to $1.775 million. In Chifley, the sellers of a four-bedroom house in Melba Ave dropped their expectations by $500,000, while the price for a four-bedroom duplex in Caley St has dropped $75,000.”
“Greg Gladstone of South East Realty said the vendors were simply adjusting to the current market. ‘The days on the market are stretching out and buyers are not making the offers so vendors are putting in lower offers,’ Mr Gladstone said. ‘In Botany, there are lots of units going up and developers are reducing their pricing. Pagewood prices are also adjusting to the market because of developments like Pagewood Green.’”
The Daily Mail in Australia. “Australian homeowners could lose up to $100,000 from the value of their home over the next 12 to 18 months, as the nation’s housing market bubble finally bursts. With house prices falling and indications that interest rates will rise, homeowners are in for a rocky ride - particularly those who stretched their budgets to join the ‘boom’. Former federal treasurer Peter Costello recently claimed the outlook is ‘painful’, with millions of homeowners to be put under financial stress by any interest rate rise.”
“‘The problem is now that you’ve borrowed so much, how do you normalise?’ Costello told a recent Urban Development Institute of Australia conference. ‘It’s going to be slow and it could be painful - the question is will it be a hard landing or a soft landing but it’s going to be a landing.’”
“Someone who has seen the market drop firsthand is Robert Klaric, a Sydney property expert who was among the first to predict that 2017 would be the end of the boom. ‘We had a young client of ours who bought a one-bedroom apartment off the plan in Meadowbank, in Sydney’s inner-west in 2016,’ Mr Klaric said. ‘So he bought that apartment for $550,000 and was told at the time he’d get a guaranteed rental return of $450-a-week. But there’s so many units he struggled to rent it for that price and so couldn’t pay the mortgage. He’s just had to sell it for $505,000, which is a 10 per cent adjustment and a perfect example of what’s occurred in the market. By the time you add in stamp duty he’s lost close enough to $100,000 and that’s tough for a 25-year-old.’”
From News.com.au in Australia. “Though it’s not a mining town, Miles was part of southwest Queensland’s coal seam gas construction boom. Developers and investors flooded in from all over Australia, and there was a surge in new housing with 1500 new homes approved. ‘It was like being caught in a gold rush,’ said local Rachel Kerwick, president of the Miles & Districts Chamber of Commerce. ‘There were investors from Melbourne and Sydney, well-educated people who did their homework and believed the literature the government and the CSIRO all put out.’”
“At the peak of the boom, even a space at one of the local caravan parks crept up to nearly $1000 per week. Long-term residents who could no longer afford the rent moved out. But when the construction phase of all major coal seam gas projects progressed to the export phase, many mining contractors and employees were laid off. And once the Condabri workers camp that many of them were living in was emptied, the overflow of those renting in Miles were shifted to fill the camp’s 400 beds.”
“After the last of the mining workers were shifted out to Condabri, the vacancy rate in Miles rose to 45 per cent, where it stayed at for several years. ‘Rents were down to $150 a week for those fortunate to have it,’ said David Sweetapple, a real estate agent and land developer in Miles. ‘That was furnished apartments, furnished houses.’”
“According to Ms Kerwick, some people just walked out, and those who stayed all suffered financially. ‘We’re left with people whose businesses went bankrupt and who lost their homes because they took the punt and invested in building another one. Mortgages and repossessions are happening at least once a week,’ she said. ‘We have even less people than we did before [the boom]. The Miles community itself was almost decimated. Brand new homes that cost the investor $700,000 to build are being sold for $200,000.’”