The Housing Bubble

It’s Friday desk clearing time for this blogger. “By nearly every metric, Miami-Dade County is one of the most difficult places to live if you don’t make a ton of money. The county’s median income is a staggeringly low $44,000. What have Miami-area officials done to help the working poor? They’ve encouraged developers to overbuild so many luxury condos for millionaires that it will now take years to sell them all, according to local real-estate analyst Peter Zalewski. Zalewski’s CraneSpotters.com reported at the end of February that it will take 49 months (just over four years) to sell all the luxury condos developers have built across town. ‘It is worth noting this report only tracks those South Florida condos that are formally listed for sale,’ Zalewski wrote. ‘The report does not factor in the nearly 47,450 new condo units currently in the development pipeline east of Interstate 95 in the tri-county South Florida region.’”

“The numbers look worse when broken down by city. In Miami Beach, it will likely take 41 months to sell the 742 luxury units for sale. In Bal Harbour, the 281 million-dollar units will also likely take 45 months to offload. And in crane-saturated downtown Miami, the 505 luxury units available make up a 78-month supply.”

“Sales of Manhattan apartments slowed during the first quarter to the slowest pace in five years, according to The Wall Street Journal. Brokers said sales were dampened by a slowdown in closings in new luxury buildings, as well as a rebellion by condo buyers against high asking prices. As sales slowed, the number of available listings rose, compared with the same period last year. The Journal’s analysis put the median price of a Manhattan apartment at $1.095 million, about 8% below the all-time peak price recorded in the second quarter last year.”

“Gregory Heym, the chief economist at brokerages Brown Harris Stevens and Halstead Property, said some sellers already have made cuts in asking prices that won’t be reflected until sales in future quarters. ‘You are seeing a continuation in price reductions,’ said Leonard Steinberg, the president of brokerage Compass. He said when property isn’t moving, ’sellers will want to acknowledge that, if they want to sell in less than 500 days.’”

“The London housing market is being blighted by ‘an ever more widespread frost,’ as the city’s previously buoyant property prices continue to stutter, the latest data from Nationwide showed. ‘London’s property market shows no sign of giving up its wooden spoon, as the slowdown in the capital worsens,’ Jonathan Hopper, managing director of Garrington Property Finders said. ‘What began as a cooling of prices in the capital’s prime and super-prime postcodes is turning into an ever more widespread frost.’”

“Property agents Savills reported earlier in the year that it is seeing price declines of as much as 4% in residential areas of South West London such as Battersea, Clapham, Wandsworth, Fulham, and Richmond.”

“The era of overall shortage has ended in China’s property market, but new issues of unbalanced allocation and undeveloped services have emerged, said China Vanke Co’s Chairman Yu Liang. Yu said ‘the time of unilateral rapid increases in home prices has ended. If developers still buy land, no matter what the price is, it will be a payback time.’”

“Bubble, bubble’, toil and trouble? Bubble can be a scary word for property investors because it means that real estate prices are inflating rapidly over a short period without the support of underlying fundamentals or demand. For CBRE|WTW Malaysia managing director Foo Gee Jen, asset bubbles are often sentiment-driven, hence they do not provide any standard characteristics for early detection. A bubble will also form when there is excessive liquidity, leading to ‘too much money chasing too few assets,’ especially when the investment market narrows with limited buying options. ‘People should be wary when the value of an asset bloats to a level where the expectation on the economic returns is unjustifiable or has an unfounded basis,’ he tells EdgeProp.my.”

“Universiti Tunku Abdul Rahman’s Faculty of Business and Finance, Department of Economics assistant professor Dr Yip Chee Yin — who specialises in the housing market — opines that the property market, which is currently experiencing a slowdown, has yet to see the worst of it. ‘Housing prices are already coming down [indirectly] at a steady rate because developers are offering rebates, free furnishing and more. All these amount to a price decrease. The sad news is that overhang and unsold properties are at an all-time high in a decade. This may cause developers to default bridging loan payments, thereby resulting in a domino effect on loan defaults and this could cause a financial crisis, signalling the housing market is about to burst.’”

“There has been a 22 per cent bump in the number of homes advertised for sale across Sydney compared to a year ago, coupled with a similar drop in buyer demand — mostly driven by tighter lending restrictions on investors. It has meant sellers are increasingly competing with each other to attract buyer interest, giving home seekers room to negotiate prices down. James Sarzano, of Ray White North Ryde/Macquarie Park, said in some instances sellers were having to adjust their expectations.”

“‘Vendors are getting more realistic about the changed market,’ he said. ‘They had to come back to reality late last year when they were asking $2.1 million for their property but now they have had to adjust their expectations to $1.5 million.’”

“Australia, you are getting complacent. Over the ditch, the big lesson of the last few generations is that house prices always go up. That lesson has been learned, passed on, reinforced by experience and passed on again. Generations of Australians have grown rich and comfortable by sinking their earnings into real estate. Across Australia, house prices are up over sevenfold since 1986. In Sydney, it’s nearly ten fold.”

“If I lived in Sydney I’d be downright frightened. It’s only a rule of thumb, but when graphs go vertical like the Sydney one has, it can be a sign things aren’t too sustainable. Check out the peak house prices hit in 1890 in Sydney and Melbourne. They went up to almost $100,000 (in inflation adjusted terms). It took another sixty years for prices to rise above this level again.”

“In the same way you can have a once in 100-year flood, or a once in 100-year fire, we can have a once in 100-year house price crash. What makes rare events so debilitating is that we’ve forgotten how to prepare for them. We hold the record — 50 years — for the longest house price rise in history. On average, house prices in advanced economies go down after 12 years of going up. And when they fall they do so for an average of five years, but the record is 18 years of falling house prices (in Japan).”

“Australia hasn’t had a five-year period where national house prices go backwards for a couple of generations. The memory of it is almost forgotten and Australians have started to believe it won’t happen there. And that just makes us all the more vulnerable.”