The Housing Bubble

It’s Friday desk clearing time for this blogger. “In Houston’s housing market, the Harvey effect is wearing off. Home sales fell in March for the first time since last year’s hurricane, a new report shows. Bernie Otten, whose house took on about four inches of water during Harvey, thought about selling and leaving the neighborhood but decided to make repairs and hope for the best. ‘My wife and I have talked about moving, but we’re going to wait to see what happens to the home values over time,’ Otten said. ‘We’re a long way from break-even.’”

“Housing analysts have predicted a surge of foreclosures later this year as forbearance programs end and homeowners face mortgage bills they can’t pay. ‘I suspect this summer we’re going to see a pretty good tick up in foreclosures,’ said Jim Gaines, an economist with the Texas A&M real estate center.”

“Among the slowest moving luxury markets in the U.S. was the very expensive Santa Barbara, California, which got hit by catastrophic wildfires over the past year. It’s now taking homes there about nine months to sell and average listing prices have dropped about 10%. The slowest market is Edwards, Colorado, where multimillion-dollar ski retreats are taking over a year to move.”

“The median price of a single-family home in Maui County in March fell 10.1 percent compared with March 2017 to $680,000. Single-family home median prices skidded from $756,000, a record high in March 2017, to $680,000 last month. The 10.1 percent drop is the most since June 2014 when the median home sales price fell 11.5 percent to $530,000 from $599,000 in June 2013. The supply of new listings for single-family homes in March plummeted 33.3 percent to 120, compared with the same month last year.”

“The largest percentage price drop came in Hana where prices fell 65.5 percent to $760,000 (from $2.2 million). There were seven home sales in Hana in the first quarter, an increase in sales volume of 250 percent. The second largest decline in home prices was in Maui Meadows where median sales fell 35.4 percent to $937,500 with six sales, a 50 percent increase in volume.”

“The Colorado Springs housing market is reaching record high prices for homes. In spite of that, plenty of people are still buying. ‘Understand that whatever decision you make is probably a 10-year decision,’ said Associate Broker Rob Thompson. ‘Encouraging people to exercise caution…and look at the long horizon, that’s something I failed to do when I bought my first house.’ Thompson purchased a home in Las Vegas about 10 years ago when the housing crisis hit. ‘I ended up short selling it for 67 percent loss…it significantly put me into some debt that I had to work off.’”

“So if you are trying to buy a home Thompson says there are a few questions you need to ask yourself. ‘Is it reasonable for me to expect the 7-10 percent appreciation that I need to sell this home in the future in the time I intend to hold it…if not, then you’ve got to ask yourself am I willing to be a landlord because this will be future rental for you possibly,’ he said. Thompson’s reasoning behind all of this is that you can’t bank on continued appreciation in the market. With the tight market some people are concerned that Colorado Springs could be headed for a bubble.”

“Canada’s real estate industry organization says the number of homes sold in March plunged 22.7% and the national average price was down 10.4% from the same month last year. CREA says activity was below year-ago levels in more than 80% of all local markets, in all major urban centres except for Montreal and Ottawa, with the vast majority of year-over-year declines well into double digits. Out of the 63 real estate markets measured, Royal LePage found ‘declines were most prevalent in the Greater Toronto Area, and to a lesser degree in the Greater Vancouver detached home segment.’”

“Reykjavík is third on the list of cities where housing prices have increased the most within the last year, namely by 16.6%, The Guardian reports. Ólafur Heiðar Helgason, an economist from the Housing Financing Fund in Iceland says that the recent surge in real estate prices is far from being as worrisome as it was, for instance, right before the 2008 crash, he also admits that the process has not been followed by a parallel increment in wages. ‘We have to begin wondering whether we’ve actually reached the tolerance limits, when it comes to price growth,’ Ólafur adds.”

“Dubai: A 14,331 square feet Bulgari Resorts and Residences apartment in Dubai sold for Dh60 million was easily the priciest deal in Dubai’s freehold market during Q1-18. What is interesting is that within the luxury end, sales are happening both direct from developer as well as from investor-owners who want to make an exit. ‘There is still more demand in high-end residential projects direct from developers,’ said Brigitte Tenbergen, Associate Director of Luxhabitat. ‘Secondary market properties are moving as well… but with major price reductions.’”

“‘What I perceive as a general sentiment is that buyers are overwhelmed with the amount of projects in the market and in no rush,’ said Tenbergen. ‘They take their own sweet time and are demanding discounts/waivers as they are well aware that there will be an oversupply of properties in the market.’”

“The world is binging on skyscrapers. About 230 towers worldwide, each at least 200 meters tall, are slated for completion this year. This marks a 60% increase from 2017, with China accounting for 60% of the total and Southeast Asia and the Middle East are also big builders. But the rapid pace has caused concerns about underlying risks, with some experts forecasting a slowdown in or after next year, depending on China’s property market bubble. ‘In certain cities, a housing glut is already pushing down rents,’ said Akihiro Yasuda of Sumitomo Mitsui Trust Research Institute.”

“Federal government policies may finally have tapped the brakes on the housing market, but in doing so they might have also put the luxury car market into a spin. Double-digit gains in luxury car sales turned south just before the softening of real estate prices in Sydney and Melbourne, and they look set to continue as homeowners in the top end of the market don’t feel so flush anymore, according to Commsec analysis. Commsec senior economist Ryan Felsman called luxury car sales ‘a leading indicator’ of consumer spending as fewer luxury cars mean there’s less money being thrown around.”

“Mr Felsman said because house price falls in Sydney were being keenly felt at the top end of the market, this was feeding the falls. ‘What we’re seeing is a bit of a downdraft in confidence, people are being more cautious in their spending,’ Mr Felsman said.”

“Gini Suri, a resident of New Delhi, recently sold off her second home on the outskirts of the capital at a price much below what she paid seven years ago. The 36-year-old pottery artist and her husband paid Rs55 lakh to buy the two-bedroom apartment at Omaxe Green Valley. They sold the property for Rs49 lakh. Despite its strategic location providing access to south Delhi, Gurugram and Noida, she said rentals started to decline drastically in a span of two years, particularly from 2015.”

“‘We weren’t getting much returns out of the property and the rates kept falling. We were getting buyers for Rs63-65 lakh. We thought we would wait for a while… but the opposite happened. Instead of going up, prices crashed further,’ she said.”

“Another individual seller from Kolkata is struggling to sell his two bedroom-hall-kitchen flat at Tata Amantra, a project in Mumbai’s Kalyan-Bhiwandi area. The person, requesting not to be named, said he had bought the property for Rs65 lakh in 2013, but is now willing to take a hit of about 10% on the capital invested and sell it for Rs60 lakh; but getting a buyer isn’t easy. ‘The capital value has shrunk. At the end of four years, you realise that you have lost capital in the entire process. Everybody expected the market to pick up, which never happened,’ he said.”

“Flat or falling prices and a scarcity of buyers amid a mountain of unsold homes are forcing real estate investors to sell much below current market prices or the original purchase price, or wait indefinitely with no immediate price appreciation in sight. This is true of not only investor-driven markets like Delhi-National Capital Region (NCR), but also Mumbai and Bengaluru, as individual sellers look to exit residential investments at either a loss or with returns far below their expectations.”

“‘Investors who only buy on an assumption of increase in price are practically out, and the end-user is sitting on almost 20-30% below what is generally the current prevailing price,’ said Vipul Roongta, CEO, HDFC Capital Advisors.”

“Akash Bansal, national head- consulting at property advisory Liases Foras said that with prices not having appreciated, the return on investment has either been negative or low. ‘There are more buyers than sellers and most are desperate sellers who want money even if they are incurring certain losses,’ he said.”