The Housing Bubble

A report from the Financial Post in Canada. “If there is one thing that annoys a certain group of people in my Twitter bubble about Stephen Poloz, it’s the Bank of Canada governor’s perceived complacency in the face of what these people see as imminent economic disaster. The reason for their frustration is Poloz’s unwillingness to raise interest rates to slow the accumulation of household debt, which now is about 170 per cent of disposable income. As you will have read many times, that’s a record. It’s also a number that compares with debt levels that preceded other financial disasters. As far as some of these well-informed critics are concerned, the moment Canada’s inflated house prices inevitably drop, we’re headed for a wave of bankruptcies that will drop the economy into recession.”

“On Tuesday, Poloz devoted an entire speech to household debt. Poloz observed in Yellowknife that ‘aspiring to own a home is part of our culture.’ When the global economy crashed in 2008, policy-makers knew they could harness that impulse to spark a rebound. A once-in-a-lifetime chance to get a mortgage for almost nothing would stoke demand for housing, which would be good for builders, contractors and agents. The strategy worked, although few realized that the rest of the economy would be so slow to follow.”

“About eight per cent of households owe 350 per cent of gross income, representing about 20 per cent of all debt, Poloz said. ‘We are closely watching the vulnerability represented by that group,’ Poloz said.”

From the Calgary Herald in Canada. “Overly optimistic Calgary homebuilders betting on a stronger economic recovery recently fed a record high inventory of unsold homes, a federal report suggested. In December 2017, the number of completed and unsold homes hit a record 2,030 units, driven mostly by a glut of multi-family developments, said an assessment by the Canada Mortgage and Housing Corp. It’s an unsold figure more than double the 2007-2016 monthly average of 831 units, while the number of vacant multi-family units was up 40 per cent last December compared to a year before, said the agency.”

“It’s an unsold figure more than double the 2007-2016 monthly average of 831 units, while the number of vacant multi-family units was up 40 per cent last December compared to a year before, said the agency. ‘The imbalance is definitely on the supply side,’ said Richard Cho, CMHC’s principal Calgary analyst. The building activity might have been due to expectations of a recovery stronger than the one that’s transpired, particularly in the energy sector, which hasn’t fully rebounded from the 2014 price plunge, said Cho. And that realization seems to have set in this year, he said.”

“Realtor Len T. Wong, who has been in business 30 years, said sales volumes were down 17 per cent and 27 per cent for the past February and March, respectively, compared to those months last year, said Wong. He said it appears builders’ expectations of better times were dashed by a second half of 2017 that didn’t deliver on those hopes. The oilpatch continues to lay people off and a slump in investment has had an impact, he said. ‘Just at the time when you think it’s looking up, something happens and your butt gets kicked,’ said Wong.”

From Homes & Property in the UK. “Already 2018 has become a record year for property price cutting according to newly published data citing a combination of some too-optimistic sellers and ultra-cautious buyers. NAEA Propertymark, the national association of estate agents, found that almost nine out of 10 homes – or 86 per cent – sold for less than the asking price during March, the highest level since the association began recording sales in 2013 and 12 per cent up from February. The market, in short, is firmly in the hands of the buyer.”

“Brendan Roberts, a director at Aylesford International, agreed that only around one in 10 homes in the capital sells at asking price, because buyers are extremely nervous and price sensitive. ‘In a market weak on confidence and high on uncertainty achieving the asking price is rare,’ he said.”

From the Khaleej Times on Dubai. “Apartments and villas in Dubai have seen an average annual rental decline of approximately 10 per cent in the first quarter of 2018, says real estate consultancy Asteco. This is forcing landlords, especially in areas with a significant supply pipeline, to offer sweeteners such as multiple cheques, rent-free periods and even absorb utility, maintenance and/or agent fees.”

“According to Asteco, some of Dubai’s popular communities have witnessed the sharpest decline in rents. These include Jumeirah Beach Residence recording a 15 per cent drop since 2017, while Downtown Dubai, Dubai Marina and Deira come in a close second with a 14 per cent decrease. Other areas that have demonstrated a significant decline in rents are the Palm Jumeirah, Business Bay, The Greens and Dubai Sports City, among others.”

“Asteco estimates that approximately 3,625 residential units were handed over in Q1 2018, with a total of 30,000 potentially to be delivered by Q4 2018. ‘It is important to note that predictions that the market is set to be flooded with more than 120,000 new properties ahead of Expo 2020 should be calmed by the likelihood that not all will be finished on schedule. This means any disturbance to the sector is unlikely to be felt for some time yet, so now is a good time for first-time buyers/investors to take their first steps on the property ladder,’ observed Joanne Phillips, general manager of the mortgage division at Holborn Assets, a financial services firm.”

From the Bangkok Post in Thailand. “A possible hike in interest rates may weaken demand for investment purchases of condominiums, causing some buyers to baulk at having their purchase units transferred, warn a property analyst and developer. Therdsak Thaveeteeratham, executive vice-president at securities firm Asset Plus Securities Plc, said developers should also be more cautious of the situation, given that the disappearance of investment buyers will influence the sales rate of their new condo projects.”

“‘We see many condominium projects where many units have never turned on a light,’ Mr Therdsak said. ‘These units might be either unsold or vacant.’”

“Housing inventory exceeded 800 billion baht by market price. That amount is considered relatively high and in need of disposal by developers. Nathapol Luepromchai, Krungsri Bank’s executive vice-president for the mortgage loan division, said the bank’s view on the condo sector includes both positive and negative aspects. In the bank’s view, condos have high liquidity and their prices never fall, Mr Nathapol said.”

From The Independent in Singapore. “Median resale prices of Housing & Development Board (HDB) flats continue to drop even as the public housing developer announces the release of thousands of new Build-To-Order (BTO) flats. The drop in the median resale prices of HDB flats continues as the public voice their disappointment at such depreciation. In early April, a letter published in the Straits Times claimed that the promise of owning a 99-year-leasehold HDB flat as an investment for old age is no longer valid today.”

“The letter writer said that ‘many seniors who want to downgrade to Built-To-Order studio apartments for the elderly are in a fix as they are unable to sell their old flats’, and that many such seniors ’stand to lose their deposits on their new flat if they cannot sell their old flat.’ In expressing his disappointment in the price drop of HDB resale flats, the letter writer said: ‘Most of them were hoping to downgrade and live on the profits from selling their flats but have become disillusioned.’ Adding ‘The Government needs to step in to manage this problem and not just leave things to market forces.’”

“Some analysts suggest that the falling resale prices of HDB flats can only be bailed by a ‘wall of money.’”

From the West Australian. “Australia’s property market has taken a hit, with house prices falling nationally by 1.2 per cent in the March quarter. While the Perth median fell 2 per cent to $553,000, Melbourne managed to hang on, marking its 22nd consecutive quarter of growth. The national median house price fell to just over $800,000. The median house price in Sydney fell 2.6 per cent to $1.15 million.”

“Domain data scientist Nicola Powell said it was the highest quarterly fall for the Sydney house market since the end of 2015. ‘It’s really highlighting that we are seeing that boom phase in that Sydney property market fade,’ she said. Experts say the slowdown in the market is being caused by an increase in housing stock – and the difficulty in obtaining a loan.”