The Housing Bubble

It’s Friday desk clearing time for this blogger. “The Federal Reserve is watching asset prices closely, but sees no sign of a housing bubble, said Minneapolis Fed President Neel Kashkari, on Thursday. ‘We don’t think there is a new housing bubble the way there was in 2006,’ Kashkari said in a talk at the Minnesota Housing Finance Agency in St. Paul, Minn. Kashkari said the lack of affordable housing was widespread across his region, which includes Minnesota, Montana, North and South Dakota, and parts of Wisconsin and Michigan. This indicates ’something is broken’ in the market, he said.”

“Let’s jump in the time machine and head back to 2005. Nevada’s economy was the second-fastest growing in the country. The median price for a single-family home in Reno was $350,000. Unemployment was low, at 4.1 percent. And housing was hard to come by, with available inventory far below demand. Stop me if this sounds familiar. The median sales price of a single-family home in Reno is now higher than it was during the peak of the housing boom just before the Great Recession. This surge in pricing is reminding many in the region of the thriving market of the mid-2000s, as well as the devastation the ensuing crash caused to Northern Nevada.”

“If you’re house hunting in Memphis, you already know why experts say this is the hottest market we’ve seen in decades. You’re competing with investors from all over the globe who see Memphis as one of the best cities in the country to buy a house. County property records show California investors have bought the most properties here, but investors from the East Coast and down to Florida also are snatching up properties. Even foreign investors are in on it: from Asia, Australia and Europe.”

“‘We’re seeing things in this market, we have never seen before,’ said investor Michael Stansbury. Stansbury buys, renovates, and then sells homes in Memphis. He is also mentoring people on how to flip homes. Alaina Vanaman is one of Stansbury’s students. She’s renovating a house in Bartlett. Vanaman wants to ‘fix and flip.’ She stays busy being a mom and house flipper. ‘Gotta get things done. When my kids are at school, try to knock out my big projects,’ said Vanaman.”

“The summer months are peak home buying season in Bryan and College Station. The number of homes for sale has started to grow in recent months. Jen Zweiacker with Zweiacker and Associates Real Estate said inventory has increased significantly. It’s almost double from January 2016. ‘You know we’ve got your $150,000, which is kind of rare now, into the kind of $250,000 mark. Anything above that is moving a little bit slower though because we have some over-saturation,’ said Amy DuBose, with the Bryan / College Station Regional Association of Realtors.”

“It’s tough to make a profit if you bought a Manhattan condo at the height of Midtown’s luxury frenzy. Consider the top apartment to go into contract last week: a four-bedroom condo at the Baccarat Hotel & Residences on West 53rd Street that found a buyer after 388 days on the market, according to Olshan Realty Inc. The asking price at the time of the contract was $18.75 million, after a reduction in January. The seller bought it in 2015 for $20.6 million. A townhouse also listed at $18.75 million tied the Baccarat condo for top deal of the week. The sellers of that property didn’t do any better. They bought it in October 2014 for $22.5 million, according to the report.”

“‘The increasing negotiability is the single biggest factor in motivating buyers off the sidelines,’ Olshan Realty said in the report. ‘It all comes down to price.’”

“Home prices in Connecticut have yet to rise above their peak more than 10 years ago. Local media reports only 12 of the state’s 169 municipalities have reached or gone above the annual median sale price in 2007. Data shows the median sale price of a single-family home was at $248,000 in March — 15 percent below the peak of $295,000 in 2007. Fairfield County fared the worst, with home prices down 24 percent compared to its peak. Hartford County has recovered the most, but it is still 11.5 percent below 2007 levels. Longtime real estate agent Joanne Breen says this is the worst housing downturn she has seen ‘by far.’”

“The average price of a Canadian home declined by more than 11 per cent in the 12 months up to April, the Canadian Real Estate Association said. The realtor group said the number of sales plunged by 13.9 per cent compared with the previous year’s level, and fell to the lowest April showing since 2011. ‘This was a disappointing report,’ TD Bank economist Rishi Sondhi said after the numbers came out. ‘Sales fell during April while revisions to March painted a weaker picture of activity than originally thought.’”

“New data from London Central Portfolio has shown that annual new build sales have fallen 13.8% in Prime Central London with quarterly transactions plummeting to 88. LCP found that average prices in prime London have fallen by 12.7%. Naomi Heaton, CEO of London Central Portfolio, comments: ‘The fact that 30% of new tower starts are for the rental market compared with zero four years ago is also encouraging for the burgeoning generation of renters.’”

“Under the new plan, Hainan’s development is expected to be driven by tourism, modern services and high-tech sectors, shifting away from the previous model’s reliance on the property industry. Huang Qionghua, general manager at local housing developer Youcaihua, told the Global Times that thousands of people in his industry have lost their jobs following the housing purchase restrictions last month. Some of them have resorted to selling fruit or other food to make a living.”

“‘Maybe the local government, while rolling out new policies, also needs to find a solution for those who become unemployed,’ he said.”

“Back in the boom days of 2013-2014 – the heady period following then Myanmar President Thein Sein’s economic and political reforms – Sakura Tower was asking and getting Manhattan-level rents. ‘The prices at Sakura Tower were about US$110 per square meter,’ recalled Dan Davies, managing director of Colliers International/Myanmar. Nowadays, Sakura’s rents have dropped to about US$35 per square meter. ‘We don’t like to say ‘crashing.’ They are just ‘correcting,’ Davies said of the rent free-fall, which in turn has had a contagion effect on falling land prices in the capital and nationwide.”

“For many cities, a sign of success is how many cranes dot the skyline. Sydney and Melbourne are a sea of cranes as residential and commercial towers shoot up, fuelled by a multi-billion dollar infrastructure boom. But a new report has warned that this very symbol of success could be harming Australia’s economy and, with it, a million jobs. Sydney, in particular, could be heading from a construction boom to a building bust. ‘When markets get heated like this there’s a threshold that’s reached where projects stop preceding. They might get as far as the development stage and then they are put on hold while they wait for the price to drop,’ said Arcadis’ Matt Mackey. And that means work in the industry can start to dry up. ‘That’s boom and bust, with the bust being a correction in the market.’”

“Brisbane’s laggard position was an acknowledgment that a forest of recently built residential apartment has created a glut in the market. Nearly one-in-five flats are empty, prices are tumbling and projects are stalled. Mr Mackey was at pains to say that simply being in a boom didn’t mean a bust was inevitable. But if Sydney wanted a lesson in what not to do, it only needed to look west. ‘In Western Australia, during the resources boom it was like ‘let’s build everything now’ and then in three or four years it all crashed.’”

“Erez Cohen, former head of the Israeli Appraisal Association, told The Jerusalem Post that the loss of interest by foreign builders and a sharp decline in overall construction will put Israel at risk of suffering a recession in the real estate industry. ‘Foreign investors – mostly Jews from Europe – are running away from the market and taking their projects elsewhere in the world,’ Cohen said.”

“He added that ‘what (Finance Minister Moshe) Kahlon is doing is focusing on the mass production of cheap and subsidized apartments in the periphery that nobody wants. But the reality is that the market is in crisis and that many construction companies have been backing out of projects due to instability in the market and in the government.’”

“However, Kahlon sees the overall drop reflected in the CBS report as a victory for young couples searching for an opportunity to own a home in Israel. Kahlon said: ‘At first everyone said that this was impossible – the housing market was in flames and there was no chance that anything could improve – but we did it. This isn’t my victory or anyone else’s – this is a victory for young couples, who after so many years are finally able to afford a home of their own,’ he said. ‘And to all of the skeptics who attacked us for the past three years and said this couldn’t be achieved, I suggest you come to terms with this new reality – the housing market has relaxed and prices will continue to fall,’ concluded Kahlon.”