The Housing Bubble

It’s Friday desk clearing time for this blogger. “Home values have been rising for six straight years, and the gains have been accelerating for the past two years. Like the last housing boom, some are starting to warn these price gains cannot continue. ‘The continuing run-up in home prices above the pace of income growth is simply not sustainable,’ wrote Lawrence Yun, chief economist for the National Association of Realtors, in response to the latest price reading from the much-watched S&P CoreLogic Case Shiller Home Price Indices. ‘From the cyclical low point in home prices six years ago, a typical home price has increased by 48 percent while the average wage rate has grown by only 14 percent.’”

“It’s not just San Francisco or Silicon Valley anymore, but a growing number of cities around the bay are now seeing median homes prices of over $1 million. There was some news recently that rents might be coming down, but home prices are still climbing and there’s no end in sight. ‘Sure, there are softening periods and typical cycles, but it’s always going to be restrained,’ said Vice President of Vanguard Properties Frank Nolan. In theory, there has been some downward pressure on the housing market recently. He does expect that home values will plateau at some point, but it’s anybody’s guess when that will happen.”

“‘Three years ago, if you had asked me the same question, I would have said by now something would have happened,’ Nolan said. ‘But the national economy is strong and the local economy is strong. I feel like we live at the center of the universe.’”

“New homes in the Houston region took nearly 5 days longer to sell and commanded slightly lower sales prices on average in April, a new report showed. Time on the market rose from 140.76 days in March to 145.37 days in April, according the HomesUSA.com Index. Houston new home prices fell by $2,664 to an average of $354,750 for the 12-month period through April. Builders have been shifting to more entry-level houses. ‘If you look at the trend lines over the last year, when it comes to the pace of new home sales, Dallas and Houston are going in the opposite direction,’ HomesUSA.com owner Ben Caballero. ‘The strength of the Dallas-Fort Worth new home sales market continues to impress, and the slowing sales pace in Houston is looking more like a trend than a bump in the road.’”

“New home starts rose modestly in Southwest Florida during early 2018, and higher home prices and interest rates could pressure future growth. Builders broke ground on 1,384 local single-family homes during the first quarter, up 2.3 percent over the year, Metrostudy said. The annual start rate of 5,654 units also was up 2.3 percent compared with 2017. Buyers closed on 1,108 units, down 14.1 percent from last year. The annual closings rate of 5,306 units was less than 1 percent above the same quarter last year. The final three months of the year is typically the biggest quarter for closings, Metrostudy noted, and they fell 14.3 percent from fourth-quarter 2017 to first-quarter 2018.”

“‘The greater risk lies in under-construction inventory, which rose 16.4 percent to 2,480 units,’ said Metrostudy regional director Tony Polito. ‘Homes that are ‘pre-sold’ do not always close. If any of that backlog moves to finished vacant over the next six months, this could be a sign of overbuilding and a cyclical peak.’”

“A staggering number of American homeowners remain under water on their mortgages a decade after the housing bubble burst. Almost 4.5 million households — or 9.1 percent — owed more than their homes are worth in the fourth quarter of 2017, according to Zillow, with an estimated 713,000 owing at least twice as much as their property’s value. While the percentage is declining, families in communities with stagnant property values are ‘trapped in their homes with no easy options to regain equity other than waiting,’ said Aaron Terrazas, a senior economist at Zillow.”

“Movement Mortgage said Thursday it is laying off 100 employees nationwide, including 18 in the Charlotte area, as the lender founded by a former Carolina Panthers player braces for an industry slowdown. Movement, based in Indian Land, S.C., attributed the cuts in operations positions to slower than expected loan growth. Affected jobs in the region are all at the company’s headquarters, Movement said.”

“Movement has said it made more than $12.8 billion in mortgages last year, a new company record. At the time, the company also noted it had increased its volume of loans for home purchases for nine years in a row. These are not the first layoffs to hit the privately held company in recent months. In February, Movement quietly laid off employees at its headquarters as well as at other offices across the U.S. ‘At Movement, we have a commitment to long-term growth and impact. This year, we are growing slower than we expected,’ CEO Casey Crawford said in a statement.”

“The average sale price of Canadian real estate is falling, and fast. Canadian Real Estate Association numbers show the average price of a home is down 11.3% in April 2018. Most of the declines are being attributed to the country’s largest and fastest falling real estate market – Toronto. Toronto, Thunder Bay, and Hamilton regions are the fastest falling compared to last year. Toronto saw the average sale price drop to $804,584, a 12.6% decline. Thunder Bay had an average sale price of $217,745, an 11.9% decline. Hamilton – Burlington saw the average sale price drop to $569,490, an 11.3% decline.”

“With the economy struggling to see growth and an oversupply of properties whose prices do not match current market conditions, the real estate sector could take a further nosedive over the next 12 months. Chief Operating Officer of Terra Caribbean Hayden Hutton gave the dim projection recently, as he pointed out that the number of properties to be sold over the next 12 months would depend heavily on a change in pricing. He said a substantial segment of the market had ‘grudgingly re-priced’ adding that this was where some movement was taking place.”

“‘The re-pricing effort has been driven in part by lending institutions marketing and selling distressed properties at scale,’ he said, adding that the re-pricing was taking place at all levels of the market. ‘The punchline for sellers with properties listed in excess of 36 months is they have likely carried their property unnecessarily and followed the market down,’ Hutton said. ‘With the considerable amount of inventory on the market perhaps it’s time for vendors to join together in universal acceptance that the old market is gone and the new market is here to stay, at least for the foreseeable future.’”

“The latest news from New London Architecture, the only body keeping a record on London’s burgeoning towerscape, is sensational. There are planned to be 511 more towers of 20 storeys or more added to the London horizon. Most estimates are that 60 per cent of prime London sales go to foreign buyers, most of these as so-called ‘buy-to-leave’. The former City of London planner, Peter Rees, told me he pleaded for new City towers to be offices, ‘because at least they would be occupied during the day’. In his own Heron Tower, a quarter of the flat keys had never been collected.”

“Previous London property bubbles — as in Victorian North Kensington — saw whole neighbourhoods slide rapidly downhill into multi-occupancy and squalor. More likely to happen is that, like the palazzi of Venice, the blocks will simply sit decaying as nest eggs for laundered cash.”

“Swedish premium property developer Axxonen is ceasing operations, according to the Swedish business site E55. Due to adverse conditions on the property market, the luxury apartments cannot be sold at commercially viable margins, Axxonen told the site via email. Axxonen, which focused on developing premium penthouses in central Stockholm locations, has been in financial trouble for some time. Last week, its subsidiary Axxonen Properties Management was declared bankrupt. Several members of the board have left.”

“Starting with a downturn on the housing market in Sweden last fall, the stocks of many property developers have fallen sharply. The tough times have continued into 2018.”

“Taipei reported the second biggest annual decline in luxury real estate prices in the first quarter of 2018, according to the Knight Frank Prime Global Cities Index. Taipei saw a 7.4-percent decline year-on-year in the first quarter this year, trailed by the Swedish capital Stockholm, which sits at the bottom with the largest price decline of 8.4 percent. Knight Frank pointed out that the number of cities that saw their housing prices decline annually has risen from 16 to 23 in the first three months of 2018.”

“There were 9,000 unsold first-hand private residential flats in completed projects as of March 31, Hong Kong Housing and Transport Secretary Frank Chan Fan said. He explained to lawmakers that these unsold units may be vacant, or units occupied by the developers for self-use, or even those rented out by developers (such as serviced apartments). ‘As developers are not required to declare the occupancy of these unsold units, we do not have information about the number of units rented out by developers among these 9,000 units,’ he said.”

“Sydney’s days of families spilling onto the streets at crowded home auctions or open for inspections have disappeared following a steep decline in demand for housing. This was evident in additional sales price data released by CoreLogic, which showed Sydney recorded its 10th successive month of price falls over May. CoreLogic analyst Cameron Kusher said the city has swung from an extreme seller’s market to a buyer’s one. ‘The mood of buyers has turned,’ Mr Kusher said. ‘They’re looking at the high prices and saying ‘this doesn’t make sense’, so the downturn has become pretty entrenched.’”

“Property investment expert James Nihill of Patrick Leo said buyers had more opportunities to get better deals on apartments. This was partly due to investors rushing to sell units they bought off the plan during the boom from 2013-2017. ‘They’re trying to offload them before settlement starts. It’s all at once so we could see unit prices become more affordable in the eastern suburbs and inner city soon as well,’ Mr Nihill said.”

“Big mortgages and rising rents are putting pressure on even New Zealand’s higher-earning families. Just over half of New Zealand households cut back on heating their homes in winter due to the cost. In Auckland, 55 per cent of households go cold in a bid to save in the power bills. In Wellington, it’s 52 per cent. In Canterbury, it’s 50 per cent. David Marra, manager of the Christchurch Budget Service, said his team were seeing an increasing number of people earning more than $65,000 a year who wanted help - often because their mortgage costs were taking a greater share of their incomes.”

“Statistics NZ data shows 30,000 households earning more than $100,000 last year said they did not have enough money to live on. Another 116,000 said they had only just enough. Financial coach Shula Newland said she saw people giving up house maintenance because they could not afford it. ‘Then they end up with a house that devalues.’ Financial coach Hannah McQueen said many people had resigned themselves to not getting ahead because of their big mortgages. ‘Heaven help us when the interest rates go up.’”