The Housing Bubble

A report from the Toronto Star in Canada. “The competition among homebuyers is increasing in the Toronto region even though year-over-year prices fell 6.6 per cent on average to $805,320 last month, from $862,149 in May 2017. The number of resale home transactions declined 22.2 per cent in the same period. Detached and semi-detached houses continued to see the steepest decline in sales compared to condos and townhouses. The average detached house price fell 8.2 per cent in the Toronto region to $1.05 million, with the biggest drop in the communities surrounding Toronto, where there was a 9 per cent price drop compared to the same month last year. In the city of Toronto, detached house prices fell only 5.6 per cent.”

“York Region is still suffering disproportionate price declines compared to the rest of the GTA. While the benchmark Home Price Index was down 5.4 per cent overall, the same indicator showed a 15.6 per cent drop in York. Detached house prices were down 17.5 per cent on the index. This year to date, the home price index shows the average price of a detached home has fallen 13.8 per cent in the Toronto region.”

From Infosurhoy on Canada. “Real estate developer Fortress Real Developments Inc. is facing a flurry of legal actions from mortgage lenders who have filed applications to foreclose on land earmarked for development projects. Court documents show senior lenders have launched actions against at least four Fortress affiliates following recent payment defaults.”

“The targeted companies include Fortress Brookdale Inc., which is building a condo project on Avenue Road in Toronto; Brookhill Holdings Inc., which is planning a single-family housing project in Bowmanville, Ont.; and Fortress Collier Centre Ltd., which is developing a commercial tower in Barrie, Ont. Another lender also filed legal warning that it plans to seize land slated for the Glens of Halton Hills project, a planned residential development in Georgetown, northwest of Toronto. Fortress lists more than 50 projects on its website that it has under development or construction across Canada.”

The Vancouver Sun in Canada. “A former Metro Vancouver realtor who has been leasing luxury properties to B.C. gangsters is behind bars in the U.S. charged with international money laundering. Omid Mashinchi, 35, appeared in a Boston courtroom last month and was ordered held pending trial. U.S. authorities allege that he wired hundreds of thousands of dollars in drug money over several months last year to banks in Massachusetts through one of his company’s accounts.”

“A Postmedia investigation has found that Mashinchi has started at least three companies in B.C. since 2006, all related to the real estate industry. And for years, police say, Mashinchi has been associating with B.C. gangsters, including leasing them condos that were used both as stash houses and as residences. Postmedia has learned that his company Mashinchi Investments, also known as the Residence Club, leased the luxury North Vancouver condo where Brothers Keepers boss Gavinder Grewal was shot to death last December.”

“And Mashinchi also leased out a West Vancouver house that was targeted in an unsolved drive-by shooting on October 8, 2017. ‘Mashinchi is well-known to the policing community and has rented several properties to known gang members,’ Mike Porteous, a Vancouver police superintendent. ‘Many of these properties have been tied to criminal activity such as drug dealing and violent events including murder and drive-by shootings‎, which are gang-related.’”

“B.C. Attorney General David Eby has repeatedly raised concerns about organized crime laundering money through casinos and the province’s hot real estate market. But the charges against Mashinchi suggest dirty cash could also be infusing property leasing and high-end rentals. So how could organized crime use condo leases to launder illicit proceeds?”

“Christine Duhaime, an anti-money laundering expert and lawyer, said leases or rental properties could be misused through ‘trade-based money laundering — where you inflate the price to get a fake invoice to then move money.’ For example, if a property rented for $10,000 a month, the landlord could actually put twice that amount into the bank as the rent, effectively laundering $10,000.”

“RCMP Chief Supt. Keith Finn said there is obvious concern about money laundering through the real estate sector in B.C. ‘Whenever you have a quick increase in prices there is an opportunity there for the criminals among us to use the flipping of houses and purchase and disposal as means to launder their money,’ he said.”

The Sydney Morning Herald in Australia. “ANZ Bank has warned the pace of decline in Australia’s house prices is ‘quite a bit larger’ than expected, and likely to last longer than it previously forecast. With national auction clearance rates at a five-year low, ANZ senior economist Daniel Gradwell predicted in a research note published on Wednesday that further weakness was in store for the housing market, before it would start stabilising later this year.”

“Mr Gradwell pointed to recent figures showing that the rate of price decline had accelerated in Sydney. The weakness was also affecting Melbourne amid a slump in national auction clearance rates and a tightening in credit availability.

Mr Gradwell said the bank had previously expected the market would have ’stabilised’ by now, based on higher auction clearance rates at the start of this year. It had expected prices would finish 2018 slightly higher in annual terms. But ANZ is now revising these forecasts. ‘Weakness in Australia’s housing market has persisted longer than we expected, and the rate of decline in prices has recently accelerated,’ the economist wrote. ‘This weakness is challenging our previous view that prices would stabilise and then recover somewhat to finish the year in positive territory.’”

“‘Additional headwinds are possible, such as the shift away from interest only loans,’ he warned. ‘There could also be further tightening of credit as the impact of the current regulatory focus on mortgages flows through into lender behaviour. All of this suggests that the fall in house prices will be quite a bit larger than we previously expected, with recovery coming later.’”

From Business Insider Australia. “At this time last year, house prices in the exclusive suburbs of Sydney — regarded as the hottest pockets of the Australian property market — were still rising by more than 10%. But now those same areas are seeing discounts running into hundreds of thousands of dollars on individual homes amid a weakening market, Business Insider has established. Several Sydney real estate agents confirmed common discounting of around 10% on price guides as sellers have struggled to generate interest — even in the prized eastern suburbs and inner west areas of Sydney, which benefited most from the rapid price growth of recent years.”

“Agents from a range of firms said properties around the $2 million mark were most affected, and that the market conditions would persist for some time. Some said they expected the discounting to spread to higher and lower price brackets. One agent said he thought it would be ‘four years or more before prices go up.’”

“In one clear example, a property on Park Parade, Bondi, was recently revised weeks ago to $2.1 million from its previous guide price of $2.3 million, in an email to the agents’ list of prospective buyers. Another property on Ormond Street, Paddington, had its guide price cut to $1.9 million from $2.1 million. Both Bondi and Paddington are among the most desirable suburbs in Australia.”

“Kenji Fukushima works at Phillips Pantzer Donnelley, a real estate agency based in the eastern Sydney suburb of Woollahra, said he had seen instances of discounting, particularly when sellers put themselves in a tight spot. ‘That can be the case, say if a buyer has already bought somewhere else before the sale. So if they’ve upgraded to a more expensive property and they need to offload their old place to balance up,’ Fukushima said.”

“In other words, buyers were would take a lower price if they were stuck in a liquidity trap as repayments become due on their new mortgage.”

From Domain News in Australia. “The foreign buyer boom in Australia may be over, but the fallout from a $47 billion drop-off in property investment is just beginning. While there was a growing chorus calling for tightened regulations on foreign purchases to slow down astronomical house prices in the past few years, there are now concerns the measures may have swung the pendulum too far in the other direction. Fewer overseas buyers could create an oversupply of apartments in the short term and subsequent discounting could have a knock-on effect, according to AMP Capital chief economist Dr Shane Oliver.”

“‘The risk is if you don’t have the foreign buyers there in the same degree as in the past it may lead to a glut of apartments, and if it does it may be at lower prices and that may discourage future construction activity,’ Dr Oliver said. Another consequence of this massive foreign investor bust, according to Dr Rogers, was an oversupply of one to two-bedroom units as developers designed housing with specific buyers in mind.”

“‘Developers from 2013 were actively trying to work out how much capital was coming from Asian countries and what type of properties they were interested in and how they should design them,’ he said. Dr Rogers said developers sat on a wealth of information profiling foreign investors and described this information as part of the ‘invisible data story’ that could paint a better picture of what’s happening on the ground.”

From Your Mortgage in Australia. “After several years of robust performance, the Australian housing market is starting to languish, much to the disappointment of foreign buyers and investors who are now fleeing to greener pastures. In a commentary on News.com.au, industry watcher and economist Jason Murphy said foreign approvals to buy Australian residential property dropped by two-thirds last financial year, from 40,000 to 13,000 in 2016-17.”

“‘That takes billions of dollars out of the market and reverses three years of surging foreign enthusiasm for Aussie homes,’ Murphy said. Meanwhile, the current condition of the financial system is also making the market unattractive for property buyers, as it is which is riddled by controversies surrounding the ongoing investigation of the royal banking commission. ‘Not only is there a crackdown on investor loans taking the heat out of the market, but banks are facing a reckoning for their behaviour in the boom times,’ he said.”

“Murphy said global interest rates are also a factor — sooner or later, Australian interest rates will follow the footsteps of the US, where mortgage interest rates have been increasing fast. ‘It is easy to find reasons to be cautious about Australian property and tough to see too many reasons for enthusiasm. No wonder foreign investors are cooling on Australian property,’ Murphy concluded.”