June 22, 2018

We Just Came From A Few Years Of Record Everything

It’s Friday desk clearing time for this blogger. “As the market gets more competitive, mortgage lenders are looking for ways and means to cut costs. The quarterly Fannie Mae survey of lenders had found that despite lenders making significant investments to improve operational efficiencies, margins had declined over the past few years. The survey also painted a sobering picture of the housing market, indicating that mortgage demand sentiment had reached a three year low. Lenders’ profit margin outlook also took a dive and remained in the negative territory for the seventh consecutive quarter.”

“Time to beg for a raise. The price of being a homeowner touched a nine-year high in the first quarter, with borrowers in some parts of the U.S. spending half their income on mortgages, according to Zillow. ‘For the past few years, historically low mortgage rates provided the silver lining for buyers as prices rose higher and higher,’ said Aaron Terrazas, senior economist for Zillow. ‘That affordability edge is getting thinner. In markets that have seen some of the biggest increases in home values, housing costs already take up a larger share of income than they did historically, making it all the more difficult for buyers.’”

“The affordability squeeze is worst on the West Coast, including in the Silicon Valley area, where homeowners spend more than half their incomes on mortgage payments, according to Zillow.”

“Home sales are spiking in Lafayette Parish and the overall housing market looks relatively stable, according to a new report. Increased sales in the plus-$300,000 range aren’t keeping up with the glut of new listings, particularly when it comes to resales. Year-over-year sales in the high-end range were up 13 percent in May, but new resale listings, which far outnumbered those for new construction, were up 31 percent. ‘The problem has been in that there has been too much supply coming on the market, and that is particularly exacerbated in the upper end resale market,’ said William Bacque, president of Van Eaton and Romero.”

“The Chicago Tribune has already warned of a bubble in the city’s house flipping ‘frenzy.’ ‘Denise and I were amazed at the state this house was in – these unethical flippers are little more than con-men trying to make a quick buck at the expense of Chicagoans looking for a home,’ said Charles Bellefontaine of Chicagoland Home Inspectors. ‘Make no mistake about it: These homes are dangerous. Sooner or later, the effect of ‘quick flipping’ is going to result in tragedy. This is a ticking time bomb that is coming about purely because of greed with no concern for consequences. As home inspectors, we are vigilant against this threat and condemn this unethical behavior. Who wants to buy a potential death trap?’”

“Vancouver’s real estate market has been electric for the past few years. Prices in the British Columbian city have been soaring since 2015, but tightened lending, higher interest rates across Canada, the city’s new government and tax worries may dampen the mood. Prices were down 4.6% to and average of C$1.3 million (US$1.07 million) compared to the month before, according to Zolo, which updates data in real time. That’s a 7.2% decrease from the previous year, as of June 4.”

“‘We just came from a few years of record everything—record sales, record prices, record time on the market,’ said Vancouver-based agent Leo Wilk. ‘That was from about 2015 to honestly about four weeks ago. ‘Interest rates are up and banks are tightening up lending. That has slowed things down. Anytime you decrease buying power, buying decreases.’”

“Turkish sales of housing rose for the first time in four months after the government introduced incentives such as slashing mortgage rates charged by state-run banks. House purchases via mortgages fell 11.7 percent in May from a year ago, a slower pace of decline than previous months, the data showed. A slump in mortgage lending, prompted by a rise in interest rates, had been the main factor in depressing the market. Turkish housebuilders have also cut prices. In May, 40 large firms jointly reduced the price of some new housing by 20 percent to stimulate demand and sell off old stock.”

“Property owners will have to brace themselves for lower returns and rising vacancies as more tenants battle to pay their rent. The market has weakened so much that rentals in some areas are down more than 30% year on year. This is particularly true for Cape Town, where buy-to-let owners have been forced to either lower their asking rentals or face the prospect of sitting with empty properties. That signals a sharp reversal of fortunes for Cape Town landlords. This time last year, rentals in the Mother City were still testing new highs, and demand for properties to let seemed never ending.”

“Letting specialist Grant Rea says there has been a significant shift from October to a rental market that is oversupplied. Rea says many landlords who were letting their units on a short-term basis through Airbnb have found that the returns don’t justify the time and effort involved. In addition, increased competition in the Airbnb market has placed pressure on rates. ‘Many [landlords] have returned to long-term letting, which has flooded the rental market as a result,’ he says.”

“It would be India’s first privately built and managed city, one of five planned for 30,000 to 50,000 people each. Today Lavasa is an incomplete shell housing some 10,000 people, a symbol of the excesses gripping the world’s second-most-populous nation. This onetime hilltop paradise is becoming for some a hell on earth. Signs of neglect are everywhere: maintenance is late or nonexistent. And that’s for the construction already done. For the unfinished building works—i.e. most of it—there is little happening.”

“Arguably even worse off than current residents are the thousands of people who have put down their life savings or borrowed money to buy property here, only to fear it may never get built. ‘In 2012, when we first came to this place, it was booming—from being a vibrant place it has come down to be a ghost town,’ said David Cooper, a 63-year-old resident of Lavasa’s home for senior citizens, Aashiana. ‘There is hardly anyone who wants to stay.’”

“For a glimpse of where Lavasa may be heading, look to Aamby Valley, another affluent township outside Mumbai turned ghost town built by a separate developer. That $5.5 billion township is facing liquidation after its backer defaulted. ‘Selling big land banks like Lavasa or finding investors who can write big checks for a project like that would be quite a struggle in the current environment,’ said Amit Goenka, managing director of Nisus Finance Services Ltd. ‘There are just too many distressed sellers and not enough buyers in this market.’”

“In China’s Inner Mongolia province, in the middle of the Gobi desert, row upon row of largely vacant apartment towers line the streets of Kangbashi, a new district of the city of Ordos. Earlier this month, Xu Yongfen and his family moved into one 28-story building. But most apartments remain unoccupied, their doors still covered in plastic wrap, and at street level, barren storefronts are visible in all directions. ‘This area is nearly totally empty,’ Mr. Xu says.”

“Built by the dozen across the country, the new areas reflect—and were meant to accelerate—China’s economic boom. As the country’s growth has slowed, many of them have become serious liabilities, deep in debt, with little prospect of full occupancy anytime soon. Officials have since reduced their population goal to 300,000, and they are just halfway there. An early resident, Hu Richa, has been waiting seven years for more neighbors. Still, he says, ‘There’s barely anyone living here.’”

“Sold apartments aren’t necessarily occupied. Chinese families often use them as investments or to hold until their children become adults, which explains why Kangbashi is so thinly populated. Asked about excess inventory in the new district, an Ordos housing official said that Kangbashi is still growing toward its capacity. ‘Supply is low, and the need is large,’ she said.”

“The Sabah Housing and Real Estate Developers Association (Shareda) has written to Chief Minister Datuk Seri Shafie Apdal to request the State Government to hold roundtable discussions with developers and stakeholders over the issue of the overhang in residential properties. Shareda president Chew Sang Hai said the association would put forward several proposals to the government, including acquisition of overhang residential units by the government for People’s Housing Project (PPR) or 1Malaysia People’s Housing Programme (PR1MA).”

“He said the issue of residential overhang would be greatly alleviated if the government would absorb the unsold units in the market. He added that the overhang was defined as unsold completed property that have been in the market for more than nine months. Chew said property overhang in Sabah had reached 25 percent, majority of which are bumiputera units. ‘When the market is bullish, these overhang properties will gradually be absorbed. But the number of overhang units is accumulating in the current market slowdown,’ he said. He said developers could previously sell off 80 to 90 percent of their properties upon launching. ‘Given the current market circumstances, hitting 60 to 70 percent sales for a project is already considered an amazing feat.’”

“Changes proposed to restrictions coming on foreign buyers may go too far and risk exposing New Zealand to a dangerous over-supply of housing, says ANZ chief economist Sharon Zollner. ‘It might seem like a far-fetched concept here in New Zealand with our chronic housing shortages, a sharp increase in housing supply is not everywhere and always a good thing, in the big picture,’ she said. Zollner said the Australian ANZ research team expected prices to fall 10 per cent from their peak to lowest point in Sydney and Melbourne. That was driven in large part by credit availability, she said, but more apartments could be expected to become available over the next year or two, as prices continued to stall.”

“‘If a significant number of foreign investors were to not settle because prices were heading south, it would amplify the downward pressure on the housing market,’ she said. Former ANZ and now independent economist Cameron Bagrie said investors who had previously looked for capital gains would not get them, but yields - the measure of rent compared to purchase price - were not high enough for investors who wanted properties for income. ‘There will be a new wave of buyers who are more yield-based investors but at the moment the numbers don’t stack up, it’s a Mexican stand-off.’”

“A founding member of one of Australia’s biggest real estate fund managers Charter Hall’s Cedric Fuchs has warned of serious vulnerabilities in the housing market with people not adequately prepared for the risks of a downturn. The fund manager said there was growing complacency in the residential property markets especially when it came to managing debt. ‘I don’t think a lot of people have done stress tests when they have gone to buy residential property,’ he told The Australian Financial Review. ‘I don’t think people know where these fingers of vulnerability lie. It’s very much like an avalanche. Nobody knows where the voids are under the fingers of snow that can pull everything down.’”

“Now, as house prices around the country start to show negative growth - the ABS this week recorded the first annual price fall in Sydney since the March quarter 2012, Mr Fuchs says people should exercise extreme caution in the housing market, even with record low interest rates. ‘We have seen a very artificial thing happen with the central banks pulling interest rates down - I think the last time interest rates went that low was 500 years ago.’”

“‘It’s one big experiment. I think people are in unchartered waters. A lot of people who kept missing out at auctions thought their affordability was still ok because of lower interest rates. The debt has increased dramatically and I don’t think people have stress tested for when the rates go up. Nobody really knows how the debt sits and who is behind it.’ Mr Fuchs tells the story of a recently divorced friend who he was amazed to learn had heavily leveraged five houses.”