The Housing Bubble

The year is half gone and it’s time for your predictions. Six months ago: “Canadian Real Estate tanking. There is no reason your real estate should be worth twice mine when we are just across the border. It’s not like you have much better jobs and lower taxes.”

A reply, “You are absolutely right. And I think its tanking all across Canada, certainly in Toronto and Vancouver. Reason? I am not hearing of a single Chinese buyer at the new housing developments. New sales look like they have hit a wall. Across the border from me the prices have always seemed to be less in the States, but again I agree with you. Our jobs are no better and our homes are comparable. No reason for the difference.”

Another said, “I predict that cybercurrencies in general and bitcoin in particular will end up destroying thousands of people’s financial lives.”

One year ago. “I predict the Fed will walk back rate hike plans and the GSEs will continue to loosen lending standards in order to perpetuate Housing Bubble 2.0 as long as possible. These efforts will come to naught, as Housing Bubble 2.0 dies in 2018 of complications due to morbid obesity.’

And finally, “I always talk about consumption demand versus speculative demand, so I’ll post my opinion within that context: 1) Consumption demand should remain stable. I think it typically is, except when there are population shifts.”

“2) Speculative demand (includes pure speculative plus hybrid consumption-speculative demand): Locally I saw a price surge after the election, from November to say March or April. Like 100-150K surges. I attribute that to expectations after the election that the economy would improve and stocks and real estate would be favored. Also, the GSEs raised conforming loan limits back in late November as well.”

“BUT - there’s the one interesting thing, increasingly hawkish talk from the US and European central bank. Could it be a change in thinking or just a desire to get interest rates up so they have room to drop them in a future recession? Is it just talk?”

“On another note, I’m sure the populist/anti-establishment wave has caught their attention. All the central banks are capable of doing is redistributing wealth by their expert hand, perhaps they feel they’ve gone as far as they can go. Perhaps.”

“My suspicion is prices will plateau during the 2nd half the year, having surged already.”

A report from The Island Now in New York. “We celebrated this day on July 4th 1776, as the day of the publication of the Declaration of Independence of our 13 colonies from Britain, which eventually led to the formation of the United States. In a July 3, 1776 letter to his wife, John Adams declared that the signing of the Declaration of Independence should be a ‘great anniversary Festival’ and ’solemnized with Pomp and Parade, with Shews, Games, Sports, Guns, Bells, Bonfires and Illuminations from one End of this Continent to the other from this Time on. We have much to be thankful for; however, times have changed and am hoping that our future will be as exciting and invigorating as our first day of independence.’”

“Now on the subject of real estate and what has been going on lately in and around Long Island. Most important has been the price reductions in the overbuilt luxury market in New York City as well as in the burbs, where high end new and old homes are located. S.A.L.T. (state and local taxes) only allows a maximum of $10,000 deduction on your tax returns for 2018. This why there was a rush in December to prepay 2018 real estate taxes, especially those whose taxes were on the higher end way above the $10,000 maximum in 2018, to take the deduction in 2017. I had read that $80,000,000 of taxes were pre-paid in Southampton!”

“Mortgage interest deductions were reduced on new mortgages after Dec. 15, 2017, from $1 million to a maximum of $750,000 (ask your accountant about all the changes that might affect you). This has had a major effect on the higher end luxury market. I would suggest that if you have a home with real estate taxes considerably above the $10,000 allowable deduction, that you do not wait and put your home on the market asap.”

“However, if you are looking to move into New York City and want to try to get a good deal and have the cash to pay with the equity from your sale; wait until this winter (when demand is at its lowest) and you could score an amazing deal in the luxury market (for those individuals and developers, who may have to sell), as prices probably will be reduced from the excessive inventory and the decreased deductions in real estate taxes and interest on mortgages.”

From Deal Makerz on the UK. “Wealthy buyers in London are increasingly shunning luxury homes for cut-price dilapidated properties in the hopes of making a tidy profit. Buying agency Black Brick, which identified the trend, said buyers are looking to find the best possible deal on their London home, enabling them to achieve better value for money and the potential of long-term capital growth. ‘There are some excellent deals to be had at the moment, particularly from vendors who are highly motivated to sell,’ said Camilla Dell, managing partner at Black Brick. ‘That’s why as buying agents, we always find out who the seller is, and what their reason for selling is. This enables us to negotiate far better discounts for our clients.’”

“She added that the agency is also seeing some large discounts being applied to new build properties which are due to complete in the next two or three months and the seller wants to flip it before completion. ‘Some sellers are willing to take a significant loss in order to not complete on the property and face having to pay stamp duty.’”

From The Guardian. “More than 150 estate agency firms went insolvent last year and as many as 7,000 are at risk as high street operators face the triple whammy of online competition, a sagging property market and cuts to letting fees. A study by accountants Moore Stephens found that 153 estate agency firms went insolvent in the year to May 2018, a small increase on the 148 the year before. But it found that more than 7,000 estate agents ‘currently show signs of financial distress.’”

“Last week, shares in Britain’s biggest estate agent, Countrywide Properties, plunged 25% after it issued its fourth profit warning in eight months and called on shareholders to raise fresh funds to cut its debt. Countrywide, the company behind Hamptons, Bairstow Eves, Taylors and Gascoigne-Pees, has been hit hard by a downturn in the housing market in London and the south-east.”

“Chris Marsden, restructuring partner at Moore Stephens, said: ‘Some areas in the UK are appear to have an excess capacity of estate agents, which could mean there is not enough business to spread around as property transactions stagnate.’”