The Housing Bubble

A report from the Globe and Mail in Canada. “In Canada’s fourth-largest city and one of its fastest growing and strongest economies, homes sales continue to trend downward compared with 2017, while home listings continue to grow. But rather than panic, many owners and buyers in the market have kept counting on quick relief, believing Calgary’s next boom will solve their problems. Industry watchers say these hopes, based as they are on a pattern of downturns lasting no more than two years that stretched back into the 1980s, are about to face something of a reality check.”

“A lot of people ask me if we are getting back to ‘normal,’ said Todd Hirsch, a Calgary-based economist with the Alberta Treasury Branches. ‘And when they say that, I suspect what they mean is early 2014, which was a boom time – because that’s what everyone misses, that’s what felt comfortable, especially for people in the oil and gas sector. People were making a lot of money and real estate prices were booming.’”

“When people ask him this, Mr. Hirsch said his reply is blunt: ‘I say, ‘If you mean early 2014, no, we’re not going back to that.’ Anyone who bought before 2015, such as Mr. Hirsch, is feeling this pain. He says his own condominium in downtown Calgary is likely worth about 20 per cent less than it was four years ago.”

“Ann-Marie Lurie, executive director of the CREB, said the organization opened the year expecting prices and sales growth to remain stable, but instead sales have dropped and prices have softened. Calgary has ‘too much supply’ of all types of housing, she said, while several other factors have exacerbated the situation: the dampening effects of the federal ’stress test’ on first-time home buyers; slow job recovery in traditional sectors; and homeowners jumping at the somewhat-rebounding market to list their properties in 2017 and early 2018, adding to the supply overload.”

The Western Investor in Canada. “If housing is a harbinger of a city’s economy, Edmonton could be in trouble. Residential land sales in the Alberta capital dropped 57 per cent last year from 2016 and ‘are tracking close’ to 2017 levels so far in 2018. Sales of multi-family rental building buildings through the first three months of this year, meanwhile, have plunged 74 per cent from the record high set in the first quarter of 2017, according to the Edmonton Flash Report from Altus Group.”

“‘Due to high vacancy rates, landlords were forced to offer discounts and incentives to fill their units. This trend will start to end this year. Things might be a little unsteady until 2019, but they will improve,’ said a report from Braden Equities, a large Edmonton property management firm, which is forecasting lower vacancy rates.”

From This Is Money in the UK. “Homebuyers in the UK are managing to knock £10,822 off asking prices on average as the majority of the country remains very much a buyers’ market, new figures suggest. The latest figures from Hometrack have revealed a UK-wide discount to asking price of 3.5 per cent - the difference between what a home was originally listed for and what it eventually sells for. Taking into account this month’s average asking price of £309,191, that means on average buyers are clinching houses for £10,822 less than what the sellers want.”

“That doesn’t sound like that much, but it is worth bearing in mind that a sizeable number of properties see much bigger cuts than this and many will see tens of thousands of pounds shaved off listed asking prices before they go under offer. Buying agent Henry Pryor, who has bought and sold over 1,000 properties, recommends buyers start low and raise their offer gradually. ‘The buyer decides what a house is worth, the seller decides if it’s enough,’ he said. ‘Remember, the agent is not a broker,’ added Pryor. ‘He is paid by and represents the seller. His job is to pick your pocket and he will try every technique to do so.’”

From Reuters on Australia. “Growth in Australian home loans for investment hit record lows in June as tighter lending standards and hikes in some mortgage rates sucked the life out of the buy-to-let sector, piling further pressure on house prices. Tuesday’s figures showed the stock of outstanding credit for home investment fell 0.1% in June, from May. That was the first drop since the global financial crisis and only the third decline in the near-30 year history of the series.”

‘Annual growth in investor credit slowed to an all-time low of 1.6%, a long way from the 10%-plus seen at the peak of the housing boom in 2015. An added wrinkle has been an increase in funding costs for banks over the last few months which had put upward pressure on mortgage rates. In a recent report, Moody’s Investors Service noted that 16 small and midsize banks had raised their home loan rates in the face of higher wholesale costs and slower loan growth.”

“The four major banks had held off so far, in part due to intense public scrutiny amid a government inquiry which had turned up evidence of widespread misdeeds in the industry. Moody’s suspected that might not last. ‘The rate hikes by the smaller banks may be paving the way for the major banks to raise their rates and preserve margins, despite the politically charged environment,’ the agency said.”

“While such a move would be positive for bank profits and their credit quality, it would come at a tough time for the once red-hot markets of Sydney and Melbourne. The latest data from property consultant CoreLogic showed prices for the combined capital cities were heading for their tenth straight month of decline in July.”

From the Sydney Morning Herald on Australia. “Banks are tipped to remain cautious about mortgage lending for the next two years, continuing a trend that has dragged borrowing by investors to a near standstill, and caused a Sydney-led slump in house prices. Banking experts on Tuesday predicted that a tighter supply of credit would continue to have a major impact on the housing market for next year and possibly longer, as the royal commission hangs over the sector.”

“The comments came as new figures showed housing investor credit growth had slowed to a new record low, a result of banks slamming the brakes on lending to landlords and people taking out interest-only loans. Paul Mirams, a partner specialising in real estate at insolvency firm KordaMentha, said a slide in demand for properties from Chinese buyers would be a drag on the market.”

“‘Broadly speaking we think the Chinese will be a net negative for the next couple of years on residential prices, and that’s probably going back to normal, rather than the last four or five years that have not been normal,’ Mr Mirams said.”

The Tribune India. “The business of land and property is not called ‘real estate’ for nothing. By now, nearly all — rich, middle class, and poor — would have realised that no other estate, whether executive, legislature or judiciary, can rein in this ‘real power’. The state government is preparing to give Cabinet approval to the Punjab Laws (Special Provisions for Regularisation of Unauthorised Colony) Bill, 2018.”

“It may be a good time to recall that over the past two decades, governments came and went, property prices saw boom as much as bust, regularisation policies were framed and changed, investors suffered, home buyers were stuck in hellholes, but no one ever told you not to invest in ‘real estate’. That is because this is perhaps the single largest and quickest route to transfer hard-earned money from the common citizen to the politician-builder, who also is now common.”

“What happened on ground was that the builder paid nothing, home buyers paid money, and the government collected copious funds. And that is it. With little real growth to justify the property bubble (yes, the prices are still not real), there is a vested interest to continue blowing air into it. Is anyone out there expecting the regularisation policy to bring relief from choked sewers, empty rooftop water tanks, and blown-out power transformers? Please forget that, and get used to real life.”

A report from The Real Deal. “According to the National Association of Realtors‘ new survey cited by the Wall Street Journal, the number of purchases by international buyers fell by 21 percent between 2017 and 2018, amounting to a drop of $32 billion. It’s the largest decline on the books. Though good news for Americans who’ve been eyeing properties particularly in more expensive enclaves, waning interest from abroad compounds the effects of a softening housing market–especially for luxury condo developers, who often target wealthy foreigners.”

From the Miami Herald. “In a move with significant implications for the U.S. housing market, Florida Republican Sen. Marco Rubio is seeking to take a Treasury Department crackdown on dirty money in luxury real estate and expand it from a few high-priced enclaves to the entire nation. Rubio says his proposal is an attempt to root out criminals who use illicit funds and anonymous shell companies to buy homes — a form of money laundering that hides the cash’s tainted origin from law enforcement and banks. The widespread practice enables terrorism, sex trafficking, corruption, and drug dealing by providing an outlet for dirty cash, according to transparency advocates.”

“Through an amendment to an unrelated major spending bill, Rubio will ask Treasury to study whether government regulators should force shell companies that buy homes priced at $300,000 or more in cash nationwide to disclose their owners. That could be a figure as as high as 10 percent of the nation’s real-estate deals.”

“A similar reporting requirement affecting transactions priced at $1 million or more has already had a chilling effect on all-cash corporate sales in Miami-Dade County, which has been under Treasury’s microscope since 2016. As soon as the order took hold, shell companies buying homes with cash dropped off the map, a recent study by academic economists found. In Miami-Dade, the number of corporate cash sales plummeted 95 percent, although a strong overall market suggests creative buyers found ways to circumvent the rules, researchers said.”

“The temporary directives — called ‘geographic targeting orders’ or GTOs — were later expanded to other housing markets in Florida, New York, Texas, California, and Hawaii where foreign and anonymous investors are gobbling up real estate and driving up prices. The rules require title agents to identify the owners of shell companies buying homes with cash and disclose their names to the federal government.”

“While overall home sales held steady even after the FinCEN rule went into place, the real-estate study found, luxury home prices were slightly softer in markets affected by the GTO. That suggests that expanding the GTO could have a dampening effect on the nation’s real-estate market, said Jeff Morr, a luxury real-estate broker at Douglas Elliman and chairman of the Miami Master Brokers Forum, an industry group.”

“‘Does it stop money laundering? Probably, yes,’ Morr said. ‘Is it good for the real-estate market? Probably, no.’”

From National Real Estate Investor. “Investors have become less willing to pay top prices for apartment buildings in New York City. Prices on apartment assets in Manhattan south of 96th Street have dropped slightly relative to income, and have lost their upward momentum in the rest of the city. As interest rates push higher, investors are becoming more cautious. ‘Nobody wants to pay the peak price,’ says Jim Costello, senior vice president with New York City-based research firm Real Capital Analytics.”

From Crain’s New York. “A record influx of wealthy foreign buyers, a growing population and historic high employment have kept the city’s residential markets hot for years. But as reports pour in about what could be the beginning of a nationwide housing slowdown, data from the second quarter of the year show that Manhattan is already showing signs of weakness. The number of newly built apartments sold in Manhattan dropped precipitously in the second quarter, falling by 36.7% from the number in the second quarter of 2017. The median sale prices for the units also fell, dropping by 19.2% during that period to $2.6 million from $3.3 million, according to data from Douglas Elliman.”

“The number of existing unit sales, which comprise 87% of the residential sales market in Manhattan, dropped by 12.3% in the three-month period from the year prior. The median sales price for the units was $975,000 in the second quarter, up slightly from the same period a year ago but less than the record $995,000 average set in the third quarter last year.”

“Jonathan Miller, CEO of the market research and appraisal company Miller Samuel, said he believes sales prices are a lagging indicator. More significant to the trajectory of the market is that for three successive quarters, sales volume for existing units has been down. ‘I characterize that as a reset, and it does have the potential to fall farther,’ Miller said. ‘Demand is continuing to be softer than it was last year.’”

“About 6,000 units are for sale in Manhattan—not an outsize number, Miller said. He attributed the slowdown to buyer fatigue from years of pricing increases; the fallout from the Trump administration’s income tax changes, which limited the deductions for mortgage interest to the first $750,000 borrowed and for state and local taxes (including property taxes) to $10,000; and growing unease over the possibility of a recession in the next year or two. ‘We’re definitely going through a period of change,’ Miller said, ‘and it’s not entirely clear where it’s heading right now.’”

From Business Den in Colorado. “A disgruntled Evergreen couple that sold their 8,000-square-foot mansion for $550,000 below their asking price has turned on their one-time broker and the agent who represented the buyers. Former Evergreen homeowners Catherine and Robert Ross last week sued agents Caroline Wagner, Sonia Chritton and the brokerage Sotheby’s International Realty Affiliates, claiming that the agents conspired against them, and shared compromising and confidential information with the buyers that led to a lower sales price.”

“According to the lawsuit, LIV Sotheby’s International Realty agent Caroline Wagner had a six-month contract with the Rosses to sell their home at 580 Packsaddle Trail in Evergreen. The Rosses listed the 8,700-square-foot, seven-bedroom home at $1.9 million, according the lawsuit. The Rosses claim they told Wagner in confidence about financial difficulties, which required them to refinance the home with a hard-money loan. They claim that only Wagner and the bank knew about their loan.”

“The lawsuit states that under Wagner’s contract, she was prohibited from disclosing the sellers’ reasons for listing the home without their consent, and that she was required to remain mum even after the termination of the contract. After seven months of working with the Rosses, Wagner said the couple cut her and hired a different agent.”

“‘When I took the listing, I said, ‘The price you want is too high,’ Wagner said when reached by phone. ‘They fought me all the way. They didn’t want to budge. They went to somebody else because they thought somebody else could do better than I could.’”

“The lawsuit states that in May, the Rosses ran out of money, except for the value in their home. According to the complaint, Wagner then told Sonia Chritton, a LIV Sotheby’s agent at the time, about the Rosses’ financial position and their weak negotiating position. Defendant Chritton finally admitted to the Rosses’ agent that she received the information about their loan and financial hardships from the Rosses’ ex-selling agent,” the lawsuit alleges.”

“Chritton allegedly took this information and used it to help her clients, buyers Annette and Stephen Pummel, to make a low ball offer, according to the complaint. The Rosses accepted the offer and sold their home for $1.37 million on May 30 to the Pummels, Clear Creek County property records show. The Rosses originally purchased the property in 2009 for $595,000, according to property records.”

“Wagner denied the allegations that she communicated with Chritton about the property and the Rosses’ financial difficulties. ‘That is bull,’ she said. ‘I looked at my emails and I have never ever had communication with Sonia. The Rosses are trying to fabricate something to make some money.’”

“Chritton said that word about the Rosses’ financial difficulties did get out. But it wasn’t real estate agents who spilled the beans. Chritton said neighbors told her clients about the Rosses’ loan and financial situation, and told the Pummels to look into the loan.”