The Housing Bubble

It’s Friday desk clearing time for this blogger. “Housing and rates are worrying some economists that a recession is looming. How could this happen again? Lindsey Piegza, chief economist for Stifel, believes that a decade of rock-bottom interest rates helped people forget about the dangers of borrowing too much. ‘I don’t know if we learned our lesson from the Great Recession,’ she said. ‘We are going back to a lot of the easy lending that we used to see.’”

“Seattle has been arguably one of the hottest housing markets in America, with home prices rising annually by double digits fueled by scorching demand. There is, however, one outside force that is starting to throw cold water on all that heat: new weakness from once-intense Chinese buyers. Stephen Saunders is a managing broker with Coldwell Banker Seattle and works with Chinese investors in the Seattle market. ‘It’s drying up,’ he said. ‘I just don’t see the same kind of volume. The downtown Seattle condo market has come to a grinding halt, and that’s where Chinese buyers were.’”

“Seattle housing is already cooling. The number of homes for sale in King County (where Seattle resides), shot up 47 percent in May compared with a year ago, according to the Northwest Multiple Listing Service. Pending home sales, which represent signed contracts, dropped nearly 9 percent.”

“Through the first half of 2018, the number of homes sold in metro Baton Rouge is 7.2 percent lower to 5,297 from 5,709 for the first six month of 2017. Wynona Squires, of Re/Max First in Baton Rouge, blamed the sales drop on falling demand for high-end homes and the economy. ‘I can’t put a handle on it,’ she said. Squires said last month there were 17 open houses for properties in Prairieville priced between $350,000 and $1 million. ‘You would have had eight or nine open houses like that a couple of years ago,’ she said. ‘And the attendance was slow.’”

“He originally put his five-bedroom luxury apartment up for sale in 2005 for an eye-watering $11 million before relisting the property again seven years later for the same price. And Def Jam co-founder Russell Simmons has now knocked off a cool $1million from the price tag, marketing it at $9,925,000 , after trying to sell the plush New York pad for a total of 13 years. The music mogul has had a run of bad luck trying to sell the apartment, which is situated in the Financial District, and boasts stylish reception rooms and three sprawling terraces.”

“He also decided to sell his ‘peaceful retreat’ in Los Angeles for $8.25 million - which he purchased for a much lower $5.877 million in 2013.”

“The downturn in the Prince Albert housing market will come as no surprise to anyone, but the latest sales figures appear additionally hard-hitting. According to the SRAR monthly report only 25 sales happened in Prince Albert in July, which is almost 50 per cent worse than July 2017 when 49 properties changed hands. The particularly low figures are below the five-year average and are the worst for a July in the last nine years according to data supplied by SRAR.”

“‘[July sales] saw an unusual decline,’CEO Jason Yochim said. ‘Although the numbers represent a significant decline compared to last year, this does not necessarily indicate an alarming trend.’ Yochim said various factors could have contributed to the decline which ‘may be coincidence.’ However, the latest monthly figures paint a bleak picture for sellers with the total value of all homes sold in the city and region down by 20 per cent, according to SRAR. Yochim said the real indicator of success in selling was ‘correct pricing based on what else is competition in the market and the current market conditions relative to supply and demand.’”

“Property investors in China should hold off on buying and selling homes as the country’s real estate boom hits rockier territory, a top wealth management bank said. High amounts of mortgage debt, overdevelopment and government involvement have put the country, including its top metropolises, in housing bubble territory, according to a report from UBS’s chief investment office. Government intervention in the Chinese economy will likely prevent a rapid price crash, but investors holding real estate there should brace for a prolonged period of cooling.”

“Construction and home buying have boomed since 1998, when the government introduced private property ownership. ‘Today, both activity and price levels remain at unprecedented heights, despite visible signs of slowing,’ according to the report. Oversupply is likely to persist, especially considering that the primary buyer population—people ages 25 to 44—is shrinking, according to UBS. There are an estimated 50 ghost cities that exist in China, mainly in the northern parts due to overconstruction.”

“Interstate refugees are baling on Sydney, along with a rush of new apartments for rent and falling prices that have prompted some would-be sellers to look for tenants instead, have all combined to produce a rare breed of Sydney market, one where renters can call the shots. Some 2.8 per cent of all rental properties in Australia’s largest city are vacant, and the way things are going that could go as high as 4 per cent, a level not seen since the post-Olympics property lull of 2004, SQM Research’s Louis Christopher says.”

“Avalon and Terry Hills on the northern beaches have the highest vacancy at a staggering 8.2 to 8.3 per cent, followed by Kellyville, Marsden Park, Rouse Hill and Box Hill at 6.9 to 7.1 per cent in the north-west. These areas are undergoing bumper housing development because of the arrival of the Sydney Metro. These are followed by the blue-chip suburbs of Lindfield at 6.9 per cent, Double Bay at 5.5 per cent, Edgecliff at 5.1 per cent, and Bondi at 4.9 per cent. Data from renting portal Rent.com.au shows that across these suburbs, vacant homes are staying empty for longer.”

“Competing for disillusioned tenants such as Burnett are not only new stock by new investor/landlords but desperate apartment developers who are turning their residual stock into rentals. In this type of market, landlords should be pragmatic, says SQM Research’s Louis Christopher. ‘Landlords should consider all offers before brushing them off.’”

“Rent.com.au chief executive Greg Bader agrees there is plenty of scope for tenants to negotiate lower rents. ‘It’s a big change in pace for Sydney, it’s gone from being the hottest capital city market in Australia for several years to losing its top gong to Hobart, of all places.’”

“Real estate developers sought immediate government intervention to tide over the stress in the sector that has resulted in poor demand and high inventory. Builders sought reduction of the goods and services tax (GST) on construction services from 12% and better access to finance, an executive from the Confederation of Real Estate Developers’ Associations of India said on condition of anonymity. According to industry estimates, clearing all the built yet unsold houses in cities such as Bengaluru or Mumbai would take between 40-60 months at least, assuming no new houses come on to the market.”

“FIFE construction business Muir Group lost some of the ground it had gained the previous year in the 12 months to the end of January, with a slowdown in development opportunities impacting on the firm’s top and bottom lines. Finance director John Watt said the reduction in turnover ‘was principally down to lower construction and development opportunities with a steady level of housebuilding activities.’”

“While turnover from the group’s private housing arm remained broadly unchanged at £29.5m, its contracting arm experienced a 17% dip, from £36.2m to £30m. Turnover from the group’s much smaller property development arm also fell significantly, more than halving from £4.3m to £1.9m. The development arm went from making a pre-tax profit of £884,000 to a making a loss of £139,000. Looking ahead, Mr Watt said that the business will continue to be exposed to a planning system that he called ‘unpredictable and torpid.’”

“Empty unsold luxury flats haunt London’s skyline. Sightseers can see them in Battersea, Stratford and further afield, but that doesn’t mean that crafty developers have any plans to stop building them. No, they’re taking the bold opposite option and building more and more, in a desperate attempt to recoup money — just as London’s property market stagnates.”

“This got us thinking. London already has — and will soon have even more — unsold luxury flats. What are we going to do with them? Just wait it out until we’re all stonking loaded and can afford to buy them? Surely there are some better options in the meantime. Here’s our two cents.”

“1. Paintballing Embrace your inner 12 year old and go paintballing inside these unsold complexes. Think of all the tactical opportunities this opens up. Duck for cover behind a granite kitchen island. Use the apartment’s in-built speaker system as a diversion. Replenish yourself with the on-tap sparkling water. Making a one man last stand on the balcony, as you admire the picturesque views of other empty luxury blocks.”

“Your team gets an automatic win if they manage to hit an actual resident — this is tougher than it sounds, what with people living in these flats being a rarely spotted phenomenon.”

“2. Post offices. Post offices, in the middle of towers in ghost towns. Or maybe just stamp dispensaries. We haven’t quite figured that part out yet. 3. Nightclubs. London’s councils are averse to independently run clubs and night-time venues. One of the prime reasons for this is that they feel it causes disruption for local residents. Do you know what we say to that? Can’t upset local residents if the residents don’t exist. It should be a relatively quick conversion too. Turn the kitchen into a bar, and then gut everything else to make way for a dancefloor. Tipsy revellers hundreds of feet in the air… what could go wrong?”

“4. Zip lines. Here at Londonist we’re a bit obsessed with transport. And with all these new hip and happening towers in the sky, people are going to need some form of quick transport to get between them.”

“5. Lower the prices. We know, we know. The most ridiculous of all the ideas in the list. However, what if these flats were sold at affordable prices. Psssht… yes, we know. We’re only dreaming. Let’s go back to the travelling between the post office and club on a zip wire firing a paintball gun in one hand.”