The Housing Bubble

A report from Canadian Mortgage Trends. “Last month the Canadian Mortgage and Housing Corporation (CMHC) formally asked the Canada Revenue Agency to take a more active role in verifying income claimed on mortgage applications in an effort to clamp down on mortgage fraud. The CMHC says the move is necessary given that ‘the industry’s current detection tools have not kept pace with the increasing sophistication of threat we face,’ according to its plan. Data backs this up, with a 2017 Equifax study finding that a full 13% of Canadians would be comfortable lying in order to get a mortgage approval. The study also noted a 52% rise in suspected fraudulent mortgages since 2013.”

“But not everyone is behind CMHC’s request for direct involvement from the CRA. Rena Malkah, owner of CYR Funding, has been a mortgage broker for 44 years and thinks this is an issue best left to underwriters. ‘Their job is to verify the claims. If they can’t they should be fired and replaced by someone who can,’ she said. She adds that credit rating is more important than income verification anyway. ‘If someone has a high credit rating, it shouldn’t matter what their income is. If they fight and scrap for under-the-table money to pay their bills on time, then it should be of no interest to the insurance company where the money comes from. And besides, involving CRA opens more people up to audit.’”

“Helen S. is a 61-year-old retired public accountant from Oakville, and the mother of a 26-year-old, and she agrees with Malkah. Her son earns just under $40,000 a year as a baker and she wants him to buy a home. She’s prepared to pay a percentage of the mortgage payments but she wants the mortgage in his name. ‘How I choose to set my son up for success is none of CRA’s business. I know he won’t default,’ she says. ‘My broker knows too. The CRA doesn’t have to be involved. We already give them enough money.’”

From the Georgia Straight in Canada. “The latest numbers from the B.C. Real Estate Association raise questions whether the B.C. government will achieve this year’s revenue target for property-transfer taxes. The BCREA revealed that there was a 23.9 percent decrease in Multiple Listing Service sales across B.C. in July, compared to the same month of 2017. The total dollar volume was $4.9 billion, down 24.2 percent from July 2017.”

“Earlier this month, the Real Estate Board of Greater Vancouver reported that detached homes on Vancouver’s West Side and in West Vancouver experienced the biggest annual price drops over the past year. They fell 8.4 percent and 8.3 percent, respectively, over a 12-month period. These areas have the most expensive homes.”

The Calgary Sun in Canada. “Calgary’s resale housing market remained firmly in buyers’ territory in July, according to the July report from the Calgary Real Estate Board. ‘Recent struggles in the job market, accompanied by yet another interest rate increase, are piling on to the decisions potential purchasers have to make in the housing market,’ says the report.”

The Leader Post in Canada. “June was a bad month for building permits across Canada, but Regina saw a bigger percentage drop in value than any large city in the country. Regina issued only $27.5 million worth of building permits in June of this year, compared to nearly $100 million the same month last year. That’s a drop of 72.4 per cent. Compared to May, the value of permits fell 44.5 per cent, more than any other census metropolitan area.”

“Jason Christbason, builder relations coordinator for the Regina and Region Home Builders’ Association, said part of the pressure comes from nationwide trends, like stricter mortgage rules put in place by the federal government. ‘Turn the clock back five years, you could go in and any day in any time and any bank and you had a mortgage,’ he said, explaining that a so-called ’stress test’ has made it much more difficult.”

“Mayor Michael Fougere said the city has a surplus of housing stock right now, something that might be keeping developers from moving forward with new projects. ‘I think we have an oversupply of housing,’ the mayor said. ‘That’s pretty obvious when you look at the vacancy rate.’”

From Domain News on Australia. “Marketers, vendors and agents are rushing to bring their sales campaigns forward rather than wait for September or October, spooked by reports of falling property values and auction clearance rates hovering at little more than 50 per cent. ‘There’s a lot of media attention about the market getting worse and people want to move now while they still have a bit of certainty,’ said Jim Larcan, a director of ​boutique property styling company Vitus Lee Chan. ‘There’s not much confidence out there right now.’”

“Coco Republic’s senior property stylist Jenny Conroy said business had been quiet in the first half of winter, with tighter lending practices putting the brakes on sales, but things had changed dramatically a few weeks ago making this one of the busiest periods the company has seen in years. ‘We are at capacity right now and it doesn’t look like this will end any time soon,’ she said. She said clients were also asking about extension rates for furniture if a property didn’t sell quickly.”

“However, chief executive of one of the largest property marketing providers CampaignTrack, Stefan Williams, said just because there was a bit more stock on the market to be sold doesn’t mean agents will be able to sell it, which is a big turnaround on market fortunes from this time last year. ‘It’s always busy at this time of year, but whereas last year was a case of agents struggling to source listings, now it’s a matter of selling it,’ he said.”

“Properties with redevelopment potential in top-notch positions, and sub $750,000 homes performed better than other real estate categories at weekend auctions. But stand-offs over asking prices are continuing to instill price uncertainty in Melbourne’s $1.5 million-plus housing market.”

“A buyer’s advocate at the auction, Kate Vines from Melbourne Property Advisory, said a sale price of just over $3 million represented a good purchase. ‘If you go back six months, that would have been an easy $3.2 million to $3.3 million property and it would have sold under competition,’ she said. ‘There is just no urgency. There is no panic out there. Buyers are taking their sweet time, because they can.’”

“Frank Valentic, of Advantage Property Consulting, said other townhouses and villa units in the northern suburbs had recently been passed in, or attracted only one bidder, before selling for prices below or just above their reserves. He said buyers were prepared to wait, and were putting in offers only if the price was right. ‘They’re not chasing the moving, runaway train at the moment,’ he said.”

The New Zealand Herald. “Tomorrow we will get a fresh update on the local housing market when REINZ releases it’s data for July. While winter is traditionally slow for the real estate sector, a slump across the Tasman has heightened concerns that we may see price falls here for the first time in several years. In Auckland, where prices have been flatlining for more than a year, the prospects of prices slipping in to negative territory looks increasingly real.”

“Sentiment in Sydney has turned fast. You’ve only got to scan the media coverage to see that stories about crash-risk and a buyers market are getting all the headlines. Even Reserve Bank Governor Adrian Orr has warned of the possibility. ‘We’re within a wisp of that happening in Auckland housing prices at the moment,’ Orr told TVNZ’s Q+A.”

“Stating in last week’s Monetary Policy Statement that rate rise was unlikely until 2020 has already helped to put downward pressure on mortgage rates. Regardless, the fact is that the Auckland housing market in 2018 looks very different to the one we have grown accustomed to. We need to brace ourselves for an economy that is no longer underpinned by the ‘wealth effect.’”

“As an infrastructure report (released today) by Chapman Tripp points out, house price growth has outstripped income growth in this country every year since 2003, producing one of the worst house price to income ratios in the OECD. Many homeowners simply won’t remember a time when the market wasn’t a one way bet.”

A report from Mansion Global on New York. “Manhattan luxury housing is still feeling the summer sales slump, recording the worst activity since January in the week ending Sunday, according to the Olshan Report. Buyers signed contracts for just 12 homes priced at $4 million or more, one of the borough’s worst weeks this year, according to the weekly report. ‘For the first time since September 2016, not a single co-op went into contract,’ wrote Donna Olshan, president of Olshan Realty and author of the report.”

“The most expensive home to go into contract was a townhouse on Sutton Place, asking $12.995 million—a significant discount from the $19.5 milion the sellers originally wanted when they listed the home in October 2016. The second most expensive home to find a buyer was a brownstone asking $11.9 million in the West Village. The pending sale also marks a major discount from the initial listing price of $17 million.”

From 27 East in New York. “Construction on the Southampton Pointe condominium complex at the intersection of County Road 39 and Tuckahoe Lane is finished, according to the Corcoran Group. Hundreds of millions of dollars have been invested in the past 10 years to build condominium complexes for zero-maintenance, turnkey, luxury living for aging baby boomers who want to downsize, or millennials looking to buy their first home—that is, if they can afford it.”

“The problem: Condos go through spikes in selling, with high highs and low lows. ‘I felt like condos was all we could talk about for years,’ said Carl Benincasa, a Douglas Elliman regional vice president of sales. ‘Condo fever—I don’t sense it in the air anymore. I think condos are a strong option and will continue to thrive in the Hamptons. But as prices have come down, perhaps the larger homes remain more attractive.’”

“Mary Slattery, the exclusive listing agent for Southampton Pointe, said luxury units have been on the market for about a year, during a time when the complex was not yet completed. Now that the construction dust has settled, and considerable price reductions have occurred for 16 select units priced under $1 million, she said several units are under contract—with the first closings anticipated for early October.”

“Because condos don’t appreciate the way single-family residences do, said Judi Desiderio, the CEO of Town & Country Real Estate, ‘people don’t go chasing them.’ On the other hand, there are condos that have struggled to sell because of overpricing—asking potential buyers to sign contracts for more than $3 million and put down more than 20 percent before the walls were even up.”

“That’s what happened in 2012, when what is now a three-story, 19-unit luxury condominium building called Harbor Edge at 21 West Water Street in Sag Harbor was nearing completion—and the owners, East End Development, filed for Chapter 11 bankruptcy. The complex is now open for business under a new investor, Longview Ultra, offering waterfront property.”

“In 2013, Corcoran brokered the first 20 units of the Watchcase condos in Sag Harbor from a trailer on the construction site. Two years later, developer Cape Advisors poured more than $40 million into renovating the late-19th century factory complex into luxurious, multimillion-dollar penthouses, bungalows and townhouses. ‘There have been nine units that we have re-sold, and there are currently five units as re-sales on the market,’ said listing agent Cee Scott Brown. ‘In most instances, either the apartment was purchased as an investment or major life changes mandated the sale.’”

The Miami New Times in Florida. “Earlier this year, real-estate analyst Peter Zalewski warned that South Florida developers had so overbuilt luxury condos for the global 1 percent that it would take an estimated four years to sell them all. At the rate condos were selling downtown, he found, the 505 available units would have taken nearly 6.5 years (78 months) to sell off during the slower, winter buying season. Well, the state of affairs in what Zalewski dubs ‘greater Downtown Miami’ has only gotten worse.”

“Now, according to a new report Zalewski’s CraneSpotters.com issued this week, there are even more luxury units available downtown: For sale are 559 ‘preconstruction’ units at an average price of $2.13 million. Even at the peak of the Miami summer real-estate ‘buying season,’ Zalewski warns, those 559 units could take 70 months — or 5.8 years — to sell off.”

“‘It is worth noting this report only tracks those Greater Downtown Miami condos formally listed for sale. The report does not factor in the nearly 47,500 new condo units currently in the development pipeline east of Interstate 95 in the tricounty South Florida region,’ Zalewski’s study ominously notes.”

“The overall trend is clear: Miami’s real-estate development community and public officials have approved a truly absurd number of new luxury condo projects pitched at global investors, rather than actual, homegrown Miamians.”

A report from Bankrate.com on California. “In the California real estate market the ‘b’ word is on the minds of many: bubble. One place where home sales were legendary for their risky offers, stripped of contingencies to woo sellers with full dance cards, is Silicon Valley. Inventory is fattening and sales are slowing. ‘At our peak, in my area, if you listed a home you could count on get 15 to 20 offers. We’re still in a market where we’re getting multiple offers, but things are changing,’ says Robert Whitelaw, broker/owner of Whitelaw & Sons Real Estate Services in Morgan Hill, California.”

“‘One, not just anything will get multiple offers. If you have a crappy house, the odds are it’s going to take you longer to sell. And that wasn’t always the case. You could sell absolute crap really quickly. The other part of it is you’re getting less offers, maybe four or five,’ he said. ‘I got an email from a builder recently. It was the oddest email, it read: ‘Now affordable housing at the low $1.3 millions.’ The construction folks seemed to have played out their hand when it comes to high-end construction. The really sad thing is that, in the really high-priced homes, the folks that bought them are likely going to have to sell for less than they paid for them.’”

The Kingman Daily Miner in Arizona. “Home sales have slowed across the nation after a busy spring, and higher prices in certain markets are giving buyers cold feet as they fret about another housing bubble. Doug Angle, founder of Angle Homes, said he’s seen a slowdown in sales over the last couple of months. ‘We’re still selling homes, but not as much as the spring,’ Angle said. ‘You’ve got to keep an eye on it. It kind of makes you nervous. You don’t know if it’s peaked or not.’”

“Angle is actively building in eight housing subdivisions around Kingman with homes starting at $152,000 for a three-bedroom, two-bath home in Cerbat Vistas and ranging up to $575,000 for a four-bedroom, 3½-bath home on two acres at Copper Wind. ‘Many of the buyers are from California, about half of them,’ Angle said. ‘We hope things will keep growing in the next two years, but in the last 45 days, we are starting to see a slowdown in sales both locally and nationally.’”

“Homes are sitting on the market a little longer and buyers are negotiating a little harder for deals, he added. Some builders may give them a $5,000 discount, but then recent buyers get upset because they didn’t have the same opportunity, Angle mentioned.”

“Angle said sales are slowing in higher-priced markets such as Denver, Seattle, San Francisco and Los Angeles as buyers think twice about taking on a substantial mortgage. ‘Prices have been going up the last three to four years. At some point, people say that’s too high, they’re not interested in buying,’ Angle said. ‘It’s going to reach that point. You’re going to have a correction. They’re starting to see that in expensive markets.’”

From Builder Online. “Clearly, although new-home builders in many markets continue to drive sales growth and can expect to record year-on-year increases in sales volume, revenue, and profits, the interest rate wild card is at least showing signs of raining on our builders’ parade. Ivy Zelman and her team at Zelman & Associates call out a statistically important inflection point in the latest issue of The Z Report, a recap of second quarter 2018 earnings among 14 public home builders who booked revenue of $20 billion on 51,500 closings–about 37% of high volume builders sales in the nation.”

“They note that the Zelman home builder basket had a great quarter from a business operating margin and profitability standpoint, but appear to have reached a pivotal moment in terms of the sustainability of their sales volumes and margins. The report takes particular note of new order growth of 6% across the 14 companies analyzed, a 500-basis point quarter-to-quarter decrease in sales volume growth from the first quarter of 2018.”

“‘To put this quarter’s 500 basis point deceleration in order growth into perspective, over the last 28 years spanning 113 quarters, order growth has decelerated at least 500 basis points in 32 other quarters, or 28% of the time. In 69% of these instances, order growth decelerated further in the subsequent quarter, by an average of 1,000 basis points. In other words, periods of large deceleration in order growth more times than not are followed by additional periods of weakness.’”

From the Coloradoan. “A decade ago, L&L Acoustical averaged about 60 jobs a month. Today, the drywall company completes 35 to 40 jobs, not because the work is shriveling up — quite the opposite. There’s enough work to do 60 to 70 jobs in Fort Collins’ robust housing climate, co-owner Gery Lockman said. ‘The cost of building these homes are through the roof,’ Lockman said. ‘Materials and labor are going up, but they can’t keep going up because we won’t have any work. No one’s going to be able to afford the houses.’”

“While the labor shortage continues, the appraiser shortage has eased. John Mayea, who has been appraising property in Northern Colorado since 1984, said there was a shortage right up until interest rates started to rise. ‘In those 30 years, the whole real estate business has tapped into capital unimaginable in the ’80s.’”

“When he started in the business, there were fewer appraisers than today and less work. ‘People didn’t use their houses as piggy banks back in the day,’ Mayea said. ‘There was not the whole volume of lending and borrowing, refinances and seconds.’”

“Appraisers were stretched beyond the breaking point during the height of the refinancing boom, when interest rates were at record lows. ‘There will always be a shortage when there’s a refi boom, but you can’t build an industry based on peak demand.’”

“Ron Harding got 20 to 40 appraisal requests per day during the refinancing boom. He could only accept one or two. Instead of a shortage, he calls it ‘an overabundance of work that no one was prepared for. It couldn’t last and it didn’t last,’ he said. ‘Nowadays, that’s gone. There are plenty of appraisers,’ he said.”

“Realtors and lenders know to call for an appraisal immediately once a home is under contract to ensure there is no delay in closing the purchase, Realtor Ben Blonder of Fort Collins said.”