The Housing Bubble

A report from CBC News in Canada. “The Canadian real estate industry is used to disregarding gloomy predictions. But now, after a decade of laughing in the face of repeated false warnings that a housing slump was imminent, most Canadians affected by real estate — in other words, just about all of us — have suddenly become a little more wary. No one disputes the meteoric rise in Canadian house prices has come to an end. The latest figures from both Vancouver and Toronto, which come out before the national data, indicate the boom is over.”

“Those who bought recently also have a bigger stake because the mortgage represents a bigger chunk of their house. That means a combination of rising rates and sharply falling home prices could make recent buyers feel nervous, knowing that a sudden job loss or a forced move could make them swallow a big, and perhaps unsustainable, loss.”

From Better Dwelling in Canada. “Real Estate Board of Greater Vancouver numbers show July saw inventory surge. The rise in inventory was met with big declines in sales. The month-over-month decline, works out to a loss of $3,700. This is the largest monthly decline since August 2012. The total number of active listings in Greater Vancouver made a huge climb. REBGV had 3,952 active condo listings in July, up 66.96% from last year. This brought the sales to active listings ratio to 27.3% for condos, compared to 62% last year. When the ratio falls below 20%, the industry considers the market ‘balanced.’ If the ratio falls below 12%, it becomes a ‘buyers market,’ and prices rapidly decline.”

From Troy Media in Canada. “The Calgary Real Estate Board says stricter lending criteria, higher interest rates and a slow economic recovery weighed on housing demand in the city over the first half of 2018 and MLS sales have dropped off more than first anticipated. The drop in demand has been coupled with rising inventory. New listings are up five per cent from a year ago to 24,492 and as of Wednesday, active listings on the market of 8,551 have risen by 24.87 per cent.”

“‘Easing sales combined with rising inventories has pushed the market into an oversupply situation for all products, affecting pricing for all products, which include detached, semi-detached and row, and apartment,’ said Ann-Marie Lurie, CREB’s chief economist. ‘Prices were not expected to improve this year. However, supply has not adjusted fast enough to weaker than expected demand. This is causing us to make a downward revision from earlier estimates.’”

From Urdu Point on Australia. “Australia’s largest city Sydney’s vacancy rate reached 2.8 percent, the highest level in 13 years, while rental property vacancies across Australia rose 2.2 percent in July, with a total of 72,458 properties sitting empty across the country. General manager of SQM Research Louis Christopher said there shouldn’t be any panic from property investors.”

“‘I don’t think there’s going to be a big fall,’ he said. ‘I think it is very unlikely we will see a steep crash in rents.’”

From Nine Finance in Australia. “The number of empty vacant properties in Sydney is at a 13-year high as a construction boom creates more investor-purchased apartments than there are tenants to fill them. Across the city 19,114 properties lay vacant, unable to find a tenant willing to pay the asking price of rent. Louis Christopher, Managing Director of SQM Research, said the oversupply of new properties in Sydney did have one upside for tenants: cheaper rent.”

“‘The supply of rental accommodation, especially of new units, has jumped following the building boom in the city,’ Christopher said. ‘Sydney has also experienced slowing population growth, which has helped to push asking rents lower, as landlords increasingly struggle to fill properties.’”

“But Sydney isn’t the only market to suffer the symptoms of a building boom which is no longer supported by cashed-up buyers. Perth has the unenviable title of boasting the most vacant properties – proportionately – of any capital city. The West Australia capital has 8,146 empty homes, or 4 percent of the market, unable to find residents.”

“In Darwin there are 1,030 properties left unattended (comprising 3.4 percent of the market), followed by Brisbane with 9,503 properties (2.9 percent) and Melbourne with 9,043 empty lots (1.6 percent).”

The Australian Financial Review. “Selling agents are starting to reveal the truth behind recent listings in Sydney’s west with Belle Property Strathfield’s Jimmy Kang saying up to 50 per cent of his clients were asking him to sell their homes in Sydney’s western suburbs because they can no longer afford their new principal-and-interest mortgages. A couple asked him to sell a two-bedroom weatherboard home in Veron Street in Wentworthville, 27 kilometres west of Sydney, for $950,000 when it was only worth about between $820,000 and $830,000. They bought the home for $790,000, two years ago.”

“‘I asked them where they got that number from and they said that was the number they need to pay back the $200,000 they borrowed from family to buy the home as well as repay their interest-only loan,’ he said. ‘A lot of them initially paid $2000 to $2500 a month on their interest-only loans, and now they have to pay $4000. Many owners are going through loan issues. If they let the banks take over, the bank will sell their homes for a lesser amount than if they try and sell it now.’”

“LJ Hooker’s Peter Tannous says about 25 per cent of his current listings are struggling interest-only sellers. In Guildford, a couple – a teacher and a factory worker – with two children asked him to sell an apartment they paid $385,000 about three years ago. It is on the market for $428,000 after an initial price of $438,000 did not attract buyers.”

“‘In another week, we will have to adjust another $10,000,’ he said. ‘They’ve tried to roll over their interest-only loan but unfortunately they had no luck. There is stress out there, and it takes a lot to coax the truth out of the sellers.’”

A report from My News LA in California. “California’s housing market backpedaled in July on an annual basis for the third consecutive month as higher interest rates and rising home prices eroded housing affordability and dampened demand, the California Association of Realtors said Thursday. ‘In the midst of the peak home-buying season, high home prices and rising interest rates combined to crimp housing affordability, which in turn is subduing home sales,’ said C.A.R. President Steve White. ‘Some of the reluctance by buyers appears to be driven by fears that the market may be peaking. Additionally, the lack of a federal tax incentive for homeownership could be at play given that much of the weakness is in the lower-priced, first-time buyer segment of the market.’”

“The statewide median home price decreased to $591,460 in July. The July statewide median price was down 1.9 percent from $602,760 in June and up 7.6 percent from a revised $549,470 in July 2017. ‘While home sales continued to decline in recent months, the softening of the market is more indicative of a market shift rather than a major market correction,’ said C.A.R. Senior Vice President and Chief Economist Leslie Appleton-Young.”

“On a non-seasonally adjusted basis, sales in the Bay Area fell 7.1 percent monthly and increased 2.0 percent annually. Sales in the Inland Empire declined 6.1 percent from June and were up a nominal 0.1 percent from a year ago. Sales in the Los Angeles metro region dropped 11.3 percent from June and were essentially flat from a year ago.”

A report from CNBC. “After several years of rich home price gains, the market appears to have found a limit to what people can afford. Sellers are finally responding by increasingly lowering prices. Approximately 14 percent of all listings in June had seen a price cut, that’s up from a recent low of 11.7 percent at the end of 2016, according to Zillow. In addition, home price growth is slowing in nearly half of the 35 largest U.S. metropolitan markets. The market was thus suffering a critical shortage, just as demand was taking off. Prices had nowhere to go but up. Until now. In San Diego, 20 percent of all listings had a price cut in June, up from 12 percent a year ago. In Seattle, which continues to be the hottest market in the nation, 12 percent of all listings had a cut, the largest share in nearly four years.”

“In Austin, also a very strong housing market thanks to a recent influx of technology jobs, more homes are seeing price cuts as well. ‘We saw intense bidding on homes over the past few years, but that is calming down with more inventory in the area,’ said B Barnett, a real estate agent with Reilly Realtors in Austin. ‘Our inventory of homes is going up with new construction, and it is helping transfer power back to the buyer.’”

From the Dallas Morning News in Texas. “There’s a new sign in the North Texas housing market - ‘Reduced Price.’ Almost 19 percent of the home sale listings in Dallas-Fort Worth had had at least one price cut, according to a new report from Zillow. That’s up from about a 14 percent reduced price rate in D-FW a year ago. With home sales slowing and housing prices growing at a much slower rate than in recent years, sellers are sometimes over reaching with their asking prices, real estate agents say.”

“Houses that just sit on the market often get a price reboot. The rate of home price cuts in D-FW is higher than the nationwide rate of 14 percent in June, according to Zillow.”

The Columbus Dispatch in Ohio. “More home sellers are dropping their asking price, in Columbus and across the country, according to Zillow, suggesting that the housing market may finally be softening. In central Ohio, 15.1 percent of listings had cut prices in June, up from 12.5 percent a year ago. The figures are the latest of a handful of indications that the housing market may be starting to soften after six years of sky-high growth, although sellers still hold most of the cards.”

“‘The housing market has tilted sharply in favor of sellers over the past two years, but there are very early preliminary signs that the winds may be starting to shift ever so slightly,’ said Zillow senior economist Aaron Terrazas. ‘It’s far too soon to call this a buyer’s market. Home values are still expected to appreciate at double their historic rate over the next 12 months, but the frenetic pace of the housing market over the past few years is starting to return toward a more normal trend.’”

“In two cities - Tampa, Florida, and San Diego - at least 20 percent of listings saw price reductions in June.”

From KOMO News in Washington. “Finally there is some good news for people struggling to buy a home in the Seattle area’s red-hot real estate market. Zillow says more homes on the market here are seeing price cuts - nearly twice as many as last year. Some 12 percent of listings in Seattle had a price cut in the most recent reporting period - that’s up from 6.9 percent a year ago. The typical price cut is 3.1 percent.”

“There are also fewer buyers from outside the United States. Countries like China have made it harder to move money overseas. And Zillow is projecting that the slowdown in home prices will continue into next year.”

From KOVA in Arizona. “New statistics from the Tucson Association of Realtors show the housing market is going through a slight summer slump. Total sales volume fell 15.91% percent to $347,114,173, while the average sale price fell 2.01 percent to $253,924. Also, the average listing price fell 1.53 percent to $260,279.”

From Builder Online. “One top 10 home building firm has data that indicates a flash-point on house prices it’s unwilling to risk triggering. An executive there notes: ‘For every $1,000 we add to the selling price of a home in our [seven state] operating regions and divisions, we know we’d eliminate 250,000 households from our qualified buyer pool in those markets and submarkets.’”

“Right now, that’s not a risk builders willingly take. New data from a BTIG/Homesphere survey of 75 to 100 small to midsize builders whose operations sell from 50 to 100 homes per year indicates that builders’ ability to pass-along construction cost increases may have hit a cycle tipping point. While builders haven’t gone so far as to lower base prices, more and more are apt to do the next best thing in order to keep driving the pace of absorptions in each of their subdivisions and communities.”

“For the last five-and-a-half months of 2018, we’re going to be hearing one word a lot: Incentives. Here’s how the BTIG/Homesphere analysis contextualizes it: ‘This month no builder surveyed reported a drop in base prices. 39% raised most or all of them, down from 50% in June. The 42% reporting increases in sales incentives was up from 33% in June, but note we would expect this trend to increase seasonally through the year. Not a single builder surveyed reported seeing lower mo/mo costs in land, labor nor materials.’”

“The most-recent analysis in The Z Report makes similar observations–’many builders increasing their exposure to more affordable price points of late, which is putting a downward skew to reported prices’–and comes to an identical conclusion about tactical pricing to keep pace and volume levels cranking: ‘Any potential further deceleration in order activity will likely result in heightened incentives into year end, which could put pressure on gross margins heading into 2019.’”

“A parting thought challenge for you to ponder here. If a $1,000 increase in a per unit price for a builder prices out a quarter-of-a-million prospective buyers in its operational footprint, what would a $1,000 decrease in a like-for-like unit do to that buyer pool? “