September 17, 2018

Many Investors Now Panicking Under Financial Strain

A report from the Ballina Advocate in Australia. “Australia is facing a ‘debt crisis’ - and the property market and our entire economy are at risk as a result. That’s according to the sobering 60 Minutes segment Bricks and Slaughter which aired last night, revealing the country’s property downturn was just the tip of the iceberg. According to reporter Tom Steinfort, the current slump is actually ‘more like falling off a cliff,’ with a number of real estate and finance experts claiming houses could plummet in value by up to 40 per cent in the next 12 months.”

“Mr Steinfort spoke with data scientist Martin North from Digital Finance Analytics, who said Australia was uniquely vulnerable when it came to an economic crash tied to a property downturn. ‘At the worst end of the spectrum, if everything turns against us we could see property prices 40-45 per cent down from their peaks, which is a huge deal,’ he said. There’s $1.7 trillion held by the banks in mortgages for owner-occupies and investors. And that’s about 65 per cent of their total lending. That’s higher than any other country in the Western world by a long way. We are uniquely exposed at the moment.’”

“Mr North said Australia was now in the same position as the US was back in 2006 and 2007 - a position which triggered an economic collapse. ‘As a society, and as a government, and as a regulatory system, we’re all banking on the home price engine that just goes on giving and giving and giving. It’s not going to,’ he said. ‘We’ve got a debt bomb, we’ve got a debt crisis and at some point it’s going to explode in our face.’”

“It’s a sentiment shared by Laing and Simmons real estate agent Peter Younan, who said the median house price in his patch in Granville in Sydney’s west had dropped from $1.2 million to $1 million in just one year - a shocking $200,000 plummet. He said foreclosures had also risen by 600 per cent in the region. ‘The mortgage stress is definitely being felt especially in this area,” he said.

“60 Minutes also spoke with several Aussie homeowners who gave harrowing details of the stress they faced trying to pay off their mortgages, including having their power turned off and being ‘hounded’ by their banks. But property investor Bushy Martin said the blame lay squarely at the feet of buyers who ‘mortgaged themselves up to their eyeballs’ in a bid to snap up dream homes before being able to afford them.”

“However, the segment has also sparked backlash online, with some claiming the situation had been exaggerated. One Reddit user branded the report as an example of ‘alarmist journalism and scare tactics,’ while another said it was ‘dramatic and cringe-worthy.’ And some said it was unfair to blame the banks for the situation, and that homeowners needed to take responsibility for their own decisions.”

“That was in response to comments made by one homeowner on the program, who said the bank had ’suddenly switched the mortgage to interest and principal,’ raising his repayments by 57 per cent. ‘The interest only part annoyed me the most. The bank didn’t ’suddenly change’ your repayment from (interest only) to (Principal and interest) your IO term expired. You a) knew this would happen and b) assumed the bank would renew it when it expired. I hope this speculator gets burnt first,’ one Reddit user said.”

“However, others slammed the banks for handing out multiple interest-only loans to buyers. ‘They raked in the cash from dodgy loans for years and are crying wolf now. It’s negligent beyond words,’ one Reddit user said.”

From Domain News. “Experts have questioned claims of a 40 per cent drop in Australia’s house prices, made over the weekend on 60 Minutes. Experts have rubbished the claims made on Sunday night, saying the very worst case scenario was presented. ‘Mortgage stress and falling prices were the primary factors of concern on the program, which claimed the number of foreclosures was rising, and the banks were obfuscating the real numbers.”

“Market Economics managing director Stephen Koukoulas said this was a weak claim. ‘There’s a whole lot of reasons to suggest prices are going to be weaker for a shorter amount of time, but it’s remarkably orderly,’ he said. ‘People aren’t rushing in to hand over their keys.’”

From ABC News. “Stagnant house prices are likely the new normal for property markets in much of Sydney and Melbourne, analysts are warning as prices fall for the 11th month in a row. Keiran Edwards is experiencing the new reality first hand. He is trying to sell the family home in Penrith on Sydney’s western fringe.”

“‘I thought we might sell it in the first week,’ he told 7.30. ‘Someone would come in and go, yeah, that’s mine. It just hasn’t happened.’ He bought the house six years ago and renovated it himself. Until it went on the market, he thought its value had doubled. ‘I just assumed that people would straight away walk in and love it, like I loved it all those years ago when I bought it,’ he said. ‘But even saying that, they maybe do love it but are having trouble getting finance.’”

The Daily Mail Australia. “Home borrowers are being warned to brace for bad news with the proportion of houses and units selling for a loss at the highest level in five years, new figures show. Across Australia, one in 10 homes sold during the June quarter fetched a lower amount than the purchase price, data from Core Logic showed. The proportion of loss-making sales, at 10.2 per cent, was at the highest level since the three months to October 2013, with apartments more likely than houses to burn the seller.”

“In some Australian capital cities, more than half of all units sold were being offloaded at a loss, with six of the seven mainland capitals seeing a double-digit proportion of apartment owners losing money at sale time.”

“In Perth, 23.4 per cent of homes sold at a loss, followed by 20.1 per cent in regional Queensland. Inner-city apartments fared particularly badly, with 53.4 per cent of central business district Perth units selling at a loss during the three months to June 30. Brisbane’s inner-city was also a bad place to invest with 32.4 per cent of units fetching less than the seller had previously paid, compared with 22.3 per cent in Melbourne’s inner-city.”

“In Darwin, a whopping 71.1 per cent of units sold at a loss during the June quarter, a jump from 51.9 per cent during the same period a year earlier. Sydney, however, was the least risky capital city market to buy a unit, with only 3.1 per cent of units in the city and the inner-south selling at a loss, in Australia’s most densely populated locality where 71 per cent of dwellings sold are apartments. ”

“Across Australia, 9.4 per cent of capital city properties sold at a loss compared with 11.6 per cent in regional markets. Investors were more likely to get assaulted financially, too, with 10.1 per cent of them making a loss, compared with 9.8 per cent of owner occupiers, following an Australian Prudential Regulation Authority crackdown on investor loans.”

From ABC News. “You know things are tough in the property market when a seasoned real estate agent sells his own family home and chooses to rent instead. Greg Rossen has been selling homes in Perth’s wealthy western suburbs for decades, but even he doesn’t have the confidence to invest in housing at the moment. And he can’t see it getting better anytime soon.”

“‘No-one can predict the future, but for my own self I have sold out of the market and I am renting a family property because I don’t see any light on the horizon,’ he said. ‘Investors need to be mindful of where they think the cycle is and make up their own mind. But there is a body of thought, that I subscribe to, that conditions are not good and I believe they could well get worse.’”

“After strong price rises across 12 suburbs — largely at the premium end of Perth’s property market — the Real Estate Institute of WA recently claimed ‘aspirational suburbs are really leading the way in the property market’s recovery.’ ‘It’s lovely to quote certain suburbs where you have what appears to be an increase in price, but in reality, if we look at the total metropolitan market, those are almost anecdotal,’ he said. ‘We are coming off a low base so statistics can lie and they need to be very closely looked at.’”

“Mr Rossen said those price rises were attributable to ‘pent-up’ demand but the broader market ‘is generally in a bad condition.’ He noted that while prices in Nedlands have risen 15 per cent over the past year, he recently re-sold three properties in the area for 10 per cent less than he sold the same houses for a decade ago. He said a ‘devastation’ in commercial rents as well as tenant vacancies in both the residential and retail sector continued to point to poor market conditions.”

“LJ Hooker Rockingham Baldivis director Paul Baird-Murray said the area south of Perth in which he worked was currently saturated with properties for sale, the majority of which were bought as investments, ‘Some of them have actually said ‘but I thought rents just kept going up, I thought property prices would just continue,’ Mr Baird-Murray said. Many investors were now panicking because they were under financial strain or feared further market falls. But Mr Baird-Murray said they were unrealistic about the value of their property in the crowded market.”

“Local resident Steph Moses said ongoing land development in the area was exacerbating the problem. She and husband Daniel have an investment property in Port Kennedy, between Perth and the regional city of Mandurah. They had intended to keep the property for the long term, but were recently forced to list it for sale. ‘I was given the diagnosis that I had stage four cancer so we had to change a lot of things,’ Mrs Moses said. ‘I have had to stop work because of my illness.’”

“The only offer they have had on the property was $70,000 less than they paid for it. ‘If you want to build a house, you get $10,000-$15,000 for building a new home, so there is no incentive for the first-home buyers market to buy an established property,’ Mrs Moses said.”

Increased Supply With Larger-Than-Usual Discounts

A report from the Naples Herald in Florida. “The Naples housing market continues to show strength after closed property sales increased by 5 percent and inventory rose 2 percent in August, according to the Naples Area Board of Realtors. ‘I’m really encouraged by activity in the lower end of the market during August,’ said Mike Hughes, General Manager for Downing-Frye Realty, Inc. ‘Historically, August is where we begin to see an increase in inventory as sellers get ready for our busy winter season.’”

“According to Adam Vellano, West Coast Sales Manager, BEX Realty – Florida, ‘One indication that homeowners were pricing homes to sell in August was apparent in the MLS as 50 percent of the inventory that sold during the month had been on the market for over 100 days.’”

“Overall median closed prices fell 3 percent in August to $319,000 from $328,000 in August 2017, and it fell 13 percent for properties above $300,000 to $446,000 from $510,000 in August 2017.”

From Curbed Atlanta in Georgia. “Following a thorough renovation, this circa-1920 brick bungalow in Roseland, a community between Chosewood Park and South Atlanta, harkens back to a simpler time, but with key modern upgrades. Although the listing states this home ‘won’t last in this fast growing community,’ it’s actually been on the market for nearly 80 days. And that’s after a $30,000 price cut that brought the original asking price of $349,000 down to the current $319,000.”

From Mansion Global on New York. “Manhattan’s luxury housing market logged a slow week as the Jewish New Year cut two business days from many people’s work weeks and children in the city were off from school, according to the Monday Olshan Report. Those homes that did trade hands also went with larger-than-usual discounts. The average property to find a buyer last week went into contract with a 9% discount.”

“Case in point, the most expensive transaction was an Upper West Side townhouse with five bedrooms, an elevator and a $4.5 million price cut. The home first went on the market for $19.5 million in October 2016, but officially found a buyer last week for $15 million.”

From Palo Alto Online in California. “As summer comes to a close, buyers and sellers want to know what to expect this fall. Will the market heat up, kind of like late summer temperatures often do in the Bay Area? Will home prices continue to rise, stay the same or decrease? Does a market like Silicon Valley even slow down? ”

“For the majority of 2018, inventory levels for Silicon Valley have hovered around one month’s supply. Historically speaking, these numbers are very low. But in July, inventory levels crept up a bit to almost one-and-a half-month’s supply. This still doesn’t indicate a buyer’s market, but it does mean buyers had more homes to choose from in July than they’ve had the rest of the year.”

“Accompanying the increase in supply was a drop in the median home price for single-family homes for both Santa Clara and San Mateo counties as a whole, and many of the individual markets they encompass. In July, the median home price in Santa Clara and San Mateo counties fell from second-quarter numbers of $1.4 million and $1.65 million respectively, to $1.35 million and $1.6 million. This represented a 4 percent (Santa Clara) and 3 percent (San Mateo) drop in median home prices.”

You Probably Should Have Sold Last Summer

A report from the Dallas Morning News in Texas. “The slowdown in Dallas-Fort Worth’s housing market may be worse than at first glance. Sales of preowned single-family homes dropped 1 percent annually in August in all of North Texas, according to the latest numbers from the Real Estate Center at Texas A&M University. Those numbers include data on more than two dozen counties stretching from the Red River to Waco. When you drill down in the numbers to just the immediate D-FW area, August’s dip in home purchase activity was much larger. In the Dallas area, sales of preowned homes by real estate agents fell by about 4 percent in August from a year earlier.”

“But some Dallas-area residential districts saw marked declines in home buying last month. Real estate agents say the overall numbers understate the housing sector cool down. Sales last month were down almost 31 percent in Far North Dallas. They dropped 24 percent from August 2017 totals in Allen, and were off 21 percent in Coppell. Plano had a 16 percent year-over-year sales decline and sales were down more than 11 percent in Richardson and about 9 percent lower in Frisco.”

“So what’s the takeaway from all this? D-FW still has a good home sales market, but not as robust as last year. That’s good news if you are trying to buy a house in the area. But you probably should have sold one last summer if you wanted a line of potential buyers at your front door.”

The Scotsman Guide. “Housing analysts told Scotsman Guide News this week that the U.S. housing market has hit a plateau. The latest tracking data for home-purchase mortgages appears to confirm that. Attom Data’s Daren Blomquist told Scotsman Guide News that the demand for home-purchase loans ‘was trudging along,’ but rising mortgage rates and eroding affordability have taken a toll.”

“‘Especially when you look at some of the local markets, we are starting to see mortgage rates have a chilling effect on some of the purchase originations,’ Blomquist said. He noted that home purchase counts have declined by double-digits in Los Angeles and Dallas, where affordability has become a problem.”

“Blomquist said this flatness in the home-purchase market will likely continue until home prices cool off, or come down. ‘It has been such a strong sellers’ market, but this spring and summer may have been a bit of a wake-up call for sellers that they can’t get whatever they want for homes,’ Blomquist said.”

The Scottsdale Independent in Arizona. “For the city of Scottsdale, the housing market started in a lull, but has since picked up steam, according to Becca Lining, a Realtor with RE-Max Excalibur. The market experienced a small delay at the start of the school year, but has made a quick recovery,” she said pointing out all economic indicators suggest a steady, healthy housing market. ‘There is speculation of a ‘bubble’ from consumers and economists, however, I have seen a strong market with moderate appreciation, which indicates a healthy future.’”

“Thus far in 2018, there have been 5,908 single-family homes sold in Scottsdale, numbers show. In Scottsdale, there are 24.5 percent fewer homes for sale, which experts say is fueling healthy gains in both median sales prices and closed sales. There are 21,717 active single-family home listings in the city of Scottsdale, as of Aug. 31.”

“No market illustrates the idea of affluence better than the Town of Paradise Valley, but just as any marketplace, norms and emerging trends are beginning to shift, experts say. However, as much things change, they stay the same, according to Dub Dellis, who serves as chief operating officer at Walt Danley Realty. The group now has an office in the DC Ranch area — Mr. Dellis says the idea of luxury downsize is becoming a want his group is looking meet.”

“‘The buyers today are more educated than ever before,’ he said, pointing out consumers know what they want. ‘We have shifted from being the provider of the information and our role now is to interpret that information.’”

“‘The reality is, when you look at the pricing — it has been flat for a few years, but there has been an uptick,’ he said. ‘The average price of square foot going up is due to the product that is selling. It all depends on the type of property you have. If you have a newer property, that is what the buyers are looking for, but if you are in an older home that isn’t updated, the prices are going the other way.’”