October 10, 2017

The Market Is Not What It Was Six Months Ago

A report from CBC News in Canada. “New buyers can expect home ownership to become even less affordable next year as mortgage costs rise, while current owners will be largely insulated from higher rates. That’s one of the main takeaways of a new outlook from Scotiabank, which forecasts mortgage carrying costs to increase by about eight per cent next year because of rate increases and tougher mortgage rules. That’s almost three times more than the 2.5 per cent the bank expects household incomes to rise. Rival Royal Bank recently forecast in its own report that affordability has worsened for eight quarters in a row, and across the country is now at its lowest level since 1990. ‘The days of ultra low interest rates in Canada are over,’ Royal Bank said. ‘These increases are just the beginning of a hiking campaign.’”

From The Guardian in the UK. “Rents in Britain dropped in the final summer months for the first time in at least five years, according to Rightmove. It was the first fall at this time of year since Rightmove started tracking rents in late 2011. The decline comes as landlords flood the south-east of England with newly available rental properties, distorting the national picture, as they turn away from a stuttering London property market.”

From Thompson Reuters on Dubai. “Rents in some of Dubai’s busiest residential clusters are under intense pressure, with some landlords willing to cut their demand by 5-7 per cent. For tenants, the best way to access lower rents is seek out locations that have seen more new supply getting delivered or buildings with higher than average vacancy levels. ‘Anecdotal evidence suggests that numerous residential buildings - even within the prime areas such as Downtown and Marina - are seeing increased vacancies, and as such, tenants have been able to renegotiate their rents downwards,’ states the latest Dubai real estate update from JLL.”

“Up to 80,000 units could be delivered before the end of 2019, going by all the timelines set by ongoing projects and those launched recently. ‘This renewed sentiment does however raise the prospect of a potential over supply on the back of sales achieved through more attractive payment terms,’ said Craig Plumb, Head of Research - MENA at JLL.”

From Business Today in India. “The recent slump in the real estate industry means several major builders are unable to complete their housing projects and hand over possession to their customers, leaving them in the lurch. As is the usual practice, many of these customers have taken home loans, and they have to continue paying EMIs on their loans with no delivery date in sight. It has caused a lot of confusion and put many of them in dire straits financially.”

“For thousands of distressed homebuyers, the government is the last line of hope for some compensation. In the case of Amrapali, Uttar Pradesh Urban Housing Minister Suresh Khanna said, ‘There are nearly 40,000 homebuyers whose investments are stuck in various Amrapali housing projects. We have decided to give them relief. They will pay the remaining amount only when the builder readies the project for possession.’”

From Domain News in Australia. “Three out of 10 auction properties in Sydney failed to find a buyer at the weekend as real estate agents neglected to report the results of almost one-third of 679 scheduled auctions. The under-reporting of sales results is a tell-tale sign of a levelling market. Real Estate Institute of NSW president John Cunningham said unreasonably high asking prices were dampening activity.”

“‘The market has been changing all year,’ he said. ‘We are not getting the cream on the top of all those record prices that were occurring. If vendors are basing their price expectations on what happened six months ago, they are going to be disappointed. The market is not what it was six months ago.’”

“According to data from Domain Group, stock levels in Sydney at the moment are up 30 per cent on last year’s listings. ‘This is all part of the normal post-boom cycle,’ Mr Cunningham noted. ‘One of the reasons that you have a boom is because supply is extremely low and demand is high. You have a low interest rate environment which fuels that, but when the market goes through its transition period, changing from those boom conditions to what we call a normal market, there is actually more stock available.’”

The New Zealand Herald. “Reigning in bank borrowing, rather than building more homes, may be the answer to Auckland’s housing crisis, an Auckland property expert believes. Dr Michael Rehm, a senior lecturer in property at the University of Auckland Business School says lowering lending to more manageable debt-to-income ratios is likely to lead to a drop in house prices ‘overnight.’”

“‘But if this happens, it would mean up to 60 per cent of sales couldn’t happen,’ he says. ‘Many mortgages are astronomical; they are ‘off the wall’ and there is going to be a massive amount of pain to get to where we need to be. But if something doesn’t happen it is only going to end in tears.’”

“Rehm says debt-to-income ratios in New Zealand are in the stratosphere. A recent KPMG Financial Institutions Performance Survey (FIP) suggested most mortgages are sitting between nine and 12 times borrower income (this equates to a household with an income of $70,000 taking on a mortgage between $630,000 and $840,000). ‘This should be much lower - somewhere between three and five times income,’ he says.”

“Rehm says building more houses is not necessarily a silver bullet and may even drive prices up. ‘In Dublin, a city about the same size as Auckland, between 2002 and 2007 almost 100,000 new dwellings were built; but this only succeeded in fueling a speculative housing bubble and driving prices up by 85 per cent,’ he says.”

“Rehm lays the blame on ‘unbridled’ bank lending. ‘All roads eventually lead back to the banks,’ he says. ‘It is scary so many young people cannot afford housing. I believe the fastest way to turn it around is by restricting lending and if they pull back on credit, that alone I think will help draw prices back. Banks are looking to maximise their profits and compete against each other; to do this they need to grow their mortgage portfolios.’”

“Rehm says in 2016, 52 per cent of bank lending went on housing compared to just 14 per cent in 1984. ‘The tragedy is the debt saddled on Kiwi homeowners generates interest, a large chunk of which goes to shareholders off-shore,’ he says. ‘Anyone taking out high debt is taking real risk and if prices start dropping they are sitting ducks.’”

From the Otago Daily Times in New Zealand. “The slowdown in the housing market is causing sellers to take bigger losses on house sales. The quarterly Pain and Gain report from CoreLogic showed that while the number of people taking a loss is trending down, the amount they lose has increased. The median loss in Tauranga was the most pronounced, with people who sold at a loss losing a median of $55,000, up from $25,000 in the previous quarter. Dunedin also showed a sharp increase in loss up to $19,000 from $3000 in the previous quarter.”

“Christchurch was the worst affected city centre with the 7.9% of people who took a hit losing a median of $36,500. The 1.8% of Auckland sellers who took a loss were out-of-pocket by a median of $26,000. Nationwide, the median loss per loss-making sale is around $20,000. Investors were worse off than owner occupiers, losing $44,500 per sale.”

“Another trend revealed in the report was that the median hold period for loss-making properties had decreased from eight years in the previous quarter to just under seven. The hold period in Auckland dropped to just one year in the June quarter, down from 2.3 years in the previous quarter. ‘This means half of all Auckland properties selling at a loss were owned for less than a year,’ CoreLogic head of research Nick Goodall said.”




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58 Comments »

Comment by Ben Jones
2017-10-10 09:52:50

‘Reigning in bank borrowing, rather than building more homes, may be the answer to Auckland’s housing crisis’

Been saying that for years, doctor.

‘This is all part of the normal post-boom cycle,’ Mr Cunningham noted. ‘One of the reasons that you have a boom is because supply is extremely low and demand is high. You have a low interest rate environment which fuels that, but when the market goes through its transition period, changing from those boom conditions to what we call a normal market, there is actually more stock available.’

Bzzz, wrong answer John. You don’t go from boom to normal. Ask the people in Canada.

Comment by Carl Morris
2017-10-10 10:12:16

One of the reasons that you have a boom is because supply is extremely low and demand is high.

Or if you don’t want to let prices get low you just make borrowing really cheap and easy instead.

Comment by Ben Jones
2017-10-10 10:19:03

Here’s this pesky measurement again:

‘Rehm says debt-to-income ratios in New Zealand are in the stratosphere…most mortgages are sitting between nine and 12 times borrower income (this equates to a household with an income of $70,000 taking on a mortgage between $630,000 and $840,000)’

We’ve got a bunch of those 8, 9, 10+ times incomes ratios here in the US too.

Comment by In Colorado
2017-10-10 10:43:01

most mortgages are sitting between nine and 12 times borrower income

Holy Moley! “Most?” As in over 50% of mortgages in NZ. The carnage when that unravels is going to be breathtaking.

And their interest rates aren’t all that low: They’re about 5-6%.

So the annual interest paid on a 600K loan is about 30-36K, plus say another 4K in principal. That’s more than half the gross on the 70k income. Plus no MID and kiwi.gov probably takes about 30% of that 70K in taxes (income, national health, etc). That leaves about 9-16K to pay for everything else: Food, clothes, utilities, the car/transportation, repairs, etc.

They must all be doing cash out refis to pay the other bills.

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Comment by junior_kai
2017-10-10 15:02:21

I must admit, I like to watch episodes of International House Hunters online to see what parts of the world look interesting and worth a visit. There was a recent episode of an American who decided to move to Auckland. Some of the statistics cited early in the episode about how many people were moving there and the increase in homebuilding, cars and associated traffic were pretty shocking.

Fortunately I’ve been to Auckland before, 20 years ago so I have no desire. It was just ok back then, cant imagine it now as its “sleepiness” was one of the few points I liked about it, especially as you get out to the suburbs. I’m sure thats all been destroyed.

 
Comment by Neuromance
2017-10-10 16:08:15

New Zealand’s gone nuclear: http://picpaste.com/hpi_similar-6ah1hDpb.png

(generated that off that Dallas Fed House Price Index spreadsheet)

 
Comment by BlueSkye
2017-10-10 16:52:06

Nice visual. Any chance you could put the Y-axis scale in?

 
Comment by Neuromance
2017-10-10 18:56:03

BlueSkye: Any chance you could put the Y-axis scale in?

Oh yah - accidentally chopped it off. Updated here: http://picpaste.com/hpi_similar_2-86OImMz0.png

It’s just a linear (not logarithmic) index. 2005 is set to the “zero” value, which is why they all intersect at 100/2005.

Got the spreadsheet from here (2017 Q1): https://www.dallasfed.org/institute/houseprice/#tab2

The countries which looked different rom the rest: http://picpaste.com/hpi_different-E8527yBt.png

I was struck by how house prices in different countries have similar movements. So many peaking and dropping at the same time, and several troughing at the same time and continuing back up. Speaks to a similar and significant global finance undercurrent driving prices. Don’t know what it means about where prices are going. Only 2 countries of the 23 have declining prices.

Original post from the other day, with population chart links.

 
Comment by snake charmer
2017-10-11 07:16:29

I’ve watched a couple episodes of the show. My favorite was the young couple who didn’t speak Spanish who wanted to move to Bogota. Their purchase criteria included “views” and “charm,” as if they were moving to a ski town. Curiously, security didn’t make the list.

I too was in Auckland about 20 years ago, and it was sleepy, albeit in a formal, British way.

 
 
Comment by Mafia Blocks
2017-10-10 10:46:30

“most mortgages are sitting between nine and 12 times borrower income (this equates to a household with an income of $70,000 taking on a mortgage between $630,000 and $840,000)’”

That’s no different than the US.

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Comment by SW
2017-10-10 11:40:58

My county, San Luis Obispo, is at least at 9x income right now.

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Comment by In Colorado
2017-10-10 12:05:56

It’s one thing for prices to be 9X income, and another for mortgages to be 9X. The NZ article was about mortgages, not prices.

 
Comment by Mafia Blocks
2017-10-10 12:14:40

A distinction without a difference considering the low/no downpayment requirements.

 
Comment by jeff
2017-10-10 15:28:18

“considering the low/no downpayment requirements.”

4:55 if you must

Mr. low/no Risin’, Mr. low/no Risin’
low/no Risin’, gotta low/no Risin’
Mr.low/no Risin’, gotta keep on risin’
Risin’, risin’
Gone risin’, risin’
I’m gone risin’, risin’
I gotta risin’, risin’
Well, risin’, risin’
I gotta, wooo, yeah, risin’
Whoa, oh yeah

https://www.youtube.com/watch?v=RbfG_-jFDhQ

 
 
Comment by Incognito Owl
2017-10-10 21:22:14

Hell of a lot of those mortgages are also interest only. Something like 40% for the crazed speculators. But everything’s cool and it won’t come crashing down in a screaming heap because everybody in the world wants to live in Auckland because they’re super into traffic gridlock or NZ is magic or hobbits or something.

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Comment by In Colorado
2017-10-11 10:27:48

I know of a few people who moved to New Zealand and came back with their tail between their legs. They said that it was impossible to earn a middle class living there, unless you had connections. Even with their STEM degrees all they could find was menial work.

 
Comment by Carl Morris
2017-10-11 11:07:58

They said that it was impossible to earn a middle class living there, unless you had connections. Even with their STEM degrees all they could find was menial work.

Is that so different from the USA? My experience as a new grad from Wyoming with no connections outside the military was that it wasn’t easy to get a STEM job in the USA either without the degree. At least in Colorado. Maybe I should have moved to San Jose right away, though…I didn’t even consider it back then.

I’m just thinking that people who think it’s better in the USA might think so not realizing that they have connections.

 
Comment by Carl Morris
2017-10-11 11:09:00

Oops I meant even with the degree.

 
 
 
 
Comment by Incognito Owl
2017-10-10 17:03:22

New Zealand is a multidimensional omnishambles. I mean, we’ve got building companies going bankrupt at a time of unprecendented demand for new houses and unprecedented levels of homelessness. Meanwhile the government and councils wring their hands and try to pretend it isn’t happening, make idiot statements that homelessness and poverty are positive things because house prices are up for the boomers, and fail to do anything to either allow building or decrease demand. And when by some miracle a house is built, the damn thing is going to leak.

 
 
Comment by Senior Housing Analyst
2017-10-10 09:57:41

Wahiawa, Hawaii Housing Prices Crater 12% YOY

https://www.zillow.com/wahiawa-hi/home-values/

Comment by Barney
2017-10-10 15:25:52

Your link shows estimated values are up 7.7% year over year and forecasted to be ever higher in the next 12 months.

Comment by Senior Housing Analyst
2017-10-10 15:40:39

It’s the falling transaction price that is important here. $/sq ft will fall as demand plummets and transaction prices continue to crater.

Comment by redmondjp
2017-10-10 22:21:37

Do you even read your own posts, Mafia Blocks?

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Comment by Jingle Male
2017-10-11 04:56:01

Housing Analyst read? You’ve got to be joking. He doesn’t analyze either…….HA.

 
Comment by Mafia Blocks
2017-10-11 06:27:32

Hello my friends.

Denver, CO Rental Rates Crater 8% YOY

https://www.zillow.com/denver-co-80202/home-values/

 
 
 
Comment by BlueSkye
2017-10-11 07:34:35

“link shows estimated values are up 7.7% year over year…”

Whether it is trolling or simply refusal to understand, the point was list price. That’s a button on the Zillow page that you have to press. What Zillow estimated “values” are worth is debatable. The asking price in July 2016 was $572K and $520 in August 2016. It has since slid to $457K.

More meaningful would be the settle price, which Zillow now hides.

 
 
 
Comment by BlueSkye
2017-10-10 10:10:36

“New buyers can expect home ownership to become even less affordable next year as mortgage costs rise…”

As interest rates dropped house prices went up, so when interest rates jump higher house prices will do what?

“…while current owners will be largely insulated from higher rates.”

Did you forget that the loans are short term? You better stock up on Kleenex for all those couples who will come in to your bank to renegotiate their loans and you tell them they need to write a check now and pay a few hundred loonies more each month.

Comment by Ben Jones
2017-10-10 10:21:07

‘The tragedy is the debt saddled on Kiwi homeowners generates interest’

The banks aren’t going to give it away.

Comment by Mr. Banker
2017-10-10 12:25:05

🤣

 
 
 
Comment by Ben Jones
2017-10-10 10:17:01

‘‘Anyone taking out high debt is taking real risk and if prices start dropping they are sitting ducks.’…The slowdown in the housing market is causing sellers to take bigger losses on house sales’

Quack!

 
Comment by Senior Housing Analyst
2017-10-10 11:02:47

Westminster, CO Housing Prices Crater 6% YOY

http://www.movoto.com/westminster-co/market-trends/

Comment by Carl Morris
2017-10-10 11:38:16

That’s where the house I sold in 2005 is. Had it built for 135k in 1997. Was considered to be worth $225k by 2000. Then sat at that value until I sold it. Continued to sit at that value until 3 or 4 years ago and then suddenly jumped up to 360k in a couple of years according to Zillow.

Comment by In Colorado
2017-10-10 14:16:43

What does zillow say it’s worth today?

I saw an ad recently for a new, 2000 sq foot house in Westminster: 560K. That’s just stupidly expensive and I doubt it will fetch that much.

If the bubble doesn’t burst by next, I will be very surprised. Then again, last year I was expecting it to be this year. Yes, I know, there’s almost three months left.

Comment by Carl Morris
2017-10-10 14:22:18

The 360k number IS today’s number on zillow.

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Comment by Mafia Blocks
2017-10-10 14:56:10

$135k is about right. $110k ML&P, $5k lot, $20k for the hole in the ground, sanitary and water. Using typical rates of depreciation and depending on condition, it’s an $80k house.

$360k? Sounds like we’ve got a problem. But as many have painfully learned, “value” doesn’t mean anything. More so considering prices are falling at a pretty good clip now.

Comment by redmondjp
2017-10-10 22:22:59

Ah, your mark-to-fantasy numbers again . . . maybe in red-state flyover country where nobody wants to live.

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Comment by Mafia Blocks
2017-10-11 08:34:12

M&L prices are what they are. Argue with the market my friend.

Eden Prarie, MN Housing Prices CRATER 7% YOY

https://www.zillow.com/eden-prairie-mn/home-values/

 
Comment by redmondjp
2017-10-11 09:14:49

I’m not arguing with anybody. Of course you can buy a lot in a dying town somewhere for $5K, but there won’t be any jobs there.

 
Comment by Mafia Blocks
2017-10-11 09:29:03

You can by a lot in a thriving town for $5k with alot of jobs there.

Lonetree, CO Housing Prices Crater 7% YOY

http://www.movoto.com/lone-tree-co/market-trends/

 
 
 
 
 
Comment by Senior Housing Analyst
2017-10-10 15:00:42

Bradenton Beach, FL Housing Prices Crater 9% YOY

http://www.movoto.com/bradenton-beach-fl/market-trends/

 
Comment by Barney
2017-10-10 15:27:58

Your link shows median price per square foot is up 23%.

Comment by michael
2017-10-10 19:30:09

The momentum is down, Median list price month over month and year over year is down.

 
 
Comment by Ben Jones
2017-10-10 17:31:32

I saw this comment on a recent post:

“Impact fees are not fees for building permits–that is a teeny, tiny part of the whole picture.

http://www.stocktongov.com/files/2017-18_Adopted_Fee_Schedule_Book.pdf

The guts of the impact fees are in the Public Facility Fees.

Starting on page F-90.

For Single Family Residential (there are many waivers for “downtown”…they are trying to jumpstart development there, but otherwise)
Ag Land Mitigation Fee: $14k per acre.
Air Quality: $187 per unit
City Office Space: $467 per unit
Community Rec Center: $481 per unit
County Facilities: $1,981 per unit
Fire Stations: $781 per unit
Libraries: $902 per unit
Parkland: $2,798 per unit
Police Station: $591 per unit
Regional Transportation Impact Fee: $3,223 per unit
Street Improvements: $13,226 per unit
Surface Water: $4,587 per unit

$2,174 for a SFR water connection.

That’s, in round numbers, about $30k per door.”

Only in California would taxes be considered to make a shack more valuable. Call me crazy but it makes it less valuable. Take the library: pay the nice lady for her time and poof, it’s gone. But you get to pay it back for 30 years, with interest. Some might call that DonkeyLogic.

Comment by Mafia Blocks
2017-10-10 18:18:38

Problem is our old industry hack Rental Watch is blowing smoke again. For instance….. The ag land mitigation fee which is the largest number on the list is imposed on “developers” and only when the project is 40 acres or larger. The ‘fee’ for a SFR on a lot? Z-Row. As are the rest of the supposed fees.

It’s not the land… it’s not the labor… it’s not the materials. It’s not fees.

What is it?

Crime.

 
Comment by BlueSkye
2017-10-10 18:26:22

It’s not sustainable. Grow or die.

My library is on my property tax $19 each year.

 
Comment by Rental Watch
2017-10-11 00:13:20

These aren’t “taxes”. They don’t repeat. They are “fees” that are paid once when the home is built.

And this was in response to some asinine post about building “fees” only being approximately $1k…which is just the building permit fees.

And the fees don’t make homes more valuable, they make homes more expensive to produce. And when homes are more expensive to produce, fewer are produced at low prices….especially as compared to cheap existing homes.

And when few inexpensive homes are produced…with a growing population (which needs shelter)…supply and demand push prices higher–until the price/cost equation supports new development.

Comment by Mafia Blocks
2017-10-11 06:22:17

Again, if an individual or contractor wants to erect an SFR, there are no “fees”. All the information is there. Read it.

 
 
 
Comment by Apartment 401
2017-10-10 17:40:08

Realtors are liars.

Comment by NoEffingWay
2017-10-11 10:16:50

Indeed

 
 
Comment by Senior Housing Analyst
2017-10-10 17:55:19

Santa Paula, CA Housing Prices Crater 12% YOY

http://www.movoto.com/santa-paula-ca/market-trends/

 
Comment by butters
2017-10-10 19:15:00

Finest of ‘mocratic men; Clinton, Weiner and Weinstein.

Sick sick sick

Comment by Obama Goons
2017-10-10 19:28:53

And every level of government is infested with these free spending sickos. They don’t care about you. This you can be 100% confident in.

 
Comment by Ben Jones
2017-10-10 19:53:57

American Pravda, NYT Part I – Slanting the News & A Bizarre Comey Connection

https://www.youtube.com/watch?v=D5854-qAqkM

 
 
Comment by Neuromance
2017-10-10 19:39:15

“It was like riding a tiger, not knowing how to get off without being eaten.”

How do you ride a tiger without getting eaten? Answer: you don’t.

Comment by jeff
2017-10-11 08:16:41
Comment by rms
2017-10-11 12:31:13

You gotta checkout “ogrish”… feeding wild animals.

 
 
 
Comment by Ben Jones
2017-10-10 20:53:23

Howlin’ Wolf “Smokestack Lightning” Live 1964

https://www.youtube.com/watch?v=HTDjD_UdJYs

 
Comment by SW
2017-10-10 22:08:04

Browsed some Zillow and Redfin listings for Boise, ID and Pismo Beach, CA.
More listings showing price cuts now then there were six months ago. Quite a lot of midrange houses in both markets showing 5%+ cuts. Lots of high-end houses with 10% plus cuts.

 
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