The Housing Bubble

It’s Friday desk clearing time for this blogger. “A full-floor, 6,240-square-foot penthouse at Midtown billionaires’ bunker One57 recently sold at a foreclosure auction for $36 million. That number is 29 percent lower than the original $50.9 million price shelled out by Nigerian businessman Kolawole Akanni Aluko for the newly-minted condo in 2014. The fire sale was the fourth resale in the 1,004-foot-tall Billionaire’s Row flagship trophy tower to trade at a loss, according to data from appraiser Miller Samuel Inc. And there are currently 16 apartments at the building listed for sale, most of them by the developer. Additional unsuccessful flips include a 4,483-square-foot 65th-floor apartment that sold in April for 23 percent less than its 2014 purchase price and an identical unit on the 62nd floor whose buyer paid $31.7 million for it 2014 and sold it at a loss last year for $23.5 million.”

“Extell is now marketing units at a discount; in a regulatory filing on the Tel Aviv Stock Exchange this year where Extell sells debt, the company admitted that ultra-luxury sales are slowing in the city, saying it had a adjusted the building’s profit forecasts accordingly. And the developer and resellers both trying to sell units means there are more of them vying for top dollar.”

“If President Trump and congressional Republicans have their way, homeownership in California will become less attractive. And that really worries Realtors and builders. And, of course, it also should greatly disturb home buyers. ‘The current limit is too low for Californians,’ contends Steve White, a Studio City broker who is president of the state Realtors association. ‘In a high-priced state where we’ve already got a shortage of homes for sale, this simply traps people in their homes longer. Fewer people will move and that will just exacerbate the home shortage.’”

“Very possibly. And that also, of course, would cut into real estate agents’ commissions.”

“The Federal Housing and Finance Agency released its latest Foreclosure Prevention Report, covering the month of August 2017. Released monthly, the Report tracks foreclosure prevention actions undertaken by Fannie Mae and Freddie Mac. In August 2017, the Enterprises completed 15,298 foreclosure prevention actions. GSE foreclosure prevention actions as a whole increased 10 percent in August, with increases in loan modifications serving as the primary driver. Loan modifications were also up 10 percent for August.”

“One statistic that stands out is that the share of modifications with principal forbearance, where the lender delays foreclosure if the borrower can catch up within a given window of time, increased to 34 percent. That’s up from 30 percent in July, and up from 19 percent in January 2017. Foreclosure starts were also on the rise. August totaled out at 17,652, compared to 12,255 in July. That’s a noteworthy spike after foreclosure starts dropped from 13,028 in June.”

“Local property manager Danielle Dobson, concurs that Lower Mainland property investors have had very unrealistic expectations about the Squamish rental market. They bought condo apartments with the expectation they could rent them at rates that paid their mortgage and left them cash positive. ‘Some of these investors were seeking rents $800-900 above what the market would support,’ said Dobson. ‘I actually had one lady, not a client, she just wanted my advice, ask why her two bedroom apartment that was, maybe, 1000 square feet, wouldn’t rent at $2,800 a month. I told her because it should be at most $2,200, and really $2,000. But she didn’t listen, and it sat vacant. Now it’s down to $2,500, but it still won’t rent at that rate.’”

“‘The problem was a lot of people came to town buying income property, and the rental rates they expected were not achievable. You can always put something on Craigslist, that doesn’t mean you’ll get what you’re asking. The average income in Squamish just doesn’t support some of the rates people are asking,’ said Hannah Goodwin, a local property manager with Dynamic Property Management.”

“Norway’s currency, the krone, has been caught in another puzzling downward spiral this week that’s left analysts groping for explanations. A possibility is that foreign traders are spooked by the ongoing decline in housing prices after they’d reached record highs. ‘Most of us believe the housing market will land on its feet … but seen with other glasses, like American or Asian, the housing market scenario can be different,’ Magne Østnor, a currency exchange strategist for DNB Markets in Oslo told DN.”

“The value of the Swedish krone has also fallen this week, so the two Scandinavian currencies may have affected each other. ‘And there are signs that liquidity isn’t so good right now,’ said Bjørn-Roger Wilhelmsen, chief economist at Nordkinn Asset Management.”

“What has started to happen in Oslo, is now seemingly spreading to Stockholm: Evidence is mounting that the Swedish capital’s crazy, two-decade-long housing price surge could be levelling off. ‘Prices have dropped 10 to 15 percent since this summer,’ said Carina Husgård, a Stockholm real estate broker at Bosthlm to Dagens Industri. She was one of several real estate brokers confirming a — what one described as ‘permanent’ — dip in house prices to the Swedish business daily.”

“‘The times of rising interest rates is beckoning. That means a new reality for indebted households,’ notes Johanna Jeansson, a columnist at Dagens Industri, adding that 70 percent of Swedes’ mortgages are currently tied to variable interest rates. That exposure could potentially be catastrophic for tens of thousands of households, finds a new survey by brokerage firm Svensk Fastighetsförmedling, featured in Dagens Industri. With even small rises in interest rates, tens of thousands of Swedish households would have problems paying their loans.”

“With supply outweighting demand in the current real estate market, only transactions involving wider rooms are taking place, real estate agents said. In Yangon, the majority of such large-size rooms are located in South Okkala township. Rather than buying apartments for investment purposes, most buyers are looking for homes to live in, therefore they are weighing factors such as room size and taking that into account in their decision-making, said U Yan Aung.”

“‘In the past, people bought rooms for speculation or renting out. Nowadays though, land prices have stabilised, so most buyers in the market now are looking for property to live in. Therefore, they prefer larger-sized rooms, even though the prices are different,’ he said. Previously, there were less developers and more buyers. Now though, there are more developers than buyers. So, developers have to change and adapt to focus on what buyers want.”

“The imbalances in the property market pose significant risks to the overall market in the event of a shock, said Bank Negara Malaysia governor Tan Sri Muhammad Ibrahim. Among the segments in the property market that were highlighted are high-rise condominiums, office space and retail malls. ‘We have raised these issues for more than a year. Exposure of financial sector within this area is within a comfortable level. But if we’re not careful, the oversupply could have a negative impact on the economy,’ he said.”

“Muhammad pointed out that the supply-demand imbalances in the property market has increased since 2015, pointing to the decade-high of unsold residential properties, with the majority of unsold units being in the above RM250,000 price category. For office space, there are also high office vacancy rates, especially in the Klang Valley. BNM’s report shows that the incoming supply of 38 million square feet of office space could exacerbate the glut. According to Muhammad, the office vacancy rate in Klang Valley is projected to reach an all-time high of 32% by 2021, far surpassing levels recorded during the Asian Financial Crisis. Similarly, in the retail space, it is expected that 140 new malls will enter the market across key areas such as Klang Valley, Penang and Johor, which could worsen the oversupply moving forward.”

“Real Estate Institute (REINZ) figures for October show median prices in the Auckland region fell by 3.2 per cent year on year to $850,000 - the biggest fall since December 2010. But within the old Auckland City boundaries (the CBD and central suburbs) the median price has fallen 17 per cent from $1.025m to $850,000 since October 2016. The median in the Auckland CBD is down 24 per cent year on year and in the central suburbs of the Maungakiekie-Tamaki Ward it is down 14 per cent.”

“‘The Auckland Region’s decrease of 3.2 per cent year-on-year is predominantly the result of a large number of apartments being sold in the old Auckland City boundary which has therefore brought the median price down for the entire region,’ said Bindi Norwell, CEO at REINZ. The increase in supply of cheaper apartments was improving affordability without causing a crash in the wider market and was a positive for first home buyers, she said. ‘If you think about Auckland City, it was a median of over $1 million last year and now its $850,000 so it really does show the level of opportunity that has opened up.’”

“They may be in the same city but different pockets of Sydney have emerged poles apart from the recent­ housing boom. CoreLogic figures showed the biggest price falls were upwards of 10 per cent and tended to be in areas with a large supply of new apartments and even more high-rise unit projects­ in the pipeline. The weakest performing area was Eastwood, surrounded by new housing projects, where the median­ apartment price tanked 15.4 per cent. The median apartment price in construction hotbed Sydney Olympic Park is 9.5 per cent lower than a year ago, while unit prices­ in Concord dropped by an average of 7.2 per cent, in Rydalmere and Ermington they fell roughly 7 per cent and near the airport in Hillsdale they dropped 10.5 per cent.”

“Median apartment prices also fell 15 per cent in Forest Lodge and Annandale. SQM ­Research director Louis Christopher said the area around Parramatta was most concerning because it was ‘heavily oversupplied with units.’ ‘Prices are dictated by supply and demand and when buyers have more ­options … there isn’t the same pressure to (offer) more,’ said CoreLogic analyst Cameron Kusher.”