The Housing Bubble

A report from the Financial Post in Canada. “The president of Toronto’s real estate board warned leaders of the Ontario Real Estate Association, headed by a former Progressive Conservative leader, to ’stay in their lane’ in an emphatic letter that relays his concerns that the provincial group is stoking fears about the housing market and becoming too political. In his letter, tim Syrianos detailed concerns about the recently launched OREA ad campaign, called ‘Keep the Dream Alive,’ saying it is far too negative and suggests that the dream of home ownership is dying — pointing out it will have a particularly negative effect on the Toronto market.”

“‘The negative tone reflected in the recently released commercial could have psychological consequences for consumers and could provoke further unwarranted negative government intervention,’ he wrote. The campaign comes at a particularly troubling time for TREB, which has estimated there were 32 per cent fewer home sales in the Toronto- area in April compared to the record highs recorded in same month last year. Home prices took a 12 per cent hit compared to the same month a year ago. That’s bad news for realtors, who earn commission from every sale.”

From CBC News in Canada. “Canada’s mortgage stress test is reinforcing the migration of home buyers from Toronto to Hamilton in search of deals. And that is adding to the already competitive market created by the stress test, which is cutting the buying power of house hunters in Hamilton. Realtors Association of Hamilton-Burlington CEO George O’Neill said the average price for all property types dropped 8.9 per cent last month, compared to the same period last year — from $609,664 to $555,661. Meanwhile, he said, the buying power of people looking to purchase a home has plummeted an estimated 15 per cent since the new mortgage rules were put in place on Jan. 1.”

“The stress test was introduced by the Office of the Superintendent of Financial Institution as a tool try to cool the country’s hot housing market. Now, in order to get a loan from a federally regulated lender, home buyers have to prove they would be able to pay their loan if interest rates became higher than they are today. That means a buyer who in the past would have qualified for a 3.09 per cent loan now has to qualify at a rate of 5.14 per cent, according to a recent report from real estate company Royal Lepage. So, the same buyer who qualified for a $486,674 home at the old percentage has been bumped down to a residence worth $406,479.”

From the Guardian in the UK. “Construction of luxury flats in central London dropped by a quarter last year, with apartments housed in developments dubbed ‘posh ghost towers’ struggling to sell. New-build starts in the capital in 2017 dropped by 25.4% compared with 2016, according to a report. Naomi Heaton, the chief executive of LCP, said developers were scaling back their ambitions after realising there was ‘a huge oversupply of over-commoditised new-build boxes’ in London.”

“‘An awful lot of what was built was generic and overpriced and they struggled to sell it,’ she said. ‘Historically, a lot of properties would have been bought by overseas investors in the assumption that they could flip it and sell it on at a huge profit, but now there is huge nervousness following increases in stamp duty and the the impact of Brexit.’”

From Globes on Israel. “Home prices have fallen 2.15% over the past five months and will continue declining says market analyst Moshe Kashi. The carry trade cash flow has become negative. This is where investors enter the picture. In 2017 the average mortgage interest rate was once more higher than the return obtained from a leveraged purchase and renting out of an apartment. The result is that a leveraged housing purchase now generates a negative monthly cash flow for an investor. This means that buying a housing unit for investment requires additional capital investment beyond the initial capital, with the investor expecting future capital gains when the property is sold.”

“This situation is restraining demand in the investment housing market, reflected for the past year in a decrease in the proportion of housing units purchased for investment purposes. In 2008-2011, the period of the big boom in housing prices, the number of supply months was less than 10 months, and even reached seven months in late 2010. As of January 2018, the number of housing supply months was 13.4, which is likely to generate pressure on developers to reduce their inventory of housing units by compromising on the price. This is already being reflected in the housing prices index.”

From The National on Dubai. “Residential sales and rental prices in Dubai continued to decline in the first quarter, and the trend is expected to persist throughout the rest of 2018, the third year in a row of a market slump, according to Core Savills. For apartment sales, Downtown Dubai and Dubai Marina saw the sharpest year-on-year price declines in the first quarter of of the year, at 7.5 per cent and 6.6 per cent, due to a large number of new launches in those areas, which shifted demand to off-plan stock.”

“‘The cascading effect of new stock impacting secondary sales prices, either within the community or in the adjoining areas, is one of the strongest reasons causing a delay in sales price recovery,’ said Edward Macura, partner at Core Savills.”

From the Westside Eldos in South Africa. “Incomplete RDP houses are being occupied by individuals who have been waiting for housing for a few years now. According to a few illegal occupants who moved into the Klipspruit Extension 11 RDP houses, the half-finished houses have been vacant for over a year now. ‘We decided to move in because these houses have been empty for too long, and nyaope boys were stealing the roofs and door frames,’ said one the illegal invaders.”

From Shine.cn on China. “Shanghai’s new housing market lost steam for another week despite a major rebound in supply, the latest industry data showed. The area of new residential properties sold, excluding government-subsidized affordable housing, fell 13 percent to 120,300 square meters during the seven-day period ending on Sunday, Shanghai Centaline Property Consultants Co said in a report. On the supply side, some 179,100 square meters of new houses spanning five projects were launched into the market, a surge of 648 percent from the previous seven-day period.”

“‘The best-selling project of last week registered sales of less than 100 units, which is often seen as a proof for slack sentiment among home buyers,’ said Lu Wenxi, senior manager of research at Centaline.”

From Stuff.com on New Zealand. “Ghost houses can be blamed on the previous government’s policies that have allowed rampant capital gain. That’s the message from Housing and Urban Development Minister Phil Twyford in response to the Stuff story on the proliferation of empty houses and land banking by speculators. The Minister acknowledged that while there is no clear data, it does seem there are a lot of houses deliberately left empty in some areas by their owners.”

“‘The rampant levels of capital gain over the past nine years have encouraged some speculators to just park their money in these properties, not bothered with renting them to tenants,’ he said. ‘This was highlighted by Gareth Morgan who said he didn’t want to rent out his properties because the tenants would ‘make the carpets dirty’. These ghosts houses are a symptom of the national housing crisis created by the former government.’”

“Questioned about whether the Government would reconsider its decision not to follow Vancouver’s example and introduce an empty house tax, the Minister said: ‘Some overseas jurisdictions have tried to regulate to stop this practice but there is no evidence this has been successful.’ The Government instead will be replying on its new policies. ‘Our Government has a bold, ambitious and comprehensive plan to tackle the housing crisis by banning foreign buyers, cracking down on speculators and increasing housing supply. We are very unlikely to see the levels of capital gain that have encouraged ghost houses continue.’”

From ABC News in Australia. “Many Australians struggle to save a deposit for a home, let alone pay for a property in full. So how did then 22-year-old Ngouth Oth Mai manage to buy a $1.5 million property in Melbourne upfront in 2014 when he had only ever earned welfare payments and lived in housing commission? That is the question he must now answer in the County Court of Victoria, where the AFP launched civil action under the Proceeds of Crime Act (but not criminal charges).”

“According to the document, an initial deposit of $155,171 was wired from a bank account belonging to Hoid Establishments, a development company in Uganda, directly into the trust account registered to the Melbourne-based real estate agent that handled the sale in June 2014. John Chevis, who spent 12 years working on fraud and corruption cases for the AFP and is now an adviser on money laundering for the United Nations, said the transaction should have been the first red flag.”

“‘The real estate agents involved in the sale of the house in Australia should have conducted their own due diligence on the source of the funds, although Australia’s anti-money laundering laws do not currently require it,’ he said. ‘They should possibly have noticed that the funds travelled a circuitous route for which there is no apparent commercial reason. Having identified these transactions as unusual, the banks should then have sought further information on the source of the funds and then, assuming they identified the source as illegitimate, rejected the transactions.’”

“A recent real estate advertisement revealed what some might call the bargain of a lifetime — a northern Brisbane apartment selling for almost 40 per cent below its 2010 purchase price. The two-bedroom unit in Chermside is what property analyst firm SQM Research call a ‘distressed property’ — bought for $522,000 and now on the market for $315,000.”

“SQM Research managing director Louis Christopher said large price falls have become the new norm for Brisbane apartment owners looking to sell in a saturated market. ‘We have seen some heavy discounting before, but this is probably one of the biggest ones I’ve ever actually seen,’ he said. ‘It’s fair to say this is not normal in the market. Nevertheless, there has been an oversupply of properties — we see it through the rental market in the Brisbane CBD where we are recording rental vacancy rates of 5 per cent. We are noticing the vacancies in Brisbane are still elevated in the CBD and in the inner city market.’”