The Housing Bubble

A report from the Globe and Mail in Canada. “In Canada’s fourth-largest city and one of its fastest growing and strongest economies, homes sales continue to trend downward compared with 2017, while home listings continue to grow. But rather than panic, many owners and buyers in the market have kept counting on quick relief, believing Calgary’s next boom will solve their problems. Industry watchers say these hopes, based as they are on a pattern of downturns lasting no more than two years that stretched back into the 1980s, are about to face something of a reality check.”

“A lot of people ask me if we are getting back to ‘normal,’ said Todd Hirsch, a Calgary-based economist with the Alberta Treasury Branches. ‘And when they say that, I suspect what they mean is early 2014, which was a boom time – because that’s what everyone misses, that’s what felt comfortable, especially for people in the oil and gas sector. People were making a lot of money and real estate prices were booming.’”

“When people ask him this, Mr. Hirsch said his reply is blunt: ‘I say, ‘If you mean early 2014, no, we’re not going back to that.’ Anyone who bought before 2015, such as Mr. Hirsch, is feeling this pain. He says his own condominium in downtown Calgary is likely worth about 20 per cent less than it was four years ago.”

“Ann-Marie Lurie, executive director of the CREB, said the organization opened the year expecting prices and sales growth to remain stable, but instead sales have dropped and prices have softened. Calgary has ‘too much supply’ of all types of housing, she said, while several other factors have exacerbated the situation: the dampening effects of the federal ’stress test’ on first-time home buyers; slow job recovery in traditional sectors; and homeowners jumping at the somewhat-rebounding market to list their properties in 2017 and early 2018, adding to the supply overload.”

The Western Investor in Canada. “If housing is a harbinger of a city’s economy, Edmonton could be in trouble. Residential land sales in the Alberta capital dropped 57 per cent last year from 2016 and ‘are tracking close’ to 2017 levels so far in 2018. Sales of multi-family rental building buildings through the first three months of this year, meanwhile, have plunged 74 per cent from the record high set in the first quarter of 2017, according to the Edmonton Flash Report from Altus Group.”

“‘Due to high vacancy rates, landlords were forced to offer discounts and incentives to fill their units. This trend will start to end this year. Things might be a little unsteady until 2019, but they will improve,’ said a report from Braden Equities, a large Edmonton property management firm, which is forecasting lower vacancy rates.”

From This Is Money in the UK. “Homebuyers in the UK are managing to knock £10,822 off asking prices on average as the majority of the country remains very much a buyers’ market, new figures suggest. The latest figures from Hometrack have revealed a UK-wide discount to asking price of 3.5 per cent - the difference between what a home was originally listed for and what it eventually sells for. Taking into account this month’s average asking price of £309,191, that means on average buyers are clinching houses for £10,822 less than what the sellers want.”

“That doesn’t sound like that much, but it is worth bearing in mind that a sizeable number of properties see much bigger cuts than this and many will see tens of thousands of pounds shaved off listed asking prices before they go under offer. Buying agent Henry Pryor, who has bought and sold over 1,000 properties, recommends buyers start low and raise their offer gradually. ‘The buyer decides what a house is worth, the seller decides if it’s enough,’ he said. ‘Remember, the agent is not a broker,’ added Pryor. ‘He is paid by and represents the seller. His job is to pick your pocket and he will try every technique to do so.’”

From Reuters on Australia. “Growth in Australian home loans for investment hit record lows in June as tighter lending standards and hikes in some mortgage rates sucked the life out of the buy-to-let sector, piling further pressure on house prices. Tuesday’s figures showed the stock of outstanding credit for home investment fell 0.1% in June, from May. That was the first drop since the global financial crisis and only the third decline in the near-30 year history of the series.”

‘Annual growth in investor credit slowed to an all-time low of 1.6%, a long way from the 10%-plus seen at the peak of the housing boom in 2015. An added wrinkle has been an increase in funding costs for banks over the last few months which had put upward pressure on mortgage rates. In a recent report, Moody’s Investors Service noted that 16 small and midsize banks had raised their home loan rates in the face of higher wholesale costs and slower loan growth.”

“The four major banks had held off so far, in part due to intense public scrutiny amid a government inquiry which had turned up evidence of widespread misdeeds in the industry. Moody’s suspected that might not last. ‘The rate hikes by the smaller banks may be paving the way for the major banks to raise their rates and preserve margins, despite the politically charged environment,’ the agency said.”

“While such a move would be positive for bank profits and their credit quality, it would come at a tough time for the once red-hot markets of Sydney and Melbourne. The latest data from property consultant CoreLogic showed prices for the combined capital cities were heading for their tenth straight month of decline in July.”

From the Sydney Morning Herald on Australia. “Banks are tipped to remain cautious about mortgage lending for the next two years, continuing a trend that has dragged borrowing by investors to a near standstill, and caused a Sydney-led slump in house prices. Banking experts on Tuesday predicted that a tighter supply of credit would continue to have a major impact on the housing market for next year and possibly longer, as the royal commission hangs over the sector.”

“The comments came as new figures showed housing investor credit growth had slowed to a new record low, a result of banks slamming the brakes on lending to landlords and people taking out interest-only loans. Paul Mirams, a partner specialising in real estate at insolvency firm KordaMentha, said a slide in demand for properties from Chinese buyers would be a drag on the market.”

“‘Broadly speaking we think the Chinese will be a net negative for the next couple of years on residential prices, and that’s probably going back to normal, rather than the last four or five years that have not been normal,’ Mr Mirams said.”

The Tribune India. “The business of land and property is not called ‘real estate’ for nothing. By now, nearly all — rich, middle class, and poor — would have realised that no other estate, whether executive, legislature or judiciary, can rein in this ‘real power’. The state government is preparing to give Cabinet approval to the Punjab Laws (Special Provisions for Regularisation of Unauthorised Colony) Bill, 2018.”

“It may be a good time to recall that over the past two decades, governments came and went, property prices saw boom as much as bust, regularisation policies were framed and changed, investors suffered, home buyers were stuck in hellholes, but no one ever told you not to invest in ‘real estate’. That is because this is perhaps the single largest and quickest route to transfer hard-earned money from the common citizen to the politician-builder, who also is now common.”

“What happened on ground was that the builder paid nothing, home buyers paid money, and the government collected copious funds. And that is it. With little real growth to justify the property bubble (yes, the prices are still not real), there is a vested interest to continue blowing air into it. Is anyone out there expecting the regularisation policy to bring relief from choked sewers, empty rooftop water tanks, and blown-out power transformers? Please forget that, and get used to real life.”