The Housing Bubble

It’s Friday desk clearing time for this blogger. “‘Housing price bubble chatter has increased this summer, but I would ignore it,’ said Carol Farrar, 2018 North San Diego County Association of Realtors president. ‘Market observers always try to predict the next residential real estate shift, but it is too early to expect a change from higher prices and lower inventory, even though the common markers that caused the last housing cool-down are present. With a growing economy, solid lending practices and the potential for improved inventory from new listing and building activity, market balance is more likely than a bubble.’”

“After seeing one of the most competitive home buying in 2017, homeowners have reported a lighter, less competitive season in 2018, according to a survey by ValueInsured. In California, which was one of the hottest housing markets last year, 54 percent of all homeowners reported lighter homebuying demand, with 56 percent homeowners in Colorado and 53 percent in New York concurring with their counterparts in the Golden State.”

“The survey said that some of the hottest markets of 2017 had seen the most significant signs of cooling down this year. In San Diego, 20 percent of all listed homes had price cuts. In Seattle, where bidding wars had become common over the past three years, home prices saw a steep decline from their median prices. It also indicated that in Dallas, 19 percent of all listed homes had seen their prices cut at least once in June. ‘While buyers have been conditioned to hurry up and make an offer, even sight-unseen, in recent years, some may now step back onto the sidelines to wait and see if – and how far – home prices could get cut before they jump back in,’ the survey said.”

“Dwight Easton, the public affairs director for the Missoula Organization of Realtors, said the number of active listings of homes for sale in the city of Missoula hit a recent high in August 2017. Anecdotally, he said, it appears that the hot seller’s market for housing in Missoula might be shifting a little bit toward the center. ‘It has been a seller’s market, and maybe that’s cooling, but this is just anecdotal,’ he said. ‘It might be economics. Where we are seeing the price of newer homes, it’s getting harder to find buyers for $400,000 homes.’”

“Artist Raphael Mazzucco has taken a total of nearly $2 million off the asking price of his Montauk home at 53 Kettle Hole Road after it landed on the market for $4.35 million back in October of 2017. In July, the home received its first $1.55 million price cut, putting it on the market for $2.8 million. Now, just two months later, another $200,000 has come off the listing and the 1-acre property is now asking $2.6 million.”

“A real estate broker north of Toronto is suing a consumer for commission even though a $900,000 home sale arranged by his company fell through. Marlene Nemeth Nemeth said she can’t understand how a real estate broker can bill her tens of thousands of dollars when the sale didn’t close and she didn’t do anything to interfere with the deal. In May 2017, she agreed to accept a $900,000 offer from Sayed Moussavi, the buyer. But on closing day, the buyer didn’t produce the funds to complete the deal, apparently because HomeLife hadn’t sold Moussavi’s home, according to Nemeth’s defence.”

“At that point, Moussavi agreed to forfeit his $40,000 deposit, plus $2500 in damages, in exchange for a mutual release from any future legal action. Nemeth said she decided to take the money and grant the release because she needed the cash. By now she had moved into her new home in East Gwillimbury and had to carry two mortgages, plus utility bills and taxes, all because the deal had fallen through. Her listing agent, Nina Bonakdar, asked Nemeth to give the buyer more time.”

“In a text message from Bonakdar to Nemeth, shown to Global News, the agent wrote: ‘I get Hans involved. As per Hans, buyer has no money. He is in max on all his financial mean (sic). But he is waiting to receive wire transfers from overseas so he will close end of November even if his house doesn’t close.’ By the time Nemeth finally sold her home on April 29, using a different real estate broker, the housing market had tumbled: The selling price was a disappointing $699,800.”

“Everyone loves a bargain and that goes for house hunters too. So when we saw these latest price reductions on property website Zoopla, we got very excited. All of these properties have been reduced in price over the last week or so and one by a tremendous £34,950. Looking at figures from Tuesday, August 28, onwards there have been some big reductions in the price of homes in a range of categories. From a one-bed flat in Lenton to a five-bed in Bramcote, they have all had pounds knocked off them.”

“When Myanmar opened up to the world after decades of military rule, hopes were high that democracy would be restored and the economy invigorated. But for players in the country’s property sector the deflating realization that they may have jumped the gun is setting in as a painful glut emerges.”

“Richard Emerson, managing director of Emerson Real Estate, says that Myanmar went ‘from a market where there was basically no built stock five years ago to a market wherein suddenly all those projects conceived in the day when everybody thought Myanmar was on a massive upward trend and was going to go on a boom, all those projects are being delivered into a market which is basically failing on several different levels.’”

“QV data this month showed nationwide house prices down 1.6 per cent over the past three months, with falls in Auckland, Queenstown, New Plymouth and Christchurch. Suburbs where there has been an oversupply of houses or ‘emotional’ buyers bidding up prices have suffered the most as Auckland’s property market cooled. Now data from Homes.co.nz shows the areas where there has been the biggest value change since the city’s April 2017 price peak. Albany Heights has seen median values drop 7.74 per cent. Lynfield is down 6.86 per cent, Pinehill 5.84 per cent, Waiatarua, 5.54 per cent and Golflands 5.53 per cent.”

“Property developer David Whitburn said there were a number of factors that drove the falls. Albany Heights and Pinehill were suffering through an oversupply of new housing. The number of buyers in the area had not increased to match it, he said. Flat Bush was another area where the properties being sold were not in line with demand, he said.”

“Lynfield and Golflands were popular with Indian and Chinese communities, Whitburn said, and owner-occupiers who wanted to purchase properties had been willing to pay more to do so during the market boom. He recalled two auctions where properties went for 20 per cent more than he thought they should have. Now, few auctions were successful in those areas, reducing the premium that was paid.”

“‘With prices falling, CVs are becoming less relevant. It is not uncommon for properties to sell for less than CV,’ said chief data scientist Tom Lintern.”

“Like thousands of other small investors, Taku Ekanayake, 30, took advantage of record low interest rates and soaring property prices to buy several investment properties during the height of the property boom. Ekanayake, who started investing in property when working as an Uber driver, spent 30 months accumulating six properties in Brisbane and Adelaide, despite not being able to afford an apartment in hometown Sydney.”

“‘I’m not nervous about rising rates at the moment but I’m going to start reviewing the funding of my portfolio,’ says Ekanayake, who transitioned from Uber driving to technology consultancy before becoming a mortgage broker. Recent rate rises mean his monthly repayments increase from $6800 to $7000. ‘Investors will get into trouble if rates keep increasing,’ he says.”

“The number of households with an investment property grew strongly during the height of the property boom in 2015/16 when cheap money and big profits drove expectations of riches. But rising interest rates, an oversupply of apartments, low auction clearance rates, falling property prices and vendor discounting are increasing pressure and smashing market sentiment.”

“Ekanayake is planning to refinance his interest-only loans, to lower monthly costs and repay principal. Louise Lucas, chief executive of The Property Education Company and a mortgage broker, says lenders are forensically scrutinising loan applicants’ spending and income. ‘It’s getting really tough,’ Lucas says.”

“Nearly 40 per cent of borrowers attempting to refinance their mortgages do not qualify for a lower rate, an eight-fold increase in the past year, according to analysis by UBS and Digital Finance Analytics.”

“It’s taken more than three years for the regulators to turn around the $1.5 trillion juggernaut that is the mortgage portfolio of Australia’s big four banks. But the real target has been about a third of that, or $530 billion, that has been lent to investors. It has become a very vicious circle for investors, according to Bruce Carr, principal of mortgage broker Loanscape. ‘The argument goes that if you remove one third of prospective buyers from the property market it will lead to a crash in housing prices,’ Mr Carr said. He has crunched the numbers on loans and conditions in the market (before the recent increases) to demonstrate how investors’ capacity to borrow has been slashed.”

“Mr Carr said multi-property investors were feeling the pain. ‘Compared with the situation in January 2015, for every $1 million in debt held by a property investor, they now require $30,000 additional annual net income to qualify for the same loan,’ he said. Carr said while APRA’s intent to take the heat out of the property market was sound, it acted too late.”

“‘We are now living with the consequences,’ he said. ‘High property prices mean many first home buyers and upgraders find the stretch to property ownership too hard or too risky. Those who purchased at the peak are seeing their equity ebb away. Many investors are feeling the pinch — their bank has raised interest rates by 25 per cent, they cannot refinance, and repayments are set to increase by a further 30 to 40 per cent when loans roll out of their interest-only phase.’”

“‘The outcome is that few people — other than the banks — are happy.’”