The Housing Bubble

The Vancouver Sun reports from Canada. “First-time homebuyers in British Columbia are opting for condominiums, not houses, unlike their counterparts in much of the rest of the country, according to a report by TD Canada Trust. A lot of buyers make the mistake of wanting their first home to be their dream home, said Barry Rathburn, manager of mobile mortgage specialists with TD Canada Trust on Vancouver Island. But saving up enough money for a down payment could take years. Even saving for five years -which 26 per cent of first-time homebuyers in B.C. said they did or plan to do -would mean saving about $30,000 every year for a decent down payment on a $500,000 or $600,000 house. ‘How many people can save $30,000 a year?’ Rathburn asks.”

“Rathburn also thinks it’s a bad idea to spend too much time saving to increase the down payment. Provided you have enough for a down payment, you should get into a home as soon as possible, he said. Because while you’re saving, the value of homes is going up and interest rates are going up, Rathburn said. ‘And you’re trying to save faster than those things are going up.’”

The Edmonton Sun in Canada. “The price of a single-family home in Edmonton is expected to fall slightly in the second half of the year as realtors grapple with a near-record number of properties for sale. There were 9,406 residential properties on the market in Edmonton at the end of June, close to the record of 9,913 set in September 2007, shortly before housing prices sank. Residential sales were down over 37% from a year earlier.”

“This comes after the value of single-family properties soared 7.5% over the first six months of the year. The Realtors Association of Edmonton is still forecasting a price increase of 5% this year. ‘In January, I made the comment that I really wished our inventory was a little bit higher, as we had some concerns that the low inventory rates might have some impact on prices as we moved forward in 2010,’ said Larry Westergard, president of the realtors association. ‘Well, the old adage is be careful what you wish for because as we come into the second half of the year, our inventories are cresting over 9,000 units, and they’re approaching the record levels that we saw in the fall of 2007.’”

The Montreal Gazette in Canada. “The value of building permits fell by a much-larger-than expected 10.8 per cent in May from April, slipping to $6 billion, Statistics Canada reported. ‘If there is hope for house prices in Canada, it lies in curtailing supply,’ Scotia Capital economist Derek Holt wrote. ‘That’s where any room for optimism lies in an otherwise bleak report that displayed widespread losses in value and volume terms within both the nonresidential and residential categories. It’s important to keep in mind the trend that has been in place, however, in that the volume of housing permits granted is still up 30 per cent from year-ago levels, and is focused upon single homes (up 46 per cent) versus multiples (up 18 per cent).’”

The Star Phoenix in Canada. “The value of building permits issued in the Saskatoon area during the past year has more than doubled from last year, says a report released by Statistics Canada. ‘This is good news for Saskatoon. I think it speaks to the kinds of things we’re seeing,’ said Alan Thomarat, executive director of the Saskatoon and Region Homebuilders’ Association.”

“Thomarat said robust population and wage growth in Saskatoon means this year’s rates may be the ‘new normal.’”

CapitalVue News on China. “The total supply of land in 103 cities doubled year-on-year to 203.36 million square meters in the first half of 2010, reports China Business News. The average floor price of land in the 103 cities dropped nine percent in the first half of the year from the second half of 2009 to 1,863 yuan per square meter.”

“There were 91,249 houses available for sale in Beijing as of July 5, of which 60,563 units were forward delivery residential houses, reports China Securities Journal. According to data from Centaline Real Estate, the number of transactions of forward delivery houses in Beijing decreased 30.1 percent year-on-year to 59,386 units in the first half of 2010. Transactions of houses already built fell 46 percent year-on-year to 8,311 units in the first half of the year. Zhang Dawei, a researcher from Centaline, said that more than 70 developments in Beijing are offering discounts at present.”

Bloomberg on China. “Property prices in 70 Chinese cities rose 12.4 percent in May, the second-fastest pace on record. Shanghai’s new-home sales fell 70 percent from a year ago in June, Changjiang Securities Co. said in a report. Shanghai’s sales of new homes fell 57 percent in the first six months of the year on government measures to cool the property market, Shanghai Uwin Real Estate Information Services Co. said. The first-half sales were the lowest in five years. New home prices in the first half rose 48 percent from a year earlier to 21,008 yuan ($3,100) per square meter, according to the Uwin report.”

“China’s home prices are set to fall as much as 20 percent in a ‘healthy’ correction, said Michael Klibaner, head of China research at Jones Lang LaSalle Inc. China’s property boom is ‘cash-driven’ rather than ‘leverage-fuelled,’ which means there’s only a low chance of the type of forced selling that exacerbated the U.S. housing market collapse, he said in a Bloomberg Television interview.”

The Global Post on China. “The banking regulator has clamped down on sketchy lending practices that allowed banks to ignore loan limits and fund risky ventures, the Bank of Beijing confirmed Tuesday.”

“According to the reports, the China Banking Regulatory Commission suddenly halted use of bank-trust wealth management products Friday afternoon. The bank-trust products let banks use trust funds to give out loans primarily to local governments through backdoor procedures which keep the money off the banks’ books. Through this process, the banks not only get to skirt the government’s regulations limiting loan outflows, but they also throw all risk of bank-trust product default onto the investors’ shoulders.”

“The tightening control on mortgages and local government lending led to deficient cash flow of property developers and local government financing vehicles (LGFVs), which have stretched hard to get new lending by alternatively less controlled ways such as bank-trust offerings, said Hu Yaokun, financing & banking partner of Adfaith Management Consulting.”

“The possibility of sliding housing prices and the skyrocketing debt of LGFVs have made bank-trusts incredibly vulnerable, Hu said. The debt ratio of LGFVs is as high as 364.77 percent in some provinces, according to the National Audit Office.”

The Sydney Morning Herald. “As the rest of the world smarted from the global financial crisis, it seemed that boisterously capitalist Hong Kong had landed a blockbuster property deal. In October, Henderson Land Development Co signed agreements to sell 25 units at a luxury apartment building - including a 6,158 square feet five-bedroom duplex with a whopping price tag of nearly $US57 million ($A66.87 million). At the time, it was believed to be Asia’s most expensive property by square foot at nearly $US9,200. ($A10,793).”

“Eight months later, Henderson, whose chairman Lee Shau-kee was ranked No 22 on this year’s Forbes billionaire list, announced in mid-June that 20 of the 25 deals, including the record-breaking flat, fell through. The usually critical corporate governance activist David Webb said this is likely a case of real-estate speculation - not illegal behaviour.”

“Webb said a middleman likely snapped up the 20 properties but failed to find buyers for them. ‘Unless someone can prove collusion or a connection between the buyers and the seller, I don’t see any issue,’ he said.”

The Move Channel in New Zealand. “Finance Minister Bill English spoke to a room full of business leaders and outlined his assessment of the New Zealand economy. New Zealand’s housing market, along with Australia’s, was overpriced by international measures, higher than China’s, and would likely be ‘damp’ for some time, he said. Many commentators have predicted that China is in the midst of a property bubble.”

“‘By any international measure, our housing market it still way overpriced. Ours and Australia’s are even more expensive than China’s. Is it going to stay that way? I would like to hear the case as to why it would,’ English said.”

The Marlborough Express in New Zealand. “It’s a great time to to buy a first home in Marlborough, according to real estate agents. Harcourts Marlborough principal Mark Davis said there was more than a year’s worth of housing stock listed in the region, and a new sense of affordability in the market. The drawback is homeowners may struggle to sell in a flooded market.”

“Trends were definitely soft, with about 70 sales a month for the past 12 months in Marlborough, half the number of sales taking place two years ago, Mr Davis said. Houses could still be sold with the right advice and realistic expectations, but vendors who did not need to sell should think about whether their property should remain listed, he said.”

“Bayleys Marlborough real estate agent Glenn Dick said there was still an increase in properties being put up for sale, fuelling the over-supply. He said sellers should seriously consider whether they needed to sell before advertising property. ‘It’s giving buyers too much opportunity to not commit [to a sale].’”

Dynamic Business in Australia. “Housing affordability has continued to worsen over the past year, with first home buyers needing on average 4.5 years to save for a house deposit, up from 3.7 years. There are 26 Local Government Areas (LGAs) – in Sydney, Melbourne and Perth – where it would take a first home buyer couple on average earnings more than a decade to save a house deposit.”

“‘Australia’s booming property market is a double-edged sword,’ said Bankwest Retail Chief Executive, Vittoria Shortt. ‘While it’s clearly of enormous benefit to established home owners it’s the complete opposite for many of their children. Many potential first home buyers are facing long periods in the rental market.’”

“In the past year, the time needed to save a deposit has increased in every capital city. In the Perth area of Peppermint Grove, it would take 42 years to save a 20 per cent deposit – the longest in the country.”

The Coffs Coast Advocate in Australia. “For Tjirra Francis, a 21-year-old nursing student at Southern Cross University, the dream of owning her own home seems to be slipping further and further away – and she’s not alone. ‘If I need to save $80,000 for a deposit, I won’t be able to buy a house for the next 10 years,’ she said. ‘Its hard because I had to move from home as soon as I finished my HSC for work and uni – I have to rent and pay my uni bills so saving isn’t easy. I’m basically paying someone else’s mortgage.’”

Australia News. “Family First Leader Senator Steve Fielding says Bankwest’s latest report into housing proves that the Federal Government needs to do more to ease our housing affordability crisis. Senator Fielding said that the report’s findings, which show that it is taking almost a year longer to save for a deposit, means that people are being forced to flush dead money down the rental drain.”

“Senator Fielding wants the Government to set up an Accessing Super Scheme, like the Canadian Home Buyers’ Plan, which would allow first home buyers to access $15,000 of their superannuation so they can use it for part of a deposit on a house. ‘Owning your home is the great Australian dream and the government should be doing all that they can to keep that dream alive. Instead of just handing out government grants and causing property prices to skyrocket, this scheme lets first home buyers access more of their own money so they can put it to good use,’ Senator Fielding said.”

The Camden Advertiser in Australia. “Doug Kerle, an audio-visual technician, bought a unit in Ryde two months ago. He saved for seven years to buy it and put aside half his earnings for the past three years to build the deposit. The 26-year-old, who worked 50-hour weeks and avoided travel to save, said he still could not have done so if he had not been living with his parents.”

“”If I’d had to pay for rent and food, you’d be looking at $300 a week,’ he said. ‘You couldn’t save.”’

The Irish Post. “Ireland might be out of recession but the black cloud that overshadowed the Celtic Tiger is yet to pass. Recent media reports suggest that about 60,000 people have left the Republic in search of employment. According to the Central Statistics Office Ireland’s unemployment rate jumped to a 16-year high of 13.4 per cent in June. The number of people claiming benefits has also hit new heights.”

“Ireland, which has been hit by unemployment, a deflated property bubble and a banking crisis, is one of the last eurozone nations to return to growth. Irish Times economics editor Dan O’Brien predicts further job losses, particularly in the construction sector. ‘The construction sector has shrunk massively,’ he said. ‘In the first three months of the year, quarterly housing completions plumbed depths recorded only twice before in the 35-year history of the data series.’”

“‘In April, they fell further, to stand at 1,166, almost one-tenth of their monthly peak at the end of 2006. Despite this, the industry still has a way to go before it hits bottom,’ he said.”

The Irish Independent. “Homeowners who are unable meet their mortgage repayments should be encouraged to voluntarily hand their home back to the bank, an expert group on mortgage arrears has recommended. The group’s interim recommendations do not contain any proposals on forcing banks to write off mortgage debt. Finance Minister Brian Lenihan rejected suggestions the group’s recommendations were ‘too little, too late.’”

“Taoiseach Brian Cowen said the new measures would ensure an end to penalties or arrears charges for those taking part in the arrears resolution process. But Fine Gael TD Michael Ring accused the Greens of joining Fianna Fail in ‘betraying’ homeowners. ‘As the Taoiseach and his cronies lined up at the announcement, were any of them really thinking about the plight of the 33,000 households who cannot pay their mortgage and the 250,000 people in negative equity?’ the Fine Gael spokesman on social welfare asked. ‘This watered-down, half-baked and hollow report adds insult to injury for these households who can thank the Taoiseach for their current plight.’”