The Housing Bubble

It’s Friday desk clearing time for this blogger. “This month, the three-bedroom bungalow, circa the 1960s and without much updating, sold for $421,800 over the asking price, where similar detached houses typically sell for just short of $900,000. The bungalow at 300 Dudley Ave. was listed at $759,000. Real estate experts call it the ‘new reality,’ and the high price paid for a north Toronto bungalow is the latest evidence. ‘We’re looking at this through a prism of our expectations growing up in Canada in the 1950s, ’60s and ’70s, when part of the Canadian dream was that you would own your own single-family home,’ said CBC business commentator Michael Hlinka. ‘But as Canada matures, we’re going to be looking at a new reality, where that may be out of reach. And I don’t think you can turn back the clock.’”

“The winning bid of $1,180,800 came from a university student whose parents live in China and own a business in San Francisco. There were four other bids of more than $1 million. In addition to China, investors pouring money into real estate are flocking to Canada from the Middle East, Korea, Russia, India and the Philippines as well, said Tony Ma, who owns HomeLife Landmark Realty in Markham. ‘They see an $8 million house here, they see the quality, they see the finishes and they think it’s cheap,’ Ma said.”

“Real estate projects in India are expected to surge in the price range of up to Rs10 million this year to satisfy the growing demand for decent housing. However, there is no forecast of any price corrections, said Rohit Ahuja, managing partner of Dubai-based real estate services firm Buniyad Retail, which is representing several home developers in the UAE. Ahuja advised property investors to look at Noida, Delhi, Gor Gaon and the upscale Chandigarh for quick gains. He asked investors to look at areas where secondary market is strong like in North India so that they can exit at any time, after making some gains.”

“Deepak Manaktala, who is organising the show and has bought an apartment himself, said he booked a property two months ago in Noida, which has since then shown a five per cent increase in its market value. ‘Other markets where money could be made are Mumbai, Pone, Thane, Bangalore and Goa,’ said Ahuja.

“More than half of the 124 skyscrapers currently under construction in the world are being built in China. But confidence is often based on nothing more than faith, hope and cheap credit. China avoided recession by flooding its economy with cheap credit — but that credit has mainly gone into financing the biggest property and infrastructure-building boom of all time. ‘This time will be different’ is the traditional formula to reassure nervous investors in the last years before a great economic bubble collapses. It was a constant refrain in the run-up to the Western financial crash of 2008-09, and now is heard daily about the Chinese property boom.”

“Take the city of Wuhan, southwest of Shanghai and about 500 kilometres in from the coast. It is only China’s ninth-largest city, but in addition to a skyscraper half again as high as the Empire State Building it is currently building a subway system that will cost $45 billion, two new airports, a whole new financial district, and hundreds of thousands of new housing units. It is paying for all this with cheap loans from state-run banks. Multiply the Wuhan example by hundreds of municipal authorities that are also borrowing billions to finance a similar ‘dash for growth,’ and you have a financial situation as volatile as the ’sub-prime mortgage’ scam that brought the U.S. economy to its knees. Except that when the Chinese property boom implodes, it may bring the whole world economy to its knees.”

“When a housing and credit bubble goes out of control, warned Albert Edwards, chief economist at the French bank Societe Generale, ‘you tap your foot on the brakes and whole thing starts crashing and you can’t control it.’ Nobody knows what will happen in China itself when growth stops and unemployment soars, but the Communist regime is clearly frightened of the answer. Maybe it can ride the crisis out until growth resumes at a slower pace in a few years, but with its Communist ideals long abandoned, its only remaining claim on people’s loyalty has been its ability to deliver rising prosperity. If that collapses, so may the regime.”

“Visiting multi-disciplined academic Nicole Foss says the fortunes of Western Australia’s booming economy could ‘turn on a dime’, something she concedes sounds like a radical ‘out of left field’ forecast. Ms Foss believes the global financial crisis of 2008 was only a taste of a greater catastrophe to come, a slow leak in a finance bubble that is going to burst on a much larger scale, leaving no country untouched for decades before a recovery.”

“‘The banking sector is extremely globally connected and we’re also looking at the Chinese bubble bursting and very strange things happening in India where their investment bubble is bursting as well in places like Mumbai. We’ve hollowed out our real economy to the point where there’s very little substance left and now we’re running on fumes in terms of our financial system and when that bubble implodes it can so really quite spectacularly. This is really going to be the defining event of our era,’ she said.”

“Onni Group, a Vancouver-based developer that last year bought two Downtown properties, is quietly finalizing plans to build a 32-story apartment tower at Ninth and Olive streets. The firm has been eyeing the Downtown Los Angeles market since about 2004, said Chris Evans, Onni’s executive vice president. The bulk of Onni’s business is in Canada, where between greater Vancouver and Toronto the company has nearly 4,000 condominiums currently under construction, Evans said. It also owns and manages about 4,000 rental units between Canada, Phoenix and Chicago.”

“Even if demand appears to be mounting, Onni’s proposal is not an obvious slam-dunk. Bill Witte, president of Related California, said that, for most developers, high-rise construction is generally too costly compared to rental returns. ‘The only way that makes sense, potentially, is if you’re really designing condos and the exit is that you convert to condos and sell them,’ said Witte.”

“A 45-story Las Vegas condominium tower that went bankrupt in the real estate crash has been repositioned by Southern California investors and units are back on the market at half their previous prices. The owners hope to appeal to buyers from Southern California – 45% of the units sold have been purchased by people from the Los Angeles area for personal use, said Santa Monica investor iStar Residential.”

“Prices at the former Panorama Tower North, now known as the Martin, range from the mid $200,000s to as much as $7 million for a penthouse. That’s more than $300 per foot, compared with the $600 a foot its developers sought before the crash. Demand for secondary homes is growing again, said Tripp DuBois of the Kor Group. ‘The supply of new-construction luxury high-rise buildings is dwindling and our price points are substantially below replacement costs,’ he said.”

“The $275 million Vue overcame fierce challenges when it became the only new luxury condo tower to survive the recession. As sales agents struggled to sell condo units in the weak housing market, developer Dan McLean has repeatedly said he would never turn the tower into rental units. McLean shared the following statement with the Observer: ‘The VUE Charlotte is remaining a condominium building. Nothing has changed. Several of its European mezzanine lenders are attempting to sell their junior mortgage to a third party investor. The VUE Charlotte has nothing to do with this process and will continue to sell condominiums as it always has.’”

“The Vue has said roughly 60 percent of the 409-unit building was presold. But relatively few of those units have closed. The Vue’s condos started selling from just under $200,000 to more than $2 million. Buyers paid 10 percent of the contracted sales price as a deposit.”

“Condo prices appear depressed in virtually every west and northwest suburban Chicago community. We’ve previously written, for example, about a 3-bedroom condo with an asking price of $54,900 and a 2-bedroom listed for less than half its 1990 sales price. As you’d expect, the bargain-priced condos are located at the margins of Oak Park rather than in more desirable locations. That’s where you’ll find the lowest-priced new listing from this past week, at 622 W Harrison Ave.”

“The unit is a 2nd floor 1-bedroom listed at $36,900. The unit sold for $143,000 when the building was converted to condos in 2002. It went into foreclosure, and is currently owned by Fannie Mae.”

“The unfinished condo-hotel on Fort Lauderdale beach that was to carry the name of real estate mogul Donald J. Trump was sold Wednesday in a foreclosure auction. The final price tag: $100 — plus its $165.6 million debt. The only bidder was the group that holds the property loan, Corus Construction Venture LLC. It bought the loan at a deep discount from a Chicago bank that failed during the real-estate slump.”

“Experts say it found no takers for two reasons: That price is too rich for the shuttered 24-story tower in today’s real-estate market, and there are too many lawsuits pending to make it attractive to buy. ‘To make it into a hotel at that (face value) price, you’d be paying more than $500,000 a room, And that would make for a very, very expensive hotel,’ said Mark Ellert, president of Fort Lauderdale-based real estate company IAG Florida.”

“Tyler Kivell will make two life-changing commitments this year. At the top of the agenda is the summer wedding he and his fiancée are planning. Before that though, the 24-year-old hopes to be signing the papers for a new house and moving out of his 800-square-foot apartment. Kivell, a University of Iowa graduate who works at an after-school program at Horn Elementary, has looked at about a half-dozen houses in North Liberty with his fiancée in recent months. The couple is looking for a ranch-style home with an open floor plan in the $250,000 to $275,000 range, and they’ve narrowed it down to a couple strong candidates.”

“His Realtor, Ted Burton Jacobsen, said that for buyers like Kivell, it’s a good time to be looking. ‘We’ve got that continued perfect storm of low prices and low interest rates,’ Jacobsen said. ‘The interest rates are pretty much at what we think is as low as they can go. This year there appears to be great signs of life.’”

“Kivell said he’s ready take the plunge — both with marriage and home ownership. ‘It’s time to have our money going somewhere,’ he said.”