The Housing Bubble

The Brimbank Leader reports from Australia. “The Guide to Property Values report, which compares all recorded Victorian sales between 2001 and 2011, reveals the median house price in Melbourne fell 1 per cent last year - the first drop in 16 years. Hocking Stuart CEO Nigel O’Neil said the 1 per cent decline in median sale prices was ‘only marginal,’ considering the previous growth. He said homeowners and investors should be pleased with the 10-year growth in median prices across Victoria, which included a long list of Melbourne suburbs recording rises of more than 10 per cent per annum over the period. ‘To have 16 years of prosperity would be the first way of looking at it,’ Mr O’Neil said.”

“Ray White chairman Brian White said while he agreed property rises and falls were cyclical, home-grown uncertainty was deterring many Australians from buying. ‘We’re very much interested in what is happening in New Zealand at the moment. The market in Auckland is so strong,’ Mr White said. ‘There has been price growth of 35, 40 per cent in 12 months. It’s amazing - and why isn’t that happening in Australia?’”

The Daily Telegraph in Australia. “The average Brisbane home buyer spends less than an hour inspecting the property they buy, a survey has found. It found that 64 per cent of Brisbane home buyers then discovered hidden problems when they moved in.”

The Brisbane Times in Australia. “Developers are slashing apartment prices and handing out tens of thousands of dollars in incentives - including rebates, cars, furniture and holidays - to lure buyers into Melbourne’s new-unit market. One former off-the-plan sales manager contacted by The Sunday Age said the widespread use of incentives was now key to fuelling market demand.”

”’Incentives work really well - it’s a necessary evil - but you have to be very careful. The punters shop the incentives around. Unless you can come up with a better prospect you’re going to lose the sale. When you realise the competition is doing it, what are you going to do? It’s a race to the bottom,’ said the manager, who declined to be named.”

“‘There’s no question there are a lot of apartments under construction, so everyone’s trying to attract attention to get people to inquire about theirs,’ said Robert Pradolin, general manager at developer Australand. ‘Short-term incentives might suit some developers to offload stock, but we need to protect long-term values. It can become a self-fulfilling prophecy if we’re not careful.’”

Perth Now in Australia. “Property developer Stockland says real estate markets are at their worst in 20 years due to weak consumer confidence. ‘These are challenging market conditions,’ managing director Matthew Quinn told AAP. ‘I’ve been in the market since 1988 and I think this is arguably the most difficult housing market I’ve seen probably in the last 20 years. We are at the mercy of the cautious consumer and the fact that households are deleveraging.’”

Adelaide Now in Australia. “A prime piece of Gold Coast surf beach real estate continues to languish on the market despite the asking price dropping by $4.6 million. The four-bedroom, four-bathroom home is one of the last remaining original beachfront homes at Mermaid Beach still on the market and was listed for $9.8 million in May, 2006. It is now listed for $5.2 million.”

“Brisbane-based GP Dr Malcolm Ash, who has held a share in the property since buying it with his parents in 1972, said he was prepared to hang on to the property until he received the price he wanted. ‘I’m the only one getting any use and I’m there two days a week,’ he said. ‘That big house just for me, it’s just silly.’”

The Australian. “In 2001, Western Australia was just above the national benchmark for home ownership at 80 per cent for families, compared with the Australia-wide total of 79.2 per cent. Last year, WA had dropped to 74.7 per cent — 2.5 percentage points less than the diminished national figure of 77.2 per cent. The mining boom may be delivering six-figure salaries but it is denying home ownership. The focus groups have long shrieked about housing affordability. Politicians, however, tended to err on the side of the family already in the market because their capital gain mattered more at the ballot box.”

“As John Howard famously said in 2004, no voter ever shook their fist at him because their house had become more valuable. No, but then they didn’t forgive him for the elevated interest rates of his final term in office. The problem now is not the price someone paid to get in, or the debt they carry, but the fact an increasing number of families can’t enter the market in the first place.”

“Interestingly, landlords have yet to make money from the arrival of cashed-up but deposit-poor families. The latest taxation statistics for 2009-10 showed negative gearing still rules: after deducting interest and other costs from rental income, our landlords lost $4.8 billion. Total losses for the decade were $43.65bn.”

The Sunday Times in Australia. “Australia’s property market is becoming more and more affordable, says Reserve Bank governor Glenn Stevens. Mr Stevens yesterday said home prices were declining after rising dramatically in the 10 years from 1995. ‘Four or five years ago we supposedly had a housing affordability crisis. Now it seems that the problem some people fear is that of housing becoming even more affordable,’ he said.”

The McCarthur Advertiser in Australia. “Critics have warned for years that the Australian housing market is in a bubble, much like the credit bubbles seen in Europe and the US before the global financial crisis. Adrian Blundell-Wignall, formerly with the Reserve Bank, said earlier this month he feared for Australia’s housing market if global growth seriously faltered. ‘The world is so globalised and interconnected that if it goes down, then things will get much worse for Australia … [and] the biggest problem in Australia, that worries me personally … is the Australian property market,’ Dr Blundell-Wignall said.”

“The chief currency strategist with the Commonwealth Bank, Richard Grace, asked Reserve Bank governor Glenn Stevens if he was concerned that Australia’s exports were too heavily weighted towards China, and too heavily weighted towards iron ore, which makes up about 60 per cent of Australia’s exports to the world’s second-biggest economy. Mr Stevens said he was unconcerned about that.”

The People’s Daily Online in China. “At a time when China’s housing prices are beyond the reach of most prospective homeowners, low-income housing has not received the warm welcome authorities expected. The audit office of north China’s Henan province recently said that over half of the low-rent houses in the province’s six cities remain empty. The six cities have built 16,000 low-rent housing units, 8,215 of which are empty, or 51.3 percent of the total.”

“In recent years, central and local governments have been investing in low-income housing to satisfy the needs of low-income families. The government has vowed to build 36 million affordable housing units during the 2011-2015 period. In 2011, it started construction on 10 million units. However, supplies of low-income housing seem to have surpassed demand in many places around the country.”

NBC on China. “Golden Elephant No. 38 is one of thousands of ‘wealth-management products,’ instruments aimed at monied investors, which have shown phenomenal growth over the last five years. Sales of them soared 43 percent in the first half of 2012 to 12.14 trillion yuan ($1.90 trillion), according to a report by CN Benefit, a Chinese wealth-management consultancy. It has become a mammoth industry, comprising an array of financial products. Barclays estimates some 22 trillion yuan worth of wealth management products will be issued this year.”

“Fitch Ratings says China’s banks had about 10.4 trillion yuan in wealth management product liability at the end of June this year. Reuters reviewed more than 50 wealth-management and trust loan products, available online and at bank branches in China, with the aim of tracking, for the first time in certain cases, where investors’ money in these products ends up. All, except two, failed to explain or even display the underlying asset behind the product.”

“‘Some banks have been using new (wealth-management product) proceeds to cover losses from previous products in the pool,’ said David Cui, a strategist at BofA Merrill Lynch. ‘In our view, this is not fundamentally different from a Ponzi scheme.’”

“The proceeds from sales of the ‘Golden Elephant’ product were channeled to Taihe City Construction Co., a local government financing vehicle. Taihe is an agricultural town in impoverished Jiangxi province, where annual incomes reached 4,500 yuan a year in 2010, barely a tenth of Beijing residents. ‘The central government wanted more subsidized housing, so they just removed all the farmers here and told them to leave,’ said Taihe resident Xiao Hongmei. ‘The farmers who used to live here were promised flats, but many of them haven’t got anything so far.’”

“Absent from the product’s prospectus is any indication of the asset underpinning Golden Elephant, the near-empty housing project. ‘They haven’t even built a proper road here,” said Li Chun, a car repairman, who said he lives in the project. ‘The local government is holding onto the flats and only wants to sell them when prices go up.’”