The Housing Bubble

It’s Friday desk clearing time for this blogger. “The housing market continues to cool off in the Lower Mainland, as the number of home sales dropped to 10-year lows in the Vancouver area and average sale prices dipped across the region. Those numbers represent a moderation of the formerly overheated housing market in Vancouver, but not a full-on correction to record-setting home prices in recent years, said Vancouver Real Estate Board president Eugen Klein. The days of $100,000 monthly price increases in Richmond or the west end or West Vancouver might be over, but ‘after all of that, where a $400,000 house became a $900,000 house, we’re seeing a price adjustment of just over six per cent. We’re not going back to the (original) level.’”

“Recently Deloitte, in its Australian Mortgage Report, tipped that investors, weary of poor equity returns, would start to return to the market next year. Eureka Financial Group managing director Greg Cook is cautious about rushing into the market. ‘If you talk to stockbrokers it’s always a good time to buy shares and if you talk to real estate agents it’s always a good time to buy property,’ Mr Cook said. ‘My observations are that there is a rosier outlook but I seem to meet some clients that think `the Gold Coast property market is 40 per cent off its peak, it’s got to be a good time to go in’. If a $1 million property has dropped to $600,000, my suspicion is that $600,000 is closer to the long-term value.’”

“An auctioneer was surprised recently to find that 35 Chinese people turned up to view a Dublin flat he was selling whereas only one Irish person was among the 40 viewers. Paul McGreal of Eddisons estate agents sold it at auction for €198,000 or €68,500 over its €129,500 guide price. Afterwards he said that the auction campaign helped to build up a considerable database of interested Chinese investors.”

“All in all 65pc of the 11 lots at the firm’s auction last month went to non-Irish purchasers, all of whom were buying with cash. ‘There was considerable interest from abroad with telephone bidders from China, Malaysia, London, Los Angeles, New York, Amsterdam, Leeds and Manchester on the day,’ he said.”

“According to the National Association of Realtors, non-American buyers accounted for $82 billion in home sales last year. More than $7 billion of that is by the Chinese, who are now the second largest foreign home purchasers after Canadians. ‘They’re probably the top 1 percent of the Mandarin speakers that are coming from China,’ said Brent Chang, a Coldwell Banker realtor in Southern California. ‘They’re really the people who have their own businesses or maybe were part of the government.’”

“The Chinese like the U.S. because their money goes further. In Shanghai, $2 million might only get you a two-bedroom condo. While some of the Chinese buyers live in the U.S. full or part-time, realtors estimate about 40 percent of the homes are for investments. Linda Chang, a realtor who works with her son, Brent, in the San Marino and Pasadena areas of California, says while many other real estate markets have suffered, her area has flourished thanks to Chinese and other foreign buyers. ‘It’s been fantastic for the U.S. housing market because we have not suffered as other communities have,’ said the elder Chang. ‘In fact, our property values have increased.’”

“With miles of freshly paved roads, little traffic and some seriously avant-garde architecture, the Chinese city of Ordos provides a driving environment most car enthusiasts can only dream of. Yet rich Chinese who have invested in the resource-rich city are now frantically rushing to sell off their new luxury toys. As the boom turns to bust, some luxury car owners are said to be asking for as little as 10 percent of the typical asking price.”

“Zhou Hai, the manager of an Ordos-based dealership called Haohai Used Car Company, told NBC News that while prices have plummeted, it is not to the extent that people had claimed. ‘The Internet is saying that my prices are 90 percent off, but in fact it’s only 50 percent,’ he said.”

“Ordos was supposed to be China’s Dubai, but the city built for 1 million people today has only 30,000 residents. Investors across China have snatched up real estate – often with no intention to move in or rent out – in remote places like Ordos as a safe place to keep and grow their money. Speaking to NBC News earlier this year, Gillem Tulloch, managing director of research firm Forensic Asia described the confluence of these economic events for ghost cities like Ordos as being: ‘Empty roads, empty buildings, empty neighborhoods, empty cities — all over China.’”

“Chris and Katy Gahlsdorf bought a house the year they got married. They thought, as young couples had for generations, that buying a home was the financially responsible thing to do and would provide security for their future. That was 2007. Within a year, home values in Oregon were in free-fall. It wasn’t long before the Gahlsdorfs were underwater on their mortgage. Today, they owe about $50,000 more than their house is worth. ‘We’ve delayed a lot of things. We’ve delayed having a family,’ Chris Gahlsdorf said. ‘We’re kind of in a holding pattern, just paying our bills and waiting.’”

“‘You did have this kind of asset, only now it’s a liability,’ said Chris Gahlsdorf. ‘There’s more equity in my paid-off car in the driveway.’”

“In the end, the most common road out of underwater territory will be to just wait. ‘It’s a ‘take a big breath’ issue,’ said Ethan Handelman, VP for policy and advocacy at the National Housing Conference. ‘The best thing you can do is keep paying your note and let the market catch up with you, because it will.’”

“Florida had nearly double the share of mortgaged homes in some stage of foreclosure in October as any other state. The mortgage struggles represent the lingering fallout from five years of historically high unemployment and inflated home values, which have left tens of thousands of boom-time borrowers in Southwest Florida underwater — trends that will likely feed new foreclosures into 2013, said Joseph Lehn, a Sarasota foreclosure attorney.”

“‘Florida is a low-income state, and with the predatory lending issues we had, every day it’s just getting worse,’ Lehn said. ‘People are broke. Retirees are going back to work. I have 75-year-olds with nowhere to go. They didn’t plan for this.’”

“First-home buyer demand has collapsed in major housing markets, with the nation in danger of changing to a generation of renters, according to Australia’s biggest mortgage broker. Last month, AFG arranged only 96 loans worth $31 million for first-home buyers in Queensland, compared with 265 mortgages worth $79m in October. This followed a similar trend in NSW, where it arranged less than half the 219 home loans worth $83m in September.”

“‘First-home buyers are the lifeblood of the property market - when activity stagnates at the entry level, it affects everyone up the property chain,’ AFG general manager of sales and operations Mark Hewitt told The Australian. ‘We could be seeing the transition to a generation of renters unless more is done to help people on to the property ladder.’”

“Leading realtors‘ body Confederation of Real Estate Developers’ Association of India (CREDAI) has asked its members to seriously consider selling off maximum inventories by reducing prices. ‘The developer community is willing to consider the suggestions made by the Finance Minister P Chidambaram to unlock the value of the unsold stock. We have asked our members across the country to seriously consider the proposal to sell (the unsold stock) in maximum numbers,’ Credai national president Lalit Kumar Jain said in a statement.”

“Earlier, the developers’ apex body had refused to offload the inventories at discounted rates saying that realtors would not be able to reduce the prices as they have invested heavily in the projects.”

“The economy is measured by people who measure things. They are not aware that real people exist and so they talk, instead, in terms of theory. It is not proper science because at the base of it all is human behaviour and these economists are not sociologists.”

“They are measuring the wrong things. If the people do not spend their money, and spend it often, that is measured as bad. If they do not spend their money because, afterall, a price has gone down, they are abnormal. If they do not stop buying when prices go up, they are abnormal.”

“If the country produces less of something per worker than another country, that is bad. If you can import something cheaper from abroad this is better. If you lose your job because of what was imported that is good. The more people you have, the richer you are and the more taxes you can collect to spend on making the country a ‘better’ place. This is why America and China are exactly what we would like to be, aren’t they? All this is called economics and has taken over common sense.”

“Who is losing the NZ plot? Who is in charge of this ‘economics’? Surely not our leaders who must love all NZ was, is and could be. Not leaders who could choose to do something unconventional to put it right. No, the only people who could allow this happen would have to be classic managers. Those people who ‘do the thing right’, according to the infallible economics book, listening to their branch heads rather than their own. Working on this year’s budget.”

“But then that means that the managers are running the leaders who are suppose to be ‘doing the right thing’ for the NZ future. Doesn’t it? Or are our leaders really only managers after all?”

“So here’s my two cents in fairly random ranting order. And please don’t give me the patronising ‘manager’s’ economic short-termist response: Stop selling housing, land and assets to non-New Zealand residents/companies. And retrieve what you can. Start appreciating our challenged youth. Ensure you have a manufacturing base that will provide them jobs. Think affordable housing. This is the human aspect missing from pure economics.”

“If kicking the can down the road and avoiding at all costs dealing with issues head on is an art form, then Prime Minister John Key is a master of the art. We have seen this on graphic display this past month or so over housing issues. Building affordable housing today is a very ho hum and formulaic business. There is nothing confusing about it – unless one is a politician or bureaucrat, it would appear.”

“The numbers speak for themselves. It is too dangerous to delay decisive action any longer – and indeed most unfortunate we didn’t start on this path following the 2008 election. It is important for the Government to send a clear message the ‘housing bubble days’ are over, that over a reasonable and realistic time frame, New Zealand housing returns to normal affordable levels. Indeed where they had been for previous generations of New Zealanders.”