Now They Are Thinking To Sell
Some housing bubble news from around the globe. Bloomberg on the UK, “Chancellor of the Exchequer George Osborne’s plan to boost the U.K. housing market is winning his Conservative Party votes at the risk of creating a property bubble, economists say. Help to Buy is designed to let cash-strapped buyers purchase a home with a deposit of as little as 5 percent of the value of the property. ‘It’s political genius but economic lunacy,’ said Stewart Robertson, an economist at Aviva Investors in London. ‘Have we learned nothing? You can already use language like ‘booming’ about the housing market. It may win you votes, but at what cost?’”
The Irish Independent. “Some family homes in desirable areas of Dublin have shot up in value by around €100,000 over the past 12-months, according to Brian Dempsey, from agents Douglas Newman Good. Viewings of properties are attracting up to 60 people and scores of requests for information online, said Dempsey, from agents Douglas Newman Good. ‘I haven’t seen anything like that since 2006,’ said Mr Dempsey of the volume of prospective buyers at a house viewing of a four-bed semi in Glenomena Grove, Booterstown. ‘We put it on at €545,000. My first bid was above the asking price.’”
The Globe & Mail in Canada. “An increasing proportion of people are choosing to rent condos in Toronto rather than buy them, driving up rents while sales slide and prices stall. But the large number of new condos that are coming on stream is weighing on the rise in rents in the city’s inner core. The central bank has been warning about the potential dangers of oversupply as the number of unsold units has climbed above 19,300. Sales have plunged amid the concerns. One Toronto developer, who declined to be named, said all things considered he thinks the price of new condos are down 15 percent.”
Reuters on Singapore. “New private home sales in Singapore fell by around three quarters in July from the previous month, hurt by new cooling measures that capped the amount of loans relative to monthly income. The Monetary Authority of Singapore said it was concerned about rising household debt and said an estimated 5-10 percent of borrowers had ‘probably over-leveraged on their property purchases’ based on their total debt service payment ratio of more than 60 percent of monthly income.”
The Standard on Hong Kong. “Frenzied speculators who snapped up subdivided shops late last year are now caught between a rock and a hard place, as they are experiencing difficulty securing financing to complete their purchases, or finding new buyers to take the units off their hands amid the market downturn. ‘A lot of owners have failed to resell the stores because of the tightened mortgages. Perhaps 30 to 40 percent of them will eventually choose to abandon the deals,’ said investor Yip Yiu- cheung, who bought several shops in a hotel.”
From China Daily. “China’s economic slowdown is likely to contribute to weakening credit profiles for many of the country’s major companies, according to Standard & Poor’s Ratings Services. ‘We believe the financial strength of the majority of corporates in our survey will weaken further in the next 12 months,’ said S&P credit analyst Christopher Lee.”
“52 Chinese companies were downgraded in the first seven months of this year, more than the cumulative volume over the past seven years. ‘The downgrades of city investment bonds were closely related to the weakening fiscal status of local governments and less policy support,’ said Li Shi, author of the China Chengxin International Credit Rating Co report.”
The Canberra Times in Australia. “Valspar, one of the world’s biggest makers of home paints, has warned its US investors that an expected recovery this year in the Australian residential housing market had failed to materialise, with the economically vital property sector getting worse. Paint sales are a good indicator of the strength of the residential property sector, especially new housing construction, and also gives an insight into the current mood of home owners as purchasing paint is one of the cheapest forms of updating or renovating a room.”
“‘We expected some recovery in the residential housing market in Australia. That has not happened. In fact, it’s possible that that market has gotten worse as the year has progressed,’ said Valspar CEO Gary Hendrickson.”
From Stuff.co in New Zealand. “Hopeful first-home buyers are likely to be stuck renting for longer, with their chances of securing their dream home officially slashed in half. Yesterday the Reserve Bank announced long-awaited new rules on home loans - and they’re harsher than expected. Starting from October 1, banks will be forced to limit mortgages with loan-to-value ratios (LVRs) of over 80 per cent. That will effectively halve the amount of low-equity loans banks can approve. Borrowers looking for a house at the national median price of $385,000 will now need to stump up a $77,000 deposit. In the overheated Auckland market, that figure climbs to a whopping $110,000.”
“‘Seventy per cent of first home buyers save a deposit of less than 20 per cent to get a mortgage,’ housing spokesman Phil Twyford said. ‘Most of those will now be shut out of the market or need to save for years to come.’”
From Reuters. “Foreign investors, who rapaciously scooped up U.S. real estate during the 2007-2009 recession, are backing away from the same markets they so eagerly jumped into a few years ago. Real estate is no longer the bargain it once was for foreigners. That is discouraging new sales, while many foreigners who already own property - especially those who bought strictly as investment - are turning into sellers.”
“About 45 percent of Miami’s real estate is owned by foreigners, said Brigitte Lina Lombardi, an associate at Keller Williams Elite Properties, and home prices there gained over 14 percent year-over-year in May. ‘About 25 percent of foreign investors who bought in Miami between 2009 and 2012 are not purchasing anymore because of the increase in price,’ she said. ‘Now they are thinking to sell.’”
Real estate is no longer the bargain it once was for foreigners. That is discouraging new sales, while many foreigners who already own property - especially those who bought strictly as investment - are turning into sellers.”
It wasn’t a bargain then or now and these clowns are just starting to figure that out in a very painful way.
“Help to Buy is designed to let cash-strapped buyers purchase a home with a deposit of as little as five percent of the value of the property.”
“‘It’s political genus but economic lunancy.’”
Political Genius: Condition the unwashed masses into believing that forever-rising property values is vital to the National Interest.
Economic Lunancy: Encourage the conditioned unwashed masses to willingly plunge themselves into debt-slavery in order to keep alive the concept that forever-rising property values is vital to the National Interest.
If most voters are homeowners or home buyers then this conditioning is something that is easy to do because these voters have a stake in high property values.
It may not make economic sense but it does indeed make political sense. And there is nobody around that can or will take the opposite position, the economic sanity position.
As soon as these guys in power can convince the unwashed masses that they should commit themselves to living their lives on the financial edge then they (the guys in power) have them (the unwashed masses) just where they want them.
Living on the edge makes one easy to “save”, as in “Vote for me and I promise I will save you”.
Living on the edge makes one easy to “save”, as in “Vote for me and I promise I will save you”.
And makes it even easier to say “don’t vote for that guy who is going to balance the budget at your expense”.
It won’t be long before renters are classified as terrorism supsects by the NSA.
Just speaking out about poor economic policy on this blog has likely classified us as terrorist threats.
“…classified us as terrorist threats.”
Terrorist threats? Nah.
‘Persons of interest’? Of course.
“Most of those will now be shut out of the market or need to save…”
Now there is a novel idea. If it catches on, houses will be cheaper for everyone.
‘Now they are thinking to sell.’
Sell now, or get priced in forever! (Said by someone who was lucky enough to sell in late 2004 at roughly twice the current Zestimate.)
‘the Bali branch of Bank Indonesia will continue to try to control real estate prices on the Island in a sector the Bank views as “on alert” against a possible bubble, capable of bursting and sending prices tumbling. Dwi Pranoto, the head of Bank Indonesia – Bali and Nusa Tenggara said the rapid and significant increase in real estate prices from year to year requires caution in the face of high costs, especially in South Bali.’
‘The close supervision of property prices by Bank Indonesia is needed to prevent a bubble economy. Bank Indonesia’s current view is that properties are priced at unsustainably high levels. Continuing, Dwi described how real estate brokers in Bali are involved in speculation. He contends that the growing bubble built by speculation resembles past bubbles that have occurred in Jakarta, South Sulawesi, Batam and Riau.’
‘A total of 125,000 new registrations are expected this year, a 15-year high. Amid concerns about the high potential of a real estate glut, the Bank of Thailand recently cautioned housing developers…’
The only comment:
‘As with all prior real estate bubbles in other nations, the central bank is misidentifying the threat. The threat is not oversupply. The threat is the spiral of rising prices and credit growth.’
They seem to be heavily into the condo phase.
The world is awash in easy credit. Until that ends, we will not begin to heal.
Bali real estate is as desirable to Chinese investors as west coastal US is.
It’s also a laundromat for money from Australia and Hollywood.
‘A downturn in Canada’s housing market could put pressure on the six largest Canadian banks, according to Fitch Ratings. Under the Basel III capital rules, lower loan-to-value ratios have let Canadian banks “optimize” risk-weighted assets. Translation: Rising prices have allowed Canadian banks to hold less capital against their residential mortgage exposure.’
‘Interestingly, The Globe and Mail has put a positive spin on this report, writing that “Fitch says Canada’s big banks can withstand a downturn.” Well, sure. But it’s never really a good diagnosis when the doctor begins by telling the family that the patient will probably survive.’
‘Last week, Statistics Canada reported that building permits in the residential sector fell 12.9 per cent in June, and permits for multi-unit dwellings — mostly condos — sank even further by 18.8 per cent. Even more frightening, research conducted by RealNet Canada found than in some of the bigger markets — Toronto, Vancouver and Calgary — residential land investments for future home building has already crashed through the floor, plunging 51, 52 and 30 per cent respectively.’
‘Muddying the picture is that a new temperature reading of the housing market from the Canadian Real Estate Association (CREA) being released on Thursday is likely to show that home sales are doing just dandy and likely rose significantly in July, along with average home prices. But David Madani of Capital Economics says it is the calm before the storm.’
‘Or as he put it in a note to clients — “homebuilders are having a Wile E. Coyote moment” as when the perpetually ill-starred cartoon character realizes he has overshot the cliff and looks down to see nothing but air under his feet. “It’s astonishing to me that people are not picking up on this. If you see volumes crash and prices still rising, you shouldn’t be thinking everything is fine, you should see that as a warning sign,” he says.’
“Here in Toronto, if you look at new home sales, we’re at near-record lows. If you think about the implication this has for home building, new construction and all the jobs that go along with that, this is quite startling.”
I’ve heard that there are more condo towers going up right now in Toronto than any other city in the world.
“Have we learned nothing?”
I was shocked that the bi-coastal housing bubble of the mid-1980s repeated two decades later. Now everything is happening the same way a mere one decade later.
The question is, will the Fed take the punch bowl away even though it is filled with gruel and people will be starving without it. Or go along with another bubble and face even worse down the road.
‘will the Fed take the punch bowl away even though it is filled with gruel and people will be starving without it. Or go along with another bubble and face even worse down the road’
It’s already happened.
Has it? It sounds to me like the market is reacting to the possiblity of (horrors!) normal interest rates. If you wait until it actually happens, you are screwed. The Fed, meanwhile, is testing the waters and trying to prepare the market for the hit.
So let’s say the possiblity of normal interest rates starts to lead to normal stock prices based on the dividend yield — cutting stock prices in half. And what happens to consumer spending when the financial sector goes back to only lending what people can pay back again?
Does the Fed follow through, or come back with QE4?
The question is whether there is a way out, or no way out. I guess the answer will come soon.
If you glance at the above, they’ve tried re-inflating the global bubble and are now draining liquidity. The ‘worse down the road’ is on the door step. Here’s just one piece of it:
‘The Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, ordered the companies in April 2012 to start writing off all loans delinquent that exceeded 180 days, which is the standard practice for regulated financial institutions. Fannie and Freddie previously did not charged off all the loans in this category. New regulations will require Fannie Mae and Freddie Mac to begin providing quarterly estimates of the financial impact of the accounting change that include all the delinquent loans to the FHFA. The FHFA gave the companies until January 2015 to comply. This delay in reporting will only increase speculation, hinder the truth about Fannie and Freddie’s financial health and delay the planning and steps forward to reconcile all the bad loans.’
‘The Federal Housing Finance Agency has initially reported that Fannie and Freddie have delinquent loans totaling in the billions. An early estimate of the total cost for the write-offs could top a trillion dollars.’
‘Two reasons why the Feds are moving slow on writing off these loans. First, it would cut into the profits the GSEs are posting each quarter, and that would reduce the amount of profits the federal government sweeps into the U.S. Treasury. The federal government benefits from the large quarterly deposits that are delaying the next round of the debt ceiling fight in Washington. Second, if the GSEs write off this large amount it would have a negative effect on the housing market. The housing market is a strong fundamental helping support the economy at this time. A drop of this magnitude in the housing market could flat line the economy for the rest of 2013 and into 2014.’
‘The two companies received $187.5 billion in taxpayer aid since 2008. Fannie and Freddie have sent the U.S. Treasury dividends totaling $132 billion, including $76 billion this year alone. Those payments count as a return on the government’s investment, not as a repayment of the aid. Congress passed a bill with the President’s signature that all profits from the two GSEs are considered dividends and not any repayment of the loans.’
‘Fannie and Freddie will never repay the government loans unless the courts step in to force the issue. At that time Fannie and Freddie would still owe the government the $187.5 billion with interest/dividends during the repayment period. The government would then force the GSEs to retain the delinquent loans if they returned to the public sector and would be forced to burden the write offs then.’
http://seekingalpha.com/article/1651012-fhfa-to-force-financial-health-picture-from-fannie-mae-and-freddie-mac?source=yahoo
OK, hindering the truth is the key “market fundamental”. I get that.
If the GSEs write down a Trillion $ in bad loans, what incentive would they have to continue to keep these millions of houses on their books?
Sorry, if the write off $1Tr losses that is way more than $1Tr in loans.
Can they really be described as companies at this point?
They are agencies of the federal government. I don’t see how they can do anything other than what the President and Congress tell them to do.
‘An early estimate of the total cost for the write-offs could top a trillion dollars.’
That’s the first hint I have heard the GSE write-offs could top a trillion dollars. If these organizations are good at anything, they are very capable of hiding the real economic picture for housing.
I have been scouring data here and there, and found a nice chart from Case or Shiller or whomever. It was a chart plotting P/E ratios against long-term interest rates. I would try to find a link, but it would just get filtered if I did. This chart indicated that low interest rates, in the face of a faltering economy, eventually reach a point of diminishing returns. It appears that today’s low rates are actually not helping matters at all. They are only piling additional risk onto the system, without assisting the underlying economy in any way.
I also read an other article where the Federal Reserve was saying that QE has no effect if not accompanied by low interest rates. The connected dots lead to the conclusion that QE3 has little to no effect, since the requsite interest rates are having little to no effect right now. That’s why I believe that the Federal Reserve will end QE3 soon.
I’m a little surprised they didn’t decide to start in September. I think maybe they need to do a litttle PR first, to spread the news that QE3 is really no longer helping anyone, so everyone won’t get all butt-hurt over the roll-back.
It appears that today’s low rates are actually not helping matters at all. They are only piling additional risk onto the system, without assisting the underlying economy in any way.
That may be true for the overall economy, but I think they still help certain small subgroups. Every FB that gets pulled into 30 years of payments on an overpriced house might be keeping a banker employed for another month.
“interest rates are having little to no effect right now…”
There is a difference between no effect and not having the desired effect. They may not be producing organic growth, but they could still very well be postponing some nasty contractions.
The S&P 500 is the wrong color today.
They may have had to dump in extra liquidity to buffer markets against the effects of the NASDAQ glitch.
How presumed Fed chair appointee, Larry Summers engineered the deregulation of the global banking system, financed the Obama presidencies, and found Nirvana:
Greg Palast deconstructs the memo.
“…Until the bankers began their play, the WTO agreements dealt simply with trade in goods–that is, my cars for your bananas. The new rules ginned-up by Summers and the banks would force all nations to accept trade in “bads” – toxic assets like financial derivatives….
While billions of sorry souls are still hurting from worldwide banker-made disaster, Rubin and Summers didn’t do too badly. Rubin’s deregulation of banks had permitted the creation of a financial monstrosity called “Citigroup.” Within weeks of leaving office, Rubin was named director, then Chairman of Citigroup—which went bankrupt while managing to pay Rubin a total of $126 million.
Then Rubin took on another post: as key campaign benefactor to a young State Senator, Barack Obama. Only days after his election as President, Obama, at Rubin’s insistence, gave Summers the odd post of US “Economics Tsar” and made Geithner his Tsarina (that is, Secretary of Treasury). ”
http://us4.campaign-archive2.com/?u=33e4ec877eed6a43863a4a92e&id=78d25d8b46&e=57c88f3b10
“…financed the Obama presidencies,…”
Could that possibly be the key reason he is a top candidate for the Fed chair position?
It certainly couldn’t be due to his view that women’s brains are not fit for science, or that poor third world nations’ citizens could make the global economy more efficient by eating more pollution.
“About 45 percent of Miami’s real estate is owned by foreigners, said Brigitte Lina Lombardi, an associate at Keller Williams Elite Properties, and home prices there gained over 14 percent year-over-year in May. ‘About 25 percent of foreign investors who bought in Miami between 2009 and 2012 are not purchasing anymore because of the increase in price,’ she said. ‘Now they are thinking to sell.’”
It’s great to know that, in an era of tight federal budgets, our Federal Reserve Bank can ‘afford’ to pump $40 bn a month in MBS purchases TO HELP ENRICH FOREIGN REAL ESTATE INVESTORS!!!
After four years overseas I’m coming back to the US and it’s still not a good time to buy a house! Actually, renting is much more appealing as I can come and go as I please without a millstone to sell. Thanks to Ben and the posters for keeping the blog going while I was gone
Hey, Mugsy. Welcome back. It’s just as boisterous here as usual.
Yes, I’ve noticed the collegial tone is still alive and well