The Housing Bubble

‘China’s bad loans threaten to bust world economy’

‘China is even more reliant on exports than Japan was in the 1990s, and its all-important property market now “may be tipping over.”

‘What concerns Kamiyama and Cui is the lack of bold action in Beijing at a time when the scale of Chinese bad debt may be higher than Japan’s ever was; they believe non-performing loan ratios are “significantly into double-digit” territory. In the first half of this year, the analysts estimate, commercial banks had to book larger non-performing loan liabilities than for all of 2013.’

‘China’s leaders refuse to blink as economy slows drastically’

‘Premier Li Keqiang is determined to drive through deep reforms and wean the economy off exorbitant levels of debt before the damage becomes irreversible.’

‘Junheng Li, from Warren Capital, said the real scale of horror in the construction industry is disguised by advanced payments that are simply pocketed as cash flow. “This flatters the balance sheet and understates the true leverage,” she said.’

‘China’s “market Leninists” may find just it as difficult to deflate a housing bubble gently as Japanese and American capitalists before them.’

Here’s one example of a guy taking deposits and running:

‘Xing Lin Real Estate owns more than 1,000 stores in China. Its CEO Wu Binglin recently absconded with large sums of money. Victims are spread through 16 provinces such as Shaanxi, Shanxi and Shandong and 50 cities. Victims who sought their rights from local governments were met with beating and arrest by the police.’

‘Since Sept. 2, Xing Lin’s branches in Inner Mongolia such as Hohhot and Baotou were found vacant. More than 200 home buyers were victimized. Some of them have paid more than one million yuan. Other stores of Xing Lin in Xi’an, Yinchuan, Baoji, and Chifeng also reported absconding cases.’

‘In Xi’an, more than 300 victims and 30 million yuan were involved in two of its stores in Shaanxi Province. One victim complained that the company had stopped contacting him since the down payment was made in mid July.’

‘In fact, Xing Lin has many other subsidiaries throughout China under different names, such as Heng Tai in Kaifeng City and Lin Tai in Harbin City. Wu Binglin is the legal representative for all of them. They are now all closed without warning.’

‘The nation wide close down of Xing Lin has resulted in thousands of buyers losing billions of yuan. But, many municipal public securities refused to file the cases for victims. Anxious victims have to take to the streets demanding the government protect their rights.’

‘Allegations of breach of operation were made against Xing Lin branch in Ningxia more than a year ago by Legal Daily. Victims of the Shenyang branch have started to protest in front of its offices since Aug. 11 this year.’

‘Professor of Law, Zhang Zanning, of Southeast University: “I believe the cause of the phenomenon is our government lacks credibility.”

‘Down here in Aussieland, we’ve been riding on two bubbles over the past year or so and they both derive from the absolute granddaddy of all global bubbles — the zero interest rates and the massive printing of money, led by the US and repeated pretty much across the entire developed world.’

‘That’s zero pretty much everywhere else other than Australia and New Zealand. This has led to the bizarre and certainly unique situation that our Reserve Bank’s 2.5 per cent official rate is at the same time both too attractively low and too attractively high.’

‘Our first bubble — in property — is because it’s “too low”. Mortgage interest rates, which are priced off that official rate, have never been as low as they are today. People are borrowing and buying.’

‘The second bubble — in the Aussie dollar — flows from it being ‘‘too high”. All that foreign money sloshing around in global capital markets has been pouring — or being dragged by our banks — into Australia chasing our “high” interest rates.’

‘As I noted last week, three big things happened running down to last weekend. China might just have sneezed, the European Central Bank went all the way to zero, and the US jobs numbers looked soft.’

‘Now in the past week, we might just have seen the Aussie dollar bubble starting to pop. The really big question is if the one bubble pops, will the other follow?’

‘Southeast Asia’s 100 largest publicly traded companies are becoming more vulnerable to default as their debt surges and profitability weakens. Debt-to-earnings ratios rose last year at the fastest pace since 2011, as average return on capital at the biggest firms by market value fell for the first time since 2008, according to data compiled by Bloomberg. In the past four years, their debt rose 89 percent to the equivalent of $501 billion.’

‘Average economic growth in Indonesia, Malaysia, Singapore, Philippines, Thailand and Vietnam fell to just under 5 percent last year from 8.5 percent in 2010, forcing companies to rely more on borrowing than earnings to finance their investments. Outbound acquisition activity from the Asean region has tripled in the past five years as companies sought growth abroad.’

‘S&P released a study last week that said the escalating debt levels among Asean’s blue-chip companies will increase vulnerability when interest rates start to rise. Internal cash flows and cash balances funded only about half of the $300 billion the region’s largest companies spent on expansion and acquisitions between 2008 and the first quarter of 2014, S&P said. About $150 billion of debt was issued to bridge the gap.’

‘The Bank for International Settlements said in its latest quarterly review that international borrowing by companies in some emerging markets now matches the output of their economies, leaving bondholders more vulnerable to interest-rate or currency shocks. “Downside risks include reduced interest servicing capacity,” S&P said in the Sept. 10 report.’

‘There is no way of knowing from local sources whether there was any housing bubble ever in the country. But if there was any, it might have happened between 2000 and 2010. A research study, conducted by the Real Estate and Housing Association of Bangladesh (REHAB) in 2012 does indicate to that direction.’

‘According to the study, between 1990 and 2000, the increase in real estate price in Dhaka ranged between 15 per cent and 55 per cent. But between 2000 and 2010, the increase was between 127 per cent and 830 per cent.’

‘Over a decade, ending in 2010, the rate of increase in the real estate price was 127 per cent in Shantinagar. And the increase was the highest (830 per cent) in Baridhara. The real estate price recorded similar increase in most areas of Dhaka city. The average rate of increase in property prices was 174 per cent between 2005 and 2010 compared with that of only 8.0 per cent between 1990 and 1995.’

‘The phenomenal rise in real estate price did take place despite substantial improvement in the supply side. For instance, the average annual supply of apartments in Dhaka city in 1982 was 147. The same increased to 13,300 in 2010.’

‘Banks have emerged as the major casualty of slowdown in the real estate sector. According to the Bangladesh Bank statistics, nearly 38 per cent of loans extended by the commercial banks to the real estate sector until the end of last calendar year were found to be non-performing. The banks until that period extended loans amounting to Tk 335 billion to real estate companies. What is more worrying is that Tk 81 billion out of theTk 134 billion non-performing loans was classified as ‘bad’.’

‘Banks which have large amounts of classified loans are in deep trouble for they neither can recover money nor can take over the mortgaged property for virtually there are no customers for apartments.’

‘According to the latest data of the REHAB, more than 22,000 ready flats have remained unsold for long. Realtors are finding it hard to sell flats even in prime areas despite a sizeable cut in prices.’

‘In its June property report, BIS Shrapnel said that the strength of the Melbourne market has been in high value inner and middle ring suburbs, which have pushed up the city’s median property price by 16% to $640,000. The weekend sales median has been even higher lately, up to $750,000, according to Australian Property Monitors.’

‘Despite this, the city’s penchant for apartment construction in the inner city has caused a glut of stock in some suburbs. BIS Shrapnel says the problem has been heightened as net overseas migration is now trending downwards, while new dwelling construction, particularly for apartments, remains strong.’

‘Founder of Destiny Financial Solutions, Margaret Lomas says the inner ring is a definite danger zone because of too many apartments coming onto the market over the next decade. “This will ensure that both yields and values plummet, where they are likely to stay for some time,” says Lomas.’

‘With just 11,000 yuan ($1,796), 50-year-old Deng Bangfu made his first property investment in China, flipping it in just two months for a profit even as the nation’s home prices fall.’

‘Deng and about 300 other investors bought a 14.9 million yuan townhouse in June in the southern Chinese city of Dongguan and sold it in August for 16 million yuan. The vehicle: a peer-to-peer lending and financing website called Tuandai, which is testing a crowdfunding product that meets developers’ desire to quicken sales by tapping demand for better returns.’

“Now I can tell people I once owned a townhouse, which I could never afford myself all my life,” Deng, an accountant at a technology company in Dongguan, said by phone. “We know that local governments have started loosening home-purchase restrictions. As soon as banks ease mortgage curbs, home prices will quickly rebound.”

‘The risks of online property speculation are “very high” because anybody with 1,000 or 2,000 yuan can take part and many of them may not understand investing, Standard & Poor’s Hong Kong-based analyst Fu Bei said.’

“Such investments are irrational, and they won’t become a trend” because it’s short-term speculation not supported by prices in a market downturn, said Zhang Haiqing, Shanghai-based research director at Centaline Group. “This is all fairly crazy.”

‘Fu said prices will keep falling because of the supply of unsold apartments. The inventory of unsold new homes in 20 large cities jumped to an average of more than 23 months of sales in June, according to Shenzhen World Union data compiled by Bloomberg News.’

‘When we took a look at Montreal’s condo market back in June, it was clear that this segment fell into the latter category. Active listings had been rising at a double-digit pace for two years while sales were heading lower and prices went nowhere.’

‘Though the annual growth in active listings has moderated in recent months (see right), sales fell off a cliff in August, tumbling double-digits on an annual basis.’

‘That pushed the number of months of inventory on the market (active listings divided by sales) up to 17.6, a marked jump from 14.8 in August 2013 and nearly double the 8.9 seen in August 2008.’

‘If you’re tempted to think of condominiums as an investment, you should note that, adjusted for inflation, the median price is up less than 0.2 percent over this period. So in real terms, if we assume that the median buyer in April 2011 was also the median seller in August 2013, he or she is probably in the red after fees are taken into account.’

‘The Conference Board of Canada projects that roughly 30 percent of Montreal’s population will be over the age of 55 in 2018. Unless house-rich, cash-poor boomers look to downsize en masse over the next few years or the city gets an unexpected influx of foreign money, immigrants, or people from other parts of Canada, buyers are likely to retain the upper hand in Montreal’s condo market going forward. That means any price appreciation for this property type is probably limited.’

This won’t be over until people stop looking at a box of air with an HOA bill as an investment.

‘The Jerome Levy Forecasting Center warned that the world economy might plunge into another recession in 2015 that will take down the U.S. economy with it. Levy economists, who use the profits perspective forecasting model developed by Jerome Levy in 1908, have accurately predicted every major financial event in the past few decades, including the 2008 financial crisis, which many mainstream economists said was unforeseeable.’

‘The Levy Center says policymakers and commentators are not paying attention to a key trend in the global economy: the fall of investment expenditure in emerging market economies.’

‘ Last month Yellen suggested the U.S. economy might be expanding too rapidly because of “pent-up wage deflation.” Her argument echoes conclusions published by the Federal Reserve Bank of San Francisco in an academic paper in January. The Fed argues that wages were not lowered enough during the recession and thus the current slow wage growth is in fact not a sign of weak recovery. Instead the slow wage growth reflects the lack of pay increases for employees since wages did not fall enough during the recession. This assertion was quickly refuted by economists at Goldman Sachs using very simple empirical measurement that showed sectors with below-average wage decline in the recession are now registering above-average wage acceleration.’

‘The debate underscores the U.S. policymakers’ and commentators’ failure to grasp complex real-world economic interactions. They have once again become hypnotized by their overly simplistic, abstract models, which exposed their failure in 2008. This generates a rather bizarre argument about what constitutes slow wage growth. Meanwhile a storm that could tip the world back into recession seems to be gathering in the emerging market economies. It is perhaps time to listen to and engage with the economists who saw the last crisis coming. If these self-reinforcing tendencies within the profession continue, it seems unlikely that we could effectively face down future economic problems.’

‘Mark McGowan has used the first sitting day of a new parliamentary week to target Royalties for Regions — saying the Liberal-National Governments foray into property investment in Karratha has left taxpayers million of dollars out of pocket.’

‘Addressing the media, Mr McGowan attacked the government for buying 50 units in the 174-apartment Pelago East tower for $30 million in 2012 — and now not being able to sell many of them. The government has struggled to sell 28 of the units since putting them on the market 10 months ago, and is now offering them under shared equity, a scheme usually aimed at struggling first-home buyers.’

‘Twenty two of the 50 units have been allocated for government workers. But 10 months after completion, 28 of the units are up for sale. He said initially, 10 units were put on the open market with 18 offered for sale under a government shared equity scheme. Now, all 28 were being offered under shared equity.’

‘Mr McGowan said the government is now competing in the Karratha property market against Finbar to sell a glut of units in a falling market where unit prices have dropped by more than 25 per cent in the past two years. “Taxpayers money is now tied up in empty units and we don’t know the full cost to the State for some time,” Mr McGowan said. “The fact that not one unit has been sold is clear evidence that taxpayers are in for big losses.”

‘Property prices in Karratha, which was named Australia’s fastest-growing mining town in 2013, dropped as the resources industry transitioned from construction to production. While rents and property prices remain high, many investors have lost money in the market’s slide.’

“President Xi Jinping’s anti-corruption drive is also aimed at stopping officials from moving large amounts of money - along with their families - abroad. Mainland media have dubbed these cadres ‘naked officials’ and regional governments have come down particularly hard this year on those caught with major assets abroad.”

Sounds like the California housing market’s days of ever-higher prices driven by all-cash Chinese investors may be numbered.

http://biz.yahoo.com/e/140915/amh8-k_a.html

‘Form 8-K/A for AMERICAN HOMES 4 RENT’

‘a) Financial Statements of Business Acquired - Beazer Pre-Owned Rental Homes, Inc. - as of December 31, 2013 and 2012, and for the years then ended.’

‘Depreciation expense 2013 $3,146,090

Total expenses - $19,271,133

NET LOSS - $ (9,261,687 )

Someone was saying the losses in these companies were because of depreciation expense.

“I really think that what we’re observing is a high level of self-responsibility through this,” Bank of Canada Governor Stephen Poloz said in late April. “I’m comfortable that this risk is not outsized.”

Isn’t that basically what Bernanke said in 2006.

‘But in the event of a crash, the CMHC will suffer a big blow, which in turn will hurt sovereign debt and taxpayers’

As a prudent Canadian who lives within their means, I resent this policy set-up. Why should the taxpayer be on the hook for any loses whatsoever. If the worst case scenario could develop and CMHC cannot satisfy their insurance claims then they must either raise their rates significantly now or the banks should expect to eat more of the losses. This is just a mini AIG situation. It is fraud and the implied taxpayer backstop BS creates moral hazard and the banks will never be as prudent as they should be.

“I think I will make money here. I purchased it at C$600,000 and they are now going for C$680, C$690. If that trend continues I’ll be sitting pretty in two or three years.”

OMG! You obviuosly never learned your lesson when you were in the US. I bet you are using your ‘fake’ home equity appreciation as an ATM AGAIN! God people are stupid.

‘(Canadians) view of housing as an investment rather than just a place to live.’
And that will be their downfall. Housing IS NOT an investment, it is a depreciating asset.

‘This week, a collection of nine vintage muscle cars netted approximately $2.5 million in less than 60 minutes. Late last month, a 1962 Ferrari 250 GTO Berlinetta sold for $38.1 million at the Bonhams Quail Lodge auction in Carmel, California – this is 28 percent higher than the Mercedes-Benz race car that sold for $29.7 million last summer.’

‘With all of these record high prices for classic automobiles, new money floating around the economy and immense speculation, is this a carbon copy of the housing market a few years ago? In other words, are consumers in the midst of a brand new bubble?’

‘Last year, research from Knight Frank’s second-quarter 2013 luxury investment index (KFLII) saw price growth in the classic car market help increase the fund by seven percent. Furthermore, this increase matched the rise in the value of central London’s residential property market.’

‘The research further found: “Looking at the individual asset classes represented within KFLII, there has been a wide variation in performance over the long and short term. Across every time period classic cars, according to the HAGI Top index, have shown the strongest growth, rising 21 percent over the past six months and a remarkable 430 percent over 10 years – better even than gold.”

“It’s an asset class that’s very rare and it’s very aspirational,” said Andrew Shirley, editor of the report, in an interview with Reuters. “A lot of Asian high net worth individuals have acquired classic cars…They keep them in their garage in the UK or Europe and they come over and drive them in rallies.”

sell a stock $7
sell a house 7% between commission ,stamps etc
personally I roll my own.

‘The longer the music plays and the louder it gets, the more deafening is the silence that follows,’ Claudio Borio, who heads the BIS’ monetary and economic unit, told reporters. ‘Markets will not be liquid when that liquidity is needed most,’ he warned, urging ’sound prudential policies (and) extra prudence on the part of market participants themselves.’”

ALWAYS, always pay off debt during good times. You’ll wish you had when your ‘ala 2008′ hits ya.

With the last bears throwing in the towel and jumping on board the Wall Street rally wagon, it’s a given that stocks have nowhere to go from now on except up.