Investors Engulfed By The Tidal Wave Of New Supply
It’s Friday desk clearing time for this blogger. “The vacancy rate for single-family homes was 10.7 percent in 2013, up from 10.6 percent in 2012 and near its 2011 peak of 11 percent. That’s far above the vacancy rate during the bubble (8.6 percent in 2005) and before (7.4 percent in 2000). In 2013, household formation was just 321,000, much lower than the 1.2 million baseline implied by current population growth. The number of owner-occupied single-family homes actually fell by 184,000. ”We’re still building single family homes faster than we can fill them,’ argues Trulia’s chief economist Jed Kolko.”
“DR Horton announced it would have to use incentives to sell its homes. It last reported it had 10,000 unsold homes, 3,100 of those already finished. ‘Other builders are sitting on more than that,’ noted Buck Horne, an equities analyst at Raymond James. ‘That’s a lot to be speculating with, especially after the spring selling season.’ As of last quarter, Pulte had less than 1,000 spec homes in all of its combined communities. ‘That’s one the industry’s lowest ratios of spec homes,’ Horne said.”
“There are plenty of vacant homes, no new owner households are being formed, and there’s not enough demand to necessitate building more new homes. Why then do real estate agents claim there is not enough supply to meet demand, and why are home prices continuing to rise?”
“Media reports about rising home prices, strangely enough, are starting to have a dampening effect on the local housing market, said Royal Hartwig, at Keller-Williams Realty’s Palatine office. ‘After hearing these optimistic reports, sellers who have been holding back are deciding that it is time to list their homes. But many times they are expecting to get more money for their homes than the market will currently bear, so the homes are starting to just sit on the market again and inventory is rising,’ Hartwig said.”
“For the second month in a row, the Austin housing market has seen sales on the decline compared to the year-earlier period. Also in August, price dropped for single family houses compared to a year ago. ‘A majority of Austin area homes are now priced out of an affordable range for first-time and first-time, move-up homebuyers where a significant portion of home sales volume occurs,’ said Austin Board of Realtors president Bill Evans.”
“Metro Phoenix’s median home-sales price is poised to dip by $5,000 during September. The dip doesn’t surprise market watchers, who expected it because of steadily falling sales in the Phoenix area. ‘Limbo perfectly describes our current housing market,’ said real estate analyst Tom Ruff of The Information Market, owned by Arizona Regional MLS. ‘Low demand and a lack of new housing inventory have balanced the market into a standstill.’”
“Eileen Rivera, an agent with Keller Williams Realty Los Alamitos, and other experts believe what’s going on now is that banks are starting to release some of the tremendous numbers of foreclosed properties they were so reluctant to release while the market was still down. ‘There’s no question that the big banks held on to inventory and they held back, and they’re releasing some of them now,’ she said. ‘I was dealing with one home the other day that had been foreclosed on 19 months ago.’”
“A home at 2749 San Francisco Ave. in Long Beach can be considered a typical foreclosed home on the market. The 1,176-square-foot home has three bedrooms, two bathrooms and is selling for $369,900. The home, which was built in 1946, was originally priced at $429,000. Rivera said banks only look at the bottom line in the transaction, whereas a homeowner may have trouble letting go of a property for a lower price. ‘It’s the least emotional transaction there is,’ she said.”
“The slide in China’s property market has lasted well into the third quarter and appears to be dragging the broader economy with it. For a Beijing-based trader with a leading global commodities trader, the housing market sell-off means overdue payments from one of her clients, a private chemicals producer which expanded into real estate in 2008. ‘It owes us $600,000 in contract payments but says it can’t pay because of failed property investments by its parent,’ she said. ‘It’s not just us — other suppliers are affected.’”
“The current slide in house prices follows a multi-year boom which lured in companies such as Zhejiang Galico. Around the country, companies which built massive real estate portfolios as part of non-core businesses are now trying to offload them. Li Yonglin, a sales manager with a real estate agency in Wenzhou, said Galico’s case is not unusual as boom turns to bust. ‘Payments collection in property projects has been very slow and that has affected funding flows for the whole group. These are very common cases among small businesses and we’ve even seen some business owners running away,’ he said.”
“The Financial Times writes that the Chinese Communist party is turning to western governments – including Canada – to help in its quest to track down individuals who have moved themselves, and more importantly, their wealth, overseas. A housing analyst based in Vancouver told us that any capital flight might be brought back to China due to capital fright – the fear of losing one’s head for running afoul of the ruling party’s policies. ‘The corruption crackdown could accelerate outflows à la Argentina, or it could cause a repatriation of funds if officials attempt to repay bad debts so as to avoid jail time,’ he said.”
“Investors should sell their residential investments in Singapore. The property market, which has been gradually declining, does not need any new action to tip it over. Just the sheer number of new homes being supplied both in Singapore and Iskandar will drive prices lower. New private home sales in Singapore have plunged in the past three months to about 40 per cent of the monthly average of the past five years or so.”
“In the past six months, there has been an increase in the number of mortgagee home sales. During the luxury property boom from 2006 to 2008, about 60 per cent of top-end apartments were purchased by foreigners. Some have held on to their investments, but they are now feeling stifled. I recommend that investors sell their residential investments before they are engulfed by the tidal wave of new supply.”
“Lower Manhattan’s Trump Soho hotel-condominium tower, which has struggled to find buyers since sales started in 2007, is facing foreclosure. The 391-unit Trump Soho has recorded about 122 completed deals, according to appraiser Miller Samuel Inc. Fifty-eight units are currently listed for sale, with prices ranging between $915,000 for a studio to $50 million for a 10,000-square-foot presidential suite. ‘The challenge of this building is a very high price per square foot paired with extremely high carrying charges related to the hotel services they were trying to market,’ said Jonathan Miller, president of Miller Samuel.”
“Economics columnist Martin Wolf doesn’t want to predict when the world economy will face another financial crisis. But he tells Yahoo Finance editor in chief Aaron Task, more turmoil is ‘more or less inevitable’ because ‘nothing profoundly changed,’ since 2008. ‘Banks have such a powerful interest in finding ways around regulation,’ Wolf says, and they always succeed at it. Wolf fears this is putting us ‘back where we were’ before the crisis happened.”
“So how can the broken system be fixed? Wolf says the first step is to make world economies less dependent on debt. ‘Wolf says radical reform of the financial system is necessary to put the world economy on steady ground. Right now, he says, there is still ‘incentive for the people inside’ to play ‘the leverage game,’ and it’s just too dangerous.”
I have to travel over night this weekend, then middle of next week I’m off to Texas for several days on business. On top of that, my laptop crashed and is in the shop. The podcast is in the can - I hope to get that online today. Anyhoo, I’ve got some desk clearing to do this morning.
‘Soldiers based at Fort Bragg are accustomed to being at the center of heated global conflict. As the Army trims its numbers, troops and their families now find themselves in the middle of a local bidding war as landlords compete to fill empty houses and apartments with a shrinking pool of renters.’
‘Today, it’s a renter’s market, with property managers on and off post waiving fees and offering rent reductions, YMCA memberships, apartment upgrades and other specials in an effort to attract occupants to thousands of empty units.’
‘The Army’s contraction seems to have come as a surprise to property managers and investors, who have built at least nine new apartment complexes around Fayetteville in the past three years.’
‘Are there any middle-class New Yorkers anymore? A number of “affordable” middle-income apartments in Hell’s Kitchen sit empty, as developers can’t find residents who fit the income criteria.’
‘In a city with an apartment vacancy rate of less than 2 percent, and where an average Manhattan one-bedroom is nearly $4,000 a month, the Gotham West complex has vacant one-bedrooms that cost $2,509.’
‘To qualify for that one-bedroom, you have to make between $88,102 and $95,865 a year. There are also openings for studio and two- and three-bedroom units targeted for middle-income renters in the city-sponsored complex on West 45th and West 44th streets.’
‘Manhattan Borough President Gale Brewer told The Post the developer is pushing fliers under residents’ doors to spread the word on the affordable-unit vacancies. “It’s an unusual problem to have, but it’s a good problem because we have the apartments ready,” she said.’
some folks think gov setting wage/prices is a good idea
min wage
rent control
Rental “bidding war” when demand is falling?
I do not think that phrase means what you think it means.
It’s the landlords who are doing the bidding.
Lowering prices is not a bidding war except for shills who know no other terms.
Landlords are asking, not bidding.
So you’re saying it should be called an “asking war”?
Ok, the correct term for this is ‘dutch auction’.
I was driving home from work yesterday and heard the new DR Horton add for “Red Tag Specials” on their homes for sale. I guess the spring and summer selling season was not all they had hoped.
I have noticed a lot of homebuilders in this market (Sacramento foothills) have slowed the pace of their construction. 2015 is going to be an interesting year.
Your shanties are cratering.
How nice it must feel to drive home to your recently purchased house and see a red tag sale sign out in front of the neighborhood.
“Why then do real estate agents claim there is not enough supply to meet demand, and why are home prices continuing to rise?”
Because they’re lying deliberately.
With 25 million excess empty and defaulted houses in the US, there is plenty of supply.
“There are plenty of vacant homes, no new owner households are being formed, and there’s not enough demand to necessitate building more new homes.”
Not “few” new owner households. “No” new owner households. It’s less than zero. The margin has collapsed.
That’s right. The Greatest Generation is selling off its empty nest SFRs in exchange for assisted living arrangments, with a tsunami of Baby Boomer households soon to follow in their wake.
Where are the buyers for all these empty nests going to come from, not to mention the buyer pool needed to absorb a bevy of new supply? Unless Megabank, Inc proves very effective in collusion to hold inventory off the market, we could be looking at falling SFR prices for decades to come. And note that this will be great for the economy, as households will have to pour less wealth down the real estate rat hole and will thus have more disposable income to spend on relatively more valuable consumption items than rapidly depreciating housing.
^
Speaking to the fundamentals
The Greatest Generation is selling off its empty nest SFRs in exchange for assisted living arrangments,
Wouldn’t this cause a building-boom in assisted-living housing stock, as we have never needed so much of it?
It’s already happening. Pay attention.
Would this fall under multifamily units, which can be repurposed for the elderly (removing bathtubs, handles near toilets, etc)?
Re: Boomer
Here’s another statistic to add to the downsizing.
“When Tom Greco bought his four-bedroom home three decades ago, he assumed he’d pay off the mortgage before retirement — just as his parents did.
Things didn’t work out that way.
Instead, his $4,500 monthly mortgage payments — a consequence of several equity withdraws over the years — became a financial drag.
“It’s pretty hard to retire with that,” the Irvine attorney, 66, said.”
Dumb de dumb dumb. Dumb de dumb dumb DUMB!
http://www.latimes.com/business/realestate/la-fi-boomer-mortgages-20140921-story.html
Why then do real estate agents claim there is not enough supply to meet demand, and why are home prices continuing to rise?”
The article answers this question:
“The answer is that certain segments of the market are thriving while others are stalled and certain locations are thriving while others are stalled.”
A glut of empty homes in Phoenix is not going to help people who have a job in donwtown DC.
Similarly, a glut of new homes in, say, Columbia MD, is not going to help people who have a job in downtown DC, unless the family really wants to help Exxon-Mobil.
A glut of new $350K homes is not going to help a new college grad with $30K in college loans and a $30K job.
A glut of new condo “homes” is not going to help a family with 3 kids.
A glut of empty foreclosed homes is not going to help a family who can afford to borrow $200K but doesn’t have the $30K cash to make the trashed house livable.
And none of this is going to help the massive army of Lucky Duckies who can only afford to shack up and rent.
And how many excess empty and defaulted houses are there in DC? Tens of thousands? More?
Same ole Oxide. Tossing out the same excuses Stealtor thieves always offer for why prices won’t fall and her house will retain value. Let’s start a list:
1. It’s different here (this ain’t Phoenix)
2. My kind of house retains value (I ain’t no condo owner)
3. The price range retains value (the high end market fallacy)
4. It’s different here II, more local version (sure those far flung commuter suburbs will tank but not the fancy areas closer in, those are always in demand)
Blah, blah, blah. Same exact stuff from last time. Same excuses PROVEN to be BS last time.
Here’s the only excuse you should offer: Uncle Sugar is going to protect me and continue pumping heroin to protect the housing market.
“Uncle Sugar is going to protect me and continue pumping heroin to protect the housing market.”
You’re getting to the crux of the biscuit.
‘Even economically, Washington is a different kind of place. Post-recession, it grew fat on government contracts and $140,000-per-year jobs, a boomtown in an otherwise sputtering country. Now, as other cities are climbing back, metro D.C. is slipping backwards. Recession-proof? Not this town.’
‘A wind-down from pricey wars, some $85 billion in across-the-board sequestration cuts, and a 16-day government shutdown. Put all that together and you have Washington, D.C., in 2013, a year when the capital under-performed nearly every other American metro area. And performed dead-even with Atlantic City.’
‘Foreclosures and short sales, which are known as distressed sales, made up 18.6 percent of residential sales in the region last month, down from 21 percent in August 2013, according to reports from the Virginia Beach-based Real Estate Information Network.’
‘Home sales and median prices have grown rapidly across the country this year, but Hampton Roads has lagged. Real estate experts have linked the sluggish recovery to a lack of job growth and decreases in military spending.’
‘The region’s inventory for residential homes for sale was 7.1 months’ worth in August, about an 8.9 percent increase from 6.5 months in August 2013. Typically, supplies over 6 months are considered “buyer’s markets” because sellers generally have to settle for lower prices on their homes.’
‘Prices also can be held down by foreclosures, notices of which increased slightly in August after declining for nine consecutive months, according to RealtyTrac.’
‘New listing activity in the Loudoun County market continued to outpace the previous year’s level in August, with 15.5 percent more sellers entering the market, according to the Dulles Area Association of Realtors.’
‘This marked the sixth consecutive month with double‐digit percent increases. Active inventory is now 58.5 percent higher than last year at this time. With sales down 16.4 percent from last year’s level, the strong seller’s market of 2013 has balanced out, according to DAAR.’
‘Townhome inventory has doubled from the scarce level of last August, from 288 active listings to 576.’
‘The median sales price in August of $430,000 was 1.1 percent lower than August 2014. While this was the third month this year with prices slightly lower than 2013 levels, the year‐to‐date median sales price of $435,000 is 3.6 percent higher than the same period last year.’
‘In Fairfax County, the August housing market reflected a continued hesitancy of buyer activity with fewer home sales recorded but with a 72 percent rise in inventory compared to August last year, providing serious buyers with the best selection of homes on the market all year.’
Hampton Roads and Virginia Beach are not “DC area.” Seriously doesn’t anyone look at a map these days? Virginia Beach is DC area the same way that Pittsburgh is DC area.
Virginia Beach and Hampton Roads are military towns. Northern Virginia, with 9/11 and the Pentagon, is quasi military town too. They are subject to boom and bust outside the housing bubble.
‘Hampton Roads and Virginia Beach are not “DC area.”
I’m just putting the links together based on regions.
You’re gonna need to be re - shoed prematurely with all that dancing and prancing.
‘A wind-down from pricey wars, some $85 billion in across-the-board sequestration cuts, and a 16-day government shutdown.’
I’ve only paid half attention to recent news, but aren’t we on the brink of entering yet another ground war?
‘Put all that together and you have Washington, D.C., in 2013, a year when the capital under-performed nearly every other American metro area. And performed dead-even with Atlantic City.’
Since a bunch of Atlantic City casinos recently went belly-up, I assume the comparison is unfavorable.
Your “excuses” are about house PRICES. My points were about house INVENTORY.
If there are empty new builds in Mesa, it’s not the realtors in Mesa who are complaining. The complaining realtors are in Austin. Buyers who don’t feel like driving 80 minutes will complain that there is no inventory in DC, even if there are new builds waiting in Herndon or Jessup.
While there is a bit of inventory closer to the center, that inventory is older and barely in move-in condition. Investors have already grabbed that to fix and flip for a price that’s too high.
But if you want to talk about prices, ok.
It was BS during the 2002-2008 bubble.
It is BS during the 2013-2015 bubble.
Was it BS during the 2011-2012 bubble?
And so is mine.
How many excess empty and defaulted houses are there in DC?
Someday someone will explain why money flows in DC exploded while the rest of the country was sinking, and why the people who lived there and grew fat off the flow of milk from the imperial teat thought all was normal and everlasting.
Your “excuses” are about house PRICES. My points were about house INVENTORY.
Your posts are always about price, the price of your house and whether it will drop. That is the only reason you are here.
oxide is in the Soviet
gop spends- dnc spends
fed workers are perpetual
Which has what to do with the topic?
Socialism! Illegal immigrant ebola children! Chemtrails!
Speaking of D.C., my paper this morning had median income figures for the twenty-five largest U.S. metropolitan areas. The D.C. area was by far and away the highest, considerably higher than San Francisco, Boston, and New York City.
In last place was … Tampa, where wages “are on the low side.” Yay! Second from the bottom was Miami. We still get paid in sunshine here.
Yes it will. The prices will be more affordable to the Lucky Ducky.
Why then do real estate agents claim there is not enough supply to meet demand, and why are home prices continuing to rise?”
The article answers this question:
“The answer is that certain segments of the market are thriving while others are stalled and certain locations are thriving while others are stalled.”
A glut of empty homes in Phoenix is not going to help people who have a job in donwtown DC.
Similarly, a glut of new homes in, say, Columbia MD, is not going to help people who have a job in downtown DC, unless the family really wants to help Exxon-Mobil.
A glut of new $350K homes is not going to help a new college grad with $30K in college loans and a $30K job.
A glut of new condo “homes” is not going to help a family with 3 kids.
A glut of empty foreclosed homes is not going to help a family who can afford to borrow $200K but doesn’t have the $30K cash to make the trashed house livable.
And none of this is going to help the massive army of Lucky Duckies who can only afford to shack up and rent.
By the way, those houses in the pic are BUTT UGLY. I mean they are like WTF butt ugly.
Another excuse, add it to the list:
5. My house is unique and prettier (the butt ugly fallacy).
My butt is prettier than your butt.
Theyre called donkeys in NY. Seriously.
One man’s donkey is another man’s ass.
‘Low demand and a lack of new housing inventory have balanced the market into a standstill.’”
If PHX has a lack of new housing inventory then why are the homebuilders discounting like no tomorrow? There is no “standstill”. That same article shows a 60,000$ annual rate of decline in price.
PHX area is the leading edge. Infestor shills came and went here earlier.
‘More people moved out of Phoenix this summer than relocated here, according to a study by United Van Lines.’
‘The moving company found 17 percent more outbound moves from Phoenix this summer than inbound. That’s a big problem for a state and region that has long relied on population growth to fuel its economy and real estate market.’
Yeah, I am seeing a decent amount of this. People leaving to places with more or better jobs.
PHX area is the leading edge ??
Is the leading edge of what ??
The moving company found 17 percent more outbound moves from Phoenix ??
And going where ?? I suppose Texas…Maybe NC or Wash ??
Mexico?
Phoenix is the leading edge of the housing crater for this echo bubble. Investors pulled out almost a year ago. Price drops began earlier this year. Leading edge of the cycle while SoCal and other areas are now dealing with what we were dealing with 6 months ago. Price drops and a market reversal here is universally acknowledged now even among the shills because it cannot be hidden. Other places they are still trying more shill excuses, see above.
Investors pulled out almost a year ago. Price drops began earlier this year ??
I would hardly call a real estate market that is driven by investors “leading edge”…
Did I say crater?
I wish I knew this six weeks ago. I signed a new lease on my Phoenix place and they raised it a couple percent. At least I have quieter neighbors when I’m home. The ones who are left there are the ones who want to be there. The rough types are in SFHs.
‘With the residential real estate boom, it might feel like Houston is being flooded with newcomers. But new data reveals that, contrary to last year, Houston has dropped on the list of hot places to move.’
‘United Van Lines just wrapped up its busiest time of the year for long-distance moves, and according to its data, Texas — particularly Houston and Dallas — is among the states that experienced the biggest moving deficit this year. The 2014 study revealed that Houston is now No. 11 on the list of places people move to, but No. 4 on the list of places people are moving from to another location.’
‘Could it be because Houston has a limited supply of housing inventory?’
‘With the Houston housing market recording another month of positive sales in July, reaching the highest monthly total ever recorded according to the Houston Association of Realtors (HAR), it is somewhat surprising to learn approximately 14 percent of current properties for sale are vacant.’
‘Don McClain of EZHousebuyers has been working with vacant properties through the boom and bust cycles of the Houston housing market for more than 20 years. “People would be surprised to know that my clients come from all walks of life and financial backgrounds,” added McClain. “When they call me, they are typically in drastic situations, whether it be a death of a family member, loss of income or unexpected relocation, among other circumstances,” said McClain. Sometimes, homeowners only have two choices: stay and maintain the home and make mortgage payments, or abandon the property and ruin their credit and home. “This is a story that repeats itself over and over and I feel it’s my job to help them pick up the pieces and get back on track,” he added.’
You have to hand it to home builders for remaining steadfastly optimistic against a plethora of gloomy news on the future home purchase demand front, including the news that Megabank, Inc is finally getting around to releasing its mountain of shadow inventory. Booyah!
The low construction rate for single-family homes may still be too high
September 18, 2014, 3:08 PM ET
The construction rate for single-family homes is about 40% below its long-term average, but even that depressed pace may be too high given that vacancy rates haven’t dropped much from post-housing-collapse highs, one economist noted Thursday.
In August the annualized starts rate for single-family homes hit 643,000 – that’s up about 4% from the year-earlier period, but still almost 40% below the average over the 30 years through last month, according to U.S. Commerce Department data released Thursday.
Given that it’s been five years since the end of the recession, one might expect that there would be enough demand to absorb this relatively low level of single-family-home building. But that’s not the case, Jed Kolko, chief economist at real estate site Trulia, wrote in a blog post. He pointed to government data showing that the vacancy rate for one-family homes rose last year, ticking up to 10.7% from 10.6% in 2012, and not far off from a peak of 11% in 2011.
“That’s a big surprise. It suggests even today’s low level of single-family construction might still be too much, too soon,” Kolko wrote.
For context, the vacancy rate in 2000, before the housing bubble, was 7.4%.
“To get back to normal, we gotta fill up homes faster than we build them. That didn’t happen in 2013. Even though relatively few single-family homes were built, even fewer were filled,” Kolko wrote.
…
Can’t speak to other parts of the country, but by 2000 the bubble was in full swing in CA. For instance, a guy I work with decided not to buy in SD when he moved here then because his dad, a Realtor™ in another state, advised him that prices were ‘too high’ and would definitely have to fall soon. Fast forward five years, to when we had this conversation: SD prices had doubled again.
“…‘Banks have such a powerful interest in finding ways around regulation,’ Wolf says, and they always succeed at it. Wolf fears this is putting us ‘back where we were’ before the crisis happened.”
‘Back to where we were’? No way in hell. We are much worse off now. MUCH worse off.
Postponing the reckoning does not reduce the tally.
Nope. Just serves to increase the number of swimmers frolicking on the beach as the water recedes from shore in preparation for a massive tsunami.
‘From January through April, there were many sales offers over the asking price,’ said Mia Simon of Redfin in Palo Alto. ‘Right now, the market has been cooling a bit. We’re seeing three or four offers over the asking price instead of 10.’
‘The market is terrific for homes under $3 million, while the more expensive properties are selling more slowly than last year,’ said Judy Corrente of Sotheby’s International Realty in La Jolla. ‘People are not buying the big estates in Rancho Santa Fe, but demand is strong for properties at the lower end of the luxury market.’
‘The Bay area, with its booming job market and limited land, bounced back quickly. Home prices took off there after the recession, and even shot past peak levels. The share of mortgages extended to the area’s Asian borrowers climbed from 25 percent in 2005 to 38 percent in 2012. But the share of mortgages going to African Americans and Hispanics borrowers fell sharply. You can see the colored dots on the map shift from yellow and pink (black and Hispanic) to blue and gray (white and Asian), particularly around the San Jose area, after the housing bust. Speaking at the National Press Club Wednesday, John Stumpf, the chief executive of Wells Fargo, mentioned the tight supply of homes in San Francisco, where he lives. In the Bay area, “you come with 27 of your closest friends and you bid the houses up,” Stumpf said.’
““you come with 27 of your closest friends and you bid the houses up,” Stumpf said.”
Huh? This is coming from a banker. Is he admitting that the banks are colluding to bid up the price of homes to boost the book value of their real estate holdings? This guy should be investigated based upon his own statements.
‘Right now, the market has been cooling a bit. We’re seeing three or four offers over the asking price instead of 10
Wow…Only in silicon valley can you describe multiple offers over asking price as a “cooling a bit”…
but demand is strong for properties at the lower end of the luxury market.’ ??
Now the “luxury market” has a lower end….
‘When Mayor Daniel Rivera described the need to revitalize many of the properties at the “core” of Lawrence, the word he used repeatedly was “blight.” The city has been blighted by foreclosures and blighted by fire, but with a new mortgage lending program brought to the city by Metro Credit Union and MassHousing, Rivera is hoping Lawrence’s landscape will change for the better.’
‘Offering existing homeowners the chance to refinance is another way of encouraging them to revitalize struggling neighborhoods, Milewski said. “There are lots of people in homes already that are house rich but cash poor. This allows them to refinance and get some of that money out to rehabilitate the property,” he said.’
‘Rivera is hoping Lawrence’s landscape will change for the better.’’
That whole section of MA was hit with an ugly stick.
‘Although foreclosures in Rutland County are down 66 percent for the year, the county leads the state in the number of people who have lost their homes — 96 through July compared to 144 a year earlier. Windsor County had the second highest number with 93 foreclosures. Chittenden County, the state’s largest population center, had 76 foreclosures.’
‘The Vermont Housing Finance Agency, which makes low-interest mortgage loans, doesn’t have a precise answer for the high number of foreclosures in Rutland County. The VHFA noted that the recession took a heavier toll on the Rutland economy than other areas of the state. As an example, the VHFA found that the median home price in Rutland fell by 13 percent between 2007 and 2013.’
‘Sarah Carpenter, VHFA executive director, said with 232 properties currently for sale in Rutland County, there are far more sellers than buyers, which is a sign of a sluggish economy.’
“In a buyers’ market, it may be very difficult for someone under foreclosure to sell sooner when they get in trouble or participate in a short sale leading consequently to a full foreclosure,” Carpenter said.’
Rutland is in the middle of a heroin epidemic. That might explain a few things.
http://tinyurl.com/n3tn4hp
I think the fact that anyone who bought a house 1998-current paid 3x the long term price trend might come into play too.
“Rutland is in the middle of a heroin epidemic.”
An obesity epidemic too.
‘Rutland is in the middle of a heroin epidemic. That might explain a few things.’
New England is a paradox.
“brought back to China due to capital fright – the fear of losing one’s head…”
I’ve long said; it’s all fun and games until somebody gets their head cut off!
racis
‘According to Yung Ching Realty Group, one of Taiwan’s leading property sales agencies, transactions of homes valued at NT$70 million (US$2.33 million) or higher fell to eight units in the city in July, representing a significant fall from the monthly average of 36 units recorded in the first half of this year.’
‘The July figure was even worse compared with the monthly average of 60 units recorded in the first half of last year.’
‘Huang Shu-wei, a research manager at Yung Ching, said that the sales records show fading interest from property buyers in the Taipei luxury home market due to the recent government measures to cap high prices and amid worries over more negative leads to come. The property market in Taipei has been closely watched by home buyers and market observers as it serves as an indicator for the property market in Taiwan in general.’
‘Over the past few years there has been an increasing amount of Chinese money pouring into overseas real estate markets. Juwai, a portal website that helps Chinese investors find properties in 58 countries says it has helped to facilitate the sale of about 2.5 million properties, sending brokers leads of over €20bn.’
‘Ultra-wealthy Chinese investors have been acquiring everything from overseas companies to foreign commercial and residential real estate. Their motivation is fairly straightforward: They feel their assets are much better protected overseas.’
‘However, Chinese money is only safe if it actually makes it overseas due to Chinese law prohibiting more than €40,000 leaving the country per person per year. As a result, Chinese investors and companies are getting increasingly creative when it comes to getting their money out of China and into overseas property.’
‘There are however, rising concerns that Chinese investors are pricing the wealthier classes out of certain markets overseas, especially when it comes to housing. Bill Seto, president of the US China Real Estate Association provided some valuable insight into how Chinese buyers tick when he said:
“They don’t like to haggle. Reputation is very important; they like to pay high prices so they could outbid the other competitor and that’s the way it is.”
We hear about limits per person, yet we hear about businesses buying property as a sideline.
‘Ultra-wealthy Chinese investors have been acquiring everything from overseas companies to foreign commercial and residential real estate. Their motivation is fairly straightforward: They feel their assets are much better protected overseas.’
I’d think this could backfire badly in the case of residential real estate investments purchased at a high premium. It is one thing for the Fed to step in to prop up the value of owner-occupied residential housing in the U.S., and quite another to support the value of foreign-owned real estate investments. The more U.S. real estate is owned by foreign investors, the more politically feasible it becomes for U.S. economic policy makers to pull the plug on price supports.
‘they like to pay high prices’
If true, they’re freaking stupid. (I think money laundering is more likely. Money launderers don’t care how much they spend - it just gets more money from A to B.) One thing about this Chinese stuff; it’s going to end. One way or another. Then we get to see how much they influenced the prices.
Yep. The real estate picture is sure to stay interesting for a while to come!
The next generation of sad sack bagholders will be the greater fool American households who stepped up to buy while Chinese investors were driving prices through the roof.
You can bank on the wails and moaning out of these folks a couple of years from now, after a race to the exits among fly-by-night investors has left them deeply underwater.
I love how various forms of white-collar criminality have been re-defined as “getting increasingly creative.”
I love how various forms of white-collar criminality have been re-defined as “getting increasingly creative.”
FWIW, regarding the Watergate affair G. Gordon Liddy claimed he wasn’t lying; he was less than accurate.
‘After nearly two years in federal and state courts trying to stop the foreclosure of her Aurora home — a legal battle that even squared off against the constitutionality of Colorado’s foreclosure laws — Lisa Brumfiel watched as it was sold at public auction. And, true to her word, Brumfiel says she’s fighting on.’
‘Now, she says she wants to know how the holder of her mortgage — investors who purchased it as part of a mortgage-backed security sold years ago with hundreds of others — can buy it back for more than twice its value and not owe her anything.’
“As I’ve said all along, my goal is to change Colorado’s foreclosure laws, and if I have to lose my house to accomplish that, so be it,” she said this week. “But I just won’t give it to them.”
Lisa, does that mean you borrowed twice as much as the home was worth and didn’t pay any of it back?
In a word, sort of. As usual, the lady is hiding behind MERS.
Lisa was a “part time saleswoman.” She bought the house for $163K with Franklin Mortgage in 2006. ARM-I/O. They don’t say anything about money down. She lost her job and stopped paying in 2011. She’s still in the house.
Franklin sold the mortgage to US Bank using MERS, which doesn’t record such transfers. When US Bank tried to foreclose, Lisa demanded the transfer paper, which of course US Bank doesn’t have. However, in Colorado as of 2006, you don’t need a transfer paper, you just need a lawyer signature.
Here is a comment from Lisa as of 7 days ago (I edited it a bit):
————-
“US BANK used fraudulent documents to foreclose on me. This is criminal. Even if the money was due to them, I have at least $40k in equity in my property. rse…I have PROOF that the Note, the Deed, and the Assignment are all bogus! FRAUD! FORGERIES! Larry Castle and Robert J. Hopp drafted legislation in 2006 to make it as easy to steal a home as shooting fish in a barrel. You would NEVER believe just how corrupt the laws are until you face this yourself. I know MANY individuals who kept up on their payments and STILL lost their homes! … ”
————
The comments support her in the “you go girl” style, but I don’t believe her for a second. “Steal” “her” house? MERS and lawyers may be corrupt, but it doesn’t change that she probably never paid a penny to principle. It seems to me that the only question is whether it’s Franklin or USBank doing the foreclosing. And I’d like to see where her “$40K” in equity comes from. There is no way she can pay down $40K of principle on an I/O, and I don’t think she put any money down. And I’d like to see ONE example of someone current on payments who lost their home. Not HAMP-ish quasi current, I mean really current.
Debt can cloud one’s thinking.
“MERS and lawyers may be corrupt, but it doesn’t change that she probably never paid a penny to principle.”
Likely expects a “participation trophy” for paying interest?
‘In its glory days Pyrmont’s Terminus Hotel was a buzzing watering hole filled with rowdy workers downing beer after a hard, hot and dirty day of work. Once a Sydney institution, the building is now empty and dilapidated, with faded signs and thick vines climbing on its gutters and walls. It is one of several prime properties owned by elderly real estate magnates Isaac Wakil, 84 and Susan Wakil, 78.’
‘Their collection of empty warehouses, buildings and the pub are among the startling figure of 122,211 empty Sydney residential dwellings counted by census workers in 2006.’
‘So why leave these buildings empty in a city plagued with endless talk of housing shortages and high rents? Real Estate Institute NSW chief executive Tim McKibbin said “land banking” - or leaving land vacant and watching it increase in value - was a common investment method used by developers.’
‘But Mr McKibbin said it was unusual to do the same with commercials properties, which could attract an even greater profit. “It is a perplexing question and I’m afraid one I can’t give any clarity to,” he said. “That seems to be their investment strategy.”
Why would such old people even bother to have an investment strategy? I’d go hog-wild on chamomile tea, or whatever it is that old ladies drink these days.
‘Sherman Foster makes no excuses. He’d let his water bill go for four months. It was approaching $200. But the landscaper was shocked when city workers warned his service would be shut off in May. After all, water from the house next door ran for more than two years before it was turned off in the burned out, boarded building on Monica near Fenkell. Its bill: $25,708.’
“How in the world do you allow a bill to build like that? Then to go after me for less than $190?” asked Foster, 52, who paid his $188 bill and avoided a shutoff. “It’s totally ludicrous the way Detroit runs its water system.”
‘The empty house on Monica amid the tall weeds and rusty chain fence is one of of 11,600 tax-foreclosed homes with sky-high bills that went up for sale Wednesday at Wayne County’s annual auction. The water bills at the homes total $21.5 million. That’s an average of $1,600 apiece, while 112 of them have bills of $10,000 or more and 484 have bills of at least $5,000, county data show.’
‘The records likely reflect a fraction of the truly big bills on abandoned homes. The Detroit News was only able to examine the records of homes eligible for the auction after three years of tax delinquencies. Officials at the Detroit Water and Sewerage Department denied a Freedom of Information Act request for data on all residential delinquencies, citing privacy.’
‘Three miles north on Hartwell near Schaefer, a 1,200-square-foot home with a missing front door has a water bill of $35,135. Records indicate the home was bought for $1,500 in 2011 at the county auction, wiping out a $7,800 tax debt. The bill has grown again to $46,200, which includes water charges.’
“I believe it,” said neighbor Lavince Pruitt. “Last winter, someone stole the pipes and water ran out into the street, 2 inches thick. We called (the city) for months and months to do something about it. You couldn’t even walk across the street because the ice was so bad.”
‘Coming off a year where the housing market in metro Detroit was tilted heavily toward the seller, Kathy Coon, broker owner of Real Living Great Lakes Real Estate in Rochester, said the market leveled out more this summer between buyers and sellers, but the summer was still busy with families looking to get situated before school got back into session.’
“What we had in 2013 was more the ‘wild, wild west,’ but we had more properties on the market in relation to what the buyers were looking to purchase this year,” Coon said. “The values had increased a lot last year, and they kind of tapered off and leveled out this summer. We saw some multi-offers, but not as many as we did the year before, so it was a little calmer market in terms of where buyers could make decisions wisely before purchasing.’
“It was a good summer, but not like the summer prior in 2013, where things were very crazy, so I feel it was better for both the buyers and the sellers.”
‘With fewer houses on the market last year, sellers were getting multiple bids in a matter of hours and at high prices. Because of the more leveled playing field, Teeley, who works mainly along the Woodward corridor, said buyers can take more time and the prices have leveled out, as well.’
“The market is evening out, and part of the reason is because the inventory is greater,” she said. “We would still see multiple offers depending on the house, like if it was a unique house or there is still a low inventory on larger family homes, but there is a good inventory of first-time-buyer houses. And, I think some of the buyers got real tired of being tied up with multiple offers and waiting.”
crazy
“Interested in Emaar IPO but short of cash?” asks a text message from a United Arab Emirates lender to customers. If so, there’s good news: local banks are making it easier to borrow money and invest in shares. “Retail banks have always been involved in lending to invest in the stock market, but that willingness has definitely been improving this year,” said Taher Safieddine, an analyst at Shuaa Capital Psc in Dubai. “The risky part is margin lending and putting additional debt burdens on retail clients.”
“We don’t think it’s a bubble in the U.A.E., in fact we think valuations are some of the most attractive in the region,” Jaap Meijer, Arqaam Capital Ltd.’s director of equity research in Dubai, said.’
‘Plans by other U.A.E. companies to raise funds by selling stock to investors make it important that Emaar Malls IPO goes well. “Having another bubble now will send the wrong message,” said Safieddine at Shuaa. “Especially as the market is getting ready for a new wave of IPOs.”
If having another bubble would send the wrong message, then there can’t be one. Right, got it.
‘In a survey of Europe’s Land Use Cover Area, conducted by Eurostat last year, Malta took the dubious prize as the most built-up country in the European Union. Thirty-three per cent of the islands’ territory is covered by buildings. Other relatively small countries in the EU – the Netherlands, Luxembourg and Belgium – also scored highly (at about 13 per cent) on the built-up scale.’
‘The chairman of the Malta Developers Association is quick to ride on this bandwagon when he points to Malta’s population density and influx of tourists as the reason for the country’s high rate of built-up territory.’
‘But that is a misleading and simplistic answer because it does not account for the thousands of housing units that lie empty in Malta, estimated at about a quarter of the country’s housing stock, or the increasingly ramshackle planning system that gives rise to them.’
‘To compound the situation, the island’s abysmal planning process is about to receive a boost from plans for high-rise buildings (“like Dubai or Singapore”) to be encouraged and, specifically, if a permit is granted to an application which has been filed by developer Anton Camilleri, a council member of the Malta Developers’ Association, for a massive construction development in the picturesque St George’s Bay.’
‘What is now more worrying is that the government appears to be in thrall to the development lobby and seems hell-bent on making a situation which is already ugly even worse in the name of ‘economic growth’.
‘It has yet to learn that growth of this kind, which neither protects the environment nor the people’s quality of life, does not amount to progress.’
This kind of thing makes me wonder how many unoccupied or barely-occupied high-rise buildings there are in the world. I’m guessing tens of thousands and that most of them were built during the last thirty years.
You can’t stop progress, renter.
‘Citigroup and Bank of America will offer mortgages at discounted interest rates to help borrowers with low incomes or subprime credit.’
Who will get stuck with the tab for a high default rate on these Echo Bubble subprime loans?
The two core drivers of the debt crisis exist unchanged:
1) The ability of lenders to shed repayment risk.
2) Government guarantees on private debt.
The first wouldn’t be so destructive and ubiquitous if it were not for the second.
However, the above two principles also form the core of the “Privatize the profits, socialize the losses” business model which has served the FIRE sector so well.
“1) The ability of lenders to shed repayment risk.”
+1 This is the “crowning achievement” in the world of lending.
Looks like a 15-year loan program through a non-profit, where the bank is allowing a lower mortgage rate through an accelerated “buy-down” of the interest rate (paying 1% of the mortgage amount can lower the rate by 0.5%).
The non-profit is called “Neighborhood Assistance Corp of America”…
I’m not sure if we’re learning nothing, or learning something.
If they lower the rate a lot, and have a 15-year amortization schedule, the principal reduction will be rapid. Definitely a risky proposition given the credit of the borrowers…
http://finance.yahoo.com/news/prometheus-billionaire-emerges-san-francisco-040001916.html
he gray, five-story luxury building, where a second-floor two-bedroom apartment was recently listed for $3,293 a month, is “the perfect home after every amazing, exciting, exhausting day” in the town where Apple Inc. (AAPL) employs 15,000 people and more than 60 other technology companies have offices, according to a listing on Prometheus Real Estate Group’s website.
CRATER!
crater
Remember the Vulcan form of greeting?
Live long and prosper?
crater
http://img2.wikia.nocookie.net/__cb20090320072701/memoryalpha/en/images/5/52/Spock_performing_Vulcan_salute.jpg
says Wolf. ‘In the immediate aftermath of the crisis, Wolf feels then-Chairman of the Federal Reserve, Ben Bernanke, then-Treasury Secretary Henry Paulson and his successor Timothy Geithner took appropriate action.’
No they didn’t. They ripped off the taxpayer to save their ‘rich’ friends. But they did it under the false premise that ‘the system will collapse if we don’t act…. We’re at the brink of financial armageddon and another depression is a certainty… bla bla bla’. All blatant lies. The losses on Wall Street should have been taken by them and the debt crippling the system cleared. Main street would have been fine eventually - yes it there would have been financial pain by many but the rebound would have been swift and just. Wall Street debt/leverage was so crushing (and still is) they were too cowardly to admit their folly over the last 20-30 yrs. The money changers will never change until they are forced to change. The current system is rigged primarily for their benefit and this must be not be allowed to continue. Read; http://www.iamthewitness.com/books/Andrew.Carrington.Hitchcock/The.History.of.the.Money.Changers.htm
‘ Never in the field of human finance has so much been taken from so many by so few ‘ . Richard DeBruyn Nov 2008
“…says Wolf.”
Who works for the Financial Times of London (owned by the Cadbury, Rothschild, Schroder, Agnelli and other family interests plus other uber 0.001% folks)…
I’m Deadly Right On Housing
The Dow Jones Home Construction Index is getting ready to rollover and head to a new yearly low. It can’t even move higher on the days when the Fed takes the S&P 500 higher. Just look at the NEGATIVE divergence going on been the SPX and the homebuilders:
http://investmentresearchdynamics.com/im-deadly-right-on-housing/
Judging from personal experience, Homebuilder Stocks can remain inflated for longer than your short positions can stay out of the money.
Maybe I should have said “Your short positions can stay out of the money for longer than Homebuilder Stocks can remain inflated.”
But you get my drift…
I think at this point people know the jobs aren’t coming back to support these high home prices, and they don’t care. Welfare supports 50%, and the feeling among the top 10-20% is that continued stock appreciation of 30% per year will bail them out. It has been successful for the last 6 years, sorry to say.
If you can get a low-income housing loan to buy a $500K California starter home and live in it for five or more years before getting foreclosed, including a period of rent-free living that could last several years before you are eventually evicted, where is the downside?
California gubernatorial race looking like an open contest between the Free Shitters (DNC) and the oligarchs (Goldman Sachs alumni Kashkari, who led the $700 billion taxpayer bailout of Wall Street, aka TARP). The losers, of course, will be the dwindling number of productive taxpayers in CA.
http://www.bloomberg.com/news/2014-09-21/bailout-chief-kashkari-says-he-s-ready-to-lead-california.html
Oh dear.
‘21 minutes ago | September 22nd, 2014 01:39:10 GMT
China press report on “full-scale housing collapse in third-tier city”
http://www.forexlive.com/blog/2014/09/22/china-housing-collapse-city-handan-hebei-province-22-september-2014/
“full-scale housing collapse in third-tier city”
No worries here…after all, this is merely the news from a third-tier city.
Shanghai and Beijing will be just fine.
Right?
8:27 pm HKT
Sep 19, 2014
Markets
Is It Just a Matter of Time Before China’s Last Decent Housing Market Cracks Too?
China’s property market is heading south with few signs of recovering anytime soon. One city seems to have weathered the latest property correction—but a closer look shows the country’s last home-price holdout may not hold out for long.
Prices of new private homes in Xiamen, in southeastern Fujian province, edged up 0.2% in August from July—the only one of 70 major Chinese cities that saw a month-on-month increase, an official survey released Thursday showed. Nationwide, cities on average saw a drop of 1.1%.
Local media have lauded scenic city as “the only branch of a tree that is thriving.” Some analysts attribute its resilience to its municipal government’s relatively strict controls on land sales to developers, saying this leads to higher consumer confidence due to tighter supplies.
But others say price cuts are just a matter of time, as property sales are weakening.
“Yes, prices are high but few are buying,” said Dai Shugeng, an economics professor at Xiamen University. Home prices have been shored up so much by developers that locals can’t afford to buy and sales have been slowing, he added.
Private home sales by volume dropped 21% from a year earlier in the first half of this year, according to a research report released by the Xiamen Municipal Bureau of Land Resources and Real Estate Management in August.
A search on the nation’s largest real-estate Internet portal, SouFun Holdings, shows that prices of residential buildings in Xiamen’s commercial Siming District priced between 30,000 yuan and 60,000 yuan ($4,887-$9,774) per square meter. The average annual disposable income of urban residents was 4,1360 yuan last year, according to the city government.
The E-house China R&D Institute, a Shanghai-based property-research firm, published a report in June that looks at how much home prices of 35 large cities deviate from their reasonable levels, or how their price-to-income ratios differ from reasonable levels. The research firm said it decides a reasonable housing price level for each city based on a historical anaylsis of the home-price to income ratio of each city. Xiamen ranks sixth, according to the report.
Like many Chinese cities, Xiamen has also relied heavily on property development for economic expansion. The local property market has contributed roughly one-third of the city’s economic growth, Mr. Dai said.
Nearly half of the city’s fixed-asset investment went to property in the January-July period, local government data show, much higher than the 19% national average over the same period.
In order to boost sales and consumer confidence, the local government in August announced measures to ease home-purchase restrictions for some parts of the city and offered tax incentives for home buyers.
But the recent measures don’t seem to motivate buyers—like Mr. Dai, who said he has been looking for an apartment outside the campus for a while.
“I’m still waiting to see what’s going to happen next,” he said.
…
China Home Price Drop Spreads as Housing Demand Weakens
By Bloomberg News Sep 18, 2014 1:28 AM PT
Photographer: Tomohiro Ohsumi/Bloomberg
Residential buildings stand at night in the Pudong area of Shanghai, China.
China’s new-home prices fell in all but two cities monitored by the government last month as tight credit damped demand even as local home-purchase restrictions were eased.
Prices dropped in 68 of the 70 cities in August from July, including in Beijing and Shanghai, the National Bureau of Statistics said in a statement today, the most since January 2011 when the government changed the way it compiles the data.
Home sales slumped 11 percent in the first eight months of this year amid an economic slowdown after banks tightened property lending to curb default risks. While 37 of the 46 cities that imposed limits on home ownership since 2010 have removed or eased such restrictions as of Sept. 3 to stem the decline in sales, a wait-and-see attitude is still prevalent among homebuyers, according to Centaline Group, parent of the nation’s biggest property agency.
“The policy easings only increased the number of people qualified to buy, but the number of those with the ability to didn’t rise noticeably” as mortgages remain tight, Donald Yu, a Shenzhen-based analyst at Guotai Junan Securities Co., said by phone. “There’s still room for prices to go down further.”
Private data also point to continued price declines. The average new-home price fell 0.59 percent in August from July, the fourth consecutive month of declines, according to SouFun Holdings Ltd., the nation’s biggest real estate website that tracks 100 cities.
Property Stocks
The Shanghai Stock Exchange Property Index, which tracks 24 developers listed on the city’s exchange, closed 1 percent lower, the biggest drop since Aug. 14.
New-home prices dropped 2 percent from July in Hangzhou, the capital of the eastern province of Zhejiang, the biggest decline among all cities. They fell 0.9 percent in Beijing and 1.1 percent in Shanghai, according to the government.
Prices were unchanged in Wenzhou in Zhejiang, while they gained 0.2 percent in Xiamen, a southern port city.
Prices fell in 19 cities from a year earlier, led by a 5.4 percent slide in Hangzhou, as compared to three cities in July, according to today’s data.
New-home sales in the first 14 days of September in the 40 cities tracked by Centaline fell 4.7 percent, when measured by the combined space of homes sold, from the same period in August, trailing expectations for a traditionally strong month, the realtor said in a Sept. 15 report.
“We believe most developers will opt to accelerate sales to strike for a more secure cash position amid the market uncertainties,” Barclays Plc’s Hong Kong-based property analysts led by Alvin Wong wrote in a Sept. 14 report. “More attractive price discounts seem necessary to compensate for the expensive mortgage rate.”
…
One more Chinese city scraps housing purchase limit
Sep 22,2014
NANJING, Sept. 21 (Xinhua) — Nanjing, capital of east China’s Jiangsu Province, announced on Sunday to end housing purchase restrictions in a bid to revive local property market.
In a notice released by the municipal government of Nanjing, the city will increase the supply of small and medium-sized apartments in the future.
Currently, sluggish sales left housing inventories overstocked in Nanjing. Meng Xiangyuan, a real estate scholar with Nanjing Forestry University, estimated that 51,000 new homes had yet to be sold in the city.
The city placed housing purchase limits to restrict local residents to two homes amid a spate of other measures to cool off the then red hot property market in early 2011.
In order to revive the market and boost economy, more than 30 Chinese cities announced to lift or loosen the housing purchase limit this year. Only six others including first-tier cities like Beijing, Shanghai and Guangzhou still keep the policy.
…
Investing The Economy
China is Slowing. What If Its Housing Bubble Bursts?
Taylor Tepper
Sept. 18, 2014
Even if the real estate market in the world’s second-biggest economy were to collapse, the repercussions may not be bad as you think.
While global investors covet China’s growth — as evidenced by the buzz surrounding Alibaba’s IPO — the Chinese economy is actually slowing down.
In 2013, the world’s second largest economy grew at an annual rate of 7.7%. By 2015, according to a recent report by the Organization for Economic Co-Operation and Development, that will drop to 7.3%. Meanwhile, the U.S. economy’s growth rate is projected to increase by almost one percentage point.
What’s going on? Well, China’s industrial production gains in August slowed to their lowest level since 2008 and retail sales growth declined by a few percentage points year-over-year.
Perhaps most important, the nation’s newly built home prices only grew by 2.5% in July, after surging by 10% at the beginning of the year.
The notion of a housing crisis in an economy more than three times the size of France brings back flashbacks of 2008 and probably a few chills down every investor’s spine.
“A property price crash in the world’s second largest economy would have global implications,” says Wells Fargo Securities economist Jay Bryson.
But those global implications wouldn’t be as worrisome as the U.S. housing collapse six years ago, per Bryson. Here’s why.
The Worst Case
To play out this thought experiment you have to assume that at some point in the near future China’s home prices will experience a decline on the order of what the U.S. experienced over the past decade. (Bryson played out this scenario in a recent report.)
Currently, residential investment makes up a pretty decent portion of the Chinese economy – about 10% of nominal GDP. To put that in context, that ratio was closer to 6% for the U.S. in 2006.
So housing is a big deal in China. If they experienced a value decline like we did, Bryson estimates that would lop off about one percentage point of growth. But the pain wouldn’t stop there.
A collapse in housing prices would result in fewer construction jobs – estimated at around 60 million people in urban China. Jobless workers would spend less, which means that those goods and services the now-unemployed construction workers would normally purchase would not get bought.
If out-of-work construction workers reduce their spending on food and entertainment, the businesses that produce that food and entertainment will make less money and then some of their workers may face unemployment too. Since my spending is your income, lower spending means people have less money in their paychecks, and the nation’s GDP suffers.
Moreover, if housing goes in the tank, banks will see losses, which means they’ll tighten credit, resulting in fewer loans for people to start businesses.
Let’s not forget the actual homeowners. If home prices fall, homeowners’ equity declines as well. (See: Sell, Short). And when people’s chief asset is suddenly worth a lot less, they’re not going to spend as much on other, discretionary items. “Although the lack of data makes it impossible to quantify the wealth effect in China, researchers have found that there is a statistically significant direct relationship in the United States between changes in wealth and changes in consumer spending,” per Bryson’s report.
Lower demand from China means that countries which sell goods to China (think Chile and Australia) will sell less stuff. As corporate profits are squeezed, a global bear market may result.
“Although China may not be as important to global economic growth as the United States, the global economy clearly would not be immune to a major property market downturn in China,” says Bryson.
…
Basics Of China’s Real Estate Industry
By Vipin Garg | September 18, 2014 AAA |
How the Chinese Real Estate Boom Began
The shift to a market-centered economy from a state-controlled economy in the 1980s has put China on a high growth trajectory ever since. The real impetus came in the late 1990s when the housing sector was privatized. It was at this time that the “property market” came into existence, taking over the “work unit” system in which apartments were allocated as benefits associated with a person’s job. The magnitude of this change is key in analyzing China’s economic growth. IMF data shows the real estate industry in China contributed 5% of it’s GDP back in 2000 but grew to 15% in 2012.
Real Estate Markets Under Stress
While it’s still debatable whether the Chinese real estate bubble will burst or just slowly stabilize, real estate has been losing momentum in the last few years. Builders are responding to slow demand by cutting the prices of homes and people are now buying only to occupy, rather than invest. The Chinese government has also tried to assist the housing sector with stimulus packages in response to the global economic crisis.
…