When There Is Oversupply, This Is What Happens
The Calgary Herald reports from Canada. “Calgary’s once-booming resale housing market has taken a turn in the opposite direction. In January, MLS year-over-year sales were down for a second consecutive month — down 38.9 per cent, according to the Calgary Real Estate Board. It was the lowest level of January sales since 2009. ‘I think the January numbers are a prelude to at least a minor correction in Calgary’s housing market this year,’ said Sal Guatieri, senior economist with BMO Capital Markets. He said he would anticipate Calgary’s house prices will fall by about 10 per cent, ‘essentially unwinding all of the increase in the past year and basically taking prices back to the previous highs reached in 2007.’”
“New listings which soared to 3,288 in January, up 37.23 per cent compared with January 2014, according to statistics released by the board. ‘Economic conditions this year are expected to be weaker than original estimates provided in December 2014,’ said Ann-Marie Lurie, CREB’s chief economist. ‘If supply levels continue to rise at levels that exceed the pace of demand growth, we can expect this will start to impact prices in the city.’”
The Independent in the UK. “Aberdeen is facing a housing crisis as diving oil prices threaten to drag down the value of the city’s homes, many of which were bought with huge levels of debt in the belief that the hydrocarbon boom would continue unabated, according to an alarming new report. ‘The oil-price crash could drag down the housing market in Aberdeen and a considerable number of people could suddenly find themselves in negative equity,’ said Jeremy Willmont of the report’s author, accountancy firm Moore Stephens.”
“The number of local people with mortgages that are characterised as ‘risky’ by the Bank of England has risen by 42 per cent in the past four years. Aberdeen’s housing market is also awash with highly leveraged mortgages where borrowing has not reached, but is close to, 4.5 times the borrower’s salary, as well as ‘risky’ loans taken out before 2010, Moore Stephens contends. Aberdeen property prices suddenly slumped by 1.5 per cent in the final three months of the year, leaving the average price of a home in the Granite City at around £225,000.”
The Star on Malaysia. “Is a glut in residential property or a slowdown imminent? IFCA MSC Bhd chief financial officer Daniel Chow seems to think so. Chow was an invited speaker at a significant property event last week where one of the key speakers showed that actual sales last year for all the major players in the industry, except for one, was much lower than their forecast. ‘Everybody recorded negative. There was only one exception. The fundamental rule on economics is demand and supply. When there is oversupply, this is what happens. The increase in the supply of property is double digit every year. How can you expect the market to absorb all this? There is a limit,’ he says.”
“What he sees on the horizon is a glut by year end and the whole of next year, when the properties under the (now banned) Developers-Interest-Bearing Scheme are completed and most buyers who paid only the minimum 5 per cent down payment would have to start paying their monthly instalment and service their housing loan when the property is handed over to them.”
“‘Most are just property flippers and their whole intention is to flip it for capital gain. But what if nobody wants to buy? Do they have the holding power? Some were greedy and put in RM10K (S$3,725) into three different units instead of RM30K into one. So if the person cannot pay the monthly instalment or sell the unit then the bank will do a foreclosure,’ he says.”
The Business Times on Singapore. “While homebuyers are expected to service higher monthly mortgages on the back of rising interest rates, some consultants believe it is still an opportune time to snap up units amid falling home prices. Homeowners were caught by surprise last month when the Singapore interbank offer rate and swap offer rate, key benchmarks used to price most home loans here, shot up after years of slumber. Chua Yang Liang, JLL head of research for South-east Asia and Singapore, noted that if interest rates continue to spike further, they will have a destabilising effect on the residential market. ‘Multiple homeowners will feel the pinch, especially with the slower economic growth and rising interest rates,’ he said.”
“With a softening leasing market, owners who have over-committed to high loan quantums or are holding multiple units may face further ‘cash crunch,’ said Colliers International deputy managing director Grace Ng. Colliers estimates that some 78,402 units are expected to be completed by 2018, of which a significant 20,824 units are due to complete this year. ‘If for a prolonged period, these property owners are not able to rent out their properties and service their mortgage loans, the market could see more mortgagee sales this year,’ she added.”
From Shanghai Daily in China. “Sentiment among home buyers and real estate developers both fell in Shanghai in January, terminating a major rebound which dominated the last quarter of 2014. The purchases of new residential properties, excluding government-subsidized affordable housing, plunged 44.8 percent from December to 756,500 square meters last month, the lowest volume since September last year, Shanghai Uwin Real Estate Information Services Co said in a report. ‘It was an abrupt drop from the previous month when new home sales surged to the highest in 2014 to 1.37 million square meters, partly boosted by speculations that the city government may revoke its home purchase restriction policy,’ said Huang Zhijian, chief analyst at Uwin.”
“‘Developers should remain cautious and spare no effort unloading their stocks because the city’s inventory still remains at a very high level despite a significant rebound registered in the fourth quarter of last year,’ Huang added. At the moment, new homes available for sale stood at over 12.8 million square meters across the city, according to the city’s official real estate information website.”
From Telugu People in India. “Residential property sector continues to fare poorly in the market across India as there has been a severe decline in the launch and sale of new projects, according to Knight Frank India. Hyderabad witnessed an 18 per cent drop in sales in the second half of 2014 and new project launches have fallen by 38 per cent in the city. The National Capital Region (Delhi) is the worst-affected with a fall of 43 per cent.”
“‘The pan-India sales have been bad in the residential sector for the past three or four years,’ said Gulam M Zia, executive director of Knight Frank India. There were 35,183 unsold units in Hyderabad, which is at the bottom of the list of metro cities. ‘The housing sector is in dire state. This is because Hyderabad has a very old inventory. So it is very difficult to conduct sales.’”
OK, listen up! If you only read one thing today, remember this:
‘The price correction hasn’t happened — the average price of a home sold in January was $460,933, down 0.5% from a year ago. The median sale price climbed 1.1% from a year ago to $417,500.’
Statistically prices can look to be going up when all hell is breaking loose.
‘Nervous Calgary homeowners started a stampede to list their homes on the market in January, well outpacing demand, and creating conditions that could lead to a price collapse.’
‘The stage has been set for a massive correction in the oilpatch. New listings jumped 37% from a year ago while the overall inventory was up 113.4% during the same period. A year ago, based on market conditions at the time, there was 1.52 months of supply in the system. At the end of last month, that number was 5.29 months.’
‘Doug Porter, chief economist with Bank of Montreal, noted Calgary saw the largest percentage increase in prices, among major cities, in 2014. “By some measures it was the hottest and the tightest market in Canada,” said Mr. Porter. “The change is beyond dramatic and about as quick as you can say oil prices plunged, we are going to see this go from a sellers’ market to a buyers’ market.”
‘Corinne Lyall, the Calgary Real Estate Board’s president, appeared to be preparing people for the worst when she warned in a statement that sellers would have to have “appropriate expectations” in this market. “They need to consider their property type, the competition they may be facing in their community, their reasons for selling and, of course, when they ultimately need their property to be sold,” she said.’
‘Demand was already beginning to wane in the city as Calgary sales fell 38.9% in January from a year earlier. “Sales are also down to levels we have not seen in a long time and a lot of that is due to consumer confidence,” CREB chief economist Ann-Marie Lurie warned. “I wouldn’t say there is panic because people would be fire-selling their houses.”
‘Ms. Lurie said the real test of the market has not come yet and will depend on what happens with jobs and the economy. “I’m looking at it through the lens of: ‘How long is this going to last?’,” said Ms. Lurie. “The real tell will be in the next few months if people really need to sell. That would put downward pressure on pricing,” she said.’
‘Demand was already beginning to wane in the city as Calgary sales fell 38.9% in January from a year earlier.
WHAM!
And now that the oil patch/tar sands freak-show is over, who the hell is going to rush in and offer anything even NEAR what these lemmings all paid? What is the big draw to take out a loan for an albatross in Calgary- especially when my condo in Toronto is tanking as well?!? And my home in Winnipeg?!? Owwwwww!
… and don’t forget the debt-shack south of the border.
And my winter house in Florida!?! Ooops- and now we see how quickly this can spread.
Is there a vaccine against the housing mania investor version of the measles? Because it seems highly contagious and very detrimental to financial health.
And there is no organic demand. Prices were driven up by speculators and institutions seeking to capture bubble profits and outsized yeilds. In order to obtain that capture they need to now liquidate.
This is why several shill/fools who are normally crowing here have been quiet lately. Too busy liquidating.
The unprecedented oversupply of housing as a result of misallocation of capital and gross market distortion in the US and globally is not going to end well.
Go 25 million excess empty and defaulted houses?
“The number of local people with mortgages that are characterised as ‘risky’ by the Bank of England has risen by 42 per cent in the past four years.”
At this point anything less than a 100% down payment is risky.
‘As real estate prices tank across urban China, homeowners in Fuzhou, Fujian Province, can now offload their unwanted properties onto an unlikely buyer: the local government. Under a new policy, residents can sell their spare properties to municipal authorities, who will then dispense them among people displaced by the city’s shantytown restoration campaign.’
‘With China’s property market plagued by lack of affordability, excessive supplies and diminished demand, this strategy appears sensible. But will it help rescue local real estate?’
‘By the end of 2014, about 400 million square meters of commercial housing space were up for sale around the country, representing an increase of 26 percent over the previous year. The majority of these homes were in third- and fourth-tier cities, where market imbalances are among the most extreme in the country. Assuming that an average house contains 90 square meters of floor space, this means 4.4 million homes are waiting for buyers. Expecting local governments to purchase all but a tiny fraction of these properties would be unreasonable.’
‘Zhang Zhiwei, chief China economist at Deutsche Bank AG, said in a recent report that continued fiscal pressure would “constrain the government’s capacity to boost growth through infrastructure investment and add pressure for structural reforms”.
‘This was already demonstrated in last year’s fiscal expenditure. The government spent 15.2 trillion yuan to pay for the civil service, as well as the costs of education, healthcare and other items. Those expenditures were up 8.2 percent from 2013 - the slowest growth rate since 1987.’
‘That situation prompted many economists to call for a higher fiscal deficit ratio, which they said should be boosted from 2.1 percent of GDP last year to between 2.5 percent and 2.9 percent.’
‘Given the downward pressure of local governments’ off-budget spending, mainly derived from land sales and bank loans, the boost is deemed necessary by many analysts to avert a precipitous fall in public expenditure.’
‘Wang Chaocai, deputy head of the Fiscal Sciences Research Center, said that while the ratio could be raised, other strategies should be considered, such as dealing with the government’s idle deposits and continuing the public sector’s austerity campaign.’
“Funding demand from the government sector is insatiable no matter how revenue grows. They key is to rein in that demand,” he said.’
“spare properties to municipal authorities, who will then dispense them among people displaced by the city’s shantytown restoration”
“Spare properties”. That is an interesting phrase.
Take a family with really low income, who can only afford to live in a shanty, and put them in a fine new house. What happens? Is it a financial benefit to them, or a disaster?
“Spare properties”.
You rang?
https://www.google.com/search?q=bodie&biw=1813&bih=857&tbm=isch&tbo=u&source=univ&sa=X&ei=WdrQVNDDKYLToASM5oJw&ved=0CDcQsAQ&dpr=0.75
Take a family with really low income, who can only afford to live in a shanty, and put them in a fine new house. What happens? Is it a financial benefit to them, or a disaster?
I suspect that these apartments are China’s version of Section 8 housing: low, subsidized rents.
“Spare properties”
Sounds less ominous than ’surplus labor.’
‘China’s capital account posted the widest deficit since at least 1998 in the fourth quarter as companies in the world’s second-largest economy increased overseas investment. “This signals a shift in China’s economic structure,” said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong. “The expectation of yuan depreciation has appeared and that helped the capital outflow.”
‘Investment into China is no longer a one-way street as Chinese companies increase overseas business at the same time as an economic slowdown reduces the nation’s appeal to foreign investors. The central bank has halted regular foreign-exchange purchases, with foreign reserves falling last quarter.’
“increased overseas investment.”
In Greece they call it a bank run.
‘Sales of homes in Taiwan last year were at their lowest since 2002, data from the Ministry of the Interior showed yesterday. The domestic housing market recorded a total of 320,598 deals last year, down 14 percent from 2013.’
‘The figures are the lowest in 13 years, as unfavorable income tax plans and political elections cooled buyers’ interest.’
‘The chilling effect has yet to come to an end, as property transfers declined 23.5 percent in Taipei last month, from the same period last year, according to government statistics.’
‘Altogether, home trading managed to beat forecasts and stay above the 320,000-unit mark, thanks to the completion of new apartment complexes toward the end of the year, Sinyi Realty Inc, the nation’s only listed broker, said.’
‘However, the showing for the year is the bleakest since 2002, when the local housing market was depressed in the aftermath of the collapse of the dot-com bubble, Sinyi researcher Tseng Chin-der said.’
‘The decline is broadly based, but led by New Taipei City, with 60,416 deals last year, shrinking 25 percent from 2013, the ministry’s data indicated. Taipei came in second place with 32,023 transfers, down 19 percent from a year earlier.’
‘Calgary’s housing market is in the midst of its most dramatic correction since the 2008 financial crisis. A month after predicting that home prices in the region would be stable in 2015, the Calgary Real Estate Board admitted that low oil prices and fears over the fate of the region’s fragile economy have hammered consumer confidence, leading to a flood of new listings and a dearth of buyers.’
“A lack of recovery in oil has many concerned about their employment status and this concern is reflected through the weaker sales activity in Calgary’s January resale figures,” the board’s chief economist Ann-Marie Lurie said in statement.’
“Consumers are concerned about what will happen to Calgary’s economy and their personal exposure to this risk,” said board president Corinne Lyall.’
‘It was a more dire picture in the condo market, however, where the inventory of units up for sale leaped from less than two months to more than seven months and the median price fell 3 per cent to $268,000.’
Condos: last to take off, first to fall.
‘their personal exposure to this risk’
Well, Corinne, me confused. You guys have been telling us for many years how there is nothing to buy and we better write letters to the sellers and be ready to make way bigger offers. Now you say there’s a risk? Golly, it’s almost like some of these people you bullied into paying huge amounts might lose their a$$.
‘The housing picture is increasingly bleak for millennials, a panel of experts said Thursday at the University of Waterloo. Alan Walks, a professor of geography at the University of Toronto, referred to that demographic as “Generation Debt” when he spoke at the panel at the planning department.
The overheated housing market, particularly in cities like Toronto and Vancouver, has created a generational divide, Walks said, with older people reaping a housing bubble windfall if they sell their home and benefit from the high price, and younger buyers finding it harder to get into the housing market.’
‘But because housing is different than other consumer products and people will overspend to get shelter, it’s becoming clear that young people are taking on a lot more debt: Canadians under age 35 are more than twice as likely as someone over age 50 to have dangerous debt-servicing ratios and also to have much higher debt-to-income ratios, he said.’
‘But that’s not all: young people aren’t benefiting from the higher housing values. From 1999 to 2012, those under 35 saw their net worth increase eight per cent, compared to 70 per cent for those over 50. Those harsh facts, Walks said, “lead not only to income inequality but also wealth inequality.”
A comment:
‘I think as a region we should keep bending over backwards for reputable, honest, fair developers and management companies like Schembri. As long as connected, entitled, rich people with many “luxury”(overpriced) properties under their belt, get their way, all is right in the world.’
‘The housing picture is increasingly bleak for millennials ??
Here is a interesting article on older Millennials from the Washington Post this morning;
http://link.washingtonpost.com/5483d0d93b35d046478bdbf728ez9.x72/VNCliMPo1o7mtYHuA13f7
San Jose, CA Sale Prices Crater 10% YoY In 2014; Defaulted Housing Inventory Balloons Statewide
http://www.zillow.com/san-jose-ca-95123/home-values/
Sellers Slash List Prices 30% In San Francisco, CA As Excess Housing Inventory Billows
http://www.zillow.com/san-francisco-ca-94117/home-values/
Sacramento Area List Prices Plummet 12% YoY, 26% QoQ As Sellers Race To Exit
http://www.zillow.com/sacramento-ca/home-values/
Kirkland, WA List Prices Dive 23% In 2014; Sellers Slash As Housing Demand Plunges To 20 Year Lows
http://www.zillow.com/kirkland-wa/home-values/
Crook County, OR Sale Prices Tumble 12% In 2014 As 2009-2013 Sales Go Delinquent
http://www.zillow.com/crook-county-or/home-values/
Newton, MA Sale Prices Plunge 10%; Fall 5% Statewide In 2014
http://www.zillow.com/newton-ma/home-values/
HA,
Your making your statistics up. Here is what the SF link says
“The median home value in 94117 is $1,322,700. 94117 home values have gone up 12.4% over the past year and Zillow predicts they will rise 5.5% within the next year. The median list price per square foot in 94117 is $912, which is higher than the San Francisco average of $812. The median price of homes currently listed in 94117 is $799,000 while the median price of homes that sold is $1,342,500″
Down YoY and falling. Sorry kiddo….
http://goo.gl/gcdAgz
There seems to be a more than a little Crater-rage in this section of the thread, seasoned with a heavy dose of denial… ‘Its different here’ and ‘Its only temporary’. I can also detect the piquant aroma of fear amongst the lemmings as they mill-about, all bug-eyed, nostrils flaring- be wary of a stampede for the exits!
Degenerate gamblers losing their own and OPM.
Take a closer look. See those drop down boxes?
The median list price is taking a nosedive. It’s way, way below median sale price. What do you think this means?
C’mon Blue. There are only 17 homes listed in that particular zip code. Don’t you think the mix of homes when you have such a small sample size will vary widely?
As I note right below, there is way under 1 month of inventory on the market.
There are two conclusions you can draw from the data HA posted:
1. Home prices are collapsing; or
2. The sample size is too small to be meaningful.
Based on the pace of sales, I find it very hard to believe that anyone subscribes to #1.
People also seem to forget that neighborhoods in SF are very diverse…some homes are 90 years old and haven’t been touched in 90 years, others have been torn down and rebuilt recently.
These are not subdivisions that were built a few years ago with substantial uniformity.
Prices are falling, not collapsing. Don’t be a drama queen Rental_Fraud.
So, if smaller crappy homes are selling a bit and bigger glossier ones are not, what do you think this means?
Still, $700K for a small old crappy home, and you don’t think it’s time for the grim reaper???
CR8R
Just ignore him.
He cherry picked one zip code based on the result he was seeking.
That particular zip code in SF has 17 listings right now.
In the past 6 months, there were 162 sales.
That means there is 0.6 months of inventory on the market.
There is a reason Zillow calls that particular zip code “Very Hot” (seller’s market).
Falling in multiple zips in SF. Get over it Rental_Fraud.
There is so little available for sale generally, each individual zip code has very few listings and is going to give an inaccurate picture. Why don’t you look at the data for the whole of SF?
You’re an “analyst”, wouldn’t the larger sample size in still the same city give you a better sense of what is actually happening?
The larger sample size results in YoY increases in list price (up 4%) and in median sale price (up 18%).
Don’t run from the data.
With 60,000 empty houses in SF alone, you’ve got a problem.
’so little available for sale’
That’s what they said in Calgary for years.
HA, the number in SF was 30k, not 60k. And that included vacation homes, homes for rent, etc.
And Ben, you are really comparing Calgary (available land on 4 sides) to SF (3 sides are ocean,and anti-growth sentiment is rampant)?
All excess, empty, defaulted and understated.
If Tokyo can crash, any market can crash. Nobody is immune to a bubble. I’d bet it’ll be even worse in the bay area because of all those crappy, money-losing tech companies.
“…all those crappy, money-losing tech companies.”
I was living up there during the tech stock collapse. I couldn’t believe my eyes while seeing the market crashing day in, day out, for month after month.
But don’t worry — it can’t happen again, since this time is different.
Whooops!
South San Francisco, CA Sale Price Plunge 4% In 2014; Demand Plummets
http://www.zillow.com/south-san-francisco-ca/home-values/
“$100 oil isn’t coming back for a ‘long time’: BP CEO”
http://www.marketwatch.com/story/100-oil-isnt-coming-back-for-a-long-time-bp-ceo-2015-02-03
Lets face facts. Oil has a long way to fall considering the mid-east is profitable at $6/barrel.
Prices….. prices. It’s all about the falling prices.
“Oil above $100? Never again, says Saudi Prince Alwaleed”
http://www.marketwatch.com/story/oil-above-100-never-again-says-saudi-prince-alwaleed-2015-01-12
Maintaining production is ‘prudent, smart and shrewd’
OK, some real analysis:
Zillow allows you to see all of their data:
http://www.zillow.com/research/data/
I pulled down the BY ZIP CODE data for Median sale price in CA.
In total, Zillow tracks 1,187 zip codes in the state of CA. However, they don’t have data for every zip code every month. I don’t know why this is.
In any event, for November and December, there were approximately 550 zip codes available where the year on year median sale price was available.
For the November ‘13 to November ‘14 comparison, there were 549 zip codes where you could do the math (non-null data for both months). Of those 549 zip codes, the average year on year change was 7.7%, 109 were less than 0%, 1 was precisely 0, and 439 were greater than 0%.
For the December ‘13 to December ‘14 comparison, there were 539 zip codes where you could do the math (non-null data for both months). Of those 539 zip codes, the average year on year change was 6.6%, 136 were less than 0% and 403 were greater than 0%.
Of the 109 negative year on year readings for November, 84 also had a year on year reading available for December.
Here’s where individual zip code analysis is flawed in trying to find a trend:
Of those 84 zip codes that had a negative year on year reading for November, 32 turned positive again in December on a year-on-year basis.
Here is my conclusion from looking at the data:
The median sale price of homes in CA is still going up, but at a slower and slower pace. This is based on 6 months of data, looking at all zip codes, with the same analysis (July was up 11.6% year on year, August: 10.6%, September: 9.5%, October: 9.0%, November: 7.7%, December: 6.6%).
And falling list prices across the state.
Your point it?
I don’t see an actual price in this. The prices say bubble, and bubble means crash.
Nor do I. It is misleading bordering on dishonesty to call inflated Zestimates “data.”
And Rental_Fraud calls it an “analysis”.
Realtors are not reporting these price increases RW. They say Cali has been in the dumps for a year and a half.
LOS ANGELES (Jan. 15) – California’s regional housing markets ended the year with mixed results as statewide home sales inched up from a year ago for the first time in nearly a year and a half, the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) said today.
car dot org
Good for you selling all your specuvest property a year ago.
‘Chipotle: Stock might be pricey, but with these results, no one cares By Chris Nichols 12 hours ago’
‘Chipotle delivered again on the bottom line, topping estimates for already tremendous growth, but its sales were lighter than the latest Wall Street estimates, and the stock was on the decline in late trading. Following the quarterly report, shares fell 6.5% to $679.75.’
‘Chipotle began trading in 2006, and it’s been a market winner since, for the most part. From trading at about $60 at the end of 2008, it rose to a record high of $727.97 in January.’
Burritos…
Are their wait times longer than Applebee’s?
Seems AlbqDan has thrown in the towel on the China pimping gig.