Some Of These Gains Could Be Reversed
Two Bloomberg reports on the housing bubble. “Denmark is monitoring its property market and is ready to act should the country’s efforts to defend its euro peg result in unsustainable house-price distortions. Morten Oestergaard, the country’s economy minister, says such a scenario ‘may come in the second or third wave’ of the economic cycle as the central bank drives its main interest rate well below zero to keep the krone pegged to the euro. ‘If you can make money on borrowing, it’s probably not healthy in the long run. We’ve been through a housing bubble and we’re pretty much back where we started.’”
“Norway’s biggest political group says the country’s housing market is heating up at too fast a pace for policy makers to ignore. The Labor Party wants the government to consider measures that will help Norway’s financial regulator stop a housing bubble forming, said Marianne Marthinsen, the party’s speaker on the parliamentary finance committee. ‘The development in prices is moving so fast that there is a chance that it might develop into a bubble,’ she said.”
“It’s the latest example of how low, and even negative, interest rates designed to keep down exchange rates are distorting asset prices as household reliance on leverage grows. Norwegians owe their creditors about twice as much as they make in disposable incomes, more than at any time in the country’s history. Meanwhile, house prices jumped about 9 percent in February from a year earlier to a record high.”
The Vancouver Sun in Canada. “Chinese buyers are snapping up some of the most exclusive real estate in the Lower Mainland. The latest jaw-dropping sale was a $51.8-million mansion on three lots. It comes as agents say the market is hopping with interest from buyers with cash from mainland China. These include Canadian citizens, residents and visitors. There is similar clamouring for prime properties on a smaller scale in other pockets of the local real estate market. Recently, a house at 1383 West 32nd Avenue in Shaughnessy went into contract for $8.01 million, or $2 million over the asking price of $5.99 million.”
“In West Vancouver, 118 houses were sold in February, compared to 63 the year before for an increase of 87 per cent. Of homes in the $4 million and higher category, agent Clarence Debelle of Royal Pacific Realty estimates some 75 per cent went to buyers with ties to mainland Chinese money.”
The Sydney Morning Herald in Australia. “A serious pullback in inflated asset prices could hit investor returns and the retirement savings of older Australians even harder than the global financial crisis, with popular banking stocks and hot property areas a worrying place to be, some investment experts warn. Pete Wargent, property buyer and co-founder of AllenWargent property buyers, said any further gains in popular property areas would push the market well and truly into unchartered territory.”
“‘For buyers who are getting involved in auction frenzies, there is realistically a real threat that some of these gains could be reversed. I don’t think interest rates will be what stops this property boom in parts of Sydney, Melbourne and resource rich mining towns. I think the property boom will die of old age when rental yields fall so low that investors start to question whether they stack up,’ he said.”
“‘If [the] RBA cuts rates down below 2 per cent in the near future and our currency gets down to low US70¢s, what happens when we have a Euro meltdown or Japan recession or China hard landing? We are driving very fast without seat belts. Once we use up these buffers and are sitting on asset bubbles, any macro headwind will hammer us even harder than the GFC,’ said Mathan Somasundaram, a Baillieu Holst equity analyst.”
The Strait Times on Singapore. “The combined value of private and public homes in Singapore’s north-east is $396 million less today than when they were bought, a new report has found. The report by SRX Property sought to calculate the ‘paper losses’ faced by home owners across Singapore, given the recent slide in property prices. Of the 7,619 Housing Board flats in Sengkang with caveats lodged historically, 46.9 per cent or 3,575 owners would suffer losses if they were to sell at today’s estimated market value, SRX Property said.”
The Star Online in Malaysia. “House prices have dropped after measures were put in place to check rising property prices due to speculation, says Datuk Chua Tee Yong. The Deputy Finance Minister said data from the National Property Information Centre (NAPIC) showed that there was a drop in house prices with the market slowing down from 12.2% in the third quarter of 2013 to 4.6% in the same period last year.”
“‘The drop is a result of various measures taken by the Government,’ he told reporters at the Malaysian Real Estate Convention 2015. ‘This is important. While all markets have speculators, excessive speculating will result in extreme price increases.’”
“Among measures taken to curb speculative activity included raising the real property gains tax, imposing 70% loan-to-value on housing facilities for the third property and abolishing the developer interest bearing scheme. ‘The Government has also raised the ceiling price of properties that can be purchased by non-residents – from RM500,000 to RM1mil – and this has helped as well,’ he said.”
“Malaysian Institute of Estate Agents president Siva Shanker said that while affordable housing was good, more focus should be given to properties priced between RM150,000 and RM250,000. ‘Currently, affordable housing is priced between RM350,000 and RM450,000, and perhaps this is inaccurate,’ he said. ‘To me, it is impossible for someone who earns RM3,000 to afford a property worth RM400,000. Even if his wife earns an additional RM3,000, he would still only be able to afford a house worth RM150,000,’ Siva said. He said more focus should be given to building houses worth between RM150,000 and RM250,000. ‘There is a large group waiting to buy properties in this price range.’”
The Business Standard in India. “With demand supply mismatch in Pune real estate builders are going all out to woo property buyers. Major real-estate players are resorting to home festival bonanza with discounts and gifts for buyers. ‘Like many other cities in India, Pune’s residential real estate market is currently going through a slow phase. The city’s developers are pulling out all the stops to interest buyers with their offerings, as is to be expected on a buyer’s market,’ said Sanjay Bajaj, managing director - Pune, JLL India.”
“‘We expect the sales volume to recover from H2 2015 onwards, after a lull of more than two years. There is enough availability of units in the Pune market. It will take nearly two years to offload the current unsold inventory of 67,500 units,’ said Shantanu Mazumder, director, Pune Branch, Knight Frank India.”
‘If you can make money on borrowing, it’s probably not healthy in the long run”
Since I took calculus so long ago I don’t remember much but it does appear that 0 would be the lower bound wouldn’t it? Thank God this idiot never had to run a business.
Where’s P. Bear when you need him?
Been working long hours this week…
““To me, it is impossible for someone who earns RM3,000 to afford a property worth RM400,000. Even if his wife earns an additional RM3,000, he would still only be able to afford a house worth RM150,000,” Siva said.”
If he’s talking about monthly income, then that is a very reasonable statement. If he’s talking about yearly income, then it’s insane.
‘Reserve Bank Governor Graeme Wheeler has little choice but to impose further restrictions to contain Auckland’s soaring house prices. The central bank is likely to introduce income-related lending restrictions to try to avoid financial grief in the event of a sharp downturn in housing prices.’
‘Although the downturn is unlikely to occur in Auckland in the next 12 to 18 months, economists say there will eventually be a downturn, even in our largest city.’
‘The dilemma is starkly illustrated in today’s Quotable Value figures, which reveal prices continue to increase not only in central Auckland, but also in the outskirts of the city. For example, the median price of a home in Helensville increased by 51.9 per cent in the three years to the end of 2014.’
‘Values in outer suburbs, such as Kelston (up 64.2 per cent), Glen Innes (up 93 per cent), Glendowie (up 77.5 per cent), Panmure (up 71.5 per cent) and Point England (up 83.8 per cent) have also soared in the last three years.’
‘But the real dilemma facing central bankers and politicians is the increasing value gap between suburbs across Auckland, and house values in many of the regions.’
‘In Dargaville, for instance, the median price fell 13.9 per cent during the three years to the end of 2014. In smaller regional towns, such as Putaruru, values fell by 15.6 per cent, Tokoroa by 19.3 per cent, Kawerau by 29.8 per cent, Flaxmere by 24.7 per cent and Whanganui East by 20.7 per cent.’
‘Values also fell during the three years in Wellington Central by 41.3 per cent. Other suburbs in the capital, which also suffered decline included Wilton (minus 27 per cent) and Northland, (minus 28 per cent).’
‘While many factors are contributing to the divergence in values, bankers themselves are starting to express concerns about the sustainability of Auckland values.’
This intersection with low/zero rates, currency stress and house prices is interesting, as they are finding out in New Zealand and elsewhere.
‘Denmark is monitoring its property market and is ready to act should the country’s efforts to defend its euro peg result in unsustainable house-price distortions. Morten Oestergaard, the country’s economy minister, says such a scenario ‘may come in the second or third wave’ of the economic cycle as the central bank drives its main interest rate well below zero to keep the krone pegged to the euro. ‘If you can make money on borrowing, it’s probably not healthy in the long run. We’ve been through a housing bubble and we’re pretty much back where we started.’
Jeez, this tinkering with interest rates isn’t as risk free as it seemed going in.
Central bankers and their games have ruined the planet.
What do you think, another 300 years before housing peak prices return this time?
https://hotelivory.files.wordpress.com/2010/08/herengracht21.jpg
I’m betting on never.
‘Weak demand, looming glut weigh on housing market’
‘Housing data released in recent weeks have revealed further weakness in real demand, while the oversupply situation is set to worsen. The figures are also raising more questions about Singapore’s public housing policies and whether grants supported by taxpayer funds may be subsidising declining home values.’
‘The number of new jobs created in urban China slowed sharply in the first two months of this year, China’s labor minister said, while a private employment survey suggested a sharp pickup in hiring was unlikely to happen anytime soon.’
‘“Slower economic growth, increased downward pressure on the economy and industrial restructuring are making job creation more difficult,” Yin Weimin, China’s human-resources minister, said without providing details on the number of new jobs created.’
‘Also Tuesday, human-resources consultancy Manpower Group said hiring prospects among Chinese employers are at their weakest levels since the global financial crisis. The group’s net-employment outlook survey found that 8% more Chinese companies in the second quarter planned to boost hiring than companies that planned to cut workers, down from 11% in the first quarter and 15% in the year-earlier period. Meanwhile, 49% of companies expected no change to their workforce, compared with 36% in the first quarter and 40% a year earlier.’
‘The survey, which is seasonally adjusted, covered 4,200 employers and showed the lowest level of hiring sentiment since the third quarter of 2009, Manpower said.’
“The downside trend of manufacturing has not changed since 2012, and it’s further enhanced recently by increased cases of factory shutdowns,” said Danny Yuan, Manpower’s chief operation officer for Asia-Pacific and the Middle East. “This also reflects local consumption, which hasn’t yet reached the expected growth.”
‘Fraser Howie spent several years working in China at the turn of the millennium and has written extensively about the topic. His most recent book, “Red Capitalism” was named book of the year by The Economist and one of the first books to expose the debt machine within the Chinese banking system as well as the risks of the debt-filled growth model.’
“The problems of China are chronic problems, they are not acute problems. This isn’t a Greece or a Dubai where they need to refinance in a currency they cannot print. The problems China has are long-term structural issues of a model that has fundamentally run its course,” said Howie.’
“They fundamentally cannot make bad projects good projects. If you built an apartment block in the middle of the desert and no one wanted to live there, you are going to lose money on your project. Even if you move people there, you are going to attract them by either subsidies or cheap rents, so therefore your financial return is going to be lower,” he said.’
‘On a normal project, an investor, whether it is a company or the government could make a 10 percent return. If you build things nobody needs, that return goes to zero or even negative according to Howie. At one point, economic actors realize there is no return potential and stop investing and spending, and the whole house of cards falls apart.’
‘Overall Howie doubts China’s economic leadership, even if the economy was bigger. He said there is practically no innovation coming out of China and the country doesn’t influence other economies positively except for providing cheap goods for Western markets.’
“The United States is continuing to be a global leader in many areas and things developed in America are copied elsewhere or adopted elsewhere. There is very little evidence that Chinese companies are succeeding in building networks and success outside of China or Chinese communities,” he says.’
‘Instead the whole economy and big state run industries are large, just because they serve a billion plus people. Virtually all per capital statistics, including the ones adjusted for PPP, are much worse than those of Western Europe or the United States.’
“At one point the Chinese economy will be bigger than the United States, so what. For 30 years Japan was the second largest economy and yet it was largely stagnant and didn’t impact the rest of the world. Having a big economy? You are simply summing the activity of 1.3 billion people,” Howie concludes.’
‘Overall Howie doubts China’s economic leadership, even if the economy was bigger. He said there is practically no innovation coming out of China and the country doesn’t influence other economies positively except for providing cheap goods for Western markets.’
“Having a big economy? You are simply summing the activity of 1.3 billion people.”
That pretty much says it all.
I think there’s some truth to that. I wonder if having so many western companies with branch offices and local workers in China will change that over time though. Lots of Chinese people in the cities are getting trained and used to doing things differently.
“increased cases of factory shutdowns”
This they must call slower growth. The word “contraction” seems to be taboo.
“This also reflects local consumption, which hasn’t yet reached the expected growth.” ??
Yeah…What happens when you don’t achieve your revised growth target of 7%…I have heard many rather knowledgeable people suggest if they go below 7% its big trouble and could have a spiral effect…
I take it that you are assuming the GDP/growth numbers they publish now are honestly and accurately derived…
Would China dumping steel on the international market because demand at home dried up tend to make the Baltic Dry Index rise or fall?
Bulk shipping rates sink further as cargo volumes dip in Dry Bulk Market
International Shipping News
12/03/2015
Global non-oil trade volumes shrank further, plunging the shipping markets deeper into gloom in the last few weeks.
Lowest in history
The Baltic Dry Index, which measures cost of shipping of dry bulk cargoes, sank to just above 500 levels, the lowest in about the 30-year old history of the index.
While a few ship owners are optimistic about a quicker recovery, AK Gupta, Chairman and Managing Director of Shipping Corporation of India, strikes a more realistic note. “The (dry bulk) market is in shambles. I do not think there will be any meaningful recovery before two years,” he told BusinessLine on the sidelines of an event here last week.
He attributed the plunge of the index to shrinking cargo volumes and over supply of ships in the market.
SCI, India’s biggest ship owner, operates 17 dry bulk ships, out of its total fleet of 69 vessels.
The index first hit its lowest in the first week of February when it dipped to 560 levels — it tanked from 1,300 in mid-November to 800-odd in mid-December. Before this, the lowest the index had touched was in February 2012, when it slipped to below 700. At its peak since the index came into existence, it touched close to 11,000 in May 2008.
Shrinking volumes
Gupta said, at current levels, dry bulk vessels were struggling to get daily hire charges of between $4,000 and $5,000 a day. “This is barely sufficient to breakeven on a voyage,” he says.
The situation has worsened as too many ships are chasing the shrinking volumes.
On March 9, a cape-size vessel got a daily charter price of $4768, while a Panamax got $4707, as against their year-ago rates of $24,748 and $8,757 respectively.
Globally, shipping companies are trying different methods to reduce current exposure to bulk markets. One trend has been that ship owners, who placed orders for new bulk carriers, are trying to convert these ships mid-way during construction into tankers, which are commanding better freight rates. There have been reports of cancellation of orders too.
Conversion factor
“With regard to cancellations, a lot of it does not come out (in the open), but some of the companies have publicly converted or announced conversion of dry bulk orders to tanker orders. So Capesize vessels have been converted to LR1 tankers or LR2 tankers. But it is few and far between,” Shivakumar, Group CFO of Great Eastern Shipping, said at an analysts meet last month.
Large crude carriers
Shipping companies are being somewhat compensated by the better buoyancy in the tanker segment, as lower crude prices have increased demand for shipment of the oil. Gupta said traders are even hiring very large crude carriers (VLCCs) just to store the crude.
“At least 35 VLCCs are being used for storage globally — so those many ships have gone out of market, which is pushing up the rates,” he said.
…
Houston, TX Housing Inventory Balloons 96%; Excess Housing Inventory Weighs On Market
http://www.movoto.com/houston-tx/market-trends/
‘The other day, I had lunch with Ruchir Sharma, head of emerging markets for Morgan Stanley Investment Management and chief of macroeconomics for the bank, who posited a fascinating idea: the major fall in oil prices since this summer may be about a shift in trading, rather than a change in the fundamental supply and demand equation. Oil, he says, is now a financial asset as much as a commodity.’
‘Sharma rightly points out, though, that supply and demand haven’t changed enough to create a 50% plunge in prices. Meanwhile, the price decline began not on the news of slower Chinese growth or Saudi announcements about supply, but last summer when the Fed announced that it planned to stop its quantitative easing program. Sharma and many others believe this program fueled a run up in asset buying in both emerging markets and commodities markets. “Easy money had kept oil prices artificially high for much longer than fundamentals warranted, as Chinese demand and oil supply had started to turn back in 2011, and oil prices have now merely returned to their long-term average,” says Sharma. “The end of the Fed’s quantitative easing has finally pricked the oil bubble.”
Another commodity bubble bites the dust, to mix metaphors.
Another Albuquerque Dan false theory bites the dust…
‘China’s exports of steel are soaring. But that is not a good sign for the economy. China has far more steel mills than it needs, a problem made worse by the country’s shrinking housing market, the most voracious consumer of the metal. Companies have scaled back or closed, as domestic steel prices have collapsed.’
‘With scant demand at home, the remaining mills have turned beyond their borders. China shipped a record 100 million metric tons of steel overseas in the 12 months ended in February, a 55 percent increase from the previous year.’
“It’s true that companies have dumped steel globally last year,” said Louis Kuijs, the chief economist for greater China at the Royal Bank of Scotland. “I’m sure they are happy that at least somebody is buying it, but I don’t think that this is a strategy that Beijing wants to follow.”
‘The upheaval in China’s traditional economy is already being felt by workers like Chen Huabin. For years, Mr. Chen worked in export sales at a privately owned steel plant in Yangzhou, a city in eastern Jiangsu Province. Mr. Chen, 35, said the plant’s operations expanded dramatically from 2003 to 2009, growing from 150 employees to 1,800.’
“At that time, the boss was really confident of the market and decided to invest all the profits to build more facilities,” Mr. Chen said in a recent interview. “It was also easy to get a loan. So we had been expanding blindly.”
‘Then, after years of rapid expansion, the steel industry got whipsawed by a wave of challenges. The global financial crisis crushed demand at home, and anti-dumping tariffs imposed by the United States and Europe further shrank the market for Chinese mills.’
‘The effects of such industrial changes ripple outward through the economy. For example, as housing prices fall, developers curtail projects under construction. Fewer new high-rises means factories churn out less steel, cement and glass — and what they do produce, they sell more cheaply. Activity then slows at the mines and quarries that provide the raw materials for these industrial goods, affecting mining companies from western China to Western Australia.’
‘Around 60 percent of all rail freight traffic in China comes from transporting coal. The amount of rail freight fell about 11 percent in December and 9 percent in January compared with a year earlier — the steepest decline since the financial crisis. The slump is partly tied to fewer shipments of coking coal, which is mainly used in the beleaguered steel industry.’
‘The slowdown comes at a vulnerable time for China’s rail industry, which is already facing overcapacity and is heavily indebted.’
What sectors in China AREN”T facing overcapacity and heavily indebted?
‘To boost total sales figures for the first quarter of the year, property firms will launch special promotions at the 32nd Home and Condo Show from March 12-15 at Queen Sirikit National Convention Centre, targeting Bt3 billion in sales from the estimated 120,000 visitors or more. Meanwhile, some property firms are also setting up their own events.’
‘For example, Sansiri will promote the “Joy of Hua Hin” at the Fashion Hall, Siam Paragon, this weekend, offering special prices starting at Bt990,000 per unit at its six condominiums in the resort town.’
‘Ananda Development has launched a marketing campaign called “Big Deals”, offering discounts of up to Bt500,000 at its eight residential projects, both condominiums and detached houses, until March 15.’
‘AP (Thailand) is offering discounts of up to Bt40,000 for its Aspire Sathorn-Taksin project between March 16 and 22.’
‘SC Asset Corporation features discounts of up to Bt1 million in its campaign for its Bangkok Boulevard brand luxury homes in four locations: Ratchaphruek-Rama V, Pinklao-Petchakasem, Rama IX-Srinakarin, and Theparak-Ring Road.’
http://www.nationmultimedia.com/business/Developers-winding-up-first-quarter-with-promotion-30255485.html
Positive economic news….
“Gasoline Prices Falling Again”
http://www.enidnews.com/news/gasoline-prices-falling-again/article_19f864c0-c7a2-11e4-b092-0fa5b4c879df.html
Australian Banks ‘Repossessions Rise Ten-Fold’
http://www.theaustralian.com.au/business/wide-bay-australias-repossessions-rise-tenfold/story-e6frg8zx-1227257594046
This new study basically says that USA’s housing bubble was driven more by cheap/lax credit while other OECD countries’ bubble was more driven by income growth which qualified for more credit.
“However, the US and UK, whose credit regulatory policies are heavily lax, are an empirical outlier. They do not adequately represent housing demand dynamics across other developed economies. Looking beyond the United States, housing price increases may be more reflective of the complimentary relationship between income and credit.”
Income growth may be more important to the development of housing bubbles than cheap credit
http://blogs.lse.ac.uk/europpblog/2015/03/11/wage-rises-may-be-more-important-to-the-development-of-housing-bubbles-than-cheap-credit/
The development of a housing bubble in the United States is generally regarded as one of the root causes of the financial crisis that began in 2007, but what causes housing bubbles to occur? Alison Johnston and Aidan Regan write that while the bubble leading to the financial crisis has tended to be blamed on the spread of cheap credit, the fact that house price rises were far larger in some countries than others suggests there were other factors at play. They argue that although credit plays a role in housing bubbles, an increase in income appears to be far more closely linked to the price rises that occurred across the OECD prior to 2007.
Our results suggest that income growth, and the wage-setting institutions that govern it, may be more important in explaining housing price growth than broader financial variables. While income growth’s impact on housing prices is minimal in the US, it is strongly correlated with housing price increases in other OECD countries.
This is not to suggest credit expansion does not matter, but that housing price increases are amplified, and turn into a bubble, in the presence of a complementary income shock. In the midst of international financial trends, which have made mortgage debt instruments more plentiful and cheaper, countries with wage setting institutions led by the export sector or the state, continued to remain insulated from the external risks of globalised capital.
Whatever the cause Lola, housing prices are falling and have a long way to fall.
This new study basically says that USA’s housing bubble was driven more by cheap/lax credit while other OECD countries’ bubble was more driven by income growth which qualified for more credit.
The USA had an income growth bubble, or at least Colorado did, in the late 90s. Then when that was collapsing we needed to juice it again with lax credit. So maybe the world will follow suit and take one more lap by following our example…not sure where that would leave us, though.
Aurora, OR Sellers Slash List Prices 34% YoY As Housing Demand Plummets Nationally
http://www.zillow.com/aurora-or/home-values/
And more great economic news…..
Update: Crude Oil Sinks Through $48 Floor; Retail Gasoline Prices Sink Lower
http://www.marketwatch.com/investing/future/crude%20oil%20-%20electronic
This is an awesome development. If it drops just a wee bit lower, I’m hoping the cotango hoarders collectively panic and dump supply, which could ensure affordable gasoline for decades to come.
“The combined value of private and public homes in Singapore’s north-east is $396 million less today than when they were bought, a new report has found. The report by SRX Property sought to calculate the ‘paper losses’ faced by home owners across Singapore, given the recent slide in property prices. Of the 7,619 Housing Board flats in Sengkang with caveats lodged historically, 46.9 per cent or 3,575 owners would suffer losses if they were to sell at today’s estimated market value, SRX Property said.”
Go figure!