April 29, 2015

Prices Can Even Go Back To Where They Started From

The Wall Street Journal reports on Brazil. “Brazil’s largest mortgage lender has sharply reduced credit for the nation’s home buyers, dealing a blow to the real-estate sector and to Brazil’s struggling economy. State-run Caixa Economica Federal, the bank responsible for about 70% of Brazil’s home mortgages, said late Monday that starting May 4, it will lend only 50% of the value of existing homes, down from 80% previously. After years of strong growth, demand for homes and apartments has fallen sharply as Brazil now teeters on recession. Signs of slowdown already abound. Weak sales and a glut of inventory are weighing on developers’ earnings.”

“São Paulo real-estate broker Adriana Sebastiana da Silva said she has closed just a single sale so far this year. She said Caixa’s pullback will make things worse. ‘There aren’t a lot people with the cash for a 50% down payment,’ Ms. da Silva said. ‘This will hinder the market even more.’”

The Gulf News on Saudi Arabia. “Residential property sales in Saudi Arabia’s capital Riyadh have plunged since the kingdom introduced tougher mortgage rules last November, research from JLL shows, and the consultancy predicted the restrictions would spur further countrywide declines. Buyers can now borrow a maximum 70 per cent of a property’s sale price; previously, there were no sector-wide limits. The restrictions aim to prevent a bubble forming in residential real estate of the kind seen in Dubai several years ago.”

“The number of house sales in Riyadh between the time the new lending limits were introduced and the end of last month fell 70 per cent from a year earlier, JLL wrote in a report this week. The number of apartment sales dropped 33 per cent. ‘Sales are expected to decrease further (due to) the mortgage laws,’ said Jamil Ghaznawi, country head of JLL Saudi Arabia, said in the report. ‘The laws have affected other parts of Saudi, including Jeddah.’”

Livemint on India. “Real estate developers are taking longer to sell luxury apartments, and are holding back on launching new projects in the segment due to weak demand in a subdued property market. In south Mumbai, where most of the city’s luxury and high-end apartment projects are located, the inventory period has risen from 40 months to about 70, experts say. In a desperate attempt to clear inventories, builders are now looking at new ways to attract customers, including offers of discounts. Last year, residential property prices in posh neighbourhoods in the Delhi region are reported to have dropped by about 25-30%, with some builders giving away discounts as high as 40%.”

“‘Six years to clear inventories is an alarming figure. While there is demand, too many projects are competing for it,’ said Ashutosh Limaye, research head, JLL India.”

AsiaOne on Malaysia. “Following a marked slowdown in demand for property in Iskandar Malaysia, property players expect further signs of a slowdown in the second half of the year, when marginal investors begin to take delivery of their units, especially those in the high-rise luxury segment. Johor is expected to face a housing glut, the result of developers launching numerous projects in response to unprecedented demand; Chinese developers, in particular, have been aggressively pumping out units by the thousands.”

“Malaysia Institute of Estate Agents (MIEA) president Siva Shanker said he expects the ‘newly-completed speculative property’ segment to come under pressure this year, with low take-up rates in the secondary market. Johor, being more exposed, could be more affected. The chairman of MIEA’s Johor branch S Vadeveloo added that young Johoreans or those working in Singapore had bought these units in the belief that they could be ‘flipped’ for a fat profit when completed - and this was before last year’s ban of the developer interest bearing scheme.”

Want China Times. “During the recent annual meeting of the International Monetary Fund (IMF) in Washington DC, Zhu Min, IMF vice president, stated that unoccupied houses in China cover land in excess of 1 billion square meters, which poses a risk to the nation’s realty market, according to Beijing-based China Times. A previous study made by Gan Li, professor at the Southwestern University of Finance and Economics, suggests that there are 49 million unoccupied houses in urban areas nationwide, making a hefty unoccupied-housing rate of 22.4%.”

“‘Despite limited demand, many third and fourth-tier cities are laden with huge housing inventories, forming a bubble which may burst, especially in view of the low transaction volume for new houses in these cities’ remarked Zhang Dawei, superintendent of the market research department of Centaline Property.”

Yahoo Singapore. “Recently, there were reports on units in high-end condominium projects being sold at a big loss. As property buyers, we often hear from developers and property agents that property prices will always go up in the long run. Does the property market always manage to recover, with prices going higher than the previous peak?”

“In 2003, I bought a unit in a seafront condominium. When it was under renovation, two neighbors staying at the units above mine dropped by for a chat. They both bought their place first-hand from the developer. ‘Do you mind telling us what price you paid?’ I told them the amount. ‘Oh, that was more or less what we paid for last time.’ ‘Which year did you buy your place?’ ‘It was 1984. Do you know about their launch at that time?’ ‘I don’t know. I was still in primary school in 1984.’”

“I did a search of the old newspapers. I found that the condominium was selling in a depressed market that year. My two neighbors weren’t overpaying at all. It was amazing that, almost twenty years later, despite inflation and after all the ups and downs in the economy, we were back to the launch price! Who said prices can’t go back twenty years? They don’t just go back, they can even go back to where they started from.”




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41 Comments »

Comment by Ben Jones
2015-04-29 03:10:41

Photos:

‘Would you pay 1.5 million dollars for a house you couldn’t live in? That is exactly what you would be expected to cough up for this dilapidated, mould-infested home in the inner Sydney suburb of Annandale.’

‘The house comes complete with holes in the floor, ceilings that are nearly rusted through, decaying walls and a backyard that requires more than a little TLC. It is the first time the house, located on Johnson street, has gone on the market since 1953.’

‘With housing prices steadily growing in major cities, the “Australian dream” of owning your own house appears to be a distant reality for many young Australians.’

‘Sydney has seen the highest rate of growth in housing prices leading some to speculate that the country’s biggest city is leading a nationwide housing bubble.’

Comment by Blue Skye
2015-04-29 06:16:50

It is brick construction. That’s “no maintenance” isn’t it?

Hey, it even has a brick picture window.

 
Comment by Bluto
2015-04-29 09:20:52

VERY nice…FWIW a house in similar condition just went up for sale in my town and it is only $300K including a big 1.2 acre lot ;-)

http://www.realtor.com/realestateandhomes-detail/2030-Fulton-Rd_Santa-Rosa_CA_95403_M28446-79904?row=1

Comment by Housing Analyst
2015-04-29 09:44:19

Figure $20k at best?

 
 
Comment by snake charmer
2015-04-29 10:17:42

The Australian link has a clip from a housing/real estate investment show where the anchor, with a straight face, credits foreign buyers for helping keep the country’s housing prices down. Somewhat in contradiction, the rest of the clip highlights Australia’s rising prices, on a pace to increase 14% YOY in Sydney alone. The anchor reassures everyone that “The market’s not going to bubble, burst or crash. It’s going to stabilize.”

It’s all good, Australia!

 
Comment by In Colorado
2015-04-29 10:31:13

Sounds like a tear down to me. To be replaced with a multi-story McMansion.

 
 
Comment by Housing Analyst
2015-04-29 03:21:27

Newport Beach, CA List Prices Nosedive 14%; Inventory Bloats 52% As Demand Evaporates

http://www.movoto.com/newport-beach-ca/market-trends/

Comment by OliverGarchy
2015-04-29 06:24:26

We are in the months of the big push. Articles sponsored by NAR shills in all the papers and on TV trying to convince the masses that everything is great and get in now because it can only go up up up.

Yes, there are different places in different phases, some are earlier to the impending crash than others just like last time. Phoenix is earlier, Southern California later, just like last time, but it’s all following the same path because the only thing that follows three years of double digit price increases is a crash. The only thing that follows a bubble is a CRASH.

Crater. How do I know? Because the realtor shills come out of the woodwork so quickly that’s how.

 
 
Comment by Housing Analyst
2015-04-29 04:31:45

“Who said prices can’t go back twenty years? They don’t just go back, they can even go back to where they started from.””

That’s right. Further to the point. Material procurement today is roughly 25% higher than 1995 and labor is less.

Seattle, WA Sale Prices Plunge 9% YoY; Coastal City Price Declines Spread

http://www.zillow.com/seattle-wa-98116/home-values/

Comment by redmondjp
2015-04-29 09:40:53

Get back to me when you have real data - the YOY data in Seattle is up by double-digit percentages.

Comment by Housing Analyst
2015-04-29 10:01:22

You beef is with the data. Sorry my friend.

Redmond, WA Sellers Slash List Prices 11% As Housing Correction Resumes

http://www.movoto.com/redmond-wa/market-trends/

Comment by CHE
2015-04-29 12:21:59

Oh and look at that inventory number - up 92%!

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Comment by CHE
2015-04-29 12:25:36

sorry it ballooned 96%!

 
Comment by Tarara Boomdea
2015-04-29 13:25:17

There’s something wrong with Movoto’s inventory numbers. Houses that sold in my area years ago are still listed as active.

 
Comment by Housing Analyst
2015-04-29 13:25:39

Inventory will go over 100% within a few weeks. You watch.

 
Comment by Housing Analyst
2015-04-29 13:27:55

Show us.

 
 
 
 
Comment by taxpayers
2015-04-29 09:54:42

por que
predicting ^+% increase ,but called nuetral ?

 
 
Comment by Ben Jones
2015-04-29 05:25:18

‘The restrictions aim to prevent a bubble forming in residential real estate of the kind seen in Dubai several years ago.’

Ah yes, the long ago bubble:

‘Phidar’s Dubai Real Estate International Demand Index (Reidi) fell significantly in the first quarter…In Q1-2015, apartment transaction volumes were up 0.6 per cent compared to the same period in 2014, but single family home transactions were down 57 per cent compared to Q1-14..

‘Transaction volumes for the communities tracked by Phidar’s House Price Index were down by half in Q1-2015 compared to Q1-2014′

‘Since the market trough in 2011, standard quality apartments price have increased 75 per cent.’

 
Comment by Professor Bear
2015-04-29 05:48:58

Does Brazil have GSEs that can rescue housing?

Comment by Double Flip Triple Gainer
2015-04-29 09:41:21

While the Brazilians and the Saudis seem to be nipping the problem in the bud, the ever-wise American PTB are freshly pimping 3% FHA loans and cutting PMI from 135 bps to 85 bps. Truly American exceptionalism.

 
 
Comment by Professor Bear
2015-04-29 05:56:20

“‘Despite limited demand, many third and fourth-tier cities are laden with huge housing inventories, forming a bubble which may burst, especially in view of the low transaction volume for new houses in these cities’ remarked Zhang Dawei, superintendent of the market research department of Centaline Property.”

Are these examples of the so-called Ghost Cities to which he refers? Or is that something entirely different?

 
Comment by Ben Jones
2015-04-29 05:57:43

‘Mumbai: Even as the country faces a shortage of 19 million houses, around 10.2 million completed units are lying vacant, which can be absorbed under rental housing programme for weaker sections, says property consultant CBRE.’

“Primary reason for this supply–demand mismatch is the paucity of formal housing options low-income population with low affordability levels. The lack of access to formal credit along with high priced home loans and debt, leave them with little more than squatter colonies, urban slums and unauthorised settlements by way of affordable accommodation options,” CBRE South Asia Chairman and Managing Director Anshuman Magazine said.’

 
Comment by Ben Jones
2015-04-29 06:00:10

‘In many of Fresno’s older neighborhoods, blighted properties and boarded up homes are a big problem. FM89’s Joe Moore reports a proposed new law aims to crack down on those property owners.’

‘Residents say abandoned, boarded up buildings drive down property values and often attract illegal activity.’

‘Fresno Mayor Ashley Swearengin says the city has around 2,000 vacant, blighted residential properties.’

Comment by Ben Jones
2015-04-29 06:23:41

‘The high cost of housing means almost one in four Orange County residents is living in poverty, nearly twice the official measure, an affordable housing advocacy group reported Tuesday.’

‘Once the lack of affordable housing is taken into account, Orange County’s poverty rate rises from the federal government’s 12.8 percent figure to 24.3 percent, according to the San Francisco-based nonprofit California Housing Partnership Corp.’

“Though generally considered one of California’s wealthiest counties, Orange County actually has one of the highest poverty rates in the state,” the report says.’

‘Housing costs claim 67 percent of income for the state’s lowest-earning households, leaving 33 percent for other essential needs such as food, transportation and health care. By comparison, housing costs represent 27 percent of earnings for a median-income household, according to the report.’

“It’s going to get worse before it gets better,” said Eric Sussman, a real estate finance lecturer at UCLA’s Anderson School of Management. Sussman noted that while there’s plenty of homebuilding going on, very little of it is affordably priced.’

Comment by In Colorado
2015-04-29 10:40:24

“Though generally considered one of California’s wealthiest counties, Orange County actually has one of the highest poverty rates in the state,” the report says.’

That’s what happens when income inequality takes hold. In places like Mission Viejo and Newport Beach it’s Beamers and Benzes and trophy wives eating lunch in trendy restaurants while up the freeway it’s beater cars, fast food and menial $10/hr jobs in places like Disneyland with sky high rents.

 
 
Comment by AmazingRuss
2015-04-29 12:29:16

Fresno is the Gary, Indiana of California.

Comment by Puggs
2015-04-29 14:18:03

At least Gary has virtually unlimited water.

 
 
 
Comment by Blue Skye
2015-04-29 06:22:19

“marginal investors”

I think we already know some of those right here!

 
Comment by Double Flip Triple Gainer
2015-04-29 06:23:00

Great collection of articles today. And perfect timing given it is day 2 of the FOMC meeting.
The global central bank response to flood the world with capital to spur inflation has so clearly resulted in exactly the opposite effect of what was intended. Easy money has led to vast overproduction of stuff the world simply does not need. From houses to commodities to cargo ships, what has been produced is so clearly out of line with what the supply and demand fundamentals would otherwise dictate. The result is and will continue to be a rush to be the lowest bidder. Deflation, deflation everywhere.

Comment by Professor Bear
2015-04-29 08:14:51

Who could have guessed that a deliberate effort to devalue currencies would trigger a flood of money into investment in stuff that nobody needs, such as empty luxury condos?

Unfortunately, the sale of unneeded properties at inflated prices portends lower prices down the road, which is deflationary.

Comment by Puggs
2015-04-29 08:43:16

Lower price = happy life.

 
Comment by Double Flip Triple Gainer
2015-04-29 15:40:29

I’ve been reading Jim Grant for years…he is truly a beacon of hope in a sea of damned fools.

‘The long-time proponent of rate normalization said that while the Fed wants to enlarge aggregate demand, “inadvertently, through these zero percent rates and through more and more quantitative easing, they also enlarge aggregate supply.”

http://www.cnbc.com/id/102633450

If any of you are looking for a good read, I strongly recommend giving Grant’s most recent book “The a Forgotten Depression” a read. It’s a great history on the 1920 economic downturn and the power of the subsequent laissez faire response.

 
 
 
Comment by Ben Jones
2015-04-29 06:26:02

‘Property owners in Santa Monica, who rent out their properties using sites like AirBnB and VRBO, may soon find it’s hard to do business in the city. The Santa Monica city council will debate a proposal Tuesday night that would do away with most short-term rentals, often referred to as vacation rentals.’

‘Officials in Santa Monica estimate there are 1,700 short-term rental units within city limits - those units previously provided long-term housing to local residents. ‘

“What happens when an otherwise affordable housing unit is turned into a money maker? A defacto hotel room?” said Mayor Kevin McKeown, who has spearheaded the proposed ordinance.’

Comment by Housing Analyst
2015-04-29 06:54:43

Santa Monica?

Santa Monica, CA List Prices Crumble 8% YoY As Speculators Dump Housing

http://www.movoto.com/santa-monica-ca/market-trends/

 
 
Comment by Puggs
2015-04-29 08:40:52

“…suggests that there are 49 million unoccupied houses in urban areas nationwide, making a hefty unoccupied-housing rate of 22.4%.”

This sounds like the good ‘ol US of A.

Comment by Housing Analyst
2015-04-29 08:50:45

That’s right…. tens of millions of excess empty and defaulted houses. And a majority of them on the east and west coasts.

 
Comment by Blue Skye
2015-04-29 09:14:48

One difference, China has another 70 million in the pipeline.

Comment by In Colorado
2015-04-29 10:33:09

Another difference. Houses in the USA don’t cost 100 years median income.

Comment by Housing Analyst
2015-04-29 10:44:27

They don’t in China either.

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Comment by azdude
2015-04-29 17:37:50

O A K I E

 
Comment by Housing Analyst
2015-04-29 18:11:10

Check the blinker fluid Poet.

 
 
 
 
 
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