July 3, 2015

Setting The Market Up For Disaster

It’s Friday desk clearing time for this blogger. “Zhou Liangjun was pumped. For nearly a year, he watched as the Shanghai Stock Index soared. The government seemed to encourage investment in equities, particularly as the country’s housing slump intensified. So early last month, he took half of his savings and plunked it into stocks on the Shanghai exchange. His timing couldn’t have been worse. In 10 trading days ending on June 26, the market lost a fifth of its value. Two years ago, Zhou bought a flat and has seen its value decline modestly. Now the equity market is further eating into his net worth, leaving him shell-shocked and wondering what to do with what’s left of his savings. ‘Maybe I should invest abroad,’ he says. ‘Maybe I can buy a house in the U.S. Maybe I should buy stocks there, too. I don’t know.’”

“Wealthy buyers from Brazil, Venezuela and Argentina have fueled a real-estate frenzy in Miami in recent years, sending luxury-condo prices soaring. Now, Miami developers and real-estate agents are setting their sights on a more distant part of the world: China. Part of the reason: South American buyers, who comprise the largest foreign buying group in Miami, aren’t buying as rapidly anymore. Karen Xu, a Shanghai resident, is looking at one-bedroom condos in the U.S. as an investment. She says she didn’t consider Miami until she saw a marketing table in Shanghai in May for Brickell Flatiron, a downtown Miami development where one-bedroom condos cost $500,000 to $750,000.”

“The deputy director of a boutique investment firm, Ms. Xu, age 35, was initially interested in a Manhattan home, but said she’s priced out. ‘Two to three years ago, prices were OK,’ she said. ‘Now people are saying, ‘Buy in Brooklyn.’ I don’t want Brooklyn.’”

“It’s been yet another record-breaking three months for Manhattan’s real-estate market, according to brokerage reports. But behind all the headline-grabbing numbers is a developing stalemate between buyers and sellers that’s hampering the market. ‘Sellers have these unrealistic expectations. They refuse to reduce their prices and they won’t negotiate and buyers are unwilling to pay these really expensive prices and … they’re frustrated and are opting out of the market sometimes,’ says Bess Freedman, managing director of sales at Brown Harris Stevens.”

“While Austin-area home prices continue to soar, local sales for one type of home are taking a dive. According to the 2015 Texas Condominium Mid-Year Sales Report, only 1,178 condos and townhomes were sold in Austin between January and May 2015. That’s a 12 percent decrease from the same time period in 2014. ‘The land and development costs for condominiums in Texas’ metro areas are so high that new condos being built today are priced outside of an affordable price range,’ said Dr. Jim Gaines, an economist with the Real Estate Center at Texas A&M University.”

‘As is the story with the Austin real estate market in general, affordability is a growing concern for condos. Higher prices ‘could be impacting some Texas homebuyers’ ability to afford condos, especially in our state’s metro areas,’ said Scott Kesner of the Texas Association of Realtors.”

“Real estate bidding wars have become the scourge of property buying in Vancouver. The biggest challenge for buyers is, unlike at an auction, they are left to bid without knowing the value of competing bids. This means winning bidders could pay more than necessary to win a property. Even the spectre of a bidding war can skew bidding, prompting buyers to overbid when the other bids possibly are not real. Another problem with bidding wars, warns Toronto realtor Andrew Harrild, is that it ’sets our housing market up for disaster.’ ‘If people continue to pay … thousands of dollars over listing prices, the value of our real estate could eventually reach an unsustainable level, and then decline.’”

“Prices of both private and public Singapore housing continued their slide in the second quarter of this year. This marked a seventh straight quarter of decline for private homes and an eighth for HDB resale flats. ‘Psychologically, buyers might be reluctant to make a purchase now, given that the going price for a newly acquired property could be lower in six to 12 months’ time,’ said Chia Siew Chuin, Colliers International director of research and advisory.”

“With the large number of unsold units in launched and unlaunched projects, buyers being highly selective and developers pacing out their launches, there will be more downward pressures in prices and transactions, she added.”

“Hedge funds that once dominated the South Florida housing landcape are pulling back on purchases, the RealtyTrac data show. With investor demand waning, home price increases have slowed across the region. The transition back to mortgage financing comes as lenders loosen underwriting standards. While requirements are still strict, particularly on mortgages backed by government-run companies Fannie Mae and Freddie Mac, more small banks and private lenders are entering the picture to give buyers options, mortgage brokers and real estate agents say.”

“‘Slowly but surely, creativity is coming back into the market,’ said Jim Flood, regional manager of Supreme Lending in Plantation.”

“Boston’s housing market may be red hot, but other parts of the state are wrestling anew with an old problem: foreclosures. The number of foreclosures initiated by lenders in Massachusetts climbed nearly 60 percent in the first five months of 2015 compared with a year earlier, according to the Warren Group. The after-effects of bad lending practices from the bubble years are still distorting the housing market, said Grace Ross, coordinator of the Massachusetts Alliance Against Predatory Lending, especially in outer cities where home prices have not recovered.”

“‘It’s not like there aren’t still problems,’ said Ross, who was on Beacon Hill to testify on behalf of a slate of bills she hopes will help ease ongoing foreclosure woes and prevent new bad loans. ‘We’re not seeing a bounce back in the hardest-hit communities. We’re not seeing a bounce back in employment either.’”

“Is homeownership going out of fashion? A quick glance at the most recent batch of data, contained in a report published late last month by the Joint Center for Housing Studies at Harvard University, certainly seems to suggest as much. And we can blame it all on the excesses of the mortgage bubble, and the financial crisis that followed the discovery of the fraud and excesses in the real estate lending market, beginning in late 2006. ‘That era ushered in a new set of rules and regulations about who qualified for a mortgage,’ says Mark Vitner, senior economist at Wells Fargo.”

“But this enforced postponement of homeownership puts a giant question mark over the heads of those Americans who, given their druthers, would prefer to be buying rather than renting right now. We don’t need another housing bubble. But a little more air in the balloon wouldn’t hurt, if only to reduce the pressure on those struggling under the burden of soaring rents, and to give a helping hand to those for whom their houses will end up being – alas and alack – the only asset in their retirement portfolio. A little bit of exuberance, without tipping over into irrationality, perhaps.”

“There’s been an awful lot of noise lately about Australia’s housing market. Opinion pieces, market analyses, discussion panels; anywhere you care to look you’ll see people throwing around terms like ‘housing bubble’ and ‘unsustainable’ in regard to Australia’s rapidly rising house prices. But what leaves a worse taste is the fact that, by and large, investors don’t see the housing bubble as a problem. They welcome it with open arms, offering to take its jacket at the door, asking if perhaps Mr H Bubble would fancy a glass of champagne or a cigar.”

“What about the more financially disadvantaged people my age? I’m lucky to be from a relatively upper-middle class socio-economic background and I’m extremely concerned about my future in regards to housing. So, how must they feel? As a gainfully employed student in the early years of my study, it’s hard to know whether to be worried or not. This is an issue that won’t affect me directly for some time, but I can’t help but fear that this bubble won’t have burst by the time I set my sights on property ownership.”

“It’s a uniquely frustrating situation to be part of a generation typecast as lazy, selfish and naive while bigwigs from the generations that came before us (who typecast us as above) ruin our chances of owning homes on a healthy planet. At the end of the day, I’m generally not in the habit of begrudging someone their ability to make more money, but my generosity doesn’t extend to an informal conglomerate of hundreds of thousands who are striving to turn the basic human need for shelter into a luxury item.”

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Comment by Albuquerquedan
2015-07-03 04:06:25

In 10 trading days ending on June 26, the market lost a fifth of its value. Two years ago, Zhou bought a flat and has seen its value decline modestly. Now the equity market is further eating into his net worth, leaving him shell-shocked and wondering what to do with what’s left of his savings. ‘Maybe I should invest abroad,’ he says. ‘Maybe I can buy a house in the U.S. Maybe I should buy stocks there, too. I don’t know.’”

So he can buy a flat, then buy stocks and lose 20% and he still has enough to buy a house in the U.S., one would assume for cash? Seems like the typical Chinese that is saving 30 to 40% of his or her income a year. Right now they invest like dentists but they will learn.

Comment by Ben Jones
2015-07-03 04:38:32

From the article:

‘Households in China have 8.8 trillion renminbi, the equivalent of $1.4 trillion, in savings.’

This is a bit off the number your were dragging around here recently. Anyway, it’s all going ‘poof’ pretty quick now!

Comment by Albuquerquedan
2015-07-03 06:16:18

Yea you are right and I think that shows that the Newsweek reporter does not know what he or she is talking about, probably why the magazine now only exists online:


Comment by Ben Jones
2015-07-03 06:24:13

Yeah, where do I find the print editions of the MSN magazine?

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Comment by Albuquerquedan
2015-07-03 06:34:19

Bloomberg says the same thing and they are a business publication. The CIA has the Chinese economy as saving half their GDP year after year which is over 5 trillion added to savings every year. Newsweek is now nothing more than a left wing blog.

Comment by Blue Skye
2015-07-03 08:28:23

“5 trillion added to savings every year…”

Dan must really want/need to believe this kind of tripe. Above he agreed that he was wrong by an order of magnitude, and a couple of lines later back at it again.

Comment by AmazingRuss
2015-07-03 17:10:37

Simply cannot admit he’s wrong. It’s going to be funny watching his statements get ever more preposterous as China crashes. The posts will probably end up in a psychology text.

Comment by Professor Bear
2015-07-03 05:22:34

“Right now they invest like dentists but they will learn.”

Are you referring to the ones whose losses don’t convince them to jump out of a tall building?

Comment by Professor Bear
2015-07-03 10:38:32

Note this story predates the 30% crash of the past couple of weeks.

Margin Assisted Suicide; Changsha Man Jumps After Losing Everything
China’s bull market is going strong, but massive leverage has already led to tragedy.

Mr. Hou, a 32-year old man from Changsha, levered up to 4 times his capital and put it all in a single stock. Shares were limit down for two days straight and his 1,700,000 yuan in capital was wiped out. After several days of fighting with his wife and dealing with the psychological pain, he leapt from his 22nd floor apartment. Besides his wife, he left behind a 6-year old child.

Comment by GuillotineRenovator
2015-07-03 12:37:44

Survival of the fittest. He clearly was a mental midget.

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Comment by Professor Bear
2015-07-03 13:35:11

“In 10 trading days ending on June 26, the market lost a fifth of its value.”

And by the following weekend, the loss was approaching 3/10 of its value.

Comment by Ben Jones
2015-07-03 04:41:54

‘Maybe I can buy a house in the U.S.’

‘A five-bedroom, Mediterranean-style home in Crystal Cove owned by former Ducks right wing Rob Niedermayer has sold for $3.6 million. The 4,058-square-foot house in the guard-gated Newport Coast community backs to the Pelican Hill Golf Course and has views of the Pacific Ocean.’

‘Property records show Rob Niedermayer bought the home in 2005 for $3.95 million. It was listed for $3.89 million in March’

Comment by GuillotineRenovator
2015-07-03 12:39:57

Very few houses are selling near bubble highs. This guy was lucky to only lose a little.

Comment by Ben Jones
2015-07-03 04:50:06

‘One of San Francisco’s tallest and newest residential towers is on the verge of a record sale that would give it a new life as condominiums after most rental units have sat vacant.’

‘The north tower’s apartments have been priced at some of the highest rents in the city, $6,027 on average, which exceeds Twitter’s neighbor Nema. The One Rincon building has typical luxury amenities like an outdoor barbecue area, a gym, heated pool and valet parking.’

‘But the apartments have been slow to rent since leasing started in April 2014 and residents moved in starting last August.’

‘Only one-fifth of the building’s 132 two-bedroom units were occupied by February, according to a confidential brochure marketing its sale. Overall, 40 percent of the units had leased by February. Neither of the two top-floor units, with some of the best views in the city, were occupied.’

‘It’s almost unheard of in this jobs-rich, housing-constrained city for a building to struggle with leasing, especially for high-end ones.’

All kinds of unthinkable things are headed to California, especially to these tech fools.

Comment by AmazingRuss
2015-07-03 17:13:06

Tech layoffs have started, just in time for the new towers to open.

Comment by Ben Jones
2015-07-03 04:52:40

‘A federal grand jury returned a 15-count indictment on Thursday against seven individuals, charging them with conspiracy to commit mail fraud and bank fraud, mail fraud and aiding and abetting, and making false statements to a bank in a mortgage fraud scheme, United States Attorney Benjamin B. Wagner announced.’

‘According to court documents, the defendants conspired to defraud mortgage lending companies and financial institutions by making false statements on loan applications and short-sale applications in order to obtain properties under their names and the names of others. The false statements included statements relating to the defendants’ employment, their familial relationship, income, and their intent to occupy the home as their primary residence.’

‘According to the indictment, the conspiracy encompassed at least 25 properties from Sacramento to Modesto. As a result of the scheme, lenders lost in excess of $3 million.’

Comment by Blue Skye
2015-07-03 08:31:40

“their intent to occupy the home as their primary residence.”

Oops. I wonder if any of our long time posters got caught up in such things.

Comment by Arizona Slim
2015-07-03 11:19:46

Like the poster who was bragging about how well his Sacto rental houses were doing? That one?

Comment by Mafia Blocks
2015-07-04 05:03:27

That was none other than our underwater specu-vestor Jingle_Fraud.

How much you want to wager he’s involved in this one or under investigation?

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Comment by Jingle Male
2015-07-04 06:15:54

All my loans were 75% to cost w 25% down payments and originated as non-owner occupied. That’s why the appraisals cost an extra $100. The appraiser has to do a rent comp survey. BTW, they are now sub 50% LTV and the cash flow will increase another $800/mon when I finish refinancing four of them this month. Loans at sub 60% LTV get a nice rate break, particularly when combined with an 800 FICO. Buying houses in 2008-10 has worked out very well.

Comment by Mafia Blocks
2015-07-04 06:30:21

And all underwater.

You paid too much Jingle_Fraud.

Comment by Prime_Is_Contained
2015-07-04 17:55:56

And all underwater.

All underwater? My guess would be none underwater, at least for the moment. Have you not been paying attention to what the markets have done the past 3yrs?? With prices at or near peak in many markets, I don’t see how he could be underwater.

Comment by Mafia Blocks
2015-07-04 20:02:15

Paying 250% premiums for depreciating assets guarantees loss.

Comment by GuillotineRenovator
2015-07-03 12:41:33

The fraud is so rampant that I’d bet not even 5% is prosecuted.

Comment by Ben Jones
2015-07-03 04:55:50

‘Developer Bruce McNeilage had ambitious pre-sale goals for Solo East, his forthcoming affordable condo project in East Nashville. He leased out LP Field (now Nissan Stadium), hired security and had Titans cheerleaders on hand to rally potential buyers.’

‘As I wrote last week, his goal was to sell out the 130-unit building in one night, which would represent $23 million in condo sales. We checked back one week later to see how he did.’

“My expectations are unrealistic and my wife told me that — it didn’t sell out,” McNeilage said. “I wanted to sell out in the first hour, but I have delusions of grandeur sometimes.”

Comment by Ben Jones
2015-07-03 05:02:19

‘About a half dozen buyers of pricey condo/hotel rooms in Toronto’s five-star Trump International Hotel & Tower will be in court Thursday, hoping that an Ontario Superior Court justice will agree to fast-track their efforts to renege on real estate deals gone bad.’

‘The two plaintiffs will act as test cases for the 22 other, similar, cases and are seeking damages ranging from about $200,000 to $1 million, based on their individual losses.’

‘Affidavits filed so far on behalf of buyers Andrew Lee, 45, of Richmond Hill and Sarbit Singh, 51, of Milton, paint a detailed picture of how the costly Trump units — the most expensive condos per square foot in Toronto back in 2007 — were marketed like Hollywood gold to naïve, first-time investors who have since racked up tens of thousands of dollars in losses.’

‘The cases claim a “gross misrepresentation” by many involved in the glitzy, oft-delayed hotel project at Bay and Adelaide. That includes businessman and TV personality, Donald Trump, as well as the major backers of the more than $393 million project, Talon International Development Inc., its chairman Alex Shnaider and former president and CEO Val Levitan.’

‘The affidavits point to almost identical sales tactics in both cases: power point or marketing materials created the impression that Trump was directly involved in the project.’

‘The affidavits point to similar sales tactics that spelled out the money to be made from room rates averaging more than $500 a night and rented out 55 to 75 per cent of the time.’

‘Instead, Lee’s affidavit says, the investment has “been a disaster for our family.” So far he and his wife, who borrowed $171,400 from her parents for a down payment they couldn’t afford on his single and unreliable income, have racked up almost $135,000 in losses on their 653 square foot, $857,000 corner suite.’

‘Buyers found themselves blindsided by a number of surprises right from day one: Undisclosed fees, room rates that turned out to be considerably less than touted in sales materials and monthly occupancy rates that remained well below the “worst case scenario” of 55 per cent until, it appears, the hotel started cutting room rates.’

‘Singh also borrowed much of the $173,400 deposit for his 571 square foot, $869,000 unit from his father, a welder. But, unlike Lee, he never closed on the unit.’

‘But August, 2012 he had simply run out of money to keep up with the costs. That November he consulted a lawyer, concerned that the estimates of gains on which he’d based his purchase were a “gross misrepresentation.”

‘His losses until that point were $30,000, but could be monstrous if a court rules the deals are legitimate and buyers can’t renege.’

Comment by MacBeth
2015-07-03 05:38:40

“have racked up almost $135,000 in losses on their 653 square foot, $857,000 corner suite.’

WOW- the stupidity of people….

Comment by Ben Jones
2015-07-03 05:41:12

My calculator says that’s $206/sq foot. Kind of a new real estate statistic.

Comment by Sean
2015-07-03 06:32:16

LSF: Losses per Square Foot. I love it!

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Comment by Mafia Blocks
2015-07-03 06:46:46


Loss per depreciating foot

Comment by Professor Bear
2015-07-03 05:18:48

Has there been any other juncture in history when anybody with any amount of cash savings whatever robotically pluncked it down in residential real estate investments and hoped for the best?

Comment by Ben Jones
2015-07-03 05:23:49

‘Chinese stocks tumbled again on Friday, taking the week’s losses to more than 10 percent, as the securities regulator said it was investigating suspected market manipulation and announced a slew of measures aimed at heading off a full-blown crash.’

‘After a slump of nearly 30 percent in Chinese stocks since mid-June, the China Securities Regulatory Commission (CSRC) has set up a team to look at “clues of illegal manipulation across markets”.

“The government must rescue the market, not with empty words, but with real silver and gold,” said Fu Xuejun, strategist at Huarong Securities Co, before the CSRC and PBOC announcements, adding that a market crash would hurt banks, consumption, companies and even trigger social instability. “It’s a disaster. If it’s not, what is it?”

Stamp your feet Fu.

Comment by Ben Jones
2015-07-03 05:25:40

‘With the Shanghai gauge tumbling more than twice as fast as any other index worldwide, regulators have pledged to investigate market manipulation and unveiled measures to revive confidence among the nation’s 90 million individual investors. The steps have so far been overshadowed by concern that leveraged traders will keep liquidating bullish bets after equity valuations exceeded levels during the country’s stock-market bubble in 2007.’

“For now, the mood is verging on panic, and it is extremely hard to calm a bear who is in a rage,” said Bernard Aw, a strategist at IG Asia Pte Ltd. in Singapore. “Chinese brokers may still be looking at reducing their risk exposure by closing more margin debt.”

Comment by dwkunkel
2015-07-03 10:54:03

Margin calls are a bitch, aren’t they?

Comment by Professor Bear
2015-07-03 10:58:48

Not if the government is willing to intervene in order to mitigate or eliminate their effect.

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Comment by Professor Bear
2015-07-03 11:03:20

However, in this case, it appears that Chinese authority efforts to calm the markets have failed.

International Trader - Asia
Margin Calls Threaten Shanghai’s Tottering Market
Small investors earlier this year took out record amounts of loans to buy hot stocks. With the market plummeting, they face having the loans pulled.
By Shuli Ren
Updated July 3, 2015 12:45 a.m. ET

In the last three weeks, over $2.7 trillion evaporated from mainland China’s two main stock exchanges. The 25% contraction was propelled by nervous margin calls and excessive trading. The chickens have finally come home to roost.

Chinese investors enthusiastically bought stocks on borrowed money this year. The amount of margin loans more than doubled in six months, to more than two trillion yuan ($320 billion). At 8.8% of the local market’s total free float, margin financing in China is equal in size to Indonesia’s entire stock market valuation, and as high a portion as it has been in any market, at anytime, says Goldman Sachs. Unfortunately, less-sophisticated retail investors are by far the biggest borrowers.

Compounding the problem is the lack of flexibility in China’s margin financing. A typical loan is six months in length, and borrowers have to repay their debt in full before opening a new one. The first large wave of loans, to the tune of 200 billion yuan, started to hit their due dates in late June. In only four days, the margin-financing balance shrank by 85 billion yuan, or close to 4% of the total amount outstanding. Last week, China’s securities regulator scrambled to clarify that borrowers could roll over their margin loans.

BEIJING HAS TRIED TO CALM the market by saying there were only a few billion yuan worth of margin calls a day—trivial compared with one trillion yuan average daily trading volume. And on paper, China’s market valuation is around 250% of the margin loan level, which is well above the regulatory threshold of 150%.

But the reality is a lot murkier, because Chinese investors are very active short-term traders. On average, they hold a position for only 15 days. That means many margin positions were probably opened about 15 days ago, the mid-June market high.

In China, a typical investor can borrow $1.25 for every dollar of cash she has, giving her what China calls a “guarantee ratio” of 180%, or $2.25 (cash and stock bought on margin) divided by $1.25 (loan value). But as her stock loses value, the guarantee ratio also falls. At 150%, the broker will start to issue margin calls. When the ratio hits 130%, the brokerage will force the liquidation of the position to meet the loan.

With the Shanghai Composite Index down 25% and Shenzhen’s small-cap ChiNext Index off 30%, many accounts are on the verge of margin calls. Beijing last week told brokerages they don’t have to force liquidation of holdings.

So far, Beijing has used a kitchen-sink strategy to pull China’s stock markets from the brink. The People’s Bank of China cut its benchmark interest rate last weekend; the Ministry of Finance said China’s $500 billion pension fund would start investing in the stock markets; and of course, the securities regulator repeatedly came out—during market hours—to assure us that margin financing was safe. There was also chatter that the Chinese sovereign fund Huijin was buying A-share exchange-traded funds to prop up the market.

Beijing could go further and order the brokers not to issue margin calls. But market confidence seems broken. The markets seem to be testing new technical support levels daily. The Shanghai Index last week dipped below a support level at 4,000–a long way from its June 12 high of 5,166.

Comment by Professor Bear
2015-07-03 11:11:05

I guess the government could pass an outright ban on margin calls. But where would that leave the lenders who made the loans, assuming the usual rules of margin lending would apply in case the market headed south?

And wouldn’t screwing over these lenders pretty much assure a dessication of future margin lending? The next logical step would be for the government to step in and supply liquidity.

Note that a very similar sequence of events played out in the U.S. housing market, where foreclosure moratoriums led to an exit of private lenders from the housing market, followed by the U.S. government stepping in as lender of last resort.

Comment by Professor Bear
2015-07-03 05:57:56

The hunt is underway for a scapegoat to blame for China stock market losses.

We have met the enemy and he is us.

– Pogo

Comment by Raymond K Hessel
2015-07-03 07:15:43

I wonder how many embittered Chinese are going to rediscover Mao, if not Pol Pot, as they contemplate the new robber barons of today’s corrupt CCP.

Comment by Ben Jones
2015-07-03 05:28:36

‘“The risk of a sharp fall in property prices in Luxembourg is probably limited, at least in the short term, notably due to demand being well supported by strong population growth and limited supply.” This is a quote from the recent Annual Stability Review report by the Luxembourg Central Bank, suggesting that this country is not experiencing a speculative housing price bubble.’

‘This is not a comment on whether prices are “fair” or “right for society”. It is just a view on whether they are being boosted in an unsustainable fashion by excessive borrowing, as they were pre-crisis in the US, Spain and Ireland, and probably are now in China. Nevertheless, care is always advisable and buyers should think deeply before making the biggest investment of their lives.’

‘Prices are rocketing. On average, the Central Bank reckons average purchase prices were an inflation-adjusted 11 percent higher in 2014 than in 2007. This is despite properties becoming cheaper in 2008 and 2009. The result is that an average 100m2 flat in the capital is going for more than 660,000 euros and a 150m2 house retails at more than 775,000 euros (figures from the Housing Ministry’s Habitat Observatory). Prices are about 35-50 percent less than this when you go 20km and more away from the capital.’

‘The scramble to buy has been boosted further by stunningly low interest rates of 2-3 percent fixed over 10 or even 20 years. Plus, you get an income-tax break on your mortgage payments, making it even less attractive to rent. That said, rental values have not kept pace with purchase prices due to the rental market here being one of the most restricted and regulated in Europe.’

‘The conclusion is that if you buy, there probably wont be facing negative equity unless something goes horribly wrong with the European or Luxembourgish economy. Probably.’

Comment by Ben Jones
2015-07-03 05:33:46

‘I was sitting in my chair on the beach today, after I had spent the whole day talking to about twenty people about real estate here and about maybe retiring here. This American walks up and tells some people, “Guess what I am in real estate here now.” He was with another Gringo, and I think they both had been drinking, and one of the guys is somebody I always see drunk around here, and he is in real estate. The guy said, “I will do all the talking, and this guy here will handle all the paperwork.”

‘So I am sitting and I got to thinking to myself, every American and Canadian in town is now selling real estate. Now this is on top of an American who just got arrested by the Federales and ran out of town for embellezing money from his real estate client’s escrow accounts. This guy basically used money from his clients escrow accounts to finance his lifestyle, and when asked he told them yes, I spent your money. Now being an American living here, this pisses me off, and makes all of us Americans look bad.’

‘Right now in the Yucatan Peninsula and all over Mexico, we got a lot of people from the USA and Canada, running around trying to sell real estate the 3 or 4 months they are in town. They prey on the people who come to Mexico to look around from the USA and Canada.. I have had these people try to hard sale my clients that I have brought down personally at some of the “Gringo” functions here. One lady from the USA is very bad about it, and trashed me and the company that I write a blog for to some people I had down recently. These people know nothing about the nature of real estate business in Mexico or its procedures, but are trying to make a quick buck at the hands of naive Americans and Canadians.’

‘The Yucatan Peninsula is getting pretty popular lately so we now have people coming down from the USA trying to cash in by any means possible. This is a sad fact of becoming a popular tourist and retirement destination, you attract what I call “carpetbaggers”. A lot of these guys are promising to build condos, and other properties. What they are really doing is finding a property for sale like $115,000 usd, and just add $10,000 usd, sell it for $125,000 usd, to some unsuspecting American or Canadian, pocket the money, then they go back up north after high season is over.’

‘So as an American who has lived and worked in the Mexican Caribbean and Belize now going on five years, it pisses me off the way these people are trying to conduct real estate business here (unlicensed and without a work visa). I have worked in the coast of Quintana Roo for 5 years now, and I have seen my share of people trying to get rich here selling real estate come and go. They usually last 4-6 months and then they suddenly leave town. Case in point the last woman from the states selling real estate here did not last long, and went back to the USA.’

Comment by Arizona Slim
2015-07-03 11:21:24

Hell hath no fury like a real estate agent scorned.

Comment by Ben Jones
2015-07-03 05:39:24

‘In Brickell and downtown 6% fewer condos are rising than a year ago. Hard as that is to believe as we drive under cranes in traffic-jammed construction zones, less is in the pipeline.’

‘A report by Dodge Data & Analytics shows a change broader than just downtown and longer lasting. Future residential construction contracts throughout South Florida are down 19% from May 2014.’

‘Word on the street is that one veteran developer sees a peak and is selling off all residential holdings.’

‘The new construction market is hard to grasp. Many units and projects that have been announced are unlikely to rise even if sales remain strong and if signs we’re seeing are only a blip.’

‘Developers have formally scuttled only one project of 330 units, we noted last week, but in Brickell alone where 1,317 units have opened in the past two years and 3,614 are under construction, about 5,000 more have been announced but aren’t yet started.’

‘Knowing how many new units have truly sold is tricky. Many companies count sales when they collect receipts. But with condo developments, not every sale that’s claimed is paid for, and no central repository tallies new condo sales.’

‘It’s easier to tally resales, for which a report from the Miami Association of Realtors is revealing. Condo and townhome resales in Miami-Dade fell 2.6% in May from May 2014. Cash sales – telltale signs of foreign buyers – fell 7%. Pending condo sales dropped 10.1%. New resale listings dipped 7.1%. The mean sale price was off 6.7%. Resale condos took 7.5% longer to sell. The percentage of the list price received fell .2%. Listings for sale rose 11.6%. The months’ supply on the market rose 17.5%.’

‘Every single indicator eroded – no disaster, not the bottom falling out or anything like it, just a slowdown in a hot market. Blip or trend?’

‘So while 9.1-month supply of resale condos is for sale, the supply of single-family resale homes is only 5.1 months. That looks like a sellers’ market for homes and a buyers’ market developing for resale condos. Looks like, that is, assuming a trend and not a blip.’

‘Banks aren’t on the hook in a big decline – only because so many sales were cash and others required 50% or more from buyers. Buyers can lose, banks seem safe.’

‘But the signs tell us that if you’re looking for a condo to live in, this might be a good time to start thinking of making a sensible purchase. Some sellers are likely to be mighty anxious to please you.’

Comment by Combotechie
2015-07-03 05:41:24

“So early last month, he took half of his savings and plunked it into stocks on the Shanghai exchange. His timing couldn’t have been worse. In 10 trading days ending on June 26, the market lost a fifth of its value. Two years ago, Zhou bought a flat and has seen its value decline modestly. Now the equity market is further eating into his net worth, leaving him shell-shocked and wondering what to do with what’s left of his savings.”

Cash? How about leaving it in cash?

“Maybe I should invest abroad,’ he says. ‘Maybe I can buy a house in the U.S. Maybe I should buy stocks there, too. I don’t know.”

“I don’t know” should mean “Leave it in cash”, but for some reason it doesn’t.

Consider: If the “values” of whatever it is that composes these markets are based on the prices of the components that make up these markets and these prices go south and take values with it then the message should be:


But for some reason this message isn’t being received (it’s being sent - boy, is it ever - but it isn’t being received).

Comment by Professor Bear
2015-07-03 06:02:47

Experience keeps a dear school, but fools will learn in no other.

–Benjamin Franklin

Happy Independence Day, HBB!

Comment by Combotechie
2015-07-03 06:36:48

“… but fools will learn in no other.”

What these fools are going to learn is that after a lot of money is destroyed there will be left a scarcity of the stuff.

And if the money that is destroyed takes a of jobs with it then there will be a scarcity of jobs. And if a job is seen as something that generates cash flow then this cash flow will be reduced
as as the number of jobs are reduced.

So, to combine the two - the destruction of money (cash) AND the destruction of the means of generating cash, of generating cash flow (jobs) you will end up with a shortage of cash. And this means those who, for one reason or another, have cash will get to call the shots when it comes to financial transactions.

Comment by Raymond K Hessel
2015-07-03 07:17:42

Gold gold? The ultimate safe-haven against Keynesian lunatics at central banks.

Comment by Arizona Slim
2015-07-03 11:33:51

I follow the investment advice of Will Rogers: I’m more interested in the return OF my money than the return ON my money.

Comment by Ben Jones
2015-07-03 05:46:32

‘A property boom in Ethiopia’s capital is putting pressure on the government to keep homes affordable for some of Africa’s poorest people who also live in one of its fastest-growing economies.’

‘Smart flats and hotels in mirror-glass buildings rise up in areas of Addis Ababa where shacks once stood. A new metro snakes through a city where an emerging middle class is snapping up new homes, but waiting lists for cheap state-built apartments grow.’

‘This is a challenge for the government whose huge, state-led investments in infrastructure have sucked in financing from heavily regulated banks, driving up economic growth but leaving little capital to spur on private developers who could help meet the shortfall in housing.’

“This house and flat business is booming. If I had enough money, I would buy more,” said businessman Seife Tefera, who bought a flat for 1.7 million birr ($83,000), paid for in two cash installments.’

‘The economy may boast double-digit growth now, but average income per capita in the nation of 96 million people is still about $470 a year, below the Sub-Saharan African average.’

‘Across Africa, rising wealth and an expanding middle class have fuelled demand for new homes as well as stoking property prices. But there are few parallels to Ethiopia’s state interventionist approach and its control over how banks lend their money.’

“The main challenge in Ethiopia is financing,” said Rateneh Fassil, who markets homes for upscale developer Noah Real Estate, blaming part of the real estate boom on people hunting for investments when bank deposits offer poor returns.’

‘For a new home, purchasers will still need a deposit worth at least 10 percent of the value of one- to three-bedroom flats costing between 120,000 to 380,000 birr, or about $5,800 to $18,500. That is more affordable, but the wait can be years.’

‘And the quality of the buildings can be mixed. At the vast state-built Summit Condominium complex on the edge of the capital, one building reeked from a burst sewage pipe, walls had cracks and wires protruded.’

“We sometimes go two to three days without water,” said Abdi Kumsa, who lives in one of Summit’s three-year-old buildings. “But it’s still a better life than people are accustomed to.”

Comment by Senior Housing Analyst
2015-07-03 06:05:47

Seattle, WA Housing Prices Fall 11%


Comment by MD
2015-07-03 18:37:32

Wow! Gone from a “very hot” market to “hot” and now “warm.” As a potential buyer, I hope this continues.

Comment by Mafia Blocks
2015-07-03 19:16:26

There is nothing like falling prices. Nothing.

Comment by Senior Housing Analyst
2015-07-03 06:16:39

California Housing Demand Falls To 1990’s Levels


Take the 60 seconds to chart this. It’s stunning.

Comment by Allan
2015-07-03 09:01:53

Then why the hell are prices not falling? What is supporting these ridiculous prices? How can this not be a bubble

Comment by Ben Jones
2015-07-03 10:42:06

“Hedge funds that once dominated the South Florida housing landcape are pulling back on purchases, the RealtyTrac data show. With investor demand waning, home price increases have slowed across the region. The transition back to mortgage financing comes as lenders loosen underwriting standards. While requirements are still strict, particularly on mortgages backed by government-run companies Fannie Mae and Freddie Mac, more small banks and private lenders are entering the picture to give buyers options, mortgage brokers and real estate agents say.”

“‘Slowly but surely, creativity is coming back into the market,’ said Jim Flood, regional manager of Supreme Lending in Plantation.”

Comment by GuillotineRenovator
2015-07-03 12:55:13

I must be sadistic, but I kind of hope for another crescendo higher than the last bubble before an absolutely staggering meltdown in prices where I selfishly pick up something for pennies on the dollar.

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Comment by Senior Housing Analyst
2015-07-03 10:53:50

Prices are falling in CA.

Comment by Ben Jones
2015-07-03 06:30:51

‘At a time of slowing economic growth and massive corporate debts, a deflationary spiral would be China’s worst nightmare. And the risk is mounting. The producer price index (PPI) has been in negative territory for 39 consecutive months, since February 2012. The growth of China’s consumer price index (CPI), although still positive, has also been falling steadily, from 6.5 per cent in July 2011 to 1.2 per cent in May. And if past experience is any indication, China’s CPI will turn negative very soon.’

‘After peaking at 24 per cent in 1994, inflation began to decline in 1995. But gross domestic product growth soon began deteriorating rapidly. In an effort to revive growth in a difficult global environment and buffer exports against the impact of the Asian financial crisis, the Chinese government loosened monetary and fiscal policy beginning in November 1997.’

‘But it was too little too late. By 1998, when CPI inflation began to fall, producer prices had already been declining for eight months, and remained negative for a total of 51 months, with CPI growth beginning to recover after 39 months.’

‘An obvious lesson is that the government should have switched to loosening earlier, and more forcefully. But this experience also underscores the impotence of monetary policy in a deflationary environment.’

‘Moreover, housing-market reforms and the development of a mortgage-loan market in the late 1990s fuelled rapid growth in real-estate investment, which reached an annual rate of over 20 per cent in 2000. As a result, real-estate development became the most important contributor to economic growth, while exports boomed following China’s accession to the World Trade Organization.’

‘The problem with the emergence of these new growth engines is that it enabled China’s leaders to delay important structural reforms. As a result, China now faces many of the same challenges it faced in the late 1990s — beginning with overcapacity.’

‘If overcapacity is allowed to continue putting downward pressure on prices, China’s economic growth will not stabilise at a rate consistent with its potential; instead, the economy will be pushed into a vicious spiral of debt deflation.’

‘At this point, the authorities could eliminate overcapacity through firm closures, mergers and acquisitions, and other structural measures. They could also seek to eliminate excess capacity by using expansionary monetary and fiscal policies to stimulate effective demand. In theory, the long-term solution would be to pursue structural adjustments that would improve the allocation of resources. But that would be painful and slow. Striking a balance between the short- and long-term approaches will prove to be a major challenge for China’s leadership.’

‘China’s leadership must continue to pursue its agenda of structural reform and adjustment, even if it may have an adverse impact on growth in the short run. China simply cannot afford to continue to kick the reform can down the road.’

Huh, that’s exactly what they are doing.

Comment by scdave
2015-07-03 07:17:20

a deflationary spiral would be China’s worst nightmare. And the risk is mounting ??

Thats the real danger….Gotta think the government is going to try and get out in front of it with further rate cuts…That will put our FED in a even tighter box…

Comment by Senior Housing Analyst
2015-07-03 10:52:32

The solution isn’t “dangerous” Dave.

Comment by Senior Housing Analyst
2015-07-03 06:32:14

Alameda, CA Housing Prices Fall 12%


Comment by Senior Housing Analyst
2015-07-03 06:36:26

Novato, CA Housing Prices Fall 6%


Comment by Ben Jones
2015-07-03 06:37:26

‘Predictions a southern housing bubble would spill over into Queensland have failed to materialise, with Brisbane racking up just half the growth experts had forecast.’

‘Experts predictions had put Brisbane in the 6 and 7 per cent growth territory as southern investors locked out by price surges turned their attention to cheaper investment alternatives in the Sunshine State.’

‘CBRE residential projects director Jon Rivera said Brisbane’s “really complicated market” did log a rise in southern developers looking to sniff out better deals. “Brisbane 2014-15 has been the big flavour, where the local developers are starting to see a lot of competition” though many projects were delaying launch dates as prices stagnate.’

“If you paid more for a site now than two years ago but can’t sell it for more, it does affect your decisions,” he said.’

Comment by Senior Housing Analyst
Comment by Senior Housing Analyst
Comment by Senior Housing Analyst
2015-07-03 07:04:55

Labor Force Participation Rate Falls To 38 Year Low


Comment by Raymond K Hessel
2015-07-03 07:13:37

Massive, unpayable debts piling up faster and higher are a recipe for disaster. Thank you, Boomers, for the mess you’ve bequeathed future generations. Thank you, vegetables who keep voting for oligarch-backed candidates like Obama, McCain, Romney, and HillaryJeb who rig the game to allow their oligarch patrons to concentrate all wealth and power in their own greedy hands.


Comment by Senior Housing Analyst
Comment by Senior Housing Analyst
2015-07-03 07:24:11

“Weak Occupancy, Absorption Rates Fuel Development Concerns”


“Among those underperforming markets are Houston, Denver, Las Vegas and San Francisco”

Comment by You're Screwed
2015-07-03 11:42:40

Big Daddy Government isn’t going to take care of you. He doesn’t GAF about you. Big Daddy Government is failing.

You’re screwed.

Comment by FahkBoston
2015-07-03 19:12:19

Check out the crazy idiots buying in Boston’s suburbs:

Sold for $504K, it’s *on the freaking highway*, look at this satellite view:

I can’t wait for TSTHTF.

Comment by Mafia Blocks
2015-07-03 19:17:42

Redfin ….. Lolz.

Comment by Senior Housing Analyst
2015-07-04 06:07:29

East Hanover, NJ Housing Prices Fall 12%


Comment by Prime_Is_Contained
2015-07-04 17:57:13

With PPSF up 12% YoY…

Comment by Prime_Is_Contained
2015-07-04 17:58:13

Oooops, sorry—I flipped to the wrong tab. PPSF is up only 8% YoY in East Hanover, NJ.

Comment by Senior Housing Analyst
2015-07-04 19:53:28

It’s the falling transaction price that is important here. $/sq ft will fall as demand plummets and transaction prices continue to crater.

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