July 28, 2015

Prices Either Continue To Go Up Or They Crash

CTV report from Canada. “These days, buyers hoping to land a condo in Vancouver’s highly competitive housing market will need more than a down payment to close the deal. This past week, hundreds of people spent days in line ahead of the Saturday pre-sale for a new condo development on the waterfront in the False Creek area. Those who couldn’t commit to camping out themselves hired somebody to do the waiting for them. Chris Malkin and his team camped out for a week, representing out-of-town buyers and those who didn’t have the time to stand in line. Malkin, who says he has clients from Victoria, Seattle, and even mainland China, described the condo-buying frenzy as ‘fun, exciting, but insane.’”

“Andrey Pavlov, a professor of finance at Simon Fraser University, said that housing and the industries associated with it could account for up to 25 per cent of the provincial economy. And the housing bubble is more likely to burst than slowly deflate, Pavlov said. ‘It’s tricky to get a two or three or four per cent decrease,’ he said. ‘The way these things work is they either continue to go up or they crash.’”

Domain in Australia. “Frenzied bidding between six developers resulted in an unrenovated Granville house selling $1.53 million over reserve at auction on Saturday morning. The house sold for $2,781,000. Selling agent Tony Eltakchi of LJ Hooker Granville said the owners had, until recently, been unaware their land had been rezoned. After the hammer fell the pair were close to tears. They said the result had changed their lives. Soon after, they drove off in their car. ‘They were off to Picton to buy a new house,’ said Mr Eltakchi.”

“In other auctions, a four-bedroom house at 46 Thurlow Street, Redfern, was hot property, going for $1.9 million - $100,000 over its reserve through Ray White Surry Hills. The couple who bought it were ‘chuffed.’ ‘We can’t believe we got it under $2 million,’ IT manager James Sillence said. As an indication of how much stronger the market is this year than last year, the same home was listed for sale at $1.9 million last September and then discounted down to $1.7 million before being withdrawn from sale.”

The New Zealand Herald. “A second real estate boss has backed a foreign buyers’ register, after support from Barfoot & Thompson’s Peter Thompson. Geoff Barnett, the New Zealand manager of international real estate agency Century 21 with 20 offices throughout New Zealand, said such a register made perfect sense. Labour’s data pointing to large numbers of Chinese-based buyers speculating on Auckland residential properties did not surprise Barnett.”

“‘It’s confirming everyone’s suspicions which have been held for a long time. Sydney has exactly the same thing. There are reports of bus loads or bus tours from China and India, going out to the suburbs and buying properties, about 10km from the CBD,’ Barnett said.”

The BBC in the UK. “Foreign criminals are laundering billions of pounds through the purchase of expensive properties, which is pushing up house prices in the UK, the National Crime Agency has said. Its economic crime command director, Donald Toon, told the Times that London prices had been ’skewed’ as a result. He said prices were being artificially driven up by criminals ‘who want to sequester their assets here in the UK.’ Hundreds of billions of pounds are laundered in the City every year, according to the NCA, and it said investigations were intensifying.”

The Daily Express in Malaysia. “There is no chance that the prices of properties will go down even with the country facing an economic slowdown now, said Sabah Housing and Real Estate Developers Association (Shareda) Vice President John Chee. He said prices of properties can either go up or stabilise and in the current economic situation, prices are at a standstill. He said the imposition of the six per cent GST that led to rising construction costs and increase in property prices, falling of crude oil prices and oil palm prices as well as the plummeting of the ringgit value to name a few had greatly affected the property industry.”

“‘No doubt it is in our wish list to expect the property market to recover and stay resilient as our industry spearheads moving forward for a better remaining year of 2015 and coming 2016 as we experience the changing economy and development paradigm,’ he said.”

The Myanmar Times. “Prices for standalone housing have started to drop, the latest sign that the real estate sector has entered a decline. Several agents told The Myanmar Times that prices are in some cases as much as 30 percent off their peak last year. Rental prices for houses have also somewhat dipped, according to Ma Myat Thu, an agent at Moe Myint Thaw Dar real estate. ‘It’s been quite a back-down in the price of standalone houses.’”

Today Online on Singapore. “Private home prices in Singapore have recorded their longest losing streak in more than a decade after another decline in the April-to-June quarter. The price weakness came as the vacancy rate climbed to 7.9 per cent in the second quarter from 7.2 per cent in the previous three months amid a rising glut of completed homes. Mr Desmond Sim, research head for Singapore and South-east Asia at property firm CBRE, noted that this followed the record number of home sales between 2011 and the first half of 2013.”

“‘At that time, there was a surge in land sales and liquidity was cheap… While there may be a lag between the time a project is completed and when occupants take residence of the units, the reality is that the market is still coping with an overwhelming number of completions,’ he said.”

Want China Times. “The stigma facing Kangbashi, which was labelled a Chinese ‘ghost town’ in international press, has been tough to shake. A futuristic town built with coal money in 2011, Kangbashi has long been the epitome of heedless city construction and the resulting housing bubble. Four years have passed since it first earned the blighted label and the town remains busy fighting for its image.”

“For Kangbashi and Ordos, however, image is not the only worry. In Ordos, coal mining used to make up 70% of the city’s GDP, but now coal mines have difficulty paying wages and fallout from the property bubble left most of the area’s ‘newly rich’ in heavy debt. Xiao Xiaohong, an Ordos native in her 40s, recalled the ‘good old days’ when coal prices soared and they reaped in money. ‘Those years were crazy. It was just me and a couple of friends, idling away time and cash. I went shopping and visited an apartment in Beijing. Without a single moment of hesitation, I bought it right away, with cash,’ she said. ‘Now after the debt crisis and housing bubble, we’ve fallen on our bottom, almost busted.’”

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Comment by Ben Jones
2015-07-28 05:04:44

I’m going to have to do a bit of desk clearing as my bookmarks are getting full. But first, from the CTV link above:

‘For the potential buyers in line beside False Creek, the hope is that their real estate purchases will secure them both a home and a solid investment. Eric Tang, one of the condo customers, said he’s looking to downsize, but also wants to make a smart financial move.’

‘When asked if he thinks condos are a good investment, he glanced at the line and said, “I hope so. Otherwise, I wouldn’t be here.”

Comment by Rick O'Shey
2015-07-28 10:15:57

Hope is an excellent investment strategy!

Comment by aNYCdj
2015-07-28 13:05:26

interesting vancouver snowfall can be next to nothing or over 4 feet a year….http://vancouver.weatherstats.ca/charts/snow-25years.html

Comment by Ben Jones
2015-07-28 05:08:29

‘Encana Corp, Canada’s No.1 natural gas producer, said it had laid off about 200 employees this month, joining a growing list of oil producers cutting jobs to cope with a steep fall in crude prices. Encana’s shares fell 10% to a 13-year low of $10.10 after the company reported a bigger-than-expected quarterly loss due to weak production.’

‘The company’s U.S.-listed shares fell 10% to $7.73, their lowest since December 2002. Encana cut about 1,200 jobs in 2013 as part of a strategic shift away from low-value natural gas production. The company, which has been increasing oil and natural gas liquids production under Chief Executive Doug Suttles, had 3,129 employees as of Dec. 31.’

“Our costs will continue to come down, and they need to, because the price of our product has dropped,” Suttles said on a media call.’

Comment by Ben Jones
2015-07-28 06:48:58

‘Conditions in the oil industry couldn’t have seemed better a year ago. Economies around the world were still rebounding from the 2008/09 recession and West Texas Intermediate oil on June 25, 2014, was cruising along at US$106.50. But that was as high as WTI would get that year since it started sliding the next day.’

‘Energy companies, particularly in Canada, started cutting planned capital expenditures, head counts and existing operations, and revenues and profits plunged.’

‘Investment banker Goldman Sachs is one of the most pessimistic about oil prices. In May, it cited improved U.S. shale efficiency and unimpeded OPEC productivity while pegging a US$45 price on WTI by October and predicting Brent will only be US$55 in five years. It called the price increase in late spring a “self-defeating rally.” But even that depressing call was dwarfed by Citigroup’s belief in February that oil would hit US$20 at some point and that the slide had broken OPEC.’

‘Pessimism aside, it’s tempting to look at the last time oil prices precipitously dropped to get a clue about what might happen this time, but the current global environment is quite a bit different than in December 2008, near the bottom of the commodity cycle when oil hit US$32. That was also in the depths of the last recession, but China saved the day that time. China implemented a huge expansion of credit and infrastructure development that lifted its economy well above the global recession and nudged others out of negative territory as well because of its massive need for commodities, including oil.’

“The minute that oil traders saw China buying commodities at bargain basement prices in early ’09, all the traders jumped back into their positions and drove the prices up,” Mohr says. “Things recovered very quickly, and not only oil, but commodity prices generally.” She adds that although China is once again ramping up stimulus efforts to achieve its 7% growth target, its economy doesn’t have quite the same wherewithal to boost both its own growth and that of everyone else.’

‘“The big overriding factor is that you have this huge supply relative to weak demand globally,” Sadorsky says. “If you see more fracking around the world, you could see $50 a barrel for oil for probably the next five to 10 years and that’s pretty scary if you’re hoping for a quick rebound in Alberta.”

‘Sadorsky believes anything over US$80 a barrel would be unjustified given the amount of oil being produced, not to mention the amount of oil sitting in tankers, tank cars and storage facilities, as well as the technology that is making it possible to produce more in a cost-effective manner.’

“If you think fracking has a long future, you’re certainly going to delay any huge capital expenditures. The one thing about fracking is that frack wells only last about five to seven years. They run out real quick, which is why there is so much activity in that drilling sector,” he says. “On the other hand, there’s so much fracked oil available in the U.S. that they are going to be permanently self-sufficient in a few years and that could last for 30 or 40 years.”

Comment by snake charmer
2015-07-28 06:59:33

We’re going to be “permanently” self-sufficient in oil in a few years? LOL. We can leave the Middle East then.

Comment by Ben Jones
2015-07-28 07:02:49

Back in the late 80’s it was often said the reason we had to “protect” the entire region was oil supplies. Pat Buchanan asked once, ‘who are they going to sell it to?’

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Comment by AmazingRuss
2015-07-28 10:58:03

Pat’s looney about a lot of things, but sometimes he hits it on the nose.

Comment by Ben Jones
2015-07-28 05:14:11

‘Why this China stock market plunge could be different’

“Beijing was talking up the market, but it wasn’t for the first time,” Chovanec said, posing the question of why the recent bull market was so successful. “It does have something to do with the poor performance of the property market: Shadow banking instruments were looking for a better investment, promising high returns … with the availability of margin lending—boom—it took off.”

“Any kind of crack in that edifice of confidence that the government can fix economic outcomes the way it wants to may inject thoughts or doubts into a whole host of things”

Why is it that the US media is following along, thinking the Chinese have invented a market that only goes up? Either it goes up and down or it isn’t a market.

Comment by Ben Jones
2015-07-28 05:15:29

This was posted late last night:


‘I was reminded of the discussion on HBB about dead men walking in reference to china and LB while reading, It’s Really Very Simple, By Dmitry Orlov July 28, 2015
A snippet, “What has happened is the worst thing that could have possibly happened: in full view of the entire world, “Western values” have been demonstrated to be null and void. If you think that these are just some specific examples of difficulties or mistakes that could potentially be overcome in some dim and foggy future, then you are wrong: this is all of the “Western values” worth mentioning, and they have all been invalidated by observation. Note the past tense: they already have been invalidated.” … “Now that all Western values (other than the rights of sexual minorities) have been shown to be cynical exercises in hypocrisy, there is no path back. You see, it is a matter of reputation, and a reputation is something that one can lose exactly once. There is a path forward, but it is very frightening. There is the loss of control: Western institutions can no longer control the situation throughout much of the world, including, in due course, on their own territory. There is the abandonment of the Western narrative: Western pontificators, pundits and “thought leaders” will find that their talking points have been snatched away and will be reduced to either babbling apologetically or lapsing into embarrassed silence. Finally, there is the loss of identity: it is not possible, for the non-delusional, to identify with something (“The West”) that no longer exists.” …

Comment by snake charmer
2015-07-28 07:07:23

I read Orlov on a fairly regular basis. I don’t agree with everything he writes — and he often is irritatingly smug in his conviction that the U.S. will fall apart, in a manner both the same and different from the collapse of the USSR — but I do agree with that excerpt. What, exactly, are “Western values” right now?

Comment by Ben Jones
2015-07-28 05:21:33

‘About three years ago, I wrote the book, The Coming China Crisis, which predicted the sequence, such as record debt, mal-investments, excessive debt-financed speculation in real estate, 64 million empty condominiums, a credit crunch followed by a credit crisis, and then a crash. Furthermore, the book said this crisis would probably envelope the global markets. So far, that seems to be right on track.’

‘Total private, corporate and governmental debt is now an immense $28 trillion. That is 50% more than the United States’ annual GDP. Moreover, it is 282% of China’s GDP.’

‘Late last year China decided to stimulate the stock market by removing regulations that especially hindered foreign investment capital to participate in the China stock markets. This produced a giant speculative rally, which got the naïve investors, including companies speculating with their operating capital and banks loans, into stocks. Even condominiums are used as collateral for stock loans.’

‘That had the predictable end when the China bubble burst this July. Yet, we see uninformed analysts on television commenting that China is “no problem” because it still has an enviable 7% GDP growth. They are either deaf, blind or dumb, or all three.’

‘China has been the locomotive for global economic growth for the past 15 years. Probably 60%-80% of demand for many raw materials, commodities, oil, iron and coal went to China. Now that China is in a private sector recession, the demand will disappear around the globe. Forget the advertised 7% GDP growth. That is a fairy tale if you think it means “economic growth.”

‘China has been in a private sector recession for all of this year and longer. Although it got little attention, the China credit crunch got serious in June 2014 when short-term interest rates tripled overnight to 25%. That was when the government’s efforts to hide the facts slipped out.’

‘Furthermore, China is encountering a significant outflow of foreign investment capital. Goldman Sachs estimates that capital outflows from China in the second quarter topped $224 billion.. Over the past year, it may be as high as $800 billion. Goldman comments that it is “beyond anything seen historically.”

Comment by snake charmer
2015-07-28 07:15:16

“Outflows of foreign investment capital”? What about domestic capital outflows? I’ve seen one estimate that the latter figure is on pace to reach $1 trillion for this year alone.

Sixty-four million empty condominiums is absolutely astonishing. And I’m guessing that’s a conservative estimate. Has the world ever wasted resources on this scale? What’s the life expectancy of an unmaintained apartment building?

Comment by Professor Bear
2015-07-28 22:54:46

“Has the world ever wasted resources on this scale? What’s the life expectancy of an unmaintained apartment building?”

I’ve raised similar questions here from time to time. I completely agree that this episode is mind-boggling and one for the historians to contemplate for centuries to come.

Comment by Professor Bear
2015-07-28 22:51:59

China stocks are falling again. Does this mean the government has lost its ability to prop up the market? Or does this merely reflect a lack of willingness to provide market support?

Asia Market
China stocks remain weak as investors focus on the Fed

Published: July 29, 2015 1:38 a.m. ET
Brokerage house in Fuyang, Anhui province, China.
By Chao Deng

Asian shares were roughly flat Wednesday, as investors shifted focus to positive corporate earnings and the Federal Reserve’s monetary-policy meeting from China’s three-day selloff.

The Shanghai Composite (SHCOMP, -1.25%) was off 1.2% at 3,617.65. The smaller Shenzhen Composite (399106, -1.79%) was down 0.8% to 2,094.81. Hong Kong’s Hang Seng index *HSI, -0.07%) was flat.

Despite shedding 11% in three days, China’s stock market’s losses slowed Tuesday, falling 1.7%. That helped ease concerns elsewhere in Asia and abroad.

Comment by Senior Housing Analyst
2015-07-28 05:25:25

CA Housing Demand Crashes Through 2007 Lows; Prices Sink


Comment by Jingle Male
2015-07-28 05:29:29

I ran out of checks yesterday, so I took $2,500 cash into Chase yesterday to deposit in my oldest son’s account. They would not take it. Chase’s new rules prohibit cash deposits into third party accounts. The teller said all banks will be doing the same. Trying to thwart money laundering!

Comment by Mafia Blocks
2015-07-28 05:32:00

I wouldn’t accept $2500 in wooden nickels either Jingle_Fraud.

Comment by Combotechie
2015-07-28 05:32:25

“‘And the housing bubble is more likely to burst than slowly deflate, Pavlov said. ‘It’s tricky to get a two or three or four per cent decrease,’ he said. ‘The way these things work is they either continue to go up or they crash.”

YES! And this because in a speculative market the driving force is rising prices. Take away the price rise and you take away the driving force.

An important point: It is not the price itself that drives a speculative market, it is the CHANGE in price that drives a speculative market, a change in price that will seemingly forever produce ever-rising prices.

Which means that if prices ever stop rising - even if they just level out - then the driving force vanishes, and what happens when the driving force vanishes is:

1. Potential buyers who were looking for an ever-enduring rising price trend will suddenly decide to stand aside, and …

2. Previous buyers who thought prices would rise forever will suddenly
decide to become sellers.

1 = a sudden lack of buyers, 2 = a sudden influx of sellers.

1 + 2 = a market crash.

In a value-driven market lower prices will induce potential buyers to step up to buy and it will induce potential sellers to hold off on their selling, but in a speculative market just the opposite happens. And this is why you do not have booms and busts in value-driven markets but you invariably do have booms and busts in speculative markets.

Comment by Combotechie
2015-07-28 05:49:48

Add to this …

If the rise in prices that drives a speculative market drives prices too high then these high prices will shut out buyers who cannot afford to pay the high prices UNLESS a way is found to get around this fact. And one way to get around this fact is to chop up the high price into installment payments - installment payments that can be made affordable (and I choke on that word as I type it out).

Which means the only limit to the rise in price is the limit to what is deemed to be affordable (choke) by the multitudes of potential buyers, and this term “affordable” is something that can be driven mostly by the cost of the interest rates which go into determining the cost of the monthly payments.

Which means if the down payment is zero and the interest rate is close to zero and the amount of the monthly payment that goes into paying down the principle is close to zero then the monthly payments will become very, very cheap.

And in this crazy world “very, very cheap = “affordable”.

Comment by Combotechie
2015-07-28 05:53:52

I meant to say:

And in this crazy world very, very cheap monthly payments = affordable.

Comment by Mafia Blocks
2015-07-28 06:01:17

If you have to finance it for 15 or 30 years, it’s not ‘affordable’ nor can you ‘afford’ it.

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Comment by Professor Bear
2015-07-28 22:59:34

“Which means if the down payment is zero and the interest rate is close to zero and the amount of the monthly payment that goes into paying down the principle is close to zero then the monthly payments will become very, very cheap.”

This is the tried-and-true recipe for turning low-income households into financially-ruined underwater mortgage bagholders.

Comment by Puggs
2015-07-28 09:48:26

I find it so interesting that people en masse have all but forgotten the events of 2008-09 and are in full force buying mode using OPM.

Comment by In Colorado
2015-07-28 11:12:41

I find it so interesting that people en masse have all but forgotten the events of 2008-09 and are in full force buying mode using OPM.

That is the whole point of using OPM. If it crashes and burns you walk away and they hold the bag. They worst thing that will happen is that your credit score will be dinged, and as we all know here, after just a few years you will be able to get another mortgage.

Comment by Ethan in Northern VA
2015-07-28 12:15:01

I don’t think it will go away that easy. The debt resale market is so big, I’d imagine these people will be hounded forever by the new owners of the debt.

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Comment by Professor Bear
2015-07-28 22:57:06

“1. Potential buyers who were looking for an ever-enduring rising price trend will suddenly decide to stand aside, and …

2. Previous buyers who thought prices would rise forever will suddenly
decide to become sellers.”

The trouble with speculators is that they tend to quickly shift from the demand to the supply side of the market, depending on the trajectory of prices.

Comment by Ben Jones
2015-07-28 05:39:38

‘an unrenovated Granville house selling $1.53 million over reserve at auction on Saturday morning. The house sold for $2,781,000. Selling agent Tony Eltakchi of LJ Hooker Granville said the owners had, until recently, been unaware their land had been rezoned. After the hammer fell the pair were close to tears. They said the result had changed their lives. Soon after, they drove off in their car. ‘They were off to Picton to buy a new house,’ said Mr Eltakchi’

My thanks to the reader who sent this link in. Be sure to check out the photos of these fine multimillion dollar shacks.

‘A surge in lending to property ­investors has created significant uncertainty, according to Aussie Home Loans chief executive James Symond, who yesterday announced that Australia’s largest mortgage broker had posted a record $20 billion in home settlements for the 12 months to the end of June.’

“I’m not sure that anyone quite knows what the right solution is to curb investor growth, and what the best move in this marketplace is in these unprecedented times, but time will certainly tell,” Mr Symond said.’

‘Nearly $17bn of loans were through its Aussie-branded mortgage brokers and franchise stores. But pressure from the Australian Prudential Regulatory Authority, which has flagged tougher funding rules for banks, would have a muted effect on Aussie, majority-owned by the Commonwealth Bank of Australia.’

“Investor flows are about 30 per cent (of our lending), far less than other brokers which lend between 40 per cent and 50 per cent to investors,” Mr Symond said.’

‘Last week, APRA told Australia’s major banks they would have to carry more capital against mortgages, with the average risk-weighting for home loans required to rise from 16 per cent to at least 25 per cent by the beginning of July next year.’

‘The latest Australian Bureau of Statistics housing finance figures show a 3.2 per cent fall in the value of investor housing loans to $13bn.’

‘Morgan Stanley analysts said they expected APRA to announce further changes in 2016 once the Basel risk-weighting review is complete. “Our analysis suggests that the majors’ mortgage risk weighting could end up at 32 per cent, which would imply a further $9bn in capital requirements,” the analysts wrote.

“We believe ANZ and CBA have responded to increased mortgage risk-weightings and investor loan growth caps (implemented by APRA) by upwardly repricing investor loans by (2.7 per cent).”

‘Mr Symond, however, remained upbeat. “For Aussie, we have a market share that sees a lot of blue sky,” he said. “Mortgage brokers have a market share of around 51 per cent, with plenty of room to grow to 60- 70 per cent.”

‘Mortgage brokers have already captured much of the upside from the current strong growth in housing credit, expanding their share of third-party originations from 40 per cent to 50 per cent since 2011.’

‘JPMorgan said the Basel 4 regulatory agenda may appear “removed” from the mortgage broking sector, but could have varying consequences. “Brokers could see an increased requirement to monitor borrower (loan to value ratios) on a ‘dynamic basis’ (operational negative) and higher churn in the market (earnings positive,” analyst Scott Manning wrote.’

Comment by Ben Jones
2015-07-28 05:42:01

‘The National Australia Bank (NAB) is raising interest rates for investor home loans. The NAB has followed ANZ and CBA, who announced increases for variable rate investor home loans late last week.’

‘In a statement released earlier today, the bank announced it will increase variable interest rates on interest-only home loans and line of credit facilities by 29 basis points, exceeding the 27 basis point increase announced by their competitors.’

‘The NAB noted that in the past three years total housing loans grew by 27% across Australia’s banking sector. However, growth in housing investment loans and interest-only loans had been 34% and 44% respectively.’

‘NAB group executive personal banking, Gavin Slater, said higher growth rates in investment and interest-only loans had implications from a regulatory, industry and banking standpoint.’

“In considering these and a range of other factors, NAB is confident the steps we are taking are the right approach to further support responsible lending practices”, Slater said, adding that “in an environment of record low interest rates, NAB believes it is important to encourage our customers to pay down their home loan”.

Comment by Ben Jones
2015-07-28 05:46:07

‘Two major Australian banks have lifted interest rates for property investors in a bid to cool the country’s property boom, but their New Zealand subsidiaries do not appear to have any plans to make similar moves to combat rocketing house prices on this side of the Tasman.’

‘The rate hikes followed warnings from Australian banking regulators that tighter mortgage standards were required to prevent a Sydney housing bubble causing financial havoc, Reuters reported.’

‘This week, median house prices in Australia’s biggest city broke through the million-dollar mark, hitting A$1,000,616 ($1,108,313).’

‘An ANZ spokesman said New Zealand was a very different market to Australia, with the Reserve Bank having actively used a range of macro-prudential tools, such as loan-to-value ratios, to keep the housing market within “desired parameters”.

“We have ongoing discussions with the Reserve Bank about the home loan market and how best to maintain stability for the good of home buyers and the economy.”

‘There has been talk this year of the Reserve Bank introducing changes aimed at making loans more expensive and harder to obtain for property investors. In March it announced new limits on lending to property investors in the Auckland Council area.’

‘Those borrowers will be required to have a deposit of at least 30 per cent from October 1. Loan-to-value ratios on mortgage lending were first introduced in October 2013.’

‘Experts have predicted that the median Auckland house price could reach $1 million (up from around $750,000 currently) in 18 months’ time if interest rates keep falling.’

‘Most New Zealand banks cut their floating mortgage rates this week after the Reserve Bank cut the official cash rate by 25 basis points to 3 per cent on Thursday, while many fixed rates have now dipped below 5 per cent.’

Comment by taxpayers
2015-07-28 07:17:09

only raising down payments makes sense
the rate is meaningless to the “walkers”

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Comment by snake charmer
2015-07-28 07:20:08

I went to Google Maps and looked at the one on Thurlow Street. You’ve got to be kidding me. And the owner was “chuffed” (according to an Australian slang dictionary, this means “pleased”) because he got it for less than $2 million.

Comment by In Colorado
2015-07-28 08:55:04

How can an “IT Manager” afford a 2 million dollar house? It wasn’t that long ago than only magnates and millionaires owned real estate in that price range (of course back then you could purchase a real mansion for that price), now we see working stiffs borrow heaven knows how much money to buy a house that probably was originally sold to a brick layer for $10,000.

I’m guessing that it is an interest only loan in the 1% interest rate range.

Comment by snake charmer
2015-07-28 11:00:51

Maybe he, and his lender, think that he’ll be able to flip it to someone from mainland China willing to pay cash sight unseen. A Google search reveals that, until the local hipster scene “discovered” it a few years ago, Redfern was a tough neighborhood.

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Comment by Blue Skye
2015-07-28 08:52:01

“check out the photos”

I get a subscribers only page.

Comment by Ben Jones
2015-07-28 05:48:36

‘Canadians aren’t taking much comfort from the Bank of Canada’s efforts to stimulate the economy. Consumer confidence fell to its lowest in more than two years as the economy struggles with a downturn that prompted Governor Stephen Poloz to lower interest rates this month. The Bloomberg Nanos Canadian Confidence Index fell to 53.4 in the week ended July 24, the lowest since May 2013.’

‘Heightened levels of anxiety are one of the unintended consequences from policy action to spur the economy. Both of Poloz’s rate cuts this year were followed by sharp reductions in sentiment, the data show.’

‘The share of those who see the economy strengthening over the next half year fell to 12.1 percent, the lowest on record dating back to 2008, the weekly survey found. The share of economic pessimists, at 37.9 percent, was the highest since March.’

‘The data also suggest Canadians are lowering their expectations for a housing market that has been among the few recent bright spots in the world’s 11th largest economy. The percentage of respondents predicting real estate prices will fall over the next six months rose to 16.6 percent, the highest level since March. The share predicting higher prices dropped to 33.8 percent.’

Comment by snake charmer
2015-07-28 07:21:50

Do the world’s economic leaders have any policy response other than to cut interest rates?

Comment by In Colorado
2015-07-28 11:24:08

What is there left to cut? Or should I expect my Visa card to pay ME interest?

Or how about a mortgage that pays the borrower enough interest to cover the monthly principal payment?

Comment by Ben Jones
2015-07-28 05:53:15

We’ve been told the Chinese build cities and then fill them. Looks like a reversal of policy:

‘There will be few, if any, new ghost cities in the future because former Vice Minister of the Ministry of Housing and Urban Development, Qiu Baoxing, says leaders will be held accountable.’

‘In his speech, Qiu noted that developing countries can not rely on speculation and land to get rich, land finance is a double-edged sword, used properly it may create ghost town.’

“the central document has made it clear to those responsible prosecuted lifelong damage to the ecological environment, such as the city of 500,000 people actually need 50 square kilometers of land. If you built a 100 square kilometers, is the serious waste of resources and ecological destruction, should be investigated responsibility.”

‘Qiu believes that the future demand for housing will continue to decrease. He lists the data show that by the end of 2014 the average first-tier cities housing destocking cycle has exceeded 10 months, 30-50 months and third tier cities, while China’s current per capita housing area has reached 35 square meters, close to Japan and France. Qiu stressed that the future must be wary of “empty” and “ghost city” of emerging.’

Comment by Blue Skye
2015-07-28 09:03:16

Stop spending money you don’t have to build things you don’t need? Seems rather radical.

Comment by Ben Jones
2015-07-28 05:56:47

‘Blunders by successive governments have led to ordinary people struggling to afford houses in Auckland, an economist says. Governments have made it really hard to develop new urban land to build new houses and at the same time have brought in tens of thousands of new immigrants each year, former Reserve Bank economist Michael Reddell says. “The two of those in collision just drives house prices ever higher, with only one of them it would be okay with two it’s a fatal combination”

“Immigration in conjunction with supply restrictions is a big factor,” Mr Reddell told Q+A this morning. “I’m slowly coming to the view that we should be considering restrictions on foreign ownership…it’s not as if there are any obvious gains for New Zealand as a whole for allowing off-shore purchases, particularly if the houses are being left empty.”

Comment by In Colorado
2015-07-28 08:44:37

Governments have made it really hard to develop new urban land to build new houses

I think this is happening in a lot of places. I’m not seeing the pace of SFH construction of Bubble 1.0 this time. Not even close. In my little burg it peaked at around 1200 houses a year, after the crash it was virtually zero, now it’s not even 300.

Comment by watching
2015-07-28 05:57:36

I’m working from our London office at the moment, and was gobsmacked just now by the front page of the Times in the lunchroom. Following the BBC story Ben links to above, the headline of the left half of the page reads:

“UK Must Not Be A Haven for Dirty Cash”
(subheadline) “PM Declares War on Foreign Money Laundering”

and in an inset they reproduce a headline from Saturday’s paper, in case readers missed it:

“Cash From Crime Lords Drives Up House Prices”

Obviously the horse has pretty well left the barn, but still … couldn’t believe that last one was there in black and white.

(Or maybe it doesn’t count if it’s not in the Financial Times, or something.)

Comment by Mafia Blocks
2015-07-28 05:59:30

Nothing drives liquidation(at any price) like the law….. nothing.

Comment by Ben Jones
2015-07-28 06:13:59

The FT contacted me for an interview a year and half ago, maybe two. We talked for a couple of hours over a few days. I told them the housing market was being manipulated and there was a lot of money laundering going on. They never ran the interview; maybe it was the part where I said central bankers were acting more like witch-doctors that put them off.

Comment by Dman
2015-07-28 07:55:30

The financial media makes it’s money by convincing people that it has an inside track on how to make them money. No one wants to hear that the only thing that matters is what central banks do, at least no one who claims to offer financial “analysis.”

Comment by Ethan in Northern VA
2015-07-28 12:19:41

Ever reach out to Planet Money, or EconTalk podcast?

I think a Planet Money episode that started to get into the housing bubble a little bit just said that it would never ever go down. The people interested in seeing it stay up would just prevent it. Too much damage, too much riding on it, too many people that are powerful with money that would lose. It was pretty odd.

Comment by Ben Jones
2015-07-28 12:35:31

‘While investors who bought before mid March are still in the black thanks to previous gains, a Reuters analysis of public data shows that another 10 million investors opened new accounts since April, helping push up China’s market capitalization by a net $4.5 trillion - until the bottom fell out in mid June.’

‘Those figures do not include existing investors who added to their positions during this period, nor the famously stubborn holdouts who are sticking to loss-making positions that are years old.’

‘Mrs Xu is one of them. She said she has been holding shares in China Life Insurance (601628.SS) since 2007, when it traded for around 75 yuan ($12.08) per share. The stock gained a bit during the recent rally, at one point crossing over 42 yuan per share but then fell back to around 28, and Xu is still holding on.’

“I thought I might be able to taking the losses back riding on this round of bull market, but it is still losing money so far,” she said, adding she is also holding onto loss-making positions she took earlier this year and plans to sell as soon as they break even.’

“Maybe I am too greedy,” she said.’

‘For Beijing, the biggest worry is that investors who were once patient are now so rattled by the big market swings that they are ready to accept losses just for peace of mind.’

“Yesterday all my stocks hit limit down and I lost 20 percent of my money. Today all my stocks fell limit down again!” said student Liu Fangrui. “I managed to sell them all at a loss today, and so I lost 320,000 yuan in two days. I don’t have confidence on the market any more. I don’t want to get into the market again.”


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Comment by Senior Housing Analyst
2015-07-28 06:12:16

Mercer Island, WA Housing Prices Fall 12%


Comment by Ben Jones
2015-07-28 06:19:28

‘Mortgage rates are set to continue their decline, driven by strong bank competition, say banks and home lending experts. “Increased competition among lenders in the mortgage lending market in Cambodia may place downward pressure on mortgage rates,” said Hong Sokleng, acting head of the consumer banking division at Canadia Bank.’

‘Lawrance Liang, chairman of Cathay United Bank (Cambodia), said that mortgage rates in Cambodia have, on average, dropped from between 10 to 11 percent to between 7 and 8 percent over the past several years. The trend shows no sign of letting up.’

“I think nearly every bank will tell you that there has been [a decline],” said Stephen Higgins, Managing Partner at investment firm Mekong Strategic Partners.’

“Mortgage lending has been quite competitive for the last few years, and that is unlikely to change soon,” he told Khmer Times. “There’s a range of reasons for this, including more banks coming in, the fact that mortgages tend to be lower risk if managed properly, and they generally have a lower cost to manage or service than corporate loans.”

‘The decline might force developers, who often offer their own lines of credit to buyers, to lower rates to stay competitive, said Chrek Soknim, CEO of Century 21 Mekong Realty. He said developers can offer loans to customers who do not qualify for bank loans, albeit with higher interest rates.’

“Developers don’t have [stringent] credit requirements and buyers are not required to pay the same amount of down payment – they ask for 10 to 20 percent,” he said. Banks, by comparison, tend to ask for down payments of over 30 percent.’

‘If more homebuyers can qualify for bank loans, it will put pressure on developers to lower their rates, Mr. Soknim added.’

‘But one trend may counterbalance the rising competition – the possible oversupply of properties, especially in Phnom Penh in the next two to three years, noted Mr. Liang. “This will cause [mortgage] interest rates in Cambodia to stay at the current level instead of dropping,” he said.’

‘However, Mr. Higgins said that a possible oversupply of condominium units in the coming years may have a weak effect on the mortgage rates, since most mortgages are currently only for owner-occupied houses and not buy-to-let apartment spaces.’

“If there is a housing glut, it may lead to banks pushing less hard on mortgages, but putting a number on that is impossible without a crystal ball,” he said. The expected glut is likely to reduce property prices and make construction loans more difficult to acquire for developers. ‘

“It will push housing prices down to more affordable rates,” said Mr. Liang. “Developers [will] have no choice but to cut housing prices to make homes more accessible.”

Comment by snake charmer
2015-07-28 07:29:14

I’m just not in favor of buying property in a country which, during a three-year period within my lifetime, killed a quarter of its own people. This is one of my favorite points: political leadership and social stability matter, because without those things, don’t count on holding on to your assets. Or your life.

Comment by In Colorado
2015-07-28 08:40:56

Yup, a lot of suckers are going to get to see their assets confiscated. Heck, if “civilized” Cyprus seized bank deposits, just imagine what a country like Cambodia would do.

And why would you want a place there. It must be like a scene out of Bladerunner.

Comment by Ben Jones
2015-07-28 06:25:06

‘With foreign ownership of houses and apartments now allowed in Vietnam, international customers and brokers have begun frequenting real estate showrooms in Ho Chi Minh City, while realty developers are boosting promotional campaigns to attract the new category of buyers.’

‘Salvatore Passari, an Australian broker, is slated to bring around ten Australian customers to Ho Chi Minh City to choose and buy apartments, he told Tuoi Tre (Youth) newspaper. Another broker from Australia, Mark Builksol, has also attended many ceremonies showcasing new realty projects in Ho Chi Minh City recently. Builksol said around 30 of his customers are eying apartment ownership in Vietnam.’

‘The Aussie is confident that many foreigners will buy houses and apartments in the Southeast Asian country, both for living or reselling, as prices are reasonable and the realty market is growing. Choi Seok Hwan, general director of HanViet Invest Co., said many South Koreans also have plans to buy houses and apartments in Vietnam, at a time when the housing market in their home country is stagnant.’

‘Tuyet Hang, a salesperson at a realty exchange in District 2, said her company will grant a round trip ticket to travel to Ho Chi Minh City for any foreign customer who places a deposit for a project she is selling. Patrick Ferneini, a Lebanese customer, examined the project four times before deciding to place a deposit for a 98.75 square meter, three-bedroom apartment on Friday, apparently attracted by such incentives.’

‘ Nguyen Trong Ninh, deputy head of the department for housing and realty market management under the Ministry of Construction, said foreigners only need a valid visa for immigration to buy houses or apartments in Vietnam. “Even a visa with only one day of allowed stay is eligible for house and apartment purchases,” Ninh told a meeting.’

‘But many foreign homebuyers say there are still many issues they find unclear. Builksol, the Australian broker, and Nguyen Nhat Hung, the legislative consultant for a realty project, both said many of their customers are in the dark about what kind of visas they must have to be eligible for foreign ownership.’

“For instance, is a tourist visa accepted?” Hung asked.’

‘While it is easy for foreign customers to place a deposit for a project, preparing and finalizing the purchase contracts is more complicated. Ardis Gaetano, an Italian national, said a project developer told him that they could only prepare the apartment leasing contract for him, as they do not know how to create a trading contract due to the lack of legal guidance.’

“We have to wait for instructions from a relevant decree and circular regarding the new law on foreign ownership,” Le Thi Thuy Nga, a salesperson at the Estella Heights project in District 2, explained.’

‘According to the new rule, foreign ownership is valid for 50 years, and can be extended by the same term only once.’

Comment by taxpayers
2015-07-28 06:28:06

what a Putz
this is why all pols are Keynesians
power of the masses
“It will push housing prices down to more affordable rates,” said Mr. Liang. “Developers [will] have no choice but to cut housing prices to make homes more accessible.”

Comment by In Colorado
2015-07-28 11:20:16

I would say that NO pols are Keynesians, as none save or payoff debt during the “good times”, regardless of party.

Comment by Ben Jones
2015-07-28 06:29:05

‘Greater Dandenong property prices are at record highs, boosted by overseas investors. Ari Oinonen said this 930sq m block of land in Pultney St sold for $880,000. “The block may not be a record, but it shows land in central Dandenong is going for approximately $1000 per square metre,” Mr Oinonen said. “That’s comparable to a bayside suburb.”

‘Vacant land prices have soared 57 per cent to $314,000 in central Dandenong – the second-highest increase in Melbourne.’

‘A report by the Victorian Valuer-General shows average prices jumped by more than $40,000 last year to $481,297, smashing the previous high of $456,501 in 2010. Mr Oinonen said developers were at the forefront of the price surge, with vacant land being pursued by “a lot of Chinese developers” looking to build townhouses.’

“Anything within about half a kilometre of Dandenong CBD is really climbing in value, especially if the land is subdividable. This has carried on to other parts of Dandenong and Dandenong North.”

Comment by Senior Housing Analyst
2015-07-28 06:30:31

Bethesda, MD Housing Prices Fall 8%


Comment by Ben Jones
2015-07-28 06:32:45

‘All that’s left to happen in China’s stock market is for government leaders to admit they are powerless to stop a selloff. Some of Wall Street’s biggest investors think that the sheer ugliness of what is happening could have serious ramifications further down the line.’

“Because the forces on growth are coming from debt restructurings, economic restructurings and real estate and stock market bubbles bursting all at the same time, we are now seeing mutually reinforcing negative forces on growth,” hedge fund Bridgwater Associates LP wrote to investors last week in an abrupt change of mind on the country’s outlook.’

Comment by Ben Jones
2015-07-28 06:37:35

‘Government policy to boost stock prices succeeded beyond expectations and fueled a speculative boom. Daily trading turnover quadrupled. At one stage, mroe than 500,000 new trading accounts were being opened weekly. China’s stock market capitalization soared, overtaking Japan to become the second-largest stock market in the world.’

‘Now China’s bull is spent. No one factor is to blame for the sharp correction. The market simply ran out of momentum and investors lost confidence. The market had become increasingly driven by debt-fueled liquidity and manic speculation.’

‘Valuations had become stretched, with the rise in share prices at odds with slowing economic growth and deterioration in corporate earnings. New initial public offerings were oversubscribed, in some case by 240 times the shares on offer. Purchasing new listings increasingly required investors to sell existing investments, creating selling pressure.’

‘At its peak, margin loans reached around $350 billion, around 12%-14% of the size of the stock market. In comparison, the level of margin loans in the U.S. is around 5%-6% and 1% in Japan. Falling prices triggered margin calls. There was forced liquidation of positions as investors needed to raise cash or could not meet demands for additional collateral.’

‘As the market fell with increasing rapidity and price changes became disorderly, Chinese authorities responded with a mixture of communist propaganda and borrowed capitalist tricks.’

‘The government encouraged companies to apply for trading halts. This resulted in suspension of trading in around 1,400 companies listed on Chinese exchanges, representing over $$2.5 trillion worth of shares or 40% of the stock market’s capitalization. Yet China’s ability to intervene in the markets further has constraints.’

‘In this uncertain time, Chinese authorities are discovering an old capitalist truth — bubbles are hard to see, and even harder to catch.’

Comment by Ben Jones
2015-07-28 06:41:07

‘China’s stock market selloff is unlikely to slow the Fed’s path to rate hikes, unless it creates an economic slowdown or deflationary spiral that slams the global economy.’

‘The Fed begins its two-day meeting Tuesday, but economists mostly expect little news from the U.S. central bank when it releases its statement Wednesday afternoon. “Financial stability matters. If there’s a huge mess and fallout from China that’s destabilizing when they go to raise rates, they’ll have to postpone it,” said Mesirow Financial’s chief economist, Diane Swonk.’

‘ The commodities rout has been blamed on multiple catalysts, including the prospect of Fed rate increases that would send the dollar higher and weigh on commodities. The selloff has also been tied to oversupply in some markets, such as oil and in metals, like copper and iron ore, and that could be a direct result of slower Chinese buying.’

‘Grains were hammered once again Monday, with corn down 4 percent. Gold futures were trading under $1,100 per ounce. West Texas Intermediate crude futures, which fell below $50 per barrel last week, were trading just above $47 per barrel Monday.’

‘ Swonk said the Chinese economic data have also been troubling. “Our forecast is a little over 6 percent (growth) this year and may be nibbling below 6 percent next year. That’s close to a hard landing in China,” she said. “They underestimate when they’re growing rapidly and overestimate when they’re growing slowly.”

Comment by Professor Bear
2015-07-28 06:57:47

Is ‘about 7%’ growth now a fading memory?

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Comment by scdave
2015-07-28 07:20:28

Thats a lot of research and links Ben…Did you stay up all night ?? Thanks for the world wide info…

Comment by polly
2015-07-28 07:35:53

Please remember that the “7%” growth target for China (didn’t it used to be 8%?) wasn’t just pulled out of a hat. It was the number that was generally accepted as the number they had to hit to prevent civil unrest. If people are leaving their farms and moving to the cities to get jobs, then there have to be jobs in the cities. Some disappointed job hunters will just go back home, but some won’t. And you are also dealing with a huge gender disparity which is not very stabilizing.

Comment by Ben Jones
2015-07-28 07:58:31

I was actually surprised at how much data is going over the wires, so I figured I’d do some desk clearing - on Tuesday! I could easily do more than one post a day, but with the youtube thing ramping up, I can’t really do that. I don’t know how I am going to juggle it right now. Maybe have regular desk clearing posts.

Comment by Mafia Blocks
2015-07-28 09:18:48

Gloria AllRage is back in the house.

Comment by Blue Skye
2015-07-28 11:08:21

“7%’ growth”

The problem with using the published GDP data is that it is a made up number. Watching what is consumed, especially electricity, is a better indicator. Electricity is possibly deceiving now as they are reporting “production”, which may mean something different with so many remote wind farms. Iron ore, coal and copper consumption have dropped like a stone. That growth is above zero is dubious.

Comment by Mafia Blocks
2015-07-28 09:00:10

“said Mesirow Financial’s chief economist, Diane Swonk.’”

LOL. This woman couldn’t add to three with her fingers. And she’s a paid fedres hack.

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Comment by snake charmer
2015-07-28 07:33:02

That’s not a old capitalist truth. Bubbles are easy to see, but you have to want to see them. That’s a social psychology problem, not an economics problem.

Comment by Professor Bear
2015-07-28 23:03:01

‘In this uncertain time, Chinese authorities are discovering an old capitalist truth — bubbles are hard to see, and even harder to catch.’

By contrast, falling knives are quite easy to catch.

Comment by Senior Housing Analyst
2015-07-28 06:38:57

Oxnard, CA Housing Prices Fall 5%


Comment by Senior Housing Analyst
Comment by Ben Jones
2015-07-28 06:59:43

‘Jim Cramer knows that no one wants to hear this, but we are China. So, why the heck would we be affected now that the Shanghai composite has fallen to 3,726 from from 5,191? ‘

“The answer? Simple: because in a world where there is very little growth, we need every country to do its part to get the global economy expanding, and the stock market complex in China is doing the exact opposite,” the “Mad Money” host said.’

‘Plus, the “floor” of support in China is completely false. The Chinese government has taken desperate measures to prop up its market, such as the 1,400 stocks that were suspended, stocks that have stopped trading, new IPOs that have been cancelled and the banning of all short-selling.’

‘It’s just plain lunacy to Cramer that the Chinese market could still be up 15 percent for the year, let alone stand on its own two feet.’

‘So, why should investors in the U.S. care? First, there is a huge number of large American companies that export to China. Second, because it is now widely known that the Chinese communist government is not as shrewd or masterful as once thought. And third, because the U.S. market is always held hostage by futures trading, which tends to be a reaction to whatever bad is happening overseas.’

‘And it’s not like China was doing well in the first place. All of the indicators of economic growth are trending lower. The only shred of hope that Cramer sees is that the Baltic Freight Index still holds up, but that’s it.’

I’ve noted this before:

‘the Chinese communist government is not as shrewd or masterful as once thought’

Once thought? Who gave them that impression? Look at the media coverage of the Chinese “leaders”. Really fancy suits. Graciously meeting little lap-dog presidents and generals, who are practically begging for a bit of that infinite Chinese cash.

Hello! They just printed that money and pissed most of it off. What kind of an idiot builds one empty city, much less dozens? Oh the tales of shock and dismay that these guys are a bunch of dummies. And the globalists joined our economy to the hip with these fools.

Comment by taxpayers
2015-07-28 07:05:40

soon smelly mel and big gov will have a tax credit for money laundering

Comment by In Colorado
2015-07-28 08:37:12

Broke nations around the globe welcome laundered money. Honest but broke? Take a hike. Crooked but rich? Your table is ready, Mr. Moneybags.

Comment by Senior Housing Analyst
Comment by Puggs
2015-07-28 10:26:38

There hasn’t been a better time in history to sell all your overpriced assets!

Comment by taxpers
2015-07-28 10:26:41

Two conflisting headlines on Yahoo finance
Home price stall
Then several stories below
Home price increases steady
They need a bs coordinator

Comment by AmazingRuss
2015-07-28 10:56:05

Bus loads of foreigners riding around, driving the natives out of housing. A clever, bloodless invasion… For now.

Comment by In Colorado
2015-07-28 11:17:17

More like a shearing, as these busloads are overpaying and will eventually lose their shirts.

Comment by AmazingRuss
2015-07-28 13:11:17

Only after the peasants revolt and force the government to stop enabling the invasion.

Comment by Senior Housing Analyst
2015-07-28 12:37:58

Denver, CO Housing Prices Fall 10%


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