The Housing Bubble

It’s Friday desk clearing time for this blogger. “Phoenix’s housing market is shifting. ‘We’ve been talking for months about a growing sellers’ market, but it looks like now it’s starting to cool off just a little bit,’ Tina Tamboer of the Cromford Report said. Tamboer said, while it’s still a strong sellers market, ’supply is starting to creep up in all of the price ranges.’ Even in the under $300,000 and under market, which has been in notoriously tight supply, Tamboer said, ‘We’re now seeing it start to grow and demand is inching down ever so slightly. Sellers in the past may have had 17 people wanting to see their home,’ Tamboer continued. ‘Now, it may go down to 10, then 5 then to two.’”

“Tamboer and the Cromford Report monitor the number of days a home is on the market and price reductions, among other indicators, to make their predictions. ‘We’ve seen a 17 percent increase in weekly price reductions,’ she said, adding that’s one of the first things to respond when the market softens. ‘We’re actually having more listings come onto the market than in Octobers past.’”

“Amid news of a slowing market and energy job cuts, some prospective homebuyers are sitting on the sidelines, while others are getting into the game more aggressively, said Caroline Allison, a Realtor with Houston-based Keller Williams Metropolitan. ‘There’s a herd mentality that the market is sliding,’ Allison said. ‘Buyers are more scarce, but the buyers who are in have gotten bolder. If they’re going to make offers, they’re going to go in very low.’”

“One of Allison’s clients is a prospective buyer who is looking at purchasing a newly constructed home in Rice Military, she said. Although the homebuilder is asking for $600,000, Allison’s buyers insisted they put in an offer for $460,000. They’re now negotiating prices closer to $500,000. ‘The builder wants to move their product because their livelihood depends on constructing new homes,’ Allison said. ‘My buyers aren’t in a rush. They just feel like they have nothing to lose by waiting.’”

“The number of Ohio properties with foreclosure filings fell by about 9 percent in the third quarter, compared to the July-August period a year ago, according to RealtyTrac. But the number of foreclosure filings across much of the nine-county Miami Valley region has begun to buck the statewide trend. ‘We’re starting to see a pick-up in foreclosure activity, that’s for sure,’ said Kal Mughrabi of Coldwell Banker Heritage Realtors in Springboro.”

“New Jersey again has the dubious distinction of the worst rate in the nation, one in every 451 in September, according to RealtyTrac. Foreclosures completed with bank repossessions in the first half of this year were still 37 percent above prerecession levels, and increased 24 percent in New Jersey, according to RealtyTrac. State court records show more than 34,300 new foreclosure cases had been filed in state courts this year as of October 15.”

“Wayne Meyer, president of New Jersey Community Capital, pointed to other data from RealtyTrac, indicating that of New Jersey’s current stock of 70,000, some 17,000 are vacant. Yet, even with prices well below prerecession levels, many New Jersey families struggle to pay for their homes, he said. ‘Here in Newark, more than 50 percent of families spend more than 50 percent of their income on housing,’ Meyer said.”

“Canadian Real Estate Association data show annual MLS residential sales in the Fort McMurray area plunged by 40 per cent in September, to 80 transactions. The average sale price was off by 13 per cent at $536,741. ‘With the lower oil prices what that means is that investment has been reduced and it’s impacted the Fort McMurray area quite substantially,’ said Lai Sing Louie, regional economist for the Prairie and Territories for Canada Mortgage and Housing Corp. ‘There’s less labour required and that obviously has an impact on the housing markets and we’re seeing that in all three components.’”

“The CMHC’s last rental market survey in the spring found vacancy rates in the Wood-Buffalo region were more than 22.3 per cent, up from seven per cent a year earlier. Housing starts in the region have dropped by 43 per cent this year, said Louie. ‘This lack of confidence in their future has put the brakes on any buying intention for both homeowners and investors. It has also drastically increased those wishing to sell, right at the sam‎e time as the buyers disappeared,’ said Don Campbell, senior analyst with the Real Estate Investment Network.”

“Contrary to what most developers claim about the robustness of the real estate industry, a study of a property consultancy firm showed that the Cebu sector has already ’softened,’ at least for condominium projects. ‘The slowdown in the condominium market is apparent,’ said Colliers International research director Julius Guevara. The same could be said for Metro Manila, but worse, where the number of condo units sold dropped from 40,000 in 2014 to 25,000 projected for this year.”

“Guevara explained that the decline could be attributed to the present framework by which sales in the real estate industry is driven– by the investors. ‘There is now a buyer’s fatigue,’ he said.”

“A new surge of urban development may create a new wave of ‘ghost cities’ in China, as the country draws up plans to house as many as 3.4 billion people, far in excess of its current population. Reports from both official news agency Xinhua and the independent media outlet Thepaper.cn say that urban planning in China is out of control, as each of the country’s provincial capitals is planning to build an average of 4.6 new urban districts, and regional cities look to build an average of 1.5 new districts.”

“These new urban areas would provide housing for 3.4 billion people – entirely out of line with actual demand from China’s population of less than 1.4 billion. The problem of uncontrolled development is not new: in 2013 the Peoples’ Daily criticized the trend of building new cities with the expectation that they would eventually be filled. Li Tie, director of the National Development and Reform Commission’s Center for Urban Development, told reporters that urban development should take place through natural growth of functional zones, rather than artificial planning.”

“The madness is receding. Each month for a year now more than half of all the dollars lent for buying and building homes went to investors. The insanity is apparent when you consider that until the mid-1990s only 10 to 20 per cent went to investors. People bought houses to live in. In May this year as prices in Sydney and Melbourne soared to once-unimaginable heights the proportion lent to investors hit an all-time high of 53.5 per cent. And then it slipped, in August sliding below 50 per cent for the first time in a year. At 48.5 per cent, it’s still ridiculously high, but something has changed. The canaries can smell the gas.”

“At Saturday’s auctions in Sydney only 65.1 per cent of properties sold. A week before it had been 70 per cent. Back in May it was 90 per cent. The Reserve Bank has been desperate to contain investors because it believes they are accelerating the boom and might amplify the risk of crash. As it put it in its Financial Stability Review: ‘Investors are more likely to contribute to the run-up in prices than owner-occupiers because the rationales for their purchases differ: capital gains are likely a greater motivating factor for investors, and rising prices can induce even more investor demand by increasing expectations for future price rises. Investors also tend to face fewer barriers to exit.”

“Humour all too often is the perfect tool to depict the truth. Abrose Bierce published the ‘Devil’s dictionary’ in 1911, defining his view of government, finance, commerce and life in general at the time. One classic example is his definition of ‘riches’ as ‘the savings of many in the hands of one’. Edward Chancellor has recently updated the dictionary for our times. The following are a few of my favourite.”

“Asset price bubble: The most noticeable consequence of the U.S. Federal Reserve’s easy money policy. Bank: An institution which, by applying leverage and mismatching assets and liabilities, earns short-term profit and generates long run losses.”

“Behavioural finance: The field of study resting on the notion that an asset price bubble is the result of ‘irrational exuberance’ (see Greenspan*) rather than the inevitable consequence of bad monetary policy and conflicts of interest on Wall Street. Bernanke, Ben: Former Fed chairman who failed to spot the housing bubble before it burst and in 2007 claimed that U.S. subprime mortgage problems were ‘contained’. After the Lehman Brothers bust, Bernanke succeeded in re-inflating the Greenspan* superbubble. Soon after leaving the Fed, he was rewarded with a job at Citadel, a hedge fund, which presumably didn’t hire Bernanke for his market insights.”

“Deflation: A benign fall in the price level due to productivity improvements and the expansion of global trade. Not to be confused with debt deflation, the consequence of the Fed’s easy money policies. Interest rate: The price of money over time, which balances saving and investment. In the hands of the Fed, a dangerous policy tool.”

“Moral hazard: Wall Street’s mentality of ‘heads I win, tails you lose,’ fostered by Fed policy. Off balance sheet: The hidden truth. QE: Quantitative easing, exemplified by the Fed’s purchase of securities with newly printed money with the aim of defeating U.S. deflation and boosting economic growth. In practice, QE has resulted in asset price bubbles, over-investment in commodities and emerging-market credit bubbles, whose ongoing collapse is producing global deflation and lower world economic growth.”