November 16, 2015

Stop Panicking And Accept The Short-Term Pain

A report from News Corp Australia. “It’s not the news property investors want to hear. Just as price growth begins to slow, rents are also on a slow down and going backwards in some capital cities. ‘There is still a lot of new properties under construction at the moment, particularly units, and units tend to be much more likely to be rented than houses, so that stock still has to come on line and that is going to limit the opportunities for investors to lift rental rates, because those renters are going to have a lot more choice,’ said CoreLogic RP Data senior research analyst Cameron Kusher. Mr Kusher said the figures showed there had been a pretty sharp slowdown in rental growth across most markets. ‘It is pretty much a record low,’ he said.”

The Australian. “House prices in Perth’s most exclusive suburbs have plunged. House prices in the riverside suburb of Mosman Park in Perth’s west fell 30 per cent to $1.01 million in the 12 months to September 30, the latest median quarterly Real Estate Institute of Western Australia figures show. House prices have also fallen heavily in neighbouring Cottesloe which is down 14.4 per cent to $1.8 million while central Perth prices dropped 15 per cent to $841,000 during the period. It comes as the number of dwellings on the market reaches levels not seen since the global financial crisis.”

“Property forecaster SQM Research says the total number of residential properties for sale in Perth has jumped five per cent to 25,000 in October. ‘That’s a sign the market is in a downturn,’ SQM managing director Louis Christopher said.”

The Herald Sun. “The median price for one-bedroom units in Melbourne has fallen in the past year, as property experts predict an apartment glut could make it difficult to sell smaller apartments in the city. Buyers gifted with more choice by the boom in apartment developments across the city will bypass shoebox-sized units lacking a car park, outdoor area and other sought-after features, experts say. Buyers advocate Frank Valentic said said an apartment would be tough to sell if it didn’t ‘tick all the boxes’ — being bigger than 50 square metres, in a desirable location and having an outdoor area and car park.”

“Young professional Ali Knight said she was ‘a little bit nervous’ about selling her one-bedroom apartment in Middle Park at auction next Saturday, but hoped its big kitchen, car park and bright appearance would appeal to buyers. The 29-year-old bought the home for $289,000 in mid-2012 and has fully renovated it.”

From Mortgage Business. “The head of a national real estate group fears that a serious default issue is on the horizon for the thousands of Australians buying off-the-plan properties. Century 21 Australia chairman Charles Tarbey explained that off-the-plan properties may not come up to their contract value upon completion as valuers become more conservative in an environment of increasing risk. ‘Valuers were the ones who were absolutely destroyed during the GFC, whereby people purchased property, the price of property fell through the floor and people sued the valuers because of the advice they had given on valuations,’ Mr Tarbey said. ‘At this point in time I would think that valuers are going to start revisiting the pain they felt all those years ago and they are going to become more conservative in the way that they value properties.’”

“In its latest Financial Stability Review, the Reserve Bank of Australia warned that settlement risk on apartments purchased off-the-plan may have increased as a direct result of the stricter criteria that banks are now applying to investor housing loans. ‘The risk of a downturn in apartment markets is greatest in the inner-city regions of Melbourne and Brisbane, which look susceptible to potential oversupply,’ the RBA said.”

From Domain News. “It was a gloomy spring day for many property sellers across Sydney, with many properties passing in – often with no bids from prospective buyers. A two-bedroom, two-bathroom apartment with views of the city and the Harbour Bridge, passed in on a vendor bid of $1.45 million. Auctioneer Scott Gibbons, who markets himself as ‘Mr Sold,’ had called for one of the two registered bidders to ‘lay their cards on the table’ for the ‘phenomenal opportunity’ but no one raised their bidder’s card. Unfazed, he assured the small gathering: ‘You will see this one sold very quickly.’”

“In inner-city Redfern, auctioneer Damien Cooley​ was just as unsuccessful at the auction of a two-bedroom apartment. ‘All you need to own this is make a good offer … a fair offer,’ he said. But even a vendor bid of $785,000 failed to encourage anyone to show interest – which is hardly surprising since, as Belle Property Surry Hills agent Leon Parker admitted later, no one had actually registered to bid. Why did they proceed with the auction? ‘Well, we paid for it,’ he said. ‘And we really wanted the vendor to see that he has to lower his expectations.’”

“The reserve had been $850,000. An apartment higher up had sold for $800,000 earlier in the year but things have changed since then. ‘It’s a little bit scary, with the market doing what it’s doing,’ Parker said.”

“Buyers made conservative offers and stuck with modest bid increases at many auctions in Melbourne on Saturday as a sense of caution affected the residential market. With stock levels at record highs in the run-up to Christmas, buyers are sensing the market pendulum is shifting their way and many are determined not to overpay. As a result, opportunities are opening up for first home buyers in cheaper areas, as well as for some upgraders who are getting a leg up, particularly in the eastern suburbs markets, because of reduced buying activity by Chinese and other overseas buyers.”

“Biggin & Scott’s Trudy Biggin described Saturday’s auction market as sluggish, with one or two bidders participating at most of her company’s 32 auctions. She said the company had five auctions in Glen Waverley, where there were definite signs that Chinese national buyers were pulling back. ‘There are a number of restrictions on getting your money out of China at the moment and that is having an impact on the market,’ Ms Biggin said. ‘There has been a decrease in the number of international buyers in recent weeks.’”

The Gladstone Observer. “Ben Smith, who has built a number of properties in Gladstone since 2008, says ‘doom and gloom’ is all that is emanating from our town, and further south investors aren’t even giving us a look-in. That’s a problem for a town where there are about 2000 homes for sale with owners who are desperate to sell. Rent has officially dropped below pre-boom levels by more than $70 and Mr Smith said the sliding rent was fuelling the negativity.”

“Average rent is down to $260 a week compared with $330 in 2009. It seems like revenge for renters who may have felt gouged by property owners who jacked prices as high as $700 in 2012, but according to Mr Smith there are real -term consequences to depressed rents. Alicia Williams from Gladstone Location’s Property Agents said if owners stopped panicking and accept the short-term pain, they’ll be fine. ‘If everyone is talking the market down we’re never going to get anywhere,’ Ms Williams said. ‘The problem with low rents is that it becomes a snowball effect and the onus needs to be on landlords and real estate agents to give the market the stability it deserves.’”

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Comment by Professor Bear
2015-11-16 06:14:45

How much longer until Australia’s property price slump washes up on California shores?

Comment by Professor Bear
2015-11-16 06:21:20

Since China drove the recent insane bubble in both Oz and CA, I guess it doesn’t seem completely far fetched to conjecture that both bubbles may go up in flames at roughly the same time as when the Chinese investors disappear from the picture.

Comment by Ben Jones
2015-11-16 06:43:39

It happened in New Zealand first. It doesn’t matter if it’s more truth or myth. If most people believe that they can always sell to a rich outsider, it factors into the bubble.

Comment by Ben Jones
2015-11-16 06:41:48

“Commodities … does not look very good, and it’s the same old story,” Scott Wren, senior global equity strategist at Wells Fargo Investment Institute, told CNBC’s “Power Lunch” on Friday. “It’s a supply-demand based situation. Capacity is built on a China that grows north of 10 percent; that’s not happening, it’s not going to happen, so it’s going to take a while for this supply-demand imbalance to work out.”

You might want to accept the pain Rio and take that banana.

Comment by Ben Jones
2015-11-16 07:10:48

‘China’s growth from 2000 to 2015 had been nothing short of phenomenal. A decade and a half ago, the country’s GDP was at $1.2 trillion. In 2014, it was at $10.4 trillion, a compounded annual growth rate of 15.4%.’

‘Chad Morganlander, portfolio manager at Stifel Nicolaus’ Washington Crossing Advisors, sees credit as the engine driving China’s growth. “Total credit growth [is] the real reason for this explosion of economic activity,” Morganlander said. Corporate credit in China went from about $2.6 trillion in 2006 to $16.7 trillion this year and now exceeds the U.S. corporate credit level of $12.2 trillion, according to data compiled by the Bank of International Settlement.’

“This has had a massive distortion on economies as well as the emerging markets and commodities,” said Morganlander.’

‘Such intense growth required China to buy commodities – and lots of them. The country consumes 12% of the world’s oil but also 31% of the its cotton, 45% of its steel, 47% of its copper, 50% of its nickel, and 54% of its aluminum, according to data from the World Economic Forum.’

‘But a decline in China’s demand for materials could spell trouble for those and other commodities markets, as well as emerging market economies that are dependent on exporting commodities.’

From the link in the post:

‘Parker admitted later, no one had actually registered to bid. Why did they proceed with the auction? ‘Well, we paid for it,’ he said. ‘And we really wanted the vendor to see that he has to lower his expectations.’

Accept the pain, vendor.

Comment by Combotechie
2015-11-16 07:16:21

“Capacity is built on a China that grows north of 10 percent; that’s not happening …”

What did happen is a lot of money was borrowed to finance the capacity to support growth of 10 percent (which is not happening) so even though the growth is not there all that borrowed money is, it still is there.

At least for a while it is still there. Stay tuned and we shall see for how long the borrowed money stays there, stays in existence.

Comment by Ben Jones
2015-11-16 09:17:02

Companies fooled by China growth predictions, says think-tank

‘In the report, they reject the widely accepted notion of thinking about cities in terms of “tiers” and argue that, for the majority of global companies, only around 40 Chinese cities will provide realistic opportunities.’

‘This contrasts starkly with accepted orthodoxy among multinationals operating in China.’

“Companies are being told they need to be everywhere to compete in China, and that the future lies in expanding to ‘Tier 3′ and ‘Tier 4′ cities in the five-tier system,” said Louise Keely, president of The Demand Institute and a co-author of the report. “Both are myths.”

Comment by Blue Skye
2015-11-16 22:14:12

Unfortunately the capacity was built on credit, based on the “miracle” growth, which was also based on credit. Promises based on promises, none of which can be kept.

Comment by Mafia Blocks
2015-11-16 17:43:17

“You might want to accept the pain Rio and take that banana.”

Hey Lola….

Comment by Ben Jones
2015-11-16 07:19:23

‘Despite heavy rain, no crowd and only one person holding a bidding card, the auction of 39 Undercliff Road, Freshwater went ahead on Saturday. It was a strange affair with only one person bidding against themselves again and again until the home finally sold under the hammer for $2.7 million – $450,000 shy of its reserve price.’

‘It was one of 940 homes up for grabs in Sydney on Saturday. By Saturday evening Domain Group had collected 569 results and put the clearance rate at 62.6 per cent. Bidding on behalf of a “celebrity businessman” client on the phone in New York, auctioneer-turned-buyer’s agent, Robert Klaric​, opened proceedings with a $2.5-million bid.’

“Oh, really? OK, I suppose we will take that,” a clearly underwhelmed Timothy Sutton of Property Auctioneer said. Mr Klaric then upped his bid with an offer of $2.6 million and on it went – a bidding war of one.’

‘After consulting with his mystery client, Mr Klaric raised his bid by a further $50,000. At this point he appealed to selling agent Michael Clarke of Clarke and Humel Real Estate. “Are we selling or not? These guys have cash and $2.65 [million] is as high as we will go,” Mr Klaric said, before begrudgingly adding another $30,000 to the offer.’

“I mean come on, it’s not like I’m being outbid here,” he said before raising his offer further to $2.7 million.’

‘Two passers-by wandered in mid-auction and appeared bemused by the intimate setting and theatrics, with one heard to mutter, “Was that real or did we just walk into some TV show?”

mystery client = dumb-a**

‘After consulting with his mystery client, Mr Klaric raised his bid by a further $50,000′

Comment by Professor Bear
2015-11-16 20:34:12

‘It was a strange affair with only one person bidding against themselves again and again until the home finally sold under the hammer for $2.7 million – $450,000 shy of its reserve price.’

Why we would anyone do this? Does it have something to do with setting a ‘comp’ to support fraudulent overvaluations of other properties that belong to the bidder?

Comment by Blue Skye
2015-11-16 22:39:28

Looking for the reserve maybe. If he had started bidding lower each time he might have had a better chance.

Comment by snake charmer
2015-11-16 08:26:29

I’ve been to Cottesloe, during one of my visits to Australia. Very pretty, awesome beach on the Indian Ocean, and easy public transportation link to downtown Perth, but “prices down 14.4 percent to $1.8 million”? I looked via Google Maps and saw some McMansion construction in progress.

Comment by taxpayers
2015-11-16 08:43:17

suddenly my hood is “Hot” according to zillow
compared to a 3.6% rise for Springfield as a whole. Among 22152 homes,

is hillary hiring and creating new fed agencies w soviet sounding names

Comment by Mafia Blocks
2015-11-16 17:37:35

Let’em crater.

Rocklin, CA Housing Prices Crater 5% YoY

Comment by Ben Jones
2015-11-16 12:04:58

Debt Market Distortions Go Global as Nothing Makes Sense Anymore

“What there doesn’t appear to be is any single smoking gun that says why swap spread changes have been so dramatic,” said Thomas Urano, a money manager at Sage Advisory Services Ltd., which oversees $11 billion. The big question remains whether there is “something bigger brewing under the surface that so far hasn’t been pinpointed yet.”

Comment by Ben Jones
2015-11-16 18:58:27

‘One of the latest trends in San Francisco real estate seems to be the appearance of “fantasy homes” on the market. No, these aren’t high-end dream houses—at least not yet. They’re either fixers or under construction flips with plans to transform into luxurious modern homes, and they’ve been pouring onto the market over the past few months. The latest to enter the fray is 548 Rhode Island Street, a powder-blue fixer in Potrero Hill that was purchased for $1.15 million last year. The buyers put together some very fancy plans for the place that include a boxy new facade, a marble kitchen, and plenty of glass. But, before construction could start, they placed the home back on the market for $1.75 million.’

‘With everything approved and design work complete, the listing boasts that building can start in early 2016. Very few other details—like the future number of bedrooms and planned square footage—are provided. The property joins a whole host of other unfinished houses on the market. So is this a sign of change in the city? With the market for luxury properties slowing down, at least for the moment, are investors trying to get rid of these places instead of waiting to finish them? We don’t know for sure, but our attention is certainly piqued.’

Comment by Mafia Blocks
2015-11-16 19:10:42

More bullish and positive news…. it’s just a start.

“OPEC Export Price Falls Below $40 for First Time Since 2009″

Comment by Professor Bear
2015-11-16 20:38:57

I had the feeling the plunge protection team came to oil’s rescue today, as a significant drop below $40/bbl could prove deflationary, and deflation is BAD.

Comment by Blue Skye
2015-11-16 22:33:34

I think the crows are migrating south. When was it Danny wanted us to be paying him $80 for oil? Thanksgiving?

Comment by Mafia Blocks
2015-11-16 22:46:10

ALBQDan was last seen staggering around NYC bumming cigarettes with his AssHat on backwards.

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