The Apogee Of The Market
A weekend topic on a housing bubble phenomenon coming to an end. The South China Morning Post. “The case of Xun Wang, a Vancouver-area consultant jailed for masterminding the biggest immigration fraud in Canadian history, is startling in scope. Wang, 46, who was sentenced on October 23 to seven years in prison, conducted his fraud on an almost industrial scale, as he helped rich Chinese clients maintain Canadian permanent-resident status and later obtain citizenship. Chinese passports both real and fake were shipped in bulk to the mainland, where professional forgers would doctor them to make it look like their owners had been present in Canada when they had actually been in China.”
“Wang would set up his clients in fake jobs at his firms, printing business cards for them and issuing pay slips - adding insult to injury, their fake salaries were so low his wealthy clients were able to file tax returns that allowed them to claim from Canadian coffers tax benefits intended for the working poor.”
“Yet the most significant aspect of Wang’s case is neither the scale of his operation, nor its sophistication and audacity. It is the motivation of his clients. Immigration fraud as the public typically understands it involves various schemes to allow unqualified people to live and work in Canada. Yet, bizarrely, Wang’s case involved clients willing to pay tens of thousands of dollars to AVOID living in Canada when they were perfectly entitled to do so, having already obtained permanent resident status.”
“Wang’s clients wanted to be able to maintain their PR status without actually living in the Great White North, since their jobs and businesses were back in China. And by faking their presence in Canada they would eventually be able to claim Canadian citizenship, with all the privileges it confers, including the right to live in Canada – eventually.”
“The concept is so common among some Chinese immigrant circles that there is a word for it: yiminjian, or ‘immigration jail’. The term refers to the period of compulsory Canadian residency (now, four years out of the previous six) which one must suffer before applying for citizenship. Think of a Canadian passport as the get-out-of-jail card. It needs to be emphasised that this mindset does not apply to all Chinese immigrants - only that subset for whom greater opportunities exist back in China (and only a subset of those). The problem isn’t about nationality or ethnicity - it’s about wealth and the commodification of immigration status.”
“A long-time Canadian immigration industry source with decades of involvement in Chinese immigration said ‘the biggest single category would clearly be the investor-class [husbands]‘. He was referring to the now-defunct Immigrant Investor Programme and the still-operational Quebec Immigrant Investor Programme. These schemes effectively put Canadian PR status up for sale, to anyone worth C$1.6 million and willing to hand over an C$800,000 ‘investment’, for a period of five years.”
“‘It illustrates the fact that many of these economic immigrants got their status through immigration fraud ab initio, from beginning to end,’ he said. ‘But this bigger fraud is not so easy to prove…it comes down to the question of intent. There are no documents [that can prove it]. But after 20 years of China being the main source of business immigrants, you’d think that the politicians would have noticed that the vast majority of these astronaut dads do not in fact reside in Canada. Most never had any intention of doing so. The goal is to get the wife and kids here.’”
“‘We’ve been relying on the dubious notion that an applicant’s net worth is one of the most reliable indicators when it comes to predicting the likelihood of a happy and successful transition to Canadian life. What does this say about us to people who are considering moving here?’ says Canada’s former ambassador to China, David Mulroney. ‘It certainly fails to give pride of place to the qualities and values that have always attracted people to Canada.’”
“The fallout from Wang’s fraud continues. Seven of his former employees have been charged; two are fugitives while five were due in court this month. As for the fate of Wang’s 1,200 clients, Judge Reg Harris ominously warned in sentencing: ‘I expect the immigration authorities will have to review the circumstances of all those concerned and it is quite likely that some persons will be removed from Canada.’”
The Cambridge News in the UK. “Nearly one in four of Cambridge’s ‘prime’ newly-built houses are being sold overseas. The new figures from property agents Savills have been branded ’shocking’ by the city council’s housing chief. The data for the housing market in Cambridge last year says international buyers account for 22 per cent of sales in the ‘prime’ secondhand market, and 24 per cent of ‘prime’ new builds. Other figures show the number of sales of homes worth more than £1 million has more than tripled in Cambridge over the past five years; nearly 30 per cent of buyers with Savills last year were investors, compared to just 9 per cent in 2012, and in the new-build market around 70 per cent of buyers in prime areas were investors in 2014.”
“This detailed data shows the extent to which government policies to promote home ownership as the only tenure worth having, whilst stopping us building social housing for affordable rents, is creating a vicious circle in Cambridge,’ said Cllr Kevin Price, the city council’s executive councillor for housing. ‘It’s shocking that 70 per cent of the new-build homes in some areas of the city are going to buy-to-let investors, and that almost a quarter of sales are now to overseas investors. We need the government to help us tackle this. Since investors’ pockets are deep it is not likely that this housing bubble will burst and prices fall, but that they will continue to compete and price residents out of the market.’”
SBS News in Australia. “Stricter penalties for violations of laws governing ownership of residential real estate by non-resident foreign nationals will come into effect on December 1. A period of reduced penalties for overseas owners who suspect they are in breach of Australian laws, and report themselves to the government, expires on November 30. Melbourne-based property expert Michael Yardney said uptake of the offer has not been substantial. He doubts whether this or other measures being implemented by the government will effectively address the problem of overseas investors trying to bypass Australian property rules.”
“‘It hasn’t worked up until now. The whole system hasn’t worked. There hasn’t been enforcement,’ he told SBS World News. ‘Sure, the penalties are going to deter some people, but there are still ways around it. Foreign investors are now getting local family members to buy properties in their own names - people who are Australian residents - or they’re getting other locals to become directors of the companies owned by foreign nationals.’”
The Australian Financial Review. “Australia will have its biggest-ever day of auctions on Saturday - just as signs emerge that prices have started falling in the key markets of Sydney and Melbourne. ‘That will be a record day nationally – the biggest day of auctions ever in Australia,’ Domain senior economist Andrew Wilson said. ‘This is the apogee of the market.’”
“The dream housing run that has driven prices up 15.6 per cent per cent in Sydney and 12.8 per cent in Melbourne over the past 12 months is coming to an end. Joanne Sparke, who is auctioning a four-bedroom house in Lindfield on Sydney’s upper north shore, is one of the 1100-odd owners selling on Saturday. Ms Sparke had little say over timing of the sale - her mother’s September death prompted Ms Sparke, her brother and sister to sell the family home of 54 years. But she wants to do it quickly.”
“Ms Sparke said the weekend’s strong market could work for or against the sale of her Highfield Road house, being marketed by North Shore-based Savills Cordeau Marshall Gordon at a price of $1.5 million upwards. ‘They’re saying the market’s dropping, but there’s not a lot we can do about it,’ she said.”
“Gowan Stubbings, a director of Melbourne real estate agency Kay & Burton, faces the busiest day of his 15-year career. Mr Stubbings said all his properties were likely to sell. ‘The only reason they won’t sell is if vendors have got caught up in the excitement of the market and want too much,’ he said.”
The Wall Street Journal. “Capping a five-year real-estate binge, Chinese nationals surpassed Canadian snowbirds as the top foreign buyers of U.S. homes for the year that ended in March—the most recent annual data—scooping up everything from $500,000 condos in New Jersey to $3 million vacation homes in California to $13 million Manhattan condos. But in recent weeks, some Chinese buyers have started to pull back, scared off by China’s stock-market selloff, slowing economic growth, currency devaluation and tightened restrictions on capital outflows. On Friday, China’s benchmark stock index fell by 5.5%, its biggest daily slide since August, as Beijing authorities stepped up a crackdown on the securities industry.”
“Karen Xu, a Shanghai resident looking to invest in U.S. real estate, decided this spring to seek a Miami one-bedroom condominium in the $500,000-to-$750,000 price range. China’s economic slowdown has since changed her mind. ‘I don’t think I’ll be investing in the U.S. right now,’ said Ms. Xu, who works at an investment consulting firm. ‘Maybe I’ll wait another five years, or invest in China.’”
“‘We are ready to embrace a winter for Chinese buyers in the next one year, two years,’ said Daniel Chang, a New York City-based broker at Sotheby’s International Realty. Mr. Chang, who sells properties in the $2 million-to-$10 million range, said about half of the clients served by his team are Chinese. Christina Shaw, a Realtor with Re/Max Fine Homes in Newport Beach, Calif., said one client who gave her a budget of $10 million to buy two houses in the area was now looking to reduce his budget by about one-third.”
“Interest from Chinese buyers ‘went dark’ for several weeks after stocks becan their sharp fall, said Tom Mitchell, president and chief operating officer of Tri Pointe Group, a home builder in Irvine, Calif. China’s main stock index, the Shanghai Composite Index, is down 38% since its June peak. Foreign Chinese buyers make up about 30% of customers in a handful of the company’s developments in Orange County and the San Francisco area. Price increases there, he said, have prompted clients to ‘pause and think.’”
“Home builders also could feel the effects. The chief executive of Walnut, Calif.-based Shea Homes, Bert Selva, told investors this month that the company has seen a ’significant slowdown’ in Chinese buyers in Orange County. ‘That buyer is really drying up. To be honest, I don’t think that’s a bad thing, because I think there was a lot of frenzy driven by that, pushing up prices a bit,’ he said.”
“Chinese residents began buying American homes in large numbers about five years ago, driven largely by growing wealth and a desire to safeguard savings against political instability, brokers and economists said. American homes looked like a bargain after the real-estate crash, drawing busloads of Chinese buyers to see properties in California and Manhattan. To many, it seemed ‘a gold mine everywhere,’ said Calvin Lo, a real-estate agent at Berkshire Hathaway HomeServices in Southern California.”
“Chinese individuals are limited to annual overseas investments equal to about $50,000. For years, Chinese have surpassed that limit, in part, by funneling money through relatives and employees. In recent months, the government has made it tougher to transfer money abroad, said real-estate brokers in both countries. ‘It’s like barbarians at the gate,’ said John Chang, a real-estate broker with Re/Max in New York City. Chinese families want to buy, he said, ‘but they just can’t get the money out.’”
This is funny:
‘We’ve been relying on the dubious notion that an applicant’s net worth is one of the most reliable indicators when it comes to predicting the likelihood of a happy and successful transition to Canadian life. What does this say about us to people who are considering moving here?’ says Canada’s former ambassador to China, David Mulroney. ‘It certainly fails to give pride of place to the qualities and values that have always attracted people to Canada.’
They’re laundering money David. Canada is just a place where it’s really easy.
‘drawing busloads of Chinese buyers to see properties in California and Manhattan. To many, it seemed ‘a gold mine everywhere,’ said Calvin Lo’
We’ve never seen busloads of idiots paying too much for houses. Oh, wait…
‘Bert Selva, told investors this month that the company has seen a ’significant slowdown’ in Chinese buyers in Orange County. ‘That buyer is really drying up. To be honest, I don’t think that’s a bad thing, because I think there was a lot of frenzy driven by that, pushing up prices a bit.’
And Bert, I’m sure you’d never undercut any of these Chinese buyers (or locals who foolishly competed with them) with cheaper houses now they’ve run out of money.
“astronaut dads”
They’re laundering children too.
+1……they only get one!
Oops
+2…….now they get 2 children! More laundry to wash!
‘That buyer is really drying up. To be honest, I don’t think that’s a bad thing, because I think there was a lot of frenzy driven by that, pushing up prices a bit.’
Here’s to hoping a sudden dearth of all-cash Chinese investors sends SoCal home prices along a similar trajectory as the Chinese stock market took last summer. It truly sucks to have your local residential housing market invaded by a scourge of foreign equity locusts who drive prices and rents to unaffordable heights.
Auckland turned on a dime.
‘To many, it seemed “a gold mine everywhere”
There was a time when Californians saw the same thing, in Marfa Texas, Las Vegas, Bend Oregon, Sedona Arizona, Arkansas….
I take it as an encouraging signal of an approaching peak to see families I know who rented for years while waiting for prices to drop recently throw in the towel, bite the bullet, and buy at-or-near the Echo Bubble peak prices. This development seems like a strong indication that capitulation is right around the corner.
w gov bail programs it’s a big corner
see Japan for results
“see Japan for results”
R u talking about 2+ decades of housing and stock market price declines?
Rather than a sign of a peak, it might be a tacit acknowledgment that the credibility of our political and economic leadership and institutions is vested in the continuation of the echo bubble. These people are going to do every single thing they can to keep prices detached from incomes, indefinitely. I know that’s impossible, but I cannot predict when inept policy finally will be overcome by market forces, especially now that inept policy is affecting rents too. That an echo was all-but-compelled to occur in the first place is a shameful embarrassment and a terrible failure for democratic government.
I don’t think Bear wasn’t asking for a prediction or forecast.
The reality is market forces are already working against the distorted policies and fraud. The wheels are wobbling and the fenders are flapping.
Are you prepared?
“I don’t think….”
Finally, you made an observation with some merit! HA!
We know you’re not prepared jingle fraud.
Well, many of us here have wondered when a reversion to the mean would occur; what the signs would be; what the policy responses would be; and so on. Not too long ago, I looked over some archived threads, back from 2006-07. We were wondering the same thing then. And when a reversion finally began, governments and central bankers proceeded to intervene to prevent a reversion from continuing.
I find the idea of being prepared amusing. Was anyone really prepared for what the Great Depression wrought? Things are going to go wrong that we didn’t even know could go wrong. We can prepare mentally and emotionally for change, but that’s it. Yes, you might make a killing in the markets. You also might be killed, as in dead.
Once again it must be repeated.
Liquidate and get out of debt, hold onto every dollar you’ve got and hold onto your hat cowboy because the ride is just starting.
On getting out of debt, I agree.
If that means dumping whatever you got for whatever it fetches, then that’s what it means.
‘her Highfield Road house, being marketed by North Shore-based Savills Cordeau Marshall Gordon at a price of $1.5 million upwards. ‘They’re saying the market’s dropping, but there’s not a lot we can do about it,’ she said.’
‘Gowan Stubbings said…‘The only reason they won’t sell is if vendors have got caught up in the excitement of the market and want too much.’
These days of tiny, old shacks selling for 1.5 million Australian pesos may look kinda ridiculous some day.
Las Vegas, NV Housing Craters; Prices Plunge 15% YoY
http://www.zillow.com/sheep-mountain-las-vegas-nv/home-values/
Zillow predicts 10% increase for lost wages ?
Wtf?
What is important here is falling transaction prices.
It’s important to you. The rest of us understand the data!
Falling transaction prices my friend. Falling transaction prices.
Redundant. Redundant.
What is it about falling housing prices that spins you up jingle fraud?
“Wang, 46, who was sentenced on October 23 to seven years in prison, conducted his fraud on an almost industrial scale, as he helped rich Chinese clients maintain Canadian permanent-resident status and later obtain citizenship. Chinese passports both real and fake were shipped in bulk to the mainland, where professional forgers would doctor them to make it look like their owners had been present in Canada when they had actually been in China.”
Fraud was a key driver behind the flood of Chinese investors into the Vancouver housing market?
NOBODY COULD HAVE SEEN IT COMING!
Yes, particularly when they only arrived in virtual reality! You can’t see the Chinese immigrants in Vancouver if they are really in Chine (Sarah Palin notwithstanding)!
‘It’s like barbarians at the gate,’
Indeed.
“Taxation As A Severe Insult”
http://www.zerohedge.com/news/2015-11-27/taxation-severe-insult
READ.THINK.LEARN.
“Since investors’ pockets are deep it is not likely that this housing bubble will burst and prices fall, but that they will continue to compete and price residents out of the market.’”
How can you tell which investors truly have deep pockets from those who are way over their heads in debt when central banks all over the planet are pursuing the same easy money programs as our Fed? Only when the easy money tide recedes will it be possible to tell who is swimming naked.
Carmichael, CA Housing Prices Crater; Prices Dive 5% YoY
http://www.zillow.com/carmichael-ca/home-values/
“Interest from Chinese buyers ‘went dark’ for several weeks after stocks becan their sharp fall, said Tom Mitchell, president and chief operating officer of Tri Pointe Group, a home builder in Irvine, Calif. China’s main stock index, the Shanghai Composite Index, is down 38% since its June peak. Foreign Chinese buyers make up about 30% of customers in a handful of the company’s developments in Orange County and the San Francisco area. Price increases there, he said, have prompted clients to ‘pause and think.’”
So it turns out that the Chinese stock market crash is already washing up in California coastal real estate markets. This news is music to my eyes! If I wanted to live in an all-Chinese neighborhood, I would prefer to have to move in order to get there. It galls me that governments have turned a blind eye to Chinese money laundering into local real estate, same as in Vancouver. Ka-ching!
Professor Bear, what part of San Diego do you live in?
RB
Ah, OK. I rarely go to Rancho Bernardo and am not familiar with the real estate situation there. I am hoping for a massive correction to start soon.
Once the correction is underway, I’ll probably wait 2 years or so to buy.
It’s already ramping up so sit tight and enjoy the price declines.
San Diego, CA Housing Craters; Prices Dive 5% YoY
http://www.zillow.com/north-park-san-diego-ca/home-values/
Senior Housing Analyst, where is the 5% YoY decline you speak of?
It says san diego
The link says North Park, which is the San Diego City neighborhood near I-163 between I-8 and Balboa Park.
Prices up 9% last year…… Forecast for 2% price growth next year. Take that crater to the bank!
And prices down 5% this year.
Your point Jingle_Fraud?
Take that crater to the bank ??
Why banter with the bonehead ?? Ignore him….
He can’t. Nor can you. To assist, we encourage both of you to use the JT extension.
https://addons.mozilla.org/en-us/firefox/addon/joshua-tree-extension/
Long time lurker. These days I just keep my mouth shut when family talks about housing. They have all drunk the koolaid and no one hears anything I say.
Yesterday we had a very emotional SIL who was very upset. Turns out they had just gotten the final appraisal on there new home which is just finishing construction. Came in about 30k less than it did 5 months ago when they first started building. Now they are very concerned they won’t be able to get the mortgage they need to close on the house and they already have committed all of their savings and cash to qualify the first time around. It will be interesting to see how it plays out. I think they are already regretting it and they haven’t even signed the final papers.
The funny thing is she feels strongly like the appraisers are in league with the government to keep prices low. I could help but laugh at that, even if it was silently.
‘they haven’t even signed the final papers’
Ask for a price cut.
Sounds like the beginning of a very long nightmare.
Find a way out of it and do it quickly.
appraisers ??
Appraisals are subjective….Therefore, the numbers can change from one appraiser to another….
Appraisals are “subjective” because 90%+ of appraisers don’t understand how to develop estimates or perform simple M&L takeoffs. To be clear, they don’t establish a value based on production cost plus profit.
“Subjective” is just nice way of saying they really don’t know what they’re looking at.
Every appraisal I’ve ever seen looked exclusively at comps. Granted, this is all post-’08 purchases. They just look at what sold within a few blocks and assume everything is equal quality. And they only look at what is in the tax database or the RE listing, they do absolutely nothing more than that.
The only time I’ve seen someone work up replacement cost projections is for insurance purposes. And even then, you have to push them to do it. They tend to overestimate what it would take to rebuild the same house. Construction has gotten better/more standardized. Labor costs haven’t increased in real terms in many years. Etc.
Yes, appraisers are hacks.
“They just look at what sold within a few blocks and assume everything is equal quality.”
The truth is everything is “equal quality”. The issue is the same uninformed hack or his equal “appraised” those sold within a few blocks.
All these mortgages are saddled with phony appraisals.
Vienna, VA Housing Craters; Prices Plunge 5% YoY
http://www.zillow.com/vienna-va-22181/home-values/
Seattle, WA Housing Craters; Prices Plummet 8% YoY
http://www.zillow.com/ballard-seattle-wa/home-values/
‘A severe slowdown could be on its way to Houston. John Moran and David Chen at Macquarie looked at multifamily (MF) and commercial real-estate (CRE) markets in Houston in a note on Friday. The analysts say there has been much “handwringing” over the banking sectors’ loan exposure to oil and gas companies but there could be more serious ripple effect.’
“We have cautioned that second-order fallout, particularly around MF/CRE in ‘oily’ MSAs [metropolitan statistical areas], is potentially more troubling than energy credit per se,” the note said.’
‘that second-order fallout’
In Texas the 80’s real estate did the economy in, oil price drops just exposed it.
Zillow not offering complete data on oily areas
A deal w realtor groups?
In Texas the 80’s real estate did the economy in ??
Early 80’s Ben ??
No, it was still booming up to 1984. It took a while for things to get really bad; maybe 2 or 3 years. Then it got worser.
So the real estate market did not take a severe downturn in 81 when Volker raised the prime rate ??….It paralyzed the market around here…
Housing in CA was already paralyzed before Volker fixed the economy. Resale asking prices were triple construction costs(lot, labor, materials and profit) at that time in CA. Thus, the higher rates were a net positive by driving grossly inflated prices down to dramatically lower and more affordable levels.
‘The 1979 (or second) oil crisis or oil shock occurred in the United States due to decreased oil output in the wake of the Iranian Revolution. Despite the fact that global oil supply decreased by only ~4%, widespread panic resulted, driving the price far higher than justified by supply. The price of crude oil rose to $39.50 per barrel over the next 12 months and long lines once again appeared at gas stations.’
‘When the price of West Texas Intermediate crude oil increased 250 percent between 1978 and 1980, the oil-producing areas of Texas, Oklahoma, Louisiana, Colorado, Wyoming, and Alaska began experiencing an economic boom and population inflows.’
‘overall fuel economy increased, which was one factor leading to the subsequent 1980s oil glut.’
https://en.wikipedia.org/wiki/1979_energy_crisis
US oil production increased until 1986. By then Texas and other oil states were headed into depression. S&L’s, banks were failing.
https://en.wikipedia.org/wiki/File:Top_Oil_Producing_Counties.png
‘When the price of West Texas Intermediate crude oil increased 250 percent between 1978 and 1980, the oil-producing areas of Texas, Oklahoma, Louisiana, Colorado, Wyoming, and Alaska began experiencing an economic boom and population inflows.’
Didn’t a similar boom play out more recently in the U.S. Oil Patch states in response to the oil price bubbling north of $100/bbl in tandem with QE3?
Sadly, oil is now barely able to stay afloat above the $40/bbl resistance level, and places that were booming a couple of years ago are seriously hosed.
Alaska Faces Crisis amid Oil Price Drop
November 23, 2015• US State Economies• by EW News Desk Team
State officials struggle with the budget as low oil prices hamper production and revenue, jeopardizing the Alaska Permanent Fund, a program that comprises of investment dividends paid to residents, according to the Associated Press. Alaska pays no income or sales taxes, and a majority of the state’s income derives from federal aid and oil production.
…
Bakersfield continues to feel oil industry’s pain, city manager says
BY THEO DOUGLAS
Friday, Nov 27, 2015 5:05 PM
The downturn in Kern County’s oil industry is affecting hotel stays and may continue to depress sales tax revenue, forcing cuts to city spending, City Manager Alan Tandy has warned.
In his weekly memorandum to Mayor Harvey L. Hall and the Bakersfield City Council, Tandy did Wednesday as he has done several times this year: caution of the continued negative impact of oil prices, which hover around $40 a barrel and are expected by some to dip into the $30 range.
Oil prices are at a six-month low, Tandy said in his memo, citing U.S. Department of Energy data, and are down roughly 60 percent from where they were at this time last year.
Industry woes have cast a pall throughout Kern, the city manager noted:
• Countywide oil-related employment is down nearly 18 percent from the same period in 2014.
• Just six oil rigs in Kern County were active as of last week compared to 23 at this time in 2014. That’s a 74 percent decline.
• Hotel occupancy has declined during each of the past eight months in a month-to-month comparison to 2014, though exact numbers were not available.
City staff believes this is due in part “to the reduction of oil-related travel to the region,” Tandy wrote.
It’s not yet known how all this will affect Bakersfield’s fourth quarter holiday shopping but so far, 2015 has not been kind to sales tax revenue.
…
Business
Energy Downturn Spreads Beyond the Oil Patch
Oil slump ripples into areas of North American economy that had avoided the worst of the downturn
Buildings sit partially constructed in Williston, N.D., where the oil slump has damped a construction boom.
Photo: Daniel Acker/Bloomberg News
By Chester Dawson
Nov. 23, 2015 7:45 p.m. ET
The prolonged slump in crude prices is rippling beyond the oil industry into areas of the North American economy that, until recently, had managed to avoid the worst of the downturn.
With the crude-market decline in its 17th month and nearly a year after OPEC dealt prices a sharp blow by refusing to rein in output, lower profits and mounting losses are crimping budgets, spurring multiple rounds of job cuts and driving some energy companies to seek bankruptcy protection.
Signs of that distress are spreading throughout once-booming oil-producing regions across North America. Sales of single-family homes in Houston fell 10% on the year in October, the first double-digit decline this year, according to the local association of real-estate agents. Restaurants in Texas and the Southwest have experienced a drop in revenue and customer traffic, industry tracker Black Box Intelligence said in a recent report.
Chili’s Grill & Bar operator Brinker International Inc. blamed low oil prices for weak results in some states that rely heavily on the energy industry.
“While we have been seeing pockets of softness within those regions for a while, the top-line challenges expanded during the quarter across Texas, Oklahoma, Arkansas, Louisiana,” Chief Executive Wyman Roberts said on a conference call last month.
…
If you believe the media, Dallas is still booming. I have my doubts, but the mood is undeniable.
So many things are different. Unlike last time, houses are the focus of the RE bubble. Most house loans are backed by the federal government, not local banks and S&L’s. OPEC doesn’t have the staying power it did back then. Automobiles are way more efficient. The Texas economy is more diversified, but from what I see a good bit of that is real estate related and tech. There wasn’t a QE barrage in the 80’s. There was no Chinese miracle gone bust. No NAFTA/WTO. Interest rates were high. Interest was deductible until the mid-80’s and passive RE losses got changed around the same time, which along with the downturn, killed the apartment segment.
It’s not going to be an exact re-run. But I don’t know if it will be less painful or more.
A year after ‘Black Friday’: Oil bust destroyed thousands of local jobs
Examples of human toll abound, scope elusive
Sunday, November 29, 2015 6:45 am
By Corey Paul
A year ago, Tre McDonald worked as a company man for Occidental Petroleum — the highest level field position in the oilfield, for the greatest crude producer in the Permian Basin.
For McDonald, a Crane native in his 40s, the position was the culmination of a career in the oil patch.
He was a company man for about three-and-a-half years, and it was a good job, he said — his pay came out to about a quarter million dollars a year, and he worked two weeks on, two weeks off, meaning plenty of time for family and vacations for the kids.
“These positions are obsolete now. They’re gone,” McDonald said. “Oil is 38 percent of what it was at this time last year — 38 percent. How can you make a living?
…
Posted November 18, 2015 - 12:06pm
Economist: Oil downturn makes 2016 slippery for Oklahoma
By Chris Day
The nation’s economy will be almost average next year. Oklahoma’s economy won’t even reach average, economist Russell Evans told the audience at Tuesday’s economic forum at City Church.
Evans’ review of the nation’s and state’s economy was part of the 2015-2016 Forum Series put on by the Bartlesville Chamber of Commerce. Jane Phillips Medical Center is the forum series sponsor.
Evans is executive director of the Steven C. Agee Economic Policy Institute at Oklahoma City University. He specializes in regional economic forecasting and public policy analysis. He develops economic forecasts for the state of Oklahoma and Oklahoma City.
Energy sector
The number of active oil rigs in the United States continues to fall, but production has leveled as oil companies have found ways to increase production at existing wells, he said.
Baker Hughes, an oil-field supply company based in Houston, announced earlier this month the average rig count in October was 791, down 57 from September and 1,134 from October 2014.
…
Oil-and-gas industry
Ohio’s fracking boom hits speed bump
Drilling for oil, gas has slowed in rural eastern Ohio, but community leaders are optimistic about rebound
Construction continues on a new hotel near the interchange of I-70 and St. Rt. 209 in Cambridge, despite some downturn in the oil and gas business.
The Dispatch E-Edition
By Dan Gearino
The Columbus Dispatch • Friday November 27, 2015 9:22 AM
CAMBRIDGE, Ohio — When shale oil-and-gas investment hit eastern Ohio three years ago, the results could be measured in steaks and Shiner Bock beer.
At least that’s the way they saw it at the Forum restaurant, a hangout for out-of-town oil-and-gas workers just off I-70. In the evenings, the bar at the front of the house was filled with customers from Texas and Louisiana, and they tended to order from the pricier part of the menu.
So what now, as a sharp drop in oil prices is raising worries that the U.S. energy industry’s boom-and-bust history will reappear?
Despite such concerns, business remains brisk at the Forum, says co-owner Alex Theodosopoulos, sitting in a booth after a weekday lunch rush. His sales to oil-and-gas workers have dipped some but remain high.
“The drilling and stuff has slowed down some, but they’re still drilling,” he said.
…
From last month:
From Candy’s Dirt in Texas. “As I mentioned in my live-blogging at MetroTex Association of Realtor’s annual ’state of the DFW Real Estate union’, Dr. James Gaines, chief economist with the Real Estate Center at Texas A&M University, told 300 plus DFW real estate agents that we might expect a slowdown in the frenetic market we are experiencing. I can see how Steve Brown wrote that ‘Dallas-Fort Worth’s runaway real estate market is likely to slow down in 2016.’ But his headline was almost a shade of 2007 Debbie Downer days: Forecast for 2016 sees slower D-FW real estate, fewer job gains.”
“Home affordability may be a bigger problem in Dallas-Fort Worth, given that home price increases have been outpacing wage gains that in the area. ‘We have smaller household income today in real terms than we had in 1999,’ Gaines said. ‘Affordable workforce housing is going to be a major issue. We are not building enough houses in the $150,000-to-$200,000 bracket.’”
“My take-away from today (and chatting with the agents): the market is already simmering down. As Dave Perry-Miller told me earlier this week, it’s still busy, just not as frenetic. I do see home prices on the upper end of the luxury market softening, or home prices that may have been over-reaching, pulling back. But beautiful, exciting product will still fly off the shelves, and the under $700K market is still extremely hot because of demand.”
The Oklahoman. “Low crude oil prices could be lubricating a turn in the Oklahoma City-area housing market from seller-friendly to buyer-friendly. The inventory of homes for sale has been under the four-month mark for months. But some smell change coming. ‘I see the market right now turning from a seller’s market to a buyer’s market,’ said Phil Boevers, a homebuilder and developer who also is a real estate agent and Realtor with Keller Williams Platinum. ‘I think the economy will slow somewhat due to oil prices — hopefully not too much.’”
“Last month saw an increase in listings priced at $500,000 and above — 109, compared to the usual 60 to 80 — but it wasn’t necessarily tied to job cuts in the energy sector, said Susanna Lorg, president of the Metro Association of Realtors. ‘It’s going to take a little bit of time for it to come around and hit us in the resale market,’ said Lorg. Homebuilders will see and feel pressure from the oil slump first, she said, ’so builders may be thinking about a slowdown.’”
http://thehousingbubbleblog.com/?p=9302
The Oklahoman. “If a million means a mansion, then mansions have been sprouting like oil rigs in Oklahoma County — at least through 2014. We’ll see what the gorilla in the great room has to say about it this year, since the oil patch, again, ain’t what it used to be. Put them all together and it would be a town the size of Cordell, or Drumright, or Bethel Acres — about 2,900 people. (That’s taking those 1,175 million-dollar homes and multiplying by the average Oklahoma County household size of 2.48 people.)”
“Imagine: Streets of gold in Cordell, Drumright and Bethel Acres! Actually, Edmond is the ‘winner’ if there is a race, with 381 million-dollar homes, followed by Nichols Hills with 380, then Oklahoma City with 360, Arcadia with 35, Jones with 15, Choctaw with two and two more out in the county, said Chief Deputy Assessor Larry Stein. Stein did point out that 380 million-dollar homes in 2-square-mile Nichols Hills comes to 190 per square mile.”
“‘Oklahoma property taxes are among the lowest in the nation, approximately 1 percent of the value,’ Stein said. ‘The owner of a million-dollar home pays approximately $10,000 a year in property taxes. That means all these homes would pay approximately $11,770,000 in property taxes.’”
The Advertiser in Louisiana. “Home sales tumbled in September in Lafayette Parish, a steep monthly decline from last September. The drop in sales not likely due to the availability of homes on the market. New listings in Lafayette Parish were up 36 percent, year over year, in September. New construction listings are up 17 percent. Bill Bacque, president of Van Eaton & Romero real estate, suggested some signs point to possible weakening in the market due to the continuing oil and gas slump. Despite boasting an economy that’s more diverse since the oil slump of the 1980s, the market continues to rely on oil and gas jobs for much of its health.”
http://thehousingbubbleblog.com/?p=9293
It’s Friday desk clearing time for this blogger. “They said it’d be different this time, but it appears that Houston real estate is at a tipping point. The oil price crash is just beginning to be felt in the market. John Byerly has been selling real estate for more than four decades, and he’s well aware that in Houston, as goes the price of oil, so goes the housing market. ‘As long as (oil) stays at $100 a barrel, no problem. People are just spending money like there’s no tomorrow,’ Byerly said. ‘When it gets down to $35, $40 dollars a barrel, welcome back to the real world.’”
“Softness in 2015, said Mark Livingston, president of the Central Oklahoma Home Builders Association, stems from weather setbacks last winter, a persistent shortage of buildable lots and ‘the white elephant in the room’ - the wheezing oil and gas business. ‘Although I don’t think we’ve seen a huge impact yet in housing, it’s certainly on everybody’s mind,’ he said.”
“In Edmond, Brian Preston, an agent with RE/MAX Associates, cautioned that a 19-percent hike in active listings, with sales and pending sales (houses under contract) both flat, could take away some seller sway in the marketplace. ‘We are on track for another record year, but sellers will have to watch what they are asking for their house with more competition out there for them. Pending contracts are still good, but more house will be sitting with the new inventory,’ Preston said.”
“The Calgary Real Estate Board recorded 1,448 sales in September, a decline of 32.4 per cent from a year ago. The average sale price was $457,658, down nearly six per cent and the biggest year-over-year drop this year. Phil Soper,chief executive of Royal LePage said people still believe in the Calgary market and that this is a temporary shift rather than a permanent reset of property values. Unless they are distressed sellers, having to sell, people are taking their houses off the market or not listing their properties, he said. ‘Until we see the number of listings starting to climb, I think prices will be protected in the marketplace. People simply won’t be willing to let their properties go with what they perceive as a distressed pricing level,’ said Soper.”
“House prices in Dubai fell by nearly 10 per cent on an annual basis in August, prompting brokers to revise their full year forecasts. Average house values in Dubai have been sinking since the start of the year, when the property broker JLL predicted that prices would fall by about a tenth. Since then the broker has revised its forecast for the full year, expecting average house price falls of around 15 per cent for 2015. ‘The volume of sales has fallen by more than we expected,’ said Craig Plumb, the head of research in JLL’s Dubai office. ‘There is still no sign of a pickup in activity in the market place and so the falls have been more than we anticipated.’”
“He added that he expected prices to continue to fall next year.”
“Moves to take the heat out of Auckland’s housing market appear to be having an effect - and the Chinese could be the first to turn away. ‘None are running scared and no-one has any stories of properties being sold. But some deals have been walked away from and the buyers are seeing too many little roadblocks being put in their way. None by themselves are deal killers - but the gestalt is becoming compelling,’ said Economist Tony Alexander of the BNZ.”
“But local highly geared investors were also being deterred. ‘It is not just offshore Chinese backing away from Auckland at the moment. Inexperienced, undercapitalised people who were entering the housing market from early this year feeling that they had to buy any old piece of crap to avoid missing out on ‘easy’ money have also backed away - thank goodness. The figures do not show this yet, but they probably will before the end of the year,’ he predicted.”
“The property market in Sydney’s west has slumped dramatically, signalling looming problems for investors who were hoping to capitalise on price growth. Instead, prices in the west have slipped by 7.3 per cent over the month of September and the auction clearance rate has hit a dismal 56.4 per cent – a massive drop from Sydney’s record rate of nearly 90 per cent in May.”
“‘What was a blessing before is now a curse.’ That’s how Standard & Poor’s describes the impact of China’s now slowing economy on Australia and other commodity exporters. In a week in which about $60 billion was wiped off the ASX in just one frantic session on worries about the Chinese outlook and what it means for the mining sector, S&P chief economist for the Asia-Pacific Paul Gruenwald has declared Australia the ‘clear loser’. That’s because of it being a large commodity-focused exporter and its strong trade links with China, its number one trading partner.”
“Overlooking London’s most famous park, nestled next to the opulent Mandarin Oriental Hotel in Knightsbridge, is the world’s priciest block of flats: One Hyde Park. And One Hyde Park is sending a message that London’s prime market is deflating”
http://thehousingbubbleblog.com/?p=9270
‘China’s New Weapon to Support Markets: Detectives’
“Beijing remains determined to support equity prices, and officials will stop at almost nothing to make sure the market does not fall significantly from current levels,” said Gordon Chang, an author on Chinese economics and politics.’
Do these people even know what a market is?
Where did all the money go?
China-Latin America Relations: In Ecuador, Dependency On Beijing Financing Of Development Projects Raises Fears, Uncertainty For Some
By Brianna Lee
November 22 2015 9:32 AM EST
Ecuador’s President Rafael Correa (left) waves to students as he and China’s President Xi Jinping arrive for a welcoming ceremony at the Great Hall of the People in Beijing, Jan. 7, 2015. Ecuador has become dependent on China for the financing of major projects.
Reuters/Jason Lee
MANTA, Ecuador – The long stretch of roadway snaking through the parched, rolling hills outside this sleepy Ecuadorean port city will one day wind up at the foot of one of the country’s most buzzed-about development projects: a mega-refinery that will transform Ecuador into a formidable force in the region’s oil and gas industry. When the grand structure is completed, Ecuador will dramatically streamline operations for its biggest export, jobs will flow to the surrounding communities and China, Ecuador’s largest creditor, will have footed the bill.
At least, that’s been the vision of Ecuador’s President Rafael Correa as his government has tried to seal a financing deal with China for the project for several years. But for now, the solitary “REFINERIA” sign that stands at the side of the road points to a vacant, sandy patch of land and a few completed canals, and questions have continued to bubble over whether the funds from China needed to finish the multibillion-dollar project will even come in.
“I have doubts about it, a lot of doubts,” said Fernando Delgado, a 25-year-old mechanic and resident of Manta, a city that currently revolves around the tuna industry but stands to become an important petroleum hub in Ecuador if the refinery ever gets completed. “The refinery is supposed to be for Ecuador’s future, but so far there have been no results.”
The stalled project, for which Ecuador has already spent more than $1 billion, had been billed as a game-changer for the tiny Andean nation, which relies on oil for roughly half its export revenues but doesn’t yet have the refining capability to meet its own domestic demand for fuel. But for many Ecuadoreans, it’s become a potent symbol for something else: the country’s deep reliance on Chinese financing for its big-ticket development works and growing uncertainty over the future of its ties to Beijing.
Over the past decade, China has pumped billions of dollars into countries across Latin America, diversifying its own investment portfolio while dipping into the region’s pool of raw materials like oil, iron ore and soybeans. But in Ecuador, the fanfare around China’s presumed role as a financial savior has deflated, giving way to a rising tide of discomfort instead. The refinery’s stagnancy has been a reminder that the country has few other options for financial lending outside of China for its future development. But critics say years of Ecuador’s dependency on China have left the lion’s share of power and benefits in Beijing’s hands.
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Having a functional, predictable legal system matters a lot.
Individuals and companies will continue to want to do business in the US and have access to US courts for dispute resolution. This is the case even if the US court or arbitrator is going to be applying foreign law (e.g. a lot of insurance contracts opt to use Bermuda law, a lot of environmental cases apply law on causation and damages from the site of the damage, etc).
China, India, Brasil, Russia… I can’t believe people ever bought the BRICs meme. So stupid. All of these countries are also decimating their environment for short-term gain. Sorry Dan.
All of those societies are also far less “equal” than the US. Note: this is NOT to say that America is perfect. But when it comes to generating a decent quality of life for a diverse set of people, the US is up there with anyone. When Sweden and Germany have the same % of “diversity”, let’s see how they do.
“It Is All Rather Scary” - Chinese Debt Snowball Gaining Momentum
http://www.zerohedge.com/news/2015-11-29/it-all-rather-scary-chinese-debt-snowball-gaining-momentum
Sit tight, hold onto your cash and get out of debt pronto.
Brentwood, CA Housing Craters; Prices Plummet 10% YoY
http://www.zillow.com/market-report/11-15/113910/brentwood-los-angeles-ca.xls?rt=14
Labor Force Participation Rate Plummets To 37 Year Low; Jobless Population At Record High
http://data.bls.gov/timeseries/LNS11300000
How do all these non-workers get fed?
I suppose it’s obvious that the move on to increase the minimum wage in many states is going to lead to a worsening of the labor force participation rate. Employers are not rationally going to hire workers if their marginal value product of labor is lower than the minimum wage, and raising the minimum wage increases the number of potential workers for whom this is the case.
Trump
Soup kitchens coming to your neighborhood soon, I hope they give us a choice of with or without rice?