December 2, 2015

Prices Have Already Soared Enough

The Medicine Hat News reports from Canada. “A federal housing report predicts minimal growth in Medicine Hat’s new-home construction sector, but a large developer disagrees with the assessment for 2016 as being too rosy. ‘I think 2016 will be one of the most difficult years ever in Alberta,’ said Don Sandford, vice president of Lansdowne Equity Ventures, developer of the Hamptons community in the city’s south. Sandford called the prediction much too optimistic considering lot sales to this point in 2015 as well as the fact there are about 55 recently-built homes being marketing in the area right now. ‘Typically there would be about 30 in a normally functioning economy,’ said Sandford. ‘There are indications that the economic conditions are getting worse.’”

“The situation is much worse in the rest of the province, with CMHC stating home construction in Calgary could fall by as much as 38 per cent this year. Drastic slowdowns were reported in Fort McMurray (67 per cent), Grande Prairie (72), and less so in Red Deer (17).”

From Tribune India. “While the winds of slowdown have been sweeping the tricity region on the whole with plummeting sales and slow progress of the ongoing projects, Panchkula seems to have been hit the most as far as real estate fortunes are concerned. Prices have dropped by almost 35-40 per cent and it has an inventory overhang of 20 months according to market watchers. There has been a correction of over 40 per cent in some pockets in the city. ‘A 10 marla built up house which was available for over Rs 2 cr three years back has no buyers even at Rs 1.7 crore,’ says Amit Gera, Proprietor of Gera Engineers. Even in the apartment segment the prices have seen a similar drop.”

The Korea JoongAng Daily. “Some investors fear an oversupply of apartments could drive the Korean real estate market into another recession in 2017. According to data by the Ministry of Land, Infrastructure and Transport, the total number of residences of all types being built stood at 604,340 as of October, up 52.3 percent from the same period last year. That total is expected to exceed 700,000 by the end of year for the first time since 1990.”

“‘This autumn alone, there is already a growing number of unsold or empty apartments in some districts in Yongin, Gyeonggi,’ a property agency official said. ‘New apartments in Sanghyeon-dong, Dongcheon-dong and Seongbok-dong, known as Suji District, have been completed, showing quite a huge popularity, but we can’t say the trend is going to continue next year. Construction companies are hastily selling their apartments in order to build new ones.’”

“A 40-year-old salaryman surnamed Park, who lives in Bundang, lately visited a bank to get mortgages several months ahead of expiration of his jeonse rented house. Park was mulling whether he would extend the current jeonse contract or buy a property on his own. He finally made a decision to purchase a 500 million won ($430,000) apartment with the help of a 140 million won mortgage with a fixed rate of nearly 3 percent for five years. ‘I heard that getting mortgages will be more difficult next year, and interest rates are expected to rise,’ Park said. ‘This would be the last chance to buy a house.’”

“‘The shortage in available jeonse houses and an imbalance of supply and demand will keep housing prices rising further for the time being,’ said Park Hab-soo, a Kookmin Bank private banking center executive. ‘But the hikes will not be as high as this year because prices have already soared enough.’”

Bloomberg on Australia. “Chris Carr, a real estate agent in Sydney’s northwestern suburbs, has had to convince sellers to drop prices on at least six homes in the past two months to complete transactions. ‘Sellers have had to accept up to 10 percent price reductions,’ said Carr, who sells homes in Sydney’s Hills district about 30 kilometers (18.6 miles) from the central business district. ‘There is a lack of international buyers, particularly those with a Chinese background now, who were behind the price rise.’”

“The drop in prices is taking some steam out of three years of price gains that have made Sydney one of the least affordable places in the world to buy a home. Housing prices in Australia’s most populous city have climbed 44 percent in the past three years, driven by mortgage rates that are close to five-decade lows and buying by foreigners including those from China.”

“Chinese buyers, who underpinned a rally in global property markets from San Francisco to Sydney since 2011, are treading more carefully after the devaluation of the yuan and an economic slowdown at home. Chinese demand for Australian property is waning, Credit Suisse Group AG said Nov. 3, estimating that their appetite for global property could drop by 30 percent. In California, international buyers are accounting for the smallest share of home sales in at least eight years as prices climb and investors from China rein in purchases, the state’s realtors group said in October.”

The Epoch Times on China. “Mr. Sun never imagined he would end up protesting outside local government offices in Wuhan, the capital city of Hubei Province, after he put his money in the largest financial management company in central China. But after the firm, Wuhan Wealth Cornerstone Investment Management (Wuhan Caifu Jishi), announced a default on Nov. 24, thousands took to the streets in protest.”

“The firm was defaulting on a ‘wealth management product’ (WMP), a high-yield financial instrument, after a project the capital was invested in ran short of funds. The product had collected about 5 billion yuan ($782 million) from over 70,000 investors, according to one of the investors speaking to China Business Journal. Mr. Sun, who describes himself as prudent, was convinced by a friend who worked at the company that the product, which offered 8.8 percent annual interest, was a risk-free investment.”

“He invested 600,000 yuan ($94,000) three months ago, he said in an interview with the Epoch Times, and has yet to receive a payment. An earlier investor put in the 250,000 yuan he had set aside for his son’s wedding, but stopped receiving payments on Nov. 20, according to China Business Journal, a state-funded publication. ‘My son is getting married soon, what should I do?’ the investor said.”

“WMPs sound too good to be true precisely because they are, according to Xiao Gang, the chairman of the Chinese regime’s securities regulatory commission. In an October 2012 op-ed published in the state-run China Daily, Xiao explained that banks and investment companies rely on ’some empty real estate property or long-term infrastructure,’ or even high-risk projects to generate cash flows for their WMP investors. If those projects face liquidity problems, banks and companies then sell more WMPs to pay their long-time investors first. Xiao Gang called the process ‘fundamentally a Ponzi scheme.’”




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39 Comments »

Comment by Senior Housing Analyst
2015-12-02 06:15:29

Salem, OR Housing Craters; Prices Plunge 13% YoY

http://www.movoto.com/salem-or/market-trends/

Comment by Jingle Male
2015-12-02 06:32:53

Price/SF up 2%. Your “plunge” is such hyperbole! Go jump in a lake! HA!

Comment by Senior Housing Analyst
2015-12-02 06:38:41

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

Comment by taxpayers
2015-12-02 08:38:44

movoto not reporting in many markets
just offering mom data
wtf?realtor pressure???

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Comment by Mafia Blocks
2015-12-02 09:58:24

Remember…… Houses are depreciating assets that empty your wallet every day you own them.

 
Comment by Puggs
2015-12-02 12:28:12

True dat. The losses are magnified when you throw in interest and rent payments (AKA prop. taxes).

 
 
 
Comment by Professor Bear
2015-12-02 07:33:06

Second derivative negative? CHECK

First derivative approaching the zero threshold? CHECK

 
 
 
Comment by Ben Jones
2015-12-02 06:18:50

‘As China’s economy slows and Beijing becomes more relaxed about letting its companies fail, a rising number of foreign bondholders risk being caught up in the country’s unpredictable court system. Although onshore and offshore bondholders have equal standing in China’s bankruptcy law, lawyers and investors who have experienced corporate failures in China, say bankruptcy proceedings are subject to interference from local government officials who rarely prioritise offshore bondholders.’

“In the case of Suntech there was radio silence from the company for four months and only when we applied sufficient pressure did they start to come up with a solution. Creditors are seen as a nuisance,” said an investor who owned bonds in Suntech but declined to be named due to the sensitivity of the issue.’

‘China’s Enterprise Bankruptcy Law, which came into effect only in 2007, incorporates elements of both the U.S. and UK insolvency regimes, allowing defaulting companies, or their creditors, to file for bankruptcy in order to restructure the corporate debt or force the company into liquidation. But the law is still evolving, giving rise to inconsistencies in its application, said Daniel Anderson, a partner at law firm Ropes & Gray, who was involved in the onshore and offshore insolvency proceedings of Chinese steelmaker FerroChina, which defaulted on its debt in 2008.’

‘The case of FerroChina, the first high-profile insolvency case involving a Chinese company, left offshore creditors divided as some recouped as much as 60 cents to the dollar and others nothing.’

Comment by Combotechie
2015-12-02 06:33:22

“As China’s economy slows and Beijing becomes more relaxed about letting its companies fail, a rising number of foreign bondholders risk being caught up in the country’s unpredictable court system. Although onshore and offshore bondholders have equal standing in China’s bankruptcy law …”

(Wednesday’s Joke Of The Day)

“… lawyers and investors who have experienced corporate failures in China, say bankruptcy proceedings are subject to interference from local government officials who rarely prioritise offshore bondholders.”

“‘The case of FerroChina, the first high-profile insolvency case involving a Chinese company, left offshore creditors divided as some recouped as much as 60 cents to the dollar and others nothing.’”

Poof.

Some lost 40%, others lost 100%. Now you see it, now you don’t.

In China, of all places. What a surprise!

Comment by snake charmer
2015-12-02 08:24:20

Yeah, I broke into a smile at that one. “Interference from local government officials”? I’m shocked. And let me guess: prioritization decisions in a bankruptcy are heavily influenced by bribes.

Comment by Ben Jones
2015-12-02 08:32:54

‘He invested 600,000 yuan ($94,000) three months ago, he said in an interview with the Epoch Times, and has yet to receive a payment. An earlier investor put in the 250,000 yuan he had set aside for his son’s wedding, but stopped receiving payments on Nov. 20, according to China Business Journal, a state-funded publication. ‘My son is getting married soon, what should I do?’ the investor said.’

These protesters want the government to bail them out.

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Comment by In Colorado
2015-12-02 09:51:01

‘My son is getting married soon, what should I do?’ the investor said.’

Have them elope?

 
 
Comment by BearCat
2015-12-02 10:11:46

It’s not always better here: look at the GM bankruptcy. Bankruptcy law was ignored by the President, unions got a great deal, bondholders got screwed.

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Comment by Puggs
2015-12-02 12:23:46

So much for the stellar savings rate… Global greed contagion.

 
 
 
Comment by Mr. Banker
2015-12-02 06:25:33

“In an October 2012 op-ed published in the state-run China Daily, Xiao explained that banks and investment companies rely on ’some empty real estate property or long-term infrastructure,’ or even high-risk projects to generate cash flows for their WMP investors.”

Check.

“If those projects face liquidity problems, banks and companies then sell more WMPs to pay their long-time investors first.”

“… to pay their long-time investors first.”

Oh, so not all investors get screwed equally; The long-time investors get paid first via the sale of WMPs to the new investors, which means the new investors get screwed first.

The new investors - the ones who get screwed first - are drawn in to the scheme because the scheme has a reputation of paying out an 8% return to long-time investors- a hefty return generated to the long-time investors by the sale of WMPs to the new investors.

I like it.

Comment by Mr. Banker
2015-12-02 06:44:27

If some get screwed first then that suggests that others get screwed last - or maybe they don’t get screwed at all.

If some don’t get screwed at all then that means the scheme has some very redeeming qualities if you are involved in the scheme and you have positioned yourself correctly.

Now I REALLY like it.

 
 
Comment by Senior Housing Analyst
Comment by aNYCdj
2015-12-02 07:15:45

Now did my wacky idea of paying down everyone’s credit card by say $3000 would have done so much to stimulate the economy…seem so bad?…oh well…..

They have bought in bonds under the theory that this will stimulate the economy by injecting cash. But there are several problems with this entire concept. This is an elitist view to say the least for the money injected does not stimulate the economy for it never reaches the consumer.

Comment by Mafia Blocks
2015-12-02 10:41:38

Raising prices(fed stimulus) crushes demand. Demand is cratering.

 
 
 
Comment by Senior Housing Analyst
2015-12-02 06:41:04

Carmichael, CA Housing Craters; Prices Dive 5% YoY

http://www.zillow.com/market-report/12-15/17310/carmichael-ca.xls?rt=14

Comment by rms
2015-12-02 19:03:10

Carmichael, CA

A friend of mine inherited a smallish, but paid-off, house in Carmichael, CA. I couldn’t find a parking spot when I visited because it seemed like there were five cars for every house. It was a blue collar neighborhood with several generations likely living under the same roof. Some of the houses had bars in the windows and doors. Everything was old and run-down looking. Fugg’n street punks everywhere wearing hoodie sweatshirts and sagging pants prowling for unlocked cars. Zero curb appeal!

 
 
Comment by Ben Jones
2015-12-02 06:41:59

‘The year 2015 has been a difficult period for the Indonesian property sector, with the real estate market continuing to slow into the third quarter of the year. This is due, among other reasons, to the sluggish state of the national economy. On top of the general economic malaise of recent months, high interest rates have also had a direct, and adverse, impact on the performance of the property sector in Indonesia.’

‘It is worth noting that the real estate sector enjoyed a boom in 2012 preceded by sharply accelerating growth from 2009 to 2011. The expansion of the housing market from 2010 to 2012 was indeed incredible, with growth in mortgages of up to 44.52 percent yoy recorded in July 2012. The increase in mortgage growth at the time went hand-in-hand with significant rising sales and selling prices. Booms of several years tend to be followed by market saturation and this is precisely what began happening in 2013, with a continual decline into this year.’

 
Comment by Ben Jones
2015-12-02 06:47:08

‘Property prices in Dubai have declined by more than 10 percent over the past year as investor interest has fallen, according to a new report. The third quarter 2015 real estate report issued by consulting firm ValuStrat said that with a steady decline in prices, stagnant investor interest, delayed supply, stable rents and decreasing sale volumes, next year may witness a plateau in prices, indicating a buyer’s market.’

‘When compared to the second quarter, transacted residential prices dropped by 5.6 percent, it added. On average, apartment asking rents dipped by 4 percent in comparison to the same period last year, and villa rents were down by 6 percent. Compared on a quarterly basis, apartment asking rents declined slightly by 1 percent, and villa asking rents fell by 4 percent, the report said.’

‘In terms of housing supply, it said Dubai’s residential market anticipates a total supply of 18,000 apartments and 3,770 villas in 2015. Fifteen off plan projects were launched in Q3 to add more than 30,000 units to the residential pipeline by 2025, the report said.’

“Twenty-seven percent of this year’s residential projects with approximately 7,800 units scheduled for completion, are delayed and have been rescheduled for handover during the next two years, reflecting some construction slowdown in this sector,” said Haider Tuaima, ValuStrat research manager.’

Comment by Ben Jones
2015-12-02 06:51:20

‘Average rents fell 3.2 per cent in the past one year, with three-bed villas in the Springs, Jumeirah Village, Al Reem, Falcon City and The Villa reporting declines in the nine month period, the consultancy said in its “Dubai 2015/16 Winter Residential Property Market Outlook.”

“Tenants can take comfort in the fact that rents have for the most part stabilised, with no growth recorded during the third quarter. The biggest declines recorded by low-end three-bedroom villas, encompassing the Springs, Jumeirah Village, Al Reem, Falcon City and The Villa, where rents slipped by nearly six per cent between January and September,” it added.’

“We expect 7,400 units to complete in 2016, 10,300 in 2017 and a further 13,600 in 2018, with the new schemes launched during the past quarter, helping to even out the balance between villas and apartments. Over the next three years, 48% of the units delivered will be villas,” said Steven Morgan, CEO, Cluttons Middle East.’

“We’ve seen the popularity of off-plan property sales persist, partly fuelled by the fact that off-plan residential property prices are often 20 to 30 per cent lower than completed secondary stock, which in essence might allow buyers to bypass some of the stringent lending criteria and also possibly avoid the need for a mortgage altogether,” Morgan said.’

 
Comment by In Colorado
2015-12-02 12:47:15

I can understand the Richies buying property in London or New York. But why would you want to buy a villa in Dubai? From what I have read the place is under Sharia Law. And summers are 120F.

 
 
Comment by Ben Jones
2015-12-02 06:58:10

‘When oil prices started taking off in 2004, it was part of the same “commodity supercycle” that sent prices of so many other commodities spiraling up. Oil stayed at the party longer than anyone else but now, the party is over.’

‘The driving force was the surge in economic growth from the emerging markets — especially China . Between 2003 and 2013, China alone accounted for 45 percent of total growth in oil demand. It was a similar story for other commodities.’

‘But the party ended earlier for other commodities as investment to expand production capacity coincided with a tempering of demand growth. Overcapacity and surplus, as opposed to shortage, became the dominating motif, as is so evident in the current travails of mining companies.’

‘As Saudi oil minister Ali Naimi put it, why should they reduce their “low-cost” oil in order to end up subsidizing other countries’ “high-cost” oil? That appears to be the Gulf countries’ posture going into the OPEC meeting later this week. Here again, oil is once more like “just another commodity,” as producers of other commodities are struggling with the same issue — whether to cut production and reduce their market share to bolster price — or maintain output.’

“Why should I make cuts” and make room for higher-cost rivals to step in?, asked a senior executive of one of the major mining companies. No longer does Saudi Arabia want, as Saudi Aramco chairman Khalid al-Falih said recently, to provide an insurance policy “free of charge” for higher-cost producers. In the face of the market fundamentals, he added, “The only thing to do now is to let the market do its job.”

Comment by Professor Bear
2015-12-02 07:05:20

“The only thing to do now is to let the market do its job.”

That’s a great observation, which applies to the globalized residential real estate market as well as to the oil market.

 
 
Comment by Professor Bear
2015-12-02 07:02:17

“Chinese buyers, who underpinned a rally in global property markets from San Francisco to Sydney since 2011, are treading more carefully after the devaluation of the yuan and an economic slowdown at home. Chinese demand for Australian property is waning, Credit Suisse Group AG said Nov. 3, estimating that their appetite for global property could drop by 30 percent. In California, international buyers are accounting for the smallest share of home sales in at least eight years as prices climb and investors from China rein in purchases, the state’s realtors group said in October.”

For a sense of where this dissappearance of Chinese investors from the international residential real estate investing arena leads, refer to the 60%+ collapse in commodities prices since 2014.

 
Comment by Professor Bear
2015-12-02 07:15:46

Dies anyone besides me sense that international Chinese real estate investors have developed a collective case of cold feet over potential future investment losses, after at least some of them recently incurred massive losses in commodities and in domestic stocks or real estate?

 
Comment by Senior Housing Analyst
2015-12-02 07:49:15

Denver, CO Housing Craters; Prices Plummet 18% YoY

http://www.movoto.com/denver-co/market-trends/

 
Comment by snake charmer
2015-12-02 08:31:33

“Mr. Sun, who describes himself as prudent, was convinced by a friend who worked at the company that the product, which offered 8.8 percent annual interest, was a risk-free investment.”
________________________________/

I was taught that anything promising to pay interest at an anomalous rate, or marketed as “risk-free,” was a scam.

And then there’s the friendship angle. Back in the 2006-08 time frame we saw many stories here about people in the real estate industry who had helped fleece their own family members and friends.

Comment by In Colorado
2015-12-02 09:52:42

I was taught that anything promising to pay interest at an anomalous rate, or marketed as “risk-free,” was a scam.

AKA “Too good to be true”

 
 
Comment by Senior Housing Analyst
2015-12-02 09:46:49

Arlington, TX Housing Craters; Prices Plunge 10% YoY

http://www.movoto.com/arlington-tx/market-trends/

 
 
Comment by Puggs
2015-12-02 12:20:19

“Crater Rage for Dummies”

Coming to a BN near you.

 
Comment by taxpayers
2015-12-02 13:37:15

RE taxes going up big
2 reasons
1. soviets look ahead and see flat to down re prices
2. flat stock market means they have to scoop mo money to pay defined benefit pensions

Comment by Mafia Blocks
2015-12-02 13:42:03

crushing.housing.losses.

 
Comment by Puggs
2015-12-02 14:13:58

“RE taxes going up big”

So much for fixed cost theory in owning!

 
 
Comment by Senior Housing Analyst
 
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