The Housing Bubble

A report from Bloomberg. “One of the few forecasters to predict both the start and peak of China’s equity boom is now warning the nation will be buffeted by the same forces that caused financial crises around the world over the past four decades. Hao Hong, chief China strategist at Bocom International Holdings Co. in Hong Kong, says a shortage of dollars was the common feature in the oil rout in the 1970s, Latin American debt turmoil in the 1980s, the Asian currencies collapse in 1997 and the global crisis in 2008. Next year will see Federal Reserve interest-rate increases, an improving U.S. current-account balance and a stronger greenback, putting strains on the most-leveraged parts of the world’s second-largest economy, he says.”

“‘Historically, every time the U.S. current account improved, concurrent with dollar strength, some country somewhere in the world plunged into some sort of crisis,’ Hong said. ‘The pressure from a Fed tightening and thus a dollar liquidity shortage scenario will more likely show up’ in Hong Kong property as well as China’s online lending and high-yield corporate bonds, he said.”

“Hot money that entered China with fake export invoicing, metals purchases and disguised foreign investment is now heading for the exit. ‘All roads to hell are paved with positive carry,’ said Hong.”

The South China Morning Post on Hong Kong. “Home sales in the secondary market remained sluggish over the first weekend after the US interest rate rise, forcing owners to knock down prices by up to HK$1 million to speed up sales, according to agents. But even though more owners are willing to cut prices by five to 10 per cent, buyers are still not biting, said Jeffrey Ng, executive director of Hong Kong Property Services (Agency). ‘What we have seen is that most potential buyers want to make use of the negative news to ask for a bargain,’ he said.”

“Chris Wong, executive director at Century 21 Sunshine Property, said owners in general are likely to offer bigger discounts following the rate hike. ‘No one wants to buy now as buyers in general believe home prices will fall,’ he said. The number of flat viewing appointments also saw a week-on-week drop of 20 per cent at the weekend, he said. ‘The market is even worse than in 2003 when Hong Kong was gripped by the outbreak of the severe acute respiratory syndrome (SARS) epidemic.’”

Business Times on Singapore. “More distressed properties were put up for auction this year, but barely a fraction were sold. The number of auction properties rose to a six-year high of 796 in 2015, going by Colliers data which includes relistings, but the number that got sold was dismal at just 33. Grace Ng, deputy managing director, auction & sales at Colliers, said that most buyers now prefer to negotiate privately with sellers as they can seal better deals to buffer themselves against falling property prices and an impending increase in interest rates.”

“A price gap stubbornly persists between what bargain hunters are willing to pay and what owners are willing to accept. Ms Ng said: ‘There has been a stalemate between buyers and sellers. The price gap has not really narrowed. Vendors are more open to negotiations nowadays, but there is a tendency for buyers to lower the offer prices as they drive a hard bargain.’”

“Analysts expect that amid the subdued economic growth forecast for Singapore, owners’ continuing struggle to secure tenants and stiff competition from other sellers with comparable properties in the market, the number of properties listed for auction would probably trend upwards. Property owners may then be forced to become more realistic in setting their price expectations, they added.”

The Australian. “House price woes are deepening in Australian mining towns with one in every two homes in some areas selling at a loss. Homes in Mackay now attracting between half to two-thirds of the weekly rent that they achieved during the high times of 2013, while other mining towns throughout outback Western Australia, outback South Australia and NSW’s Hunter regions are feeling the pain of an ongoing price correction.”

“‘The slowdown in resource-­related investment and falling commodity prices is continuing to have a big impact on housing markets across (mining) regions,’ analyst Cameron Kusher told The Australian. ‘Many homeowners wish to sell their homes in these regions. Unfortunately, buyer demand remains relatively low in these markets. As a result, those people selling are having to reduce their asking prices substantially in order to sell.’”

Moneyweb on South Africa. “It has been a slow recovery for the holiday home market after five years of zero demand for coastal properties. It’s now a buyers’ market and not a seller’s market says Ronald Ennik, principal of luxury real estate group Ennik Estates. ‘Deals are slow and buyers are now in a good position when sellers are a bit desperate to sell their properties. And therefore buyers can call the shots,’ says Ennik.”

“While the primary market has been in recovery mode following the onslaught of the 2008 global financial crisis, holiday homes have been muddling along. The selling of holiday properties – which are still viewed as nice-to-haves – over the years has created a glut in the market. Ennik says: ‘If people go through hard times they tend to sell their holiday properties and hold on to their primary properties.’”

Fairfax New Zealand. “Four in every 10 new mortgages are plunging the homeowners into immediate ‘mortgage stress.’ The Reserve Bank told Parliament in a recent briefing: ‘About 40 percent of residential mortgages in New Zealand are issued at a [total debt to total income] multiple of more than five (that is, five times the borrower’s gross income).’ Mortgage brokers say first time home buyers frequently spend far more than a third of their gross income on mortgage repayments, and often as much as 50 per cent.”

“Broker Campbell Hastie said interest rates were low, and were expected to stay that way for a long time, which made comparisons with the past, when people borrowed lower multiples of their gross incomes to buy homes, misleading. ‘I don’t think it is entirely correct saying borrowing five times your income is more dangerous than borrowing three times your income,’ he said.”

“William Cairns from Cairns Lockie said in places like Auckland: ‘There is no alternative. And I don’t think you can say a couple with good prospects, working hard, is being imprudent.’ Loan Market’s Karen Tatterson said such large debts were now considered normal. ‘For most it is just a cost of living. You pay back the mortgage at the minimum you can and you are going to have to do it for the rest of your life.’”