February 11, 2016

When Properties Are Basically Commodities

A report from the Australian Financial Review. “The high number of houses for sale in Sydney’s outer suburbs could depress prices, and buyers and sellers need to exercise caution, experts said. In the southwest, where there has been an explosion of house and land packages, there were 1842 listings at the end of January, close to the high of 2100 at the end of last year and August 2008. Lows of 800 listings have been recorded in the past. ‘When there are more listings, there is a perception by some there’s more confidence in the market, but I believe what it means is there are a lot of people competing to sell and that stock is not being absorbed,’ said SQM Research managing director Louis Christopher.”

“Even the private sales are being closed at lower prices, western Sydney agent Just Think Real Estate’s Edwin Almeida said. One of Mr Almeida’s listings, a home with two bathrooms in Stanhope Gardens in the northwest, is being offered for $30,000 less than a similar home with one bathroom sold four months ago.”

The Sydney Morning Herald. “Landlords have long held the upper hand in the rental markets of Australia’s biggest cities, but there are signs that power is receding in 2016. Not only are average property prices slipping in many of the country’s property markets, but recent figures also show key parts of the rental market are also starting to weaken. And in good news for tenants, analysts predict this trend will have further to run this year, after a boom in home construction that has meant there are many more homes up for rent.”

“Sydney rents for apartments fell during the quarter for the first time since 2012. Rents in resources hot spots Perth and Darwin fell by more than 10 per cent in the year. The national vacancy rate is at a 10-year high of more than 2.5 per cent. That is not cause for alarm, but it’s likely to remain there as more home-building projects are completed. ANZ economists Jo Masters and David Cannington say this combination of softer demand for housing and a relatively high vacancy rate is likely to remain. ‘These trends are unlikely to change in the near term, particularly given the strong pipeline of activity in residential construction,’ they say.”

“Commonwealth Bank economist Michael Workman also cites the boom in apartment construction and predicts ‘oversupply’ in some inner suburbs or Sydney, Melbourne, Brisbane and Perth. ‘Residential rents are likely to reflect the oversupply situations relatively quickly,’ he says.”

From In Daily. “Adelaide’s annual rents have slowed slightly amid the softest capital city rental market conditions for 20 years. Weekly rents across the combined capital city increased 0.2 per cent during January, however, they were unchanged over the past 12 months. ‘CoreLogic has tracked annual rental changes since 1996 and over that time, rental growth conditions have never been weaker,’ research analyst Cameron Kusher said. ‘At the same time last year rental rates had increased by 1.7 per cent highlighting that the slowdown in rental conditions has been sharp over the year.’”

“‘For renters there is a lot more accommodation options in the market while simultaneously, landlords are now required to respond to a more competitive environment which, in many cases means keeping rents steady or in some areas reducing rents in order to keep a tenant,’ he said.”

From ABC News. “Dozens of developers are spruiking off-the-plan apartments in capital cities across Australia. Off-the-plan purchases involve putting down a deposit, usually 5-10 per cent of the developer’s asking price for the unit, with the rest of the purchase price due on completion. However, financial advisors warn that, with tens of thousands of new apartments being constructed this year, oversupply is a major issue.”

“In inner-Brisbane the vacancy rate is over 5 per cent and real estate agent Dean Yesberg said that, with 13,000 apartments proposed or built this year, there is a huge oversupply of apartments. ‘Renters have got choice and we’re finding it’s taking longer to rent properties, we’re also finding rents are starting to ease off,’ he observed.”

“For the first time ever, developers and traditional real estate agents are offering sweeteners to compete for prospective tenants. ‘We’re starting to see offers of six months internet free, iPads, we currently have quite a few properties giving a week’s rent free and also $500 Coles vouchers,’ added Mr Yesberg.”

“Buying off-the-plan, investors take the developer’s word at what the apartment will be worth when finished - but banks value only on completion. Banks have recently tightened their lending terms for investors and sometimes will not increase what they are willing to lend. For example, an investor might sign a contract to buy an apartment for $500,000 in 2016 but by the time it’s finished in 2018 the bank values the property at just $400,000. The bank will not lend the investor any more, but the buyer still needs to find an extra $100,000 to pay the developer.”

“This can mean owners are scrambling to secure finance to make up a shortfall - usually at a high rate of interest. ‘They have to find additional money,’ said financial advisor Daryl Dixon. ‘In some cases, if they don’t complete the contract the properties are put up for fire sale again. The purchaser is still liable for any loss involved at the time of the resale.’”

“Any fire sales are likely to end in disappointment. Buyer’s advocate Sam Lally warned it can take years for resale value to equal what was paid originally. ‘There’s just far too many of them. They’re compromised on space, compromised on size,’ he argued. ‘There’s no scarcity value, they’re all the same. So if you have one apartment on the market, there’ll be another one in the same building probably anyway.’”

“The latest real estate data for Western Australia has confirmed a gloomy outlook in the state’s Pilbara region. Amid small rises and falls in the median house price across the state, the premier mining region suffered a fall of nearly 27 per cent over the December quarter. ‘The Pilbara really has taken an absolute battering in its median house price, similarly in its median rents,’ said WA Real Estate Institute president Hayden Groves.”

From Mortgage Business. “A huge number of mortgagee in possession sales are hitting one troubled market with prices being discounted by more than 50 per cent, according to a local real estate agent. Last week, rival estate agent David Hipworth, principal of LJ Hooker Karratha, told the Australian Financial Review that he would get ‘two to three phone calls a week looking for us to value a property for mortgagee in possession.’”

“On top of that, the market has been grappling with the prospect of seeing 2011 prices – when the market was at its peak – reduced by 50 per cent or more. ‘In some instances it’s more than 50 per cent, especially where we’ve got a case of the property being quite old, or maybe if it’s a highly desirable property but it’s sold for a higher price in the boom because of the value that it was achieving through the rent – as we know, back then, properties were basically commodities,’ said Mr Alexander Waters, director of Realmark Karratha. ‘Those are the prices that we’ve seen discounted the most and in some cases even greater than 50 per cent – I’d say up to 60 per cent.’”




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26 Comments »

Comment by Mafia Blocks
2016-02-11 04:09:01

Update: Crude Blows Hole Through $27 Floor; $20 Oil In Sight

http://www.marketwatch.com/investing/future/crude%20oil%20-%20electronic

 
Comment by Professor Bear
2016-02-11 05:36:18

“On top of that, the market has been grappling with the prospect of seeing 2011 prices – when the market was at its peak – reduced by 50 per cent or more. ‘In some instances it’s more than 50 per cent, especially where we’ve got a case of the property being quite old, or maybe if it’s a highly desirable property but it’s sold for a higher price in the boom because of the value that it was achieving through the rent – as we know, back then, properties were basically commodities,’ said Mr Alexander Waters, director of Realmark Karratha. ‘Those are the prices that we’ve seen discounted the most and in some cases even greater than 50 per cent – I’d say up to 60 per cent.’”

Given similar commodification of the California housing market, how long from now should we expect to see 60 percent price reductions from the bubble peak?

Comment by Ben Jones
2016-02-11 07:31:03

‘In some cases, if they don’t complete the contract the properties are put up for fire sale again. The purchaser is still liable for any loss involved at the time of the resale.’

‘Any fire sales are likely to end in disappointment. Buyer’s advocate Sam Lally warned it can take years for resale value to equal what was paid originally. ‘There’s just far too many of them. They’re compromised on space, compromised on size,’ he argued. ‘There’s no scarcity value, they’re all the same. So if you have one apartment on the market, there’ll be another one in the same building probably anyway.’

Recently it was reported that apartments (condos) in Melbourne were 20% vacant with thousands on the way.

 
 
Comment by Mafia Blocks
2016-02-11 05:54:22

“Fasten Your Seatbelts: Kyle Bass Previews The Collapse Of China’s $34 Trillion Banking Sector”

http://www.zerohedge.com/news/2016-02-10/fasten-your-seatbelts-kyle-bass-previews-collapse-chinas-34-trillion-banking-sector

Comment by Professor Bear
2016-02-11 10:08:05

Sounds like the current international financial market turmoil merely amounts to the fat lady warming up to sing the National Anthem. The first inning hasn’t even started yet!

 
 
Comment by Blue Skye
2016-02-11 06:12:46

“2011 prices – when the market was at its peak – reduced by 50 per cent or more…”

Add to that the AUD is off 30%.

 
Comment by Blue Skye
2016-02-11 06:40:58

“Credit has never grown faster or larger than it has in China over the past decade. China’s banking system has grown from under $3 trillion to over $34.5 trillion in assets over the last 10 years alone. No credit system in history has ever attempted this rate of growth. There is no precedent.”

“No matter how one analyzes the available data, China’s economy has already started to experience a hard landing. Consider that China’s National Bureau of Statistics reported that China’s migrant population (defined as Chinese people that have left their hometown to seek employment or education elsewhere in the country) decreased by 5.7 million people in 2015. This was the first reported decrease in 30 years.”

“If the US Fed’s experience serves as a proxy for what could happen in China, we believe that China will likely have to print in excess of 10 trillion US dollars’ worth of yuan to recapitalize its banking system.”

“What Happens Next? Fasten Your Seatbelts”

http://www.scribd.com/doc/298922249/Hayman-Market-Commentary-on-China-February-2016

 
Comment by Ben Jones
2016-02-11 07:14:14

‘Fears surrounding the credibility of central bank policy sparked another sharp sell-off in risk assets on Thursday, forcing investors to rush into traditional safe-haven assets such as government bonds, gold and the Japanese Yen.’

‘Banking stocks got pummeled again on Thursday, with shares in French lender Societe Generale tanking as much as 13 percent after its fourth-quarter net profit fell short of analyst forecasts. Deutsche Bank, which has been one focus for investor worries in recent days fell around 8.5 percent after bouncing in Wednesday’s trade. Credit Suisse and Italian banks including Unicredit were also trading in the red, all down around 8 percent.’

“I think it is pure emotion, fear has overwhelmed and I think the strategy is basically cut now, explain later,” the head of the U.K. Investment Office at UBS, Bill O’Neill told CNBC.’

“We are in an environment of very limited nominal growth. Our sense is that the market is still not comfortable with normalizing interest rates, alongside the conviction that growth will prove to be sustainable. There is a sense in the market, that you can have one but not the other,” he said.’

“This is where I get very worried if we are saying it (dollar- yen) is a safe haven trade. The move in the dollar, to me is beginning to inform me that perhaps the U.S. market is pricing in a much worse outcome for the U.S. economy now, than it was 3 weeks,” said senior independent client adviser at Nomura, Bob Janjuah.’

Comment by Ben Jones
2016-02-11 07:33:20

‘U.S. stock indexes were set to open sharply lower on Thursday, with investors piling into safe haven assets as another fall in oil prices and cautious comments from Federal Reserve Chair Janet Yellen rekindled doubts about global economic health.’

“I think the biggest theme is breaking away from central banks,” said Jack Ablin, chief investment officer at BMO Private Bank in Chicago. “The market is transitioning and attempting to stand on its own two feet. Central banks in general have been the market’s protectors over the last 8 years.”

Comment by Ben Jones
2016-02-11 07:59:26

‘Sweden’s central bank cut its benchmark rate by more than expected on Thursday and said it was ready to do more to push up sluggish inflation amid worries about global growth, despite fears it was stoking a credit bubble.’

‘An aggressive Riksbank lowered the rate to -0.50 percent from -0.35 percent, and effectively expanded its bond purchase scheme by saying it would reinvest money from maturing bonds and coupon payments from its asset portfolio. It said it was looking at other ways to ease policy, including currency intervention.’

“The period of low inflation will … be longer,” the Riksbank said in a statement. “This increases the risk of weakening confidence in the inflation target and of inflation not rising towards the target as expected.”

‘The Riksbank’s decision is the latest piece in a global jigsaw of rate moves amid market turmoil and the spectre of deflation that has seen central banks from Europe to Canada and Australia prepare the ground for more easing. But the risk, both for the Riksbank and others, is that policy easing in too many places will cancel itself out and force national banks into a vicious cycle of competitive currency devaluation.’

Comment by Blue Skye
2016-02-11 08:10:15

How is it possible that all these central banker guys went to the same school of stoopid?

(Comments wont nest below this level)
Comment by Ben Jones
2016-02-11 09:00:35

You mean the one that says Japan is the model? Maybe it was a sign of problems when the entire global financial system took the lead of a guy who talks about printing presses and helicopters.

 
Comment by Blue Skye
2016-02-11 09:57:45

Yeah, that one.

When the drain on this bathtub of deflation gets yanked, we’ll all go together.

 
 
 
 
 
Comment by Ben Jones
2016-02-11 07:37:27

‘Private tech companies are having a tough go of it — and they’re starting to make some changes. Many tech startups that have reached the coveted billion-dollar “unicorn” status are now struggling to raise capital as investors worry about valuations. Industry folks are expecting to see “blood in the water” and “dead unicorns” in 2016.’

‘But Goldman Sachs COO and President Gary Cohn thinks this scare could be a good thing. He described the shift in mindset he’s seen in Silicon Valley over the past three or four months on a podcast with Goldman’s Jake Siewert.’

“Historically in the Valley, the mantra has been ‘Grow at any cost — get bigger, get bigger, get bigger,’” Cohn said. But, more recently, “the mantra has gone to: ‘Cash flow, let’s be profitable, let’s make sure we are earning money and we’ve got a very sustainable business model.’”

Comment by Ben Jones
2016-02-11 07:38:27

‘let’s be profitable, let’s make sure we are earning money’

Well sure Gary, and snap your fingers when you say it.

Comment by In Colorado
2016-02-11 12:47:53

Usually, to be profitable you have to make boring stuff that you actually sell to customers and get paid for.

 
 
 
Comment by taxpayers
2016-02-11 07:41:25

did the recession start yesterday or today?
just checking

Comment by rj chicago
2016-02-11 09:46:27

I asked that very question a while back and then reiterated it again yesterday on bits buckets - I think it started a LONG time ago.
you?

 
 
Comment by Ben Jones
2016-02-11 08:12:11

Foam the runway for the banks:

‘Timothy Geithner is finally cashing in. After an appropriate stint at a think tank to write his memoir and a quiet transition to Wall Street, President Obama’s first Treasury secretary, who left office in 2013, is now ready to make millions thanks to help from a big bank he used to regulate.’

‘Bloomberg News this week disclosed that Geithner has gotten a line of credit from JPMorgan Chase, the nation’s biggest bank, to invest in a new $12 billion fund at the private equity firm where he works, Warburg Pincus.’

‘The filing with the New York Department of State does not give the amount of the line of credit or the terms, but according to Bloomberg, Warburg Pincus executives are signing up for a total $800 million and Geithner, as a top officer, is probably getting a sizable chunk of that.’

 
Comment by Mafia Blocks
2016-02-11 09:07:43

Update: Crude Oil Falls To New 52 Week Low Today

http://www.marketwatch.com/investing/future/crude%20oil%20-%20electronic

 
Comment by Senior Housing Analyst
2016-02-11 09:23:10

Portland, OR Housing Market Craters; Prices Plunge 5% YoY

http://www.zillow.com/portland-or-97210/home-values/

 
Comment by taxpayers
2016-02-11 09:37:30

10yr= 1.58
so now u can get a really cheap mort !
just in time to go BK
only problem is the down payment has evaporated

Comment by Mafia Blocks
2016-02-11 09:40:17

Why buy at these massively inflated record prices?

Buy later after prices crater for 65% less.

 
 
Comment by Senior Housing Analyst
2016-02-11 09:43:45

Sacramento, CA Housing Market Craters; Prices Fall 7% YoY As Declines Accelerate Nationally

http://www.zillow.com/west-sacramento-ca/home-values/

 
Comment by rj chicago
2016-02-11 09:57:41
 
Comment by Mafia Blocks
2016-02-11 12:18:21

Prepare for falling oil prices to dramatically lower and more affordable levels accelerating the economy like nothing else can.

“OPEC Will Not Blink First”

http://www.zerohedge.com/news/2016-02-11/opec-will-not-blink-first

 
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