Oversupply, Falling Demand And Weakening Yields
The New Daily reports from Australia. “A Sydney real estate boss has branded young city dwellers ‘generation selfish’ for refusing to cut back on widescreen TVs, Netflix, fashionable clothes and craft beer to get a footing in the property market, unlike thriftier generations of the past. Malcolm Gunning, founder of the Gunning agency, issued the blistering call-to-arms accusing young people of failing to make necessary sacrifices. ‘More and more we are seeing a victim mentality associated with the high cost of property, yet this ‘generation selfish’ sees widescreen TVs, designer clothes, international holidays and eating out as everyday essentials. They simply won’t do what is necessary to cut their lifestyle in order to save a deposit,’ he said. ‘If you were serious about buying a house, you would compulsively save and you’d have to cut things out of your life.’”
The International Business Times. “The gradual recovery of Australia’s house prices could be stymied by a property funding crisis. The crisis is triggered by new borrowing rules imposed by local banks on foreign and Australian purchasers of apartments. The Australian Financial Review reports that Shanghai-based financiers have been complaining that funding of the Chinese clients from Australian banks were frozen. Their only recourse is to foreclose the property or borrow at usurious interest rates from private financiers.”
“The problem is not limited to Chinese buyers of Australian apartments. Local clients of Australian financiers, mostly Asians, have also complained of their settlements being deferred by three months to find alternative sources of funding. Because all deals have been frozen, discloses Mark Yin, agent with Home Tree Group, based in Shanghai, financiers are now scouring for new financing from all over the world.”
The Australian Financial Review. “Trips to Europe and luxury Asian resorts are on offer to off-the-plan buyers of Melbourne apartments as rising supply and falling demand increases pressure on developers. Buyers of two or three bedroom apartments in the south-eastern suburban complex selling for up to $810,000 are offered flights and accommodation in Europe worth $10,000. Buyers of one bedroom apartments, which cost about $350,000, are offered flights and accommodation in Bali, or Fiji, worth $5000.”
“DealCorp managing director David Kobritz said the offer was an alternative to usual promotion packages such as rent guarantees, window furnishings, furniture or technology packages. ‘We just felt it was something different,’ he said. ‘It has been a long, cold, wet winter and we thought it might just help persuade someone on the verge of buying.’”
“Some property developers around Melbourne’s central business district and Docklands are pushing back settlement for off-the-plan buyers by up to three months to enable them more time to refinance their purchase, according to financiers and developers. Oversupply, falling demand and weakening yields are expected to push down apartment prices by between 8 and 15 per cent, particularly in Melbourne, where new apartments continue to flood onto the market, according to BIS Shrapnel.”
The Gold Coast Bulletin. “A Taiwanese businessman who four years ago put his lavish Gold Coast mansion on the market at $16 million has sold it for half that amount. James Tsai’s 2638sq m Sanctuary Cove home has been bought by Chinese buyers in an $8 million deal that has already settled. The house was intended for Mr Tsai’s family and was completed in 2011 but, after his adult children opted against living in Australia, he decided to remain in Taipei.”
“Last year he sold another Sanctuary Cove home for $1.5 million and in 2012 was sued for failing to settle the $1.395 million purchase of a 38th-floor apartment in the Hilton Surfers Paradise. The mortgagee resold the apartment for $780,000 and the court action subsequently was discontinued.”
“The buyers of Mr Tsai’s Sanctuary Cove mansion, Feng Kou and Aiyi Wei, have a home that barely has been lived in, overlooks the Coomera River and has a 78-metre frontage to a private harbour.”
From Domain News. “Perth property prices continue to plummet despite hopes they may stabilise this year, with the median house price now at its lowest point since March 2013. House prices sunk 1.7 per cent to a median of $568,132 in the June quarter, the sixth consecutive fall for the city. Over the past year, Perth house prices have fallen by 5.6 per cent, the worst in the country, bar the volatile Darwin market.”
“‘After looking like the market might bottom out, Perth recorded a sharpish decline in the month and an even sharper decline in the June quarter,’ Domain chief economist Andrew Wilson said. ‘House prices in Perth are the lowest they’ve been in three years and they are still falling.’”
‘Because all deals have been frozen, discloses Mark Yin, agent with Home Tree Group, based in Shanghai, financiers are now scouring for new financing from all over the world’
We have posters here that say Janet is going to take care of this. Janet? Janet?
Bueller?
‘In good news for those wanting to find a rental property vacancy rates are on the way up’
‘SQM Research managing director Louis Christopher said rents were down in Perth by 23 per cent in the past three years. “Outside the current situation for Darwin, I don’t believe rents have fallen this much for any Australian capital city since the Second World War,’’ he said.’
Why Perth, but not San Diego?
What will it take for U.S. rents and home prices to revert to normalcy?
‘A record number of units are being built across Australia, raising fears of buyers being unable to settle and developers canning projects’
‘CoreLogic research analyst Cameron Kusher said the number of units under construction, particularly in Queensland and Victoria, had started to ring some alarm bells. “We haven’t seen too much evidence of it yet, but we are definitely hearing stories that some of these projects when they are coming for valuation on settlement are coming in below the contract price,’’ he said. “Obviously that is a concern because typically the borrower will have to find the shortfall and obviously not everyone can do that.’’
I’ll go you one further Cameron; I’d bet not one will show up with extra cash to close something already worth less that what they agreed to.
“They simply won’t do what is necessary to cut their lifestyle in order to save a deposit,”
Translation: Won’t sacrifice their happiness to overpay for property owned by entitled old people.
‘After rising just over a decade ago to its highest level ever, the nation’s homeownership rate fell to match its all-time low and could drop even further in the months to come.’
‘In the second quarter of this year, the rate fell to 62.9 percent, not seasonally adjusted, which is the same as it was in 1965, when the U.S. Census started tracking the metric.’
This was interesting:
‘The tight supply of homes for sale, combined with higher home prices, may have been behind the Federal Reserve’s silent warning in its latest statement Wednesday. It removed a line from its previous statement, which said, “The housing sector has continued to improve.”
‘While closed sales improved this past spring, an index of signed contracts to buy existing homes was weaker than expected in June, suggesting that sales will not be as strong for the rest of 2016. The homeownership rate fell in all regions of the country.’
‘Despite the market’s seemingly obvious weakening, not all owners of rental properties in Perth are ready to accept the fact that they won’t be receiving the same rental returns they have enjoyed in recent years.’
“We do have a lot of owners who bought their property when the big boom was happening and they’re often not as willing to budge on the rent as others. They throw at us that two years ago they were getting this much and we have to show them the market has changed so much in the last two years that there’s no way you can get the same rent,” Alana Collings, property manager at Perth Property Management told Your Investment Property.’
“We show them what other properties are being advertised for and what they’re actually being leased for and still it can sometimes take their property sitting vacant for a while before they’re willing to change,” Collings said.’
‘With Perth’s vacancy rate so high, Collings said landlords offering incentives to prospective tenants had become an increasingly common move.’
“You can’t just leave the rents where they have been. You’ve got other owners out there and once one drops everything has to,” she told Your Investment Property.’
‘Mark Whiting, director of Perth based Access Property Management, said he believes the rental market in Perth may be even softer than the figures put forward by SQM Research and other outlets and given that landlords need to ensure their property is in the hands of the right people. “Say you happen to be looking for a two-bed apartment in a particular area of Perth, you could be presented with something like 100 different opportunities,” Whiting told Your Investment Property.’
crushing.housing.losses.
US Homeownership Rate Crashes To Lowest Since 1965
http://www.zerohedge.com/news/2016-07-28/us-homeownership-rate-crashes-lowest-1965
Considering resale housing is priced multiples over construction cost($51/sqft for lot labor materials and profit) and 200% higher than long term trend, of course housing demand is going to collapse.
massive.excess.housing.inventory.
‘Hillary Clinton Talks Tough on Shadow Banking, But Blackstone Is Celebrating at the DNC’
“To get to the Democratic National Convention, you take the subway to the AT&T Station and walk to the Wells Fargo Center. Along the way, you’ll stroll by the Comcast Xfinity Live complex, where delegates and honored guests can booze it up. You’ll also see the “Cars Move America” exhibit, an actual showroom sponsored by Ford, GM, Toyota, and others. Finally, you’ll reach your seat and watch Democrats explain why we have to reduce the power of big corporations in America.
Party conventions have always been collection points for big money. But many major corporations sat out last week’s Republican gathering for fear of Trump contamination. There’s no such reticence here in Philadelphia; in fact, it feels like they’re making up for that lack of investment.
As Politico’s Ben White reported on Monday, private equity firm Blackstone has a meet-and-greet on Thursday. Independence Blue Cross, the southeastern Pennsylvania arm of the large insurer, held a host-committee reception Tuesday; their chief executive is the finance chair of that host committee. The same day, Le Meridien hotel had a private event for Bloomberg LP, and the Logan Hotel hosted “Inspiring Women, a Luncheon Discussion.” The sponsors included Johnson & Johnson, Walgreens, AFLAC, the Financial Services Roundtable (the industry trade lobby), and New York Life. (How many people were they serving, given the number of corporations involved?)
Facebook commandeered a bar inside the Wells Fargo Center for delegates and guests. Twitter rented out an entire restaurant, bestowing attendees with free breakfast, lunch and an open bar. (Full disclosure: I had a slider and some salad. The way I see it, I’ve boosted their market value through the free labor of tweeting and deserve something back.) And when the speeches end, convention-goers fan out to a sea of mostly industry-sponsored parties. A particular favorite of convention delegates is the Distilled Spirits Council kickoff, which in Philadelphia featured music from Jason Isbell and former Eagle Joe Walsh.”
http://www.zerohedge.com/news/2016-07-28/nobody-knows-whos-paying-privately-funded-democratic-national-convention
And in other political news, Bernie Sanders leaves the Democratic Party. What would you call that, BSexit?
http://www.zerohedge.com/news/2016-07-28/bernie-sanders-leaves-democratic-party
Ben, I was wondering if you see any parallels between Bernie Sanders and his run as a Democrat and Ron Paul’s campaign with the Republican Party?
Here’s Jill Stein saying she’d step aside for Bernie if he’d join her movement and I think it’s a golden opportunity for him. I doubt he’ll do it, though. I read somewhere he sold his soul to the DNC for the price of an airplane lease (I think it was one of the Wikileaks).
And a lobster slider.
http://viewfromthewing.boardingarea.com/2016/04/17/bernie-sanders-served-dinner-charted-delta-767-meet-pope/
WTF is a lobster slider?
‘Robust home sales and home construction in June gave the local economy a boost, counteracting sluggish showings in spending and general construction, according to a snapshot of local trends that Amarillo-based economist Karr Ingham released Wednesday.’
‘His Waco Economic Index for June showed the continuation of growth over more than four years, with the raw figure coming in at 122.7, up from 122.6 in May and 119.3 in June of last year. Home sales have established new records for the month, quarter and first half of 2016, Ingham said.’
“The number of closed sales was up by over 6 percent in June, and the 297 closed sales is a record for the month of June,” Ingham said. “The second-quarter sales total was up by nearly 10 percent compared to year-ago levels, and sales through the month of June were up by just over 3 percent compared to the first six months of a year ago.”
‘Increased demand creates higher sales prices, with the June average of $199,851 nearly 14 percent above the $175,612 in June of 2015.’
“Interest rates are still extremely low, in the low 3s, and inventory is very low, so if a property is priced properly and in good condition, buyers are jumping all over it,” said Doug Eastland at Doug Eastland Group, Weichert Realtors. “The average number of days on the market is way down. We’re talking days and weeks instead of months.”
‘Eastland said most of his agency’s business involves local buyers moving up or laterally in acquiring their homes.’
“But I have been working with several buyers coming from out of state. Most are trying to get away from California and the high taxes out there,” Eastland said.’
New Ontario mega housing builds demand about three separate monthly deposits, starting small and the last one is generally a whopper. Houses selling for $800,000 could easily have $150,000 in up front deposits.
These developments could easily have two new houses being built.
In addition, these developers are selling up front investments in their projects at about $100,000 each so that they can buy the land and service it. Then they arrange bank financing to do the project.
BUT. What happens when this bubble bursts ? The developer goes under and all these people will be losing their money. Completely.
And $150,000 is probably more than their savings were !
“They simply won’t do what is necessary to cut their lifestyle in order to save a deposit,’ he said. ‘If you were serious about buying a house, you would compulsively save and you’d have to cut things out of your life.”
I don’t understand what this obsession is with the deposit being the stumbling block to buying a house.
I HAVE a 6 figure bank account so I have a 20% deposit. It’s not the deposit idiots, it’s when you factor in that the monthly nut including mortgage, insurance, taxes and depreciation comes out 35-40% higher than my rent.
What this sounds like is a panicked baby boomer projecting their selfishness on the younguns because they need the younguns to buy their overpriced shacks to fund their retirements.
You know what - SCREW YOU baby boomers. WE are not bailing out YOUR selfish asses. We may as well enjoy our travel and craft beers and money while we have it because the governments of the world will be coming after us to fund your insolvent retirement entitlements.
You are doing the economically rational thing - I explained this to my silent generation parents a couple of months back. The eCONomy has been crippled by the older generations entitlements and as such the younger ones aren’t going to be going to college, starting families and businesses and buying real estate in numbers anywhere close to previous generations. No amount of rah-rah speeches or BS pressure tactics will move the needle much in an era of financial cannibalization.
Nothing wrong with being selfish
Nor with being a financially prudential hoarder…
I don’t subscribe, but here’s a snip:
Hong Kong developers seek to tempt ‘wait-and-see’ buyers
Financial Times-9 hours ago
Flick through the property pages and among the glossy ads for new developments is coverage of stalled sales and falling prices. There are concerns over the …
Try not to catch yourself a falling knife.
FINANCIAL TIMES
Hong Kong
Hong Kong developers seek to tempt ‘wait-and-see’ buyers
Prices are falling, sales are stalling, but could this be the right time to buy a home in the territory?
Hong Kong Island and Victoria Harbour
18 hours ago
by: Jennifer Thompson
Hong Kong residents, both permanent and fleeting, love a good bit of property gossip and the rumour that Jack Ma had spent $193m on an upmarket villa perched on Victoria Peak generated plenty of headlines last summer. Ma, China’s richest man and founder of the ecommerce site Alibaba, was reported to have purchased 22 Barker Road, a blocky beige mansion looking out over the harbour. A spokeswoman declined to comment as to whether he had or not.
Since Victorian times owning a home on the Peak has been the ultimate symbol of wealth, even if Chinese residents were not allowed to live there until after the second world war. The sale of number 22 appeared to exemplify the relentless rise of Hong Kong house prices, fuelled by interest from wealthy mainland buyers, persistently low interest rates and the strength of the Hong Kong economy.
A year on and things feel rather gloomier. Flick through the property pages and among the glossy ads for new developments is coverage of stalled sales and falling prices. There are concerns over the strength of the Chinese economy as well as Hong Kong’s close monetary links to the US. The Hong Kong dollar is pegged to the greenback, and the exchange rate mechanism effectively means it has been exporting ultra-loose monetary policy for years. But with the Federal Reserve now in a tightening cycle again, would-be and current property owners are watching to see if borrowing costs rise.
With prices varying over such an enormous range, analysts struggle to pinpoint a universal price dip, but they do agree that at the market’s lower end — properties under HK$8m ($1m) — prices have fallen about 10 per cent from their peak in the second half of last year. The effect tapers the higher you go, with the ultra-prime market — properties worth tens of millions of US dollars — more protected from the dip. Whether this makes it a good time to buy is the $193m question. “It’s like trying to catch a falling knife,” says Denis Ma, head of research at Jones Lang LaSalle in Hong Kong. “If you wait, you should see some better deals coming along,” he says, believing this is “only the beginning” of falls. It is a market that could drop 50 per cent, he adds, although 30 to 35 per cent is more likely.
…
…
Developers are expected to be the biggest losers and many are now offering discounts on new projects to lure buyers. When apartments at The Morgan, a development on Hong Kong Island’s prestigious Conduit Road, became available in June there were a variety of sweeteners on offer, including discounts of up to 10 per cent and extra benefits if a preliminary purchase agreement was signed before the end of the month.
Yet buyers seem to be in wait-and-see mode. While prices have been falling, there has also been a hefty contraction in transaction volumes according to data from the Hong Kong Land Registry. The number of residential properties sold in May was 4,586 — an 11.3 per cent fall on a year earlier. Double-digit falls have been the norm this year.
Two years ago between 30 to 40 per cent of new developments were being sold to mainland Chinese buyers, but that stands at less than 10 per cent now, says David Ji, head of research and consultancy in Greater China at Knight Frank. “Developers are slashing prices to get rid of stock,” he says. “So if you’re a buyer, you’ll wait a bit.”
Yet don’t expect straightforward bargains. Buyers, particularly international ones, will still be liable for Hong Kong’s complex web of property taxes. Stamp duty is levied at a rate of up to 8.5 per cent of the value of a residential property; in addition, non-permanent residents — who require a visa to live, work or study in the territory — must pay a second level of stamp duty levied at a set rate of 15 per cent.
…
Ben, do a Google search for “Hong Kong developers seek to tempt ‘wait-and-see’ buyers site:ft.com” to read the FT article.
Shhhhhhhh!