The Housing Bubble

Bloomberg reports on Denmark. “Denmark’s biggest mortgage bank is urging homeowners to remember that a seemingly unstoppable series of price gains can end, and even go into reverse. At Nykredit, chief analyst Mira Lie Nielsen says Danes need to start putting the possibility of housing price declines ‘on their radars’ or risk going into ’shell shock when it happens.’ ‘Our expectation isn’t that home prices will fall in the near future, but it’s important to say, again and again, that especially apartment prices can also fall,’ Nielsen said.”

“‘Prices for city dwellings are at a markedly higher level today and are in a range where few people who aren’t already benefiting from the price gains can join in,’ Nielsen said. ‘So the price level is playing its own damping role on the market, because incomes haven’t quite been able to keep up. This is already visible in Copenhagen.’”

The New Zealand Herald. “Could Auckland’s property market finally be levelling off after all these years? Three big chunks of data have been released this week and all point to a little of the gloss going off Auckland, some by stating that clearly, while others only hint at it by showing growth in many other areas of New Zealand outstripping what was once the country’s hottest real estate spot.”

“A boss at Auckland’s biggest agency certainly indicated that when market leader Barfoot & Thompson’s average sale price dropped from $908,343 in June to $867,681 last month. ‘For the first time in five years, the Auckland housing market is showing unmistakable signs that prices are stabilising and may even be plateauing,’ said Barfoot chief executive Wendy Alexander.”

The Australian Financial Review. “Are global markets headed for a fresh period of turbulence as growing financial cracks expose the underlying fragility of the latest Chinese stimulus-fuelled growth rebound? That’s the concern as investors worry about the first default in the Chinese offshore bond market, where yuan-denominated bonds (known as dim sum bonds) are traded in Hong Kong. Investors were caught by surprise by the sudden privatisation of Chinese infrastructure builder China City Construction Holding Group. The company announced in May that Beijing’s stake had dropped from 100 per cent to 1 per cent.”

“In the past few months, Beijing has been tightening the rules covering its loosely-regulated funds management industry, revoking the licences of thousands of firms. It is also preparing to tackle the rising risks in the country’s huge and lightly-regulated ’shadow banking’ sector, by tightening the rules on the amount of “wealth management products” that banks can issue. Chinese banks have enormous off-balance sheet exposures to such products, which they have sold to customers hunting for higher yields. The banks then channel the money to less-creditworthy customers, such as property developers and companies in over-capacity industries.”

“But the risk is that any crackdown on credit could choke funding for Chinese companies, and trigger a fresh round of problems in the property market. In its statement on monetary policy, published on Friday, the Reserve Bank of Australia says the recovery in Chinese property prices has helped boost activity in the housing sector and allowed Chinese property developers to reduce unsold inventories. The statement notes that housing credit has jumped by more than 30 per cent over the year to June 2016. ‘Housing credit has also increased sharply relative to the value of property sales, suggesting that buyers are using more leverage to purchase property. Given the large stock of unsold properties nationally, any slowing in demand from current levels would pose potential risks for property developers and upstream suppliers of raw materials to residential construction.’”

The Daily Star in India. “Even as recently as 4-5 years ago, it was inconceivable to many low- and middle-income households in Dhaka city to aspire to own property of their own, and get out of the expensive rental trap. Now, that dream is within the grasp of many. An apartment in Mirpur, which was selling at Tk 5,000-Tk 6,000 per square feet about five years ago, is now available at Tk 3,500-Tk 4,500, said Sardar Md Amin, vice-president of the Real Estate and Housing Association of Bangladesh (REHAB), the industry group. Similarly, the prices of a flat in Dhanmondi have dropped as low as Tk 10,000 per square feet from the peak of Tk 22,000 four years ago. The prices have also dropped in other areas.”

“Industry operators said many of the new entrants took up expensive projects, a great number of which were even sold. But the bubble soon burst, prodded by intermittent political instability, a squeeze on bank loans, a bearish stock market and the government’s apathy towards providing gas connections to new buildings. Ahsan H Mansur, executive director of Policy Research Institute, said the main problem in the housing market is the mismatch between the cost of housing and the returns on them. The mismatch is now narrowing because of the reduction in real housing prices. ‘The prices of apartments have fallen to half in real terms,’ he said.”

“But despite the fall, the prices are still high. The huge price correction indicates that the market is working. ‘There will be some real adjustments. And it will take 1-2 years for the housing sector to turn around. Our builders made so much money between 2008 and 2012 — they wouldn’t have earned that in their lifetimes otherwise,’ said Mansur, also a former economist of the International Monetary Fund.”

From Politico EU. “The Aberdeen Food Bank Partnership is housed in a former fish-filleting warehouse a stone’s throw from the docks. In a city once known as ‘Europe’s oil capital,’ former oil workers are now queuing for food parcels. ‘One man came in with a Porsche recently. He had lost his job, his house,’ says Dave Simmers, chief executive of Community Food Initiatives North East, the food bank’s parent body. ‘Oil companies used to be our biggest social enterprise customers and the profit from that supported our charity work. That’s completely changed,’ Simmers adds.”

“Plunging oil prices — the cost of a barrel is barely a third of its June 2014 high of $114 — have changed the face of the ‘Granite City.’ Streets in the city center, hewn from hard, gray rock, are pockmarked with empty retail units and ‘To Let’ signs. Amid widespread job losses, many are struggling to make ends meet. In spite of the downturn, Aberdeen’s skyline is littered with cranes. Construction for new shopping centers and hotels planned in the boom years is still going ahead.”

“Hotel rooms were once so hard to come by that offshore workers were put up in Edinburgh, more than 100 miles away. Now, vacancies are the new normal. ‘What we are experiencing now is here to stay,’ says Stewart Spence, owner of the five-star Marcliffe Hotel. ‘When we had $100 oil, we had 100 percent occupancy. Now we have $40-$50 dollar [oil], we have 40-50 percent occupancy. That’s what we have to live with for the future.’”

“Back at the Aberdeen Food Bank Partnership, volunteer Ingrid Pringle is concerned about the city’s future. The retired social worker recalls moving to Aberdeen from south-east England in 1981. Four decades ago, oil transformed Aberdeen from a rough fishing town into a key player on the global market. But the city has little to show today for the billions that passed through it, says Pringle.”

“‘Back then it was a city on the up. It doesn’t feel like that now,’ she says as she fills plastic bags with fruit and vegetables during her weekly six-hour shift. ‘I assumed that the oil industries would invest in Aberdeen, but aside from sponsoring the odd roundabout they haven’t really done anything.’”