March 4, 2015

Bits Bucket for March 4, 2015

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March 3, 2015

Reality And Desperation Are Going To Kick In

Bloomberg reports on the UK. “Buying upscale homes in the U.K. through trust funds and overseas-based companies is popular among the rich as a way to minimize taxes and protect privacy. The practice also makes it difficult for law enforcement and the courts to establish whether their owners bought them legitimately. Hundreds of billions of pounds classified as the proceeds of crime are laundered here every year and London’s surging property market is one of the more attractive ways to do it, according to the U.K. National Crime Agency.”

“More than 12,500 London properties worth over 48.5 billion pounds were sold by offshore companies from 2012 through 2014, Land Registry data compiled for Bloomberg News show. More than a third of the sellers were out of the British Virgin Islands. One of the biggest obstacles in tracing proceeds of crime is that law enforcement receive few reports of suspicious customer activities that are related to real estate, and those they get aren’t always useful, according to Transparency International. Just 179 of the 354,186 reports filed in the year ending in September came from property brokers.”

“‘For an individual estate agency, regular business with any high-net-worth individual can be very lucrative for the company and, therefore, there can be a lack of incentive to report of suspicions,’ said Nick Maxwell, head of research at Transparency International. ‘A similar risk arises in small practices in the legal and accountancy sector.’”

From Channel NewsAsia. “It is the height of the property selling season in Australia and the market is running hot - producing sky-high prices which many local first-time buyers cannot afford. Some are blaming the influx of foreign investors for the rise in property values, particularly the Chinese. The federal government in Canberra is now planning a crackdown on international buyers who purchase real estate illegally, forcing them to sell the property and pay back 25 per cent of the value to the government. In addition, it will be more expensive for foreigners to apply to purchase the homes that they are allowed to buy.”

“The property boom is affecting both the high-end and low-end markets, with some harbour-side homes selling for tens of millions, while properties in the cheaper suburbs are fetching sums beyond their owners’ wildest dreams. Real estate agent Catherine Murphy has never seen the market so hot: ‘I sold my own house at the end of 2013 because I thought that was the best market I’d ever seen, but this is even better than that.’”

The Sydney Morning Herald in Australia. “Sydney’s median house price went from $765,493 in the September quarter of 2013, to $872,811 in the December quarter of 2014. Fuelling demand is expectations of lower cash rates. Financial markets are now pricing in a 56 per cent chance of the Reserve Bank of Australia trimming the official cash rate from 2.25 per cent to a new record of 2 per cent on Tuesday. Roger Montgomery, of Montgomery Investment Management noted that eventually ‘the price of those assets [stocks and property] will be pushed way too high,’ he said. ‘After that, a large number of investors will, sadly, suffer financially again – from buying too late and paying too much.’”

The Malaysian Insider. “At a property fair in the SACC mall, shoppers’ faces were grim as they milled around the miniature displays of houses, each with a price tag ranging from around RM300,000 to RM1.4 million. ‘It’s unreasonable,’ said Roslan Mat Sarji, as he studied the glossy pamphlets. ‘I’m helping my son look for a house, but the ones on offer here are all out of our range. Who can actually afford to buy a house in the city in this day and age?’”

“The couple’s sentiments were a common theme at the fair yesterday, which saw a steady stream of shoppers approach the smiling salesmen for more information on the houses on sale, only to balk at the prices mentioned. It was apparent from the fair yesterday that Malaysians still needed homes to own and live in – they were just unable to afford them. ‘Many come and ask about the properties, but the moment we mention the prices of the houses on offer, their faces change and they say they will just wait and see,’ one PKNS salesmen who declined to be named told The Malaysian Insider.”

Barron’s on Brazil. “High inventories and economic pressure in Brazil’s housing will hurt builders even more, according to Citi Research, which downgraded three players to sell. Citi analysts write: ‘Consumer confidence remains low, with large uncertainties preventing buyers from engaging in big-ticket purchases, such as new homes. To top it off, most important cities in Brazil are currently oversupplied, forcing companies to decelerate new launches aggressively and concede discounts in order to reduce their inventory levels. Among the highly-leveraged peer group of PDG, Tecnisa and Rossi, we believe sales cancellations should continue, reducing cash inflows, limiting the degree of debt amortizations and forcing companies to renegotiate part of its corporate debt.’”

Albawaba on Dubai. “Declining currencies in European countries whose citizens are among the leading buyers of Dubai homes are combining with falling oil prices and a tax on foreign property held by Indians to push down home prices in the emirate. Liam Jeffrey was surprised when a couple selling an apartment on Dubai’s Palm Jumeirah artificial island asked the property broker to cut the price by 10 percent just three weeks after they put it on the market. ‘They found a property they wanted to buy in London and when they send the money back to the U.K., they make up that difference on the exchange rate alone,’ said the 26-year-old broker at Smith & Ken.”

“Jeffrey said today’s market is a change from dealing with stubborn sellers who overestimated the value of their properties. The Palm Jumeirah home he’s trying to sell hasn’t found a buyer since the owners asked him to cut the price. ‘Investors are worried that prices will fall and are simply holding off on purchases until they see which way the wind blows,’ he said.”

CTV News Calgary. “New housing numbers released by the Calgary Real Estate Board suggest housing market is down. The number of home sales in Calgary have fallen and listings have doubled which means prices are also on the way down. John Andrews is a real estate expert from Queen’s University and he says a lot of people are listing their homes out of fear, but says they may have already missed out on getting the price they hoped. ‘They’re going to hold on for a few months at that price and then reality is going to kick in, and in some cases a bit of desperation,’ said Andrews.”

“‘The vulnerabilities in China today are very similar to the vulnerabilities in Japan,’ said Roy Smith, 76, who was a Goldman Sachs Group Inc. partner when he wrote a column saying Japan’s rise as a financial hegemon was done. ‘Nobody agrees with me. But they didn’t agree with me in 1990, so at least I have one right.’”

“Among the risks: bad loans, overpriced stocks and a frothy property market are flashing danger for China’s economy and putting pressure on a fragile financial system — similar to conditions that triggered Japan’s fall, said Smith, a finance professor at New York University’s Stern School of Business. A further parallel is the burden of an aging population, with mounting pension and health-care costs, he says.”

“In 2014, the economy expanded at the slowest full-year pace in almost a quarter century. The slowdown has thrown a spotlight on a mounting debt pile that includes souring loans to local government financing vehicles, or LGFVs, which funded a boom in construction. Doubts about the creditworthiness of LGFV debt deepened last year, when Premier Li Keqiang started to pare back implicit guarantees for the regional financing units.”

“‘The Chinese financial structure is very fragile because a lot of it is misreported and will reveal a great deal of weakness when it comes out,’ said Smith, who specializes in international banking and finance. ‘They say a rising tide lifts all boats — a falling tide reveals all the rocks and slime. There was a lot of it in Japan that people did not expect to see.’”

Bits Bucket for March 3, 2015

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March 2, 2015

The Bubble Can’t Help But Burst

Tulsa World reports from Oklahoma. “Tulsa-area home sales rose only slightly in January compared to the same time last year, but they were at the highest January levels since before the housing bust. Tulsa’s average sale price also shot up significantly, as the reported $170,690 was 10.8 percent ahead of January 2014. Mike Craddock, 2015 president of GTAR, said that’s the result of the tightening inventory — there’s now a 5.94 month supply of homes on the market, down 15.7 percent from last year.”

“Craddock said the low interest rates, strong economy and significant commercial development all point to a year for further growth in home sales. ‘I think 2015 will be another strong year, barring something crazy happening,’ he said.”

The Odessa American in Texas. “Signs mount that at least some rent relief is on its way. To be sure, Odessa and Midland have among the most expensive apartment rents in the state. But no apartment complex has a wait list anymore, according to the Permian Basin Apartment Association, which counts about 26,000 units among its Permian Basin-wide membership. Some apartments are starting to advertise move-in specials. It is also a reality of the apartment market that rent reductions require vacancies, insiders say, and often the vacancies come from people who are laid off and move away from the area.”

“That is not an idea lost on renters who want relief, especially the long-time residents like Deidre Orcutt, a married mother of four who pays about $1,400 in monthly rent. Orcutt isn’t in an apartment — like many Odessa renters, she is in a home belonging to a private landlord — but she said she has still seen her rent double in the seven years she has lived there. ‘Not everyone works in the oilfield,’ Orcutt said. “And I’ve actually talked to oilfield families who are struggling too but they can’t afford the prices here. But you don’t have any option, because you can’t find anything cheaper.’”

“Her plan is to buy a home. She said she got a good price from the developer Betenbough, on a four-bedroom house for a down payment of about $6,000 and a monthly payment of about $1,600, including insurance and bills. ‘We are trying to wait now,’ she said. ‘And we are hoping that by some miracle everything decides to go down.’”

The Denver Post in Colorado. “Colorado is on a shortlist of states facing a more elevated risk of home price declines, a sharp contrast to the recent trend of home price gains. ‘While no one knows if current oil price levels will be sustained long-term, we view the dramatic decline in the price of oil as having a real and meaningful impact on the potential for home price declines in these regions,’ Ralph DeFranco, Arch Mortgage Insurance Co.’s senior director of risk analytics and pricing, said in a report.”

“Colorado now ties with Wyoming for the seventh-highest risk score among states. North Dakota and Louisiana are the states most at risk, with the odds of a price drop at 37 percent and 35 percent, respectively. Texas, Oklahoma, Alaska and New Mexico are other states with the highest odds of home price declines in the months ahead. As recently as November, Arch MI had none of those states in the top 10 for home price declines.”

The Winnipeg Free Press in Canada. “Canada’s farm-equipment industry is suffering through sagging sales and job losses as low grain prices and dwindling exports take a chunk out of the farming trade. Manitoba’s largest players aren’t immune, either, with companies such as Macdon Industries and Buhler Industries laying people off and reducing work weeks. The big international brands such as John Deere and Case New Holland have been cutting back for some time.”

“Ron Koslowsky, the Manitoba head of Canadian Manufacturers and Exporters, said it has some similar dynamics to housing markets that heat up into a frenzy where the bubble can’t help but burst. ‘Over a period of a few years, the end users — the farmers — see low interest rates, good times with prices high and good crops and there is a steady demand and things really ramp up,’ he said. ‘But inevitably… you can’t always keep buying.’”

The Courier Mail in Australia. “Locals say the main street of Dalby resembles a ghost town these days. Things have taken a turn for the worse since the glory days of the mining construction boom, with companies responding to falling commodity prices by pulling the plug on new projects and laying off workers across the Surat Basin. The increasing exodus of workers, investment and money from the mining towns has left houses empty and businesses struggling, with many of those left behind wondering what to do next.”

“Retail assistant Tina Henderson, who followed the mining construction boom to Dalby with her family three years ago. She said successive rounds of redundancies had left her worried about her husband’s mining job and her older children were struggling to get full time work. ‘It is much quieter now,’ she said. ‘I actually walked out of the shop last Saturday, looked up and down the street and thought: ‘Where is everyone?’”

“Further west in Chinchilla, the effects of the mining construction boom have mainly been felt in the real estate sector, where rents and house prices doubled from cashed-up workers arriving in the town. Long-term residents said many pensioners had been forced to leave because of high housing prices and now that prices had fallen some weren’t coming back. One real estate agent said ‘a hell of a lot’ of property was on the market – about 400 houses were for rent or sale and buyers were scarce.”

The Business Times in Singapore. “Cooling measures by the government, if left unchecked, could lead to an unintended downward spiralling of property prices, warned Augustine Tan, president of the Real Estate Developers’ Association of Singapore. Already, private housing completions from the last few years of ramp-up in government land sales are presenting ‘a worrying oversupply scenario’ that could bring vacancy rate to a new high, he said.”

“‘Analysts estimate that over 75,000 new private residential units will be completed from 2015 to 2019,’ Mr Tan said. ‘This will cause a further slip in home rentals and downward spiralling of property prices. For homeowners, their investments will be severely impacted… Some may be forced to sell their properties.’”

“‘There are those whose properties’ capital values are waning,’ said Tan Tee Khoon, executive director of residential services at Knight Frank. ‘As far as we are concerned, the rice bowls of property salespersons are severely impacted. With a 51 per cent drop in new home sales last year, the prospect of higher vacancy rates and impending rise of interest rates, we can expect tougher days ahead.’”

Bits Bucket for March 2, 2015

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March 1, 2015

Inflated Prices And Funny Money Spending Patterns

A weekend topic on credit, deflation and the housing bubble. Reuters, “China’s central bank cut interest rates on Saturday, just days before the annual meeting of the country’s parliament, in the latest effort to support the world’s second-largest economy as its momentum slows and deflation risks rise. Globally around 20 central banks have eased policy this year to counter deflationary pressures driven in part by the plunge in oil prices. The surprise interest rate cut in November, followed up by a February reduction in the RRR that poured fresh cash into the financial system, had little apparent effect on business confidence, although the liquidity was welcomed by the stock market.”

“China’s annual consumer inflation hit a five-year low in January while factory deflation worsened, underscoring deepening weakness in the economy. Export and import growth had also tanked in the same month, performing worse than expected. Deflationary cycles, once entrenched, can stall investment for years or even decades, as the case of Japan highlights, and is considered a nightmare scenario by many economists in China.”

The Tribune Live in Pennsylvania. “It’s getting easier for people without much money in the bank to buy a home, triggering concerns that the nation is setting the stage for another housing bust. Edward Pinto, codirector of the American Enterprise Institute’s International Center on Housing Risk, worries the steps are the first onto a slippery slope that leads back to the years before the 2008 financial crisis — the origins of which have been blamed on a housing boom driven by low or no down payments and easy credit.”

“‘The problem with that is the risk of default goes up as the down payment goes down and the FICO score goes down,’ Pinto said, referring to the credit score calculation developed by Fair Isaac Corp. ‘We’ve seen this movie before and how it plays out.’”

“Sam Lombardo, 47, of Mt. Lebanon was pre-approved for a 3.5 percent down-payment loan backed by the Federal Housing Administration and hopes to close on his purchase in Beechview in April. The bartender at Rivers Casino said he could have scraped together 20 percent down for the house, but it would have involved depleting his savings and borrowing against his retirement savings plan. ‘I just figured what I was pre-approved for and what I can afford,’ he said. ‘I don’t want to be house poor. … It does make it nice when these FHA loans only do the 3.5 percent. It makes it more affordable.’”

The Valley News in California. “Those hoping for a jump-start to the valley’s moribund housing market were in for some disappointment in January. Not only were sales down 30 percent from December (865/614), but they were down five percent from last January (649/614), which was the slowest sales month on record for 2014.”

“Rising inventory coupled with weak sales will conspire to keep prices soft for awhile. January’s median price was down four percent from December but managed to stay just one percent ahead of January 2014. January 2014 median was 22 percent ahead of January 2013 but those days of rapid appreciation are gone, at least for now.”

“Distressed sales as a percentage of closed sales jumped five percent in January, up to 15 percent of closed transactions. Indication is that we will see more of this as the year winds on for two reasons – first being that banks have now had a year to get comfortable with, and in compliance with, the so-called Homeowners Bill of Rights ushered in by Attorney General Kamala Harris in 2012. The second reason is that folks who were among the first round of loan modifications are seeing those loans start to re-set this year. If their personal economic circumstances have not improved we will see an increase in short sales and ultimately foreclosures from this market segment as well.”

“Homeowners who had their loans modified to interest only for three years or into an adjustable interest rate are seeing re-sets nearly doubling their monthly mortgage payment while their household income has remained the same (if they’re lucky). Historically nearly 50 percent of modified loans have ended up in default anyway so we’ll see what this new round of re-sets bring us.”

The Lodi News Sentinel in California. “California’s economy has always been boom or bust broken up by occasional stable periods. Starting with the Gold Rush era in the 1850s to California’s aerospace industry surge a century later to today’s tech bonanza, people have rushed to California — mainly Los Angeles and the Bay Area — to make their fortunes and then spend their money as if there were no tomorrow.”

“Now economists are concerned that California’s revival from the subprime mortgage meltdown era that began in 2006 and resulted in homeowners losing billions in equity may be on the verge of collapse. They point to preposterously inflated housing prices and the funny money spending patterns of Silicon Valley’ high tech industries as alarm bells that should be heeded.”

“Harvard- and MIT-educated financial analyst Wade Roush warns that the bubble may be about to burst. Pointing to Facebook — which recently spent $19 billion in cash, stock and restricted stock units to purchase the 5-year-old, $20 million in revenues startup WhatsApp and also laid out an additional $2 billion to buy another startup, Oculus, that hasn’t even introduced its product to the market — conditions are teetering on the edge.”

“To put $19 billion in perspective, Roush notes that the sum is greater than the gross domestic product of Honduras, Jamaica, Iceland, Nicaragua and 80 other nations, exceeds the annual revenues of 355 of the Fortune 500 companies, and equals the net worth of hedge fund multibillionaire George Soros, who’s wealthier than all but 29 people in the world.”

“For wealthy Silicon Valley residents, money is no object — especially when it comes to real estate that’s seen a huge price surge even in the smallest houses, some no bigger than detached garages. One 900-square-foot Palo Alto house with two bedrooms and one bathroom sold recently for $3 million, above the 2014 $1.7 million median price in Palo Alto for homes with less than 1,000 square feet.”

The Australian. “Here is yesterday’s news: - share prices surged to new seven-year highs; housing is booming; wages growth is the lowest on record; interest rates are the lowest ever. And when I say ‘ever,’ I mean just that. Interest rates have never, ever been this low. So to sum up: savers and workers are being crushed; owners of assets are big winners. The reason savers and workers are copping it is that there is an oversupply of everything: labour, money and stuff — savings, liquidity, energy, commodities, goods, services and people.”

“There is a glut of everything, and as a result prices can’t rise and unemployment is stubbornly high, depressing wages (the ABS ‘wage price’ index rose only 2.5 per cent last year, the weakest growth since measurements began in 1998). For central bankers, low inflation and high unemployment depressing wages growth can mean only one thing: insufficient demand. That’s because aggregate demand is the only thing central banks can influence through the price of money. When the only tool you have is a hammer, everything is a nail.”

“It is hoped, consumer and business demand for goods and services will rise, driving up prices and driving down unemployment. But so far, so bad. Earlier this month we learned that retail sales finished 2014 poorly: consumers lack confidence and are not spending. That’s not surprising given low wages growth and uncertainty about government welfare spending. More importantly, businesses are not investing much.”

“Federal Reserve chair Janet Yellen started to prepare markets for the Fed funds rate in the US to rise this year after six years (and counting) at zero or thereabouts. But then she indicated that the Fed is now officially ‘data driven’ — that is, anything could happen, actually. In other words, savers now depend for their livelihoods on whether central banks can get the world’s consumers to start spending and to soak up the glut of everything. It will happen eventually of course — everything always does happen eventually. But for a while, at least, we live in interesting times.”

Bits Bucket for March 1, 2015

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February 28, 2015

Bits Bucket for February 28, 2015

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February 27, 2015

A Glaring Piece Of Hubris

It’s Friday desk clearing time for this blogger. “Some Puget Sound buyers are paying nearly $100,000 more than the list price for many luxury homes in this market. But that trend is all across the board, not just high-priced homes. Broker George Moorhead of Bentley Properties says a lot of sellers are hesitant to put their homes on the market. ‘There is no place to move to, there is no home,’ Moorhead said. ‘The buyers don’t win, OK, because they are having to overpay for something.’”

“Moorhead added that buyers have to be aggressive and be pre-approved for a mortgage before shopping around. If you settle on a home to buy, appealing to the sellers could give you the edge. ‘We are seeing pictures with families with dogs, very colorful letters, the plight of ‘I have been looking for over a year,’’ Moorhead said.”

“The run-down Desert Garden condominium complex has boarded and barred windows, dirt courtyards and a dirt-filled swimming pool. Unit No. 116, a two-level, 776-square-foot home with two bedrooms and one bathroom, sold for $10,000 cash last year. In a sign of just how bloated Las Vegas’ real estate market became, county records show that unit No. 116 sold for $62,500 in spring 2004 and then $82,000 in early 2007 — a 31 percent price jump in less than three years. The peak buyers, husband-and-wife investors from California, tried to sell the condo for $30,000 in summer 2012 but steadily dropped the price, to a low of $20,000 in fall 2013, GLVAR records show. They sold it last January to an investor for just $10,000, an 88 percent loss from their 2007 purchase price.”

“And in true Vegas fashion, the buyer already flipped the property. The investor sold it for $17,043 — 70 percent above what he paid — last June to a buyer from Los Angeles.”

“More Coachella Valley homebuyers are investing in new homes than they were a year ago, and they’re paying about 20 percent less for them. Buyers purchased 58 new homes in the Coachella Valley in January, up 29 percent compared to January 2014. They paid a median price of $357,000, down 21 percent from a year ago, according to CoreLogic DataQuick.”

“Year-over-year resale home and resale condo homebuyers purchased 408 existing homes, down 13.7 percent from 2014, and 223 condos, down 13.9 percent, according to DataQuick. The California Desert Association of Realtors reported that 3,553 single-family homes were on the Coachella Valley market in January — 20.5 percent higher than January 2014 and the highest number of homes on the market simultaneously since at least January 2013.”

“Ted Jones, chief economist for Stewart Title Guaranty Co., who formerly was the top dog at the Real Estate Center at Texas A&M University, said there may be something to reports that Austin has the most overvalued housing market. ‘Housing prices are pretty aggressive compared to the median income,’ he said. ‘It’s definitely being driven by upper middle class jobs and if you have a hiccup happen there, well…..’ One thing is for certain, he added. The market for homes priced at $500,000 and above is ‘oversaturated.’”

“Housing affordability surged for first time Maryland homebuyers in the fourth quarter of 2014, according to the Maryland Association of Realtors. MAR President Janice Kirkner said in a news release that starter home price declined almost $15,000 in the last three months of the year, the major contributing factor in the jump in affordability. ‘We ended 2014 on a very positive note in terms of affordability,’ Kirkner said.”

“The surging dollar is striking fear into business leaders who depend on foreign exports for profits. The same is true in Southwest Florida, an historically popular home-buy destination for Canadians, Britons, Chinese and Western Europeans. ‘I’m already starting to see it,’ said Roger Pettingell, a luxury specialist with Coldwell Banker on Longboat Key. ‘The idea that the U.S. is on sale because of the currency discount doesn’t exist anymore.’”

“‘Not only is the dollar stronger, but for a lot of the feeder nations to Florida, their home currencies have devalued, so the price they’re paying is now substantially higher,’ said Jack McCabe, a Florida real estate consultant. ‘Their finances have been decimated. We’re going to see a change in the amount of foreign nationals that come to Florida to buy property,’ he said. ‘It’s already happening.’”

“Calgary and Edmonton housing markets were ‘hammered’ in January, says the Conference Board of Canada. A report, by senior economist Robin Wiebe, released on Thursday, said the seasonally-adjusted annual rate of sales fell by 23.9 per cent on a monthly basis in Calgary to 20,100 and by 9.8 per cent in Edmonton to 15,372. Month-to-date in Calgary from February 1-25, according to the Calgary Real Estate Board, there have been 1,052 MLS sales in the city, down 33.59 per cent from the same period a year ago while new listings have risen by 11.78 per cent to 2,619. The average MLS sale price of $463,029 which is off by 3.98 per cent from a year ago.”

“The report classified both cities as being in a buyer’s market. According to the Conference Board report, the short-term year-over-year MLS price expectation is from zero to 2.9 per cent in Edmonton. In Calgary, the board classified the expectation as ‘falling.’”

“Mark Colvin: ‘It’s easy to think thart the global economy went back to normal after the global financial crisis but many of the underlying problems that led to were never truly fixed. Are we living in another bubble and is it about to burst, because so often the language of finance is hard to understand. The British writer John Lanchester is one of the most effective communicators on economics around.’”

“Lanchester: ‘I think the weird thing is we are and we’re both inflation and deflation at the same time. We’re in bubbles and we’re in panics almost sort of simultaneously. I think that when you talk to people who know a lot more than I do, the kind of IMF-type people, the Davos crowd, virtually to a man, everyone thinks that this system is in a very risky, very fragile state. And then there’s slightly a game play of pick a bubble, what’s your favourite bubble to likely go pop? The two I hear most about are something nasty in the euro zone which, I mean, trust me, the closer you are to the euro zone, the more likely that seems, or something going wrong in China.’”

“‘They’re both in a fragile and strange condition and then you get these data points coming out of China that you do a double take. People who are more confident about it say that since the Chinese government has full control of everything, full control of every aspect of the credit supply and access to money and all that, if there’s anyone in the world who can engineer what they call a soft-landing it would be the Chinese government.’”

“Colvin: ‘That does assume that the economy is one of those machines with levers and pipes and wires and things that you can control all of and that’s another long-standing economic argument. Where do you stand on that?’”

“Lanchester: ‘There seems to be a profound human impulse to believe that we can control things we can’t and the fact that the sheer complexity of all human interactions together, which is what an economy is, the fact that you can accurately model and control it is just very obviously, I mean to the non-economist which is what I am, it’s just very obviously a glaring piece of hubris.’”

Bits Bucket for February 27, 2015

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February 26, 2015

Accelerating The Burst Of The Bubble

Bloomberg reports on Denmark. “Here’s an example of some of the twists and turns that economies with negative rates might need to gird for. Seven years after Denmark’s property bubble burst, house prices in the country’s biggest cities are already higher than at any point in recorded history. Meanwhile, banks are trying to figure out how to navigate their way through the first auctions that will probably result in investors paying homeowners to borrow. In the leafy Copenhagen district of Frederiksberg, an average 140 square-meter (1,500 square-foot) house costs 1.8 million kroner ($275,000) more today than it did in 2009, according to Nybolig, a unit of Nykredit. That’s about 676,000 kroner more than at the height of Denmark’s real estate boom, which topped in 2007 and burst a year later.”

“House prices plunged about 20 percent from their peak through to their 2013 trough, triggering a community bank crisis and sending the economy into a recession. Realkredit Danmark’s 1 percent mortgage bond due April 2016 traded at about minus 0.6 percent on Friday, according to data compiled by Bloomberg. Its yield has been below zero since the end of January. Nykredit and Nordea say it makes no sense to offer new loans backed by bonds with negative rates, while Realkredit Danmark, the mortgage unit of Danske Bank, says it will continue issuance.”

“Swedes eager to buy a home in Stockholm must play by a new rule: Bid on the apartment before it’s shown to the public. The pace of housing sales in the capital city has quickened so much that buyers often have to make a deal almost immediately after the property is listed. The central bank’s move on Feb. 12 — lowering its benchmark rate to minus 0.1 percent for the first time in its 347-year history — threatens to further stoke demand in the housing market.”

“Hours after taking interest rates below zero, Riksbank Governor Stefan Ingves told Bloomberg TV that other policy makers need to tame household debt while the central bank focuses on deflation. ‘There are a number of things that others can do in order to ensure that things don’t get out of hand on the mortgage side,’ Ingves said. ‘Our households are borrowing too much, and the market is moving up, in my view, too rapidly.’”

The Globe and Mail in Canada. “Winnipeg, Montreal and Moncton are grappling with a surplus of unsold condo units driven by a surge in new construction and a dwindling supply of first-time buyers in the wake of Ottawa’s decision in June, 2012, to limit mortgage insurance to amortization periods of 25 years or less from 30 years. In Regina and Saskatoon, the number of unsold housing units hit a 30-year high, Canadian Mortgage and Housing Corporation said, the majority of them condos. Winnipeg has also seen a surge of new condo construction since 2012.”

“Montreal in particular has been grappling with a glut of unsold condos for the past two years as builders haven’t scaled back their plans in the wake of softening demand. There are now nearly 20 condo sellers for every one buyer in Quebec City and downtown Montreal, said Hélène Bégin, chief economist at Desjardins Group.”

“In downtown Montreal, a joint venture backed by Chinese investors recently broke ground on one of the city’s most ambitious condo projects, a two-phase, 800-unit project known as YUL Condominiums. ‘This is a world-class city which is still not seen as a condo market,’ said Steve Di Fruscia, CEO of Tianco Group, the Vancouver-based company developing the project with Montreal’s Brivia Group. ‘It’s just a question of time to get the local community out of the rental market and into [condos].’”

The Malaysia Chronicle. “Malaysia’s biggest reclamation project is raising concerns over a potential oversupply of homes in Johor, marine environmental damage in the Strait of Johor and the effect it may have on the livelihood of hundreds of fishermen. Some residents are making known what they think of Chinese developer Country Garden’s ambitious plan to raise four islands that total nearly three times the size of Sentosa at their doorstep.”

“Mr Samuel Tan, executive director of KGV International Property Consultants, said about 90,000 units are expected to be built by 2017. ‘Many developers in the area are already pulling their brakes. Some may cancel their plans,’ he said. Johor MP Liew Chin Tong from the opposition Democratic Action Party said: ‘There is already massive oversupply of high-end housing in Iskandar. This massive reclamation is going to accelerate the burst of the bubble… it doesn’t make economic sense.’”

Reuters on China. “The area of land used in new property developments in China fell by a quarter last year compared with 2013, state news agency Xinhua said, highlighting the extent of the country’s housing downturn. Land allocated to new real estate developments dropped 25.5 per cent last year to 151,000 hectares from 2013, Xinhua said, citing data from the Ministry of Land and Resources.”

“Squeezed by weakening demand and a glut of unsold homes, China’s property market started softening last year. Data earlier this month showed average new home prices in China’s major cities fell for the ninth consecutive month in January.”

The Australian. “Some of Australia’s most prestigious — and inflated — housing markets could come under pressure, with the government unveiling new fees and penalties for foreign buyers purchasing property. Melbourne real estate agent Jun Lu described the changes as ’short-sighted’ and the ‘wrong strategy.’ but said they would neither deter foreign investors nor fulfil the government’s purported aim of keeping houses affordable for Australian buyers. ‘This will not deter foreign investors from buying in Australia, but it will send a bad signal to the world, particularly China,’ Ms Lu said. ‘It’s saying Australia is not welcoming to investors. For most of these foreign investors, $5000 is nothing, so it won’t deter them, but it will have a long-term impact in making them think, ‘what’s the next step?’”

“As has been revealed by The Australian, the laws that prevent foreign investors buying established homes in Australia (in all but a handful of circumstances) are not being enforced. The Foreign Investment Review Board has failed to prosecute a single investor since 2006 and has not forced the sale of an ­illegally bought home since 2008. The FIRB has issued only 17 divest­ment orders in 11 years, during which time foreigners bought almost 30,000 established homes worth more than $23 billion.”

ABC in Australia. “A research company has found it is a renters’ market in Darwin, with prices diving in the past year and the number of vacant properties more than doubling. Managing director of SQM Research Louis Christopher said even with the big drop, prices in Darwin were still high. He said he thought rents could drop even further as Darwin’s commodity-driven economy weakened due to a softer mining and commodities sector.”

“Northern Territory Real Estate Institute’s CEO Quentin Kilian said the December 2014 report showed a jump in vacancies and a slump in rental prices, thanks to a saturated property market. ‘One of the reasons in the unit market is we’ve seen a large number of units come into marketplace over the last 12 months,’ he said. ‘That could have been driven by developers’ expectations several years ago of an influx of Inpex workers in the project’s early stages.’”

“However he said the number of Inpex workers looking to buy or rent was less than many expected, as workers tended to stay in temporary purpose-built workers’ villages. ‘The Inpex workforce they were hoping would come and populate those apartment isn’t doing that,’ Mr Kilian said. ‘There has not been the population growth that was expected. Therefore there is an increase in supply, but not an increased demand to go with it.’”

Bits Bucket for February 26, 2015

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