April 19, 2015

Bits Bucket for April 19, 2015

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April 18, 2015

Does ‘It’s Just A Boom’ Still Hold True?

A weekend post on bubble recognition. The Seattle Bubble, “Housing Bubble 2.0: The Perma-Bears Respond. “Ben Jones, who has been blogging about the housing bubble from down in Arizona since late 2004 at The Housing Bubble Blog linked to my ‘Welcome to Housing Bubble 2.0′ post yesterday, prompting an interesting discussion in the comments. Here’s a selection from the conversation that ensued: Comment by Ben Jones - ‘I’ve called this the ‘it’s not 2000-pick your year’ excuse. Sure, house prices are up up UP! There are people camping out for pre-construction houses, multiple offers over asking, investors running wild. Shortages, man, shortages! But; there are not the exact circumstances of the pick your year. The bubble is in the minds of the participants, and it couldn’t be more clear. All the proof you need is in the prices. It doesn’t matter how you get there.’”

“I disagree with the premise that ‘all the proof you need is in the prices.’ If that were true, then New York and San Francisco have basically been in a perpetual housing bubble since the middle of the twentieth century. There is a lot more to recognizing a housing bubble than just the prices.”

“For perspective on where Ben and most of his commenters are coming from (and to explain my use of the term ‘perma-bears’), in early 2012 when I was saying that ‘I suspect that we’re basically at ‘the bottom’ for home prices,’ here’s what Ben was saying: ‘It’s difficult to understand where we are with the global housing bubble, because the media ignore it. So anyone interested has to glean what they can from various sources. IMO, many countries or entire regions are either at all time highs, or just barely off the peak. I don’t have time or space to post them all…’”

“‘I read the NAR economists saying prices were up in the US in almost every state. I don’t know about that, but even if it’s true, they are up in Jakarta too. So what? What should matter is are house prices too high. Are lending standards where they need to be. Again, if ‘affordability is at an all time high’ as the NAR says, how come the govt is doing all the lending at under 4% with little to nothing down? I don’t see how this situation isn’t ringing alarm bells around the world. I guess it is, but not many are listening.’”

“The focus of Ben’s blog is typically on the ‘global housing bubble,’ which he seems to believe is still going strong. I’m not making any particular claims about anything global since the focus of my blog is local, but I do try to do my best to stay aware of what’s going on in the big picture.”

“To reiterate my point, I do think we are currently in the beginning stages of another housing bubble. However, I think that it is building up very differently than the one that inflated 2004-2007, and will therefore have a very different outcome than the last one. I don’t yet know what that will look like (no one does), but I strongly suspect it will not include a dramatic increase in inventory, a flood of foreclosures, and rapid decreases in home prices.”

Then a couple of days ago there was this: ‘Warning: New Housing Bubble Ahead.’

“This comment left by Ryan strikes me as a clear warning sign of another housing bubble inflating in Seattle. ‘Just pulled the trigger on buying a townhouse in Fremont for $745k. Haven’t closed yet so don’t want to link to the MLS. Thought I would share my thinking on why I bought and what the situation was like. List was for around $650k. Property had multiple offers, most within a few $k of the accepted price. List to accepted offer in about 7 days.”

“‘Three quarters of a mil for a townhouse seems insane but we feel good about the purchase for a few reasons: My office is on the same block as the unit, can’t beat that commute. I’ve lived in Fremont for years and want to stay for the long haul both a resident and business owner. The unit was unusual in a number of ways, all good. Exceptional build quality. Units sold nearby with same square footage for similar price that are absolute garbage. We wanted a house but didn’t have the capital to buy and then remodel, most things in our geographic range needed work.’”

“‘I felt good about the potential future appreciation of the property due to being so close to all of the major tech employers.’”

“‘On the downside it’s definitely on the high end of what anyone paid for a townhouse in Fremont and there is no way around the fact that it’s insane amount of money. If tech is in a bubble it still feels like the early stages of the bubble and we didn’t see the situation improving. Mid term (5 year range) it seems that traffic will get drastically worse as everything under construction comes online, so it seemed smart to set up our lives not to have to leave the neighborhood.’”

“‘Just one perspective from someone helping to inflate both the tech and housing bubble.’”

“Here’s what concerns me the most: $745k for a townhouse. In Fremont. The home sold for $100k over list price with multiple offers at that level. The buyer cites that he ‘felt good about the potential future appreciation’ as partial justification for paying so much.”

“I still don’t think we’re likely to see another big price crash (yet) but stories like this one definitely scream ‘housing bubble’ to me.”

From an article I posted in the comments yesterday, “Matthew Gardner remains comfortable with these steeply rising housing prices. The long-time Seattle economist — who does a lot of work in the housing market — thinks the dramatic price increases will continue this year and possibly for the next few years because inventory remains tight. But he notes that the really big jumps are mainly in “close-in Seattle” — particularly places like Queen Anne and Capitol Hill. Across the metropolitan area prices haven’t and won’t climb so steeply. Those locations are in fact still affordable, he said.”

“Well, these close-in price hikes are starting to get into OMG territory so Crib Notes asked Gardner, who is principal of Gardner Economics, and some other experts to answer this question: When does this stop, and how? These increases can’t keep going. It’s not natural, not sustainable. A huge question on a lot of folks’ minds is: Will this end with a ’soft landing’ or something more like a slam down? You know, like something bursting?”

“Crib Notes wrote a year ago: People, it’s a boom, not a bubble, because there isn’t the crazy-bad lending, appraising and non-regulation now that stoked THAT bubble. But dang, does ‘It’s just a boom’ still hold true? How about that recently headline saying Seattle’s median home price rose 18.9 percent from March to March, to a hefty $535,000. Really, 18.9 percent!”

“Gardner made a key point: The crazy lending that fueled the last big bubble and burst is not happening this time. ‘There isn’t any subprime now,’ he said. The science of it starts with income levels. If incomes climb enough to support the higher monthly house payments created by these big fat house prices, then they are sustainable. If prices rise too high, then the market corrects.’”

“‘We forecast close to 48,000 new jobs in the metro area this year,’ he said. ‘Seattle remains one of the best locations relative to potential growth in 2015. We still have some potential for prices to move higher without a bubble forming.’”

Bits Bucket for April 18, 2015

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April 17, 2015

A Riskless, Highly Profitable Investment

It’s Friday desk clearing time for this blogger. “Sonoma County home sales remain at their lowest level in seven years, but last month, 613 properties entered the market as new listings, the most for March in five years. Bill Facendini, president and broker for Terra Firma Global Partners in Santa Rosa, said the new listings in March didn’t have much effect on home values in three of the county’s hotter markets: Healdsburg, Sebastopol and west Petaluma. ‘The prices they are achieving are way above where they should be,’ he said.”

“Stephen Liebling, manager of the Coldwell Banker office in Sebastopol, noted that typical tract homes in Sebastopol are selling for $750,000. ‘It’s really crazy,’ he said.”

“Susan Coyle says her Real Estate Two agents can feel it, whether at her original office in Shelton or in Fairfield. Buyers are out in force and sellers appear ready to make a deal, if not quite at the prices they would like. ‘A lot of listings have, all of a sudden, started to come onto the market,’ said Coyle.”

“Across Fairfield County, the average price for a single-family home climbed just 0.6 percent, to $643,000, while the price of the median home sold was off slightly to $394,000. ‘The hardest thing is to explain to the seller that prices have not increased,’ said Coyle. ‘(Homes) are coming on the market, they’re selling; but … the prices have not gone up.’”

“The specter of plunging oil prices hung over Baton Rouge-area real estate market discussions, with predictions that it could lead to a glut of new apartments. In 2015 alone, 1,666 apartment units are expected to be completed. The vacancy rate was 5.5 percent during fall 2014, compared to the national average of 4 percent. Rents have gone up 6 percent since 2010. ‘We could end up with a glut of units,’ said Wesley Moore, with Cook, Moore & Associates. Moore said nearly 6,000 new apartment units are planned in the Capital Region by the end of 2016.”

“Brokers say condo rental rates in Brickell and downtown are largely the same as six months ago and expect they will remain so or even trend down a bit as new units come on line. Jonathan Garcia, broker for ONE Sotheby’s International Realty said the condo market in Miami is strongly linked to foreign demand, with some 80% of the units purchased by foreign investors. He said changes in the currency exchange rate of countries like Brazil, where the currency has dropped 30% since October, will affect Miami.”

“In the next 2½ years, Mr. Garcia said, 40,000 new units will be coming online in South Florida, 20,000 of which will all be in the downtown market at the same time. With so many new units hitting the market at once, said Duff Rubin, senior VP of the Southeast region for Coldwell Banker Residential Brokerage, renters will have that many more choices so prices will have to be more reasonable. ‘Owners saw unrealistic appreciation, which is no longer sustainable,’ he said. ‘Supply has caught up with demand.’”

“Calgary’s resale housing market saw the country’s steepest year-over-year sales decline among major cities last month, says the Canadian Real Estate Association. Meanwhile, property listings continue to rise. More than 5,800 Calgary properties were for sale on MLS listings this week compared to about 3,600 a year ago. Gary MacLean, a realtor with RE/MAX Real Estate Central in Calgary, said the median and average sale prices of single-family homes and condos in Calgary have remained depressed since peaking in March 2014.”

“‘This occurred long before oil prices crashed,’ he said. ‘The thing that is concerning is we are in our peak listing period of April and May and more and more homes will be coming to market in an already overcrowded market place. Sellers must price their homes competitively. If they are the least bit overpriced, they will just sit there.’”

“Before the crash, investors piled into one large apartment block named after Hanover Square in the West End of London. The Dubai development is 15 minutes from a golf course and the sea and half an hour from the busiest international airport in the world. Speculators made a fast buck by selling off-plan properties for a large profit within weeks of their initial investment - with no intention of ever living there. In 2007 investors put down tens of thousands of dollars but have so far received nothing. Linda Mahoney, one of Dubai’s first Western estate agents, described it as a game of musical chairs. ‘It went on and on and on and there was always another place to sit… In June 2008 the music stopped and the chair wasn’t there.’”

“A surge in house prices and sales since 2013 suggests confidence is returning to Dubai’s real estate sector after its disastrous past. Many in the industry do not rule out another bubble forming. Sunil Jaiswal organised the first international property show dedicated to Dubai. He told me that the question he gets asked most in any show is whether the market will crash. ‘Right now the market is quite stable in Dubai. We haven’t seen excessive growth… Will the market crash? Of course it will. Maybe it’s three months away. I don’t know,’ Mr Jaiswal said.”

“Australia will have a housing surplus by 2017, according to one of those who predicted the current surge in housing activity, Goldman Sachs head of macro-research in Australia, Tim Toohey. Price falls are possible. The managing director of property and building forecasters BIS Shrapnel, Robert Mellor, says that in markets with significant excess supply, prices could fall 5 to 10 per cent. It will have a dramatic effect on housing demand, with Goldman Sachs revising an estimated shortage of 140,000 homes in 2017 into a 75,000 surplus.”

“BIS Shrapnel is no longer pointing to undersupply in many metropolitan markets. Brisbane is heading towards balance, Melbourne has a massive inner-city apartment supply pipeline, South Australia is already oversupplied and Perth faces a ‘massive’ population correction. ‘The primary determinant of net migration to Australia is not the number of illegal immigrants or the number of tourist arrivals, it is the relative strength of onshore versus offshore labour markets,’ writes Toohey. ‘Would you move to a country where you can’t get a job?’”

“Land sales revenue in 40 mainland cities plunged 57 per cent last week, with industry experts saying developers could have chosen to stay out of bidding wars at auctions due to a softening market. China Index Academy said there were 4.17 million square metres of land released for sale last week, 70,000 square metres less than the previous week. Twenty-six of the 40 cities it monitored sold no land last week. ‘Big developers have already built up relatively large land banks that are sufficient for development for next several years,’ said Thomas Lam, the head of valuation and consultancy at Knight Frank. ‘In the absence of fierce competition, land being sold for record high prices may not be repeated in coming sales.’”

“‘For some of these governments, income stemming from land sales could be as high as 60 per cent [of the total],’ Lam said. China Index Academy said land sales revenue generated from the sale of residential sites amounted to 3.6 billion yuan last week, down 69.5 per cent from 11.8 billion yuan the previous week.”

“Former Reserve Bank Governor Don Brash says the Government won’t be looking to bring down house prices too quickly because it would see them voted out of office. His comments come as the bank urges the Government to consider a capital gains tax on property to ease housing pressures, particularly in Auckland where the average sale price is now above $750,000 – almost nine times the average annual household income.”

“Dr Brash says ‘bubble’ is an emotive term, but house prices in Auckland have become out of proportion with incomes in recent years. ‘Once this momentum starts, people assume that it will always go on. House prices haven’t fallen for 45 years in New Zealand, people assume they never will fall and therefore this is a riskless, highly profitable investment.’”

“If the Auckland market is a bubble and it bursts, it won’t only be investors that get burned. ‘The one sure thing is if house prices do return to their normal relationship with incomes, the Government’s gone because a whole lot of property owners will be badly hurt by that process. But who knows? We don’t know how it will end, but we do know that we can’t keep on going as we are now.’”

“The regulator of Fannie Mae and Freddie Mac will direct the housing-finance firms to slightly cut mortgage fees for riskier borrowers. To cover the cost of the reductions, Fannie and Freddie will raise fees on some other borrowers, such as those borrowing for an investment property and some of those who have safer borrowing characteristics, with the intent of the changes to be revenue-neutral for Fannie and Freddie, the people said.”

“Separately, the Federal Housing Administration–which insures loans to borrowers who make down payments of as little as 3.5%–in January said it would cut fees by 0.5 percentage point for most borrowers.”

“The FHFA’s latest decision to lower fees for some borrowers is ‘just starting to look like part of a larger trend, that’s my real concern. What’s next?’ said Mark Calabria, director of financial regulation studies at the libertarian Cato Institute. ‘There was not some single moment or event that got us into the last mess, but the accumulation of lots of errors.’”

Bits Bucket for April 17, 2015

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April 16, 2015

High Prices And A Glut Of New Inventory

KGW reports from Oregon. “Portland’s hot housing market has buyers stepping up their game, and the pressure is forcing some to get personal. Local realtors and sellers say they’ve seen cases, recently, of desperate buyers sending unexpected gifts, like baked goods or wine, and dropping by unannounced. Some are even knocking on the doors of homes, not for sale, and asking to look around! Realtor.com gives a step-by-step guide. It’s so specific, that it instructs the writer to flatter the seller, avoid mentioning future changes you’d make to the home and end with a sincere, yet conversational sign-off.”

“Portland realtor Mary Pahl adds, be truthful about who you are, and trust that the right seller, with the right home, will relate. ‘They want somebody that’s going to come into their home and take care of it the way they did, and that’s important to most sellers,’ she said. ‘So, if you can say ‘This is what I want to do with this. This is how I see myself living in your home’… It just puts them one leg up on the competition.’”

The Washington Post. “The spring home-buying season has started strong in the D.C. region with house hunters scooping up places to live at a brisk pace. Prince George’s and Montgomery counties accounted for 42 percent of the sales in what RealEstate Business Intelligence classifies as the D.C. region, due in part to the high number of foreclosure sales. Those two counties were where 85 percent of the foreclosed homes were sold in the area.”

“The median price for the D.C. region climbed to $400,000, rising to its highest level for March since 2007, which was during the height of the housing boom. Most jurisdictions had median price increases with the exception of Falls Church and Howard County. Falls Church, whose median price soared to $712,500 in February (a 27.9 percent year-over-year increase), saw its median price plummet to $585,000 last month (a 19.1 percent year-over-year decrease). Because there are so few sales in that jurisdiction, the numbers tend to be volatile. Howard County’s median price dipped to $365,162 last month from $400,000 in March 2014.”

The New York Daily News. “It’s raining condos in Manhattan. A stream of uber-luxe new condos is coming to market in some of the city’s priciest locales, finally putting an end to the enduring inventory shortage that’s been pushing up prices. Approximately 5,377 new condo units are expected to hit the market this year, including 1,900 this spring alone, according to data from Corcoran Sunshine.”

“That’s still well below the peak of the last cycle in 2007, when a whopping 8,052 units came on the market, but it’s more than double the number of new apartments that arrived last year and almost 20 times the number that were built in 2011, following the economic crash. ‘It really is a lot of inventory,’ said Andy Gerringer of the Marketing Directors, which specializes in marketing new condos and rentals. ‘It could create a bit of a backlog in the market.’”

The Miami Herald in Florida. “Houses are staying on the market longer in the Miami area than in most other big cities around the country, according to Trulia. The likely culprits? High prices and a glut of new inventory, said Trulia chief economist Ralph McLaughlin. ‘Miami is in this weird stalemate situation where sellers probably don’t want to reduce the price of their units because they don’t want to lose money, but middle-class buyers aren’t able to afford them,’ McLaughlin said. ‘So what we’ll see is homes sitting on the market longer until either sellers decide to lower their sales price or the economy continues to improve and buyers can start to afford them.’”

The Press of Atlantic City in New Jersey. “Atlantic County again led U.S. metropolitan areas in foreclosure activity rates in the first quarter of 2015, and other southern New Jersey counties saw big year-over-year increases too, RealtyTrac said. The new figures reinforce the struggles of real estate markets battered by years of down local economies and a spate of New Jersey distressed properties delayed by previous backlogs and moratoriums.”

“All area counties and New Jersey were up in the first quarter from one year ago. ‘It signifies this is still a market that’s experienced a lot of housing trouble,’ said Daren Blomquist, vice president of market research firm RealtyTrac. ‘It’s not just that (Atlantic County) is the highest but we’re continuing to see these increases in foreclosure activity so it’s still getting worse.’”

National Mortgage Professional on Rhode Island. “The nation’s smallest state is seeing an oversized spike in foreclosures. According to a new report, Rhode Island experienced a 30 percent year-over-year increase in foreclosure deed filings during the fourth quarter of 2014 and a 10 percent increase in 2014 versus 2013. The new report, which was compiled by Roger Williams University’s HousingWorks RI research group also found that 11,609 residential foreclosure deeds were filed in the state between 2009 and the end of 2014, representing 6.5 percent of all residential properties carrying mortgages.”

“‘Nearly 16 percent of Rhode Island mortgages are underwater,’ the report stated, adding that the Ocean State ‘has the second highest percentage of serious delinquent mortgages in New England (Maine was first) and ranks fifth in the nation.’ The report also cited data compiled by Cigna that determined Rhode Island ranked fourth in the nation for homeowners who are paying more than 30 percent of their income on housing costs.”

The Times Herald-Record in New York. “You might think the mortgage crisis would be in the rear view mirror by now, seven years since the outset of the Great Recession. But mortgage foreclosure filings reached 10-year highs last year in Sullivan and Ulster counties, and remained near their peak in Orange County. The increase is partially attributable to court rules imposed since 2011. They require court-supervised settlement conferences between borrowers and lenders, as well as an expansion of civil legal services. That slowed the foreclosure process, and led to a backlog.”

“Lorri Hoolan of New Windsor had a good-paying job as a courier until injuring her back about two years ago. She has been unable to work since then, putting a dent in her family’s income, and they’ve fallen behind on mortgage payments. She sat on a recent afternoon in a hallway of the Orange County Courthouse, where a room is reserved for dozens of foreclosure conferences each week. Hoolan estimates the value of her two-bedroom condominium has dropped $20,000 since she and her husband, Robert, bought it in 2004.”

“‘This is all so embarrassing,’ Hoolan said. ‘I just hope they give me a chance to get back on track and keep the place.’”

“‘We see a lot of people who have an astronomical amount of debt because they refinanced when the market was booming,’ said Faith Moore, executive director of the Rural Development Advisory Corp. of Orange County. ‘They saw their home worth more than they paid; now the house is worth less than the debt.’”

Bits Bucket for April 16, 2015

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April 15, 2015

The Third Episode Of The Global Financial Crisis

A housing bubble report from News day. “Take an evening stroll on either side of New York’s Central Park and you will notice how few lights are on in the newer apartment buildings. That’s because no one lives there. Across the globe, empty luxury apartments darken many of the most desirable cities—Miami; San Francisco; Vancouver, British Columbia; Honolulu; Hong Kong; Shanghai; Singapore; Dubai; Paris; Melbourne, Australia; and London. The reason: The world’s richest people are buying these grand residences not to live in but to store their wealth. In Paris, for instance, one apartment in four sits empty most of the time.”

“Some of these wealthy owners are looking for status, others a good investment. And for rich people in unstable countries, or those whose incomes depend on dubious businesses, holding real estate in foreign countries functions as private insurance. Some buyers use luxury housing to hide criminal proceeds, often acquiring their real estate through shell companies set up in jurisdictions from Wyoming to Panama to the Cayman Islands, which make it easy to conceal ownership.”

“Jane Kim, a San Francisco supervisor, said that in her downtown district ‘a lot of units are sold to international and out-of-town owners, so it is great in terms of property-tax revenues and paying into a general fund by people who do not make much use of municipal services. But it also means we are not filling the needs of people who want to live in the city, because they cannot compete’ for housing due to high prices for both owned and rented apartments, ‘even though they make good money.’”

From Bloomberg on the UK. “As housing crises in London go, it could be worse. Mayfair, the neighborhood favored by Middle East royalty and hedge fund managers, is facing a glut of multi million-pound residences. Thirty-six homes were sold in the area in the six months to the end of March, a 30 percent decline from a year earlier, according to property data provider Lonres. ‘With so many high-profile projects planned, all aimed at the world’s wealthiest, there’s is going to be no shortage of choice,’ said Alex Newall, founder of broker Hanover Private Office. ‘That’s going to put pressure on prices.’”

“‘There’s just too much planned and the market isn’t there,’ said Andrew Langton, chairman of luxury-property broker Aylesford International. ‘These developers may be caught with their trousers down.’”

The National on Dubai. “Dubai’s property market has shown more signs of a first quarter slowdown as new housing comes on stream at a time of slowing sentiment. Figures acquired from Reidin data, confirm a CBRE report last week which showed that average house prices in the city are falling for the first time since the 2008 global financial crisis wiped up to 60 per cent off property values. Some Dubai estate agents already report that they are asking sellers to drop their asking prices by as much as a fifth.”

“‘The first quarter of the year continued to see subdued activity in Dubai’s real estate market,’ said Craig Plumb, head of research at JLL’s Dubai office. ‘As Dubai’s residential market moves towards a period of correction, the next driving force is predicted to be end-users or middle-income earners, as opposed to speculative buyers.’”

This Day Live on Nigeria. “It is estimated that more than 1,000 buildings are vacant or abandoned in various cities in the country and rising. A drive around Ikoyi or Banana Island or Victoria or the Lekki-Ajah corridor, which are traditional areas where people stay for long years on the queue to get a roof over their heads, shows there are an alarming number of vacant buildings, both old and new. The same is applicable to Abuja where several properties in Asokoro, Maitama, Wuse, and Garki are lying empty.”

“In this period of economic crunch, real estate operators agree it is almost impossible to sell or rent vacant housing units and buildings across the country. ‘Those who usually buy property in bulk are not showing interest because the banks are after them to repay their old loans,’ says Ms. Bimpe Adedoyin.”

The Melbourne Leader in Australia. “Foreign investors have snapped up more than 70 per cent of development sites sold in inner Melbourne in the past few years, with most to be developed as high-rise apartments, a planning expert says. RMIT Environment and Planning Professor Michael Buxton said research showed foreign investment was about 13 per cent of turnover in the total Australian real estate market but was much higher in Melbourne.”

“And up to 60 to 80 per cent of the new inner-urban Melbourne apartment market was investor owned, made up of foreign and local investment, he said. Prof Buxton said in the 12 months to June 2013, almost $6 billion in Chinese investment was put into Australian commercial and residential property, the most investment from any foreign country. Other countries that were major buyers of Australian real estate included Canada, the US, Singapore and Malaysia. ‘Up to three-quarters or more of Melbourne CBD inner-urban brownfield land sales in recent years have been to foreign investors,’ Prof Buxton said.”

“Wesley Spencer, director of Rara Architecture, said building developments were often designed with the buyer in mind and not the occupier. He said Melbourne was forecasted to grow by a further 100,000 people by 2035. ‘Given that there are currently an estimated 65,000 vacant apartments within Docklands alone, and inner city development going strong, Melbourne will most certainly be set to saturate the real estate market in terms of supply and demand.’”

The Global Times on China. “China’s second-largest loan-guarantee enterprise has suspended its guarantee business due to a payment crisis, media reported over the weekend, a move which analysts said might have a negative effect on a number of the country’s financial institutions. Hebei Financing Investment Holding Group, which has been beset by financial problems for a long time, suspended all its guarantee business and was officially put under the control of Hebei Construction & Investment Group, the largest State-owned capital investment and operating enterprise in North China’s Hebei Province, news portal cnr.cn reported, citing unnamed sources.”

“The problem arose because a lot of small companies whose loans were backed by Hebei Financing had encountered financial problems and could not pay back their loans, Cao Xiao, a professor of finance at Shanghai University of Finance and Economics, told the Global Times. If Hebei Financing suspends its guarantee business, the 50 billion yuan’s worth of loans will face a risk of default and those financial institutions may suffer a loss, Cao said. ‘It may influence investor confidence toward those institutions, particularly the P2P lending firms which have already faced huge financial problems,’ Cao said.”

“According to news portal nandu.com’s report in December, about 50 P2P lending firms went bankrupt in 2014. The fluctuations in the financial system may continue at a time when China’s loan-guarantee enterprises are facing increased operational difficulties, Zhou Dewen, president of Small and Medium Enterprises Development Association in Wenzhou, told the Global Times. For instance, the number of loan-guarantee enterprises in Wenzhou, East China’s Zhejiang Province, shrunk from around 300 at the sector’s peak to about 30, according to Zhou.”

“Investors in Chinese junk bonds are taking the biggest gamble in at least a decade. Leverage for speculative-grade Chinese companies is at its highest since at least 2004, whether measured by earnings relative to interest expense or total debt to a measure of cash-flow, according to data compiled by Bloomberg using a Bank of America Merrill Lynch index. Borrowers have also piled on the most debt relative to their assets since 2007.”

“The deterioration in credit quality coincides with the slowest annual growth since 1990 for Asia’s biggest economy, and helps explain why Fitch Ratings Ltd. predicts defaults will climb. That’s bad timing for bond investors who swallowed a record $209.2 billion of Chinese-company notes denominated in either dollars, euros or yen last year, Bloomberg data show.”

“The typical high-yield company in China earned an average 2.7 times the interest they paid in 2014 and has about 35.5 times more debt than their yearly operating income, according to data compiled by Bloomberg using Bank of America Merrill Lynch index data. Average debt taken out by the 65 companies in the index climbed to 34.3 percent of assets.”

“‘When credit grows that fast, it’s normally a strong sign misallocations of capital have taken place,’ Sander Bus, the head of high-yield credits, and Victor Verberk, the head of investment-grade credits, at Dutch money manager Robeco Groep NV, wrote in an April 10 e-mail. ‘We wouldn’t be surprised if China, and some other emerging countries that face similar increases in debt, turns out to be the place of the third episode of the global financial crisis after the U.S. and Europe,’ they wrote.”

Bits Bucket for April 15, 2015

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April 14, 2015

You Could Say The Shortage Is Over

The Toronto Star reports from Canada. “Earlier this week, I participated in the Canada Mortgage and Housing annual industry roundtable. What I can say is that there is a strong demand for housing — both market and rental — in the GTA as up to 100,000 people choose to make this great region their home every year. In 2014, construction started on 15,581 apartments in multi-family buildings or purpose-built rental across Canada, according to a recent report. That’s 52 per cent higher than the average over the five preceeding years across the country.”

“I hear anecdotal evidence that the condominium market is aiding rental demand and that both renters and homeowners want similar things: well-situated buildings near amenities and transit. This helps to explain why Toronto’s rental vacancy rate is 1.6 per cent, according the Canada Mortgage and Housing Corporation.”

From Macleans. “As Toronto condos go, a cramped unit on the 52nd floor of a newly built downtown tower is as good a place as any to pick apart one of the most oft-repeated real estate stats in Canada’s largest city: the ultra-tight vacancy rate of little more than one per cent. But like all statistics emanating from Canada’s clubby real estate industry, this one should be taken with a grain of salt—especially since investors are a huge source of demand driving frothy condo markets here and across the country.”

“Rachelle Berube, a property manager who oversees several hundred rental properties in Toronto, is showing me the unit which she’d tried for weeks to rent out on behalf of the condo’s owner. On the door to almost every unit on the floor in this sold-out building, and multiple floors below, notices were posted by work crews to say they’d entered the units to do repairs—notices that hadn’t been touched in days or weeks. These were empty condos. A few are up for resale, most are for rent.”

“A condominium-owners survey by CMHC last fall showed percentage of investment condos sitting vacant at 5.5 per cent for units purchased more than six years ago, and up to 10.1 per cent for those bought in the last three years. Instead the vacancy rate reflects empty units as a share of the whole condo market, including those units occupied by their owners. ‘It seems to be a Franken-number,’ says Berube. ‘It means absolutely nothing and it’s encouraging people to buy condos thinking they’ll be easy to rent.’”

The Globe and Mail. “As lively as Toronto’s real estate market has been so far in 2015, this is the week that activity really starts to intensify. Not only are listings swelling, but the number of buyers is increasing too, says real estate agent Boris Kholodov of Royal LePage. Mr. Kholodov says the surge in listings began to appear early this week. ‘It’s definitely happening.’”

“In Toronto, not all houses attract multiple offers, notes Mr. Kholodov. At any price above $3-million, it’s rare to see a bidding war, he notes. ‘Around the $1-million mark it’s almost a guarantee that it’s going to happen.’ In the condo market, investors are a bit hesitant to buy because they fear over-building, he says. Bank of Montreal senior economist Robert Kavcic says that the Greater Toronto market is seeing a dramatic shift in housing stock. At the end of 2014, he points out, there were 57,000 condo units under construction, but just 7,200 detached homes being built. That’s the widest gap on record, Mr. Kavcic says.”

From Metronews. “You were probably glued to a television watching the OJ Simpson trial the last time Winnipeg’s real estate market saw as many new March listings as it did this year. WinnipegREALTORS reported new listings last month were up 33 per cent over last years numbers and existing inventory rose 29 per cent to 4,338. Winnipeg’s real estate market hasn’t seen as many new March listings since 1995.”

“‘Conditions are ideal for buyers to take advantage of a healthy supply of listings and historically low mortgage rates,’ said WinnipegREALTORS president David Mackenzie.”

The Calgary Herald. “Wide selection and low interest rates are helping drive resale market conditions in Calgary that benefit house hunters, says an economist. Over the first three months of 2015, the inventory for single-family homes on the resale market in Calgary grew by 84 per cent from a year earlier. That’s 2,754 homes between Jan. 1 and the end of March compared to 1,494 during the same span last year.”

“‘There are lots of listings right now, so lots of supply relative to demand right now,’ says Lai Sing Louie, regional economist for Canada Mortgage and Housing Corp. ‘So what that means is if you’re a buyer, there’s a lot of choice. It’s a market that gives the buyers some leverage in terms of negotiations.’”

“Over the first three months of this year, there were new owners for 2,356 single-family homes. A year earlier, that number was 3,443. Buyers seem to have a wait-and-see attitude, says Bill Kirk, past president of the Calgary Real Estate Board. ‘They may be anticipating another drop in housing prices or they’ve got concerns about their own employment,’ says Kirk.”

The Estevan Mercury. “The Estevan real estate market is flush with options heading into the busiest buying and selling season of the year. For buyers, there are a lot of options, perhaps more than ever before, while sellers may have to fight for attention. Prices have seen a slight dip from their all-time highs. Even though sellers should still receive good sale prices, Rhonda Blanchette, Re/Max realtor, doesn’t want to say Estevan is necessarily a buyers’ market, however, because of the glut in inventory, she said, ‘buyers have an edge they haven’t had in a few years.’”

“‘You could say our shortage is over. We have a surplus of condos. We have a surplus of single family listings,’ said Josh LeBlanc, realtor with Better Homes and Gardens Prairieview.”

“To Lynn Chipley, broker at Century 21 Real Estate in Estevan, the inventory surge is something that will not just help reduce prices short term but also aid in managing any resurgence back to the boom times of just a couple of years ago. ‘We have the biggest over supply I’ve ever seen, so I do think it’s going to take quite a bit longer to absorb that inventory,’ said Chipley. ‘The upside is that if there is a sudden boom or a new construction project announced in the area that brings people in, we’re going to be far better prepared this time. What happened (in 2012) was the first time I’d seen anything like it in 27 years.’”

“Chipley and LeBlanc remarked there haven’t been as many sales of higher-priced houses recently. LeBlanc said one house has sold for more than $500,000 since Jan. 1, and prior to that, nothing has been sold for more than $370,000. But Blanchette said there are still many listings in the city for homes that are more than $650,000. ‘We had a lot of inventory throughout the summer and the fall, so even people who were serious about buying would take their time and really look and try to get a deal because there was so much out there,’ said Blanchette.”

“While the units that are out there haven’t had prices plummet in any fashion, the price has fallen. Chipley is anticipating pricing similar to that seen in 2011, which, she noted, was a year of record high housing prices, only to be outdone in subsequent years.”

“‘We’ve continued to see a slow slide in pricing, in house prices and in rents. It’s not astronomical and it’s not drastic, but it is certainly very evident that prices are on a bit of a downward trajectory. I’m kind of anticipating 2011 pricing,’ she said.”

Bits Bucket for April 14, 2015

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April 13, 2015

Bits Bucket for April 13, 2015

Post off-topic ideas, links, and Craigslist finds here.