September 3, 2015

Bits Bucket for September 3, 2015

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September 2, 2015

Money Tied Up That They Can’t Afford To Lose

The Vancouver Sun reports from Canada. “Buyers from mainland China and a dwindling supply of high-end detached homes are driving Vancouver’s luxury real estate market, with has seen an 80-per-cent increase this year compared to 2014 in the number of sales over $3 million. ‘Mainland China is churning out millionaires at quite a huge rate, and many of them like Vancouver,’ said Wayne Ryan, managing broker at RE/MAX Crest Realty Westside. ‘At this point, it’s all anecdotal, but the reality is we’re finding it’s between 70 and 75 per cent (of buyers.)’”

“More condo buyers are investors, too. ‘A lot of international investors will say, Vancouver’s a very safe market, so they’ll park their money here. That’s why you hear so much discussion about these apartments sitting vacant,’ Ryan said. ‘Because money isn’t an issue — it’s not as if they need to rent them on Airbnb.’”

The Globe and Mail. “Toronto’s condo sector is shaping up to have one of its strongest years on record, dispelling fears that Canada’s largest housing market is ripe for a correction. Builders sold nearly 11,000 condo units in the first half of 2015, the third-best year on record, according to research firm RealNet Canada Inc. Most of the sales activity has been among presales, thanks to 55 new projects that developers launched in the city this year.”

“But buyers have also been snapping up units in projects wrapping up construction, helping to absorb the large surge in completed but unsold units, which had soared to four times their historic norms at the start of the year. Of 453 condo projects in active development, at least 140 are offering some kind of incentive, said Phong Ngo, RealNet manager of new homes research. ‘We’ve been seeing more incentives than previously and things that we haven’t really seen in the past, like the rental guarantees and cash back,’ he said. ‘In the past, it was more on material things, like free appliances and upgraded countertops.’”

“Such tactics helped developers eat through their backlog of unsold inventory in existing projects in order to focus on launching new ones. Urbanation senior VP Shaun Hildebrand estimates the market could see another 14,000 to 16,000 condo units launched in the second half of the year, typically a quieter time for the market.”

The Montreal Gazette. “It’s more affordable to buy a house in Quebec than it has been in nearly a decade, according to an RBC report. ‘While Montreal’s pricing environment remained soft in the second quarter due to fairly loose supply-demand conditions in some market segments, material improvement in affordability in the past year helped re-energize resale activity in the area,’ said. ‘A high inventory of recently built, but still unoccupied condos continues to be a considerable issue for the market.’”

The Winnipeg Sun. “The affordability of bungalows and condos in Manitoba went up slightly in the second quarter of the year, according to RBC Economics. ‘A main challenge for the province continues to be the plentiful supply of homes available for sale — many of them condos — in the Winnipeg market, although the second quarter witnessed some improvement with new listings falling modestly,’ said Craig Wright, RBC’s chief economist, in a press release. ‘Some of the recent absorption issues in the condo market are a result of a wave of new multi-unit completions in Winnipeg last year.’”

The Star Phoenix. “Despite lower housing market activity in the past year, housing affordability actually decreased for single-detached homes in Saskatchewan in the second quarter, while improving slightly for condos, according to RBC. Condos have been in oversupply for a year to 18 months, especially in Regina, which has caused the affordability index there to improve to 24.5 per cent in the second quarter and slightly ahead of the 30-year average of 24.2 per cent.”

“‘On the supply side, there was a bit of an overshoot and the market is adjusting,’ said Robert Hogue, senior economist with RBC.”

The Calgary Herald. “The Calgary Real Estate Board said MLS sales totalled 1,643 in August, down 27 per cent from a year ago. The average MLS sale price in Calgary slid 1.9 per cent last month to $466,570, though the median price edged up 0.5 per cent to $422,500. ‘Thirteen months into the oil downturn combined with additional layoffs and political uncertainty will now push sellers to begin to adjust their prices downward if they wish to move their property,’ said Don Campbell, senior analyst with the Real Estate Investment Network.”

“New listings fell by 12.7 per cent in August to 2,733, while active listings were up 12.1 per cent to 5,146 at month’s end. The apartment (condo) sector was particularly hit hard in August with sales down nearly 39 per cent from a year ago. The average sale price dropped by 10.5 per cent.”

“Jyoti Gondek, director of the Westman Centre for Real Estate Studies at the University of Calgary’s Haskayne School of Business, said there is data to indicate homeowners won’t move unless they can get a job that offers similar or higher wage than what they have. ‘When you look at the impact of the labour market on housing it gets difficult for homeowners to pick up and leave and go elsewhere for a job if there isn’t one available,’ she said. ‘So we tend to see a lot of people who are in ownership situations try to ride their unemployment or they’ll go into a different field. They may accept something at a lower wage. They may even go part-time or try a business from home.”

“‘They’ll try a lot of different options because they’ve got money tied up in their home that they can’t afford to lose.’”




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September 1, 2015

Starting To Get Nervous About Prices

CNBC reports on Colorado. “Houses have been flying off the shelves for the past six months, but the sales pace is starting to slow, and could in fact decelerate more dramatically in some of the hottest markets come winter. Real estate agents and homebuilders say they are starting to see more buyers balk at high prices and shy away from bidding wars. ‘We definitely saw a bit of a cool toward the end of July. People started to get nervous about rising prices,’ said Jill Schafer, an agent at Kentwood Real Estate in Denver.”

The Boston Globe in Massachusetts. “For several years, wealthy Chinese have been snapping up homes in high-end neighborhoods from Cambridge to Wellesley, while institutional investors, such as some of China’s big insurance companies, have provided financing for pricey condo towers under construction. There is anecdotal evidence of some pullback. Patty Chen, a Wellesley entrepreneur who helps Chinese investors find houses in the Boston area, said she has seen some would-be buyers hold off this summer. ‘Some are nervous because of the stock crash,’ Chen said. ‘I think we are in a ‘buffer period’ where Chinese just want to wait out the volatility.’”

The Midland Reporter Telegram in Texas. “Warren Ivey, a Midland Realtor with the Texas Association of Realtors, said buyers are still hesitant because of the oil economy but still want to move out of rentals and into a home. Ivey said that there is still no pattern for why sellers are offloading their homes. While the number of homes on the market are nearly 70 percent higher than the same time last year, they are still below the year’s peak of 533 homes on the market in March, according to the PBBOR’s figures.”

“‘Some of our buyers, in the past, when they make an offer on a home, and they discover that they got beat out because there were three other offers on a property. When that happens to them, they get discouraged, and, a lot of times, they say never mind, I don’t want to play that game,’ Ivey said. ‘So with this increase in inventory, this might be enough to push those people back into the home buying market.’”

From Michigan Live. “Ann Arbor’s annual fall housing shuffle is in full swing, with University of Michigan students flocking back into town and other renters beginning new apartment leases. But even with the start of the fall semester just around the corner, many apartments near downtown and campus are still available to rent. Landlords who are used to having fall leases signed long before now say this is a new phenomenon, and some are lowering prices to stay competitive.”

“‘It doesn’t take a rocket scientist to figure out there’s been an unbelievable increase in the supply of downtown apartments in the last few years,’ said Jason Costello, co-owner of Cabrio Properties, which has about 350 rental units in Ann Arbor. ‘It’s certainly quite a different landscape out there than it has been in the last few years for sure. We’ve reached — or probably surpassed — a saturation point of rental housing in Ann Arbor, both in the downtown area and campus area, but also just throughout the city in broader terms.’”

The Florida Times Union. “One sits on the river in San Marco, the other on the ocean in Ponte Vedra Beach. So one has docks, the other a beach. And they’re both for sale, the only two homes in Northeast Florida listed at more than $10 million. Owner Don Brindley listed the Ponte Vedra house in April and admitted there hasn’t been a lot of interest. ‘It’s a pretty small group that can afford to live out here,’ he said. ‘“It’s really a matter of luck. It could be day one, it could be year two. I’m motivated, but I don’t have to sell. I don’t owe anything on it. I can stay here until the day I drop dead.’”

“James Mussallem said he had the same problem McAfee did when it came to comparing recent sales. Still, he’s reduced his price from when he first listed it last year at $14.85 million. He had it listed with a real estate firm then. Now he’s selling it himself. ‘I interviewed brokers and asked them what’s the most expensive home they’ve sold,’ he said. ‘They $1 million, $2 million, $3 million. I sell paintings for $10 million, $20 million,’ he said. ‘I’m used to selling expensive items to rich people.’”

WIVB 4 in New York. “Local leaders expanded their ‘bank shaming’ initiative, Friday, taking aim at a ‘zombie property’ in West Seneca. The property has been vacant for about 5 years, but Town Councilman William Hanley said, there is no shortage of interest. ‘We all know somebody that would love to purchase one of these houses. For the banks to sit on them just to help their bottom line is a shame.’”

“Town officials said West Seneca is a hot real estate market, and with about 90 vacant properties in town, Town Supervisor Sheila Meegan said zombies are killing the American Dream of home ownership. ‘It is a missed opportunity for another young family to come in and enjoy this community. It is an easy fix, and that is why we don’t understand the banks’ posture.’”

PBS News Hour. “Founded in 1920, National Bureau of Economic Research is a private nonprofit research organization devoted to objective study of the American economy. The following summary was written by the NBER and doesn’t necessarily reflect the views of Making Sen$e. We will tell you, however, what the takeway is: The U.S. foreclosure crisis, so commonly referred to subprime mortgage crisis, was not in fact, just a subprime event. While it began that way, it became a much broader phenomenon and mainly included prime mortgages. The findings suggest that effective regulation cannot just focus on restricting risky subprime contracts.”

“There were only seven quarters, all concentrated at the beginning of the housing market bust, when more homes were lost by subprime than by prime borrowers. In this period 39,094 more subprime than prime borrowers lost their homes. This small difference was reversed by the beginning of 2009. Between 2009 and 2012, 656,003 more prime than subprime borrowers lost their homes. Twice as many prime borrowers as subprime borrowers lost their homes over the full sample period.”

“The authors’ key empirical finding is that negative equity conditions can explain virtually all of the difference in foreclosure and short sale outcomes of prime borrowers compared to all cash owners. Negative equity also accounts for approximately two-thirds of the variation in subprime borrower distress. Both are true on average, over time, and across metropolitan areas.”

“None of the other ‘usual suspects’ raised by previous research or public commentators — housing quality, race and gender demographics, buyer income, and speculator status — were found to have had a major impact. Certain loan-related attributes such as initial loan-to-value (LTV), whether a refinancing occurred or a second mortgage was taken on, and loan cohort origination quarter did have some independent influence, but much weaker than that of current LTV.”

“The authors’ findings imply that large numbers of prime borrowers who did not start out with extremely high LTVs still lost their homes to foreclosure. They conclude that the economic cycle was more important than initial buyer, housing and mortgage conditions in explaining the foreclosure crisis. These findings suggest that effective regulation is not just a matter of restricting certain exotic subprime contracts associated with extremely high default rates.”




Bits Bucket for September 1, 2015

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August 31, 2015

Investors Are The First To Exit

The Calgary Herald reports from Canada. “According to the Calgary Real Estate Board, MLS sales in the Calgary apartment category this month, to Thursday, have fallen 38.1 per cent compared to the same period a year ago, with 245 transactions. The average sale price has dipped nearly 11 per cent, to $296,304. ‘If you own property in Calgary and are worried about your home’s value, it’s probably just best to wait this energy recession out and apply prudent debt management practices to your personal finances – reduce or consolidate high interest debt, make your payments on time and in full, and try to build up some emergency savings in the event that unemployment comes knocking.’ Lesley-Anne Scorgie, founder of MeVest and a bestselling author on personal finances.”

“Corinne Lyall, CREB’s president, said typically the condo market is going to be affected quicker than the detached market. ‘I think it’s because there’s more inventory available in the condo market,’ she said. ‘And there’s more choice for buyers looking in that housing segment and plus there’s not only resale inventory but as well new product available and being built currently.’”

The Cape Breton Post in Canada. “Janey Forrest has been trying to sell her three-bedroom Westmount home overlooking Sydney harbour for the past 18 months. Forres moved to Cape Breton from Mission, B.C., in December 2007, after visiting a friend in the area. She said she fell in love with the island and its low housing prices compared to the B.C. lower mainland. ‘I didn’t come here to buy a house. I just came here to visit for five days, and on the fifth day I bought this house,’ Forrest said. ‘I looked around (Sydney) and I saw what the costs were, and at that time in 2007 there was not one house for sale here. Every house I looked at had several offers on it, so I ended up buying this one.’”

“Sydney realtor Mary Ann MacCormick said it has become a classic buyers’ market, and that means sellers must remain patient as people looking to buy weigh their options. ‘For example, I may show (a client) 15 houses instead of five because there’s so much variety out there that they can choose from,’ said MacCormick. ‘And people with houses for sale have to be patient and do everything they can to make their houses appealing.’”

The Strait Times in Singapore. “Prices of completed private apartments were unchanged in June and last month although this could represent a temporary lull before they drop further. These properties are still about 3 per cent lower than a year ago and 9.8 per cent below their peak in July 2013, according to flash estimates for the NUS Singapore Residential Price Index (SRPI). Prices of small units are down 2.9 per cent year on year and have fallen about 9.5 per cent from an August 2013 peak. ‘Shoebox apartment rents and prices will be on the general downward trend, as the number of such completed properties grows, especially in suburban areas,’ said R’ST Research director Ong Kah Seng.”

From DNA India. “Here’s the big proof that real-estate prices in Mumbai are falling. A 13,000 sq ft sea-facing duplex apartment in Palm Beach Road in Navi Mumbai has been sold for Rs 12,500 per sq ft against the Rs 20,000-Rs 25,000 per sq ft quoted a few months earlier. ‘At Palm Beach, most apartments fall in the luxury segment. If rates are plummeting in this segment, it means property rates are likely to slide further. Because high-segment houses always face the first hit,’ said Pankaj Kapoor, MD, Liasea and Foras, a property research firm.”

“Kapoor said that the holding capacity of developers cannot stretch beyond a certain period. They have to pay high interests to banks, he said. ‘Investors are the first set of people to exit during a downfall. Currently, most investors are exiting because there is no significant growth or appreciation in the property market.’”

The Wall Street Journal on Brazil. “Not long ago, Brazil stood as the leading example of how a developing nation could rise toward global prominence on the force of a China-driven commodity boom. Now Brazil is looking like a symbol of something else: resource-rich nations’ habit of ending their booms with spectacular busts. ‘We went from Brazil mania to Brazil nausea,’ said Marcos Troyjo, a former Brazilian diplomat who leads a Columbia University center studying emerging markets. ‘We are looking at a lost decade, where growth stagnates, inflation is high, and, most sadly, a decade where you’ve learned nothing.’”

“China has caused turmoil in many places, but none more so than in this prime supplier of commodities to a country whose once-voracious appetite for them has dimmed. At the height of Brazil’s boom, movies and taxis in downtown São Paulo were more expensive in dollar terms than in New York. Many of Brazil’s problems were homegrown, though, said Alexandre Schwartsman, a former Brazilian central-bank official: ‘We managed to produce this recession ourselves.’”

The New Zealand Herald. “China, until this year, had been by far New Zealand’s biggest export destination, but a staggering 77 per cent decline in the value of whole milk powder exports put Australia back in the top slot in the year to March. JBWere investment strategist Bernard Doyle said the effect of Chinese capital flows could prove pivotal for property prices here and in Australia, where Chinese investment has played a part in the strength of both markets. ‘There is no doubt in my mind that if Chinese capital flows were to get crunched, it would have implications for our housing market,’ he said.”

The New York Times on China. ” In recent days, an advice column has circulated widely on China’s most popular social media phone app. It is aimed at young Chinese urban professionals. Its nuggets of wisdom include: ‘Work hard at your job so you are the last to be laid off’ and ‘In an economic crisis, liquidity is the number one priority.’ Many young middle-class Chinese who grew up during the nation’s glittering boom years, when double-digit growth was the norm, are suddenly confronting the shadow of an economic slowdown and even hints of austerity.”

“They are talking of canceling vacations and delaying weddings and even selling recently purchased apartments to have cash on hand. Those who have lost money in the ongoing stock market crash are especially anxious. One Chinese woman who posted Lin’s column on her WeChat account said it ‘echoed the zeitgeist.’ She had tried to sell an apartment but said, ‘Now I think I might hold off until the market recovers a bit.’”

“Gao Yike, 25, who works at a real estate company in the northeastern provincial capital of Harbin, said in a telephone interview that the project management department laid off employees in April. He said a growing number of midlevel and senior executives were leaving the real estate industry for technology companies and housing sales at his company were notably worse than last year. Gao had also lost half of his initial investments in the stock market. ‘The golden age of the real estate market has come to an end,’ he said.”




Bits Bucket for August 31, 2015

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August 30, 2015

A Problem With The Great Monetary Experiment

A weekend topic on recent financial markets and the housing bubble. The Los Angeles Times. “Seven years ago when the housing bubble burst, it nearly took down Wall Street and the entire U.S. economy. This week, the concern was the reverse: That the prospect of an extended dive in the stock market, or even continued volatility, might spook buyers and sellers in Southern California’s housing market. Christian Lander put an offer on a Glendale house last week, before the stock market started falling. He’s proceeding as planned, because he’s investing for the long term and doesn’t want to react to fluctuations in the market. But Lander worries that other buyers may take a different view — because he’s a seller too, looking to unload his two-bedroom condo in Koreatown.”

“‘I am just hoping it won’t freak people out that this is a bad time to buy,’ he said.”

“George Pagano, a real estate agent with Immel Team Luxury Real Estate who specializes in coastal south Orange County, said his buyers are assuming that the stock drop-off is temporary and are not changing their intentions. But some sellers have been more willing to trim their asking prices from levels he considered unrealistic. This week, the owners of a five-bedroom house in Laguna Niguel reduced their asking price by $505,000, down to $3.9 million. ‘They are taking our advice to lower their expectations,’ he said.”

“Tom Berge Jr., president of the West San Gabriel Valley Assn. of Realtors, has had a different experience. He said three or four Chinese business owners looking to invest in homes have raised concerns to him over economic turmoil in China. But it wasn’t because they might no longer be able to afford local real estate. ‘Their fear is the government is going to limit the money that can freely move out of China,’ he said.”

Interest in New Zealand. “Last week I gave a presentation about the ‘big picture’ to a gathering of government officials in Wellington. I talked about China’s economy and financial market volatility, rather on-the-money topics given this week’s global stock-market meltdown! What’s unusual about this situation is that in the past large developing countries – and China is the largest – grew quickly and steadily. They provided a buffer during the business cycles of the developed world. The news out of China suggests that buffer is not as robust as it once was. It can’t keep acting as a sponge for the rest of the world’s economic over-spill.”

“New Zealand doesn’t seem particularly well-equipped to understand, prepare for and benefit from developments in China. Economists could do a much better job than they seem to be doing. We lack a good understanding of China. And that leads on to a second problem. We don’t understand how China affects us. There is a common pattern to the capital flows from China – the capital isn’t just flowing into stock markets and bank deposits in other countries (these are usually popular because they’re well regulated and it’s easy to cash up again) but into property.”

“As a country, we’ve been caught napping. We need to move beyond a focus on dairy prices and exports. What about unprecedented capital flows from China? Are the flows permanent or just hot money? Are we making the best use of the money? What are the social consequences of escalating house prices and how can we mitigate those?”

From Reuters. “The venerable Wall Street firm of Lehman Brothers went belly-up seven years ago. Since then, the Federal Reserve has engaged in an extensive monetary campaign involving near-zero interest rates combined with the central bank’s large-scale purchases of bonds. This experiment has delivered the weakest U.S. rebound on record while spreading what author Brendan Brown calls a ‘monetary plague’ into the furthest reaches of the global economy.”

“A recent study of historical periods of deflation by the Bank for International Settlements from 1870 to the present day finds only a weak connection between deflation and economic output. The BIS makes another important point: there appears to be a much stronger connection between a collapse in asset prices, in particular real estate busts, and economic growth than between deflation and output. The BIS argues that a bursting bubble produces a large immediate loss of wealth, albeit wealth of an illusory nature, while deflation simply redistributes a much smaller amount of wealth from debtors to creditors.”

“This points to a key problem with the Fed’s ‘Great Monetary Experiment,’ namely that it has inflated asset prices to unsustainable levels. Bernanke hoped that by making people feel richer, higher asset prices would induce them to spend more. After a run of good years, however, U.S. stocks have approached bubble valuation levels. Given the dollar’s role as the global reserve currency, Fed policy has also pushed down interest rates around the world, thus stoking real estate booms from Beijing to Vancouver.”

“In the wake of the global financial crisis, low U.S. rates also fueled a global carry trade, as yield-hungry investors poured into emerging market debt. At the same time, corporate borrowers in these developing nations availed themselves of low U.S. rates by borrowing in dollars, thus creating a potentially dangerous asset-liability mismatch.”

“The trouble is that asset prices – whether stocks, bonds or property, both in the United States and abroad – are now vulnerable to any future normalization of interest rates – just as the housing bubble and the subprime mortgage crisis followed from the Fed’s attempt to exit the Alan Greenspan easy-money era.”

The Indian Express. “Global markets were surprised by China’s devaluation of its currency, the renminbi, but they shouldn’t be. This is one of the inevitable outcomes of the bursting of its stockmarket bubble and Beijing’s lacklustre efforts to save the bubble as an engine of growth for a slacking economy. Besides losing face and wasting Chinese taxpayers’ money, the government has paid dearly for its misplaced faith in the power of the state.”

“It is unclear whether Chinese leaders realise this, but their expensive attempt to support a bubble has been a huge distraction from their real top priority — implementing difficult structural reforms to sustain Chinese economic growth. Instead of investing their time and energy in financial de-leveraging, squeezing out excess manufacturing capacity and reorienting the economy away from investment to consumption, Chinese leaders now find themselves helplessly watching the erratic gyrations of stock prices.”

“While the scale, timing and haste of Beijing’s operation may shock many, it does not come as a surprise to sceptics who have always doubted the CPC’s commitment to reforms. They have watched this bad movie many times before. Every time the party has to choose between wielding the power of the state or relying on market forces, it has consistently opted for the former. In this light, China’s decision to devalue its currency should not come as a surprise at all. As strong believers in the power of the state, Chinese leaders firmly believe they can fight the invisible hand. All it takes is strong political will. We can only hope that they will be proven wrong this time.”




Bits Bucket for August 30, 2015

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August 29, 2015

Bits Bucket for August 29, 2015

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August 28, 2015

Solving A Debt Crisis With More Debt

It’s Friday desk clearing time for this blogger. “Diana Gonzales’ Wylie home was picture perfect when she put it on the market. Still, she was surprised when it sold in a flash. ‘We had about 12 offers,’ says Gonzales, “and the offers were way over the list price!’ Corporate relocations like Toyota and State Farm have delivered a steady supply of buyers. But, experts have warned:’The inventory is so slow, it’s driving the prices up,’ says Realtor Valerie Kirkpatrick, ‘it’s driving the buyers up, they’re having to pay more and more and more and the houses are not worth what they’re paying.’”

“The Green Line is a bragging point for the builders of a 30-unit condo building — some priced as high as $750,000 — on Washington Street near Union Square, its sales pitch concluding: ‘It’s not just a home, it’s an investment!’ When word came this week that the project is in danger of being scaled back or even canceled because costs could be as much as $1 billion more than expected, it landed like a sucker punch for buyers and investors who bought into the excitement.”

“‘On Tuesday, I got up, saw the news on my phone, and said, ‘oh, [expletive].’ There was just a pit in my stomach,’ said Rob Day, who with his wife bought a condominium near Union Square in December and expected to commute to his job in Boston on the new Green Line.”

“The Fayetteville regional market started the year with too large an inventory of resales. Seven months later, little has changed. The current absorption rate for pre-owned homes is a 9.93-month supply of inventory. ‘We’ve got too many existing homes. We’re slowly trying to fix that,’ said David Evans, a broker who works with Manning Realty. ‘That being said, we’re moving in the right direction. July closed with 525 existing homes. That’s way over average. It has been because people who have existing homes all these years, waiting to sell their house, have been dropping their (market) price.’”

“The boom times are long gone for Owatonna homebuilders. Realtor Matt Gillard with ERA Gillespie said housing booms in Rochester and Mankato give him hope that Owatonna could soon start to see its own resurgence. But a lot of that will depend on people like David Schlobohm of Ace Construction building the homes to sell, and he’s still wary. ‘I got stuck in 2007, I got stuck with a million dollars inventory for a couple years,’ he said. ‘I ended up giving it away just to get rid of it. … That speculation market’s not there unless you like losing money, even though the Realtors are calling for that.’”

“Schlobohm said homebuilders will only get back into the game once they can be confident in selling new homes quickly on the market. ‘If you sit on it for six months and pay interest on it, whatever profit you had on it is gone,’ he said.”

“After a decade labouring on building sites around New Delhi, Akhilesh Kumar lost his scaffolding job last month when his employer halted work on an array of 30 residential towers. He joins more than half a million workers let go from sites around India’s capital in the last 18 months. According to brokerage Ambit Capital, rural wages may now be falling after growing 4 percent in the year to March - a far cry from the double-digit annual rises between 2010 and 2014. ‘Labourers are starving and are ready to work even at lower wages as there are fewer or just no jobs,’ said Navendu Kumar Thakur of the Builders Association of India.”

“But the slowdown around Delhi, where unsold inventory is highest, shows no sign of ending. Around the site where Kumar worked, half-built high-rises dot the skyline. Cranes and diggers stand idle. Real estate association CREDAI’s Rohit Raj Modi estimates more than a million labourers worked in construction at Noida at its peak in 2013, at least double today’s number. ‘From a labour point of view, the peak is over,’ he said.”

“Subdivided units are a feature of Hong Kong’s housing market, Kowloon Developmen said, as it priced mini flats in its Hung Hom project at an average of HK$15,567 per sellable square foot after discounts. Prices of special units can see sharp drops, Far East Consortium Internationa chairman David Chiu Tat-cheong called such units ‘imitation luxury flats.’ Chiu said he wouldn’t be surprised if their prices fell by half. He said as wage hikes among the middle class can’t keep pace with the sharp rise of property prices, developers have no choice but to develop smaller units to satisfy demand. ‘Hong Kong people’s hard work and income, and the size of our homes have the most unfair ratio throughout the world,’ Chiu said.”

“Centaline Property’s Louis Chan Wing-kit said the pricing reflects the impact from recent stock market shock. This marks the start of a trend where developers cut prices on their new projects, Chan said.”

“Share market investors are unlikely to flee in large numbers to the property market — as they did in previous routs — because housing markets are perceived as overheated in Sydney and Melbourne, with entry costs high and rental yields low. But other commentators have suggested no-one really knows how things will pan out, as the global economy is in uncharted territory. Bank of England research shows global interest rates are at their lowest in 5000 years.”

“‘We’ve never experienced a combination of events like this,’ Gareth Hutchens wrote in the Sydney Morning Herald. ‘None of our (economic) models demonstrate how the world works when interest rates are this low.’”

“China was always the Ashley Madison of public money. Finance ministers with an infrastructure problem would sneak off to Beijing for a quickie billion and return with smiles on their faces. The Chinese seemed willing and no one need know. China has been tipping cash into worthless transport and energy projects around the world, or storing it in empty London towers. It encourages reckless governments to get involved with stupid projects that no sane banker would support.”

“Any bubble stock market is a danger to all. As Shanghai’s prices more than doubled it was clearly going to burst. When the regime is as dirigiste as China’s, that doubles the risk to others. China’s sovereign wealth can be withdrawn as quickly as it was splurged. Whether the Chinese market crash can single-handedly return the west to deflation is doubtful, but that is the risk.”

“The nosedive reveals just how addicted markets have become to the flow of central bank stimulus and the faith that cheap money remains the path to economic deliverance. A recent working paper by the VP of the St. Louis Federal Reserve Bank finds that after six years of quantitative easing that swelled the Fed’s balance sheet to $4.5 trillion, ‘casual evidence suggests that QE has been ineffective in increasing inflation’ and only seems to have boosted stock prices.”

“Complaints once in the realm of conspiracy theorists wearing tin foil hats are now being embraced by the Wall Street establishment. In a note to clients, Deutsche Bank analysts warned that ‘the fragility of this artificially manipulated financial system was exposed’ and that ‘the only thing preventing another financial crisis has been extraordinary central bank liquidity and general interventions from the global authorities.’”

“They argue that ‘the genesis of this recent sell-off has been the threat of the Fed raising rates next month, but China’s confrontational move two weeks ago and the subsequent knock-on through [emerging markets] have accelerated us towards something more serious.’”

“Alberto Gallo, head of credit research at RBS, is more direct: ‘Policymakers responded to the financial crisis with easy monetary policy and low interest rates. The critics — including us — argued against ’solving a debt crisis with more debt.’ Put differently, we said that QE was necessary, but not sufficient for a recovery. We are now coming to the moment of reckoning: central bankers look naked, and markets have nothing else to believe in.’”




Bits Bucket for August 28, 2015

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