Friday, December 31, 2010

Developers in China Punished for Land "Hoarding"

China can't use policy to impact the "hoarding" of empty finished, perfectly livable apartments, so they have resorted to encouraging developers to build more units for speculators to leave empty.

China orders land hoarding freeze as prices rise
The country's land and resources ministry on Thursday published a list of 26 cases of land left undeveloped and the names of the property developers involved, with strict orders for authorities to punish the offenders.

Real estate developers who have left land vacant for one to two years should be fined, while property left undeveloped for more than two years should be returned to the government, the statement said.

Authorities intend to build 10 million units of social housing in 2011, after completing 3.7 of the intended 5.8 million in 2010. China doesn't fear a tulip bubble, they fear unrest. One assumes they have controls in place to keep these apartments out of the hands of speculators or they are wasting their time. Xie thinks they need 20 million units to satisfy demand

Thursday, December 30, 2010

Teranet Canadian House Price Updated for October 2010


Vancouver was flat September to October, but nationally prices were down 0.45%

Toronto (the biggest weight in the index at 42%) was down just shy of 1% September to October and down 2.46% from the peak in August 2010.

Vancouver's raw data peak was in June 2010 (down 0.96% from then), the three month smoothed peak was in August 2010.

Of the six cities in the index, Calgary has recorded the largest drop of 3.7% from the raw data peak in July 2010.

Tuesday, December 28, 2010

A Post-Holiday Surge in Australia Bubble Articles

From utter silence before Christmas to a chorus of articles. Given how slow data are coming out of Australia, I can't help but suspect that the media, getting early whiffs of trouble, are not in CYA, oh-we-saw-it-all-along-despite-our-previous-endless-cheerleading mode.

Australian house price inflation leads world
Year to year price growth was 9.4%, down from earlier in the year. Year to year March 31 growth was 15.9%.

Australians lap up overpriced real estate at auctions
The emotionally charged auction process, however, has helped fuel Australia’s runaway housing sector, where gravity-defying prices have some analysts warning of an impending implosion that could drag down the country’s long-running economic prosperity.

Down Under housing market booms, Canada simmers: Scotiabank
Canada, by contrast, saw higher housing prices, but only about half of Australia’s, or around 6 per cent. And now Scotiabank is ambivalent about the prospects for the coming year.

China: This Time No One Is Listening

In the past, technocrats have kept ahead of speculative frenzies and controlled growth. Not this time.

China's Real-Estate Frenzy
Understanding government policy has long been the key to making money in China's property and stock markets.
The main tools to regulate growth were administrative: government orders to banks to stop lending and to companies and local governments to halt projects. And that's what Beijing is still trying, increasing banks' reserve ratios and cutting lending quotas.

But this time nobody is listening. Local governments and banks have set up off-balance sheet vehicles to conceal loans and keep the spending boom going. Fitch Ratings estimates that not only did banks exceed the central bank's 7.5 trillion yuan ($1.1 trillion) cap on lending for this year, they made an additional three trillion yuan of these shadow loans.

At the peak of the bubble, US houses cost 6.4x average earnings, Beijing currently is at 22x.

Saturday, December 25, 2010

Foreign Investors That Funded Australia Housing Boom Growing Cautious

Foreign lenders get the property jitters
Official figures show our banks now owe overseas investors a record $352.7 billion, equivalent to 27 per cent of the country's entire economic output.
If the global economy recovers strongly that could push interest rates up a lot, and that's a real risk for Australia's because rates are already high and house prices are becoming an issue," said Trevor Greetham, asset allocation director at Fidelity Investments in the UK, which has $3.4 trillion under management.

Analysts said if Mr Greetham and others like him withdraw funding, then our banking system will be plunged into a catastrophic credit crunch. Mortgages will be rationed, minimum deposit sizes will be forced up and property prices are likely to collapse.
Gerard Fitzpatrick, global fixed income portfolio manager for Russell Investments, said he was increasingly cautious about lending to Australian banks.

Speaking from London last week, he cited the recent catastrophe in Ireland, where the house price bubble effectively broke the banks.

Hot Money In, Smart Money Out

China raised interest rates 25 basis points last night. Like tilting a giant bathtub, hot money will naturally roll in. But the smart money has been trying to get out of China.

Outlook 2011 and the Next Decade: China: Is the Smart Money Right
The country has major infrastructure issues, troubling population dynamics, poorly aligned employment outcomes, inflation problems, a real estate bubble, an opaque and potentially insolvent banking system (had mark-to-market accounting been applied), geo-political problems with North Korea and Taiwan, and an underperforming stock market in 2010 (see stock comparison chart).
So, multiply the bad business project factor by ten and you get an understanding of the magnitude of bad loans on the books of Chinese banks. The problem is being further exacerbated by the practice similar to Spain`s of banks making additional loans to the businesses just so that they can then turnaround and pay back the interest owed on the original loans.
Victor Shih, a Northwestern University professor estimates that Chinese local governments borrowed some 11.4 trillion renminbi at the end of 2009, and that local government financing loans to be roughly one-third of China's 2009 GDP. . . .

Friday, December 24, 2010

Signs of Trouble Downunder

Mortgage applications down. Retail sales down.

High home ownership rates coupled with rising cost of ownership are taking a toll on the rest of the economy.

Retailers cry poor as sales drop sharply
Harvey Norman boss Gerry Harvey said there would be "blood on the streets" in the retail sector because business is so bad, the worst since the recession of the early 1990s.

"It's a crisis, the worst in 20 years," he said.

I'm still thinking that the real downleg of the housing crash will come after the government panics and drops rates.

Strange Summer Selling Season
According to the ABS data, in round numbers, there were only 48,000 loans approved in September 2010 compared to 65,000 for the same month in 2009.

5 Reasons China Will Crash in 2011

5 Reasons China Will Crash in 2011

1. The Great Chinese Credit Bubble
Sure the banks will bail everyone out, but if Mark Hart is right, they Chinese debt to GDP is between 107 and 200%. They may not have as much on hand to cover the massive bad bets.

2. The Great Chinese Labor Force
Over the next five years China will add labor force members equal to all those in the U.S. and Europe, a big deflationary force. (This assumes they can keep the giant yuan game going, however . . .)

3. The Great Chinese Commodity Gobbler
Too much of a good thing driving imports up while the Chinese export capacity is "staggeringly" over capacity.

4. The Great Chinese Currency Reserve
The Chinese have trapped themselves between inflation or devaluing their foreign denominated bonds by letting the yuan appreciate.

5. The Great Chinese Nation-State
This prediction seems a bit weak. Other nations are still quite timid about criticizing China let alone actually taking significant action, trade or otherwise.

Wednesday, December 22, 2010

Chinese Developer Issuing Yuan Denominated $ Bonds

Aside from the creative nature of this bond issue, the more interesting points are:

Their apparent confidence with moving the money raised during the bond sale back into mainland China.

The currency risk has been transferred entirely to the investor, the rates were low for bonds of this type, and the bond issue was a roaring success ($450 US). Who was it said be fearful when other are bold? For some reason that leaps to mind here.

A No-Yuan Approach to Yuan-Bond Sales

New China Bank Rules Affect Capital

The government is making more moves to protect from expected losses in development loans.

This time banks are expected to (or already have instituted, it actually isn't clear from the article) raise the assigned risk weightings from 50% to 100% for loans covered by cash flows and to 300% for those not.

China’s Risk-Weighting Rule May Cut Banks’ Capital
The government is trying to limit risks stemming from last year’s surge in loans to local-government finance vehicles for roads, bridges and railroads. Chinese banks may struggle to recoup about 23 percent of the 7.7 trillion yuan ($1.2 trillion) credit they’ve extended, a person with knowledge of data collected by the industry regulator said in July.

Tuesday, December 21, 2010

Australian Luxury Home Prices Falling

Total listings in Australia over $1 million AUS are 40% higher than normal for this time of year.

Prices of the most expensive 10% of houses in Sydney fell 7.5%, in Melbourne 10.8% in the six months ending September. (Boy data is slow to emerge from Australia...)

Australian Luxury Home Prices Fall as Rates, Dollar Dent Demand

Liquidity Squeeze in Chinese Markets

Key China mkt rate spikes on liquidity squeeze
SHANGHAI, Dec 21 (Reuters) - China's benchmark money market rate leapt 54 basis points to a fresh more than two-year high early on Tuesday, as traders reported an acute shortage of funds after a slew of official tightening steps.
"No money is what I can say,"" a trader said, describing the money market situation, adding that some major banks who typically are lenders, were also trying to borrow on Tuesday.
"Everybody is busy borrowing," said a trader. "Who has extra money to buy PBOC bills? In addition, the yields are so low." Over the past several weeks, the PBOC has found it increasingly difficult to attract demand for its bills, as the yields offered at auction have lagged behind the cost of money in the secondary market.

Nevertheless, it persists on keeping auction yields on its bills low, apparently to cushion widespread expectations of another imminent rate hike, although such hikes are still seen inevitable in the long term due to high consumer inflation.

Monday, December 20, 2010

Australia Median House Price declined in 2010 Q3

Old info, but just released on the 15th.

Median housing prices decline
“Both house and other dwelling median prices declined by 0.5% to $533,447 and $424,499 respectively”, said REIA President, Mr David Airey.

With the exception of Sydney, Melbourne and Hobart, all Australian capital cities recorded median house price decreases over the quarter. Sydney, Melbourne and Darwin recorded the highest median house prices while the lowest were recorded in Hobart, Adelaide and Brisbane.

Australia Boom Towns Have Highest Mortgage Delinquencies

Australian Mortgage Delinquencies On The Rise In Boom Towns
In the last few months, however, home prices have flatlined, leaving affordability stretched after a string of interest rate hikes by the country's central bank. As such, 30-day delinquencies on mortgages are up in the past year, especially in the more speculative booming areas.
Fitch said 30-day deficiencies in south west Australia rose to 2.82% in the third quarter, outpacing every other region in the country.
A rise from 1.9% a year ago. So not exactly panic time, but as a trend, something to note.

Sunday, December 19, 2010

"One of the biggest furphies in 2009 was the claim that Australia had a 'bubble'"

THE WEEK AHEAD: Where will interest rates move in 2011? -- Craig James
The title belies the lede on this one. And I haven't done a "noted" in too long. Too much to note recently to pick out what deserves to be pointed and laughed at later.
One of the biggest furphies in 2009 was the claim that Australia had a 'bubble' in the housing market. It didn't and still doesn't . . .
He trots out the standard, the population is growing faster than than new housing, conveniently cutting off his data at 2008. Also, he ignores what Americans are very familiar with now, and that is how many households get destroyed (compressed, in noneconomic terms) when housing becomes too expensive. What you care about is net household creation, not immigration. Funny enough, those aren't exactly the same thing, especially if interest rates continue to rise and your young people and older people all move in with the middle-aged people. Easy enough given the oversized houses so conveniently provided by a steroid-taking building industry.
The other event of note in the coming week is the minutes of the December 7 Reserve Bank Board meeting. As widely expected, the Reserve Bank left rates on hold at that meeting. This was well flagged by the Reserve Bank Governor and he also provided guidance that the next move in rates wouldn't occur any time soon.
What is it with these guys who are so certain there is no bubble, yet they sound like a condemned prisoner getting letters from the governor whenever central bank rates are announced?
And affordability? The RP Data/Rismark measure that is well accepted by the Reserve Bank has continued to go sideways over the past six years. Hopefully we will hear a lot less about 'bubbles' in 2011.
I drink your delusional milkshake. I drink it up.

Well, I would, but I don't know what flavor a furphy is. (Shouldn't that be spelled "phurphy"?)

Your word of the day, compliments of wikipedia.
furphy, also commonly spelled furfie, is Australian slang for a rumour, or an erroneous or improbable story.
The word is derived from water carts made by a company established by John Furphy: J. Furphy & Sons of Shepparton, Victoria. Many Furphy water carts were used to take water to Australian Army personnel during World War I. The carts, with "J. Furphy & Sons" written on their tanks, became popular as gathering places where soldiers could exchange gossip, rumours and fanciful tales—much like today's water cooler discussion.

A furphy is water flavored. Figures.

What is this? Do I smell a trigger?

At least someone is willing to step up and write out a recipe for this soufflé collapsing.

China Credit ‘Bubble’ Headed for Bust, Blackhorse’s Duncan Says
“China has the greatest economic bubble in history,” said Duncan, author of “The Dollar Crisis” first published in 2003. “There’s a real risk it’s going to collapse in a Great Depression-style scenario.”

The pin that may prick China’s bubble, Duncan said, is a backlash against free trade among voters in the U.S., where unemployment last month rose to the highest since April. The U.S. House of Representatives in September enacted legislation that would let U.S. companies petition for duties on Chinese imports to compensate for the effect of an undervalued yuan. Protectionist sentiment could gather steam in the next two to three congressional election cycles, Duncan said.
Premier Wen Jiabao’s government has been creating about $250 billion worth of yuan each year “out of thin air,” Duncan said. To keep its currency from appreciating, the People’s Bank of China has been printing yuan to offset the dollars flowing in from a trade surplus that expanded to $27.2 billion in October, the most since July.

Australian Clearance Rates for Week ending December 12 2010

Clearance rates seem pretty set on their current downward trend line.

Australian House Auction Clearance Rates Oct-Dec 2010

Friday, December 17, 2010

China's Ghost Towns from Satellite

Click on the link below for the pictures.

The ghost towns of China: Amazing satellite images show cities meant to be home to millions lying deserted
These amazing satellite images show sprawling cities built in remote parts of China that have been left completely abandoned, sometimes years after their construction.
Some estimates put the number of empty homes at as many as 64 million, with up to 20 new cities being built every year in the country's vast swathes of free land.

This could just keep going on, possibly. But this level of waste feels like already the third round of full bore desperate policy to avoid a reckoning and it can't possibly go on even another year.

What brings this behemoth market down? Interest rates finally break the backs of speculators? Inflation destroys the consumer and makes even empty city building impossible, leaving unemployment skyrocketing? (That Real Estate sector is 60% of GDP, keep in mind.) Or in a true fit of irony, Vancouver and Australia's markets start to decline and in the race to sell, China's real estate gets triggered for a fall as well? Gods love irony, I'm going with the last in combination with the others.

Economic Unsustainability - Canada's Households

Canada's bankers are requesting changes to mortgage terms to reduce record Canadian household debt. 70% of household debt is mortgages.

Nice set of charts from the Financial Insights blog that compares the 5 year rate of growth in inflation, wages, consumer credit, and mortgage credit for Canada's households and discusses the implications of pulling back on more generous 35 year, low downpayment mortgages.

The Great Mortgage Amortization Debate
But the debt must eventually be repaid, and therein lies the great catch. When a society embraces a secular trend towards debt tolerance and consumerism, it’s also likely that it will experience a mean reversal in the form of an equal but opposite secular trend. The expansion in debt cannot outpace income growth indefinitely, but two things can prolong its life: Declining interest rates and/or loosening standards. But even these have their limits.
We have not travelled as far down that road as our American friends, but we’re far enough now that the return to a mean will be far from painless.
Actually, Vancouver HAS travelled that far.

Vancouver, Canada, and US House Prices through September 2010

Update: A couple of points about this chart. I realize the standardizing line (~75 on this chart) is not the bottom of each market. Fair enough. On the other hand that 1990s stable line in the U.S. is something in the manner of $135,000 dollar average price (U.S.$), and in Vancouver, $500,000 (CAN$). Even considering the shift in exchange rates (or at this point, especially considering . . .) doubling 135k is far less of a stunning feat than doubling 500k in the same calendar time. The standardizing mutes Vancouver's precipitous dollar-value rise relative to the other lines on the chart.

Thursday, December 16, 2010

TD Economics Report: Can Meet Road

Data Release: Household net worth continues to improve, but still impaired by high household debt
Ah, the art of kicking the can down the road.
Household net worth increased by 2.7% in the third quarter of 2010, recouping all the losses experienced in the prior quarter plus some. Net worth increased by 5.6% from year ago levels, which is the slowest pace of growth since the recovery in net worth began in the last quarter of 2009.
• The gain in net worth was largely driven by the rebound in equity markets that bolstered the value of household’s financial assets, led by shares (+6.2%) and life insurance and pensions (+3.3%). These assets are tied to gains in the S&P/TSX which was up smartly in the quarter. Other financial assets that appreciated nicely in the month include foreign investments (+13.7%) and bonds (+3.1%).
• Real estate assets continued to appreciate at a decent clip, with the value of residential structures and land up a combined 1.2%. On a year-over-year basis, real estate assets appreciated by 6.1%.
The rest of the report is a lot of minced words that in short say: oh, we'll be stalled for a while. Five years or so. Go about your business.

This is what happens to household equity when real estate normalizes.

As to the shares, those are paper assets and they are subject to the same winds of consumer confidence as real estate. When those shift, guess what happens to both of them? And insurance entities . . . what are they invested in?

But when all the chips fall, what's left? The paper values vanishes, but the debt load is still there. Claiming debt loads are offset by paper wealth in the middle of a bubble is disingenuous at best. And at this late stage, that's a kind assumption.

Shanghai Halts Fixed-Asset Lending, Nov 2010 Lending 7x Nov 2009

Shanghai Halts Fixed-Asset Lending through Year End
China's banking regulator has ordered Shanghai-incorporated banks to stop extending loans for fixed-asset investment for the rest of the month, two people familiar with the situation said Thursday
Loans for fixed-asset investment typically have a maturity of more than two years and are usually used to finance real-estate and machinery purchases, and the development of facilities.
Banks in Shanghai extended 36.1 billion yuan of new yuan loans last month, more than seven times the level in November last year of 4.8 billion yuan, data from the central bank's Shanghai headquarters showed.
My bold.

Generally we think of debt addicts as the borrowers. But this a new twist on that.

Wednesday, December 15, 2010

China Crash Predictions, Part 7 - Katsenelson

A long interview with Vitaliy Katsenelson.
Business Insider Interview from November 2010 - The Only Question About The China Crash Is When

Re: measuring the bubble: the real estate price to income ratio
This ratio is important because it helps put the scale of the Chinese real estate bubble in its proper context. In Tokyo, at the peak of the massive Japanese bubble, the ratio stood at nine times. In Beijing it’s already 14 times. In Shanghai it’s over 12 times. The national average for China is pushing 8.2 times right now. So housing affordability is very, very low, and the housing prices are extremely high.

Re: Chinese consumers picking up the slack
So on the one hand, you have U.S. and European consumers representing 20 trillion dollars in purchases, versus Chinese consumers at about 2 trillion dollars. In other words, U.S. and European consumers are 10 times the size of the Chinese consumers. As a result, a very small change in consumption in the U.S. and Europe has to be overcompensated by a huge increase in consumption in China . . .

Re: triggers, and what to watch for?
It’s very difficult to know exactly what’s going to be the straw that breaks the camel’s back. It could be a slowdown in the Japanese economy, or a double-dip in the U.S., or some other factors that are not apparent to us today. It could be just the simple fact that the Chinese government is trying to put the brakes on the economy and mistakenly does too much.

I don’t trust government-reported statistics, thus I’d watch numbers that the Chinese government is less likely to fudge: electricity consumption, which was down during the global recession, same-store sales of American fast food restaurants in China, tonnage of goods shipped through railroads, and, though they may lag, sales by American and European companies in China.

[Catch the rest of the China Crash Predictions Series]

Property Tax Rise for Vancouver

Vancouver property taxes hiked 2.2%

This translates into a 4.2% increase for homeowners and gives Vancouver an operating budget in excess of $1 billion for the first time.

If I'm estimating this correctly, that will result in a 4.39075 levy per $1000 taxable value on residential property, up from 4.21377. Or an additional 0.17698 per $1000 or for the average detached property: $141, or for West Vancouver: $300 (assuming no grants).

Tuesday, December 14, 2010

Chinese go real estate shopping in Japan

So much liquidity it flows everywhere.

Chinese Property Investors Go Shopping in Japan

Asian firms and individuals have made 18 real-estate acquisitions in Japan this year, valued at $372 million, up from eight last year, according to Dealogic. That compares with U.S. buyers' three deals totaling $6 million and European buyers' one deal, Dealogic reports. (These numbers exclude deals involving private companies and funds.)

Given that China has a brand new shiny 5x5 cubicle of office space for every man, woman, and child, you'd think they'd have plenty of their own buildings to play with.

Sunday, December 12, 2010

Homes out of reach for 85% of Chinese, Central Bank raises reserves again

85pc of urban Chinese cannot afford to buy a home as inflation accelerates

Official statistics showed on Friday that prices in 70 major cities had recorded their third straight month-on-month rise in November, rising 0.3pc on the previous month and at an annual rate of 7.7pc.
"Property prices are likely to remain high for a while," predicted Matthew Fang, an analyst at Guosen Securities, adding that demand was still strong and that inflation was rising.

Demand is still strong? From the remaining 15% of the population, I suppose. How many homes do they need, each? And who are they going to sell them to? In the middle of the bubble everyone somehow forgets that the future price is based on the existence of a future buyer.

According to its figures, new homes in seven out of the 35 cities were more than 50pc over their fair value. Property prices in Fuzhou are 70pc too expensive, while those in Hangzhou are 66pc overpriced. New homes in Shanghai are 37pc overpriced and those in Beijing are almost 50pc overpriced.

On a related note, looks like China's central bank wimped out on raising rates and instead raised reserve requirements again.

Australian Auction Clearance Rates Continue Slow Slide

Australian Auction Clearance Rates October-December 2010
Sydney dropped below 50% for the first time since December 2008 (chart at

Note that discontinuity between the close in 2008 and the open in January 2009. That's China's $600 billion stimulus working in between there.

Saturday, December 11, 2010

Jim Chanos Chimes in with an Update on China

China Overbuilding to 'Hit a Wall': Chanos Includes Video.

"China will be the big story as we get into the new year."

The nature of the growth is the problem. Chanos believes China is more of a real estate economy than an export driven one, citing real estate as 60% of GDP compared to exports at 5% and consumption at 35% (a decline over the last ten years). He believes the 12-15 million units China constructed in 2010 are overhang now as sales in the last year and a half have been relatively flat. He also warns that with their very low margins, Chinese companies cannot tolerate any increase in costs, including wages, which need to rise to accommodate inflation. And many companies are going to be losing money if they aren't already. Many of the companies he has looked at have accounting issues.

The U.S. is in the best position relative to other trading partners given these threats.

On top of all that, most of the migrants from the countryside work in construction so as soon as that dwindles, these workers will go back to the country further exacerbating the overhang.

Thursday, December 9, 2010

Chinese state media warning on property bubble

Maybe they figured out this is the only way to rein in the shadow-funded portion of the market.

China's property bubble getting worse: state media
BEIJING — A Chinese government think tank has warned the country's real estate bubble is getting worse, with property prices in major cities overvalued by as much as 70 percent, state media reported Thursday.
Of the 35 major cities surveyed, property prices in eleven including Beijing and Shanghai were between 30 and 50 percent above their market value, the China Daily said, citing the Chinese Academy of Social Sciences.

Chinese insurance companies and sovereign wealth funds expected to buy up Australian real estate

Overseas funds ready to snap up our real estate

COMPETITION for core Australian real estate could toughen.
Chinese life insurance companies and new sovereign wealth funds are looking to include property in their investment portfolios, The Australian reports.

Buying into an elevated market . . . caught up in the mania or very concerned about inflation? That would have to be very very concerned to make up for paying nearly double.

Tuesday, December 7, 2010

Development Loans Halted in China to all but 16 State Owned Firms

Only state controlled developers are allowed loans now. One might see this as a political move as well as a fiscal one. One expects this will push up the percent of foreign capital used for development. Tangled webs and all that.

China banks told to tighten grip on property lending
Domestic media reported earlier this week that CBRC ordered banks to confine their new loans to 16 developers on the list.

China ordered state-owned firms to divest from the real estate industry, except those with property development as their core businesses.

In the end, we may be able to estimate the size and leverage of the shadow banking system by virtue of how much real estate activity is left after it is the sole source of funding.

Monday, December 6, 2010

Sydney Capitulating? Melbourne Holding Out

Analysts see reality settling over the Australian housing market. Market by market.

The next few months will be critical -- The Friedman Unit of real estate. Given that their housing season is as inverted as their world map, the Aussies may give us an early glimpse for what is to come for Canada in their springtime.

Property sales will slow over summer as sellers are forced to become more realistic: Expert
"Then what will happen is that we'll see these sellers putting them fresh on the market in January or February after this two or three week hiatus. Then what we're going to see is that sellers will reflect on how urgently they need to sell and what price they can realistically get."

The comments come after a number of property analysts, mostly led by SQM Research director Louis Christopher, have identified a huge amount of stock on the market over the Spring season. Sellers have been wanting to capitalise on huge growth in prices, but buyers are wary after several interest rate increases.

Airey says that the Summer season will be one of reflection, given that sellers finally realise they won't be getting the prices they've hoped for.

This is the point where we find out which homeowners were truly speculators and which were homeowners with benefits of feeling rich, while they could.

Where did that housing shortage vanish to?

Sunday, December 5, 2010

Any growth in China below 8% would spark sell off.

China’s ‘Treadmill to Hell’ Is Worth Mind Game: William Pesek
Dec. 6 (Bloomberg) -- Fitch Ratings is performing a timely mind experiment: Pretend Chinese growth fell below 5 percent.
(Not that they are predicting that or anything, just to be clear)
“Any credible prediction below 8 percent would spark a huge risk sell-off,” says Simon Grose-Hodge, head of investment strategy for South Asia at LGT Group in Singapore.

Visualizing Vancouver's Detached Housing Market -- Two Charts

It is difficult to assess the state of Vancouver's market because it has not been "normal" for at least a decade, if not almost two. Year to year comparisons using the last two years are almost random because of the record highs and mini crash of 2008.

I did up two charts to try to better see the state of things. The first is a circular graph. Note that December of one year connects to January of that same year, not the next year as it probably should. Just an artifact of the software.

Chart of Detached House Sales Vancouver 2006 - 2010
What does this tell us, if anything? The blue line, 2010, looks like the second worst year of the five, maybe the middle year, if we are generous. Except for the expanding finish it is putting on. The other thing I notice is that 2009 appears rotated around later in the year, as if the missing activity from early in the year got shifted to the end.  The blue line also looks to be trying to buck the usual year end slow down trend.

Detached House Sales Bar Chart 2006-2010 with average line

2008 was as much an outlier year as 2009 was in the other direction. 2010 starts out following the average line, but at the end we have a counter cyclic trend line, which if it holds up will make December an unusually active month for sales, comparable to 2009's numbers. I'm as big a bear as they come, but for those trying to get out of this market, there may still be time. (Especially with an 8 in the address.)

China in a virtuous cycle of rising costs

HSBC China PMI hits 8-month high, inflation rises
Costs paid by manufacturers rose at the swiftest rate in 28 months, driven by higher raw material prices; the input price sub-index is now up almost 36 points since July.
Markit, the British research firm that compiles the PMI for HSBC, said the output price sub-index was at a level "indicative of a substantial rate of inflation".

The 24/7 Wall Street Blog summarized the problem thusly:
China may be one of the possible causes of a growing worldwide inflation of raw material prices. It has created its own virtuous circle as it buys more gold, but the cycle has begun to turn vicious as it presses into other markets like oil. The Chinese economy may be huge, but it is not immune from the sharp increases in the price of imports–price increases it has been critical in driving.

Friday, December 3, 2010

Sales Down, Prices Up in Vancouver

Home sales still falling in Vancouver and Calgary
Sales also continue to slump in Vancouver, Canada’s most expensive city for housing. November sales were off 18.6% from a year ago. Prices are up with the benchmark price for all residential properties $580,080, a 4.1% increase from a year ago.

Like Australia, the high end is holding up the average sale price. Almost certainly the influence of outside money, which has a strong preference for the high end.

Thursday, December 2, 2010

China's house prices up 34% and Foreign Money is up 48% in sector

Party on, Garth.

Home prices in China continue to climb
Housing prices in the country's 10 most expensive real estate markets rose an average of 34 per cent last month from a year earlier, it added.
How are those cooling measures working out? Can't impact what isn't regulated.

Overseas money floods Chinese property market
In the first 10 months of this year, the utilisation of foreign capital in the real estate sector jumped 48.04 per cent compared with the same period in 2009. In October the figure hit US$8.7 billion (S$11.45 billion).

Moody's predicts a 15-20% drop in prices, but still rates the sector "stable." Do recall how stunningly adept Moody's was during the U.S. bubble, rating garbage backed mortgage securities as AAA.

Wednesday, December 1, 2010

"Realtors Are Sprinkling the Fairy Dust of False Hope"

Says the author of the article Cowtown Moment at

As the market turns, it's important to remember that realtors play a very specific role: closing deals. That's the only thing they get paid for. That means they actively cheerlead buyers when they is a dearth of them. This will end up making them look bad, but there is no helping that. They are under no incentive to act otherwise.

“I firmly believe that we’re going to see more growth and activity probably not too early in 2011,” says local cartel president Diane Scott, “but I think about February or March we’re going to see a lot of people coming off the fence.” She bases that on, well, nothing.

Deja vu from the U.S. crash. Regency effect lives on.

If Calgary lacks an overhang from the bubble, these wishful sellers may be okay in five years. If the price of oil cooperates. On the other hand, six months and a 25% drop from now, they may kick themselves for not simply dropping their listing price 15k a week and getting out fast.

Fitch: Australian Banks Can Handle 30% Decline

Australia Banks Can Manage Housing Drop, Fitch Says
The three scenarios Fitch tested are mild stress, with mortgage defaults of 2.5 percent and a 20 percent drop in home prices; medium stress with 6 percent defaults and 30 percent decline in prices; and severe stress with 8 percent defaults and a 40 percent price slump.
The final results will be released before Christmas, Fitch spokeswoman Iselle Gonzales said.

Stress tests have lost their market luster in the wake of Ireland's meaning nothing.