Capital Economics Predicts 25% Decline in Canadian Prices

Capital Economics (report subscription only) released a sobering report that predicts a 25% decline in Canadian house prices over 3 years.

Canada's bubble about to burst, research firm argues

By 2010, the average price for a two-storey home on a national basis hit $314,000, which was roughly five times the $58,347 average disposable income per person.

That is well above the long-term historical average of prices equalling 3.5 times average disposable income.

Basically, all the usual reasons. Growth in prices exceeds growth in all other measures, to record levels unmatched -- except at the peak of the last bubble, right before it burst.

Soft landing smackdown:

"In theory, the house-price-toincome ratio could adjust through a long period of stagnant house prices coupled with continued income growth," Paul Ashworth, a Capital Economics' economist wrote in a note to The Sun. "But when the ratio gets this out of whack, that's not how it happens in practice."

I gotta wonder what the question from the reporter was that triggered that. Heh. "Yeah, but we'll have a soft landing, right??"

"The world population is seven billion, climbing to 10 billion, and the planet isn't growing," Pastrick said.

"Something has to give," he added, which is the price of land.

Over the long run, Pastrick said he expects people will have to spend larger portions of their income for shelter in an increasingly crowded world.

News flash, Canada is running out of land. How can these people be taken seriously?

That will be the end of the rest of the economy then, Mr. Pastrick. Think about what you are saying for just a half a second, for once. If everyone sinks all their money into housing because their isn't enough land, then they are already spending that money on food because there will already be a shortage of that, and there will be no resources left for business development, so the entire economy will have to adjust downward on every measure of quality of life. Based on your logic, one would predict Bangladesh to have the most expensive housing in the world.

Fortunately for Canada, and the U.S. too, there is no shortage of land. There are periods of excess credit growth, however. That alone drives house prices. Want more affordable housing? . . . cut down the credit growth. The housing bubble is merely a manifestation of the credit bubble. Period.

Shortage of land. Aye.

Note, the article closed with the shortage of land yahoo. Not an accident, that.

Australia Expensive Capital Suburbs down 5.4% to April

31 May 2011, RP Data – Rismark Home Value Index Release

Over the year to end April, dwellings in the most expensive capital city suburbs recorded a -5.4 per cent loss (see second chart). In contrast, home values in the middle 60 per cent of suburbs were down by only -0.9 per cent. Dwellings located in the cheapest 20 per cent of suburbs were the best performers, hardly moving (-0.5 per cent).

Perth values have recorded the largest fall of any capital city over the 12 months to April, down -7.1 per cent (s.a.). Brisbane has suffered a similar fate, with home values off -6.8 per cent (s.a.).

Housing prices fall in year to May

House prices have fallen almost three per cent so far in 2011 as potential home buyers choose to save their pennies rather than bid for real estate.

You are so desperate to throw in a cliché that you included one about pennies? I was thinking that the press was finally willing to carry news about declines, but this sort of flippancy reveals how out of touch they are with the absurdity of prices.

Added: Also, they are not "saving their pennies". According to the ING Direct Financial Wellbeing Index, essential spending is UP 7.5% and it is going on credit cards, which rose from a median of $1775 in Q1 2010 to $2505 in Q4 of 2010. Journalism and cliché fail.

RP Data research director Tim Lawless said the housing market was soft as potential home buyers focussed on saving, not spending, because they were worried about the economy.

Please. Ponzi schemes need an ever expanding influx of new cash or they collapse. It has little to do with saving versus spending and everything to do with a plateau in available credit for expanding the bubble farther. Foreign investors have gotten skittish. Don't want to just say that, I guess. Better to blame the consumer. Might as well be prepared for the consumers to be blamed for the entire thing, btw.

Mr Lawless said house prices in Perth had been falling since late 2007 due to a lack of buyer demand, despite strong population growth and low unemployment in the West Australian capital

"Buyer demand," not "buyer access to ever increasing credit". Eh, the press is still hopeless.

Canadian House Price Index Confirms Swelling Prices for April

housepriceindex.ca

Across all major markets, the numbers up-ticked in April.

Tied Fate

Canada's and Australia's stock market indexes plotted against the Hang Seng. The downward slide continues apace.

Interestingly, while the Australia index appears in lockstep the TSX appears to be a leading indicator for the Hang Seng. Interesting.

The U.S. is expected to be less impacted than other countries by the collapse of China's economy. The markets appear to agree. China is far less a customer than a supplier of cheap labor. A desperate supplier is a cheaper supplier.

All charts snapshot from Yahoo! Finance

July 1 Changes to Canadian Federal Immigration Program

Chinese investors are propping up the markets in Vancouver and Toronto and Canada looks to be limiting some of the fast tracking.

Breaking News: Changes Announced for Three Canadian Immigration Programs

“Given the demand for this program, especially from Chinese nationals, we expect this imposed cap limit to be reached extremely quickly… probably within a matter of days,” says Attorney David Cohen. “Applicants should keep in mind that Quebec has its own Immigrant Investor Program which could be a great option for applicants who cannot submit under the Federal Investor Program as Quebec will be increasing the number of applications accepted under its program.”

Moratorium on the Federal Immigrant Entrepreneur Program

As of July 1, 2011, CIC will not be accepting any new Federal Entrepreneur applications. CIC has not stated when the Federal Entrepreneur Program will begin accepting new applications. Applicants are encouraged to submit their application to the Quebec Entrepreneur Program or to one of the various Business Immigration Programs offered by the provinces.

The BC Provincial Nominee program appears to be unchanged.

At first glance the changes look like they will have a higher impact on Ontario as their PNP program looks more difficult to qualify for.

Hat tip: Makaya at VREAA

85% of Chinese Developers Were Insolvent in 2008

Ronnie Chan On Moral Hazard In The China Real Estate Sector

He has rightly pointed out that after the Lehmanesque crash in late 2008, many of the Chinese real estate developers were essentially insolvent. In fact, he estimated that 85% of developers were insolvent. Unfortunately, the government bailed out the developers, and now the real estate market has gone through the roof. This is exactly why all those Chinese real estate developers are always so confident, telling analysts that “the government doesn’t want us to fail”.

He then pointed out that developers in China are now getting loans in Hong Kong for 13%, 15%, or even more (just as I have pointed out in 10 Reasons to short China), and that is very bad.

CMHC Would Like You to Feel Good about Canadians' Increasing Debt Load

2011 Mortgage Consumer Survey

Buyers continue to view homeownership as an investment and take time planning their purchase

We're already in trouble. It's shelter, baby. No consumer investment should be highly leveraged, illiquid and require a 7% transaction fee.

Three-quarters of recent buyers feel it is very important to pay off their mortgage as soon as possible. In fact, 39% of recent buyers have their mortgage payment set higher than the minimum required.

I love the defensive tone here. *IN FACT* . . .

25% are sanguine about perma-renting from the bank. 75% realize having long-term massive leveraged debt is bad. I should hope so. Half who realize it are doing something about it, but how much are they doing? Are they paying $100 extra a month? Are they rounding $799 to $800? How much extra are they paying and what percent are paying how much extra? Useless propaganda without more info.

Post Mortgage Contact Could be Beneficial to Maintaining and Growing Business

Is CMHC selling something? I just lost track of who the audience is. I thought it was the press, I'll confess. Following the "CMHC Can Help" button leads to a link fest invitation. Is that the audience, mortgage brokers who will register for their regular feel good newsletters and give them links? Huh, looks like it. Please, mortgage brokers, sooth the fears of mortgage consumers for us. Please.

Good Level of Financial Literacy and Prudence Observed Among Mortgage Consumers… However Opportunities Exist for Improvement

Thank goodness. Let's see what data leads them to assert that.

Overall, 80% of recent buyers reported doing some level of household budgeting. While establishing this budget, the majority also reported that they had assessed to some degree the potential impact of rising interest rates on the budget (71%), assessed to some degree the potential impact of a loss of income on the budget (69%), or assessed to some degree the potential impact of rising expenses on the budget (79%).

I'll confess I did not see the original survey, nor is a copy of it provided that I could find. But if you make a standard survey with 5 choices, very X, somewhat X, average x, somewhat not x, very not x, and people randomly selected from the options, guess what you get if you what to assert y% responded that they somewhat x just like every single line reported in the above paragraph? Yup, 80%. There is also a bias on these surveys that people will tend not select the options on the ends. Add that up and realize that only 71% somewhat assessed the impact of rising interest rates and I'd say you have a problem. 30% of mortgagees in the last 12 months (this includes new buyers, renewers, refinancers, a whole lot of potential households, in other words), gave absolutely no consideration to future rising interest rates.

I'll just leave off with this:

Tools and resources from CMHC for mortgage professionals are available to provide your clients with a more holistic financial experience.

Myriad Problems Plague China's Affordable Housing Push

Sub-standard materials, thin profit margins, cronyism, shortage of funds, bureaucratic delays, all so predictable. The commodity bulls seem to be betting big on this too.

China's $600 billion housing push faces roadblocks

Property companies contracted to do the building, including Vanke (000002.SZ), complain about thinner-than-expected profit margins and the building program is falling behind schedule.

The biggest developers, including Vanke, Poly Real Estate (600048.SS), and China Overseas Land (0688.HK), are finding that they are earning lower margins than they expected, typically 6-8 percent, but close to zero in some cases.

By contrast, commercial home development often provides over 30 percent margins.

The central planners want 10 million units this year. The local governments are supposed to cough up 90% of the cost at the same time their income is plummeting at the same time materials are still at record cost. It's a perfect storm of self-created problems.

And now they are thinking of selling bonds, or REITs to fund these projects. Seeking funding for projects guaranteed to make a loss. Good luck with that.

Any failure to hit those targets will amplify existing worries about a hard landing in China . . .

Ding.

Some in China Totally Get It

"Unlike real industries, property alone cannot 'make' any money" --Song Huiyong, research director at Shanghai Centaline Property Consultants Ltd

That was the closer to this article about property speculators invading 2nd-and 3rd-tier cities.

Record realty prices head to lower-tier cities

In an earlier interview with China Daily, Zhou Dewen, head of the Wenzhou SME (small and medium-sized enterprise) Development Association, expressed concerns that the current property spree will grind to a halt.

"In the worst scenario, after the land-bidding spree sidelines industrial production and fuels more record property prices, the bubbles in the housing market will burst and the economic boom will end with a hard landing," Zhou said.

Colliers: Rich Chinese Buying in London, Vancouver, and Australian Cities

The myth is still a powerful driver of sales to locals as well. The myth, that is, that one can flip to a Chinese seller indirectly drives up more sales.

Where Rich Chinese Are Buying Real Estate

Chinese demand has pushed the average price of a Vancouver home up 12% in 2010 and is expected to rise another 3% this year, according to the Canada Mortgage and Housing Corporation. Demand from mainland immigrants now accounts for 29% of all new homes in Vancouver, China Daily reports.

In London, China buyers accounted for 28% of all prime London property sales and 54% by sales value in the prime central London area, where houses go for 5 million pounds ($8 million) on average, according to a recent report by Savills research.

Talk Not Action for Carney in Canada

He claims he can not control one or two markets with national policy, ignoring that the bubble is nationwide and that 4% financing is ridiculously cheap anywhere, anytime.

Canada Household Debt Rises to New High

In a speech last week, Bank of Canada Governor Mark Carney said the housing market was set to cool, warning that certain pockets were exhibiting signs of "excess." He reiterated concerns Canadians were taking out too much debt, adding the level of personal savings provided "limited comfort."

Analyst: Hong Kong Prices to Fall 15% by End of Year

Hong Kong Home Prices to Fall Up to 15%, Walter Kwok Says

Government officials including Chief Executive Donald Tsang have warned of an asset bubble in the Chinese city, where home prices have surged more than 70 percent since the beginning of 2009. In the most recent measures to curb prices, announced on June 10, the government raised up-front payments for properties costing more than HK$6 million ($770,000) and required borrowers whose income is primarily from outside Hong Kong to deposit an extra 10 percent when they buy properties unless they can demonstrate a “close connection” to the city.

China Transition to Consumer Economy Not Going So Well

The percent of China's GDP due to consumer spending fell yet again. Now 34% down from 46%. The only (and very unmanageable) attempt China can make for a soft landing is to transition to consumption. But they are relentlessly heading the other way.

Consumer Spending Fades in China Economy After ‘Peak Days’

“Consumption hasn’t taken off,” said Patrick Chovanec, an associate professor at Tsinghua University’s School of Economics and Management in Beijing. “What has happened is a shift from exports to investment as a driver of growth.”

. . .

“Just at a time when the government in China and a lot of people elsewhere are hoping to see Chinese consumers step up to the plate, actually they’ve been staying away from shops,” said Mark Williams, an economist in London with Capital Economics and a former adviser on China to the U.K. Treasury. “The trend over the past couple of years has been relentlessly downward.”

Food costs jumped 12 percent in May from a year before, eroding the purchasing power of Chinese households even as policy makers embrace wage gains to bolster domestic demand. Savings are also being hurt, with the one-year deposit rate of 3.25 percent more than 2 percentage points less than the 5.5 percent annual pace of inflation. Limited exchange-rate appreciation also means imported products are more costly.

Mid 1990s to 2008 Chinese Officials Looted $124 Billion

A report compiled in 2008 was accidentally posted to the China Central Bank website, then removed again after an outcry began.

Imagine, this was before the November 2008 massive stimulus in China, you know the one that started just a month before the markets in Australia and Canada suddenly jumped back into the black. Boggles the mind to imagine how much was looted in 2009 and 2010.

Corrupt Officials Took $124 Billion Out of China

Around 17,000 Communist party cadres, police, judicial officers and state-owned enterprise executives fled the country between the mid-1990s and 2008, the 67-page report said.

For higher-ranking officials who managed to abscond with large amounts of money, the US was the favourite destination, while Canada, Australia and the Netherlands were also popular. Those who could not immediately secure visas for western countries often chose to stay in small countries in eastern Europe, Latin America and Africa while they waited for a chance to move to their final intended destination.

Will Canada, U.S. et al help China track down this money if asked?

A presumption of guilt is going to fall upon recent immigrants, which is going to be very unfortunate for the honest majority. The rhetoric of presumed guilt is already showing up on Canadian blogs and forums.

Serious Price and Sales Volume Erosion Around Vancouver

The BCREA--British Columbia Real Estate Association June 15 Release shows some serious erosion of average prices. Unfortunately, average is a terrible measure, easily skewed upward by a few high end sales, as even they admit in the Vancouver Sun. No medians forthcoming to help fix that, apparently.

They do provide total sales volume which is a good number to watch. Bubbles need churn to survive, so the first sign of deflation will be a fall in volume, which makes the erosion around Vancouver look even more precipitous.

Earthquake Risk and Now This

Vancouver is running on sentiment. This is not going to be good for sentiment.

Riot police use tear gas after violence erupts in Vancouver

Chinese Shoppers Everywhere

Chinese on Global Homebuying Spree as Local Markets Tighten

Investors are grabbing everything from $68,000 foreclosed condominiums in Florida to $2 million beachfront villas in Vietnam, a buying spree fueled by China’s surging wealth . . .

I would amend that to "surging concentration of wealth". Subtle, but significant difference.
Thailand, Singapore, Vietnam, Sri Lanka . . . London

In 2008, none of the 82 million pounds of overseas transactions in London’s Canary Wharf and Docklands areas for existing homes involved Chinese buyers, according to London- based Savills. Last year, they accounted for 40 percent of the 100 million pounds of property acquired by foreign investors. Residential prices in prime central London rose 2 percent in the first quarter from the previous three months.

Vancouver, San Francisco

In the U.S., Chinese buyers have helped support home sales and prices in Silicon Valley and Hawaii, while they are an increasing presence in Las Vegas and New York, according to local brokers. They accounted for 9 percent of U.S. home purchases by foreigners in the 12 months ended in March of both 2010 and 2011, up from 5 percent in 2009 . . .

The annual limit for Chinese citizens to buy foreign currencies is $50,000, according to China’s State Administration of Foreign Exchange. It’s an obstacle many can get around.

“Most of these buyers are rich and they have their trade companies or rep offices in Hong Kong, Kuala Lumpur or Singapore,” said Larry Hu, a Shanghai-based director of the residential department for Knight Frank LLP. “Those places don’t have currency controls, so they can pay via their companies’ offshore accounts.”

I still expect that as soon as the Chinese government is crimped for cash (note that the estimated bad local debt equals nearly half the Chinese foreign reserves) this buying spree by the well-connected will be stopped dead.

Australia's Expensive Suburbs Plummeting

Mosman Park WA -43%
Hunters Hill NSW -31%
East Fremantle WA -30%
Adelaide SA -29%
Melbourne VIC -28%

Median house prices plummet in high-end suburbs

Perth's Mossman Park, crowned Australia’s most expensive suburb last year, now lays claim to the title of hardest hit by the property gloom.
Real estate losses dragged the suburb's median house price down by 43.1 per cent to $1.25 million.

Sydney's upmarket Hunters Hill, which has a mean taxable income of $125,000 a year, suffered a similar fate, with median home prices falling 31.1 per cent to $1.41 million.

Wait wait wait . . . if these are all two income households, that's a median income of $250,000. That's still a median multiple of 5.6x (down from 8x). To reach a more reasonable 3x the price will have to fall to 750,000, another 50%, which is unlikely. Luxury areas tend to have elevated multiples due to the smaller market and highly individual valuations.

"The premium sector is being impacted by a perfect storm of forces such as consumer conservatism, higher interest rates, poorly performing equities markets, unstable global economic conditions and lower levels of business and consumer confidence," he said.

AKA, sentiment shifted. The importance of buying at fundamentals is really clear at this stage in the market. If you only buy at fundamental levels you are far more immune to sentiment.

The Great Indebted Households of Canada

Certified General Accountants Association of Canada releases a report.

The debt-to-income ratio reached a new record high of 146.9 per cent in the first quarter of 2011.

This is higher than the U.S. at the time of our crash, btw. And given higher taxes and cost of living the ability to carry debt is lower for Canadians.

While the pace of debt expansion declined in 2010 and the first quarter of 2011, household debt levels still reached a record high of $1.5 trillion in the first quarter of 2011.
If household debt was spread evenly across all Canadians, a family with two children would owe an estimated $176,461.
Consumption rather than asset accumulation remains the primary cause of the debt run up: 57 per cent of indebted respondents said day-to-day living expenses are the main cause for the increasing debt.
Single-parent families were the only category where debt increases with age, and they have two-thirds more debt than couples with no children.

The effective interest rate paid by households noticeably declined over the years; however, this did not transmute into easing debt-service burden. The mortgage debt-service ratio ended the 2010 year at the same level as it stood in 2003; the service burden caused by consumer credit experienced little change at all and was nearly identical in 2010 compared with some 20 years ago

You know what this means? It means Canadians better get their debt reduction act together while interest rates are low and/or they better be praying they stay low indefinitely.

The extent to which residential mortgages were backed by residential assets continued to deteriorate over 2010. This indicator stood at 65.7 per cent at the end of 2010, a level much higher than the 55.0 per cent average observed between 1990 and 2007.

I confess, I'm not entirely sure what this means. Will edit when I figure it out.

On another note, I'm really looking forward to some hockey.

Hong Kong Home Sales Tumble 58% Week to Week

Sales over $10 Million HKD (1,280k USD) require a 50% down payment.
Foreign buyers must deposit an extra 10% (Overseas buyers in Q1 were 1/3 of luxury sales.)

I was in Hong Kong in the late nineties. They were suffering terribly from that housing correction. The lamentations and rending of garments were quite a spectacle. Amazing that a mere 14 years later, here they are again. Economic Reality 2 Human Delusion 0.

Hong Kong Home Sales Tumble After HKMA Raises Down Payments

Sales at 10 of Hong Kong’s biggest private residential developments fell 58 percent at the weekend from a week earlier after the government raised minimum down payments and deposits for foreign buyers.

. . .

Property transactions fell for a fifth straight month in May. Still, home prices gained 1.3 percent in the week ended June 5 from the previous seven days, according to Centaline.

Market top anyone?

Uncollected Taxes in Australia Equal Half the Deficit and Rising Fast

Cash-strapped businesses and individuals owe $14.7b in tax

CASH-STRAPPED businesses and individuals owe the Australian Taxation Office $14.7 billion - more than half of the nation's deficit.

"These debts are often temporary problems, caused by unforeseen personal circumstances or a short-term business downturn.

I wonder if record high mortgage payments on record high mortgage debt could have anything to do with this.

How debt chews up the family's income

A report found four in five Australians list their "biggest concern" as rising living expenses, utilities and petrol prices. Australians spend 45 per cent of income servicing debt - more than India, Italy, Mexico and the UK - compared to an average of 38 per cent.

Given that employment numbers in Australia are still good, debt is likely the entire problem. Expect every other consumer-driven sector to suffer as well, which has a nasty habit of showing up in the employment numbers.

Encouraging households to borrow to the edge of affordability is stunningly irresponsible. Maybe now the government will take notice of how much a bad idea.

As the Grays can attest, a Sydney household earning $150,000 is not rich, and news the government is considering raising the upper limit for its carbon tax compensation was welcomed by the family.
The Grays are adamant they are struggling with the cost of living, weighed down by a mammoth mortgage and significant transport costs.

Let house prices rise out of control, kiss your middle class goodbye.


Link hat tip: Aussie Roy at Greaterfool.ca

China and Hong Kong Bank and Property Shares Faltering

HK, China shares extend slide as property, banks falter

Hong Kong and China shares extended their decline on Monday morning as banks, energy and property counters pulled the benchmark indexes close to strong near-term supports.

Hang Seng at its lowest in three months. Shanghai Composite down to a 4 1/2 month low. Annual inflation rate in June may be 6%.

If you haven't been following the saga of Muddy Waters it makes for a fun read. This recent decline feels connected to Sino-Forest's collapse and a broader market realization of what a house of cards China's economy is. All this market has is sentiment. Muddy Waters is taking that away.

Also, Lending comes in well below analysts estimates and last year's numbers.

Loans were 551.6 billion yuan ($85 billion), less than the 650 billion yuan median estimate in a Bloomberg News survey of 20 economists and 639 billion yuan a year earlier. M2, the broadest measure of money supply, rose 15.1 percent, the People’s Bank of China said on its website.

New money supply growth fell to its lowest level since Lehman Brothers collapsed.

Baloney Is Right (China's State Run Paper Weighs in on Claims Prices Are Falling)

What a confused mess of an article.

Baloney of house prices

Media reports that the prices of new homes in major Chinese cities are plummeting at double-digit rates amount to nothing more than bunkum and wishful thinking.

Well, sure, why would anyone believe any numbers out of China? (Especially housing developers desperate to raise funds on the world market.) So, sure, we'll go with you on this for the moment.

China's rocketing housing prices are so unpopular nowadays that they are blamed for delaying marriages and depressing Chinese consumption.

Obligatory the People's Government Feels Your Pain paragraph?

After several years of vain attempts to rein in housing price hikes, the Chinese authorities have at last come to the obvious conclusion that a substantial increase in the supply of cheap houses will do the job.

If this is the official line, China is in worse shape than previous worst imagining. The high end bubble propelled by the burgeoning cash in the hands of 700,000 newly minted millionaires and the housing needs of workers making $3000/year have no market intersection. The workers are not in competition against the wealthy for houses. This is like claiming caviar prices are high because there is a shortage of hotdogs.

Now, there is, in theory, competition for land and developers. But, in reality, the economics of that have become intractable.

Developers are now nothing more than profiteers selling to the ultra wealthy. They are not going to voluntarily back down to building modern high-rises that will be rented for a few dollars a week. They are not going to obediently scale down to charity work. And charity is what it will be, especially given the record high cost of building supplies. The Politburo is going to need a bigger stick to compel these companies to ignore market forces.

They've tried cutting off their oxygen supply, but given a choice between developing at a huge loss or ceasing business, real business people will simply quit and change their business. So, I don't even think the intersection of these two markets exists at the land/developer level either. Not in reality.

Given that China has already made it a top priority to fight inflation with tightening measures, the stabilization and then slump in urban house prices will be a sure bet as long as those subsidized housing units are constructed as planned.

Wait, what? It's scandalous that anyone would imply house prices are falling, but hey, falling prices are a sure bet, yippie?

Lack of supporting policies to encourage private investment and the difficulties local governments face raising enough money for subsidized housing projects are understandable. But that does not mean misleading media reports about falling property prices can be made an excuse for local governments to drag their heels over building government-subsidized housing units.

OH SNAP. Here we are. Forget the rest of the article, this is the meat right here. The message from the government is we think you are lying about house prices already falling as a way to weasel out of our five year subsidized housing plan, but that's not going to work.

Interesting.

It is estimated that the country needs to spend about 1.3 trillion yuan on these housing projects, with more than 500 billion of that coming from the central government and local governments.

This will certainly be a huge financial burden on government coffers. But if this is the price to avoid a disastrous property bust, it's worth it.

Yeah, more propaganda, whatever. Too little too late anyway.

Can Sufficient Funds be Found for China's Panicked Affordable Housing Binge?

There's been a rash of articles on this. None, unfortunately, have looked into what is a giant experiment at the intersection of command economy and capitalist profiteering.

The local governments just got bailed out, maybe that was part of spurring them to cough up some funds for this project? Twisted logic, admittedly, but everything in China appears to run like this.

China Drags Feet on Affordable Housing

According to a recent report (in Chinese) from the state-run Xinhua news agency, construction has begun on only 30% of the 10 million units of public housing the central government has pledged to build this year.

An unnamed funding department head at a Shanghai-based bank recently told the Oriental Daily that because of credit tightening in recent months, banks are left with little to lend for property development, even government-backed public housing projects (report in Chinese).

“There are lots of (public housing) projects but little cash around. It’s like we have ten pots but only eight lids,” a property executive told the Shanghai newspaper.

China cracks the whip on affordable housing

Faced with growing public anxiety over rising costs, Premier Wen Jiabao told China's legislature in March the government would ramp up a campaign to build affordable housing for the country's millions of low-income earners.

The subsidised housing will cost an estimated 1.3 trillion yuan ($200 billion), with about 500 billion yuan provided by the central and local governments and the rest coming from the private sector, Xinhua news agency said.

But less than one-third of the low-income homes to be built this year in some cities had started due to a lack of funds and some projects had quality problems, Xinhua said.

They've really painted themselves into a corner. The survival of the government hinges on publicly financing an additional building boom in an environment of extreme elevated costs caused by a public/private sector building bubble.

Meanwhile . . .

The bellwether Hang Seng has nearly retraced down to the Japan Earthquake/Fukushima sell off.

Some Australian Luxury Property Areas Down 20% Just Since January

Wide spread, Sydney holding steady, more or less, the West showing a real correction.

Luxury property price falls dragging down Oz real estate market

According to Tim Lawless, RP Data’s research director, expensive suburbs have helped drag the overall market down. Over the year to the end of April, properties in the most expensive capital city suburbs recorded a 5.4% loss. In contrast, property values in the middle suburbs were down by only 0.9% while those in the cheapest suburbs were the best performers, hardly moving at -0.5 per cent.

At the other end of the spectrum are Perth and Brisbane where home values continue to experience a more significant correction. Perth values have recorded the largest fall of any capital city over the 12 months to April, down 7.1% and down 6.8% in Brisbane.

Canada's Cassandra Gets Press Time

It's like going to sleep in one world and waking up in another. These kinds of warnings (like this one from BMO) are not new. The narrative-driven news world can sure be frustrating.

Vancouver's real estate prices set to drop

In the early 2000s, Vancouver prices were slightly higher than in Toronto but are now 71 per cent higher.

Ouch. And which of these two cities has all the industry? Double Ouch.

Four corrections in the past three decades saw declines averaging 21 per cent.

Yes, house prices can and have fallen in the past. Imagine that.

Vancouver housing "priced for perfection," poised for correction

OTTAWA — Vancouver's housing market is poised for a correction, with prices nearly triple what they were a decade ago and the average home now running "an astounding" 11.2 times family income, says a report Tuesday from BMO Capital Markets.
. . .
"Prices are 5.1 times median family income and housing costs an extra two years of gross income compared to 2001, when the boom began and valuations were closer to historic norms."

Mortgage rates were then near 14 per cent compared with today's sub-four-per-cent rates. However, while today's valuations may be sustainable thanks to those low rates, they could be hurt in a more normal rate environment, he adds.

This is the problem in a shiny-hard nutshell. Carrying costs do not represent the true cost of housing. And this is the bank talking. No wonder we as a society get repeatedly screwed by credit bubbles.

And another . . .
Vancouver primed for housing correction: BMO

Vancouver’s housing market looks primed for a correction, according to a report from BMO Nesbitt Burns, with the average house now costing “an astounding” 11.2 times a family’s average income -- more than double the national average.

And another . . .
Vancouver home prices could fall 21 per cent: report

"Riding a wave of wealthy immigrants, Vancouver's house prices have nearly tripled in the past decade, spiralling beyond the reach of most first-time buyers or non-lottery winners," Guatieri [of BMO] said.

Past housing corrections have seen Vancouver home values fall an average of 21 per cent. But prices in the city are even higher today, averaging $815,000 in April, pushing the market further toward the brink of a housing bubble.

Here's the other half of the problem. Apparently, it's not a bubble until it bursts. Right. And also: In your dreams, Global TV BC.

Looks like the narrative has finally shifted, but it's a day late and a unusually strong Canadian dollar short.

China's Wealthy Are Leaving with the Loot

Chang confuses bureaucrats with entrepreneurs, although in the communist party, the distinction might be grayer. Let's go with the term "opportunists".
Chinese Entrepreneurs Are Leaving China

According to a new study, almost 60% of China’s “high net worth individuals,” defined as those possessing more than 10 million yuan in investable assets, are either considering emigration through investment programs or are completing the emigration process.

Beijing’s plan [the economic stimulus], however, was good for private entrepreneurs who, although shut out of many portions of the economy by state enterprises, rode the resulting asset bubbles to even greater wealth. The number of the country’s high net worth individuals according to the China Merchants-Bain study will reach 585,000 this year, almost double the figure for 2008.

Funny how the run on the state coffers by the well connected started just as the bubbles reappeared in Vancouver and Australia, November/December 2008.

Hedge Funds Shorting Australian Banks

Australia has cut down its reliance on offshore wholesale funding, so it's hard to blame the uncertainty in Europe for this shift in mood, as some analysts are claiming.

US hedge funds dump Australian bank shares

A New York hedge fund manager, who did not want to be named, said sentiment towards the Australian banks had soured because of doubts that the strength in the national property market would be sustained.

"There's a lot of scepticism in the US regarding the Australian property market," the hedge fund manager said.

Westpac is thought to have been targeted most heavily by hedge funds because of its large residential mortgage book, which has grown rapidly over the past two years.

CBA is understood to be least exposed to hedge fund investors compared with its three major rivals, primarily because of its large retail investor base.

Related: Will Fitch pull the trigger? --- and downgrade Australia's banks.

Vancouver House Price Change Chart for May 2011

Vancouver lofty year on year gains return with Single Family Homes pulling away on speculative frenzy. Take a gander at the increasing spread between the overall number and the single family home (SFH) number. The gains in attached year on year is a "mere" 3.5% and apartment is 2.2%, a world apart at rates comparable to or below inflation. (3.3% in April 2011)

What interesting times. Foreign money and those chasing the dream of gains from foreign money continue to pile into the SFH segment of the Vancouver market. According to the weekly numbers, sales are just beginning to falter--the increasing minimum bet at the table is thinning the number of players.

To demonstrate how the market is bifurcating along type of sale, here is the last half year of year on year price changes plotted out.

The condo townhouse bubble is in trouble. Bubbles need accelerating growth to survive.

China Pumps in Cash to Wipe out Bad Debts

Re-capitalization begins in China.

China to clean up billions worth of local debt

China’s regulators plan to shift two to three trillion yuan ($308-$463-billion U.S.) of debt off local governments, sources said, reducing the risk of a wave of defaults that would threaten the stability of the world’s second-biggest economy.

Sounds like a straight-up bank bail out on the face of it given the counterparty risks. Local governments cannot issue bonds (although that may change, according to the article).

As part of Beijing’s overhaul of the finances of heavily-indebted local governments, the central government will pay off some of their loans and state banks including some of the “Big Four” will be forced to take some losses on the bad debt . . .

If true, perhaps not a pure bank bailout. Or perhaps they just can't handle a straight bailout this round. It's a little harder to bail out bad behavior with profits from exports when the loans are reaching Western levels.

With sterilization becoming increasingly expensive, China may feel a pinch as bailouts continue.

Canadian Regulator Looks into Bank Loan Portfolios and Foreign Influence on Bank Risk

OSFI (Office of the Superintendent of Financial Institutions) of Canada is waking up to the risks posed by the bubbling real estate market.

Housing rush scrutinized

OSFI is taking a broad look at bank exposure to household debt and how the financial in-stitutions are monitoring loan portfolios amid growing concerns over the ability of Canadians to handle their debt load.

In the case of the housing market, sources point to global trends that could affect investment in Canada -like China's recent policies to curb speculative real estate investment in that country -as evidence that Canada is operating in a fastchanging market that could be adversely affected by decisions made in other countries.

They suggest OSFI wants to know how big a factor foreign investment in Canada's housing market is, and how big it is likely to become, so the regula-tor can measure the potential impact on banks if demand were to dry up.

If CMHC is not used as a bailout mechanism. If unwisely issued loans are kicked back or cost-shared with the banks, the picture changes radically.

"I wouldn't be surprised, given what [the Canadian Real Estate Association] has been saying about foreign investment having such a big impact, that it would elicit an investigation," said Mr. Alexander, adding that he knows of no existing measure of foreign investment in housing.

Given that this has happened before in Vancouver before the changeover in Hong Kong, and given that the Canadian dollar is a small currency, I find this blind-eye sort of alarming.

Australian Real Estate Agents Leaving Profession (one way or the other)

Real estate agents mass exodus: report

Real Estate Institute of Australia president David Airey estimates that the number of agents in the industry has dropped from 60,000 to 50,000 in last year.

Or just getting kicked out . . .
Masters of the universe come crashing back to Earth

The eastern suburbs agents have been disqualified from running a real estate business for 15 and 12 years, respectively.

Their estate agent licences were cancelled after an investigation into the company's activities found irregularities in managing trust funds for clients and strata corporations.

China House Prices Continue to Defy Controls

China Property Prices Rise in May

Chinese residential property rose 0.53% in May from April, faster than April's 0.40% on-month increase, China Real Estate Index System said Wednesday.

China Real Estate Index System said property prices in 76 cities grew in May compared with the previous month, while 21 cities posted a decline in property prices over the same period. The remaining three cities posted no change.

Prices are now $1361/m^2
That's $126/ft^2 (or roughly what it costs to build a nice house in the u.s. outside the major urban centers)

Vancouver Market: Sales Slowing While Inventory Builds

Signs of a classic market top in the weekly numbers.

Vancouver House Sales and Listings Chart (X-scale: week beginning)

The peak at the week beginning March 27 was the transactions pulled ahead by the change in mortgage rules. The week beginning April 17 also shows a discontinuity; that was the week the CMHC dropped insurance for HELOCs.

*Numbers from Agent Will's Weekly Stats