Friday, September 30, 2011

Australian Mortgage Delinquencies Continue to Rise

NAB expects house prices to fall for next year
This is a real bear headline given the expected fall is all of 1% over 12 months. I'll give up shrimps on the barbie for a year if that comes to pass.

Moody's Investor Services, meanwhile, reports that the ability of homeowners to pay their mortgage has "materially deteriorated" in the past year.

According to Moody's, the boom states of WA and Queensland had the largest number of people falling behind on mortgage payments. Times were tough on Queensland's Gold Coast and Sunshine Coast, where mortgage delinquencies were 3.1 per cent and 2.88 per cent.

In northwest Sydney suburbs such as Oakhurst, Glendenning and Plumpton, 5.2 per cent of borrowers are 30 days or more behind in mortgage repayments.

Vancouver Daily House Sales Numbers for September

In anticipation of the September release I plotted the daily MLS numbers for new listings and sales so kindly provided by Vancouver realtors Lauren and Paul as posted to We lost a pair of reliable data providers last month and that really hurt, especially since, anecdotally, the market seems to be shifting, but without numbers, the stories lack context.

Daily MLS Sales and New Listings for Houses in Vancouver, Canada, Sept 2011

What this chart shows is that sales are comparable, but new listings are consistently running in excess of last year. Also of note is the weekly pattern of new listings. Just a bit of pent up supply from the weekend, it looks like. Well, honey, we drank too much all weekend, time to sell the house.

Total inventory is on the rise. I don't have the data for that, but Urban Vancouver Properties has a monthly chart. We are crossing 2010 inventory levels for September, but unlike 2010 when inventory was falling at this time, inventory in September 2011 is on the rise. Also, according to their MOI (months of inventory) chart, we are approaching the balanced market point (6- 6.5 MOI) and if we sail right through it, as the trends suggest we will, prices are going to be under a lot of pressure in conjunction with the general economy.

Economic Banking Teams Sent to Wenzhou

Teams sent to steer firms out of trouble with loans
"We've got 48 underwriting firms to provide bank loan services to SMEs with lowered interests and commission fees, and a series of activities will be held between banks and enterprises to ease their difficulties," said Yu Zhongping, director of Wenzhou Economic and Information Commission.

He said more measures will also be carried out to monitor and control the risks of private lending.

In addition, the city government has organized 25 teams to work with 25 banking organizations to examine the lending system for SMEs to prevent a collapse of the money chain.

"We aim to regulate the private financial market by organizing and expanding more authorized financial companies offering loans in the near future," said Zhang Zhenyu, Wenzhou's finance director.
One thing I have to say, the Chinese don't mince words. "Control the risks of private lending". Capitalism is not a sacrosanct religion there (yet) and that creates some refreshingly straightforward statements.

Can they make a difference? That's the question. As the article points out 76 out of 855 surveyed companies said they were nearly out of cash. Other articles are cite a Wenzhou Small- and Medium-sized Enterprise Development Association warning that 40% of Wenzhou's SMEs will be out of business by Spring Festival. Wenzhou is not a backwater, it is the export engine of China. The world's shoes, sunglasses and lighters come from there.

As a result, it's going to make a useful predictor for the knock-on effects of a broader China collapse. As a supplier to the U.S., much less so a buyer from, how does the U.S. economy adapt to this shift? A desperate supplier is generally a more profitable economic partner, at least in the short term, medium term after failures the negotiating position can shift back to the supplier. It will be useful to watch what becomes of Zhejiang Center Group, if someone (probably backed by the state) picks up the business. Annual production of 20 million eyeglasses is certainly to go missed on the world market.

Thursday, September 29, 2011

Like Dragons and Fish Jumbled Together

Squeeze on developers cheers China
“There are some developers who are facing funding pressure or have even been cut off. This is something we are happy to see,” said one of the officials, who asked not to be identified. Developers were like “dragons and fish jumbled together”, he added, referring to a mixture of high and low-quality companies for whom a consolidation process was “very necessary”.

$470 Billion in Shadow Bank Loans in China's Eastern Provinces

China squeeze drives boom in 'black' banks

About 3 trillion yuan (US$470 billion) of bank loans have been channeled into underground lending in the eastern coastal provinces, China Banking Regulatory Commission chairman Liu Mingkang told a recent closed-door conference with lenders.
About 80% of the SMEs in Zhejiang province are using underground banking loans to fund their businesses, even though the black market interest rates in the province have surged as high as 10% monthly, Cai Hua, a spokesman of the Zheshang Research Association, which represents entrepreneurs in the province, said. Zhejiang and other eastern provinces accounted for 53% of the country's GDP last year, according to the National Bureau of Statistics.
Of the Wenzhou's 360,000 SMEs, 30% have cut back operations or closed their doors so far this year, said Cai. State media have carried reports of some SMEs borrowing from underground lenders at annualized rates of up to 120%.

. . .

"Some lighter factories just closed their companies and started a kind of lending business, which are sure to have higher net profit rates. We are tempted to do so," he said.

Wenzhou's underground banks last month processed 110 billion yuan, about 40% more than the 80 billion yuan processed in the same month a year earlier and worth about one third of the town's entire 2010 GDP of 292.56 billion yuan, according to statistics given by the Wenzhou branch of the People's Bank of China.

Wednesday, September 28, 2011

7.7% of Australian Houses Bought Since 2007 Are Underwater

Wonder if you included transaction costs what the percentage jumps up to?

Also, I wonder what Rupert thinks of this kind of factual reporting? How'd this slip by?

Pressure grows on property
And a report released by RP Data revealed that nationwide, 7.7 per cent of houses bought since 2007 are now worth less than their purchase price.

The Moody's report shows that the proportion of delinquent mortgages - where customers are behind on their repayments by 90 days or more - has climbed from 1.36 per cent in March last year to 1.67 per cent at the end of June.

20 Trust Companies in China Ordered to Stop Financing Real Estate

Lots of excerpt, but it's a long article.

Property Bonds Plunge Most Since 2008 on Curbs: China Credit
Authorities have ordered more than 20 trust companies to stop financing real estate projects, Guangzhou Daily reported on July 28. Reuters reported Sept. 22 the banking regulator ordered trust companies to report their dealings with Chinese property developer Greentown China Holdings Ltd.
Agile Property Holdings Ltd., Shimao Property Holdings Ltd., Country Garden Holdings Co., Guangzhou R&F Properties, China Central Real Estate Ltd., and Yuzhou Properties Co. have all borrowed from trust companies in 2011, Nomura Holdings Inc. analysts said in a Sept. 22 research note.
Chinese property companies access to bank loans has been effectively halted since November 2010, Shen Jianguang, an economist at Mizuho Securities Asia Ltd. in Hong Kong, wrote in a Sept. 22 note.
“The increasing liquidity pressure will force developers to cut prices, in order to increase sales and bring in more sustainable cash flow,” Shen wrote. “This process should have been started by the developers some time ago, instead of resisting price cuts and turning to various costly financing channels.”
“Getting mortgages used to be as easy as rolling out of bed,” he said. “People are having a harder time.”

China's measures to control its property market are at a critical stage and the nation needs to focus efforts on curbing price increases in less affluent cities after limiting home purchases in metropolitan areas including Beijing and Shanghai, Premier Wen Jiabao said on Sept. 1. Only two cities responded to the government's July call for added restrictions on housing purchases.

Wenzhou Update

The count is now 9 SME operators have absconded.

The SME owners have amassed debts of up to 2 billion yuan (HK$2.43 billion) each, a report by the China News Service said.
That's $311 million USD. Each? It's not written well with the parenthetical so I'm dubious. That's a lot.

I seriously think the difference this time (meaning this round of financial collapse in China) in that the debts are at Western scales. That wasn't true in the 1990s. The central government can't just cut a check, pat the banks and local governments on the head, and send them back into the fray. What they are going to do, I have no idea. Even with an authoritarian regime, it's not clear what they can do.

Those who have solicited credit from underground sources are those that have moved into ventures that require heavy capital outlays, researchers believe.

"Most of those haunted by loan sharks have invested in property, mining and private equity ventures," Ba Shusong, an economist at the State Council's Development Research Center, told Xinhua News Agency.

China's Distorted Economy

China Banks Shunned as Investors Eye 2003 Low in Credit Bust
“China’s economy is very distorted, and the banks, as ever, are at the epicenter of the distortions,” Edward Chancellor, who helps oversee about $106 billion as a strategist at Grantham Mayo Van Otterloo & Co. in Boston and warned of a “sucker’s rally” in Chinese stocks three days before the benchmark index peaked in August 2009, said in an interview. “If China runs into problems with the banking system, which I think it will, I cannot see a situation in which foreign investors are the main priority of Beijing.”
The tumble in Chinese bank shares has surprised equity analysts, who have more positive recommendations on the Asian country’s financial stocks than in any of the world’s other 10 biggest markets. It contrasts with a Chinese economy that’s expanding more than five times as fast as Europe and the U.S.
Evidence is building that Chinese property developers and local government financing vehicles, used to get around laws prohibiting direct borrowing, are struggling to repay their obligations as the economy slows. About 85 percent of the government financing vehicles in China’s Liaoning province, on the border with North Korea, had insufficient income last year to cover debt-servicing payments, according to a July speech by the provincial auditor.
Chinese developers face an “increasingly severe” credit outlook, which may force them to cut prices and turn to costlier funding sources as sales weaken, Standard & Poor’s said in a report today after conducting stress tests of the nation’s real estate companies.
Developers are paying as much as 25 percent interest to borrow from private trust companies as banks withdraw credit, said an official at Beijing-based National Trust in May who asked not to be identified because he isn’t authorized to speak to the media.
I'd excerpt the whole thing if I could. Talk about a building drumbeat.

Tuesday, September 27, 2011

Australian September Quarter down 2.4%

This follows a fall of 2% for the June quarter.

Australian house prices fall 2.4%: survey
By state, prices fell 3.8% in Victoria, 3.2% in Queensland, 2.9% in South Australia and the Northern Territory, 1.1% in New South Wales and 0.8% in Western Australia, the survey showed.
The September survey indicated that Australian house prices are likely to remain subdued near-term and fall by a further 1% over the next 12 months.
I don't know where to go with that. Except: sure, whatever. Keep dreaming.

Btw, I hear every borrowable share of your stock has been borrowed already for shorting by the big hedgies. How's that feel?

By September 2013, house prices are expected to be back in positive territory overall and showing growth of 0.5%, according to the survey. Western Australia is expected to lead the growth, with prices forecast to rise by 3.4%.
Ha ha. Yeah. Noted.

However, National Australia Bank economists said that they believe the expectations contained in the survey are overly pessimistic.
God, you are killing me here. I gotta stop.

As % of GDP, China Consumption Declining, Fixed Investment Rising

Interview with Nouriel Roubini --
Fears have grown this week that we are on the verge of a new global financial crisis. What’s your view?

China has to change radically its growth model because it’s not sustainable. They talk about increasing consumption, but consumption as a share of GDP has fallen from 50% to 40% to 35%, now it’s 33%. And fixed investment has gone from 30% to 40% and now 50% of GDP.

China is going to have in two years its own hard landing. There’s so much overcapacity, from real estate to infrastructure to manufacturing that unless they change their growth model to rely more on consumption and less on fixed investment, eventually there will be a hard landing in China. So it’s not any more an issue of net exports.

They have reacted to the collapse of their net exports by boosting fixed investment rather than consumption. So they have to radically change their growth model and the sooner they do it the better for them and for the global economy.

Where does that leave China with respect to either a willingness or capacity to react with similar vigour to today’s crisis as they did in 2008?

Well, if there is a recession in the G3, China is going to do more monetary, fiscal and credit stimulus. They’re going to kick the can down the road for another year because in a year from now they’re going to change their own leadership. But that creates even more imbalances because the only thing they know to do is more infrastructure, more real estate, more manufacturing and industrial capacity by the SOEs (state-owned enterprises). So they make the investment bubble even worse and the hard landing is going to be even worse down the line. What they need is radical policies that lead them to save less and consume more. But it will take them 10, 20 years of policy changes to achieve that. I fear they’re not going to do it in time.

Monday, September 26, 2011

Exodus of Bank Deposits Destined for Shadow Banking in China

Underground lending returns 36%, 10x the bank deposit rate.

And the capital reserve ratio on this underground banking system? Zero.

Depositors take to loan-sharking
In the first 15 days of September, combined deposits at the big four plunged by 420 billion yuan (HK$512.7 billion) from the end of August.

. . .

The sharp decline in deposits slowed down banks' lending. New loans given by the big four amounted to only 87 billion yuan in the first half of September, versus 186.7 billion yuan for August.
$513 billion Hong Kong Dollars is $66 billion US dollars.

Tier 1,2,3 City Condo Sales in China down 50-60% Year on Year

According to Kynikos Associates proprietary sales data.

Jim Chanos on Bloomberg

September is typically the strong month in China.

Sunday, September 25, 2011

Things Get Worse in Wenzhou

I covered the
real estate meltdown in Wenzhou in a previous post. Now, it seems, things have gone from bad to worse.

A Bunch Of Chinese Manufacturing Bosses Just Defaulted And Fled Their Failing Businesses
According to Shanghai Daily, 7 large business owners, mostly manufacturers, fled the city of Wenzhou on September 12th. They left thousands of employees jobless and hundreds of millions in unpaid debt.
One of the runaway employers is Hu Fulin, the owner of Zhejiang Center Group (ZCG). ZCG owns the most popular sun-glass company in China (they make 20 million pairs a year) and employed 3,000 people. He also invested in real estate and the renewable energy industry.

Hu is penniless now, but he owes his employees their August and September salaries (about $1.5 million), and he hasn't paid his suppliers either. The city government has set up a task force to figure out how to track all of Hu's loans and repay his debts.
Remember building a house of cards when you were a kid and your little sibling could not resist flicking one of the cards out of the bottom row? The resulting cascade is short and brutal, but these aren't cards, these are lives.

I do wonder what pot of money is the local government going to draw on to make good on all this?

China the Chimera

The shadow banking system has sucked in the savings of ordinary Chinese, even those with only a small nest egg to "invest". The crash is going to touch more than the bankers and bureaucrats.

'BMW town' crashes in pyramid fraud
A forest of cranes had also sprung up around the village, constructing large apartment blocks which advertised themselves with pictures of English butlers and sumptuous, chandelier–lit dining rooms.
Earlier this month, Shiji's boom ended as abruptly as it began.
What happened in Shiji is a fraud that plays out every day in some corner of China's murky economy, as local Communist Party officials and greedy entrepreneurs collude in vast pyramid schemes.
"He became a property developer, but he wanted to make a bigger fortune so he decided to also become a loan shark." Together with 17 of his friends, Shi began tapping the villagers for their savings, promising to pay them 10 per cent interest each month.
But there was little demand in the end for the huge apartment blocks, which today stand empty and half–finished. And when the borrowers started defaulting on King Claw's loans, the pyramid collapsed. Around 1,700 villagers have complained to the police, some having lost their entire life savings. Two villagers were killed in a mysterious car crash after trying to reclaim their money from one of the loan sharks.

Canadians, Other Foreigners Buying Up Florida

Foreigners spent $12.7B on Florida residential real estate in 2010
Canadians make up 39 percent of the international pool of buyers that spent $12.7 billion on residential real estate in Florida in 2010, according to a new report.
For 23 percent of the foreign buyers, Florida real estate is perceived as a “profitable investment,” given the deeply discounted prices, rising rents in coastal markets such as in South Florida, and the weakness of the U.S. dollar, according to the NAR report.
It's not deeply discounted. No historical chart indicates that. Amazing how twisted the view of real estate continues to be.

Clearance Rate Calculations

Housing market resilient but prices softening
At the weekend 512 properties were listed for auction in Sydney, compared with 463 the previous weekend. Of the 361 reported auctions, 242 were sold for a clearance rate of 58.6 per cent. This is marginally higher than the previous weekend's 57.4 per cent result.

242 out of 361 is 67% and 242 out of 512 is 47% . . . Can anyone tell me where 58.6% comes into this calculation?

Eh, I'm going to keep ignoring clearance rates.

Monday, September 19, 2011

Corruption in the Canadian Immigration System

Never cleaned up, what's the odds it's only gotten worse?

Corruption and cover up (published 2004 referring to actions in the 1990s)
"I said, 'It can't be - she's got a criminal record. I know she's known to Canadian authorities.'"

But apparently, Lee Chau Ping - who posed as a businesswoman ready to invest $170,000 in a Chicken Delight franchise in a tiny town in northern Saskatchewan - had slipped under the radar. And Brian McAdam, the immigration control officer at the High Commission in Hong Kong, soon learned that other criminals had too.
McAdam was puzzled as to how known criminals were able to get into Canada, but a little bit of digging turned up connections between the Triad members and officials working inside the Canadian embassy. In fact, according to McAdam, High Commission staff was on the receiving end of expensive gifts, cocktail parties, yacht trips and visits to the casinos in Macau.
McAdam and Clement set out for the answers. Immediately, they found obvious signs of corruption: complaints from a Chinese couple that someone at the embassy had offered to expedite their visa application in exchange for $10,000; fake immigration stamps and a fake visa receipt. In one incident, McAdam actually saw the criminal records of Triad members literally drop off their files after he pulled them up on the computer.
But regardless of who was responsible, for retired RCMP superintendent Garry Clement, it all comes down to one thing.

"Did we drop the ball? I have to take as much credit - I was a senior officer in the RCMP. ... I don't think we should try to defend it. The bottom line is, we dropped the ball in this investigation."

And now, this week we have this:
PEI rushed to approve thousands of immigrants
The PEI government’s rush approval of nearly 2,000 immigrant investors before Ottawa shut down the island’s nomination program three years ago is at the heart of allegations that rules went out the window in the province’s scramble to secure foreign cash.
But people in PEI’s immigrant communities say that many of those arriving under the program promptly decamped for elsewhere in Canada.
The rush of approvals flooded the island with about $400-million – yet the island government has never released a full accounting of where the money went.

This week, the island is buzzing over the decision of three former provincial public servants to raise allegations that they witnessed wrongdoing while working for the Provincial Nominee Program.

The three women sent their allegations to Citizenship and Immigration, which forwarded them to the RCMP and the Canada Border Services Agency. They allege that some officials received cash bribes, and question how officials decided which businesses would get investor money.
The province’s Auditor-General reviewed the program in a 2009 report, expressing concern that companies owned by MLAs and deputy ministers or their families benefited from the program, but the auditor didn’t name names.

Local corruption or the tip of the same larger, unaddressed, problem?

Is the RCMP going to "drop the ball" yet again?

Hat tip: Fixie Guy and VMD at

Sunday, September 18, 2011

China Home Prices Flat or Down in 46 of 70 Cities

46 reported to be flat or declining up from 31 cities in July.

Property market cooling
"Property sales in first- and second-tier cities will experience negative year-on-year growth for 2011", and may decline further in the second half of the year, Qin said.

During the three-day Mid-Autumn Festival holiday earlier this month only 407 contracts were completed for residential apartments in Beijing. This represented a 70-percent drop compared to the three-day holiday in May, and a 50-percent decline from the corresponding period last year, according to the Beijing municipal commission of housing and urban-rural development.

September and October are traditionally busy periods for property sales.

Headlining Harry Dent in Australia

At the risk of making this a meta article, I have to point out that the Sydney Morning Herald and associated Sun-Herald (not to be confused with the Murdoch owned Herald Sun in WA) are owned by Fairfax Media. They seem to be taking a different stance on the bubble than their rivals.*

I can just imagine the editor saying, "find the biggest bear you can and just print what he says."

Deflating speculation on the property bubble
The article opens with lots of CYA coverage of Dent's miscalls, then just let's his point of view have free rein for most of the rest of the article.

For Dent, this [Japan] is a preview of what's in store for the US and Australia.

"Prices will drop 50 per cent maybe. Not as much as the US but it'll be closer than you think, because you had a bigger bubble," he says, comparing the Australian boom to California's.

"At the top of the boom, Sydney and Melbourne were very similar to Los Angeles and San Francisco but they've dropped substantially. Now Sydney is the most expensive in the world outside China when you compare home prices to income. This is a global real estate credit bubble as the baby boomer generation put pressure on real estate around the world, especially in places where [land] was scarce. Interest rates were the lowest in a lifetime."
He also calls for the declines to continue in the U.S. which I'd agree with. The only thing slowing things down here are the Australians, Chinese and other foreigners scooping up what they think are great deals.

*Murdoch's News Corp does appear to still own 7.5% of Fairfax Media.

Friday, September 16, 2011

REIA Reports Australian Median Price Up for June Quarter

REIA Acting President, Ms Pamela Bennett said, “House and other dwelling median prices increased by 1.2% to $541,188 and 0.5% $430,230 respectively. These are the largest increases recorded since the September quarter of 2010.”

These guys are data sellers, so their public releases are pretty paltry. Too paltry to analyze what's going on.

June Quarter 2011 Release
June Quarter 2010 Release

I'm going to guess this is the market mix shifting, at least partially. The ABS data on price declines have been relentless.
What played out in the U.S. bubble areas is sellers exiting with discounts enticing buyers into more house. Basically houses from the middle of one tier selling for a price that is actually the top of the tier below, but still above the median, thereby pulling the median up. Without a Case-Schiller style analysis, it's impossible to know why the discrepancy.

The ABC today sees the market mix shifting prices too, but in the other direction. New real estate record will spook investors
He says strong interest from first home buyers is skewing the average price downwards.

"Of course they buy a cheaper property... we are seeing increased sales activity under the $450,000 price range and so what that says is people buying cheaper property also pulls the median house price down."
"Cheaper" is an evil word here. I would propose "somewhat less financially debilitating".

There is a new real estate record which may spook potential investors to hear - experts say Perth's median house price is certain to drop for the sixth consecutive quarter.

It has fallen a further two per cent, predicted to take the median property price in the metropolitan area to $467,000 by the end of the year, down from a peak of $505,000 in March 2010.
That's a 7.5% decline from peak.

Thursday, September 15, 2011

Checking in on Other Housing Bubbles: France

French Real Estate: A Little Bubbly
It is a mistake to treat real estate as a safe haven, says Hervé Boulhol, the Organization for Economic Cooperation and Development's France economist, as such an underestimation of risk can, in turn, inflate a bubble. Until the end of 2009, the OECD had been able to explain price movements in the French market with fundamental factors, but in 2010 their usual econometric calculations based on factors such as cohabitation rates, credit conditions and household incomes failed to explain what was going on.

"This may signal a bubble phenomenon, as a bubble is a disconnection with fundamentals," Mr. Boulhol says.

Prices this year may already be moving out of reach of buyers, causing demand to fall, says Mr. Eluere of Crédit Agricole. And the worsening economic outlook and concerns about tougher taxes are further a disincentive to buy.
In some areas, the turnaround is already becoming evident. Notaries registered a clear fall in sales this summer, which hails "a much less certain real-estate cycle in coming months," Notaires de France wrote in a note published early this month.

Australia Relying on Real Estate Agents to Spot Fraudulent Selling

Let's rely on the party with the most to gain from letting the transaction proceed. What a great idea.

Nigerian Scammers Actively Targeting Real Estate Sector
Two Perth properties were recently listed, and sold, after the swindlers successfully changed contact details for the absentee property owners and then instructed an agent to list the properties. The scams were not discovered until after the properties settled.

Recently, in NSW, another attempted scam was foiled, but only after the property was listed on the market and heading for sale.
What a safe place to invest Australia is.

No Bubble in Vancouver, Prices to Rise 6.8% Next Year

This, according to Central 1 Credit Union. We're definitely noting this one. Have to get the mocking lined up properly.

Vancouver real estate no bubble says economist
The Central 1 Credit Union report, which was issued on Thursday, forecasts the B.C. market will slow this year and total sales will drop slightly from 2010, but prices will continue to rise an estimated 6.8 per cent next year.

According to the report's author economist Brian Yu, low interest rates that show no sign of rising quickly and the limited supply of land will keep values rising – all familiar arguments.
Yu? This gave me a flashback to Lawrence Yun, the National Association of Realtor's economist whose analyses became so laughable, he was nicknamed Baghdad Bob.

And the meat of the argument?
But Yu says there is another important reason to believe prices in Vancouver are unlikely to collapse. Market speculation —commonly known as flipping — currently accounts for only about two or three per cent of the market.
So, he argues, speculation is too low to signal a bubble.

An interesting argument except there isn't any mention of methodology or even so much as a definition of "flipping", so how to critique the assumptions? Journalism isn't useful for much these days, Australian or Canadian newspapers.

Not wanting to take a lazy "journalist" and an analyst with strong vested interests *cough*biases*cough* as their word, let's find this report.

Over at Central 1's website, under briefings, I found this:
B.C. sheds jobs in August as labour market unable to build momentum
The uneven pace of job recovery continued in August as estimated employment in B.C. fell by 6,000 persons or 0.26% to a seasonally-adjusted 2.268 million persons, erasing gains observed in July. This compared with a nearly unchanged national figure.
Oops, that's not it.

Ah, here it is. Not sure why the article didn't link to it.

The Wish List Highlights are a great chuckle inducer. Click the link to see them.

However, activity is unlikely to erode further from the current pace, as a low price growth environment and downside pressure on already low mortgage rates maintains affordability – providing support to housing markets.
I can't wait to see how they define "affordability" can you? I bet they don't. Defining it would force them to haul out the stratospheric median multiple. What is it these days? 9? 11? So to throw the words "maintain affordability" together is already signaling this analysis is a joke.

The projected impact of B.C. residents’ August vote to extinguish the year-old harmonized sales tax has been incorporated into this forecast. The B.C. govern- ment expects to return to the previous PST/GST tax regime by March 31, 2013.
Interesting. And reading along, the whole savior of their forecast is a frenzy sparked by this rule change.

Isn't this graph a winner? Look at how the price was stable for all those years and then, wow, off it goes, but it's not a bubble. It can't be, Central 1 says, Who are you going to believe, me or your lying eyes?

Also note they are combining all of BC together as if the markets have anything in common other than an address.

But this is the graph we are looking for:
First off, I have to note, I really like how they choose various year ranges for their graphs so as to highlight their point. Every graph has a different range. Imagine, for example, that the median price graph from earlier showed the same range 1987 on. It might show that prices were level even farther back in time, and worse yet, might show them declining from the previous bubble. Oh, and look, suddenly it's Vancouver only. Tricky devils.

But the core of this argument hinges on what they mean by speculation. Here's the whole paragraph:
In addition, speculative demand in the region remains low. The proportion of units re-sold within six months of purchase can be used a proxy for speculative activ- ity. In theory, speculators look to gain through capital appreciation over a shorter time-frame relative to home-owner occupiers. In a period of higher specula- tion, which is generated by strong market activity and price gains, this proxy generally rises. However, this metric has exhibited a declining trend since early 2008, currently hovers near 2% and operates near normal levels. In contrast, this proxy surpassed 10% in the late 1980s, and was closer to 6% in 2006 when markets were overheated. The lack of excessive speculation suggests that we are unlikely to see a speculation-induced bust in pricing.
I really like the self contradictory nature of that second to last sentence. WELL, in 2006 the market was overheated, obviously, but now (that it's actually far exceeded that level) it's not overheated. Nice trick, that.

Personally, I think this shift in hold time means we have a different kind of buyer pushing up the high end, people who intend to speculate over a longer period of time. Buyers who only in the last 13 years have even had wide access to a mortgage at all (1998 on back in the home country), buyers who have never, ever, experienced a real estate price decline, buyers who are often parking questionable gains from overseas and if they keep any of their speculative dollars they come out ahead. But it is interesting, this shift in hold time, I'll grant them that. But that's all it is, a shift in the distribution of hold time. Trouble is, speculation is not just flipping.

There is a significant speculative component they are ignoring, willfully, I'm guessing. That of buy and hold buyers who are stretching their personal finances for a place to live, medium to long term, on the assumption that the price will rise and they will be rewarded for their risk. In fact, stretching becomes an investment tactic all its own, rather than a massively leveraged venture with huge downside risk (which it actually is). This is still speculation.

B.C.’s economic recovery will enter its third year in the second half of 2011, assuming no U.S. or global economic recession occurs during the remainder of the forecast period. There is a risk of recession of about 20% to 30% due to external factors, some of which are non-economic, but it is difficult to deter- mine timing and causes. A financial crisis in Europe is currently at the top of the list.
This has been a long-term pet peeve of mine. Did you know it is utterly impossible for Canada to have a downturn all their own? Completely and unthinkably impossible.

BC Real Estate Changes for August

This is a real tale of two provinces going on. Even BC Northern isn't beating inflation.

BC, Canada percent house price and volume changes (data from

CMHC International

Posted without comment.

CMHC International
CMHC is taking the lead in sharing Canada's housing expertise with the world. By helping other countries make housing more accessible and helping Canadian companies find opportunities in new markets, CMHC is becoming an ambassador of Canadian excellence.

I'll add a "noted" tag. This is gonna be hysterical very shortly.

Wednesday, September 14, 2011

More Recycling of Tired Arguments in Australia

This time in the Herald Sun. This set of arguments have been through the wash so many times, you'd think they'd notice it's threadbare and the knees need patching up.

The Australian property bubble can withstand greater adversity

The article opens with a poo pooing concern troll tone. That is a free bonus.

Add in high household debt, high house prices compared to incomes and low rental yields and the offshore analyst will quickly extrapolate imminent price falls.

That sort of analysis ignores some of the local subtleties of the Australian market which make it a somewhat different animal to its offshore counterparts.

The most basic of these is our continued stronger economic growth, courtesy of our exposure to the Asian boom through commodity exports.
That's what you've got?

"Mining contributes about 5.6% of Australia's Gross Domestic Product." --Wikipedia

5-6% of the economy is going great. No worries, Mate!

And help me out here, but isn't much of this mining in WA, you know, the home of Perth, where real estate declines have been the steepest?

Others are more difficult to pick up, such as the fact that most Australian home loans are at floating interest rates that adjust to cope with the changing overall economy - a very different proposition from offshore fixed-rate loans.
Completely fails to explain why this might help. Again, correct me if I'm wrong, but since you are betting the farm on Mining, which is inflationary, you don't want floating interest rates. That means your consumers get cut off at the knees by the very boom that is going to save everyone.

Our housing loans are also full recourse, which means that borrowers are fully liable for any losses they suffer from selling a house for less than they bought it for.
You know what this destroys the discipline of? The banks, who should have access to far more information than the average borrower, resulting in vastly unequal contractual positions. But let's leave that aside. The real problem here is that in a downturn, your consumers go absent. You will reach a time when you will desperately want families spending, but instead they will be scrounging for every last aussie they can beg, borrow, or steal to keep paying the bank for an asset worth less than they owe on it. They will exit the consumer arena, exacerbating the knock-on employment decline. But go ahead and continue celebrating your "disciplined" borrowers while you can.

This tends to add discipline to housing purchases as shown by our tiny rate of non-performing loans compared to the US foreclosure experience in which householders who have their equity more than wiped out by falling prices can simply mail in the keys and walk away with no more to pay.
What is it with this?? The U.S. is more than five years into a crash and you are making comparisons with that? Seriously. Get a grip.

Your arrears rates are way up, in case you hadn't noticed. Desperate much?

Tax also plays a part, with the capital gains tax exemption for owner-occupied housing and negative gearing for rental housing adding to returns and supporting higher prices than would otherwise be logical.
Here in Australia, we take misallocation of capital to an art form. Don't mess with us.

Lending practices in Australia have also been more rigorous than many offshore markets, where people with almost no prospect of repaying loans have been lured into home ownership by low honeymoon rates and the misleading mantra that property prices always go up.
Your low-doc arrears rate is pushing 7%, you realize that, right?

Higher Australian property prices can also be justified by the higher quality of Australia's housing stock, with renovations and extensions naturally adding value.
My god, this is a re-write of our desperate salesman's post from the other day. Yeah, you continue to reassure us that your mis-allocation of capital is based on widespread delusion. We got that already from your colleague.

Another factor often missed by offshore analysts is that while Australia's household debt levels seem high, most of that debt is held by people who can easily afford to repay it.
Seriously, you are cribbing this entire thing. You and Mr. Yardney must be sharing a cubicle. The rich are just as easily overextended as the rest of your good citizens. And, their house prices are falling faster too. Bet that helps them "afford" or at least feel better about their high debt load. By your logic.

By the way, give me some stats on this magical population of top 40% you are so relying on. How about debt to income ratios or something? Disposable income over time... Anything? Otherwise you are just blowing the same hot air as your like-minded friend. Whom you are apparently cribbing from. Or did you both receive the same talking points from the Real Estate Ministry of Propaganda?

Eh, then the article has such a weak close I won't even bother with it. I think the author got bored and just stopped. So I will too.

Tuesday, September 13, 2011

28 Million Unsold Properties in China

China's Overhang of Unsold Property Poses "Very Real" Problem
The Chinese surplus – which is about four times the number of unsold units on the market in the U.S. – will be more difficult to resolve because American real estate is more affordable for buyers, said Scott Minerd, managing partner and chief investment officer at Guggenheim Partners.

Loan Relief for China's SMEs

In the liquidity squeeze, state-run enterprises have been the only companies getting access to credit. Authorities are making noise about providing credit to Small and Medium sized Enterprises.

China to loosen reins on credit for SMEs
Small businesses are finding it tough to obtain loans as commercial banks tighten credit in line with central bank directives.

The situation has led to the emergence of corporate loan sharks - with cash-rich firms, including some listed on the mainland bourses, offering short- term loans charging interest of about 8 percent per month, mainland media reported.

Some rich firms are even offering medium- to long-term loans, sometimes charging interest of more than 30 per cent per year.

Monday, September 12, 2011

Private Banks Fueling Bubble in China

I've suspected that official credit has been bleeding into the shadow banking system (why would it not), dumping more credit into a sky-high multiplier. 

Guest post: China’s private banks are fuelling bubbles
In the city of Longyan, in southern Fujian province, there is even evidence of state bank employees taking out loans for personal use, as they are entitled to, only to deposit the proceeds in a private bank and earn the arbitrage.

The lesson is that even the PBOC, masters at administrative tightening, are struggling to prevent the country’s excess liquidity from being put to speculative use, even as sources of credit for the real economy dry up.

Inventory in the Hands of Stubborn Sellers in Australia

Australia is in the Age of Anxiety.
Panic and Capitulation are yet to come. If you are on the sidelines, pick your entry point with care. Can't tell you how many people jumped in early in California, then ended up foreclosed on too.

Agents dump sellers over 'dream 2010' prices
"We have a market full of vendors who don't need to sell and will only sell if they can get their price. They are perfectly happy to leave their property on the market in the hope that an uneducated buyer will come along and fall in love with it and pay what is on the price tag."

Market Cycle - via

Bubble Cause #5: A Complicit Press

Things you will never see in the press in a rising market:

1) Advice that renting is financially more sound than buying once prices have risen above rent ratios.
2) Warnings that markets don't always go up.
3) It can cost more than $20,000 to sell your home through a real estate agent. We speak to two vendors who decided to go it alone.

— Sunday Times Weekend, Property, 21-27 August, 2011
OOOPS. It's obvious why the press is captured by the real estate industry: AD$. But rarely do we get to see a full dissection of bullying of the press. Check out this RE industry freak out.

Biting the hand that feeds
Can I encourage you to boycott the paper in light of this, or better still this is a perfect reason why we as agents should build our own web site to challenge and the others who keep putting the squeeze on us. Anyone interested?

— Mark Hay, Investment property specialist, 23rd August, 2011
Hey, I've got a great idea for a boycott. How about of the lowlifes damaging democracy by manipulating the free press?

I give you my personal guarantee that The Sunday Times will work hard to restore our relationship to the mutual good health and prosperity that we have achieved together over many years.

— Jason Scott, Managing Director, 24th August, 2011
Watch out Mr. Scott, your "product" (i.e. your readers) may finally wise up and realize they are getting sold.

Sunday, September 11, 2011

Bloggers Vs. Banks

Maybe it's the date and I'm in a conspiracy mood, but I smell a hedge fund with a lot of shorts behind this article. Otherwise, why is Bloomberg even noticing?

Australian housing debt to disposable income is 155%. Whoo hooo. The U.S. at the time of our crash was 133%.

Loans more than 30 days overdue is at 1.79% but low-doc loans are at 6.74%. What? Australia has low-doc loans?

$1 trillion in outstanding mortgage debt is far more than half the GDP of Australia.

Home-Shortage Myth Pits Blogs Versus Banks in Call Australia Set for Crash
More than two-thirds of the government’s shortage estimate arises by including people who can’t afford housing, such as the homeless or those living in trailer parks, Sayce said. Collyer at tax-reform lobby group Prosper Australia says there’s actually a surplus of more than 250,000 dwellings after 15 years of overbuilding, while Keen argues the shortage estimate is swollen by inflated demand from handouts to property buyers of as much as A$21,000 ($22,300).
Banks in Australia have more than A$1 trillion of housing loans outstanding, with the four-biggest lenders accounting for about 87 percent of the total. The Australian Bankers’ Association said it doesn’t have a position on the so-called housing shortage myth and declined to comment.
In its inaugural report in March 2009, the council broke down the estimated gap of 85,000 homes in the year to June 2008. It included 9,000 dwellings needed to house people who were homeless, 35,000 properties for those staying with friends or relatives, 13,000 dwellings needed to house people living in caravan parks, and 26,000 needed to increase the rental vacancy rate to 3 percent, and rounded that to the nearest 5,000.
If you did a restaurant table shortage analysis using the same method you would be laughed at.

Housing shortage or not, access to credit is still what sets the price. People would double and triple up in the existing housing stock if credit were not so accessible, and prices would be lower, and housing costs for all would represent a more reasonable economic drain.

“When residential property prices blow into a bubble, the tragic error often made is in attributing price rises to housing shortages,” Melbourne-based Collyer said. “The U.S. experience shows this conviction is shattered as soon as price declines begin.”
This. House flippers and accidental landlords are sitting on a lot of housing stock. And it will all hit the market when the decline becomes indisputable and everyone's personal finance spreadsheets scream "cut your losses, fool".

While an increase in the number of people per dwelling would reduce the Housing Supply Council’s assumed shortfall, the increase itself could in part be attributed to a lack of adequate supply, the Housing Supply Council’s Donald said.
You would think that as houses get cheaper that those wanting more elbow room would get out and buy, thereby reducing the souls per household, thereby soaking up any excess stock (if it does exist). But that's not the way it works out. Once the banks start to hurt and the recession takes hold, the number of people per household goes up, heavily discounted housing or not.

Wednesday, September 7, 2011

Construction Slowdown in Australia

New stimulus call as building industry slumps further
Industry figures released yesterday reveal that construction activity has dropped for the 15th consecutive month, with commercial building activity suffering more than housing.

The Australian Industry Group (AIG) Performance of Construction Index dropped four points in August to 32.1 - significantly below the 50-point threshold that separates expansion from contraction.

Toronto Detached House Prices Down Month on Month

The median detached house price in the City of Toronto is down almost $15k month on month. City center condos eroded 5k month on month. Watch yourselves out there.

Toronto Real Estate Market Watch release for August.

Forget the averages the summary quotes. The medians are showing a significant shift.

(First off, I have to explain why I'm working with two months of data. The TREB, until July 2011 published some pretty useless reports. That just changed. I tried to go back and recreate at least some of the numbers, but without summary medians for regions with enough sales to compare month on month (600 or more) I can't safely work backwards. So, July and August is it for now. BTW, thank you TREB for fixing the reports.)

Median Prices For house types with a significant # of sales (I can't smooth so I can't handle any noise)
RegionJuly 2011August 2011
DETACH – TREB$493,000.00$499,000.00
DETACH – Peel$485,000.00$492,000.00
DETACH – York$595,000.00$605,000.00
DETACH – Durham$330,000.00$329,000.00
DETACH – Toronto City$550,000.00$535,500.00
SEMI – TREB$390,000.00$389,000.00
CONDO – TREB$304,000.00$300,000.00
CONDO – Toronto City$328,000.00$327,000.00
CONDO – Toronto Central$365,000.00$360,000.00
TOWN – TREB$375,000.00$378,000.00
TREB is the entire area covered by, well, TREB ;-)
CONDO is condo apartment

Tuesday, September 6, 2011

High End Taking the Biggest Hit in Australia

The difference between the average price decline and that on the high end has gotta hurt. As our shameless salesman the other day insisted (as a way of soothing concerns of all things) 75% of mortgage debt in Australia is held by the top 40% of households. Well, that segment is just as capable of being overextended as the next family, given banks' desire to loan the maximum possible to every customer that walks in the door.

Rather than provide stability, this high end creates volatility, more risk to the banks over a shorter period of time. The other 60% of Australian mortgage holders, with their paltry 25% of the mortgage debt, represent far less of a risk to balance sheets.

Million dollar home sales continue to fall away
Change in Dwelling Price by Dwelling Value Chart from RPData Blog

Monday, September 5, 2011

The Stale Rehash in Australia

What will happen to house prices next?
According to RPData-Rismark’s Hedonic Index, the Australian median house price fell 0.9% or $4,700 in the last quarter and dropped just 2% or $10,600 over the last 12 months.
Whoa. All of a sudden, real estate *isn't* local. Let's gloss over the 6.6% decline in Brisbane (a $30,000 loss) by mixing it in with Canberra. Or a 6.3% decline in Perth (for a loss of $33,000).

Australia has the largest dwellings in the world, and they are of high quality. This may be extravagant, but it’s the way we choose to live.
Long term, this is not the way it works. Houses are dead, economically. They are sinkholes. Every extra percent of income directed at houses (doesn't matter the size) is capital not being used for investment in economic growth. Excessive misdirected capital will choke the rest of the economy. Doesn't matter if the houses "deserve" to have all this capital thrown at them because they are so big and sexy with all that granite and smooth Italian tile. Eventually the capital will not be there to throw at them once housing has sucked the lifeblood out of other wealth generating pursuits.

What follows is a roundabout (don't know why) set of statements that distill down to "people are willing to pay for proximity". Well, sure. Who said they weren't? It's the scale that's under debate.

Importantly, despite relatively high levels of household debt in Australia, the households that hold this debt can still service mortgages. Less than 1 per cent of mortgages are in arrears in Australia, which is internationally low.
This is just wrong. Have you read the news in the last 4 months? It would explain a lot if you hadn't. And the trend matters too. It's on the way up. Of course it was low, in a rising market, the unwise and the unlucky can get out from under their situation with no scars. In a down market, they're trapped. This is why the market takes time to turn, but once it does, it accelerates. The desperate think they can hold out for better times rather than cutting their losses. Possibly because "advisers" like this guy feed them rehashed old myths about the market.
From: ABC News Fitch Ratings says the number of borrowers falling behind on repayments by 30 days or more climbed from about 1.4 per cent to 1.79 per cent in the first quarter.
From: Smartcompany Queensland is ranked as the worst-performing state for mortgage arrears, with a rise to 2% of mortgages in default as at March 2011, meaning one in 50 Queensland mortgage holders cannot pay their lenders on time.

Back to our main man:
And it is comforting to know that 75 per cent of all household debt in Australia is held by the top two-fifths of income earners – those that can most afford it.
Correct but irrelevant. The top two fifths of income earners also have 72% of the income and 87% of the wealth. Why wouldn't they also have 75% of the debt? Looks like exactly the right number. A "Point", you don't have one.

What could cause our property markets to collapse?

The factors that could cause an Australian property market crash are:

1. A recession – but I don’t know anyone who suggests we’ll be going into recession in the foreseeable future.
You don't get out much, do you? The basis for your economy is digging things out of the dirt to ship them to China at exorbitant bubble prices, tourism (from that economically depressed remainder of the world that so envies you (your words). What else ya got?

2. Massive unemployment meaning that people can’t afford to pay their mortgages – again this is unlikely in the near term.
Your consumers are already using credit cards to stay afloat. Credit card debt is soaring. It doesn't take massive unemployment to push a few households into forced sales and from there prices follow down rapidly.

3. A significant oversupply of properties – other than on the Gold Coast and in a number of our CBD’s, with a rash of off-the-plan high rise projects being completed, we don’t have an oversupply of properties.
Completely ignoring how fast households will consolidate in a downturn.

4. High interest rates – the prospect of this has now been averted by the world’s financial turmoil.
What is it with this? You tow out the U.S. to make yourself feel better then ignore that interest rates never went up in the U.S. when the bubble burst.

Now if you want to really get ahead of the pack I recommend you join me for 3 days at this year's "Real World" Real Estate Workshop that I’ll be holding in October.
Ah, and he ties it all up with an advert. If you are true believer, by all means, give this guy some money. He's going to need it.

Friday, September 2, 2011

Vancouver House Prices Peaked in June

Vancouver Detached house prices formed a new peak in June and are down 1.5% from there. Doesn't sound like much but that's $13,000.


Sales are down and inventory is up, although not dangerously so.

Vancouver HPI Prices 2010 and 2011 for Detached and All Properties

Vancouver Residential House Price Change Year on Year Detached and All Properties

Scrambling to Sell in Wenzhou

Missed this one when it was first published.

Something triggers the sell off, and then, priced at the margin, everyone ends up on a panic as the "value" slips away. In this case the trigger is a liquidity squeeze on SMEs, interestingly enough.

Scrambling To Sell Properties: Wenzhou Edition
[Wenzhou] produces many real estate speculators who have been buying properties everywhere from their home town to Hong Kong, and probably even Dubai and others. Now in their home town, however, they are scrambling to sell their real estate holdings.
NBD reports that the rush to sell started probably two weeks ago. The selling pressures started from two groups of people: cash-strapped speculators, and cash-strapped business owners
Many business owners are also selling properties to save their own businesses as bank credit are very tight, and non-bank credit has very high cost, so selling properties would be a better choice. One real estate broker said that a business owner is selling a RMB80 million townhouse, and 2 days ago the owner of this house told the broker that because his company needs cash urgently, and as bank loans have not been approved, he was willing to cut price by RMB5 million if there are a ready buyer.

Warning on Chinese Banking System

Fitch Reiterates Warning on China's Banking System
Ms. Chu told the seminar Wednesday that compared to banks' exposure to local government financing vehicles, the property market is "more intractable and much more complicated to deal with."
Real estate has been the foundation of China's supercharged growth over the past two decades, and its health is crucial to the construction, steel and cement sectors. Local municipalities and provinces receive funds from land sales and rely on higher land prices to fund infrastructure projects.

Not only is financing backed by overvalued real estate, it is also backed by overvalued base metals. There is no soft landing for this situation.

hat tip: Jesse