Sunday, February 27, 2011

While We Are Waiting

While we are waiting on Vancouver's February 2011 numbers

If the linear trend line holds up the HPI for all sales will be
$588,338 (up $3300 month on month)

And the HPI for detached will be
$813,409 (up $3400 month on month)

There is a lot of anecdotal evidence that the 60 day window before the mortgage changes juiced the market. It may have also juiced sellers as well and ended up a wash. We'll know around the 3rd or 4th of March.

Even before the mortgage rules change the trends were for prices to rise. On this trend line they will rise through April.

18 Chinese Cities to Limit Home Purchases

A last ditch effort after every other move has failed. Whether this works depends entirely on municipalities overcoming their penchant for corruption. They are already in deep with developers who are not going to like enforcement of this.

Taming China’s house prices

Non-permanent residents or foreigners can only buy property after showing proof of social security contributions or income tax payments for a year.

Permanent residents who already own two or more properties will not be allowed to buy any more.

Last week, the Beijing municipal government announced stricter regulations for non-permanent residents.

They are banned from buying any homes in the Chinese capital if they have no residence permit or documents showing that they paid social security or income tax for five consecutive years.
The irony certainly is rich. Those darn outsiders driving up prices.

The State Council has also directed local governments to set property price targets in line with local income levels and the targets should be made public by the end of March.
This is going to be fun to watch.

I'm excerpting a lot, but one more:
The guidelines were outlined by the central government a month ago but most local authorities have delayed their implementation.

“Why have more than 80% of the city governments yet to respond?

Saturday, February 26, 2011

Taiwan Housing Bubble, Price to Income Ratio at 11

China Times: Warning signs of housing bubble
According to the results of a survey conducted by the Taiwan Real Estate Research Center, housing prices in Taipei City have soared 73 percent over the past five years, but the average household income has risen by only 1.2 percent.

As a result, the housing price-to-income ratio in the city has increased to 11. Worldwide, the ratio is lower, except in Hong Kong where it is 11.4.

Thursday, February 24, 2011

Australian Clearance Rate Chart for Feb 20 2011

Clearance rates in Sydney and Melbourne are starting to stabilize and they are doing so at around 60%.

Wednesday, February 23, 2011

House Price Change Canada Cities

Does the chart below look familiar?

There are so many similarities between Canada and Australia right now. Both have a lot of foreign buyers, both are riding a wave from selling high priced commodities to that same foreign country. Both had a government willing to juice the market as it was falling during the recession, pulling demand from the future and setting their respective markets up for a harder fall later.

Ponzi schemes require increasingly larger inputs to keep them afloat. Reality will set in. And the steeper the rise, the faster it will set in. Note where Calgary is year on year.

Halifax is up for December 2010, but it's also noisy. Everyone else is headed down without question.

Canada House Price Percent Change Year on Year

You can really see on this chart how Halifax and Montreal are twin markets, as well as Ottawa and Toronto.

Tuesday, February 22, 2011

20 More State Owned Enterprises to Exit Real Estate

14 exited last year. They will exit as projects are completed.
China to let 20 more SOEs fully exit real estate business this year
To curb asset bubbles, the SASAC banned 78 SOEs from investing in property in March last year as property was not their core business.

Monday, February 21, 2011

Construction Loan Losses Lead to Bank Suspensions in Korea

Anything in the Asia region is of interest. Any sign of weakness could cause capital to stop flowing into the zone.

Officials Seek To Head Off Bank Run
Although the government will guarantee deposits up to 50 million won, it could take some time before customers of suspended banks to get their money back. The government says it will speed along the process by starting to pay qualifying depositors up to 15 million won of their deposits from two weeks after the suspension, as opposed to the customary three weeks.

Savings banks account for a relatively small portion of the financial sector, making it unlikely their woes to seriously harm the broader economy. Still, the government is trying to head off any systemic risks that could be caused by the ailing banks, and they have continued to assure the public that vast majority of the savings banks are fiscally sound and that overreacting to troubles of a few bad banks will harm everyone involved.

50 million won is 45,000 USD

Friday, February 18, 2011

House Prices Rise in 68 of 70 Chinese Cities for January 2011

Not really surprising news, but it marks time for the archive of events.

China Home Prices Rise in Most Cities, Defying Curbs
New home prices in the capital Beijing advanced 6.8 percent in January from last year, while Shanghai climbed 1.5 percent, the statistics bureau said on its website today, initiating a new method of calculating prices. Haikou had the biggest gain, surging 21.6 percent, and 10 cities had increases exceeding 10 percent. Housing values in the southeastern city of Quanzhou and the western city of Nanchong fell.
“Although property is being targeted with tightening measures, overall credit growth in the economy remains expansionary,” Erwin Sanft, head of China and Hong Kong research at BNP Paribas SA, said in an e-mail. “The memories of the 2008 downturn in exports and housing prices are still too fresh at central and local government level” to create another downturn.

A global truism: No one wants to prick a bubble. It doesn't matter the political philosophy.

Beijing banned residents from buying more than two homes and added a requirement for non-residents to provide five years of tax documentation to buy apartments, the capital city’s government announced this week.

Thursday, February 17, 2011

Australia House Price Trends - If History Repeats Itself

[Q4 2011 Version of this chart, click here]

The Australian Bureau of Statistics publishes the Eight Capital Cities House Price Index

Conveniently they provide on this spreadsheet columns titled "Established houses percentage change from a corresponding quarter of previous year". So I plotted those.

Australia Established House Price Index Difference, Year on Year 2003-2010

Perth and Brisbane are already at 0% price change, year on year. And Perth's rate of change is looking rather precipitous as it crosses the line.

Another interesting thing jumps out about this graph. Perth, from 2003 until 2008, was a market unto itself. But something happened at the end of 2008, it fell into lockstep with the rest of Australia's cities. To me, this implies that a market distortion came into play that was powerful enough to affect all markets at once, the same way.

Partly because I am bored today, I decided to take the shape of Sydney, Melbourne, and Perth's declines from 2008 and project them onto the ends of the current declines in price difference. The earlier declines in Perth and Sydney are a perfect fit to the current declines. Only Melbourne ended up with a discontinuity.

Australia Price Changes with 2008 Declines Repeating*

What does this mean? Nothing really. Markets aren't that predictable. It's just something to look at.

* in the case of Perth, I used the 2006/2007 decline

Australian Bubble Exceeds the U.S. Bubble

Steve Keen does a round up on the parallels between the rise in prices in Australia and the U.S.

Our Bubble's Bigger Than Their Bubble
Whether this period marks the beginning of the end of the Australian house price bubble will only be clear in hindsight, but the volatility of the index is now extreme, and the inflationary impact and misdirected benefits of the Australian government’s first home owner’s boost (which I prefer to call the first home vendor’s boost) is obvious in Figure 3.

This is not a new phenomenon: though I apportion most blame for the Australian house price bubble to the finance sector, there’s little doubt that the fuse itself was lit by the government’s interventions via the First Home Owners Scheme, which began in 1983.

Wednesday, February 16, 2011

Flipping Fast and Furious

I don't actually know what the previous owner (referred to as "the seller") has to do with any of it. You signed on the dotted line; it's not yours anymore.

Home seller miffed after firm flips home
The company behind the deals, New Land Strategies Corp., 703-6081 No. 3 Rd., has upwards of 10 similar Richmond properties currently available.

. . .

New Land, and owner Ze Yu Wu, has spammed a list of the properties to local realtors: 9711 Stilmond Rd., 3460 Raymond Ave., 3531 Jesmond Ave., 8720 Kelmore Rd., 10740 Reynold Dr., 10100 Bamberton Dr., 9860 Berry Rd., 8360 Lunen Rd., 6391 Mara Cres. The Review was unable to reach Wu for comment.

I love this paragraph:
The Review was recently contacted by two realtors who were concerned about the unusual practice, the likes of which hasn’t been seen in Richmond since the late 1980s.

Tuesday, February 15, 2011

Welcome to the Money Pit

A stunningly honest article. The hopeless tone smacks of capitulation, however. No mention of simply doing the sane thing and staying the heck out of the market. Insanity is the new normal.

Buying a house in Vancouver? Welcome to the money pit
And then there's this: Even if you manage to come up with a down payment, you'll likely be a single-digit interest rate hike away from bankruptcy, and someone you don't know will be renting the basement suite you had to build in order to quality for the mortgage in the first place.
Many are found on the edges of Vancouver, to the east and south, small postwar stucco bungalows and turn-of-the-century wood-frame piles that are short on bathrooms and bedrooms and need insulation and sometimes foundations because they've been long listing to starboard.

If you've overextended to buy a "pile" then you certainly can't afford a renovation to it. If you can afford the renovation, you should have qualified for a mortgage equal to a house not in need of so much immediate attention.

Monday, February 14, 2011

Jumping the Shark, Video Moments in Housing Bubbles

Market peaks all need a video moment to mark their transition from bull to bear.

In the U.S. it was "The Debate" or the "Suzanne Research This" Ad from Century 21.

This is a beautiful piece of work in that it encapsulates everything that is disturbing and wrong about a bad real estate decision. The high pressure. The emotion. The vindictive game the agent is helping play out between the couple.

When the husband says "That's not the point." and the wife says "What???!" the viewer has a Rocky Horror moment during the silent gap where he or she yearns to yell at the screen: "The point is it's a terrible financial decision, you idiots!" Top that off with the ad appearing just at the teetering point of market collapse, toss in the pile of sexist baggage the ad perpetrates, slide in the sleaze of the agent listening in and injecting herself into the conversation and you have a winner, just all around. A stunning time capsule that screams, real estate industry, you are manipulative bastards, preying on house shoppers who have no idea how to do their own due diligence. Suzanne Researched This, indeed.

The following piece of work is being proposed as Vancouver's seminal video.
Chinese Buyers Flock to White Rock
In case the producers pull it, it has been summarized here at VREAA.

It covers some of the bases, the larger than life Chinese buyer, the take-no-prisoners excesses of the helicopter ride, the unabashed staging of it all, the power of scenery in the Vancouver market. I'm not sure it captures everything. But maybe the low direct emotional involvement, the above-it-all feeling of it, is more appropriate for Vancouver.

Downunder, we now have a candidate video, and I must say, the Aussies sure know how to jump the shark with style.

Six bedrooms? Are you keeping a harem?

Not Safe For Work, indeed.

BC Online Mortgage Applications Down Significantly for January 2011

British Columbia Mortgages from CanEquity

January 2011 represented the lowest percent of mortgage applications of any January of the last ten years. And January is normally the busiest month of the year.

Also, estimated volume targets for BC for 2011 are 7.54%, A level not seen since 2002.

The average loan for Vancouver proper is $270,816. That implies that people are carrying over an awful lot of equity from their previous sale, or bringing their own cash from somewhere. No wonder the rumors of drug money have such legs. Where is that additional money coming from? Compare $271k to Toronto's average loan of $260k. Certainly doesn't even begin to reflect the average house price difference.

Sunday, February 13, 2011

Rents in China Becoming Unaffordable

The article fails to support its headline, in fact, asserting that rents have been increasing since mid-2010. In any event, the average Chinese are really getting pinched.

China: Property tax rule pushing up cost of renting

Xue Jianxiong, an analyst with the China Real Estate Information Corporation, said landlords in recent years have charged rents that have been too low to cover the cost of investing in rental properties. Landlords are now trying to make up for those losses, as well as trying to ensure that their incomes keep pace with the rising cost of living.

"In the past several years, property prices have not been the only thing that has jumped; commodity prices have undergone a huge increase as well," he said. "Besides, the introduction of the property tax is also adding to the cost of property investment, and landlords are very likely to transfer all of the new costs to tenants."

It's impossible for landlords to cover their purchase cost, given the price to income ratio. Something will have to give.

I have an idea. Shanghai should put a 20% tax on unoccupied apartments. That would solve many problems all at once.

Saturday, February 12, 2011

2011 Australian Clearance Rates Almost Relevant Again

We're still at 1/3 of the houses on offer from back in November 2010, but here are the last two weeks of noisy clearance rates in chart form.

February 6, 2011 Australian Clearance Rates

Thursday, February 10, 2011

China House Prices up .95% in January

CREIS says residential real estate up .95 in January, up from December's .90 rise, which was up from November's 0.82 rise.

China home prices up 0.95 pct in Jan -CREIS
The China Real Estate Index System (CREIS) said home prices stood at an average 8,645 yuan per square meter in the 100 cities it covers in its survey.

8,645 CNY = 1310 USD

Wednesday, February 9, 2011

BC Households Most Financially Vulnerable

Several factors contribute to the ferocity of a downturn in real estate prices. One is oversupply, another is how close to the financial edge homeowners are living. Prices will resist a fast slide if stubborn sellers pull their homes off the market rather than accept a loss, an action which cuts inventory.

B.C. most financially vulnerable province: TD
The bank [Toronto Dominion] places its baseline vulnerability at one, for the Canadian average. This year British Columbia was given a score of 1.24, meaning the province's average is 24 per cent more financially vulnerable than the national average.

The bank cited higher home ownership costs in the province for the higher score. The average savings rate is negative in B.C., the only Canadian province in which that's the case. Up to one in ten households in B.C. would be in financial stress if interest rates rise, the report suggested.

Tuesday, February 8, 2011

Bunbury, Western Australia Prices Down 11%

The suburbs fared better, but I really like the last line of the article.

Real estate slump continues
The figures showed a modest growth in Greater Bunbury of 1.4 per cent – or $5,000 – to a median house sale price of $365,000.

However some suburbs fared far worse, with Bunbury itself suffering an 11 per cent drop in sale prices in the 12 months to December 2011[sic], with the 40 properties sold averaging just $549,000.
“The days of buying a property and turning it around and selling it for a profit within 12 months are gone – you can’t expect to do that any more,” she said.
And given that the price people are willing to pay is predicated on exactly that . . .

Sunday, February 6, 2011

Sydney Clearance Rates Open the Year on a Weak Note

New year enthusiasm takes a holiday
The weekend's 48 per cent auction clearance rate has done nothing to assuage the nervous anticipation about the direction of the residential property market this year.

It was well below last year's opening weekend figure of 68 per cent, and puts this month in line for its weakest result since 2005.

On that same less than glowing note:

Stagnant market likely after last year's house price boom
Capital city house prices rose just 0.7 per cent in the three months to the end of December, up 5.8 per cent on the year overall, according to the Bureau of Statistics.

The bureau's figures included a revision of house price gains for the September 2010 quarter. Instead of a slight gain of 0.1 per cent they showed prices fell 0.3 per cent.

Half of Buyers of Development on Melbourne's Fringe Are Foreign

Developers court overseas buyers amid fears of greater urban sprawl
Victoria's largest home builder Simonds Homes is one of several to have sold house and land packages for the Sanctuary Lakes Resort and Featherbrook estates in Melbourne's west, of which it says half of the combined total of 2500 lots were sold overseas.
''We have 23 agents in China operating in five provinces including all the major cities,'' he [Simonds general manager of sales and marketing Mark Vujovich] said. ''We are introduced word of mouth through our clients and have worked hard at building relationships over there.''
Australia's foreign investment laws encourage overseas-based investors to buy new real estate with the aim of increasing housing supply.

A series of law changes in recent years made it easier, and then harder, for foreign investors to buy existing homes, but were mostly unconcerned with sales of new housing stock.

The Canadian 35 Year Mortgage, Some Numbers

A quick chart showing the numbers 5 years later on $500,000 borrowed in principal at 4% interest.

 Monthly PaymentTotal Interest PaidTotal Principal PaidRemaining Mortgage Balance
35 year amort$2,214$96,553$36,279$463,721
30 year amort$2,387$95,462$47,762$452,238
25 year amort$2,639$93,874$64,477$435,523

If you went with a 35 year mortgage, you'd have a whopping $36,000 in principal paid down, after five long years of paying nearly $100,000 in interest. That might qualify as renting from the bank. But the bank doesn't have to make your repairs.

For future planning, this is what your payments would look like under each of these scenarios with interest rates rising to 8%.

8% resetremaining
in payment
30 year $463,721 $3402+$1188
25 year $452,238 $3490+$1103
20 year $435,523 $3642+$1003

What if you decide that looks a little steep? Say you decide to work with the bank to refinance what's left at 30 years instead.

8% resetremaining
in payment
30 year $463,721 $3402+$1188
30 year $452,238 $3318+$931
30 year $435,523 $3196+$557
That is, of course, assuming you've left this option open by not going with 35 years in the first place.

Friday, February 4, 2011

Prices in Vancouver Continue to Rise, Doesn't That Mean They Will Do So Forever?

All right, just a little snark in the headline.

This is the situation. Vancouver is approaching zero % growth, year on year. [See Vancouver Price Change Graph] It just so happens it is approaching this point around April 2011, which corresponds with the peak month of this bull market in 2010. According to the Vancouver Board of Realtors HCI for detached properties, there has never been a higher month for prices than April 2010. Zero percent growth on $818,000 will be $818,000. If April 2011 is higher than that, then the market's decline is slowing, if it is lower than that, then the market has entered negative growth and I expect a real sentiment shift to begin.

If the HCI is $818,000 for April 2011, no doubt the sellers of used houses will be dancing in the streets. Over the next few months denial will continue to be easy for those wanting to believe their net worth really is as inflated as the real estate and banking industry wants them to believe. But in reality a second peak of $818,000 will mark the end of the growth in prices.

So, to recap: Yes, prices will continue to rise. The trends predict they will rise. We are still at positive growth (just barely) year on year, and this growth gets to play out against the highest months of prices from the previous year.

Then the double whammy arrives. Demand pulled forward by the 60 day delay in mortgage rule changes will make February and March a little better, and then in April and May, the subsequent reduced demand will work in concert with the reduced "affordability" to grind things down lower.

Thursday, February 3, 2011

China Will Issue Insufficient Credit to Sustain the Bubble in 2011

China property bubble to pop this year, says analyst
The end may be neigh for China’s inflated property market, according to one analyst who says the nation’s banking system is unlikely to pump out enough credit this year to sustain further gains in real-estate prices.
China’s banks issued upwards of 11 trillion yuan in new lending in 2010, via declared and off-balance sheet transactions, Tulloch estimates. That figure is about 15% more than the 9.6 trillion yuan in new credit issued in 2009 as part of emergency spending measures to help shield the Chinese economy from the global crisis.

Sustaining further gains in real-estate prices this year will require another round of double-digit credit growth.
Property prices across mainland China have continued their upward march, even as supply overhang reach dangerous proportions. As evidence, Tulloch, points to surveys — which he acknowledges are unscientific but says are still useful — that indicate nationwide residential vacancy rates could be as high as 50%, while in Beijing it could be as high as 60%.

Edit: boy, what year is it again?

Wednesday, February 2, 2011

Vancouver January 2011 Price Chart Update

The change in house prices, year on year, declined on the linear trend line, as expected. [See earlier post Vancouver House Price Predictions from Jan 10]

Vancouver House Price Chart Change in Price Year on Year

It's now a six month trend, which is pretty solid. If this linear trend holds, the detached HCI price for February will be 813k and for March will be 804k.
The all dwelling HCI for February will be 588k and for March will be 585k.

The Truth?

Schizophrenic article in the Montreal Gazette. First three paragraphs show real estate pimping at its best. Then a "balanced" paragraph from a financial planner. Then the rest of the article is boring boring numbers that conclude, well, buying a condo to become a landlord really isn't a great idea. I guess the Gazette doesn't expect their advertisers to actually read that far? The barrage of actual numbers might actually put them to sleep. They are good numbers, and good general advice.

But these front three paragraphs? Who slapped those on there? Check out this beauty:

Some home truths
Alas, the good times are about to end. Gauthier says prices will actually go down in 2011, albeit by less than 1%. By 2012, the loss could be 1% to 2%. Even real-estate companies are not overly optimistic. For example, Re/Max says Canadians can expect an average 3% price increase in 2011. Such uncertainty doesn't necessarily mean abandoning the housing market in the coming years. Indeed, it may even be time to take some of that bloated equity in your principal residence and bet on an investment property, such as a condominium, cottage or perhaps even something in the moribund real-estate market down south.

Wait, what crazy person said the market would only decline 1% on the entire year? Surely it was some random real estate agent who had just woken up, or a mortgage broker having a bad day, or maybe the homeless gentlemen the article's author passes on the street every day.

. . . says Pascal Gauthier, a senior economist at Toronto-Dominion Bank.

Oh, Canada . . . you are so screwed.

Vancouver Continues to Erode at the Edges

Average house price in Greater Victoria tumbles
The average price of a single-family home fell sharply in January from the previous month, according to data released Tuesday by the Greater Victoria Real Estate Board. The average price for single-family homes was $603,401 down almost $44,000 from December. We take a look at what that amount can get in Victoria vs. Metro Vancouver - and what Metro Vancouver's average of $701,000 can get in the provincial capital.
Not an article, but a photo gallery. Some of the pictures have an awful lot of green on the trees, which implies extensive days on market.

China Expected to Raise Rates Again this Month

China’s government, increasingly worried about soaring inflation, plans to continue tightening its money supply and will probably raise interest rates again within the mo
Although China’s economy is a little less than half that of the United States, its money supply is now one-quarter larger than America’s.
Depending on which inflation index is chosen in each country, and whether any adjustments are made for the consistent underestimates of Chinese inflation because of methodology problems, the real effective exchange rate measure shows that the renminbi is strengthening by 10 percent or more a year against the dollar.

Bolding mine. I had not heard that before.

Tuesday, February 1, 2011

Latest Synthetic Yuan Bond Offering Delayed

The latest Synthetic offering from Zhong An has been delayed due to the difficulty of pricing it in the current volatile market.

UPDATE: Zhong An Delays Pricing Of Yuan Bond Issue - Sources
There have been four such issuances since Shui On Land Ltd. sold the first synthetic yuan bond in December. The five issuances raised the U.S. dollar-equivalent of CNY18.5 billion. Four of these issuers were Chinese developers, which raised a combined CNY17.75 billion.

Such bonds have been introduced over the last few months after Chinese authorities eased regulations to encourage offshore yuan trading in July. Two main types of yuan bonds exist: those denominated and payable in yuan, known as "dim sum" bonds; and synthetic yuan bonds.

Synthetic yuan bonds have proved more popular among issuers because of the large pool of investors using U.S. dollars and restrictions on the Chinese currency's movements back into China.

17.75 billion Yuan is 2.65 billion US$

Remember, back in early last December 2010 the government banned banks from financing real estate development by all but 16 state owned companies. 17.75 billion yuan is a drop compared to the 4,826.7 billion yuan spent on development in 2010, so this isn't a serious end-run around that limitation. But the eagerness for these bonds demonstrates that China is still a draw for investment. The last crash in Hong Kong was triggered by money being withdrawn from the zone. We aren't anywhere near that point, apparently.