Thursday, August 30, 2012

Aussie Apartment Permit Approvals Down 40%

Still in a two-speed economy down under. Australia Home-Building Permits Fall by Most in Almost a Decade
The number of permits granted to build or renovate houses and apartments slumped 17.3 percent from June, when they fell a revised 1 percent, the Bureau of Statistics said in Sydney today. That was the steepest slide since November 2002. Separate data on business spending showed mining investment rose by 10 percent last quarter, while manufacturing declined by 3.8 percent and other industries by 4 percent.
Today’s data “is a literal dog’s breakfast,” said Craig James, a senior economist at a unit of Commonwealth Bank of Australia.
Um, no. It's still figurative.
Permits to build private houses rose 1.6 percent to 7,329 in July from the previous month, the report showed. Approvals for apartments and renovations slumped 40.5 percent to 3,738.
Whoa. It's all in apartments. And despite calls for eliminating negative gearing, there hasn't been any news about official moves to do so.

The news gave a beating to the Australian Dollar. 90 day Australian Dollar to US Dollar
Sales of new homes in July fell to a near record. 
Sales fell 5.6 percent to 5,682 last month from June, when they gained 2.8 percent, the Housing Industry Association said Aug. 28, citing a survey of the nation’s largest builders. Detached house sales decreased 5.5 percent to the lowest level since 2000, while apartments weakened 6.4 percent, it showed.

Tuesday, August 28, 2012

Call to Eliminate Negative Gearing

Housing stimulus measure have a nasty habit of simply increasing the cost of housing. And then there is the issue of fairness. Why should one segment of the population subsidize others' real estate investments?

 Cut negative gearing to help poor: ACOSS
In a bid to combat soaring house prices, the Australian Council of Social Service (ACOSS) says the federal government needs to cut negative gearing, a tax break for mortgaged landlords.

"We do need the political parties to be having a stronger focus on what needs to be done to address poverty and inequality in Australia," ACOSS chief executive Cassandra Goldie told reporters on Monday.
The Hawke government scrapped negative gearing in the mid-1980s but the policy was reinstated after investors fled the housing market, leading to a shortfall in rental accommodation.
Now, that was an interesting outcome. Wouldn't the houses have shifted to owner occupied, reducing the demand for rentals? Was something else causing the crush? Possibly immigration?
ACOSS makes a plea for the cost of housing to come down not so the homeless can buy houses, but so that service providers have a chance of assisting those in need to find shelter. Ironic that if houses become too much of the economy they become more out of reach.

If elimination of the policy isn't possible, perhaps allowing negative gearing only for areas in need? It is a subsidy after all (someone else is paying the skipped taxes). It can be policy directed.

Monday, August 27, 2012

Canadian Housing Even Less Affordable

Canada housing affordability drops in 2nd quarter
The cost of owning a home edged up 0.2 percentage points to 43.4 percent for a detached bungalow and by 0.6 percentage points to 49.4 percent for a two-story home, while the measure for condos was unchanged at 28.8 percent, the RBC Housing Affordability index showed.
Home ownership was least affordable in Vancouver, where the benchmark for detached bungalows rose 2.2 percentage points to 91.0 percent, followed by Toronto, where it rose 0.9 percentage points to 54.5 percent. Ottawa was unchanged at 41.9 percent, Montreal was down 1.0 percentage points to 40.4 percent, Calgary was unchanged at 36.7 percent, and Edmonton fell 0.1 percentage points to 32.4 percent.
This measure is a straight up percent of pretax income needed to cover homeownership costs. The top end recommendation for the U.S. is 35% and that is in a lower tax rate environment.
Wright said he expected the Bank of Canada to start raising interest rates early next year, assuming problems in Europe and the United States are addressed.
I don't know about that optimism but raising rates in 2013 puts the most number of borrowers at risk due to the boom of expiring mortgages from the rush to refinance in 2007.
Note that the scale is wildly wrong, but I don't have a fix for it. It's just an indicator of where the balloon of trouble is from the feeding frenzy when 35 and 40 year mortgages became insured. That old post on subprime mortgages in Canada can be found here

I expect Bank of Canada will hold off until most of these mortgages are renewed and out of danger.

China's Exports Hit Hard

The current climate is growing more difficult than the 2008 crisis. Profits slipped 5.4% year on year for July. China's export hub hit hard by global economic slowdown
In the first seven months of this year, profits for industrial firms fell 2.7 per cent from the same period last year to 2.68 trillion yuan. It is 0.5 percentage points more than the decrease for the first six months.

In the first seven months, state-owned and state- controlled industrial enterprises saw their profits fall 12.2 per cent from a year earlier to 784.7 billion yuan, (about $124 billion).
This is interesting. Non-state owned industrial, because of its long-term uncertain access to capital and influence, could be presumed to be operating more leanly.
But it has witnessed a rise in bankruptcies that is even "more serious" than the 2008-09 financial crisis, said Zhou Dewen, Chairman of the Wenzhou SME Development Association.

"We have about 3,000 members and more than 10 per cent have closed down and about 20 per cent are struggling," Zhou said.
These are SMEs. Larger companies are better able to adapt, based on the stats below:
According to a report released by the financial and economic committee of Zhejiang Provincial People's Congress, 140 out of 3,998 large enterprises in Wenzhou closed in the first half of the year while 57 percent of those large companies cut production.
Meanwhile Rate Swaps again hit a three month high. Reuters article. Those capitalists (just like in the rest of the world) just hanging on the government's every currency and liquidity move.

Thursday, August 23, 2012

China's piles of unsold goods

All the makings of an overshoot. China Confronts Mounting Piles of Unsold Goods
But the main nongovernment survey of manufacturers in China showed on Thursday that inventories of finished goods rose much faster in August than in any month since the survey began in April 2004. The previous record for rising inventories, according to the HSBC/Markit survey, had been set in June. May and July also showed increases.

“Across the manufacturing industries we look at, people were expecting more sales over the summer, and it just didn’t happen,” said Anne Stevenson-Yang, the research director for J Capital Research, an economic analysis firm in Hong Kong. With inventories extremely high and factories now cutting production, she added, “Things are kind of crawling to a halt.”
Inventories of unsold cars are soaring at dealerships across the nation, and the Chinese industry’s problems show every sign of growing worse, not better. So many auto factories have opened in China in the last two years that the industry is operating at only about 65 percent of capacity — far below the 80 percent usually needed for profitability.

Yet so many new factories are being built that, according to the Chinese government’s National Development and Reform Commission, the country’s auto manufacturing capacity is on track to increase again in the next three years by an amount equal to all the auto factories in Japan, or nearly all the auto factories in the United States.
And municipalities are eager to limit registrations in a desperate attempt to cut traffic and pollution.

Chinese Manufacturing Slows Even More in August

Manufacturing in China Slows Further Preliminary reading falls to 47.8 from 49.3 last month. Anything under 50 demonstrates contraction. With the SME liquidity issues, this is not a surprise.
Many analysts had expected the August reading to stabilize, or even edge up slightly. Yao Wei, a China economist at Société Générale in Hong Kong, described the result as “just awful” in a research note.
I have no idea what made them think the number would go up. The government has signaled repeatedly that they will not stimulate enough to cause more bubbling in the economy. We're still in bubble stage now, so there is only softening the landing.
New export orders, which are also captured in the monthly survey, sagged sharply as the crisis in Europe ate into export demand, indicating that Chinese exports are likely to languish for some time. Exports edged up just 1 percent in July compared to a year earlier, official data released earlier this month showed. Further cause for concern, Mr. Qu noted, was that domestic demand, also failed to show a meaningful improvement in August.

Wednesday, August 22, 2012

Gravity is making itself felt on property prices worldwide

Gravity has taken hold of property markets around the world. And this is still under the effects of unusually low interest rates.

Searching for Solid Ground
AFTER years of dizzying ascents, a big dose of gravity has hit residential-property markets around the world. According to The Economist’s latest round-up, year-on-year prices are now falling in 12 of the 21 countries we track; in five of the other nine, prices are rising at a slower rate than they were a year ago.
The standouts on overvalued:
Hong Kong 64%
Canada 54%
New Zealand 44%
Belgium 55%
Singapore 58%
France 43%
Australia 36%

Even places like Sweden and Netherlands at 25% overvalued have some pain coming before they reach ground level. And Spain still has nearly that far to go despite already falling 22%.

Bank of Canada Speech on Debt and Risk

A summary of the speech is here: The BoC’s Coté On Risk & Household Debt
If interest rates were to rise to 4.25% by mid-2015, then: the share of highly indebted households would rise from slightly above 6% in 2011 to roughly 10% by 2016 the proportion of debt held by these households would rise from 11.5% to about 20% over the same period.
Something to note on this chart. In the late nineties during the dot com era, far more credit growth was directed at business than households. The lines swap just as the housing bubble gets going in Canada, which is around 2002. Same thing back in the eighties. They were a time of heavy investment in business.

Economies make a choice, as directed by policymakers creating incentives, to either borrow from the future for industry to make things better and cheaper, or for larger houses with more granite and imported tile. Or in the case of Toronto, a spare 10-20,000 shoeboxes in the sky.

Tuesday, August 21, 2012

Delving into REIV's reported median price rise

Median quarterly prices are up 26% in Balwyn. Or are they?

How to separate facts from fluff about Melbourne’s property market: Mal James
The REIV’s June quarter median was based on 43 sales – fully 25% had no sale price recorded next to them. Not just undisclosed. But blank. Agents voluntarily provide this information. So the REIV had to ignore a full quarter of the June quarter’s transactions to come up with its median house price.

Why so many unrecorded prices? Well, in a weaker market like we’ve got now, agents and sellers become reluctant to record all sale prices for reasons of ego or business.
The way the REIV came up with that price was to take a statistical average of the two middle sales. One of those sales was $1.37 million (40 Jurang Street with Jellis Craig) and the other was $1.71 million (6 Eyre Street with Kay and Burton). That’s a huuuuge gap, a difference of nearly 25% – so some may say it’s a bit of a stretch to say Balwyn had a $1,540,000 median price based on those two sales.

What if one more of those mysterious Balwyn unrecorded price results had been recorded, and it was below $1,370,000? That would have made the “median” price in Balwyn to $1,370,000, and the median price “growth” would have dropped from 20% to 7%.

If another four or five of those undisclosed price sales had been in the lower half of the pool of results the median price results may well have been lower than the previous year’s median in Balwyn. In other words, what we may well have had is not an increase but a fall in price June quarter 2011 to June quarter 2012.

Sunday, August 19, 2012

Developer hacking the mortgage rules

Colwood developer offers 'new kind of mortgage'
"The equity mortgage is the next revolution in homepurchase financing."

Homebuyers will need 10 per cent of the purchasing price, but League Financial will then loan them an additional 10 to 25 per cent in order to qualify for a 65 to 80 per cent conventional mortgage.
Shades of U.S.A. circa 2006. The developers aren't sacrificing anything. Nada. They set the price, you'll recall. All they have to do in this scenario is set the price higher by the amount of the "gift". And voila, the developer books a sale and someone else is on the hook for the risk. Although, not clear who in this case. Is the bank's nose plugged up enough to think this passes a sniff test?

Part of the reduction in risk reflected in a larger downpayment is not some magical higher equity number it is the risk exposure to the buyer's personal capital investment during the buying decision processes as well as a test of ability to save.
Gant said League's equity mortgage results in monthly payments up to 40 per cent lower than a CMHC-insured 25-year mortgage because no payment of interest or principle is required.

"Equity mortgage covers the majority of the downpayment, but ... there is no monthly payment for it," he said. "Relying solely on debt is old fashioned and just plain dangerous."
I can't come up with a response to this except to observe that satire is dead.

Hat tip: Patriotz commenting at

Friday, August 17, 2012

Yuan weakness may preclude more easing

Here's a shift, the Yuan might soon be OVERvalued. According to this article, the market is pricing it in. China’s softening yuan could block rate cuts
Recent data showing that China is experiencing capital outflows as its economy slows could mean an important shift is taking place, he said, noting that the yuan’s long upward march against the dollar appears to have ended earlier this year.
China is already facing a battle to attract new investment.

Data released Thursday showed foreign direct investment of $7.6 billion in July, a drop of 8.7% from a year earlier.
“It now seems that the effort was also aimed at stopping investors from pulling money out of China, suggesting that the government is more concerned than it is letting on. Whether liberalization continues or capital controls reappear amid fears of a financial crisis is an open question,” said Chan.

Thursday, August 16, 2012

Canadian National House Prices Down Year on Year

CREA Stats
Average sale prices in July were up from levels one year ago in about seven of every 10 local markets, but declining sales activity in Greater Vancouver continues to impact the national average price. The actual (not seasonally adjusted) national average price for homes sold in July 2012 was $353,147, down two per cent from the same month last year. Excluding Greater Vancouver from the national average price calculation yields a year-over-year increase of 1.1 per cent.
Nationally, listings are down and sales are up. The market is bifurcating with Vancouver and Lower Mainland and Montreal (and PE) on one side and everyone else on the other.

I added the 2011 inflation rate to show the real gains.

There's been a lot of squawking in the newspaper comments about use of averages (now that averages are falling so fast, not anytime before then). The national HPI and the average are pretty related as you can see in this graph. The underlying data are skewed so of course the average runs higher, until a decline is being signaled, and then it undershoots, implying that high end sales suffer first and hardest.

The Naked and the Prosecuted

"Naked Officials" are Chinese who have established their families overseas and return alone to China to work. They hold the overseas arrangement as an escape hatch.

China’s Gao Shan heads home to face charges on $130M fraud ring after eight years hiding in Vancouver
Mr. Gao is the former manager of the Bank of China branch in Harbin, a city of 10 million near the Russian border. According to Chinese authorities, between 2000 and 2004 Mr. Gao was the ringleader of a scheme to siphon cash from corporate accounts.

Only weeks before the alleged fraud was discovered, say Chinese officials, Mr. Gao boarded a plane to Canada. Just before leaving, the banker reportedly told colleagues he was merely going to Beijing for surgery. He also instructed a colleague to hold onto his cell phone and leave it on. “Mr. Gao appears to have been trying to create the illusion that he was still in China,” reads the transcript of a 2007 Canadian immigration hearing.
Suspect in huge bank fraud returns to China
Li, a friend of Gao's, is said to have lured several state-owned companies to deposit huge sums of money in Gao's branch in Harbin City. The money was then transferred by Gao to dozens of accounts controlled by Li. About 500 million yuan in cash was later withdrawn from 29 accounts in 18 banks in Harbin and Daqing, the weekly reported.

. . .

The Bank of China, other big state-owned banks and the country's financial regulatory system were called into question.

Gao's case also angered Chinese immigrants in Vancouver. The Chinese newspaper there, World News, said such cases had damaged the image of Chinese immigrants. Corrupt officials arriving in Canada were also the cause of surging property prices.
Bold mine.

Zhou Rongyao, director of the Canadian studies institute at the Chinese Academy of Social Sciences, said earlier that Canada had become a "paradise" for corrupt officials due to flaws in its immigration procedures and its judiciary inefficiency.
Back to the National Post article:
As many as 4,000 Chinese fraudsters have fled overseas in recent years, taking with them as much as $50-billion in ill-gotten funds, according to estimates by Chinese media. “Most of them are still living the high life in foreign countries,” wrote the Shanghai Daily on Tuesday.
That's the lowest estimate running. A Bank of China report last year put the number at 17-18,000 and 120 billion and that was only through 2007. Chinese prosecutors claim to have caught 18,500 officials and state company executives trying to illegally leave the country in the last twelve years. Watchdog Global Financial says China leads the world in money taken out illegally and pegs exit flows at 2.7 trillion between 2000 and 2009. (source)

The U.S. attracts far more naked officials than Canada does, but Canada does have the bonus quality of being slow to extradite to countries if the accused will face the death penalty.

Wednesday, August 15, 2012

"I am waiting for the market to recover"

Betting on another 700 billion dollar stimulus from the central government, I guess?

The market has been decimated. On average only one luxury apartment is being sold a month. Selling now means a 30% loss. Selling later means, what?

There was a round of forced sales when the shadow banking system first collapsed. That sales are so slow implies that maybe that's calmed down.

Wenzhou investors sit tight as housing prices stall
"I bought most of my properties before 2010, when the restrictions were imposed, and I am waiting for the housing market to recover, which will happen sooner or later," said Zhuang Chen, an investor from Wenzhou who owns 30 properties.
Staying calm and waiting for the property market to recover is the best option for investors at the moment.
Every bubble, every country. Same idea.
"I haven't seen a single investor in the past half year coming to me for new luxurious apartments, which are mostly empty for the moment," said Zheng.
Oh, unbelievably slow sales and a massive oversupply. Yeah, that market's coming back.

Monday, August 13, 2012

55% of First Time Buyers worry about affording their home with higher interest rates

First-time homebuyers wish they had a second chance: report
Two-thirds of first-time buyers in the province admit they’re worried about affording their home if interest rates go up, the survey found.

. . .

New mortgage rules were brought in last month that shorten the maximum amortization to 25 years from 30, which was expected to deter some first-time homebuyers, although that doesn’t appear to be the case. Although sales are slowing in Vancouver, The Sun reported earlier this month that the Real Estate Board of Greater Vancouver’s president Eugen Klein said the decline appears to be caused by a drop off in investment buyers, and not declining numbers of first-time buyers.
Chart of Rate from Bloomberg Five year bond rates have been climbing recently but they are still rock bottom.

The original report is here
Home ownership takes a major financial commitment beyond the down payment and monthly mortgage payment. Many first time buyers admit they overlooked some of the additional costs: 29% say they didn’t budget for on-going costs such as maintenance and utilities, 13% overlooked some of the one-time fees associated with buying a home, such as inspection fees and land transfer costs, and 6% didn’t budget for anything beyond the down payment and monthly mortgage payment.
More than half of first time home buyers with a mortgage (55%) said they were worried about affording their home if interest rates increase.
No idea how the article above go 2/3 out of 55%

Hat tip: Dimitri Tishchenko commenting at VREAA

Negative equity in Wenzhou and Japanese "lending in the dark"

Of course the money was borrowed. From family, from bosses even. Real estate speculators in Wenzhou of China are facing negative equity
According to one real estate speculator in Wenzhou, speculators obtained about 70% of their funding through banks and/or shadow banks, Yicai reports. According to the report, prices of newly completed properties in Wenzhou have fallen by about 30-40%. As a result of that, about 80% of the speculators are now probably in negative equity (i.e. the outstanding debts are larger than their real estate investments). Some creditors are demanding repayments, and flats are being repossessed by banks and creditors in some case. Some speculators simply ran away.

Meanwhile shadow lending in Japan may be on the rise soon.
Loan-Shark Lending Surge Feared In Japan
Lured by a tabloid newspaper advertisement offering a “heart-warming” credit plan, he went to the building the lender shared with tenants including prostitution agencies in Tokyo’s bustling Shinjuku district. With the door of the eighth- floor office locked behind him, he said he took out his first yamikin loan: 50,000 yen at 27,000 yen interest a week, which works out to 2,800 percent a year. “To repay loans from a non-bank, I borrowed money from a yamikin,” Yoshida said, “and to repay that, I borrowed from another yamikin.”

Soon he owed money, debts mostly in the range of 50,000 yen, to 96 loan sharks all over the Japanese capital. Illegal lenders called him and threatened his parents’ lives if he missed payments. They also recommended he sell one of his kidneys, Yoshida said.
The opposition Liberal Democratic Party’s financial committee in May unveiled a plan to scrap the part of the law that limits credit to a third of a borrower’s income, and to lift its current 20 percent cap on loan interest rates to 30 percent.
By the way, the Liberal Democratic Party is neither Liberal nor Democratic, it's conservative.
Taira, whose family owns a small vegetable wholesaler with 3 billion yen annual revenue, said in an interview. “What we need is increased counseling to protect people with heavy debts.”
He really thinks it's feasible to control appetite for debt through counseling rather than pricing?

Given the extremely poor returns in an ultra long term low rate environment, you'd think 20% interest would already be enough to generate enough volume in credit.
Tightened regulations helped reduce the number of debtors with at least five unsecured, unguaranteed loans from consumer- finance lenders to 440,000 people in March from 1.7 million five years earlier, Financial Services Agency data show. Loans from such firms, including Acom (8572) Co. and Aiful (8515) Corp., declined 40 percent over five years to 26.1 trillion yen as of March 2011, according to the data.
“Decisive regulation tackled the social issues very well in the late 2000s, dealing a blow to yamikin lenders,” said Yasuhide Yajima, chief economist at NLI Research Institute in Tokyo. “But the remedy carried an economic side-effect that’s driving lawmakers to seek a revision. Mom-and-pop business owners who want quick, short-term cash haven’t been able to borrow as much as they used to.”
The person, who asked not to be named because of his association with the organization, said he used to lend money to small-business owners at rates ranging from 5 percent a month to 10 percent a week. Dressed in a pinstriped suit and missing his little finger, he said he found it harder to collect on loans after the crackdowns and passage of the various laws. Now, he said, he’s concentrating on making money from other lines of business, including trading stocks.

Thursday, August 9, 2012

Half a million Dutch are trapped in negative equity

Gloom in polderland
The over-regulated and over-subsidised housing market is in a slump, trapping 500,000 households in negative equity. These two factors have led to a fall in consumption that has not been offset by exports. The budget measures include a few reforms, like removing subsidies for new interest-only mortgages. But nobody is ready to tackle tax relief on existing mortgages. The labour market needs a shake-up to cut the cost of employing older workers and encourage people to work longer hours. The need for structural reforms in Europe is not confined to the Mediterranean—and it is no easier to get voters to back them in the north than in the south.

Wednesday, August 8, 2012

12 China Railway Lines have Construction Defects

During the madness of bubbles quality declines, whether it be in condo, house, or railway construction. 12 railway lines have defects in construction
An interior document from the Ministry of Railways said 12 railway lines, including five lines under construction, have quality defects that endanger safety, The Economic Observer reported on its website on Aug 7.
The document, dated Aug 1, revealed construction defects in tunnel arches, communication towers and railroad building equipment, poor arrangement of electronic cables, and missing rebar in reinforced concrete in certain lines.

Monday, August 6, 2012

China's Small Business Paradise Struggling

The collapse of the shadow banking system is just one of many headwinds facing businesses in the freewheeling area of Wenzhou.

Of the businesses that are doing well, expansion is impossible, loans only go to large, or well connected firms, and small businesses cannot get government permission to buy land to consolidate their production to a single facility. There is also a lack of online sales skills locally. And on top of it all labor costs and the Yuan are rising. In China, small business no longer booming
After years of easy loans and cheap labor, small-business owners in this prosperous coastal city of 9 million say they are facing strong headwinds: slowing export growth, rising worker costs and a drought of loans for anyone but the biggest businesses.
Whereas small businesses could once easily get loans from the city’s bustling “shadow banking” sector, a rash of defaults and suicides by debt-ridden businessman has caused the system to collapse.

“Shadow banking” here involved private lenders who illegally — though sometimes with government officials’ involvement — loaned money to small or medium-sized businesses at high interest rates. Many firms in Wenzhou used this underground financing because commercial banks typically loaned only to state-owned companies or huge corporations.

Sunday, August 5, 2012

Shipbuilders feel the Bubble Bursting in China

Dongfang's swinging fortune's tell the story: High flying last August and a listing on the London Stock Exchange's Alternative Investment Market, but months later ship orders were being canceled or simply not paid, the management resigned, trading on the stock was suspended by March, by June of this year creditors were seizing assets. The builder now sits abandoned, the owners appear to have fled the country as they have not been seen.

One is sorely tempted to presume they had set up family escape plans and property in the U.S., New Zealand or Canada.
In China, shipbuilders languish after bubble bursts

Five-star hotels sprouted along with machinery depots and metal shops. European luxury cars darted past heavy trucks on the bustling streets.

But in another sign ofChina'seconomic slowdown, shipyards are now closing and half-finished vessels lie rusting in the humid haze. Prosperity is receding like the tide.
"Many companies collapsed," said Liu, 48, who recently took a lower-paying job building a sea bridge. "There used to be so much energy and life here. Now they don't build ships anymore."
The bellwether industry's troubles have their roots in a shipping boom that started a decade ago. Global investors rushed to finance new vessels needed to haul coal and copper to China's humming factories and to transport finished electronics, toys and other exports out. China went from producing just over 100 vessels in 2002 to more than 1,000 in 2010, according to Worldyards, a Singaporean-based shipping industry research firm.
But China's growth has hit a wall. The China Assn. of the National Shipbuilding Industry reported Chinese ship orders declined 47% to 9.54 million deadweight tons the first five months of this year from the same period last year. Meanwhile, ship exports slumped 48% from a year ago to 6.84 million deadweight tons (a measure of the maximum weight a ship can carry).

And it will not be improving for a long time . . .

"Huge overcapacity hurting shipping"
"The shipping sector is going through a terrible and dark period, and you have to remember that without shipping there is no international trade. The current situation will continue for at least two years and perhaps even three and meanwhile there is no hope for change," . . .

He said, "The difficult situation sweeping through the sector is caused by a combination of factors: the rise in the cost of fuel, the economic slowdown and above all else huge overcapacity in shipping among other things because of China. The pessimistic picture that I am painting is far worse in reality."

Saturday, August 4, 2012

Toronto House Prices on the Skids

source: TREB Market Watch

The Headline to the Release is "GTA Home Prices Up in July" but that is a desperation truth refering to the overall average for all types all areas, not a single one of the median numbers I'm tracking came out higher this month. (I only track those with enough sales each month to eliminate noise.) This is the time in the market shift when sales mix plays havoc with the average.
Toronto Median Sales Prices over last year
Medians for a variety of sales types. Not a single month on month increase among them. Detached TREB down $38,000 since the April Peak for a 7% decline. That means if you bought during the spring sale-a-thon and put 5% down you are officially, solidly underwater. Hope your snorkel doesn't have a leak . . . you are going to need it.
Toronto Median Condo Prices over last year
Duplicated from the above chart, here are condo prices only. Toronto Central looks unlikely to challenge the peak from September 2011. Median prices are down 6% or $22,000 since then.

And according to the link below, unsold NEW units are at 18k inventory. Sales of new units are down 50% from last year and the absorption rate is the lowest since the height of the 2008 crisis. And, get this, 52k+ condos were under construction at the end of Q2. Is that a recipe for a market disaster or what? Pull forward demand (last year's investor sales were insanely robust), build like crazed sky-addicted groundhogs, wait for the massive overshoot upward in inventory and then downward in price. Then watch as projects become pure apartments.

Note: just because condos are assigned doesn't mean the buyers are going to get financing upon completion and actually take delivery. Imagine divvying up the cost of occupying a tower by half or even a third of the expected occupants. What a mess it's going to be.

Toronto condo market loses steam as investors bolt

"The not-for-occupancy investor that has been driving 45 per cent to 60 per cent of Toronto condo sales in recent years disappeared as the monthly net cash flow to financing and paying condo fees and then renting it out remains negative while rental rates and prices flatten out," they said.
"This hard data confirms the anecdotes of pulled project openings and construction delays this year," the economists added in a research note

Vancouver Housing Bubble Flirting with 2008

Lowest sales in 10 years and plummeting indexes and averages. The epically long-lived bubble appears to have hit a pin.

Is it the anecdotal foreign buyer that has dropped from 90% of sales in some areas to 10%. Is it the tightening of mortgage rules (i.e., no guarantees for $1,000,000 houses oh and btw, banks must verify incomes...). Is it all of the above plus the shear weight of the market falling in on itself?

Vancouver Prices from REBGV new HPI
Flirting with 2008. The inventory and sales figures are dancing with the disastrous 2008 graph lines.
Vancouver Housing Inventory 5 year History
Vancouver Sales Detached 5 year History
Year over Year price change history is noisy because of multiple HPI data revisions at REBGV, but here it is, to the best of my knowledge.

For those still hoping for the mythical soft landing, the good news is, inventory could be worse...

As always you can Track the Canada House Price Declines on a single handy page.

Thursday, August 2, 2012

Are prices re-inflating in Australia and the U.S.?

Misleading title, as this article is about price reinflation around the globe. Australia's evolving property puzzle
Until we get more data, this is just seasonal noise.
The obvious question to ask is: Why are these hard assets rising? Consider the abyss the world’s central banks faced in 2007. Before the panic, global assets equalled, let’s pick a number – $100 trillion. Global liabilities equalled, lets say $80 trillion. The difference represents the world’s pre-GFC wealth, i.e. $20 trillion. Trillions is a pretty nonsensical number for most of us to grasp, so let's keep it real simple. In 2007 the world owned about $100 in assets less about $80 liabilities giving net worth around $20.

Suddenly stupidity (sub prime) and later fraud (Madoff, Stanford, Libor) is uncovered. In the space of a few days to weeks, asset values drop by say 35-50 per cent. At that point the world’s global balance sheet looks like this. Assets - between $50-65. But liabilities stuck at $80. As my daughter would say – “busted”!
Stage two is a little trickier. Reducing liabilities is impossible without triggering a default. So if liabilities can’t be changed, the only other alternative is to reflate asset values back to 2007 levels. Hmmm.
But what are the real inflation figures. You can't inflate just housing and not everything else, like wages, and have a stable situation. Surely we've learned that, no?

I think there is a much simpler explanation, there is a lot of wealth, a planetary boatload of wealth, seeking safety. It's in the hands of just a few % of people and it moves in great fashionable sloshes. You want the economies of the world back on track, the wealth needs to be growing in the working class as well as the moneyed class. Otherwise, the system just gets more imbalanced. That's how this whole journey began back in the late 90s with rapid imbalances in wealth accumulation and the middle class using debt to retain a middle class lifestyle.
Luxury homes in particular are on the march. In the Hamptons on Long Island, transaction volumes rose nearly 10 per cent in the June quarter.