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 Payment	Total Interest Paid	Total Principal Paid	Remaining 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% reset	remaining principal	monthly payment	change 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% reset	remaining principal	monthly payment	change 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.

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.

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?

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.

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.