Tuesday, January 31, 2012

Brisbane Slid 6.8% Last Year

Brisbane Paces Australia Home Price Slide With 6.8% Drop in 2011
Brisbane home prices plunged the most among Australian capital cities in 2011, as lagging demand weighed on an oversupplied market.
An oversupplied market? Wait, where'd the chronic housing shortage go? It's just possible that speculators were holding them. Just like every other bubble.
House and apartment prices in Brisbane fell 6.8 percent last year, according to a RP Data-Rismark report released today.
This reminds me that RP Data hasn't issued a new press release since May. What is going on there? Maybe Joye can't bear to write yet another negative press release while simultaneously pumping in the press.
[Queensland] also had more development land in receivership than anywhere else in the country, according to a report by real estate broker Colliers International. The company handled 106 distressed property sales in Queensland last year, more than half of the total across the country, and similar numbers are expected to be put up for sale this year, it said.

I added a page for Australia House Price Declines and Peaks.

Monday, January 30, 2012

Housing Welfare for Middle Class Americans

Why exactly should renters in the U.S. be subsidizing homeowners? To the tune of $140 billion per year. This is, by the way, far less than half what is spent on food stamps in a year ($65 billion in 2010). All the subsidy does it drive up the price of housing, which makes it even harder for those renters (who on average have lower income) wanting to own, to actually do so. Especially since the real sweet benefits are reaped at the top of the middle class pile, not at the margin.

Anyone complaining about the "welfare state" in America, needs to look at their tax return and see whether they aren't a worse offender.

Despite Benefit Disparities, Middle Class Supports Mortgage Deduction

Tax Expenditure of the Week: The Mortgage Interest Deduction
The mortgage interest deduction helps millions of middle-class homeowners.[3] But it helps wealthy families much more.

If the purpose of the deduction is to encourage homeownership, one way to gauge its effectiveness is to see how well it targets the so-called marginal homebuyer, for whom a tax subsidy could mean the difference between being able or unable to afford a home purchase.

It turns out the mortgage interest deduction is poorly targeted according to this criterion. Households with incomes between $40,000 and $75,000 receive, on average, $523 from the mortgage interest deduction. Households with incomes above $250,000 receive $5,459, or more than 10 times as much.[4]

Checking in on New Zealand's Bubble

Hope springs eternal.

New Zealand's long-term average is 78,000 property sales a year, but sales "dropped like a stone" from 100,000 to 50,000 after the market peaked in 2007.
Helm said the release of KiwiSaver funds was providing some buying stimulus, but the main reasons for the demand were continuing low interest rates and a return to 95 per cent bank mortgages.
"Since we bribed the market, it will stay afloat a little longer."

The Kiwisaver referred to here is a scheme where withdrawals from a work-based savings program can be subsidized up to $5,000 toward a first home purchase. And better yet, multiple parties with multiple subsidies can pool together on the purchase.
"Certainly there are hot spots around the country but that doesn't mean the market's overly buoyant or getting inflated and I think the Reserve Bank will be pleased to sense that is happening, because they must be worried about these low interest rates."
Nothing to see here. Go about your business.
"Back then 6 per cent of the housing stock turned over in a year and now it's 3.6 per cent.
"Whether that's a structural change or just a reflection of a really slow climb back after two recessions, only time will tell."
I really like how they've stretched the graph out sideways to make it look like a *doubling* in the index over five years is just a gentle rise. This is an index, inflation has been removed. Indexes typically should be flat, barring a structural change.

Related links:

BNZ Guidance On EUR500 Million 2015 Covered Bond, Swaps +1.25 Area

Pricier than expected
Fitch puts Australia banks on review for possible downgrade over funding costs

Q+A-Will a big exposure to mortgages hurt Australian banks?
Mortgages drive overall loan growth at National Australia Bank (NAB.AX), Commonwealth Bank of Australia (CBA.AX), Westpac (WBC.AX) and Australia and New Zealand Banking Group (ANZ.AX).

Between them, they have lent A$1.1 trillion worth of home loans, the equivalent of 60 percent of their loan books. This compares with about 15 percent among U.S. and UK banks, but that is an understated exposure as it excludes securitised mortgages.

Wednesday, January 25, 2012

The Market Doesn't Care How Much You Thought It Was Worth

'The fact that a seller needs a certain amount of money out of this is relevant to the home owner but not relevant to the market.'
Opening the doors to days of difficult sales
Augmenting the difficult financial and emotional pressures surrounding the vendors they deal with, the market's current downturn has, according to Albone, not yet registered with many. ''Buyers' expectations are still very high,'' he says. ''But the market has changed. And I don't think people have had the chance to adjust to that. They still want the same amount of money. It's been difficult trying to manage those people and tell them their house isn't worth that much.''
The market has been falling for more than a year. In Melbourne, specifically, it's been falling since December 2010.

Tuesday, January 24, 2012

Forced Sales and Receiver Initiated Listings Surge in Australia

31% of major investment properties advertised in Queensland Oct-Nov from mortgagee, receiver or administrator
26% of major investment properties advertised in NSW Oct-Nov from mortgagee, receiver or administrator

Listings increased in the year to December by
48% in Queensland
41% in NSW
37% in Victoria

Cut-price homes on the market in Australia as receivers order fire sales
In Noosa this week, new three and four-bedroom homes that last sold for $1.5 million are now in the hands of receivers and have price tags of between $395,000 and $450,000

But Joye want's you to ask yourself if House Prices [are] Set to Soar?
For most of this year Australians have had to read asinine media articles reporting purported experts predicting catastrophically large 20 per cent, 40 per cent and, last week, 60 per cent falls in domestic house prices.
Nothing like opening with an ad hominem. Disagreeing with Mr. Joye is "Asinine". Good to know.

Aussie house prices will have tapered by around 3.5 per cent over the course of 2011.
Yes, but real estate is supposed to track inflation. And the inflation rate to September was 3.5% on the year. That adds up to a loss of 7%. Given that savings accounts in Australia pay 5.5 to 6%, that's quite a difference. (Yes, American readers, Australians get paid to save money. Can you imagine?)

And now we have mounting evidence that the housing market is staging a slow recovery, as I’ve projected in these pages for some time. The key catalyst appears to have been the RBA’s decision to swing 180 degrees from expecting to hike interest rates to cutting them in November and again in December. A low core inflation result from the ABS today would significantly increase the prospect of a third delicious rate cut for home owners at the RBA’s February board meeting.
Wait, you totally admit that access to credit sets house prices? So . . . "recovery" for you is the same as "mounting debt loads" for the country. Noted.

The first tangible signs of the recovery derived from RP Data-Rismark’s November house price index release, which reported a marginal 0.1 per cent increase in seasonally-adjusted dwelling prices.
Ah, I needed a good laugh. Your dream-date-barbie rate cut resulted in a 0.1% increase?

The final nail in the affordability argument is, of course, mortgage rates. The RBA’s munificence has bequeathed borrowers with home loan rates that are now well-below their averages.
I still can't fathom this. In the U.S. where mortgage terms are fixed for 30 years, affordability could arguably be detached from total debt load. (See how well that worked out for us though?) But in Australia where mortgages are fixed for up to at most 5 years, qualifying on payments is a massive trap. Affordability shouldn't change significantly with the interest rate. But here Joye is, encouraging financial suicide. And based on the article above, apparently that's becoming clearer to the banks and borrowers too.

If the RBA cuts again in February, and further thereafter, as some analysts believe they will, expect to see the return of rapid house price appreciation.
You got a .1% increase out of a .5% fall in the mortgage rate? Just what kind of wild rate cut are you expecting here to get rapid appreciation?

Friday, January 20, 2012

Is the Canadian Housing Bubble More Widespread Than That in the U.S.?

Interesting that unlike the vast difference between the U.S. 10 and 20 city composite graphs the Canadian 6 and 11 are essentially the same. This might be evidence that the bubble in Canada is more widespread than in the U.S. Remember those insane Vancouver #s are a larger percent of the Composite 6, yet despite that it hasn't caused that line to pull away from the Composite 11.

According to the 2011 Demographia Survey, Montreal is the second most expensive city in Canada relative to incomes. That's also a bigger component in the Composite 6. The Teranet numbers are all about gains in prices, not absolutes. Unsustainable gains are what forms a bubble.

Why isn't there more variation between the Composite 6 and 11?

Here are the 6 cities with their weightings
Vancouver: 23.3% Calgary: 9.9% Toronto: 41.4% Ottawa-Gatineau: 6.8% Montréal: 16.8% Halifax: 1.8%%

And the 11 cities with their weightings
Victoria: 3.2% Vancouver: 19.5% Calgary: 8.3% Edmonton: 5.2% Winnipeg: 2.2% Hamilton: 3.7% Toronto: 34.6% Ottawa-Gatineau: 5.7% Montréal: 14% Québec: 2.1% Halifax: 1.5%

The additional 5 cities have a combined weighting of 16.4% in the Composite 11. One might argue it is too small to tweak the graph, but why are these additional five cities tweaking the line *upwards* if this bubble is confined to only Vancouver and Toronto?

Thursday, January 19, 2012

2% rate hike would spell trouble for 2 million Canadian homeowners

2-point rate hike would spell trouble for 2 million: TD
TD estimates that a rise in interest rates of two percentage points would mean trouble for about 10 per cent of Canadian households with debt, in terms of meeting their commitments. That, Mr. Alexander said, is because more than 40 per cent of income after tax would be earmarked for debt servicing.

"This is not the bulk of Canadians and it does not suggest a U.S.-style problem, but it does represent close to 2 million households," he said.
Prices are set at the margin on the way up and the way down. That's a whole lot of distressed selling.

"Given the fact that Canadians are increasingly viewing the prevailing level of interest rates as normal, there is an extremely high probability that it will be very unsettling to Canadians when interest rates do rise, even if they do so gradually," he said.
This is truly U.S.A bubble-esque. Banks qualifying on carrying costs, not total debt load. Only after the crash will it be obvious why this is such a problem. It should be obvious to more than this one analyst, right now.

Hat tip: Jsan commenting at Greaterfool.ca

U.S. Real Estate Advisor Super-Bearish on Australia

"The market has slowed substantially but residential prices are likely to fall up to 60 per cent, possibly even more, within five years."
The outlook is even grimmer for land investments, which Mr Wirsz said are more speculative and will plummet by as much as 80 and 90 per cent in value.
Commercial property will also take a hit in line with the residential sector shedding at least 50 per cent of its value.
Mr Wirsz pointed to artificially low interest rates, high loan-to-value lending practices, overinflated property prices, unrealistic vendor expectations and Australia's large number of second mortgages.
HSBC’s chief economist Paul Bloxham said for property values to crash there would need to be sharp rises in interest rates, unemployment and housing stocks.
That combination is not on the cards, he said.
None of those things were necessary for the crash in the U.S. Yes, we have high unemployment now but that started 3 years after housing plummeted.

Mr. Bloxham (if that's his real name) has more of the usual fun things to say in the article.
European Hedge Funds line up bets on China downturn
"We're quite sceptical and worried," he added. "China needs a healthy U.S. ... consumer and it's not getting it right now.... China could be a catalyst for a severe leg-down in markets," he said.

He also cited recent cases of fraud in China and the country's booming real estate sector as issues.

"Corporate governance and the rule of law is very different from the West," he said. "(And) there's a huge bad loans issue in banks. The real estate market is probably in the biggest bubble in the world we have right now."

"(China's) tried to pop the property bubble that's forming," he added. "They have so many reserves they can increase infrastructure spending."
No, they can't. Not without devaluing the Yuan that they traded for that foreign currency. Only 400-500 billion of their holdings are unencumbered in this way.

(All right, that's a lot, but only if they don't let another 120 billion vanish with fleeing corrupt officials.)

Is the U.S. Heading into Solid Recovery?

As a de-facto pessimist I'm slow to believe things are good. But as a small investor I also don't want to miss any macro shifts. Inflation numbers and other government numbers can be questionable, other raw measures that reflect activities tend to be more reliable.

Hiring Outlook for 2012 Remains Cautiously Optimistic, CareerBuilder's Annual Job Forecast Finds
Full-time, Permanent Hiring
Twenty-three percent of employers surveyed plan to hire full-time, permanent employees in 2012, relatively unchanged from 24 percent for 2011 and up from 20 percent for 2010. Seven percent expect to decrease headcount, the same as for 2011 and an improvement from 9 percent for 2010. Fifty-nine percent anticipate no change in their staff levels while 11 percent are unsure.
Small Business Hiring
Small businesses are reporting more confidence in both hiring and retaining headcount in 2012. Plans to downsize dropped two percentage points across small business segments while plans to hire increased two percentage points among companies with 50 or fewer employees.
Another set of economic measures is the trucking and rail indexes based on freight rates and fuel usage.
The next BTS Transportation Services Index will be released in February, covering December. It measures freight over road, port, air, ship, everything, basically.

Then there is the Ceridian-UCLA Pulse of Commerce Index
What is the Ceridian-UCLA Pulse of Commerce Index®?
In conjunction with economists at UCLA Anderson School of Management and Charles River Associates, Ceridian has launched the groundbreaking Ceridian-UCLA Pulse of Commerce Index® by UCLA Anderson School of Management, which is a first of its kind indicator of the state and possible future direction of the U.S. economy. The index is issued monthly, is based on real-time fuel consumption data for over the road trucking, and closely tracks to the Federal Reserve’s Industrial Production Index. By tracking the volume and location of diesel fuel being purchased, the index closely monitors the over the road movement of raw materials, goods-in-process and finished goods to U.S. factories, retailers and consumers.
Pulse of Commerce Index Measures Trucking Fuel Consumption

A contrarian investor would possibly say that general attitude is far more negative right now than the underlying numbers justify. By not jumping back full tilt in a V shaped recovery, I think we may have gained stability to the recovery. At least, I hope, and I'm a pessimist, so that's pretty painful that hoping thing.

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Negative Equity in Australia at 5% Nationwide

This is an increase from 3.7% at the end of the previous quarter.

Some areas are seriously hurting with high negative equity rates:
North Queensland 20.2%
Gold Coast 14%
Sunshine Coast 13.5%
Queensland overall 9.2%
Western Australia overall 6.3%

Local Owners Looking at Negative Equity
Hat tip: Aussie Roy commenting at Greaterfool.ca

Monday, January 16, 2012

Case Schiller vs. Canada and Vancouver Chart Overlay

Sorry about the crude overlay; I don't have the raw Case-Schiller data. The two charts were marked equivalent at March 1999. Note, the prices were not the same at that time in Canada and the U.S. and Vancouver, that is just the comparison point for price growth after that.

Case Schiller U.S. House Prices Compared to Canada and Vancouver Chart

Sunday, January 15, 2012

Canadian Subprime Mortgage Offers

Cash back mortgages, some in excess of the required downpayment.

I'm screenshotting these for posterity.

Why are these subprime? Because they are affordability products, not wise borrowing. They are, in essence, 0% down payment financing. Get a float loan from a relative for the downpayment, pay the relative back with the cash back, even pocket some money in the process . . . at the expense of future payments and vastly increased risk of going underwater.

TD Canada Trust



You're richer than you think. Until you aren't.

Hat tip: Durr commenting at VREAA

China Q4 Growth Expected to be 8.7% Outflows Increasing

China a harbinger for global slowdown
Data on Tuesday is expected to show growth in China, the world's second-largest economy, cooled in the fourth quarter to 8.7 percent from a year earlier, against 9.1 percent in the prior quarter. It would be the slowest pace of growth since mid-2009 when the global economy was crawling out of a deep recession.
Anything under 9% is generally considered by analysts and watchers to be too slow to properly transition the workforce from rural to urban and eventually to consumer.

China posts third consecutive month of outflows
China's central bank and commercial banks sold a net 100.3 billion yuan ($15 billion) in December in foreign exchange in December, Reuters calculation based on official data showed.

That followed a net sale of 27.9 billion yuan in November and a net sale of 24.9 billion yuan in October.
Foreign Exchange Holdings declined $21 billion in Q4.

Saturday, January 14, 2012

One month of flat prices has Australian analysts back to heavy breathing

Implicit in all of these outlooks is the assumption that household formation should involve maximum debt. That's supposed to be a positive.

However, the HIA says the general outlook is positive - and doomsayers should respect the fragility of the recovery.

After November and December's official interest rate cuts, "there is every chance we may see a return to dwelling price growth", it said.
-- adelaidenow.com.au
I have no idea what "respect the fragility of the recovery" is supposed to mean. Something like, don't breathe near the house of cards, please! (?)

"The rise in Australian capital city house prices is proof that the RBA’s rate cuts have had a real impact on immediate market recovery," Bouris said. "We believe today’s data is just the tip of the iceberg when it comes to positive house price movement heading into 2012 and it looks like for the first time in a long time, Australian home owners are taking back the market."
-- brokernews.com.au

This guy takes the spruiker cake:
But these situations are dynamic and when the dust settles from the holidays there could be sufficient people wanting to take advantage of two interest rate cuts, to kick start the auctions.

Moreover, property is an asset measured in 10-year cycles and there has not been a decade since the end of World War II where property values have not risen. Modest asset growth will return when you measure it decade by decade – we just won’t see the asset inflation we saw in the 2000s.

Property prices turned upwards in November 2011, so now could be a good time to be in market. Even if you can’t afford to buy where you want to live, you can buy an investment property and continue to rent in the suburb of your choice.
-- telegraph.com.au

I could quote Joye, but he is always heavy breathing.

Friday, January 13, 2012

Ottawa House Prices Peaked May 2011

Canada House Prices, Peaks and Falls has been updated to include Ottawa. (On housepriceindex.ca it looks like Montreal and Quebec peaked at about the same time, but they seem to be getting a second wind so I'm holding off on those.)

As of December 2011 the OREB average residential price was $356,267 down from $378,228 in May 2011
A decline of 5.8% or $22,000.

Insiders at RBC Selling Shares

Yesterday, Jim Westlake, Chairman and CEO of RBC exercised just over 275k options for a profit of $6 million.

Source: Canada Insider.com

Hat tip: City Slicker commenting at Greaterfool.ca

Thursday, January 12, 2012

44 Detentions in Chinese Pyramid Scheme

"It's so wealthy there now, they drive expensive luxury cars." --my friend returning from a recent trip to China.

"Wealth" != "Access to excessive credit"

What was the loan shark scheme based on? Housing projects, of course. The usual story, participants in the scheme borrowed money and sold goods to put as much cash as possible into the loan pool.

44 arrested over loans in 'the village of BMWs'
MORE than 40 residents in "the village of BMWs" in east China's Jiangsu Province have been arrested in connection with a multi-million yuan loan shark and pyramid scheme.

Some 200 million yuan (US$31.65 million) has been retrieved, according to Xinhua news agency.

In not dissimilar news, Arthur Laffer, the supply-side God, is accused by investors of selling his influence to help prop up a Ponzi scheme based initially on what? Real estate.
Investors Say Supply Sider Arthur Laffer Backed a Ponzi
HOUSTON (CN) - Fifty-two investors claim fund managers associated with supply-side economist Arthur Laffer took $3.1 million to prop up a Ponzi scheme, then said nothing as their money was "wasted with no reasonable expectation of recovery."
It continues: "The limited partnerships are investment vehicles run by defendants Wallace and Bajjali, with endorsement and participation from Laffer. They started out primarily in real estate investments, and solicited investors for their various real estate investments. In September 2006, WBIF II made its first investment in Business Radio Network, LP ('BizRadio') in the form of advancing convertible promissory notes. By December 31, 2006, WBIF had advanced to BizRadio $1,493,170.00, and by June 30, 2007 the invested balance in BizRadio was up to $3,157,170.00. LFWEOF [Laffer Frishberg Wallace Economic Opportunity Fund] has contributed significantly more than that. At that time, BizRadio was looking to purchase radio stations in both Houston and Dallas/Fort worth at an estimated cost of $12,000,000.00.