"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.

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.

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.

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.

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.

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."

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.

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.