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This Is A Far Cry From The Boom Times

A report from Xinhua on Sweden. “For the first time in ten years, several construction companies have been forced to buy newly constructed apartments that failed to find buyers. ‘It is a worse crisis now than ten years ago,’ said Anders Lago, federal chairman of Swedish housing association HSB.”

“In Stockholm, the crisis is expected to continue for several years. Other areas especially impacted are Uppsala, Vasteras and Orebro – places where a lot of construction has occurred in recent years. In response, Sweden’s construction companies are pulling the emergency brake on new housing projects.”

“Last autumn, HSB began to sell a number of apartments in the Stockholm area. But despite the fact that the price was reduced by as much as 20 percent, sales slowed and many apartments remained unsold. The problem is widespread. According to research done by SVT, the largest construction companies in Sweden have been forced to buy back over 400 apartments in total.”

“The majority of price reductions have taken place in Stockholm, where prices have been reduced by over 16 percent. This is because the wrong kind of apartments have been built, said the head of Sweden’s largest construction company.”

“‘If you look at the past few years, very expensive apartments have been built, especially in our big cities,’ Anders Danielsson, CEO of Skanska, told SVT. ‘There are apartments that most people cannot afford to buy or live in. As a result, there’s now an oversupply of the most expensive apartments.'”

From The Mirror on the UK. “A lot of people are no longer ‘millionaires’ after the bottom fell out of the luxury home market last year. Zoopla spokeswoman Annabel Dixon said: ‘It’s hard to ignore the overall decline in million-pound properties in the past 12 months. But it’s clear to see the majority of this decline resides in London.'”

From Channel News Asia on Malaysia. “Discounts, lucky draws and freebies were everywhere at property fairs across Penang over the first weekend of the Chinese New Year period. Yet, property agents interviewed by Channel NewsAsia said sales were slow. This is a far cry from the boom times just a few years ago.”

“A mismatch between properties offered in Penang and what people want to buy, coupled with unfavourable economic conditions nationwide is locking the once booming market into a slowdown, which insiders say has lasted about half a decade. The state government says that the high stock pile in the private property market is due to developers not doing their homework, building homes which people cannot afford.”

“‘Why build one unit worth RM3 million, when you can build 10 worth RM300,000 each, which will get snapped up?’ Mr Jagdeep Singh Deo, the state councillor in charge of housing said to Channel NewsAsia.”

From News.com.au on Australia. ” If you’re looking for proof of Australia’s tumbling house prices, look no further than 97 North Road in Ryde, NSW. When the ‘classic’ three-bedroom family home, located just 12km from Sydney’s CBD, sold in October 2016, it raked in a healthy $1,510,000.”

“But just 22 months later, when it sold in August 2018, it fetched a mere $1,308,000. That’s a staggering $202,000 wiped off the property’s value in less than two years, representing a 13 per cent drop. But that example is far from an isolated one.”

“Realestate.com.au chief economist Nerida Conisbee said while the Ryde home’s price drop might seem alarming, it was an accurate reflection of current market trends. ‘The median for North Ryde houses has dropped 17 per cent over the past 12 months, so this house is actually doing better than the median given it has dropped by 13 per cent, although over a slightly longer period,’ she said. ‘It is very much reflective of the Sydney market at the moment.'”

This Post Has 44 Comments
  1. is 13% staggering? what will they call 30% – will that be a tragedy?

    “But just 22 months later, when it sold in August 2018, it fetched a mere $1,308,000. That’s a staggering $202,000 wiped off the property’s value in less than two years, representing a 13 per cent drop. But that example is far from an isolated one.”

    1. What’s staggering is that RE ever got so overpriced to begin with. Prices reverting back to historic norms, i.e. 3X median income, shouldn’t be grounds for our financial media pundits to start clutching their pearls and hyperventilating.

      1. The same MSM financial reporters who cheered wildly when housing went up at historically unprecedented rates are now stricken with a foreboding sense of dread.

        No doubt this reflects that they, too, are homeowners who stand to lose alot of money if home prices revert to normal multiples of income.

        1. Part of all bubbles is how money/debt becomes so “cheap and easy” – even to the common man.

          $1,308,000 is nearly lifetime of earnings for most.

          1. That’s a good reason for the financially prudent to stand back and watch, as when the bubble ultimately collapses, many a “common man” who used easy money to gamble recklessly will fold his hand, and even those who bought houses thinking they were playing it safe will take a major hit on their highly-leveraged home equity wealth.

          2. as when the bubble ultimately collapses

            I get the impression from comments on this blog that we could be waiting a long time for this.

          3. I get the impression from comments on this blog that we could be waiting a long time for this.

            We’ve already waited a long time. The thought 10 years ago was that rule of law would kick in and limit the total damage. Then it became obvious that the law was just a speed bump that would be changed as needed to benefit those in power. So now the rules are that there ain’t no rules and we’re going to ride it all the way down whether we want to or not. When a country has as much resources and productivity as the USA it can take a long time to squander it all.

  2. Speaking of Fannie and Freddie now being a piggy-bank for the wealthy to speculate in real estate: FNM and FMCC are now both regularly auctioning off huge bundles of delinquent/defaulted loans at big discounts, purportedly to protect taxpayers from losses. But in reality I think it is a giveaway to the Kushner-class. I think there is not nearly enough awareness of this topic. Indeed, one should ask whether F/F will also *finance* such delinquent-loan purchases!!??

    Also, is this the away for F/F to give the appearance of still very low foreclosure rates, as reported by Calculated Risk every month??

      1. That is mucho pesos for just the start of 2019

        +++

        “Fannie Mae (FNMA/OTC) today began marketing its tenth sale of reperforming loans as part of the company’s ongoing effort to reduce the size of its retained mortgage portfolio.

        The sale consists of approximately 15,100 loans, having an unpaid principal balance of approximately $3.01 billion…”

    1. This is the “redistribution of wealth” from the poor and middle class to the moneyed set which gets no air time from politicians. Everyday people have no chance at buying a decent house at a decent price after a foreclosure. Those are, instead, bundled for wealthy hedge funds, Wall St. insiders and the like.

      1. Real E$tate Developer dtRumpsis$is Tantrumois$ Chaotica’$ $on.in.law Ku$hner, is really just an Ea$t Coa$t wanna.bee ver$ion of this We$t Coa$t dude.Billion.aire$ luxurie$ portfolio!

        A little dated data, but $till relative POLITICALLY & Financially, IN Thee CURRENT ERA!
        (It’$ all there; Taxe$, Bidne$$, Finance$, luxurie$, apartment$, $ecular government$, $ociety, Cae$ar, Jesus.of.Bethlehem, giving$ & taking$)

        BUSINE$$
        Lansner: A rare peek inside Irvine Company’$ finance$

        By JONATHAN LANSNER | Orange County Register May 30, 2016

        But the recent refinancing of a small slice of his apartment portfolio, primarily units in Orange County, was done with federal mortgage buyer Freddie Mac. Thus, some modest financial information was attached to a public document tied to the $1.15 billion mortgage deal that was re$old to investor$.
        Bren’s true wealth is unknown to the masses, as his Irvine Company is privately owned solely by him. Forbes magazine routinely estimates his worth as part of its much-discussed list of the world’s wealthiest people. As of Friday, Forbes pegged Bren’s wealth at $15.1 billion – making him the owner of America’s largest private real estate fortune. The Irvine Co. routinely declines to comment on Bren’s fortune, and did so again when asked about details within the loan-sale documents.

        According to these new loan documents, (these) 19 apartment complexes owned by Bren – with 5,242 units – were worth a collective $1.8 billion. Minus the new mortgages, it’s a good guess there’s about $600 million of equity.

        Remember, (these) 19 apartment complexes comprise le$$ than a tenth of Bren’s 57,000-unit, California-heavy rental portfolio. He also owns 500 office properties, 40-plus shopping centers a small collection of hotels and golf courses … plus a nice-sized chunk of undeveloped Orange County land.

        Looking at Freddie Mac’s loan-sale documents – as well as papers from the 1993-2002 period when many of these same 19 complexes were owned by a publicly held, Bren-controlled real estate trust – you can see these 19 properties are by no means his trophy apartments.

        According to the loan-sale documents, on average these units are approximately three decades old and roughly two-thirds of the complexes have some rent limitations due to their “affordable” development status.

        The typical rent at these complexes is around $2,000 a month. Anybody who’s shopped for local apartments knows that isn’t anywhere near the price of Orange County “luxury” units of which Bren has concentrated on developing in more recent times.

        Cities often trade the right to build residential real estate for the developer’s promise to keep a certain number of units available for lower-income residents. It’s typically a noble cause, but such apartment complexes frequently are valued less than comparable properties where no rent regulations exist.

        Few units are empty with a collective occupancy rate running around 95 percent last year. Looking at recent trends vs. data from 2001, rents at these complexes have been rising at approximately a 3 percent annual rate.

        If these recently refinanced 19 complexes have typical rental results, value and financing for the entire Irvine Co. portfolio, I’ll bet that Bren is collecting in the ballpark of $1.4 billion in rent a year, and his 57,000 units are worth loosely $20 billion, with about $13 billion of loans attached! (Note: Equity Residential owns about twice as many units nationwide as Bren and has a Wall Street market value of nearly $25 billion.)

        Since it is Sunday, a $chool le$$on is rendered:

        “Render unto Caesar” is the beginning of a phrase attributed to Jesus in the synoptic gospels, which reads in full, “Render unto Caesar the things that are Caesar’s, and unto God the things that are God’s” (Ἀπόδοτε οὖν τὰ Καίσαρος Καίσαρι καὶ τὰ τοῦ Θεοῦ τῷ Θεῷ).[Matthew 22:21]

        This phrase has become a widely quoted summary of the relationship between Chri$tianity, $ecular government, and $ociety. The original me$$age, coming in response to a question of whether it was lawful for Jews to pay taxe$ to Cae$ar, gives rise to multiple possible interpretations about the circumstances under which it is desirable for Christians to submit to earthly authority.

        1. By JONATHAN LANSNER | Orange County Register May 30, 2016

          Dear old Hyw, you can stab at Trump and Jesus under a random unrelated real estate news article heading.

    2. Exactly!!! This is a part of the rigged system that annoys me the most and the that needs to be revealed more in the press and public discussion— it is an important issue and it seems to me one that even the majority of players who don’t generally have a problem with the housing game bull would take issue with!!

  3. “This is because the wrong kind of apartments have been built, said the head of Sweden’s largest construction company.”

    This is emblematic of a credit distortion. It’s not that we don’t need more housing, we do. But the wrong type (e.g. luxury) is being built and in the wrong locations. This will become even more apparent if interest rates normalize or when the stream of greater fools dry up.

      1. banana2 – Our country was founded on the exploitation of poor immigrants. Ever wonder how you wound up living in this peculiar hellhole? Your ancestors were likely pathetic poor immigrants who were fleeing some sh*thole country. Don’t blame the countries problems on immigration. The problem is Americans aren’t smart or skilled enough to spark innovation or growth organically. We need the hard work and desperation that comes only from immigrants fleeing a war zone or some other unimaginable hardship.

        1. The problem is Americans aren’t smart or skilled enough to spark innovation or growth organically.

          That’s been proven false in the past and will be proven false again in the future. But it appears true as long as the vampire squids of the world are able to siphon off the results of the excess productivity of others into their own accounts. We just need less crony with our capitalism.

        2. “Don’t blame the countries problems on immigration.”

          Don’t blame the country’s problems on immigration.

    1. It’s also happened in most cities worldwide of any size where credit funds real estate development.

    1. US retail
      Wall Street revives US retail ‘big short’
      Bears stake out aggressive positions ahead of earnings this week
      Alistair Gray in New York
      8 hours ago

      Wall Street is reviving a “big short” of the US retail sector ahead of a raft of earnings reports this week, even though earlier bets on a mall “apocalypse” have failed to pay off.

      Bears last week staked out the most aggressive positions in a year against SPDR S&P Retail, the sector’s benchmark exchange-traded fund. The fund, known as XRT, was so heavily betted against that the short positions were about four times larger than shares in the ETF itself, according to data provider S3 Partners.

      XRT, which tracks S&P’s equal-weighted Retail Select Industry index, is the most heavily shorted of any ETF in the country, according to State Street Global Advisors.

      The shorts are back even though the US retail industry has so far defied fears of a collapse en masse at the hands of Amazon.

      “If you were short the sector at the wrong time, you would have lost a lot of money,” said Stephen Ketchum, founder of Sound Point Capital, a hedge fund and collateralised loan obligation manager with $19.4bn of assets under management.

      “But a lot of these retailers are in for a long secular decline. It’s unequivocal that the trend for purchasing online will continue to increase.”

  4. Feet on the grounds report from some open houses today. All in Aptos CA which is an area my family is considering moving to. Santa Cruz has become a less desirable place to live so we are planning to GTFO (eventually).

    Looked at 3 shacks priced 850k-1.1m all in Aptos CA. Won’t go into tons of detail on the shacks, rather more on the realtor tone and amount of interest from potential FBs.

    Shack one: 3/2 850k built in the 60s in Aptos CA: lots of foot traffic, 3 younger families with kids, good lot size but horrible small, outdated home layout, squeaky floors, fresh paint over the home had stains coming through, low ceilings, high grade slope in back yard, minamal parking, unusable garage as part of it was converted into a box in a box / garage (Mabye a potential 4th br?) realtor said over 50 visitors over the weekend. We saw 4 parties during our 20-30 minute visit so I do believe the realtor in that statement. She didn’t seem phased with my pessimistic remarks towards the current RE market, she was mabye 25 and didn’t even know if the property had well or public water. She said she was showing it for the listing agent so may not have even been a realtor. I give this one 3 out of 10

    Shack two: 3/2 950k built in 1913 in Aptos CA: less foot traffic (1 from the previous house) and the realtor said they have seen about 30 parties pass through. Ok layout but had looked like it would be a high maintenance home but had good character and refurbished many times. Had a nicely updated master bedroom and kitchen, the other areas look like they were well maintained, peak of ocean, decent garage / workshop, again sloped on a hill but not as bad as shack 1. Overall I would say it was a 5 out of 10. The realtor was very nice and even stated the softening market and that waiting would be smart.

    Shack 3: 3/2 1.1m built in the 60s Aptos CA: backyard backed up to a railroad track and highly sloped. Horrible layout, kitchen window looks at the next door neighbors home, living room Had no windows, master bedroom opened up to the kitchen and garage, every area of the shack looked like an rookie experiment to update but with no consistency at all. The only reason this one is getting 2 out of 10 is because the proximity to a nice nearby beach. It would take a complete down to the studs rehab to make it worth even 1m. One other family came as we were leaving. The realtor claimed yesterday it was booming. He also said that the market is doing great and did not appreciate any of my factual stats on RE and kept saying that we had a small pause but now it’s over and spring time will boom.

    This was fun as it just confirms all the dream prices out there and sadly that many ignorant soon to be FBs are ok with buying shacks at ridiculous over heated prices in a declining market. Back at my worry free rental home saving and waiting 🙂

    1. You are doing valuable research. Preliminary stage of eventual purchase decision.

      That’s what it is all about. That is some pretty high land value out there. Sounds like the structures have minimal value. Remember that purchase price is basically just value of land plus depreciated value of structure. It can also be figured by capitalizing potential tent. The two should be fairly similar.

      1. Yes sir. And I agree on the rent value to home / loan value. I think that’s a losing battle for most but for me it is more principal of how out of wack the values have gone. I do not intend to buy at the current levels here and if I get to a “have to buy” moment, it will be elsewhere. My coastal market sucks! Oh here are the listings if anyone cares to see them:

        Shack 1
        https://www.zillow.com/homedetails/2775-Valencia-Rd-Aptos-CA-95003/16138037_zpid/
        Shack 2 https://www.zillow.com/homedetails/500-Ranchitos-Del-Sol-Aptos-CA-95003/16165006_zpid/
        Shack 3
        https://www.zillow.com/homedetails/615-Townsend-Dr-Aptos-CA-95003/16139431_zpid/

        1. Ah my old stomping grounds. I lived out in Aptos for 5 years in the late 2000’s. I’ve been all over Santa Cruz county. It’s amazing how much that crap shack on Townsend is going for. That’s a house that back in the early 90’s it would have been a stretch to get $200,000 for it. Aptos back in those days was pretty run down but is was enjoyable. The only thing I miss about living in Santa Cruz county is the weather and drinking margaritas on the beach in February.

          1. “The only thing I miss about living in Santa Cruz county is the weather and drinking margaritas on the beach in February.”

            I’m headed down that way in a couple of days. The rains have likely “greened” the mountains around San Jose, which will make for some pretty hang gliding scenery above Mission San Jose and Milpitas. I’m hoping that the dirt roads above Big Sur aren’t too muddy or washed-out. Fingers crossed!

    1. But spring time all the Chinese and millennials will awaken from there graves, all hit lottery jackpots to be able to purchase cash and bring back 10%+ gains per year forever with multipliers every other year. -Realtor

  5. wow – getting into the papers finally. I think it is way worse than this – especially in the downturn core – but at least making the papers.
    https://www.theglobeandmail.com/business/article-after-torontos-condo-frenzy/

    “Investors have been willing to pay more for condos because they could rent them out for ever-higher amounts to cover their costs. But while the average rent for condominium apartments has climbed 19 per cent over the past two years, Urbanation says, prebuild sale prices are up 56 per cent over the same period.”

    “According to a 2018 study by CIBC World Markets economist Benjamin Tal and Mr. Hildebrand, investors took possession of 48 per cent of completed condos in the GTA in 2017 – and at least 44 per cent of those investors were in a negative cash-flow position, in which the rent they charged tenants was not enough to cover their mortgage costs, maintenance fees and property taxes. More than 34 per cent of those had a shortfall of more than $1,000 a month, and a further 20 per cent were losing between $500 and $1,000 a month.”

    1. Seeing the same problem in DC metro. The total mortgage payment is 20%-50% higher than what the unit would rent out for.

      Equally alarming is that housing costs are now 25% higher than they were in 2016, but prices haven’t dropped at all.

      The only thing supporting RE here is still relatively low inventory. There are more highly paid buyers than there are listings.

    1. San Jose CA Housing Prices Crater 13% YOY As San Fransisco Housing Market Implodes

      LOL @ Zillow’s 95125 zip code housing prediction — “they will rise 9.6% within the next year.”
      While the Willow Glen is nice, it won’t be immune to ‘The Cratering’.

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