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For Some Of Them, It’s Not Even About Making A Profit Any More – It’s About Mitigating Their Loss

A report from Bloomberg on Australia. “As real-estate agent Adam Wong works through Australia’s worst property downturn in decades, he’s also found himself at the mercy of China’s slowing economy. In Wong’s core market of Chatswood, a suburb north of Sydney’s harbor bridge where a third of residents claim Chinese ancestry, his sales have slumped by as much as half from their peak. That’s reflected in recent government data showing China is no longer Australia’s biggest foreign investor amid a plunge in property purchases.”

“‘There are two main factors behind the drop,’ said Wong, who estimates 90 percent of his sales in Chatswood are to Chinese buyers. ‘The first is people not being able to get the money out of China, and from mid-2017 China’s economy started to slow and that also had an effect.'”

“Chinese appetite for apartments and harbor-side mansions helped drive an east-coast property boom that saw Sydney house prices soar 75 percent in the five years through mid-2017. But since then, prices in Australia’s biggest city have dropped 13 percent.”

“While Chinese buyers helped inflate the property bubble, they’re unlikely to return in sufficient numbers to stabilize the market. For one thing, shifting money abroad from China is tougher these days as authorities there are strictly enforcing rules aimed at curbing capital outflows.”

“There are other domestic factors suggesting prices could keep declining too. Australian banks have turned gun-shy on lending following an inquiry that exposed widespread misconduct in the industry and more homes are coming to the market.”

“The Chinese didn’t just favor Australia. Investors embarked on a shopping spree that helped inflate asset prices around the world, snapping up everything from luxury condominiums in Canada to resorts in Hawaii and skyscrapers in London.”

From the Globe and Mail in Canada. “Toronto-area house hunters who are lamenting the thin supply of listings in the real estate market might consider a meander through Willowdale. The area near Yonge Street and Sheppard Avenue recently had 42 houses for sale on one wintery day when real estate agent Andre Kutyan tallied the property listings.”

“Not only were the listings more plentiful north of the 401, the properties typically take longer to sell. In the area he surveyed, the average number of days on market is 46. South of the 401, average days on market is 36 for his sample group. (And that number doesn’t take into account that many of the properties in both areas have been taken down and relisted many times).”

“In all of 2018, 51 properties that met Mr. Kutyan’s criteria changed hands in the Willowdale sample and the average sale price was $2,727,330. At that pace, it would take 10 months to sell the 42 houses for sale – if no new supply arrives on the market.”

“He characterizes the tension between sellers and buyers north of Highway 401 as a stand-off. Many of the sellers are builders who are holding out hope that the market in the Greater Toronto Area will see a strong rebound, Mr. Kutyan says. He adds that says many of them paid a hefty price for the original property, then saw the value of the land slide as they built two new houses.”

“‘Their profit margins are being wiped out. For some of them, it’s not even about making a profit any more – it’s about mitigating their loss,’ he said.”

“Many potential buyers, meanwhile, are anticipating a fire sale when the developers become desperate enough. ‘The buyers’ attitude is terrible – they think the sky is falling and they’re sitting on the sidelines,’ he says.”

“In the Toronto real estate landscape, Mr. Kutyan thinks one reason for the different dynamics north and south of the 401 is that the Willowdale area saw a rush of money from overseas buyers in China, Iran and other countries up until early 2017. That influx encouraged spec builders to put up new houses as quickly as they could acquire the lots.”

“The 905 regions of Markham and Richmond Hill have also been hurt as foreign money has dried up, he says.”

“Mr. Kutyan believes that builders who are waiting for a dramatic upswing are clinging to false hope. In order to end the stand-off, he thinks sellers need to become more realistic. ‘They have this misconception that the market’s going to get better in the spring – the only thing that’s going to get better in the spring is the weather.'”

This Post Has 52 Comments
  1. ‘Many potential buyers, meanwhile, are anticipating a fire sale when the developers become desperate enough. ‘The buyers’ attitude is terrible – they think the sky is falling and they’re sitting on the sidelines’

    ‘Mr. Kutyan believes that builders who are waiting for a dramatic upswing are clinging to false hope. In order to end the stand-off, he thinks sellers need to become more realistic’

    One of these things is not like the other…

    1. “The Chinese didn’t just favor Australia. Investors embarked on a shopping spree that helped inflate asset prices around the world, snapping up everything from luxury condominiums in Canada to resorts in Hawaii and skyscrapers in London.”

      Lets hope they don’t leave Califor…………OH DEAR

      “The buyers’ attitude is terrible”

      You bad bad buyers! How dare you!?!

      1. “The buyers’ attitude is terrible”

        It is inexcusable that buyers should have a strong aversion to overpaying in a tanking market.

    2. ‘The buyers’ attitude is terrible – they think the sky is falling and they’re sitting on the sidelines’

      As opposed to the seller’s attitude the last few years as they gleefully turned the screws and waited for the money to shoot out?

    1. LOL, I’ll be moving up there late this year and look forward to the market tanking up there as I rent in safety. This joint is right down the street from the airport too.

  2. ‘While Chinese buyers helped inflate the property bubble, they’re unlikely to return in sufficient numbers to stabilize the market’

    Something I’d like to point out to Redfin and the Seattle REIC. At every point of the crashes in Sydney, Vancouver and Toronto, we were told it was turning around. They would be back in the black any minute. So where are these Chinese that bid everything up so they could escape with their pesos? I mean, that was the reason we were given. Interesting that this money laundering turned out to be fleeting and ultimately detrimental to the health of the market, as I mentioned, maybe a million times. And as we are finding out, it’s mostly locals who are fooked.

    1. Excellent points, Ben.
      I hope the Duhmerika passes a law outlawing foreigners from purchasing property in this country, but we all know that won’t happen. This country is being destroyed from the inside-out, unfortunately.

      Moar entitlements and free stuff!!

    1. “Meanwhile, the ECB also announced the launch of a new program of cheap loans — known as targeted long-term refinancing operations, or TLTROs — to eurozone banks in return for pledges to maintain lending.”

      😁

      See? Bankers always win. Cheap loans to banks in return for pledges – PLEDGES – to maintain lending? Bahahahahaha … it appears it is once again time for these bankers to lay out some dotted lines.

      Easy money.

    2. When the Chinese economy sneezes, Wall Street catches cold.

      Davos
      March 7, 2019 / 3:48 PM / Updated 14 minutes ago
      Asia stocks dealt body blow as China exports tank
      Wayne Cole

      SYDNEY (Reuters) – Asian stocks shuddered lower on Friday after shockingly weak export data from China heightened market fears about a global economic slowdown, a day after European policymakers slashed growth forecasts for the bloc.

    3. Could SFRs be the light at the end of Mr Market’s dark tunnel? And what if the light turns out to be a train?

      U.S. economy’s job generation in February is its weakest in 17 months
      – ‘Don’t hit panic’ — economists find the jobs report wasn’t as bad as 20,000 headline suggests
      – 1.3 million more Americans may become eligible for overtime pay, but it could have been many more
      – Housing starts rebound in January as builders bet big on houses rather than apartments

  3. ‘They have this misconception that the market’s going to get better in the spring – the only thing that’s going to get better in the spring is the weather.’”

    Bahaha! To funny. I have to use this line the next time a hear a realtor spew the spring time buying season pitch. The “buyers come after Super Bowl” failed, “spring time selling season” next to fail.

    1. Yeah, but the entire lot is 1,665 sq ft so when you look at it like that it’s only $350 per sq/ft 😀

      1. Also, the assigned High School here is Hoover High. I taught an apprenticeship there in my 20s. Financial awareness. One of the kids asked me during a presentation if housing was a good investment. Before I could answer, the shop teacher cut me off and said “Housing is always a good investment.” This was 2006. I countered that “Some experts believe that real estate isn’t risk free.”

        One of the students (not mine) was stabbed on the way home. I was buying coffee one morning at the liquor store down the street, one of my students, she was probably 15, was in front of me in line buying “protection”, got in a car with a much older guy. Great kids though, just in a tough situation. The teachers were totally checked out for the most part.

        1. Wow, it sounds like the deck is stacked against these kids. Thanks for sharing that. I love to hear personal experiences.

        2. I used to play in a band that rehearsed off EC blvd over by the 15 freeway. At night the hookers would be out walking EC blvd. That was a few years ago. I don’t know if they cleaned that up. If they didn’t, at least, if you feel lonely in the spacious confines of your 572 sq ft abode, you would know where to find some company.

  4. I wonder when mitigating their losses will kick in for Ann Arbor Michigan. The local news comment section is finally facing the fact that 2nd best place to live in America might not be enough to keep prices up in the face of the increasingly poisoned water they’ve ignored for DECADES in service of home values . One of the reasons the town always makes these silly lists is the level of educated ness here — highest in the nation. But you know, home values would sink if we get EPA Superfund status. People are finally starting to get past this cuz they’re starting to really worry about little things like their heAlth! governor Snyder of flint water fame is out now, don’t know if he is out of Ann Arbor home, he got shouted out of his multimillion downtown condo I think at least. The city has been lying to the population too which you’d think would be bad for niche.com ratings but I guess corrupt or incompetent governance isn’t a ratings category go figure.
    https://www.mlive.com/news/ann-arbor/2019/03/dioxane-test-results-for-allen-creek-raise-more-questions.html

  5. The stock market is having a very bad week.

    U.S. stock futures drop ahead of jobs data as gloomy China trade report adds to global growth fears
    By Barbara Kollmeyer
    Published: Mar 8, 2019 3:40 a.m. ET
    China exports drop 20%; Shanghai Composite sees worst session of the year so far
    Getty Images
    U.S. stock futures fell on Friday, pointing to a fifth session of losses for Wall Street, after a slump in Chinese exports piled onto concerns about slowing global growth.

    Investors are also braced for U.S. jobs data due later.

  6. I was standing in the U.S. Customs line at SFO yesterday and began talking with the woman behind me. She was from Sydney. I asked about the property bubble and she confirmed it is bad. Houses that once sold for over $3.5 million are now $2.2 million. A 2Bd, 2Ba POS apartment is still nearly $1 million downtown.

    The most interesting part of the discussion was her strong belief the market would recover in a year or two and be right back to where it was at the peak. Australian’s have been on a 25 year ride ( and so have the Chinese). It will be interesting to see how far this downdraft continues.

    1. “The most interesting part of the discussion was her strong belief the market would recover in a year or two and be right back to where it was at the peak.”

      That’s not how the aftermaths of manias normally work.

      However, perhaps in the area of central bank bailouts and quantitative easing, something could be done to rescue the poor housing speculators who lost their shirts from their fates. Ben Bernanke certainly demonstrated the possibility, though the dollar’s reserve currency status may have mattered a lot to the efficacy of the QE3 bailout.

    2. The first four of Bob Farrell’s 10 rules of investing:
      1. Markets tend to return to the mean over time
      2. Excesses in one direction will lead to an opposite excess in the other direction
      3. There are no new eras — excesses are never permanent
      4. Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways

  7. “‘Their profit margins are being wiped out. For some of them, it’s not even about making a profit any more – it’s about mitigating their loss,’ he said.”

    Gentlemen, if I were you I’d start looking around for a shopping cart and a sturdy cardboard box. They’re going to be essential in your next, more mobile phase of life.

    1. Has anyone over at the Fed figured out a causal connection between historically low interest rates and the massive piling on of household, corporate, and government debt? It seems like society is drowning in debt at multiple levels, and also that ultralow rates create moral hazard for piling the debt ever higher.

  8. 20k jobs
    I figure a 30% yoy down on building permits and you can call it the end of the boom

  9. This news should hearten AlbuquerqueDan. He may be able to snap up some energy stocks on the cheap before oil rockets back up above $80/bbl, a development that lies just ahead.

    Norway sovereign-wealth fund aims to dump a swath of oil and gas stocks
    By William Watts
    Published: Mar 8, 2019 10:00 a.m. ET

    Finance Ministry says aim is to reduce risk of permanent fall in price of crude
    AFP/Getty Images

    Norway’s Finance Ministry on Friday said the country’s $1 trillion sovereign-wealth fund would drop shares of energy companies that engage in exploration and production of oil and gas from its portfolio, a move that could potentially weigh on the energy sector.

    “The objective is to reduce the vulnerability of our common wealth to a permanent oil price decline. Hence, it is more accurate to sell companies which explore and produce oil and gas, rather than selling a broadly diversified energy sector,” said the country’s finance minister, Siv Jensen, in a news release.

    1. Norway is ditching fossil fuels in other ways too. For instance, in 2018 31% of all autos sold were EVs, and 49% were either EV or plug-ins. Analysts think that 2019 the share of vehicles purchased by consumers in Norway (full EV or plug-in hybrid) will be close to 70%.

      1. Over 99% of Norway energy is from hydro-power. East thing to convert to electric cars. This datum means nothing to U.S.

          1. Not comparing Norway to the US, only commenting that they are ditching oil internally and now as an asset class. They still sell oodles of it to the rest of the consuming world. The Norwegian Sovereign Wealth fund is one of the largest in the world and the signal that they are dumping oil and gas stocks is significant. Equinor, Norway’s mostly state-owned energy company, derives a significant amount of its revenue from oil, even if Norway’s domestic energy consumption is primarily hydro-electric.

    2. I’m pretty sure there are more bicyclists per capita in Scandanavia than in California. At least that appears to be the case in Denmark

      Crude Oil Apr 2019
      Last Updated: Mar 8, 2019 at 12:52 p.m. EST Delayed quote
      $55.27 -$1.39 -2.45%

      1. I love Denmark, but I may be biased because my ancestors were from there and my son has a traditional Danish name. Copenhagen is where we would live if we could snap our fingers and make it happen.

          1. Maybe that is why your son loves running. Those nordic countries have great endurance athletes. I have been following Jakob Ingebrigtsen’s stellar rise with awe. Truly a phenomenal athlete. Running a sub-4 mile at 17 is incredible!

  10. Here’s a good read …

    https://www.thestreet.com/story/11747573/1/genta-1998-2012.html

    The company was named Genta and I got cold called by a boiler room about 15 years ago and was told the sure way to riches was to buy lots of this stock. It was selling at about 12 dollars a share at that time.

    A quick bit of research indicated to me that it was a scam so, being the wonderful person that I am, I jumped on the Yahoo Finance GNTA message board and told everyone there of my findings and of my cold call experience. Much to my surprise this information as well as myself and my character was totally trashed; It turned out that GNTA had a cult-like following and I was thus a heretic.

    It was with great pleasure from then on that I followed the company (and the investors money) as it was eventually relegated to the trash heap.

    FWIW.

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