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The Property Market Is In Tatters, A Lot Of People Will Get Burnt

A report from the New York Times. “One Saturday in March, in the suburbs north of Sydney, around three dozen people gathered on a lawn outside a smallish two-bedroom apartment. On this muggy day, almost all of the assembled crowd turned out to be gawkers. Finally a young couple whose agent lobbed in a 930,000 Australian dollar ($661,000) offer won the day. It reflected a wheezing Australian housing market.”

“‘Twelve to 18 months ago, it would have sold for 1.1 million,” said auctioneer, Andrew Robinson. ‘There was more of a frenzied atmosphere, more people bidding who just didn’t want to lose out.'”

The Australian Financial Review. “It’s perfectly evident to Sydney train guard John Okroglic what a difference 15 months can make in the current property market. Mr Okroglic offloaded his investment property – a small one-bedroom apartment two blocks from Cronulla beach – in November 2017 for $720,000, after the first signs emerged that Sydney’s property market had peaked, and he hasn’t looked back.”

“In the last fortnight, another apartment in the same building as Mr Okroglic’s old unit, albeit better quality – on a higher floor and renovated – sold for $635,000, after just nine days on the market. ‘When the economy is going great, things are bustling all day and all night, but now I see a big difference in traffic. People are going to work and then going home,’ he said. ‘I think the property market is in tatters. I’m definitely not in a rush to get back into the market and I think a lot of people will get burnt out of this.'”

From TV New Zealand. “After years of skyrocketing house prices in Auckland, the tide appears to have turned – in the favour of buyers. ‘The two major reasons investors invest are for capital growth or rental return and at the moment they are unlikely to see either of those so that’s keeping them out of the market,’ says The Property Institute’s Ashley Church.”

“‘Where Auckland is right now, you can expect the rest of the country to follow in the next 18 months to two years,’ says Ms Church.”

The Manila Standard in the Philippines. “Developers and property managers clear entire floors of residential buildings to accommodate the request of Chinese buyers amid the influx of foreign nationals working for the so-called Philippine offshore gaming operators or Pogos. Condominium prices also escalated beyond the reach of ordinary Filipinos.”

“A landowner said lot prices in the Bay Area, encompassing the cities of Manila, Pasay, and Parañaque, jumped more than 10 times since he bought the property a decade ago. ‘It is a bubble waiting to burst,’ the landowner said.”

The Wall Street Journal on Japan. “Daiwa House is collaborating with other construction companies to develop a new 1.5 million-square-foot ‘town’ in Tokyo’s center. Their prices are expected to be cheaper than those in the surrounding area given the ‘sheer amount of inventory in an already saturated area of Tokyo,’ said Adam German, the vice president of business development at Housing Japan. If they’re not at market prices or even a bit below, ‘the units will have significant trouble selling,’ he said.”

From Globes on Israel. “Jerusalem has been a real estate investment target for wealthy foreigners for two decades, who buy very luxurious housing at prices of NIS 10 million or more. In recent years, however, with the increase in taxes and implementation of the Prohibition on Money Laundering Law, the number of such investors has dropped noticeably.”

“Only 14 deals took place in Jerusalem last year at prices of NIS 8 million or more. These deals, however, were exceptions; the state of the luxury housing market in Jerusalem is far gloomier than they would indicate. ‘There is a big downturn in the luxury market among both foreign residents and Israelis,’ says real estate appraiser Oren Iluz.”

“Real estate agent Ahituv Getz tells of a penthouse in a new project on Disraeli Street in Talbieh, which was sold two years ago for NIS 12 million. Six months ago, a similar apartment was sold for only NIS 10.5 million, and this is no exception. ‘I estimate that prices of luxury housing in the city have fallen by 15%,’ he says.”

From CanIndia on Canada. “There is genuine panic among a large section of homeowners in Vancouver as sales have fallen to their lowest level since 1986. Only 1,727 homes changed hands in Greater Vancouver in March, down 31.4 per cent from the same month a year earlier, the Real Estate Board of Greater Vancouver said.”

“Prices for all housing types are falling. The benchmark price of a detached home clocked in at $1.437 million, down 10.5 per cent, or about $170,000, in a year. Condo prices are down 5.9 per cent in a year, to $656,900.”

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This Post Has 47 Comments

  1. The NYT writer flew a long way to tug on his chin about why Sydney is crater and “what it means for the world.” He should just read the HBB.

    ‘A landowner said lot prices in the Bay Area, encompassing the cities of Manila, Pasay, and Parañaque, jumped more than 10 times since he bought the property a decade ago. ‘It is a bubble waiting to burst,’ the landowner said’

  2. ‘a young couple whose agent lobbed in a 930,000 Australian dollar ($661,000) offer won the day…‘Twelve to 18 months ago, it would have sold for 1.1 million’

    A young couple. Probably underwater before they got home.

    1. 12 to 18 months from now, that young couple will be at each other’s throats over whose horrible idea it was to catch a falling knife.

    2. Not to mention, $80K, regardless of whether in USD or AUD is not a discount, yet Andrew makes it sound like they stole it.

  3. ‘There is genuine panic among a large section of homeowners in Vancouver as sales have fallen to their lowest level since 1986…The benchmark price of a detached home clocked in at $1.437 million, down 10.5 per cent, or about $170,000’

    Detached shacks in Vancouver, especially the areas where Chinese buyers were common, have been falling (collapsed really) since the spring of 2016.

    But you know, I don’t feel any panic at all. Strange.

    1. They say panic is contagious, yet I just can’t seem to muster the slightest twinge of alarm. Cool as a cucumber, that’s me.

    2. Ben you dont feel the panic? Maybe some real estate shill/troll who got more time now on their hands might disagree?? I guess that’s why they are trolling or instead of closing deals … should have saved their commissions during the bubble years LOL

    3. “…sales have fallen to their lowest level since 1986…”

      Keep your eyes out for that headline in reference to a California city. It won’t be long now.

  6. The NYT article poses some really good questions (e.g. are recessions really necessary?). This is the author’s take:

    “Maybe recessions are more like car crashes. They may never be completely eliminated, but making the right choices can make them rarer and less damaging when they do happen.”

    I don’t know what the answer is. Lately I find myself questioning my own assumptions. Maybe from a macro perspective the best-case scenario for the housing market would be something that doesn’t cause a recession, such as house price growth that is flat for maybe a decade while wages inflation catches up.

    I have been on the sidelines cheering rate increases, but I am starting to question my own biases and assumptions now. I am actually wondering if DJT is right. Maybe we do need rate cuts.

    1. ‘Maybe recessions are more like car crashes. They may never be completely eliminated, but making the right choices can make them rarer and less damaging when they do happen’

      Justifying a 16,000 mile flight plus expenses takes some heavy lifting. Good luck Australia, you’ll need it.

      1. One thing is certain: If the Fed does not cut rates and invoke QE4 post haste, the next U.S. economic downturn will reap them heaps of political blame, even though the business cycle has been going on at least since Old Testament times. (I’m sure you covered Joseph’s Dream in seminary…”seven good years…seven bad years”…)

          1. Yes, the business cycle has been around for a while. But biblical times didn’t have QE or fiat currency or a centralized government tax and spending regime the likes of most western governments today. What this NYT writer is questioning is whether a central bank can effectively smooth out the business cycle. He’s arguing that Australian monetary policy has successfully kept the “lucky country” going for decades even while the UK and US fell into recession.

            Regardless of what school of economics one ascribes to (Keynesian, Monetarist, Austrian, neo-classical, MMT, etc.), many economists think that fiscal policy and monetary policy should be counter-cyclical, that is, it should try to tamp down the irrational exuberance and buoy up the downturns. Whether that works is an open question.

    2. “Australian Home Prices Are Falling After a Long Boom

      The housing market in Australia did not see the severe boom-bust cycle that the United States experienced as part of the global financial crisis, though the market has softened lately.

      Percent change in housing prices from mid-2003 levels”

      The figure shows Oz home prices more than doubled since 2003, while US prices ‘only’ went up by 50 percent. If much larger asset bubbles are a price of recession avoidance, then I’m not sure this is preferable, especially if bigger bubbles proceed worse crashes.

      Also note the Fed went down the path of keeping rates low for long enough so that inflation ran out of control in the 1970s, followed by crushingly high interest rates under Paul Volcker to save the dollar. Two bad recessions early in Reagan’s presidency were the price of saving the dollar.

      1. “If much larger asset bubbles are a price of recession avoidance, then I’m not sure this is preferable, especially if bigger bubbles proceed worse crashes.”

        And this is why I agree with CEO of Redfin when he says that much of our monetary policy is implicit protection of boomers’ wealth, since they disproportionately own housing stock. I suppose now Wall street is in the game with American Homes 4 Rent and Invitation Homes.

        You see this with the Australian housing bubble how it basically decimating the younger class who are consigned to never own a house or basically become indentured servants if they pull the trigger (e.g. “You gotta roll with it) on a purchase. Their housing debt that is 2x or 3x what previous Aussies purchased. It’s a crying shame if you ask me.

        To some degree the housing market is a captive audience because it is always “buy vs. rent”. “None of the above” is not a realistic option because living homeless or in an RV/car is basically for the dregs of society, although I know people who are wealthy that have done it.

      2. ‘He’s arguing that Australian monetary policy has successfully kept the “lucky country” going for decades even while the UK and US fell into recession’

        Shacks in towns and cities in western Australia are down 40-50%.

      3. Also note the Fed went down the path of keeping rates low for long enough so that inflation ran out of control in the 1970s, followed by crushingly high interest rates under Paul Volcker to save the dollar. Two bad recessions early in Reagan’s presidency were the price of saving the dollar.

        Hmmm. The left does dream of making Trump into the next Nixon. And I could see Bernie as the next Carter. But who would be the next Reagan? I don’t see any good candidates on the horizon and Reagan was on the horizon for a long time before he finally got elected.

        1. I speak for myself, not for the left nor the right. I generally think the two extremes of the US political spectrum both suck, and would gladly support measures to deport them all to Honduras.

    3. It’s also hard to ignore the close connection between Oz’s economic miracle and China’s never-ending boom.

      China Economy
      US-China trade war inactivity could lead to the ‘worst recession in recent Chinese history’, says scholar
      Minxin Pei, a professor of government at Claremont McKenna College and a non-resident senior fellow at the German Marshall Fund of the United States, wrote ‘China’s Crony Capitalism: The Dynamics of Regime Decay’. Photo: Winson WongMinxin
      – Political economy professor Minxin Pei says Beijing lacks the will to make radical political changes to deal with the trade war with the United States
      – Also says China’s strong control of the economy will eventually backfire, with economy slowing to its lowest growth point for almost 30 years
      Topic | US-China trade war
      Xie Yu
      Published: 6:00pm, 1 Apr, 2019
      Updated: 12:07pm, 2 Apr, 2019

      China’s inability to “take the opportunity to do the right thing” during the trade war with the United States could cost the country dearly in form of a recession that “will become the worst in recent Chinese history”, according to a leading political economy scholar.

      Minxin Pei, a professor of government at Claremont McKenna College and a non-resident senior fellow at the German Marshall Fund of the United States, believes China’s strong control of the economy will eventually backfire.

      “So far, it shows that China is not taking the opportunity to do the right thing,” said Pei. “China is willing to make some concessions by buying more goods, perhaps also improve intellectual property protection, but that does not improve China’s economy structurally.

      “It is natural for economy to go through a boom or bust cycle … China has been trying to avoid this cycle so it has built a lot of distortion. There is no free lunch. Some day, some people will have to pay. History shows that the bust will come – the longer you delay, the bigger the cost it will be. The next recession will become the worst in recent Chinese history.”
      …

    4. “.. such as house price growth that is flat for maybe a decade while wages inflation catches up.”

      That’s a difficult goal, given how much recent double-digit annual increases in housing prices in the US and other developed nations with interest-rate dependent financial economies were driven by speculators chasing short-term double-digit annual gains. When the rate of appreciation levels off, these recent buyers are the first in line to sell. Given that speculative demand drove rampant appreciation (aka “The Housing Bubble”), the absence of speculators from the demand pool after appreciation slows leaves behind only fundamental demand, with far lower willingness-to-pay, requiring substantial price declines to reach a post-Bubble equilibrium.

      In short, the notion that prices can magically level off for a decade following a rampant speculative mania is a pipe dream.

      1. I do think you are right. It’s difficult to separate the wheat from the chaff, or the speculative housing demand vs. the organic, consumption demand.

        1. I don’t believe price declines could be avoided without massive government intervention, as the Fed did in the post-2009 period. The problem is that speculators quickly sniff this out and pile in with massive pools of Wall Street money, pricing out the locals, and subprime lenders pile in with offers to enable household borrowers to commit financial suicide. The middle ground between letting market fundamentals find a stable price bottom and market-distorting government intervention that rewards Wall Street speculators at the expense of the damaging effects of the Housing Bubble on U.S. household balance sheets is hard to identify.

        2. “It’s difficult to separate the wheat from the chaff,…”

          Not really. You have to get the government (including the Fed) out of the housing market inervention business, and restore the primacy of fundamental market forces that determine organic supply and demand. Banning the NAR and ddimantling the GSEs, FHA, and other federally guaranteed mortgage lenders would be a good start.

          1. Here’s an idea: How about if the American taxpayers who don’t have federally guaranteed mortgages get a tax exemption from helping to pay for any future bailouts of the GSEs, and reparations for their share of the last round of bailouts? Making non-homers pay to guarantee homeowners’ mortgages is unfair. Homeownership is a private consumption good, not a public good.

            TheHill
            Opinion | Finance
            April 04, 2019 – 07:00 PM EDT
            Fannie Mae and Freddie Mac reform should put American taxpayers first
            By Tom Schatz, opinion contributor
            The views expressed by contributors are their own and not the view of The Hill

            The Trump administration and Congress have both taken recent proactive steps to address the lingering conservatorships of government sponsored enterprises Fannie Mae and Freddie Mac. The renewed attention on them is in part due to the exit of the former Federal Housing Finance Agency Director Mel Watt and the nomination of his successor, Mark Calabria, as well as a series of Senate Banking Committee hearings on these entities.

            Structural reform of the government sponsored enterprises is certainly long overdue. It must first and foremost protect taxpayers. It should bring full transparency, oversight, and accountability to the activities of Fannie Mae and Freddie Mac, end their expansionary and intrusive behavior, and restore free market principles to the secondary housing market.

            Fannie Mae and Freddie Mac, which were placed into what was supposed to be temporary conservatorships during the 2008 financial crisis, have remained under government control for more than a decade. During this time, these entities have received more than $190 billion in taxpayer support and currently finance nearly half of all first lien United States mortgages. Furthermore, they have $5.4 trillion in mortgage obligations.
            …

    5. “The NYT article poses some really good questions…”

      Does Australia waste their prosperity in the middle-east?

  7. “‘Where Auckland is right now, you can expect the rest of the country to follow in the next 18 months to two years,’ says Ms Church.”

    This poses a rather alarming scenario. What happens when the oligarchs who have been pillaging the proles in America hop in their Learjets and Gulfstreams to escape the pitchforks and torches by jetting off to their New Zealand hidey-holes, only to discover New Zealand FBs waiting for them with pitchforks and torches?

  9. “Seattle Residents Losing Patience With Homelessness Problem.”

    https://www.city-journal.org/seattle-residents-rebelling-homelessness

    (snip)

    “Last month, veteran Seattle reporter Eric Johnson of KOMO violated that taboo with a shocking, hour-long documentary called Seattle is Dying, which revealed how the city has allowed a small subset of the homeless population—drug-addicted and mentally-ill criminals—to wreak havoc. Johnson’s portrait is backed up by evidence from King County homelessness data, by city attorney candidate Scott Lindsay’s ‘prolific offender’ report on 100 homeless individuals responsible for more than 3,500 criminal cases, and by my own reporting on the homelessness crisis.

    “In the past two weeks, Seattle Is Dying has garnered 38,000 shares on Facebook and nearly 2 million views on YouTube. The report has clearly resonated with anxious, fearful, and increasingly angry Seattle residents. Exhausted by a decade of rising disorder and property crime—now two-and-a-half times higher than Los Angeles’s and four times higher than New York City’s—Seattle voters may have reached the point of ‘compassion fatigue.’ According to the Seattle Times, 53 percent of Seattle voters now support a ‘zero-tolerance policy’ on homeless encampments; 62 percent believe that the problem is getting worse because the city ‘wastes money by being inefficient’ and ‘is not accountable for how the money is spent,’ and that ‘too many resources are spent on the wrong approaches to the problem.’ The city council insists that new tax revenues are necessary, including a head tax on large employers, but only 7 percent of Seattle voters think that the city is ‘not spending enough to really solve the problem.’ For a famously progressive city, this is a remarkable shift in public opinion.”

    Bahahahahaha … now for the fun part of this article …

    “Despite this growing consensus, the activist class is pushing back. According to leaked documents, the City of Seattle and its allies have retained a crisis-communications firm to discredit Johnson and insist, notwithstanding all evidence to the contrary, that ‘Seattle is making progress to end homelessness, and proven solutions are working.’ It’s quite a strategy: Seattle mayor Jenny Durkan is using taxpayer resources to attack a respected local journalist and convince taxpayers that they shouldn’t trust their own experience.”

    😁

    “The city’s nonprofit and academic partners—mainstays of the homeless-industrial complex—have also launched coordinated attacks against the critics. Timothy Harris, director of Real Change News, has argued that grassroots neighborhood groups like Speak Out Seattle and labor unions like the Iron Workers Local 86 who opposed the city’s head tax are ‘alt-right’ white supremacists, bigots, and fascists. Catherine Hinrichsen, director of the Project on Family Homelessness at Seattle University, accused Johnson of ‘hate-mongering’ and spreading ‘fear.’

    “After dictating homelessness policy for a generation, the activist class is losing the narrative—and this accounts for its increasingly desperate counterattacks. As their support among voters erodes and principled journalists like Johnson break the silence about homelessness, they fall back on branding their concerned neighbors ‘bigots,’ ‘fascists,’ and ‘white supremacists.’ It’s not working the way it used to. In Seattle, a reckoning on homelessness may not be far off.”

  10. I’ve been using Zillow to look for rentals and got used to pushing the button when I wanted more info on a particular one. It automatically sends info I’ve already provided and has worked out fine so far.

    Forgot that I was looking at a for sale rather than a rental and pushed the button and had a much less positive experience. Not sure how long they’ve been doing this but instead of sending your info to a seller’s agent for the owner, they send it to a Zillow agent who immediately starts an aggressive attempt to interest you in that or “many other properties in your area you might be interested in”. Super annoying. I assume it’s a side effect of them getting into the business themselves. If I was a seller I’m not sure I’d want my property on their site if they’re going to try to redirect anybody interested into their system.

    2. Happened to me awhile back, clicked on the agent info and it decided that was my approval to send my info. I created a new account with a google voice number and an alt email so I could avoid it from ever happening again.

    3. I’ve just started looking for a rental, too. Better than waiting for the place to be sold out from under us again. Another reminder of why it’s good to be a renter – just received nasty email from bitch across the street threatening to trap my cat and take it to a shelter if it goes in her back yard again. I think she and my other neighbor, Scorpion guy (they’re pals) are playing “Get the Renter”. I think the doubling of the housing prices has gone to their heads.

    1. This doesn’t surprise me. I spent most of my childhood in Oahu. The majority of real estate in Hawaii back then (30+ yrs ago) was mainly farm or military grade housing. As I got older, more and more of the island got developed with track housing and the brick structure condos converting into “luxury” sky boxes to attract the vacation home (mainly foreign) buyers. I vacation there every year and rent frbo condos that are typically owned by foreigners (last two Canadain owners). The withdrawal of foreign buyers affects places like Hawaii dramatically and I would think they would run the lead on declining sales in the US but who knows!

      1. We visited my wife’s aunt and uncle at their home in Honolulu on a trip to Hawaii. I remember the home was nothing special, yet worth four times what a comparable place inland on the mainland US states would have sold for. I assume this was due in part to the Japanese real estate bubble (it was 1992, and all the signage in the Waikiki Beach area was in Japanese).

        1. My sister graduated from University of Hawaii. She has stories to tell and always wished she knew Japanese because of how useful that language is for job prospects in Hawaii.

        2. I get the difference in pricing from Hawaii to somewhere like Detroit or Stockton CA but what I don’t agree with The rapid run up in price. Foreign speculation has been a key driver in all of this but it’s mentioned very little or almost not at all. Hawaii and CA both seem to run in parallel with Hawaii lagging a bit behind. Soon as we really start to crater HI will follow.

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