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It Doesn’t Really Cross Their Mind That They’re Investing And Losing Money

A report from the Globe and Mail in Canada. “Here’s how Royal Bank of Canada senior economist Robert Hogue sees things: ‘If it wasn’t already apparent, March data provided clear evidence that some of Canada’s largest western markets are in a pretty deep slump,’ Mr. Hogue said. ‘Home resales (seasonally adjusted) fell to a 10-year low in Vancouver and near eight-year lows in Calgary and Edmonton.'”

“Prices, too, are falling, with the MLS home price index sinking more than 7.5 per cent in Vancouver, 5 per cent in Calgary and almost 4.5 per cent in Edmonton.”

From Bloomberg on Canada. “Vancouver’s housing market is buckling under a slew of taxes and regulations introduced since 2016 to tame years of relentless growth that made the city the most unaffordable on the continent.”

“The high end felt the impact first and has been the hardest hit: prices in West Vancouver, Canada’s richest neighbourhood, are down 17 per cent from their 2016 peak. The slowdown is now broadening: home sales in March were the weakest since the financial crisis and benchmark prices fell 8.5 per cent from their record last June.”

From Homes and Property on the UK. “Prices are falling in all but nine of London’s 33 local authority areas, with some of the boroughs that were experiencing the most rapid growth last year now suffering the biggest reverses. The biggest single plunge recorded by the Land Registry was the 19.6 per cent dive in Westminster, from an average of £1,117,408 to £898,127, although this is likely to have been exaggerated by fewer mansion sales.”

“Jonathan Hopper, managing director of buying agents Garrington Property Finders, said: ‘The sheer scale of the decline in London prices is breathtaking. In the space of a month, the annual rate of price falls in the capital has almost doubled. South-east England has also caught the capital’s cold.”

“Joshua Elash, director of property lender MT Finance, said: ‘A price fall of 3.8 per cent over the year to February is massive. This represents billions of pounds of lost value.'”

The Global Property Guide on Egypt. “Egypt’s housing market continues to struggle, with the nationwide real estate index plunging by 19.24% in 2018 from a year earlier, after y-o-y changes of -11.49% in 2017, 1.19% in 2016, -14.22% in 2015 and 1.14% in 2014. Nominal house prices also fell by 9.58% y-o-y in 2018. Real house prices dropped 16.84% q-o-q during the latest quarter.”

“Despite this, Egypt’s housing market is widely expected to improve in the coming years. Why? Because inflation is eating up a large portion of Egyptians’ savings every year. So Egypt’s moneyed classes are buying property like there is no tomorrow. Especially as it is hard to get money out of the country. And there are excellent rental yields in Cairo.”

From EdgeProp on China. “Hundreds of luxury homes were built by a Chinese tycoon, to be given as a gift to the residents of his hometown. But his gesture was met with greed and ingratitude, as the villagers squabble over ownership of the homes. A local newspaper cited by the South China Morning Post, reported that in the village of Guanhu, Guangdong province, five years ago, Chen Sheng put up 200 million yuan to construct 258 luxury villas on land provided by local authorities.”

“The homes have stood at the ready, since the end of last year, but they remain unoccupied. Villagers squabble over who should receive one or even two of the houses. Chen was quoted as saying that he based the number required on a 2013 census, which said there were 190 households in the village, which results in an oversupply of 70 homes. But more and more people came forward to stake their claim to homes, with several villagers saying they needed more than one to accommodate their growing families.”

“‘As soon as I went back to the village, everyone started making all kinds of demands,’ he said. ‘So I don’t go back any more.'”

The Malaysian Reserve. “The Home Ownership Campaign (HOC), which will continue its run until June, is expected to clear off more than 50% of the houses offered by government-owned company 1Malaysia People’s Housing Programme (PR1MA). The six-month campaign, which started in January, offers more than 42,000 residential units from various projects.”

“The campaign is part of the Ministry of Housing and Local Government (KPKT) and private developers’ efforts to alleviate the nation’s property glut worth more than RM20 billion.”

The Herald Sun on Australia. “Homebuyers can time travel back to 2014 in a bunch of Melbourne suburbs offering their cheapest prices in years. Finder.com.au crunched CoreLogic data to find Abbotsford’s unit median had slipped back the furthest from 2014 levels. The figure was $577,000 then, and it’s now $450,000 — a 22 per cent decline.”

“The typical Travancore unit is also 18 per cent cheaper than it was in 2014, at $350,000. There have also been big price reversals in Windsor (unit median down 14 per cent to $460,000 in five years), Bundoora (9.5 per cent to $400,000), and Melbourne postcode 3006 and Carlton (both down 9 per cent to $573,750 and $370,000 respectively).”

“The Melbourne market downturn had also caused house prices to decline over the past year, with leading economists tipping a further fall of up to 8 per cent by the end of 2019, said Finder.com.au insights manager Graham Cooke. ‘So Victorians thinking of entering the market might want to hold out for further price drops,’ he said.”

From ABC News in Australia. “This is Little Bay. 14km from Sydney’s CBD. New data from Digital Finance Analytics has revealed there are 3,900 households in this post code, where the owner has a mortgage higher than the property’s current valuation.”

“It has all the conditions, an oversupply of new apartments aimed at investors, who no longer want to buy them, and house prices that have come off record highs. ANDREW PENNISI, PENNISI REAL ESTATE: ‘It’s heartbreaking. I think people invest because they want to improve their life. It doesn’t really cross their mind that they’re investing and losing money. There’s certainly some people that have stretched themselves a little too far, that are obviously — have concerns because they potentially, could end up in a situation where they have negative equity. Certainly have sold properties in the last 12 months where we’ve had clients who have sold less for what they paid.'”

“Do you feel for people who are in negative equity? HOMEOWNER: ‘Yeah. I guess I do. And if they need to move, in the next couple of years it’s going to be hard.'”

From Stuff New Zealand. “Difficulty getting finance is being blamed for a slump in house sales around the country. Gisborne had the biggest fall in turnover, with sales down 33.3 per cent. Broker Glen McLeod said it was hard to get finance deals done. ‘It’s definitely harder at the moment to get lending. Rate – at the moment – is not really the challenge.'”

“He said banks were assessing borrowers’ ability to pay rates almost four percentage points higher than were currently being offered in the market. Auckland house prices fell by 2.7 per cent over the year to a median $856,000. ‘They are requiring more documentation than ever, we hear the expression ‘responsible lending code’ on a daily basis,’ McLeod said.”

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This Post Has 30 Comments

  1. ‘So Egypt’s moneyed classes are buying property like there is no tomorrow’

    I think there’s a lion in Egypt.

  2. ‘‘They are requiring more documentation than ever, we hear the expression ‘responsible lending code’ on a daily basis’

    If you want lower prices, cut the lending gravy. It’s better than overbuilding like Sydney.

  4. ‘It’s heartbreaking. I think people invest because they want to improve their life. It doesn’t really cross their mind that they’re investing and losing money. There’s certainly some people that have stretched themselves a little too far, that are obviously — have concerns because they potentially, could end up in a situation where they have negative equity. Certainly have sold properties in the last 12 months where we’ve had clients who have sold less for what they paid’

    This is taken from a transcript of a video if you want to watch it. Australian’s love FB videos. I wonder if Graham cut them a heart breaking deal on his commish?

    “Do you feel for people who are in negative equity? HOMEOWNER: ‘Yeah. I guess I do. And if they need to move, in the next couple of years it’s going to be hard’

    Also Australian:

    Just Walk Away

    https://www.youtube.com/watch?v=7ttKJwvFIgw

    1. “It doesn’t really cross their mind that they’re investing and losing money.”

      It doesn’t really cross their mind that a perpetual opportunity to invest in the same asset class and sell a few years later with guaranteed massive gains is no less a figment of the imagination than the Easter Bunny.

      1. PS The only reason this belief is reasonable is because that’s what governments and central bankers want to happen.

  5. ‘Abbotsford’s unit median had slipped back the furthest from 2014 levels. The figure was $577,000 then, and it’s now $450,000 — a 22 per cent decline’

    ‘The typical Travancore unit is also 18 per cent cheaper than it was in 2014, at $350,000’

    So what year does this put us at, 2009?

  6. Here’s a Q&A from the New Zealand Herald:

    Mary Holm: Fall in house prices could be good for some

    COMMENT:
    Watch our real estate market now begin a downward spiral. Severely reduced sales, caused in my opinion by the Government fiddling with the natural market.

    There was a recent report on TV on a day of eight auctions in Auckland where not one of the properties sold. The realtors here in my resort town have recently admitted that the local market is dead — an unusual occurrence at this marketing time of summer/autumn.

    The Government has restricted foreign buyers, threatened a capital gains tax, and earlier increased the bright line test from two years to five years.

    The real estate market is a very sensitive barometer of our economy. It has now reacted, and will fall further before more fiddling is necessary for recovery. In the meantime, huge losses, unemployment and bankruptcies will follow.

    We are running our country with ignorant fools who could never run a company profitably.

    Imagine the damage that will follow in coastal beach resorts, towns and villages. For example, the Coromandel Peninsula will suffer hugely, because of the 50:50 spread of permanent and non-resident ownership. Imagine the huge amount of small businesses that will fail in these areas.

    ANSWERS:

    True, some people fare badly when house prices fall and markets slow down.

    Obviously real estate agents hurt, but many of them have done extraordinarily well in recent years, so hopefully they have some savings or can get other work.

    Others who might get caught are those who bought an investment property recently and are forced to sell at a loss.

    …

    But they took on a risky investment — no doubt hoping for big gains. If you invest like that, you must be prepared for bad luck sometimes.

    Homeowners for the most part just don’t sell if prices fall. And if they have to sell — perhaps because they are moving — with any luck prices will have fallen in the new place too.

    In your town, most people will probably just hold on to their properties.

    https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12219681

    1. most people will probably just hold on to their properties.

      Denial doesn’t put money in your pocket.

  8. “Homebuyers can time travel back to 2014 in a bunch of Melbourne suburbs offering their cheapest prices in years.

    How ’bout we set the “year” dial on our DeLorean back to oh, say, 1995. That sounds so much better than 2014 or any year since the Fed and central banks started their deranged money printing.

  9. ‘It’s heartbreaking. I think people invest because they want to improve their life.

    Au contraire. Heartbreaking is seeing families under severe financial stress because housing is so unaffordable. Watching speculators get their heads handed to them, on the other hand, fills me with sublime joyful schadenfreude.

  12. There are those who believe that another China credit expansion will save us from a gathering slowdown. Evans-Pritchard explains the weakness in that thinking here.
    Excerpt:
    […] investors latch onto good news with alacrity during the final phase of a long expansion. A filtering bias creeps in.

    So sticking my neck out, let me hazard that heady optimism will lead to a rally on asset markets until the economic damage below the waterline becomes clear.

    Let us concede that Beijing has opened its fiscal floodgates to some degree over recent weeks. Broad credit grew by $US430 billion ($601 billion) in March alone. Business tax cuts were another $US300 billion. […]
    Nor is it clear what can be achieved with more credit. The IMF said in its Fiscal Monitor that the country now needs 4.1 yuan of extra credit to generate one yuan of GDP growth, compared to 3.5 in 2015, and 2.5 in 2009. The “credit intensity ratio” has worsened dramatically.

    I stick to my view that the US will slump to stall speed before China recovers. Europe is on the thinnest of ice. It has a broken banking system. It is chronically incapable of generating its own internal growth or taking meaningful measures in self-defense.

    Momentum has fizzled out in all three blocs of the international system. We are entering the window of maximum vulnerability.

    1. It is not a good time to be in debt. It is a good time to have savings and a modest lifestyle.

      1. It may actually be the best time in history to be in debt, because I suspect that all of the debt junkies will receive forgiveness yet again, with the prudent once again getting the shaft.

    1. It seems a bit early to pander for bailouts. They will have to wait for a far greater level of panic before anything is politically tractable. But it can’t hurt to plant seeds before you need the food.

    1. Thanks Mafia Blocks, that shows the housing bubble very clearly in terms of income and housing prices.

      I personally think some of the widening disparity between the two is due to “Baumol’s Cost Disease.” I also think that NIMBYism accounts for a small percentage of this as does increased land prices. Another thing two is that the average new house today is quite a bit larger than what was being built in the 70s. Still, there is a huge affordability problem.

      It should also be noted that household income now is closer to two incomes since women joined the labor force in great numbers in the 70s. So the housing bubble is probably even understated when looking at these numbers. The US doesn’t even have a very high female labor participation rate. Last I checked we are even lower than Japan.

      2. Baumol’s Cost Disease

        Or, Biggest Housing Bubble in history, and it’s global. Price declines of 75 to 80% are baked in the cake.

          1. asset prices

            I really don’t think they care at all about your assets. The more they do to blow debt bubbles (to make banker’s income go up) the nastier the crash will be.

    1. Reverse Baltimore’s population slide: Bring on the immigrants

      ‘Baltimore had a net loss of some 7,000 residents between the summer of 2017 and the summer of 2018, according to the latest Census Bureau estimate. That’s the biggest single-year loss in nearly two decades, the fourth consecutive annual loss since 2015 — one of the worst years in the long life of the city — and it’s bad news, but not surprising news.’

      ‘There are many reasons for it: An insane rate of shootings and homicides; the continued movement of families to the suburbs, something reflected in declining school enrollment; the persistent image of lawlessness since the April 2015 unrest; the shortage of police officers, low morale among cops who remain on the job, the turnover among commissioners; weak or uneven political leadership, and, as always, a property tax rate double the rate in the counties’

      https://www.baltimoresun.com/news/maryland/dan-rodricks-blog/bs-md-rodricks-column-0421-story.html

    2. Every “sanctuary city” is dying for the same reason: progressive malgovernance that is driving out the honest and productive portion of the population.

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