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At The Moment It’s Like Catching A Falling Knife

A report from ABC News in Australia. “Buyers who locked in a purchase a year or two ago, when the market was booming, are now struggling to secure the sale. It is a scenario mortgage broker Luke Camilleri is starting to see regularly. ‘The most recent one that comes to mind is probably about six weeks ago in western Sydney,’ he said. ‘They bought about three or four years ago and the valuation came in quite low.'”

“The young couple initially agreed to buy their two-bedroom apartment for $680,000. But when the bank came to value the property upon completion, it did not value it that highly and so would not lend them as much as they needed. They had to find an extra $54,000, on top of their deposit and stamp duty.”

“Mr Camilleri said, in the end, the buyers ‘had to get creative’ to find the extra cash. He said having these tough conversations with buyers is not easy.”

“‘To someone who it’s their biggest investment, or their biggest life purchase, to have someone on the other end of the phone saying, ‘There’s a problem, it doesn’t stack up in the evaluation’, you can imagine what runs through their minds and it’s quite stressful,’ he said.”

“Investor Stephen Kendon bought a two-bedroom apartment in Sydney’s inner-west two years ago. The father of four owns his home and another investment property in Sydney. In May this year, his existing lender pre-approved his finance for the $725,000 unit.”

“But two months later, his formal application was rejected. ‘We had some abnormal expenses and they were looking at that as if they were standard expenses, but they weren’t,’ he said. ‘They were treating our expenses almost double to what they were.'”

“In the end, he was able to secure a loan with another provider, but his experience shows the banks are increasing their scrutiny. Mr Sapounas expects stricter conditions to remain for the next couple of years.”

“‘I think we’ve got another year or two at least before we see the market find its footing,’ he predicted. ‘At the moment it’s like catching a falling knife. No-one wants to be out there catching a falling knife.'”

The Australian Financial Review. “Apartment buyers in what will be Australia’s third tallest building, Brisbane’s 92-storey Skytower, are scrambling to find top-up funds after valuations ordered by banks dropped by as much as 25 per cent. The developers, led by AMP Capital and Billbergia, have hired lawyers Norton Rose Fulbright to pressure the valuers to upgrade the new valuations for the apartments which they say are not fair.”

“The banks’ willingness to lend for apartments has been crimped by APRA caps on lending and the bank royal commission. They are now cracking down on the valuations of newly built apartments where they were once willing to lend.”

“Now that the construction of the Brisbane Skytower is nearly complete, property valuation firms have been engaged by banks as part of their lending policies to reassess the apartments now due to settle from their off-the-plan valuation.”

“The tower, which will rise 270 metres and add another 1128 apartments to the market, included one and two bedroom apartments starting from $425,000 in the low rise through to the ‘skyrise’ part of the tower where apartment prices started from $595,000. If the valuations come in lower, then banks lend less and the buyer has to stump up more equity to make up for the original purchase price.”

“The two valuation firms which have been redacted from the letters declined to comment on the grilling they received. However, sources told the Financial Review that the comparisons were legitimate given the quality of the apartments. Some apartments in other developments in the inner city area of Brisbane have sold this year at losses of as much as 27.6 per cent compared with their original off-the-plan purchase.”

“Some developers have complained that banks have pressured valuers to be severe on values to help excuse them from lending their original approved amount.”

“The chief executive of the peak body for valuers in Australia, the Australian Property Institute’s Amelia Hodge, defended the valuers on Wednesday, saying their methodology is professional and should be independent of the developers.”

“‘We are alarmed that some developers may be setting a very dangerous precedent, in a market clearly shifting, by explicitly threatening legal action if they do not value in accordance with the developer’s requirements,’ Ms Hodge said.”

“‘It is clear that the property market is undergoing a cyclical correction, impacted further by matters raised during the course of the royal banking commission and the tightening of credit, particularly in off-the-plan contracts executed some time ago across several Australian centre.'”

From Domain News. “Sydney’s auction market has had its worst start to the spring selling season since the global financial crisis, new data shows. With less than half of all properties up for auction selling under the hammer over September, Sydney recorded a clearance rate of 48.2 per cent.”

“It is the third time the clearance rate has dropped below 50 per cent this year, according to Domain data released on Wednesday, which excludes January auction results due to low sales volumes.”

“‘It’s the worst start to spring in a decade,’ said Domain senior data analyst Nicola Powell. ‘The lower clearance rate goes along with other indicators we’ve been seeing. Prices have been deteriorating, days on market and price discounting are tracking higher and stock levels are rising.'”

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This Post Has 37 Comments

  1. ‘I think we’ve got another year or two at least before we see the market find its footing,’ he predicted. ‘At the moment it’s like catching a falling knife. No-one wants to be out there catching a falling knife.’

    Interesting that you say this Steve because that’s exactly what you just did.

    1. How’d you like to be in escrow right now for the purchase of a home? One of those pending type deals? I was just scrolling through the listings for two of the nabes I follow here in Florida, seeing all those lower end homes all “snapped up” and just waiting in the queue for the closing.

      Thing is, a lot of that “lower end” stuff is going for two or three times what it is really worth.

      1. That’s the thing – the lower end is horrifically overpriced. 30 year old tract homes in sketchy blue collar neighborhoods going for $375k. Those are $100k houses.

  3. ‘If the valuations come in lower, then banks lend less and the buyer has to stump up more equity to make up for the original purchase price’

    Or just walk away. So now how brilliant does building all those towers for Chinese speculators seem? This whole disaster was visible years ago. There’s was too much money sloshing around for anyone to do anything about it.

    1. Ben, it’s almost like you’ve been to Melbourne. I was there visiting a friend a year ago april during the madness. My friend who lives there snorted derisively as she pointed at the towers going up saying no Aussie wanted to live in them because they’d cut so many corners on construction.

  5. You can put up a fence and a big safety net and lemmings will furiously try to chew through it to get to their goal.

    1. No one should impede the lemmings from meeting their date with destiny. It could well be that the sole purpose of their existence is to serve as a cautionary tale for the more sane.

  6. “Sydney’s auction market has had its worst start to the spring selling season since the global financial crisis, new data shows. With less than half of all properties up for auction selling under the hammer over September, Sydney recorded a clearance rate of 48.2 per cent.”

    The Oh Dear moments are proliferating. Got popcorn?

  8. oh my…

    “Sales of single-family homes priced over $500,000 dropping 33 percent from August to September.”

    “Local real estate market numbers show that almost 26,000 preowned single-family homes were listed for sale in August with North Texas real estate agents. That’s the highest volume in six years.

    Nationwide, home inventories are at a 5-year high, according to Realtor.com.”

    ++++

    Major cold front slams Denver housing market in September
    https://www.denverpost.com/2018/10/03/denver-housing-market-goes-cold/

    Bad news for home sellers: D-FW has one of the biggest U.S. home listing gains
    https://www.dallasnews.com/business/real-estate/2018/10/03/bad-news-home-sellers-d-fw-one-biggest-us-home-listing-gains

  11. Holy cow!

    Barely a month ago the only articles you could find around the Web were milk toasty just slightly lowered optimism pieces. One commenter on the blog suggested googling “housing market” so that is what I did. The link I have provided is to a cnbc video I think from today where an analyst is clearly pointing to downward trajectory. Similar articles are everywhere and the most moderate just claiming that current trend is “seasonal fluctuation”. But many are now just coming out and showing real concern. Does anyone see a media change? What a turn.

    1. You have to read today’s fake legacy media as we used to read Pravda at the height of the cold war.

      Sometimes it is more important to what is NOT being reported than to what IS being reported.

      And you have to be able parse phrases and read into words.

    2. Isn’t it interesting… as others have mentioned MSM doesn’t often report the doom and gloom of RE but as of recent it is all we see. I found the HBB earlier this year which confirmed many of my thoughts on RE. Back in the last crash I used to visit Patrick.net but that site changed up. MSM is now reporting on all this “negative” RE news that we can read back on the HBB from many months ago. I have 0 trust for the MSM or the NAR for that matter.

      1. Other construction commodities also had a spike or in the middle of one. Second bounce. It’s like falling down a flight of stairs.

    3. You don’t have to dig very far into the Weyerhauser news links on that Yahoo page to find more evidence of delusion. This, from an analyst only several days ago:

      “Weyerhaeuser Company WY is likely to gain from strong U.S. housing market. Beside rewarding its shareholders handsomely, the company is focused on enhancing inorganic policies and operational excellence, which should continue to drive growth.

      In the past 60 days, the Zacks Consensus Estimate for current-quarter earnings increased 5.3%, while that for the current year surged 2.6%, reflecting analysts’ optimism surrounding the company’s future earnings potential.

      Let’s delve deeper into factors that support Weyerhaeuser’s growth.

      Strengths in Housing Market: Steady job and wage growth, recovering economy, favorable builder sentiment, rising household formation and limited supply of inventory are strengthening the housing market. The company is expected to reap benefits from current market conditions in the United States.

      Total housing starts, seasonally adjusted on annual basis, reflect year-over-year improvement of nearly 8% as of June 2018. Single-family starts grew more than 8%. Notably, the company expects single-family housing starts to grow 10% in 2018.”

  17. In Toronto on biz. I was taking a lyft from the airport to my hotel in the financial district. There were at least 15 new highrise condos going up in less than 2 miles of waterfront. I guestimate that these will be between 20-40 stories each.

    Wow – hope it is offshore money and not the Canadian banks left holding the bag.

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