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What Was Looking Good Till Yesterday, Can Look Bad Now

A report from Stuff New Zealand. “It was revealed by the Real Estate Institute this week that, in some parts of Auckland, the median residential property sale price in the six months to the end of March was 30 per cent less than in the same period the year before. Mt Albert had the biggest price slump, followed by Royal Oak. Alistair Helm, a salesperson for Bayleys said it was hard for some sellers to gauge what their property was worth.”

“‘It is often said that the sellers will never accept the fact that the price they expect for their house has nothing to do with the price they paid for it, the price a neighbour’s house sold for, the cost of the improvements they have made or what a friend thought it was worth,’ he said. ‘The fact is a house is only worth what someone is prepared to pay for it.'”

From Your Investment Property in Australia. “Decreasing values of house-and-land packages are one of the biggest reasons behind Australia’s weak inflation figures, according to a report by the Australian Financial Review. Developers are offering discounts and incentives worth up to $45,000 to boost sales in a market that is now falling drastically.”

“‘It came from Melbourne. That new project homes in Melbourne are offering large, large discounts is showing up in [Consumer Price Index] numbers,’ Kaixin Owyong, National Australia Bank (NAB) economist, told the Australian Financial Review.”

The Australian Financial Review. “One in four new home buyers in Sydney and Melbourne is defaulting on their housing lot purchases due mainly to financing and valuation shortfalls, forcing developers to resell these lots in a market where monthly sales rates have hit seven-year lows, new figures show.”

“Victoria, the country’s biggest greenfield land market, is at the epicentre of the surge in defaults, with its cancellation rate hitting 27 per cent in the first quarter of the year, up from a 12 per cent default rate in the December 2018 quarter and just a 2 per cent fallover rate a year prior, according to land consultancy Research4.”

“Research4 director Colin Keane said a cancellation rate above 15 per cent was a ‘strong red flag’ regarding the mindset of ‘home builders and households.’ He said some Melbourne buyers were walking away and forfeiting their deposits on lots purchased between March 2018 and March 2019 because they were better off resigning at a lower price supported by the current high-valued incentives that have swept through the market.”

“In NSW, the default rate more than doubled to 26 per cent in the March quarter, while in South East Queensland almost one in five lots sales are being cancelled with both markets experiencing much lower sales volumes. The Research4 figures follow February warnings by developer Nigel Satterley that the Melbourne lot default rate was 20-25 per cent ‘at a minimum’ and forecast a rapid fall in prices that is now occurring.”

From Business Today on India. “In the last three years, debt mutual funds had become the de-facto bankers to the fast-growing non-banking finance companies (NBFCs). They accounted for the bulk of the industry’s growth capital as public sector banks pulled away from lending due to lack of capital. Now, the chicken has come home to roost as an increasing number of NBFCs face liquidity crunch after a sharp rise in interest cost has hit their repayment ability.”

“NBFCs are India’s shadow banking sector, well known for aggressive lending practices, especially for small and medium enterprises, home buyers and real estate developers, who have difficulty in borrowing from banks. Now, with the risk of defaults increasing by the day, investors are in a panic mode, much like the lenders.”

“‘If companies are downgraded, they do have mark-to-market losses. What was looking good till yesterday, can look bad now. It is obviously a sign of panic for investors who have exposure to such companies,’ adds Jharna Agarwal, Head – Products, Preferred Business, at Anand Rathi.”

The Daily Mail on the UK. “The asking price of a property that appeared on TV’s Grand Designs has been slashed by almost £1million in just six months. The owners Bram and Lisa Vis have taken the drastic step after the ultra-modern property with six bedrooms failed to sell.”

“The significant reduction has seen the asking price drop from £3.95million in autumn last year to £2.99million today and means the couple are selling the property for less than the project cost to complete. The luxury home on the Isle of Wight was completed in 2014, and featured on Channel 4’s Grand Designs the following year.”

“During the programme, accountant Bram explained the couple’s financial woes, saying: ‘The mortgages are not necessarily a problem. Paying them off might be a problem. We are not really worried about that at the moment because we are more worried about getting the money to finish off the house.'”

The Daily Hive on Canada. “With Metro Vancouver’s housing market in the midst of a very apparent slowdown, developers of new projects are increasingly coming up with unique marketing tactics to unload their inventory and stand out from the pack. And an upcoming residential development in Coquitlam is no exception.”

“Local developer Woodbridge Homes is offering ‘free avocado toast for a year’ to buyers of its Kira condominium development at 740 Dogwood Street — near SkyTrain’s Burquitlam Station. The deal, targeted to millennials, is for one avocado toast per week for a year. This is only valid for homes written on opening weekend, up until May 5.”

“The clever marketing tactic is a lighthearted retort to an assertion made by Australian property developer Tim Gurner in 2017, when he told 60 Minutes Australia younger generations could afford a home if they lowered their lifestyle expectations and started to save for their future.”

“‘When I was trying to buy my first home, I wasn’t buying smashed avocado for $19 and four coffees at $4 each,’ he said. ‘We’re at a point now where the expectations of younger people are very, very high. They want to eat out every day, they want travel to Europe every year. The people that own homes today worked very, very hard for it [and] saved every dollar, did everything they could to get up the property investment ladder.'”

“Most recently in Seattle, which has been experiencing an oversupply in rental housing, many landlords have accompanied their rental property listings with perks of gift cards worth as much as $2,000 plus months of free rent.”

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This Post Has 51 Comments

  1. The article on India is worth reading in full.

    ‘One in four new home buyers in Sydney and Melbourne is defaulting on their housing lot purchases due mainly to financing and valuation shortfalls, forcing developers to resell these lots in a market where monthly sales rates have hit seven-year lows, new figures show’

    ‘Victoria, the country’s biggest greenfield land market, is at the epicentre of the surge in defaults, with its cancellation rate hitting 27 per cent’

    Like a bowling ball going down the stairs.

    2. I’m sorry, the poke at millennials is all completely wrong and unfair. They are no different than any other generation of Americans over the past half-century. In the 60s and 70s it was perfectly normal for families to afford a home and also a yearly vacation to wherever they wanted to go, including occasional travel to Europe, the Bahamas, or wherever else. Americans haven’t been good at saving in general for a very long time. However, let’s not mix apples and oranges. This is still a very skewed way of looking at what housing should be. You shouldn’t need to save for half your to buy a home where need to start a family young. Yes, people should save more, but home prices should be affordable enough that they are just a normal expense, not eat-you-out-of-life type of expense. And have a little pity – millennials have enormous education debt. Wonder how that came about. It is certainly none of their fault. Avocados are just a healthy piece of produce and should be eaten by anybody who so chooses to do. Our technological economy after all allows for such items to be grown and preserved to be consumed by anyone anywhere.

      1. “You shouldn’t need to save for half your to buy a home where need to start a family young. Yes, people should save more, but home prices should be affordable enough that they are just a normal expense, not eat-you-out-of-life type of expense.”

        Agreed. Unfortunately the Clinton administration signed legislation that effectively nationalized the housing financial business to Wall Street. See: “Clinton’s Legacy: The Financial and Housing Meltdown” by Sheldon Richman

  3. ‘in some parts of Auckland, the median residential property sale price in the six months to the end of March was 30 per cent less than in the same period the year before’

    Hottest market on the planet a couple of years ago.

    1. Wasn’t there just a shooting + death in Poway, CA? Is you a kick’em while they’re down sort of fella?

      1. Two degrees of separation from the shooter, as I personally know his childhood piano teacher. There’s no way to make sense of the story from his background. It seems an inexplicable break with their upbringing could happen to anyone’s adult child. Very troubling…

        1. There is almost a complete lack of moral code in the youth of today. Society has “normalized” attitudes and behaviors that were not socially acceptable in years past.

          We’ve got gangster rap that celebrates violent and misogynistic acts, lifelike video games that are focused on nothing more than massacring as many humans as possible, tv shows like “Growing Up Gotti” which makes celebrities out of felonious butchers, etc.

          1. And that doesn’t even get into the proliferation of all drugs, and the decriminalization and destigmatization of them.

  5. https://dailyhive.com/vancouver/vancouver-income-housing-report-zoocasa-2018

    “It found that with homes in the city hovering around an average $1,196,000 price tag, the income required for those hoping to buy into the market is $161,193.

    The catch? Median household incomes in the city are nowhere near that, clocking in at $65,327. Or, put another way, a “whopping” $97,866 short of affording the average home price.”

    Is my math bad or in Hongcouver 7x-8x the median income is affordable? Maybe this is individual income and not household income????

    1. Asking questions like this just postpone your pursuit to (temporary) happiness. May I interest you in a NINA loan and bundle in 50k student debt loan as a added bonus! 7-8x income is the no normal, see this time IT IS different! Please, I’m cold and hungry.

    3. Taking into account that at least 30% of almost every society is renters, the median income should not be able to buy a home at the median price. The median income can afford a lower-end home.

      That still doesn’t excuse Vancouver.

      1. 30% of almost every society is renters

        This assumes that renters are the unfortunate dregs of society. I know of some renters who are in the upper percentile of income.

        1. Agreed. And with the government handing out affordable housing loans like candy to anyone who can breathe, there are plenty of lower income percentile loanowners out there as well.

        2. I know of some renters who are in the upper percentile of income.

          Adam Carolla used to play this game on the air called something like “Rich Man, Poor Man” where he and the listeners tried to come up with the funniest things that rich people and poor people have in common. Living in hotels was one of the answers.

  7. “‘When I was trying to buy my first home, I wasn’t buying smashed avocado for $19 and four coffees at $4 each,’ he said. ‘We’re at a point now where the expectations of younger people are very, very high. They want to eat out every day, they want travel to Europe every year. The people that own homes today worked very, very hard for it [and] saved every dollar, did everything they could”…

    I don’t like snowflakes either, but this is unfair. When I was attending a CSU college in the late 1980’s I was working +/- 24 hours a week at a big chain grocery store as a boxboy, then checker, then night shift stocker. Even as a boxboy I could afford tuition, books, the rent and utilities on 1 bedroom in a 4br house, car insurance, gas, beer…

    1. “‘When I was trying to buy my first home, I wasn’t buying smashed avocado for $19 and four coffees at $4 each,’ he said. ‘We’re at a point now where the expectations of younger people are very, very high. They want to eat out every day, they want travel to Europe every year. The people that own homes today worked very, very hard for it [and] saved every dollar, did everything they could”…

      ^Code language used by sanctimonious fools who paid too much and sunk even more money into a depreciating asset.

      They lost their a$$ and don’t even know it.

        1. They think they’re working hard for the house when they’re actually working hard for Mr. Banker.

  9. Is your house your retirement plan? If so, how do you intend to cope with falling prices?

    1. So long as price appreciation continues forever, can’t one techically “eat your house a sandwich at a time,” through the magic of cash-out ATM financing?

      Bets get more complicated if prices ever start a protracted downturn. But one shouldn’t overworry, as the Fed has apparently added housing price plunge protection to the scope of its mandate.

      Your House Should Not Be Your Retirement Plan
      Updated April 30, 2019 at 2:47 p.m. ET
      By Sarah Green Carmichael
      Photograph by Breno Assis

      The average American is more likely to own a home than to have saved enough money for retirement. In fact, for many Americans, their house is their retirement plan: They’re counting on the value of that nest egg to fuel their golden years. But while real estate can be a good investment, it isn’t wise to rely on a house to fund your retirement. To explore why, Barron’s spoke with Teresa Ghilarducci, the Irene and Bernard L. Schwartz Chair in economic policy analysis in the Economics Department at the New School, and the author of How to Retire With Enough Money.

      “You can’t eat your house a sandwich at a time,” she says.
      …

    2. “Is your house your retirement plan?”

      What age groups are you referring to Prof? The ones that have a zero mortgage balance have different option$.

      1. “The ones that have a zero mortgage balance have different option$”

        So your house is your retirement plan.

        1. Nix, but a zero mortgage balance doesn’t cau$e much of any kinda of financial impediment$ to one.

        2. Of course my house is part of my retirement plan. My expenses will drop about the same time my income drops. That’s the entire point of buying a house.

          But it’s not my entire retirement plan. I’m not counting on massive appreciation. Appreciation at the rate of inflation is sufficient.

          1. my house is part of my retirement plan

            Overpaying for a depreciating house with borrowed money is a retirement postponement plan.

      2. I absolutely agree with you that the degree to which a house is paid off makes a huge difference. But I also get the point that a house is not a good choice as a sole source of retirement income, as it is an illiquid, lumpy asset, hard to consume “one sandwich at a time” even when real estate is going up. And if falling prices rule out the refinancing option, you may have no available means to purchase sandwiches.

        1. no available means to purchase sandwiches.

          Debt and retirement do not go together.

        2. But that again depends on the extent to which the house is paid off. Say you buy a house for $300K and you’ve paid off $200K of that. Price drops to $250K. You can still cash-out refi for $150K of sandwiches. It would be stupid, but doable.

          1. Say you buy a house for $300K

            OK, but if that same person bought a house for $30K they would end up with $400K cash and no debt.

          2. I always used to advise young people I have known through the years to time their home purchases for the trough of a recession. But with the advent of the Bernanke put using QE to reflate the bubble and place an arbitrary, artificial price floor under housing, all bets are off on whether this strategy is better than just blindly following the debt donkey herd.

          3. “… using QE to reflate the bubble and place an arbitrary, artificial price floor under hou$ing”

            The “Distortions” of things reverting to hi$toric “norm$” … is seemingly taking Decade$ to weather through, the planter$ are just $itting & ru$ting in the barn.

          4. “…time their home purchases for the trough of a recession.”

            This technique worked for me when I pulled the trigger in March 2003.

          5. all bets are off on whether this strategy is better than just blindly following the debt donkey herd.

            Yeah…when it gets so much easier to follow the herd than to do what makes sense it’s a pretty good indication that you’re being herded by someone. For their own purposes.

      3. The Financial Times
        North American prime property
        Vancouver house prices plummet
        Prime market has been hit by a government-induced downturn, say agents
        Coal Harbor in Vancouver © Jose Fuste Raga/Getty Image
        A.K. Thomson 2 hours ago

        Since it opened in December, the Twitter account Vancouver Real Estate Flip Flops has been tweeting about the rapidly falling prices of residential property in the city.

        “It took 10 months and $1.73m in price cuts, but it’s sold!” read one post about a property on the city’s high-end West Side. “Sold for $2.1m below initial ask price from 6 months ago,” came another tweet this month about a West Side detached home.

        “In the end we may well find ourselves back at 2009 pricing for detached homes on the West Side,” says the account’s owner, who does not want to be named but claims to have no vested interests in the market. “When will we get there? That I don’t know.”
        …

        1. Is the denial stage of Vancouver housing bubble collapse finally ending?

          Is this the real life? Is this just fantasy? Caught in a landslide. No escape from reality. Open your eyes. Look up to the skies and see.

  10. Now that the Fed has paused its punchbowl removal process, is it the PBOC’s turn?

    Opinion
    The View by Hao Zhou
    Chinese stock market’s fast and furious April was rooted in fear of a monetary policy turn
    – While China’s central bank has denied that a big monetary policy change is in the offing, recent signals suggest an era of accommodative policy is at an end
    Hao Zhou
    Published: 1:00am, 1 May, 2019
    Updated: 3:38am, 1 May, 2019
    The Chinese stock market experienced a “fast and furious” month in April. The market kicked off the month on an optimistic note
    following the release of stellar Purchasing Manager Index figures. Many investors were hoping for another bull market, but quickly the major stock indices erased almost all the monthly gains towards the end of April. What caused this roller-coaster ride?
    At first glance, the pullback does not make sense: China reported quite decent gross domestic product growth
    and economic activity numbers in the middle of April; China and the US are seemingly close to a trade deal; and US equity indices hit record highs recently.
    Nonetheless, all these seemingly positive factors failed to support the Chinese stock market. This is because the market fears that Chinese monetary policy is close to a tipping point.

    However, we can hardly infer this from recent statements from the Chinese central bank.

    On April 25, Liu Guoqiang, deputy governor of the People’s Bank of China (PBOC), said in a media briefing that the central bank had no intention of either tightening or relaxing monetary policy.

    Somewhat surprisingly, Sun Guofeng, head of the PBOC’s monetary policy division, said: “We didn’t loosen monetary policy in the past and haven’t tightened it at this juncture.”

    In fact, there were a couple of indicators suggesting that the policy had eased significantly, if not aggressively, since mid-2018.
    …

    1. It seems like stock market investing these days is largely about timing purchases for changes in central bank stimulus. It’s been that way ever since I began paying attention, circa 1987 when the Greenspan put was born. I don’t know if there was a pre-bubble / pre-unicorn corporation era when fundamentals, such as corporate earnings and dividends, played a meaningful role?

        1. Trump, Kudlow, Munchin & Ro$$: The eCONomy is $trong & $mokin’! … Now is the time to lower Fed Rate$ 1.0%, hurry!

        2. U.$. small busine$$ owners are preparing for a rece$$ion – Bank of America $urvey

          Reuters | By Imani Moise| April 30 2019

          Small business owners around the country are preparing for a recession, according to a new survey by Bank of America Corp, and the bank wants to put more business specialists in branches to help, an executive told Reuters.

          More than two-thirds of business owners surveyed by the bank said they had taken steps to prepare for an economic downturn, including setting cash aside or planning to reduce expenses.

          Of the 69 percent of owners who had started preparing for a recession, only 19 percent had opened a line of credit, a figure that Bank of America’s head of small business Sharon Miller said was too low.

          “When you need a line of credit, you often can’t get one,” she said in an interview. “Business owners should be thinking about that now.”

          Earlier this month, the second-largest bank by assets announced plans to expand its branch and ATM network to cover more than 90 percent of the U.S. population by 2021.

  11. the reason that this works is they get to put the full lease on the ongoing records and then record the $2K as a 1 time marketing/sales expense.

    It will hurt at renewal – but they dont care

    ———
    “Most recently in Seattle, which has been experiencing an oversupply in rental housing, many landlords have accompanied their rental property listings with perks of gift cards worth as much as $2,000 plus months of free rent.”

  12. Wake me up when people are only willing to put about 25 % of their nut toward shelter. Jobs aren’t even stable enough to go for the 30 year house investment like the old days.

    Wake me up when the definition of the middle class isn’t anyone who isn’t homeless.

    Wake me up when the employers pay for the bulk of health care for employees where the cost should be cheap because working people tend to not make expensive claims.

    Just wake me up when people aren’t stressed out slaves to rigged pricing whereby the power cartels aren’t brainwashing people that it’s their fault they can’t reach the AMerican dream.

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