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It’s Kind Of Ironic, There’s This Panic Prices Might Fall

A report from the Toronto Star in Canada. “Over the last few months, the staggering scale of money laundering in the Toronto and Vancouver real estate markets has come into focus. Even though real-estate agents are technically required to report suspicious transactions, they are incentivized by commissions to look the other way. The Star reported last year that Canadian real-estate agents submitted suspicious transaction reports inless than 0.008 per cent of property sales made between 2013 and 2017.”

“Garry Clement, former national director of the RCMP’s proceeds of crime program, now trains bankers and other professionals — including real-estate agents — on how to catch money laundering. He said he was shocked when he asked a room full of real-estate agents how many of them had ever accepted cash payments. ‘The hands shot up,’ he said. ‘They just didn’t see anything wrong with it.'”

“Even when they suspect something is fishy, real-estate agents don’t want to turn down big commissions. ‘They haven’t taken (the money laundering rules) seriously,’ he said. ‘This plays into the hands of organized crime. They’ll never get it right until some prominent agent or broker is walked out in handcuffs.'”

From ABC News on China. “Build it and they will come. That is the philosophy underpinning modern China’s urban fields of dreams. In some senses they have, and do, come. But they are not residents or businesses in many of China’s gleaming new towers. They are investors — speculators betting that property values only go up.”

“It’s been a good bet for a long time, but analysts warn, like all good things, one day it must come to an end. The reason for the long-term concern? The number of empty properties in a country already renowned for its ghost cities is still rising.”

“With an estimated 21.4 per cent dwellings vacant at the end of 2017, China now has as much as 6.4 billion square metres of empty residential floor space. That is 1.68 times the amount of floor space built over the past five years, and hints at the scale of construction downturn needed to allow the excess supply to be filled with residents.”

“To give you a better sense of the scale of China’s overbuilding, assuming a reasonably generous average of 80sqm of floorspace per new dwelling, that is 80 million units that are currently sitting empty. Even relative to China’s population of 1.4 billion, 80 million is a lot of empty homes — more than any other country Citi looked at, except for the recession-ravaged economies of Spain and Italy.”

“Unlike Spain and Italy, though, purchaser demand for urban residential property in China remains high for now, as illustrated by eye-watering price-to-income ratios that make expensive cities like Sydney and Vancouver look cheap. ‘The high vacancy ratio suggests that future property investment is bound to decline, as the property market may have entered into a state of oversupply, and as the motivation for property purchases has increasingly become investment driven,’ Citi warned.”

“Citi warns that eventual moves towards property taxation may see speculators flee the Chinese property market, or it might collapse through sheer oversupply and indebtedness. If and when this happens, the same forces driving demand for Australian commodities up will reverse.”

“‘The property sector tends to affect a broad set of industrials and contributes to around one-third of China’s industrial output, directly and indirectly,’ Citi’s economists cautioned. ‘Meanwhile, the declining property price may trigger rising default risk on the housing debt, potentially threatening the financial stability as well.'”

“But can-kicking has become the specialty of global policy makers, and the road hasn’t run out yet.”

From Domain News in Australia. “House prices have dropped most in a string of affluent east coast electorates that are largely Liberal-held, new figures show. Seats held by Labor were not immune, as the housing market weakens across the nation’s two largest cities.”

“Housing policy has been a hot topic in the campaign, with Labor proposing to curb negative gearing tax breaks in a policy that the Coalition warns would force prices down further, and the Coalition unveiling its own policy to help first-home buyers get into the market with a low deposit.”

“Along Melbourne’s bayside, the seat of Macnamara, formerly Melbourne Ports and held by the ALP’s retiring Michael Danby, house prices fell 29.4 per cent over the past year, the highest declines of any seat.”

“Some of the most sharp falls have been in Melbourne’s leafy eastern suburbs. Prices across Treasurer Josh Frydenberg’s blue-chip electorate of Kooyong have fallen 19 per cent over the year to the end of March, while outgoing Jobs Minister Kelly O’Dwyer’s old seat of Higgins has seen prices drop the same amount, Domain figures show.”

“Further east in Chisholm, which was held by Liberal-turned-independent Julia Banks who switched focus to contest coastal seat Flinders instead, prices dropped 19.6 per cent over the past year. In Sydney, house prices fell more than 18 per cent in each of the Liberal-held electorates of Bennelong on the north shore and Prime Minister Scott Morrison’s seat of Cook in the south.”

“As the election looms, worries about falling prices demonstrated the insecurity of a nation where so much household wealth depends on home ownership, University of Sydney urban planner and policy analyst Professor Nicole Gurran said.”

“‘It’s kind of ironic – we had a lot of political posturing when the market was at its peak, the government saying how worried they were about housing affordability,’ she said. ‘There’s this panic prices might fall. If you’re an aspiring first-home buyer or renter it’d leave you a bit confused, you’d think housing affordability measures should result in some cooling.'”

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This Post Has 37 Comments

  2. ‘Even relative to China’s population of 1.4 billion, 80 million is a lot of empty homes — more than any other country Citi looked at, except for the recession-ravaged economies of Spain and Italy’

    ‘Unlike Spain and Italy, though, purchaser demand for urban residential property in China remains high for now, as illustrated by eye-watering price-to-income ratios that make expensive cities like Sydney and Vancouver look cheap’

    So they got 20 million more empty shacks/airboxes than a couple of years ago. China is fooked.

    1. “…purchaser demand for urban residential property in China remains high for now…”

      Doesn’t high demand normally go hand in hand with few vacancies? I wonder how that empty homes count will look if demand ever falls.

      1. i thought they kept new condo purchases empty — until they re-sold as never lived in condos were considered good

    2. 20 million more empty shacks

      Could end up being a bigger number when investor demand turns into cascading defaults.

  3. ‘house prices fell 29.4 per cent…have fallen 19 per cent…prices dropped 19.6 per cent over the past year. In Sydney, house prices fell more than 18 per cent’

    No mention of a bubble, though.

  4. ‘He said he was shocked when he asked a room full of real-estate agents how many of them had ever accepted cash payments. ‘The hands shot up,’ he said. ‘They just didn’t see anything wrong with it’

    ‘Even when they suspect something is fishy, real-estate agents don’t want to turn down big commissions. ‘They haven’t taken (the money laundering rules) seriously,’ he said. ‘This plays into the hands of organized crime. They’ll never get it right until some prominent agent or broker is walked out in handcuffs’

    Note the URL/headline:

    http://www.thespec.com/news-story/9352574-realtors-call-for-land-registry-to-crack-down-on-money-laundering/

    1. the URL/headline

      Headline writing is a special skill.

      ” Cohen’s organization released a similar survey of the real-estate market in the Greater Toronto Area. It found 50,000 houses were bought by anonymous companies with $20 billion in untraceable cash during the last 10 years.”

      Why is a house just over the NY/Ontario border worth two or three times a much?

      1. I thought all those Chinese were paying 15% foreign tax? Or is that only for British Columbia?

        You would think that governments would put a stop to this speculation in the breadstuffs of the country.

    1. “the market is just completely dead until Superbowl weekend in February”

      LOL@ referencing the Souper Bowl as an economic barometer.

      1. Heh. When I bought, I made my offer on Superbowl Sunday in 2012. Would that be the dead bottom of the market?

        1. Would that be the dead bottom of the market?”
          Pretty close. I also bought in 2012, made offer in Jan closed in June. In my case doubt super bowel had much to do with it the house was abandoned.

  7. In case this wasn’t posted yet
    U.S. mortgage delinquency rate rises from 18-year low, MBA reports

    excerpt:
    The delinquency rate rose to 4.42% in the first three months of the year, up from 4.06% in the fourth quarter, MBA said. It remained below 2018’s first quarter when it was 4.63%, the group said.

    The percentage of loans newly in foreclosure fell to 0.23%, compared with 0.25% in the fourth quarter of 2018 and 0.28% a year earlier. The seriously delinquent rate – the percentage of loans 90 days or more past due – dropped across all loan types from the previous quarter to 1.96%, the lowest level since the second quarter of 2006. The so-called foreclosure inventory, meaning the share of all loans in foreclosure, was 0.92%, the lowest level since 1995.

    2. Reading the article, it sounds as if this is not a bad number. But to me, 4.42% of all mortgages being delinquent seems like a lot!

      1. True that. It’s just amusing to watch them twist themselves into a pretzel to avoid stating the real reasons there are problems in the housing market, and grasp at any red herring that seems the least bit plausible.

        1. I remember in 2002-2003, CNBC ran chirons (those traveling words on the bottom of the TV screen) saying stuff like “Greenspan to lower interest rates again?” Of course Greenspan had said *no* such thing. But CNBC put a “?” on the end, which allowed them to make up their own headlines and sort of give Greenspan a hint. I’ve hated them ever since.

    1. but they still claim that Toronto rose 3.3%. Unless it is a mix issue – this continues to not make sense

  12. ah … the magic all cash purchases. So there was a catch after all. But if you get 3% commission – who cares
    ———

    “German’s report found that at least $5 billion was laundered through B.C. real estate last year alone. In total, his team found 90,000 homes owned anonymously through corporations in the province, one third of which were bought with cash.”

  13. ‘The low inflation situation isn’t about to change’

    ‘Inflation in Switzerland remains low and the situation isn’t about to change. Inflation rose to 0.9% in 2018 – the highest level since 2008, but this was mainly due to the evolution of oil prices and other volatile elements, underlying inflation remained stuck at 0.4% over the whole year. Inflationary pressures remain low for 2019 due to the slowdown in expected growth. Nominal wages aren’t showing any signs of rising and the oversupply of apartments for rent pushes the price of housing rentals down, which tends to lower inflation given the weight of the component in the CPI index (18%).’

    https://think.ing.com/articles/switzerland-feet-firmly-on-the-brakes/

    1. What if low inflation turns to deflation as tapped-out debt donkeys in our oligarch-looted economies curtail their spending?

      That would be the nightmare scenario for debtors and their lenders.

  14. Behold the future demand for U.S. housing. Maybe throwing the younger generation under the bus to protect wealthy old voters has its drawbacks?

    US fertility falls to record low, fewest births in 32 years
    by Cassidy Morrison
    | May 15, 2019 12:01 AM

    The U.S. fertility rate fell to a record low in 2018 and the number of births declined for a fourth consecutive year, the National Center for Health Statistics reported Wednesday.

    The nation’s total fertility rate, or the average number of children a woman would be expected to give birth to in her lifetime given current birth rates, reached a record low of 1.73, a decline of 2%. That is below the threshold for maintaining current population levels, 2.1 children for every mother.

    The number of births, meanwhile, fell to 3,788,235, a decline of 2% and the lowest in 32 years.
    …

    1. Zerohedge has a similar article this morning with the Idiocracy clip that rms posted earlier this week (along with a funny baby picture). I somehow missed that movie for the last 13 years.

  15. Try as I might, I can’t seem to muster any panic about falling shack prices. In fact, the thought makes me downright gleeful. Does that make me a sociopath?

  16. What happens when the central banks can no longer … levitate their Ponzi markets and asset bubbles?

    Look @ the new $hiny lure, don’t get yerself di$tracted!

    “They have yellow.cake!”

    “Ghika spoke just days after Acting Defense Secretary Patrick Shanahan presented a plan at the White House to send up to 120,000 troop$ to the Middle East if Iran attacks American forces or resumes work on nuclear weapon$, unnamed administration officials told the New York Times. On Sunday, UAE officials said four commercial $hips had been sabotaged just outside the Per$ian Gulf.”

    A Bewildering Briefing on the Iranian Threat Leaves More Questions Than Answers

    BY KATIE BO WILLIAMS
    SENIOR NATIONAL SECURITY CORRESPONDENT | DefenseOne

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