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The Real Issue Is Access To Debt

A report from Domain News in Australia. “Savvy Sydney buyers can snap up houses in a handful of suburbs for prices last seen in 2015 as the property market continues its slide. Epping’s median house price has fallen to $1.45 million, Domain data for the March quarter shows. North Rocks fell to $1.068 million, Castle Hill to $1.305 million and Eastwood to $1.56 million.”

“Selling agent Catherine Murphy said Epping was a perfect example after she sold a house for $1.258 million – just $8000 more than when it last sold in 2015. She said vendors who were selling in this current market were doing so out of necessity despite trying to get 2017 prices.”

“‘It’s like saying I want to sell my Holden for $100,000 to buy my Ferrari. No one cares,’ Ms Murphy said.”

The Property Observer. “Domain report Perth property prices are now nearly back to the levels seen at the end of 2011. ‘That 2011 decline was the trough and was before the 2014 peak, so prices rose from their trough in 2011 up to the peak of 2014, and now they are back down to that trough of 2011 more or less,’ said Domain senior research analyst Nicola Powell, meaning they are now nearly back to the levels seen at the end of 2011.”

From Mortgage Business. “Chifley Securities announced a 16 per cent rise in property developers seeking urgent financial help as their project sales and pre-sales have waned, due in part to ‘tighter lending controls.’ ‘Meanwhile, many investors are now sitting on the sidelines, forcing developers to arrange alternative arrangements to complete their projects or hold on to them until sales recover – in many cases through price drops of up to 30 per cent,’ said Dominic Lambrinos, principal at Chifley Securities.”

The Urban Developer. “Developer value-add incentives like rebates and low deposit terms have had little effect on Melbourne’s land market, with lot sales for the March quarter down 59.5 per cent from 2018.”

“‘There is a widespread view that lot prices are overvalued — particularly given falling values in the established housing market,’ RPM chief executive Kevin Brown said.”

“Recent land site sales include a $22.5 million acquisition of a 30-hectare landholding in Wallan in Melbourne’s north, reflecting a rate of $750,000 per hectare. ‘Which is seen as real value in a market where rates per hectare have previously exceeded $2,500,000 in some corridors,’ Kelly said.”

The Mornington Penisula News. “Drops in property prices and the number being sold on the Mornington Peninsula are being blamed on changes to lending rules in the wake of the banking royal commission. However, the introduction of more comprehensive credit reporting in July will allow lenders to see a borrower’s full credit history, possibly making loans even harder to get.”

“James Merchan, of Impact Realty Group, said the Mt Eliza market rose to a new median high in February 2018 of $1.173 million but the median had dropped to $1.058 million in this year’s March quarter – down 10.9 per cent. Frankston South’s median had dropped from a high in early 2018 of $841,000 to $720,200 (down 16.8 per cent) while Frankston’s median peaked in the same period at $621,300 but has since dropped to $543,200 (down 14.4 per cent).”

“With most needing a mortgage against their home, he said it would be ‘wise to revisit your borrowing capacity.’ ‘The last thing you want is to sell your home and then realise that you can’t obtain a loan because of the tightening of credit,’ he said. ‘One of our buyers who attended multiple opens throughout 2018 had their borrowing capacity reduced from $1 million down to $650,000 without any changes to their situation.'”

The Australian Financial Review. “Fresh from selling almost half a billion dollars worth of luxury apartments overlooking St Kilda Beach, Financial Review Rich Lister Tim Gurner has dismissed the idea that cutting interest rates will boost the housing market.”

“The real issue, he said, was access to debt. ‘The market will not go back to normal because rates are cut. That won’t happen until APRA gets its mortgage serviceability changes through. Rates could be zero, but the market is driven by access to debt and the policies of the banks,’ he said.”

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  1. ‘reflecting a rate of $750,000 per hectare. ‘Which is seen as real value in a market where rates per hectare have previously exceeded $2,500,000 in some corridors’

    Oh dear…

  2. ‘The real issue, he said, was access to debt’

    ‘One of our buyers who attended multiple opens throughout 2018 had their borrowing capacity reduced from $1 million down to $650,000 without any changes to their situation’

    The Australian REIC is mounting a full court press to try and talk life back into their bubble. I mean hundreds of articles. I’ve seen it and seen it. Dubai, London, Vancouver, Toronto, Hong Kong, they’ve all lied openly only to see the crater widen.

    And there’s no one to say, but me I guess, “Hey Vancouver Sun, you said the bottom was in late 2016. Wa happened?”

  3. ‘It’s like saying I want to sell my Holden for $100,000 to buy my Ferrari. No one cares’

    Does Catherine comment here sometimes?

    1. Holden is GM in Australia. So she’s basically saying they’re trying to sell a Chevy to buy a Ferrari.

  4. “With most needing a mortgage against their home, he said it would be ‘wise to revisit your borrowing capacity.’ ‘The last thing you want is to sell your home and then realise that you can’t obtain a loan because of the tightening of credit,’ he said. ‘One of our buyers who attended multiple opens throughout 2018 had their borrowing capacity reduced from $1 million down to $650,000 without any changes to their situation.’”

    But but but shills here said we just need more supply! You just need more $million dollars shacks that no one can afford? You mean just cut the subprime loans and BAM prices drop!?!! The Hell with this!

  6. “Savvy Sydney buyers can snap up houses in a handful of suburbs for prices last seen in 2015 as the property market continues its slide.

    Those aren’t savvy buyers; those are knife catchers who are going to end up being cautionary tales. The real savvy buyers won’t make their appearance until the cratering has reached Biblical proportions.

    1. Savvy Sydney buyers can snap up houses

      Yeah…I was going to say savvy buyers CAN…but they won’t.

  7. “Perth property prices are now nearly back to the levels seen at the end of 2011. ‘That 2011 decline was the trough…trough in 2011 up to …that trough of 2011 more or less,’ said Domain senior research analyst Nicola Powell, meaning they are now nearly back to the levels seen at the end of 2011.”

    Priceless. Senior Analyst moment.

    The Australians have never seen anything like what is headed their way.

  8. Speaking of access to debt, are the shrinking yields on U.S. Treasurys giving you the heebie jeebies over your risk asset investments? It seems like there’s no shortage of investors willing to loan money to Uncle Sam at ever lower yields. What could so many investors piling into Treasury bonds portend?

    3. Note that I deleted the happy talk at the start of the article below to skip right to the meat. If you enjoy happy talk, click on the link.

      Bond-market inversion resembles 1998…
      By Mark DeCambre
      Published: May 29, 2019 3:49 p.m. ET
      …
      The 10-year Treasury note yield fell below its 3-month counterpart, deepening an inversion of the yield curve, which measures the difference between the yield on the longer-dated Treasury and its shorter-dated counterpart.

      Such rate inversions are rare because investors tend to demand higher yields for extending loans over a longer period. Therefore when rates invert it is viewed as a signal that an economic recession is in the offing. The 10-year yield Treasury note yields 2.22% while the three-month rate stands at 2.361% as of Wednesday midday trade, reflecting the most severe inversion between the pair since 2007, according to FactSet data.

      Although Wall Street prefers to watch the 10-year and 2-year Treasury note an inversion of the 10-year/3-month measure of the yield curve is widely viewed as a more reliable recession predictor. Inversions of the 10-year/3-month curve have preceded the past seven recessions, while throwing out two false positives with an inversion in late 1966 and a very flat curve in late 1998, according to the Federal Reserve Bank of Cleveland.
      …

    4. Silver lining to Treasury bond market gloom: Long-term Treasury yields are highly and positively correlated with 30-year mortgage rates. With plummeting rates, the how-much-a-month crowd should be snapping up housing market deals in droves any day now!

        1. Unless this time is different, and we never again go into another recession, the enticement of low rates to lure the fencesitters into buying now could later appear to have been very badly timed through the lens of history’s rear-view mirror.

    5. China is losing the trade war, people are investing in the stable country. Perhaps because we have a “stable genius” running things or at least a person who is not promoting the world’s needs over the US. Where else do you get a safe yield, Europe has created negative yields with QE and has no growth making investing there questionable. China is trying to keep its economy a float with a printing press and the developing countries have economies based on selling the US cheap goods which is questionable when you have a President willing to protect America jobs. It is why the Globalists want Trump out now, before people really see the jobs come back.

  9. The longer I read this blog the more I’m convinced that Ben knows exactly what he’s talking about when he predicts the future of the housing bubbles.

    This UCLA economist says that 9 of 11 post world war recessions were predicted by…
    1. a steep downturn in housing sales volume (volume cuts in half)
    2. followed by a drop in sales volume of durable consumer goods (autos, dishwashers, etc)
    3. followed by a drop in business capital investment.

    https://www.nber.org/papers/w13428

    Basically, he says that housing sales volume is a leading indicator of recession. Housing prices are a lagging indicator. This is what Ben points out all the time. Most recently to Mr. “Reality Check” on the previous post.

    So, we have falling sales volume in housing.
    https://tradingeconomics.com/united-states/existing-home-sales

    Falling sales volume in autos.
    https://tradingeconomics.com/united-states/total-vehicle-sales

    Consumer durables haven’t turned over…yet.
    https://tradingeconomics.com/united-states/value-of-manufacturers-new-orders-for-consumer-goods-consumer-durable-goods-industries-fed-data.html

    Bottom line…watch sales volume!

    1. Health and Science
      Tobacco stocks tumble as cigarette sales decline
      Published Tue, May 28 2019 3:31 PM EDT
      Updated Tue, May 28 2019 5:51 PM EDT
      Angelica LaVito
      Key Points
      – Altria and British American Tobacco shares fell Tuesday.
      – Cigarettes volumes fell 11.2% in the four-week period ended May 18, according to Nielsen data published Tuesday.
      – Tobacco companies’ core cigarette businesses are shrinking faster than expected.
      …

      1. Very interesting. Casts an entirely new light on the “belt tightening” concept…

        1. Closure of Toys R’ Us was the canary in the coal mine for demographic shift.

          3. Toys-Я-Us

            Online shopping, in general, and the retailer’s resale of open/used items, in particular, didn’t help much either. Diapers.com was great before the Amazon acquisition.

          4. They were drowning in debt and private equity leeches extracted all the value and left the carcass to rot. I don’t dispute any of this. But even on their earnings calls they cite a dwindling population grown (e.g. fewer children) as a long-term negative force that contributed to their demise. Was it the only force? Certainly not. But I believe it is a harbinger of things to come.

          5. on their earnings calls they cite a dwindling population

            Just goes to show that when you are already doubled over with trouble nature comes along to kick you in the butt.

            However, the company was insolvent in 2005 when the US was having somewhat of a baby boom. Vultures took over in 2006 or about. Citing the drop in births in 2017 doesn’t explain their earlier created debt problem.

            https://www.statista.com/statistics/195908/number-of-births-in-the-united-states-since-1990/

      2. Can’t see a recession slowing down Clevon. If anything a recession would yield more time to do what’s important.

  10. Dutch auctions are the new black in U.S. luxury home sales.

    The Financial Times
    North American prime property
    Why are homes in the Hamptons losing value?
    Locals blame Donald Trump’s tax changes for deterring wealthy buyers
    Southampton Beach in The Hamptons, a summer getaway for generations of wealthy New Yorkers © Getty
    AK Thomson 17 hours ago

    In May last year, just as warmer weather hinted at the onset of summer season, Elyn Kronemeyer and her husband listed the three-bedroom property that they rent out in the Hamptons for $4.23m. “We priced it rather optimistically, just because it’s a very special property,” says Kronemeyer, a local estate agent who lives near her rental, which is in an upmarket area of Southampton known as the Estate Section.

    “Normally, to have a small property in that area, south of the highway and with easy access to the beach, that would be a pretty quick sell,” she says.

    More than a year later, the home is still on the market, and the couple, who own several properties in the US, have just made their second price reduction — to a shade under $3.5m.
    …

    1. “$4.23m…$3.5m”

      Don’t let the funny money notation prevent you from noticing that we’re talking about a $730,000 haircut…so far. For some of us, that’s alot of money!

    1. The WSJ charges $275/yr to get past their paywall, so they probably have to refrain from the obedient plantation message.

  13. Who sucked all the oxygen out of U.S. Treasury yields at the 2 to 5 year time horizon? It’s almost like Mr Market is trying to price in future resumption of Quantitative Easing, as the Fed has little breathing room to ease policy through conventional monetary operations.

    1. Try to avoid the temptation to catch yourself a falling knife!

      Mortgage rates slide below 4% as the trade war buffets markets
      By Andrea Riquier
      Published: May 30, 2019 10:03 a.m. ET
      So far this year, the 30-year-fixed has averaged 4.26%, down from 4.54% in 2018

      Rates for home loans fell again, taking the benchmark product below a key threshold, as global economic concerns rocked markets.

      The 30-year fixed-rate mortgage averaged 3.99% in the May 30 week, down from 4.06%, Freddie Mac said Thursday. That marked a 16-month low for the popular product, which has eked out a weekly rise only six times so far in 2019.

      The 15-year fixed-rate mortgage averaged 3.46%, down from 3.51%. The 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 3.60%, down 8 basis points.

      Rates have tumbled for the past few weeks, in line with the broader bond market, on concerns about a U.S.-China trade war and overall slowing global growth. When investors grow worried about future growth, fixed-income assets like bonds look more attractive, and when bond prices rise, yields fall. Fixed-rate mortgages follow the 10-year U.S. Treasury note.

      But Americans aren’t taking advantage of the rate lull the way they may have been expected to. Mortgage applications for both purchases and refinances fell in the most recent week, the Mortgage Bankers Association said Wednesday.

      “It is possible that the trade dispute is causing potential homeowners to hold off on buying, with the fear that further escalation – or the lack of resolution – may have adverse impacts on the economy and housing market,” the group said in a release.

      All eyes are on the crucial spring selling season, in hopes that sales activity will shed more light on the health of the market. Many analysts believed that the market wobble in the second half of 2018 was a one-off, and with rates backing off, more Americans would be lured back into the market. That may turn out to be too optimistic.

      Read: We’re probably at peak housing. Here’s what that means.
      …

    2. “Unexpectedly”, per Diana, complete with heartbroken expression in the CNBC article. LOL

    3. But the Realtor lobby group remains upbeat. “It’s inevitable for sales to turn higher in a few months,” NAR Chief Economist Lawrence Yun said.

      Yun has been saying this since last year, few months turn into a year after you repeat the same thing four times Yun…

    4. “16th straight decline”

      It seems like the onset of the slide in home sales predates trade tensions, although the MSM is apparently trying to link them.

      1. trying to link them

        Linking concurrent headlines is not an analysis of cause and effect.

      2. They’ll reach for any bullshit explanation they can in order to avoid the 800 pound gorilla in the room.

    1. “Picture a mild economic downturn, in which hundreds of tech workers along the West Coast lose their jobs. Many would be unable to make their mortgage payments, or might decide to take a different job in a different city. That would prompt many people to sell their homes at cheaper prices than the houses might be valued at if the economy wasn’t under pressure. At the same time, there would be less of the frenzied demand for homes that bid prices higher. (As Khater emphasizes, it’s impossible to know which sectors of the economy get hurt the hardest in the next downturn, and it’s possible the pain could be widespread, nationwide.)”

      Bay area prices are falling like a turd down the well already! After 3 years of sales declines due “to lack of supply” LOL. I Iive in Milpitas next to San Jose and inventory has exploded. Not only for sale and for rent lingering on the market forever. This was not the case early last time. When I first moved here in January, Open House for sale or rent were like LV party! You can’t even find parking or a place to stand as it was so crowded. Now at my place (near Great Mall), there are 9 for sales in one square mile!

      1. “Now at my place (near Great Mall), there are 9 for sales in one square mile!”

        Yeah ok, BUT… how many of those are priced strategically with enough 8’s and a freshly dug hole covering a St Joseph’s statue???

        1. a freshly dug hole covering a St Joseph’s statue

          I lived very close to there recently. Not a good location for hole digging. Unless you like digging through pavement.

    1. First earnings release

      Misnomer but up after hours because it lost less money than expected. SMH

        1. The narcissist probably hasn’t even noticed. He’s too busy trying to pump his own stock with “leaked” emails and tweets.

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