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We Are Continuing To See Settlement Valuations Not Meeting The Purchase Price

A report from the Daily Telegraph in Australia. “Things are finally getting easier for Sydney’s long frustrated home seekers. The median price of a Sydney home has dropped close to 15 per cent since the market peaked in July 2017 and is now about $808,000. That price is 8.5 times the average household’s annual income — still the highest in the country but lower than in 2017, when prices were almost 10 times typical wages.”

From ABC News. “The Reserve Bank’s decision to cut its official interest rate to a record low is good news for housing affordability, but will not do much to drive a recovery in Perth or the state’s housing market, experts have said. Real Estate Institute of WA president Damian Collins said prices in outer suburbs were still falling due to an oversupply of about 5,000 houses in areas including Baldivis, Ellenbrook, Byford and new subdivisions north of Butle.”

“‘Certainly the cheaper money will help people with affordability, but what we ultimately need to solve our oversupply problems in those outer suburbs is more people coming into the state,’ Mr Collins said.”

The Australian Financial Review. “A two-bedroom apartment at Meriton’s Altitude apartment tower in Parramatta in Sydney’s west has sold at 23 per cent below its off-the-plan price, as the apartment market continues to struggle. Public records show the three-bedroom unit – once marketed as the ‘Versace Suite’ – at the high-profile building at 330 Church Street resold for $990,000 in May, below its 2015 off-the-plan sale of $1.285 million.”

“There were also many other resales in the tower with those sold in the past year making either little profit or at a loss of up to 23 per cent against their original purchase prices around 2014 and 2015 when the project was launched. In March, a two-bedroom apartment at level 43 resold and settled for $820,000, at nearly 20 per cent lower than its off-the-plan price of just over $1 million.”

“Big premiums were paid for these apartments during the boom of 2012 to 2017 when local and foreign investors fought it out to snap up off-the-plan units, valuers Herron Todd White said. ‘As the wider market weakens, we are continuing to see settlement valuations not meeting the off-the-plan purchase price,’ the valuer said.”

“The outlook continues to look bleak for unsold units, evidenced by developers offering incentives to buy units, Herron Todd White said. In Schofields, one of the newest greenfield housing areas 45 kilometres west of Sydney, developer Bathla is offering $1.2 million in lucky draw prizes to new apartment purchasers at its Pelican Estate project.”

“‘Incentives and giveaways such as this are not typically seen during a booming market and are considered a sign of the times,’ Herron Todd White said.”

From Domain News. “Landlords are slashing prices, accepting shorter leases and making alterations to their properties to secure tenants in Sydney’s cooling market, as vacancy rates rise and the average time to rent a property stretches up to almost nine weeks.”

“While the cooler rental market is welcome news for tenants, it’s put pressure on landlords like Ayla Estacio to lower rents and spruce up their properties to stand out from the competition. When Ms Estacio’s unit returned to the market this year, it took about eight weeks, two price cuts worth $100, a shorter six-month lease and changes to her apartment — including new flyscreens and kitchen upgrades — to ensure she got a tenant before her property was left vacant.”

“‘[My tenant] wanted a few changes … and I thought I was better off making this investment now and having someone good in there,’ Ms Estacio said. ‘It’s very much their market at the moment. It was a dramatic change. [Landlords] started being more competitive in dropping their prices … I never expected that to happen in Sydney, but there’s a lot more options now [for renters].'”

“Property manager Melissa Morgan said older stock in the area was often languishing on the market due to the oversupply of new apartments. ‘ In Meadowbank there was over 100 other two-bedroom properties in the market for rent at the same time, so we needed a slightly different approach,’ Ms Morgan said. ‘For the first time in over a decade I’m seeing some significant rent declines in these areas, which requires strategy, negotiation and flexibility in order to minimise vacancy periods or retain the existing tenant.'”

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This Post Has 87 Comments

  1. ‘Big premiums were paid for these apartments during the boom of 2012 to 2017 when local and foreign investors fought it out to snap up off-the-plan units’

    Winners!

    I never heard them called flyscreens. Australians have a different word for everything.

    1. What they didn’t include in the figures is the actual net dollars the seller received after commissions.
      Wouldn’t that be another 5-6% in fees.
      They are actually down $28%

    2. I never heard them called flyscreens. Australians have a different word for everything.

      What’s the Aussie word for schlonged?

  2. ‘‘Certainly the cheaper money will help people with affordability, but what we ultimately need to solve our oversupply problems in those outer suburbs is more people coming into the state’

    The whole country is oversupplied Damian, at the exact same time. Oh for the days, last week actually, when the REIC was shouting “the bottom is in, we’re saved!” A quarter-point interest rate cut isn’t gonna do squat.

    1. I wonder how Poway Unified School District plans to pay off its capital appreciation bonds when they come due?

      1. California debt donkeys like living large…and why not, when the Fed is pumping in the Yellen bux?

        National
        School District Owes $1 Billion On $100 Million Loan
        December 7, 20121:55 PM ET
        Heard on All Things Considered
        Richard Gonzales at NPR headquarters in Washington, D.C., September 27, 2018. (photo by Allison Shelley)

        More than 200 school districts across California are taking a second look at the high price of the debt they’ve taken on using risky financial arrangements. Collectively, the districts have borrowed billions in loans that defer payments for years — leaving many districts owing far more than they borrowed.

        In 2010, officials at the West Contra Costa School District, just east of San Francisco, were in a bind. The district needed $2.5 million to help secure a federally subsidized $25 million loan to build a badly needed elementary school.

        Charles Ramsey, president of the school board, says he needed that $2.5 million upfront, but the district didn’t have it.

        Why would you leave $25 million on the table? You would never leave $25 million on the table.

        “We’d be foolish not to take advantage of getting $25 million” when the district had to spend just $2.5 million to get it, Ramsey says. “The only way we could do it was with a [capital appreciation bond].”

        Those bonds, known as CABs, are unlike typical bonds, where a school district is required to make immediate and regular payments. Instead, CABs allow districts to defer payments well into the future — by which time lots of interest has accrued.

        In the West Contra Costa Schools’ case, that $2.5 million bond will cost the district a whopping $34 million to repay.

        ‘The School District Equivalent Of A Payday Loan’

        Ramsey says it was a good deal, because his district is getting a brand-new $25 million school. “You’d take that any day,” he says. “Why would you leave $25 million on the table? You would never leave $25 million on the table.”

        But that doesn’t make the arrangement a good deal, says California State Treasurer Bill Lockyer. “It’s the school district equivalent of a payday loan or a balloon payment that you might obligate yourself for,” Lockyer says. “So you don’t pay for, maybe, 20 years — and suddenly you have a spike in interest rates that’s extraordinary.”
        …
        Lockyer is poring through a database collected by the Los Angeles Times of school districts that have recently used capital appreciation bonds. In total, districts have borrowed about $3 billion to finance new school construction, maintenance and educational materials. But the actual payback on those loans will exceed $16 billion.

        Some of the bonds can be refinanced, but most cannot, Lockyer says.

        Perhaps the best example of the CAB issue is suburban San Diego’s Poway Unified School District, which borrowed a little more than $100 million. But “debt service will be almost $1 billion,” Lockyer says. “So, over nine times amount of the borrowing. There are worse ones, but that’s pretty bad.”

        A Statewide Problem

        The superintendent of the Poway School District, John Collins, wasn’t available for comment. But he recently defended his district’s use of capital appreciation bonds in an interview with San Diego’s KPBS Investigative Newsource.

        “Poway has done nothing different than every other district in the state of California,” Collins told the program.
        …

        1. Our kids all benefited from a great education in Poway public schools. Now that they are done, I’m trying to persuade my wife to move to an area without the quality education premium in home prices, but she’s attached to the community.

          1. It’s a great community. My grandparents looked at buying a home in the very area in which we now rent back in the 60s. I refused to move here in the late 80s from a private girl’s school in Bel Air. Things change as do priorities.

            Regarding the fiscal problems of the school district , it sounds like there was quite a bit of fraud and misrepresentation surrounding the 2011 bond. It’s certainly another issue that gives me pause when thinking about a purchase.

          2. comparing Kyrene school district Esperanza elementry in Ahwatukee to Poway Midland elementary first hand when I moved from AZ to CA – my kids were farther ahead in AZ than Poway. And Poway has the best SD schools they say.

            kinda surprising

          3. kinda surprising

            Not really. Education historically has been within the purview of each state. Don’t get me started with Common Core! I would expect interstate variability. Poway Unified is also very demographically diverse. IMO, any comparison of schools beyond county boundaries is like comparing apples to oranges. There are physical limitations to where you can live, work and send your kid to school. If I moved to AZ, I’d be utterly unemployable.

        2. Poway Midland elementary

          Ranked in the bottom 5 of the 26 elementary schools in the district according to GreatSchools.org.

          My point: interstate and intradistrict variability matter.

          1. And then there is the validity or rankings themselves.

            Personally, I’d rather my son go have a good teacher in a mediocre school than a mediocre teacher in a great great school. The research shows that the educator is paramount.

          2. The research shows that the educator is paramount.

            Agreed! Given its size and reputation, Poway Unified attracts and retains the best in the county. It’s not without fault but better than the alternatives.

  4. Just got the order from on high to cease and desist all work/support with Huawei. So far at this job I’ve never dealt with them. But this could be a big deal at my old job if they’re getting the same instructions.

    1. ‘Mexico has pledged to deploy up to 6,000 National Guard troops to the southern border in an attempt to reach a deal to avoid a tariff on all exports to the United States, The Washington Post reported.’

      ‘Mexican officials told United States government representatives in Washington today that the large security deployment will bring an immediate reduction to the large number of Central Americans traveling through Mexico to the U.S. border. Foreign Secretary Marcelo Ebrard is leading a Mexican delegation in talks with White House officials aimed at reaching an agreement to prevent escalating tariffs announced by President Donald Trump last week.’

      https://mexiconewsdaily.com/news/mexico-pledged-to-send-6000-troops/

      1. Mexico’s National Guard isn’t like our sad-sack National Guard. Rather, it’s a newly-established force that is pulling most of its personnel from existing Mexican Army and Marine units. In other words, Mexico is sending troops to its southern border to block the huge influx of US-bound migrants from Central America, Cuba, Africa, and every other Third World cesspool.

        Seems like something must’ve gotten Mexico’s attention.

        1. The thing about the tariffs with Mexico is that they are designed really well: no exclusions and they ramp up gradually. A reasonable phase-in time is kind of what you would want from a tax. Even though it is over a truncated time frame, it’s not like the tariffs went to 25% overnight, but rather over a series of months.

          1. Exactly and it just like we are using the tariffs against China. The globalists just do not like that their strategy of producing goods in developing countries, paying slave wages and then exporting to the US and charging just under what it could sold for the US if the goods were being produced in the US is being undercut. As far as their argument tariffs are taxes, many of the these same people like the Koch brother’s want to run the government on sales taxes. Now why is a tax which operates like a sales tax, but can be avoided by buying US goods and even when avoided forces a foreign county to absorb some of the tax wrong to fund the US government but a sales tax is great.

          2. I’d like to see us take a more aggressive stance on taxing foreign land holding/property. That seems like an easy target.

            A construction company foreman I spoke with last week said that as soon as the China tariffs went up on the quartz countertops, the source was switched to India for the identical product. As far as I know the product was sourced from China through India. Tariffs are tricky.

          3. You do realize that tariffs are paid by US importing companies and not Mexico and China, correct?

          4. tariffs are paid by

            From what I gather, it’s not as simple as us versus them.

          5. You do realize that tariffs are paid by US importing companies and not Mexico and China, correct?

            Yes and no. In the short run, perhaps. And a lot depends on the elasticity of the import in question and whether a good substitute is readily available.

            But when a tariff makes a good more expensive, it makes domestic goods more affordable by comparison, especially at the margins. So if exporters may have to shave off some of their profits if they want to keep the same market share or risk suppliers switching.

            In other words, it’s not as simple as “consumers and businesses pay the tariffs”. Anyway, it looks like tariffs won’t go through (which was pretty unlikely to begin with from what I understand).

    2. We make the lists I’ve seen of biggest suppliers most likely to get hurt , not number 1 but…

  5. “‘Certainly the cheaper money will help people with affordability, but what we ultimately need to solve our oversupply problems in those outer suburbs is more people coming into the state,’ Mr Collins said.”

    “Cheaper money” is never the solution, Mr. Collins. Correcting to historic norms of 3X median incomes, with only creditworthy buyers eligible for mortgages, is the only viable solution to unaffordable housing.

    1. Until prices are 2.5x median income, it’s still a seller’s market in my humble opinion, because they are getting far more than their shanty is worth.

  7. Mortgage rates keep sinking and inventory keeps piling up, but still no buyers aside from a few slack-jawed knife catchers. This isn’t how it was supposed to work.

    1. Yep, Hank’s shares in Goldman Sachs would have lost most of their value if not for the bail-out. Whew!

      1. He was very long U.S. Treasurys when yields plunged…exactly where you’d have wanted to be if you’d planned it.

          1. I don’t claim to understand the particulars. I just recall having read at the time that he had to divest of a lot of stock HODLings in order to become Treasury secretary, which (I vaguely recall!) led to him being overweight in Treasurys, which everybody knows are plain vanilla investments whose values are unaffected by market forces.

          2. PS To the extent he benefited from holding a relatively conservative investment portfolio when the economy went down was clearly not a matter of planning, but rather luck of timing, as he was fulfilling a legal obligation, and nobody could have foreseen the extreme escalation of the 2008 financial crisis.

  9. This is really interesting. I suppose we shouldn’t expect bovines to be the brightest animals in the kingdom.

    The market is terrible at predicting Federal Reserve interest-rate moves, chart shows
    Published: June 6, 2019 4:39 p.m. ET
    Dow on pace for its best week since November, on rate cut expectations
    By Mark DeCambre

    After an ugly May, the stock market is on track for its best weekly gain since November of 2018, at least partly on the back of hope that the Federal Reserve will soon reduce interest rates to help buoy an economy being buffeted by tariff conflagrations and sluggish global growth.

    However, Deutsche Bank Securities’ Torsten Sløk warns that market gauges for predicting Fed rate moves, usually estimated by using the federal-funds futures, are “almost always wrong.”
    …

    1. This entire situation is almost like fiction. We have the biggest stock bubble in the history of the world, near all-time highs, and they are announcing rate cuts and more cheap money.

      1. “The Quest [economy] stands upon the edge of a knife. Stray but a little, and it will fail, to the ruin of all. Yet hope remains while the Company is true.” – Galadriel, The Lord of the Rings: The Fellowship of the Ring

        The market hangs by a thread. Three factors only propping it up:
        1) Hopium of China trade deal/Mexico deal to avoid tarrifs.
        2) Promise/curse of interest rate cuts.
        3) Non-stop Fed/DJT/Fed/Treas. jawboning/tweets, esp. at strategic moments (i.e. when market is moving lower).
        Nothing (organic) to see here. Move along. The Fed couldn’t prevent the crashes of 2000, 2008-09; it won’t this time either, but makes for interesting Kabuki theatre. I call it. First! “The emperor has no clothes.”

          1. Misleading chart, the PE ratios always spike in the middle of the downturn, as earnings collapse and skyrocket the ratio.

            Before each collapse, the ratios were lower, they spike up during the collapse due to the aforementioned.

    2. I think I read this on this web site, it goes something like this

      The US is no longer a manufacturing economy so doesn’t care much about inventory buildup and the slowdown that comes from working off excess inventories. That was old recession stuff.

      Now its a Banking economy and cares about asset prices and getting paid back so any deflation of real estate or stocks is a disaster and that drives FED policy.

      IDK makes sense to me

  10. Trial balloon by the Fed, more QE coming. I didn’t think the public would stomach another gift of Trillions to the already over stuffed 1%. But hey, it’s expensive to tune up a Rolls. If they start this before the 2020 election, maybe another giveaway to the rich will proceed. I have to believe there will be some kind of backlash though.

    excerpt:
    So the Fed is going to use “pretty aggressive, desperate, measures,” to stem the next recession, said Adam Posen, president of the Peterson Institute for International Economics.

    “If you thought you saw QE before, this is going to be QE squared,” Posen said.

    1. Wall Street bulls heard the Fed’s dog whistle this week loud and clear, and are piling into the stock market as though the liquidity punchbowl will never run out of alcohol.

    2. “Our obligation to the public we serve is to take those measures now that will put us in the best position deal with our next encounter with the ELB,” he said.

      Aren’t retirees and savers members of the public?

  11. “Real Estate Institute of WA president Damian Collins said prices in outer suburbs were still falling due to an oversupply of about 5,000 houses in areas including Baldivis, Ellenbrook, Byford and new subdivisions north of Butle.”

    Sounds like investors are cutting their losses and racing for the exit door. It should be quite interesting to see who escapes the burning theater and who doesn’t.

  12. With central bankers all over the planet dropping hints about near-term resumption of quantitative easing, would it be wiser to go long in stocks or in sovereign bonds?

    1. The Financial Times
      Capital markets
      Global bond market has biggest inflows in more than 4 years
      Investors seek safety due to worries over global economy and rate cut prospects
      The sudden re-emergence of global trade tensions in May has once again stirred concerns over the health of the US economy © Bloomberg
      Robin Wigglesworth and Joe Rennison in New York yesterday

      The global bond market has enjoyed its biggest weekly investor inflows in over four years, with investors dumping equity funds in favour of fixed income amid concerns that the international economy is wilting and central banks will have to cut interest rates.

      Fixed income funds tracked by EPFR, a data provider, sucked in $17.5bn globally in the week ending June 5, the biggest inflows since February 2015. More highly rated “investment grade” funds took in $18.5bn — the biggest five-day inflow on record.

      In contrast, riskier corners of the bond market — such as emerging markets or junk-rated corporate debt — suffered outflows, and equity funds saw another $10bn seep out, taking the cumulative withdrawals this year to $155bn.
      …

  14. “Professor Bear
    June 5, 2019 at 11:44 pm
    Like clockwork, when AlbuquerqueDan comes out of the woodwork to resume posting, oil prices are sure to soon plunge.

    “Professor Bear
    June 5, 2019 at 11:44 pm
    Like clockwork, when AlbuquerqueDan comes out of the woodwork to resume posting, oil prices are sure to soon plunge. ”

    Like clockwork, when Professor (probably a Junior High teacher) comes out of the woodwork to resume attacking me, oil prices are sure to soon rise. ”

    Of course, Blueskye will also say I was wrong about China. Of course, he predicted many years ago the China would collapse imminently. I predicted it would not, it would be many years unless we had a president who dealt with our trade deficit with China and its development of high tech industries, but I am wrong. Lol China’s gdp has about doubled since he predicted the imminent collapse.

    1. ABQ Dan &.PB, untwist panties and call a truce. Yes, ABQ Dan made some errant forecasts, but who cares? This is a housing bubble blog, with oil and China being incidental to that primary focus. Both of you are valued commenters on this blog, so let’s just agree to disagree and get back to discussing the housing bubble bust, shall we?

      2. Agreed. Both valuable points of view and contributors. I like hearing thoughts from both.

  15. Oh dear – the MSM’s “Everything is Awesome!” narrative is starting to fray around the edges as even our Soviet-style unemployment data can’t conceal the extent of the deteriorating economic fundamentals. Reminder: Debt donkeys living paycheck to paycheck and worried about job security are not going to be buying $500K starter houses.

    https://www.zerohedge.com/news/2019-06-07/huge-payrolls-miss-only-75000-jobs-added-may-hourly-earnings-growth-slows

    1. What a joke. Any negative news is immediately squashed with some bullish news to keep these markets propped up. Anyone who knows economics would agree we are kicking the can down the road. PB states it well. Hair of the dog hangover cure.

      “Dow futures turn higher after weak jobs report increases chances of lower Fed rates”

      1. Wouldn’t lower rates and sinking profits be good for highly rated bonds and bad for stocks? I’m thinking of the end of every business boom cycle in history here…

        2. Wouldn’t lower rates and sinking profits be good for highly rated bonds and bad for stocks? I’m thinking of the end of every business boom cycle in history here…’

          it worked in 2008

  16. Big miss on jobs today. Time for the Plunge Protection Team to buoy the stock market!

    1. American companies added the fewest jobs in 9 years in May, ADP says
      Gina Heeb
      9m
      – The US added far fewer private-sector jobs in May than had been expected, according to the ADP National Employment Report out Wednesday.
      – The surprisingly weak growth suggests the labor market could be cooling down.
      – ADP’s model uses official employment data as well as information from companies that use its payroll-processing services.
      …

      1. I haven’t dug into the jobs data, but could it be that there just aren’t that many people to pull into the labor market? I see tons of listings for massive sign-on bonuses for my profession. It seems like some employers just can’t find the help.

        There was an insightful post yesterday about how construction workers couldn’t build houses because they can’t afford to live in the places that need housing construction in CA. I think there is something to the fact that housing prices are stifling mobility and impeding further job increases.

        1. “…just aren’t that many people to pull into the labor market?”

          Labor market liquidity dries up when the unemployment rate falls to record depths, as the people you might want to hire for specialized jobs are already gainfully employed elsewhere. This implies a higher cost of search and salary when trying to fill skilled positions…i.e. labor market illiquidity.

    2. You have to wonder if the same underlying factors are killing labor and housing demand.

  17. We’re at the end of the (credit) cycle. Extend and pretend still working however, due to investors’ Pavlovian response to Fed put and incessant jawboning. Works until it doesn’t. Watch bonds not stocks. This will end well, I’m sure. Potemkin village all around.

      1. I’m astonished that such a scathingly accurate condemnation of the gold collar criminals at the Fed would appear in an MSM outlet like Marketwatch. Thanks for posting.

  19. Now the Fed is talking about cutting rates already this month. Once the whiplash over their abrupt policy reversal wears off, watch out below for falling shoes.

    1. Wsj.com
      Economy
      Fed Begins Debate on Whether to Cut Rate as Soon as June
      Trade tensions darken economic outlook, raising possibility of interest-rate cut in weeks or months ahead
      The Two Forces Pushing and Pulling at Trump’s Economy
      There are two big pressures pushing and pulling on the Trump economy right now. While trade chaos has rattled financial markets, the Federal Reserve might have to step in and rescue the economy. WSJ’s Gerald F. Seib explains. Photos: Getty
      By Nick Timiraos
      Updated June 6, 2019 6:31 p.m. ET

      WASHINGTON—Federal Reserve officials are beginning preparations for a June policy meeting with difficult choices to deliberate.

      A month ago, Fed Chairman Jerome Powell played down speculation of a rate cut this summer. Now officials at the central bank face a darker economic outlook and heightened trade tensions, making a rate cut possible—if not at their meeting on June 18-19, then in July or later.
      …

  21. We are in the realm of Dr Strangelove. Lousy jobs reports and traders salivate that a rate cut is coming and run the DOW up 250+ pts. Ordinary working folk, whose have to pay higher rents/health care/education are increasingly impoverished. What the f**k good is another rate cut going to do them?
    Well, let them eat cake.
    It will fatten the bonus pool at Goldman, so who cares…

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