thehousingbubble@gmail.com
Blog

There’s Been More And More Discussion Around A Potential Housing Bubble

A report from the Daily Mail on Australia. “Australia’s biggest property markets are still in free fall – with prices in one major city falling by more than 10 per cent in one year. Median house prices fell in every capital city during the March quarter, Australian Bureau of Statistics data showed. In Sydney, median house prices dropped by 10.3 per cent to $847,000, making it Australia’s worst performing property market.”

“Melbourne values plunged by 9.4 per cent in the year to March, with prices sinking to $655,000, as quarterly values fell by 3.8 per cent. The central bank’s head of financial stability Jonathan Kearns pointed out the proportion of home borrowers in arrears with their mortgage repayments had risen to the highest level since the global financial crisis a decade ago.”

From ABC News. “Developers are offering special deals like paying 12 months of a buyer’s mortgage, $50,000 ‘bonuses’ and even furniture vouchers in a bid to help clear Sydney’s apartment glut. Property analysts say the deals are common in an over-supplied market such as Sydney, with 54,000 new apartments built in 2018 and 2019 expected to be up for grabs by the end of the year.”

“SQM Research chief executive and property analyst Louis Christopher said developers would do anything to avoid reducing the asking price. ‘If they do that [reduce the price], it will reduce the valuations on all other properties within that development, and therefore the settlement risk rises accordingly,’ he said. ‘But buyers should be aware, that they are still paying for it in some form, and it generally comes in the form of over-valuation.'”

“Property analyst Martin North said the real estate sector needed a ‘hard dose of reality.’ ‘Since the election, they’ve been spruiking like mad,’ Mr North said. ‘But from the data I’m seeing, investors are not interested in coming on board and the demand is not coming through.'”

“Mr North said although average unit prices have fallen only six per cent, there were pockets of Sydney, such as Hurstville and Ryde, where the falls had been severe. ‘In Ryde, unit prices have dropped more than 30 per cent, essentially something that developers can’t cover,’ he said.”

From Perth Now. “Home prices fell in every Australian capital city in the three months to March, slicing more than $170 billion from the total value of the country’s dwellings. The total value of Australia’s 10.3 million residential dwellings fell $172.7 billion between January and the end of March to $6.56 trillion, a heftier decline than the $133 billion lost in the December quarter.”

The Canberra Times. “Canberra apartment sellers are slashing their prices across the territory. The data shows sellers of units in the Woden Valley are dropping their prices the most, with an average discount of 6.2 per cent on the original asking price. For the median $440,000 unit in the region, this is would represent a reduction of $27,280 on the initial listing price.”

“Units in the region have the steepest discounting rate. Luton Properties Woden manager Anthony McCormack attributed this to supply. ‘We’re seeing a lot of units in developments, and that’s probably what’s causing the pricing adjustments there,’ he said.”

From Reuters. “Investors in Australian mortgage bonds are demanding higher premiums to buy the riskiest tranches of new debt, as a slowing economy stokes concerns a property downturn could get worse and increase home loan defaults.”

“‘When you are looking at those lower unrated tranches, they are deteriorating as one would expect at the late stage of the [property] cycle,’ said George Boubouras, chief investment officer at Atlas Capital. ‘We see them as a leading indicator of risk, and they have been getting riskier.'”

“‘As there’s been more and more discussion around a potential housing bubble and so forth, investors would in the back of the mind be saying, ‘maybe I do need to charge a little more for the risk’, said David Bailey, chief executive of mortgage broker and RMBS-issuer Australian Finance Group.”

“Property analyst Martin North said deals structured at the height of the property boom around 2017 and prior to prudential regulator-imposed changes to lending standards in 2014 were among the most susceptible. ‘The debt bomb is still ticking, and even if a crash is delayed, the debt burden has to be dealt with at some time,’ said North.” 

Related Posts
This Post Has 29 Comments

  1. ‘The total value of Australia’s 10.3 million residential dwellings fell $172.7 billion between January and the end of March to $6.56 trillion, a heftier decline than the $133 billion lost in the December quarter’

    Is that a lot?

    1. $172.7 billion + $133 billion =
      $305.7 billion drop over two quarters. The percentage decrease of ($305.7 billion + $6.56 trillion) is 4.5%, not alot in percentage terms, though a fair amount in absolute terms.

  2. ‘the real estate sector needed a ‘hard dose of reality.’ ‘Since the election, they’ve been spruiking like mad,’ Mr North said. ‘But from the data I’m seeing, investors are not interested in coming on board and the demand is not coming through’

    This is what I’ve been pointing out. These clowns apparently think they can bull-sh!t their way out of this. Meanwhile the crater expands.

    1. These clowns apparently think they can bull-sh!t their way out of this.

      Remember, Ben, denial is the first of the five stages of grief. By the time “these clowns” get to acceptance, they’ll be living in cardboard boxes.

  3. “Mr North said although average unit prices have fallen only six per cent, there were pockets of Sydney, such as Hurstville and Ryde, where the falls had been severe. ‘In Ryde, unit prices have dropped more than 30 per cent, essentially something that developers can’t cover,’ he said.”

    Bush Turkey are yummy?

    1. LA area, to me, is the most worst housing market in terms of what you get for your money. Crime, homelessness, filthy streets, lousy schools, horrendous traffic. Having said that, I actually like LA but you can’t have much quality of life there anymore if you aren’t wealthy.

  5. Step right up and lose your arse.

    The Financial Times
    Global property
    Flood of debt instruments backed by property loans hits market
    Analysts fret about losses on collateralised loan obligations if sector stumbles
    Queens borough in New York City
    Judith Evans in London and Joe Rennison in New York yesterday

    Packages of real-estate loans are hitting the US market at the fastest rate in a decade as investors step up their search for higher returns.

    A total of $8.4bn of property-based collateralised loan obligations — pools of loans backing debt and equity — have been issued in the US so far this year. That places 2019 on track to beat last year’s $13.9bn of issuance, which in turn was nearly double the previous year’s $7bn of new deals, according to figures from Trepp, a data provider.

    The boom in CLOs — riskier cousins of the more mainstream commercial mortgage-backed securities — comes as investors struggle to make decent returns from a real estate sector swollen by a vast influx of capital in recent years, and mimics the resurgence of more complex financial products across markets. But some analysts are concerned that it raises the potential for more severe losses, if the commercial property sector were to stumble.
    …

    1. Bloomberg Opinion
      Markets
      Get Ready for 1% Bond Yields

      Inflation is the key to fixed-income assets, and there isn’t any now or expected to be in the future.
      By A. Gary Shilling
      The lack of inflation is helping to support bond prices. Photographer: Mario Tama/Getty Images North America
      A. Gary Shilling is president of A. Gary Shilling & Co., a New Jersey consultancy, and author of “The Age of Deleveraging: Investment Strategies for a Decade of Slow Growth and Deflation.” Some portfolios he manages invest in currencies and commodities.

      The yield on the benchmark 10-year U.S. Treasury note was rising toward 3.20% in early October when a survey by Bloomberg News showed that none of the more than 50 economists predicted it would fall below 2.40% by now. The median estimate was 3.33%, a big miss given the current 2.10% yield. Longtime readers of my Bloomberg Opinion columns know my target is 1% over time, and I am more confident than ever in that forecast.

      Inflation is the key to longer-term Treasury yields, regardless of actions by the Federal Reserve, fiscal policy, etc. The correlation between longer-term Treasury yields and inflation as measured by the U.S. Labor Department’s Consumer Price Index over the entire post-World War II era is a high 60%. Also, the further out the yield curve, the less Fed actions matter. Since the 1950s, a 100 basis-point move in the federal funds rate, on average, results in a 44 basis-point change in 10-year yields and just 24 basis points in 30-year yields.
      …

    2. CR8R

      Value of debt with negative yields nears $12 trillion
      By Sunny Oh
      Published: June 18, 2019 3:01 p.m. ET
      Austrian and French 10-year bond yield tipped into negative territory for first time in history

      The universe of government bonds with negative-yields continues to swell.

      The total amount of debt with yields below zero stands at around $11.8 trillion as of June 17, according to Bloomberg data. This amount however doesn’t take into account Tuesday’s global bond-market rally, which helped push more eurozone benchmark debt into negative yield territory.
      …

      2. Negative yields. Everyone here should rush out to buy bonds that will give you a return that is less that zero. Better yet, everyone here should visit me at my bank and ask for my negative yield passbook account.

        I cannot fathom just how incredibly stupid things have become.

        1. The decision to buy bonds today is a gamble that yields will be lower tomorrow. Given the backdrop of an economic boom with unprecedented duration, it seems reasonable to assume that the boom may someday end, and that bond yields will fall at that point due to slackening credit demand. When yields drop, the value of long-term bonds will rise, enriching bond HODLers. A long-term government bond portfolio also provides a good safe haven position when the stock market is melting down.

  8. Having lived through the 2007 crash in the US it was shocking seeing the state of the market when I moved here. It was like 2006 all over again, an obviously inflated asset market that everyone was sure would keep rising. “This time is different” indeed.

    Sure enough, many of the same lending pathologies are present, e.g. subprime lending, liar loans, interest only, negative gearing, etc. See the results of the recent Banking Royal Commission. All of that piled on a housing stock of very questionable quality. There seems to be a real collective delusion here…

  9. Anyone have a number for current real estate as percent of GDP vs. Long term average. I guess it’s high but not alike 05/06.

    1. Spruik definition, to make or give a speech, especially extensively or elaborately; spiel; orate.

  13. How is it possible to build “below-market-rate” housing? Markets generally make a collective judgment on the value of a housing unit after it is built and listed for sale, so the concept doesn’t make sense.

    My guess is that these will be offered on a discriminatory basis to individuals whom Google deems worthy, based on whatever criteria they choose to exclude others from making a bid.

    1. I’m not clear about how housing can be “built” for a targeted income level. Will the homes be designed with features that wealthier people find distasteful? Or will households above a certain income level be excluded from the bidding?

      However you cut it, it sounds like a recipe for old-fashioned communism, with a dash of discrimination.

      Home
      Industries
      Construction/Real Estate
      Google commits $1 billion to build housing
      By Nour Malas
      Published: June 18, 2019 4:21 p.m. ET

      Alphabet Inc.’s Google said it would commit $1 billion to boost housing construction in the San Francisco Bay Area, the latest in a series of commitments by tech companies to address an affordability crisis in the region.

      Google Chief Executive Sundar Pichai announced the moves Tuesday in a blog post in which he said the commitment will include the repurposing of $750 million of company-owned land from commercial to residential use on which an estimated 15,000 units will be built, across all income levels.

      Google will also create a $250 million fund for loans and other types of financing. The funds will go to developers to help them preserve affordable housing and build new homes, including at least 5,000 new below-market-rate units, Mr. Pichai said.
      …

  14. Is the higher education bubble popping?

    The Surreal End of an American College
    Small schools across the United States are facing budget shortfalls and low enrollment—leading some to shut down in the middle of students’ higher-education experience.
    Emily Jan / The Atlantic
    Alia Wong
    Updated at 12:34 p.m. on June 18, 2019

    Like most other colleges across the country, Newbury College, a small, private liberal-arts school in Brookline, Massachusetts, held classes through the end of this past spring semester and then bid farewell to cap-and-gown-wearing seniors. But unlike almost every other college, those classes, and that farewell, were the school’s last: Newbury officially ceased operations at the end of May.
    …

  16. “‘As there’s been more and more discussion around a potential housing bubble ….”

    What “potential” housing bubble is this idiot talking about? The bubble is right in front of us, as big as a blue whale. And these morons are talking about a bubble that might form in the future????

Comments are closed.