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They’re Now Stuck With A Property That Is Virtually Worthless

A report from Global News in Canada. “Back in 2016, Vancouver’s white-hot real estate market looked as if it would never cool down. Three years later, industry experts say times have changed. ‘Prices now are back to where they were around, say, mid-2015,’ Brendon Ogmundson of the B.C. Real Estate Association said.”

“A home in Vancouver’s Southlands neighbourhood had a listing price of $5.29 million last year and is now available for $3.6 million. It’s a similar story in other parts of Metro Vancouver. Detached properties in the Tri-Cities have sold at a loss, going for well below assessed, with attached units and townhomes following suit. Those plunging prices are paired with a tangible drop in buyers.”

“Sales are only sliding further this year, according to realtor Steve Saretsky, and inventory continues to accumulate as buyers and sellers sit on the sidelines. ‘We’re five months in, it’s pretty much at 30-year lows,’ he said. ‘I think right now the big thing is just trying to get sellers to come to grips with the changing market reality.'”

The Tri-City News in Canada. “Cash bonuses of up to $100,000 for realtors; free flights, skis and golf; free mortgage interest and property tax payments for the first year; no strata fees for life; eight per cent interest paid on deposits for presale buyers. All of these and more are among the tempting incentives being dangled by Metro Vancouver condo developers.”

“But in some cases the buyer bait is not enough to turn the tide on what the Real Estate Board of Greater Vancouver says is the worst housing sales slump in 19 years. As of the end of May, there was an inventory of 766 newly completed and unsold condo apartments in Metro Vancouver, compared with 326 for all of 2017, according to Canada Mortgage and Housing Corp.”

“Currently, 25,158 condo apartment units are under construction in the Metro region, representing 70 per cent of the total housing units underway. In the current market, developers may set out a nine-month marketing window as they attempt to sell half the units in a project. Just two years ago, it was not uncommon for an entire condo project to sell out within days.”

From CBC News. “The new condo market is cooling faster in Calgary than anywhere else in Canada. ‘It’s been an oversupplied market for quite some time and that’s caused those prices to continue to trend down,’ said Ann-Marie Lurie, chief economist at the Calgary Real Estate Board.”

“Lurie said the resell condo market in Calgary is also struggling. As of May’s numbers, a typical apartment-style condo is being resold for $248,000 in Calgary. During the highs of 2014, those dwellings were resold for $300,000 and up, Lurie said.”

The Epoch Times on China. “More than a dozen large state-owned enterprises in China are liquidating their equity holdings in real estate projects recently. According to Securities Times, a Chinese financial publication, 20 real estate projects in Beijing had equity transfers from May 1 to June 14. In comparison, there were only two equity transfers in the first four months this year.”

“Chinese financial scholar He Jiangbing told Radio Free Asia in a June 19 interview that these activities are an indication that the state-run companies have a pessimistic outlook for China’s real estate market. ‘This shows that they heard about the plans of the top leadership before the general public does. In addition, on June 13, Guo Shuqing, the Party head of China’s central bank and chairman of the China Insurance Regulatory Commission gave a speech in Shanghai, saying that the houses are not for speculation. He also warned that there is an oversupply of housing inventory, and when the vacancy rate is too high, it can be very dangerous,’ he said.”

“He believed that Guo’s speech indicates that the long-disputed real estate tax may become a reality in the near future.”

From Domain News in Australia. “A $1000 offer for a Sydney apartment, even in a building that’s cracked and uninhabitable? Tell him he’s dreaming. Potential buyers have been making opportunistic offers on units in the troubled Mascot Towers project since it was evacuated last week due to safety concerns.”

“And genuine buyers elsewhere in the suburb are drying up, with real estate agents seeing low inquiry levels and questions about structural integrity of buildings from the buyers who do express interest. ‘We had a lot of ridiculous offers but we take those with a grain of salt,’ MGM Properties’ Michael Xylas said. ‘We don’t consider our clients are that stupid … it’s almost insulting. We’ve had offers as little as $1000, $10,000, $100,000.'”

“The problems at Mascot Towers bring to mind memories of the Opal Tower in Sydney Olympic Park, where residents were forced to exit on Christmas Eve after cracks appeared.”

From ABC News in Australia. “7.30 has spoken to owners around Australia who are worried they are living in structurally unsound buildings, with little choice but to pay for the defects themselves. Melbourne apartment owner Andy White said the system had not been working for him.”

“Following a fire in one of the apartments in his complex, it was discovered the building was covered in flammable cladding. But the builders went into voluntary liquidation in August 2018, meaning the owners will now have to cover the estimated $2-3 million rectification costs.”

“He said the apartment he bought for $320,000 was worth much less today. ‘A lot of people are feeling frustrated and hopeless that they’re now stuck with a property that is virtually worthless at this point of time.'”

The Australian Financial Review. “As property prices crumbled and the sharemarket sagged last year, Australian household wealth plunged by close to $500 billion, according to Fidelity International estimates. No surprise that the effects of lower house prices have ‘reverberated’ across the economy, PIMCO portfolio manager Aaditya Thakur says.”

“It’s the property market that dominates conversations. And here the outlook is worse than you might think, Thakur says. Thakur explains that ‘a major weight on the housing market comes from structural changes in mortgage underwriting standards,’ which forced banks to tighten lending criteria. These changes ‘will be virtually impossible to unwind,’ he says.”

“What’s more, roughly a quarter of mortgages are on interest-only terms. Most of these were written in 2014 and 2015, and the five-year contractual window will end in this year or the next. ‘Most’ will switch to principal and interest terms, boosting repayments by 20 per cent.”

This Post Has 44 Comments
  1. ‘It’s been an oversupplied market for quite some time and that’s caused those prices to continue to trend down’

    Hey California, Denver, Dallas and Seattle: Ann-Marie here tried to talk up the market for a couple of years. Now she crawls out of her hole periodically to remind everybody it’s still crater. Hear that redfin, zillow?

  2. A veritable flood of cheap money from the Fed as well as central banks around the world has caused the mess we’re in. How is another tsunami of cheap money going to fix it?

    1. How is another tsunami of cheap money going to fix it?

      It’s gonna help the “Howmuchamonth” crowd, because a quarter point in interest rate will unlock their potential for the American dream! Won’t you help them reach their goals?

      1. ‘Detached properties in the Tri-Cities have sold at a loss, going for well below assessed, with attached units and townhomes following suit. Those plunging prices are paired with a tangible drop in buyers’

        Pay attention to that last part, as we see it a lot these days. Lower prices and more inventory should result in more sales, not less. People are not behaving according to supply and demand, but rather as speculators.

        1. I want to speculate, but in the other direction. What is the best way to short housing?

        2. Lower prices now are a sign of further negative appreciation to come, which explains the cratering demand. What speculator wants to catch himself a falling knife?

    2. “You cannot spend your way out of recession or borrow your way out of debt.” – Daniel Hannan, Member of the European Parliament

  3. ‘‘We had a lot of ridiculous offers but we take those with a grain of salt…We don’t consider our clients are that stupid … it’s almost insulting’

    Stamp em’ Mike, stamp those little feet!

  4. “Back in 2016, Vancouver’s white-hot real estate market looked as if it would never cool down. Three years later, industry experts say times have changed.”

    – “white hot” – That seems completely normal for a depreciating asset with high carrying costs. 🙂

    Asset bubbles always pop, since demand is pulled forward until prices and credit hit the limits. This is the “trees don’t grow to the sky” moment. Then “air pocket” and price discovery (economic gravity) ensues. Reference: Wile E. Coyote, Super Genius. Don’t forget to thank your local central banker.

    ANOTHER FINE MESS (1930)
    Oliver Hardy : “Well, here’s another nice mess you’ve gotten me into.”

    CHICKENS COME HOME (1931)
    Oliver Hardy : ” Well…”
    Stan Laurel : “Here’s another nice mess I got you into.”

    If anyone claims “they never saw it coming”, well…, just read the transcripts of the HBB. It’s all here. 🙂

    1. “air pocket”

      Is that what you call it when prices have reached the point where fundamental buyers are completely priced out, speculative interest is thinning, and price appreciation is slowing? At this point, yesterday’s speculative buyer morphs into tomorrow’s seller, as fly-by-night infestors pile properties onto the inventory pyre, hoping to escape the burning theater before getting consumed in the growing conflagration. With buyers uninterested to catch themselves falling knives, sellers need to offer ever-deeper discounts to induce even a nibble. The few places that sell lead the market down, creating a new class of housing market victims among clueless recent buyers.

    1. There’s No Toilet Paper in China

      True. Self reliance in that department is culturally expected.

        1. It’s expected that you’ll use TP, but you’ll BYOTP. I assume somebody is there to hand it to Xi Dada.

          Watched the video…always good stuff in their videos. I like how they ended up talking about Toto brand Japanese toilets and then segueing into Toto’s “Hold The Line” from there :-).

  5. Mistake on the Lake: Million dollar homes left off Austin tax rolls

    AUSTIN, Texas — About 400 homeowners living on Lake Austin haven’t paid City of Austin property taxes for more than 100 years. At a city council meeting next week, elected officials will vote on adding these properties to the tax rolls, generating millions of dollars for the city budget.

    At a press conference Monday council members Jimmy Flannigan and Greg Casar explained the waterfront properties along Lake Austin were annexed more than 100 years ago…Council members added, the Lake Austin property owners who have not been paying city taxes have been voting in city-wide bond elections but the taxes on those bonds were never applied to them.

    “You have all of the bond projects for 100 years that have been funded by the entire community but not these properties,” Flannigan said.

    1. Unpaid property taxes are a lien. Maybe they will have “catch-up” plan with financing options such that the City of Austin receives their balance due immediately?

      1. I’ve always thought BitCoin was pretty much worthless. But I am thinking that the real benefit of BitCoin might be a form of voting by the Chinese. They are voting with their wallet. BitCoin could be a transparent proxy with how many Chinese truly feel about their government.

  6. Is $1.2 trillion alot?

    Markets
    The World Now Has $13 Trillion of Debt With Below-Zero Yields
    By Adam Haigh
    June 20, 2019, 8:11 PM PDT
    – Fed and ECB stoke global bond rally on openness to easing
    – Yields on Japan’s bonds dragged to lowest since 2016 BOJ shift

    The universe of negative-yielding bonds grew about $1.2 trillion this week after dovish messages from central banks in Europe and the U.S., pushing the total past $13 trillion for the first time.

    1. Opinion
      Bond yields are useful for telling us about the future. And it’s not looking good
      Greg Jericho
      For the past six months we’ve started to see a negative yield curve – an indicator of a recession
      Mon 24 Jun 2019 14.00 EDT
      Last modified on Tue 25 Jun 2019 07.16 EDT
      The indicator boards at the Australian Stock Exchange (ASX) in Sydney

      On Monday the prime minister gave a speech to the WA Chamber of Commerce that outlined some economic policies he planned to pursue. Chief among them was cutting red tape (apparently the past six years have not afforded them the opportunity to do this). It was a very tepid response to an economic situation that demands much more serious attention.

      Last week for the first time ever Australian government two-year and three-year bonds fell below 1%, and then on Friday so too did the rate (or “yield”) for five-year bonds.

      I know bond yields are not the sexiest of subjects (unless you go in for that kind of thing and, knowing my readers, there are a few of you out there who do!) but they give us a good insight into where the economy is likely heading.

      1. I don’t recall which countries tanked first in the last housing bust, but Australia is definitely out ahead in the current one.

        1. IIRC, Australia didn’t crater a decade ago. Prices dipped but then shot right back up with the China “Economic Miracle” [AKA debt explosion] commodities boom.

          1. Re Australia, that’s also how I remember it. Building all those ghost cities needed a lot of iron ore!

    1. Used to be that a cabbie had to have a commercial drivers license, have commercial vehicle insurance, a commerce permit from the county to use the roads to generate income and a set of fingerprints along with a background check from the county sheriff.

      Not sure what an Uber slave needs.

      1. Not sure what an Uber slave needs.

        An operating vehicle and an empty stomach. In Asia the illegal taxis are usually referred to as “black” taxis…at least they were a few years ago. Maybe now they’re just called Ubers.

      2. Not sure what an Uber slave needs.

        This is why I use limo services rather than Uber when I need a ride somewhere (usually for an event, or to the airport, hence the limo service) — I can be sure they’re insured and bonded, vs the uber driver who doesn’t have commercial insurance and I’ll have to sue if anything happens (and likely unable to collect).

        It’s a huge risk/cost that most folks discount.

  7. “A home in Vancouver’s Southlands neighbourhood had a listing price of $5.29 million last year and is now available for $3.6 million. It’s a similar story in other parts of Metro Vancouver. Detached properties in the Tri-Cities have sold at a loss, going for well below assessed, with attached units and townhomes following suit. Those plunging prices are paired with a tangible drop in buyers.”

    This is a steal at this price. I’ll buy 10!!!!

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