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What To Do When The ATM Of Equity Is Closed?

A report from the Daily Mail Australia. “A luxury three-bedroom apartment in the second tallest residential tower ever constructed in the southern hemisphere is now on the market for $10 million amid a climate of rising defaults. The two-level unit has floor to ceiling windows stretching up over both levels of the 90th and 91st floors of Australia 108, in Melbourne’s inner-city suburb of Southbank. The supertower is topped by a 750sqm penthouse apartment at level 100 that was bought by a Chinese buyer in 2015 for $25 million, a record at the time.”

“But all has not been smooth sailing for the super-tall tower as Australia’s property price crash hit, compounded by the absence of Chinese investor money which began drying up after Beijing curbed capital outflows in 2017. Last month, the Financial Review reported that buyers had walked away from more than 100 already-completed apartments bought off-the-plan, amid falling valuations, giving a high cancellation rate of 10 per cent.”

“In March, Digital Finance Analytics principal and economist Martin North said he feared apartment values in Australia’s big cities could fall by up to 50 per cent during the next three years as Chinese buyers abandon off-the-plan residential tower projects. On Monday, Mr North said he was now seeing evidence of high-end purchasers trying to walk away from off-the-plan contracts – and not just in Sydney and Melbourne.”

“‘Buying off the plan may have made sense in a strongly rising market (and the spruikers are back saying buy, buy) but the truth is there is no need or point to committing off the plan, in my view,’ he told Daily Mail Australia. ‘A combination of oversupply, faulty buildings, and falling rents all suggest to me price hikes are not likely ahead, in the high rise sector at least. And high-end apartments are not exempt from this.'”

The Sydney Morning Herald in Australia. “Real estate agents said landlords were ‘feeling the pressure’ to drop rents rather than have their properties sit vacant for a month. Rental vacancies have doubled in the past two years, according to Domain. Sydney is in the grip of an apartment building boom, with 30,880 multi-unit dwellings built last year, a record for any Australian city. There were 16 multi-unit projects finished in the first three months of 2019, adding another 1948 units.”

“Dick Crampton, director at Shead Property Chatswood, which manages more than 1000 rental properties, said the supply of north shore rentals is at ‘an all-time high’. ‘In the last 12 months, I’ve not seen as much supply of rental available by quite a way,’ Mr Crampton, who has worked in the industry since 1972, said. ‘When properties were totally selling out off the plan about two or three years ago I suspect that probably 80 per cent of them were sold to investors. So I suspect it’s either developers or investors leasing properties now.'”

“Belle Property Mosman agent Jamie Saksida said he had seen rental discounts of more than $100 per week recently and landlords were open to ‘ridiculous’ offers. ‘Vacancy here is pushing closer to four weeks, so landlords are feeling the pressure of having to say yes to low offers rather than not having anything at all,’ Mr Saksida said. ‘I’ve had people say, ‘I’ve put in a ridiculous offer and the owner has accepted.'”

From City News 1130 in Canada. “For the first time in a decade home buyers in Metro Vancouver are in the driver’s seat, according to a local expert. Real Estate Advisor Adil Dinani says that 25 per cent more homes are on the market than they were at this time last year, giving buyers more options. Data from the latest Housing Price Survey from Royal LePage shows condo prices have dropped for the first time since 2014. It also reveals an overall decline in housing prices in the region for the second straight quarter.”

“‘The slowdown that initially began in the British Columbia lower mainland’s most expensive trading areas, Vancouver and the region’s North Shore, has moved to the relatively affordable suburbs, as the policy-driven housing downturn nears the three-year mark,’ says Phil Soper, CEO of Royal LePage.”

The Alaska Highway News in Canada. “The ATM of home equity is closed. Five years ago, we had record sales volumes at near record prices in the Peace River Regional District. Today, as those mortgages come up for renewal, there are some challenges. Over the past decade or two, residents have been depending on increasing values in their home to realize equity for other purchases or debt consolidation. We have an entire generation of adults that have never experienced a market adjustment quite like we are experiencing at this time.”

“For those people that choose mortgages with shorter terms and escalated payments, such as weekly, biweekly, etc., they may have opportunity to realize some equity. For those who choose mortgages with long terms and monthly payments, there is a strong probability that much of their equity may have been erased.”

“Today’s local market shows indication of declining values, increasing marketing periods as well as emotional pricing with a range far beyond reason. There is evidence of homes selling by very motivated purchasers. There continues to be evidence of foreclosure competition.”

“When values are considered, the active listings are also a consideration in the selection of the final estimate of value. What a property sold for in 2014-15 is most often higher than what it would sell for today. High vacancy rates heavily impact entry level housing that requires renovations and upgrades as it is nearing the end of its economic life.”

“There is evidence of these older homes selling, however, they tend to sell at quite a discount and then extensive renovations completed including mechanicals, foundation, windows, doors, siding, roof, and cosmetic interior.”

“What to do when the ATM of equity is closed? Start financial literacy training. Renovate your existing home. Find the importance in the small things like health and well-being, friends, family and community. The finger always points back to us. We have the control to make the choices to spend wisely or overspend beyond our needs. Go back to building strong foundations and health roots.”

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This Post Has 54 Comments

  1. ‘For the first time in a decade home buyers in Metro Vancouver are in the driver’s seat, according to a local expert’

    Vancouver has been sinking like a turd in a well for years Adil.

    ‘The slowdown that initially began in the British Columbia lower mainland’s most expensive trading areas, Vancouver and the region’s North Shore, has moved to the relatively affordable suburbs’

    Worser and worser.

    This is the writer of the last piece:

    Edwina Nearhood is a lifelong resident of Fort St. John. Her 30-year experience in the appraisal industry offers a unique lens on the challenges associated with the economic forces impacting real estate and the community.

    1. There is evidence of homes selling by very motivated purchasers. There continues to be evidence of foreclosure competition.

      Edwina, whatever does this even mean?

  2. ‘Buying off the plan may have made sense in a strongly rising market (and the spruikers are back saying buy, buy)’

    And boy are they!

    ‘On Monday, Mr North said he was now seeing evidence of high-end purchasers trying to walk away from off-the-plan contracts – and not just in Sydney and Melbourne’

    Wa happened Australia?

  3. The home equity ATM is critical to keeping the Canadian economy going. Many Canadians cannot even pay their mortgages without periodically tapping their home equity. We saw it in California last time and when the equity was gone it was a very short time before the foreclosures rose geometrically

    1. Over half of all mortgagors in the US are paying their mortgage via cash out refi’s.

    2. The new economy: Flipping houses to each other + HELOC ATM. That seems sustainable (NOT!).

      https://www.theglobeandmail.com/report-on-business/rob-commentary/canadas-a-real-estate-country-just-waiting-for-a-crash/article31457558/
      Opinion
      Canada’s a real estate nation, just waiting for a crash
      Konrad Yakabuski
      Published August 18, 2016 Updated May 16, 2018

      “The real estate sector keeps setting new records. Indeed, it’s now Canada’s biggest industry, leaving Alberta’s oil patch and Ontario’s manufacturing heartland in the dust. Ongoing weakness in those latter sectors is generating talk of yet another rate cut, no doubt to the delight of the friendly neighbourhood broker who keeps urging you to sell.”

      “Hewers of wood and drawers of water, not. Canada is now a real estate nation, with little else to keep the economy from sinking into an even deeper funk. Gross domestic product shrank 0.1 per cent in May, and that’s after excluding the negative impact of Alberta’s wildfires on oil sands output. Yet, we’re still buying houses like there’s no tomorrow.

      And there may not be a tomorrow for the suckers who buy in at the peak, whenever it comes.”

      “The real estate sector’s share of GDP has grown 0.4 percentage points in the past two years alone, TD noted, while the share of everything else (including oil and manufacturing) has shrunk. Going back 10 years, to May, 2006, manufacturing output is down 11 per cent in real terms and mining (including oil) extraction is flat. But real estate’s contribution to GDP has surged 35 per cent since then.”

      https://global-macro-monitor.com/2019/06/05/americas-path-to-a-fire-economy/
      America’s Path To A FIRE Economy
      Posted on June 5, 2019 by macromon

      “Economy Jumps The Shark
      The U.S. economy jumped the shark in 1990 when FIRE overtook the manufacturing sector in terms of its contribution to GDP. More stunning is that real estate is now the largest industry sector of the U.S. economy in terms of value added output, now surpassing manufacturing by 0.8 percent of GDP.

      An Economy Of Flippers
      Who would have thought in 1947 that output of the country’s manufacturing sector would decline from one-quarter of the gross domestic product to close to 11 percent and would be surpassed by the output of a bunch of real estate agents and house flippers? Nothing against real estate agents, by the way, and Flipper was my favorite television show as a kid.

      Real estate is now the largest industry as a percentage of GDP.

      Greater Sensitivity To Interest Rates And More Leverage
      No wonder why the economy and markets are so addicted to and can’t live without low-interest rates. The danger is, however, the real estate sector is a highly leveraged industry. Real estate deflation the one the Fed fears most.”

    1. A house I’ve loved since I was a kid went on the market a couple months back in an upper-middle-class Boston suburb. It started at 1.5 mill. Then to 1.4. Now at 1.3. I told myself if it’s still on the market, which I assume it will be, by the new year, I’m going to make a 950k bid and see what happens.

      1. Good to see you back Jake.

        I’d start at $50/sq ft(adjusted downward for depreciation).

      2. You may want to consider making the offer in late September Jake instead of after the New Year.

      3. Assuming you make an offer in January and it’s accepted, do you really want to be moving in February? In Boston?!

          1. Then yes, you would be. 🙂 The first time I saw snow fall was from the BU law tower my first year.

      5. “…going to make a 950k bid and see what happens.”

        That’s a lot of Benjamins especially if you have to borrow them.

      6. A house I’ve loved since…It started at 1.5 mill

        Hey Jake.

        House love can be very expensive.

        You didn’t mention if you already actually have $1M to blow on a house or if you’d be gambling the next 30 years of your life to purchase. What kind of takehome pay do you need to pay $2M (PITIM) over 30 years? Will you still be in love after 30 years if the Old Lady is worth less than $500K? $300K?

        I’m retired now, so at the other end of this debt service/domestic slavery gig. I bought a house for less than your car cost probably, spent my money on boats, RV, women and booze. The rest I just wasted.

  5. Regarding bitcoin, heard this over the weekend:

    Imagine if keeping your car running 24/7 produced solved Sudoku puzzles that you could then trade for heroin…

  6. I hated my tri-level when I got to the car and forgot my sunglasses on my dresser. Can’t imagine living in a high rise.

    1. “Can’t imagine living in a high rise.”

      +1 Can’t imagine being old in a two-story house.

  7. Wait a gosh-darn-minute, are you telling me if you make more of something then it becomes less scarce and the price drops?

  8. “Dick Crampton, director at Shead Property Chatswood, which manages more than 1000 rental properties, said the supply of north shore rentals is at ‘an all-time high’. ‘In the last 12 months, I’ve not seen as much supply of rental available by quite a way,’ Mr Crampton, who has worked in the industry since 1972, said. ‘When properties were totally selling out off the plan about two or three years ago I suspect that probably 80 per cent of them were sold to investors. So I suspect it’s either developers or investors leasing properties now.’”

    You’re Fooked Dick!

  9. ‘A combination of oversupply, faulty buildings, and falling rents all suggest to me price hikes are not likely ahead, in the high rise sector at least.

    Ya think?

  10. “Belle Property Mosman agent Jamie Saksida said he had seen rental discounts of more than $100 per week recently and landlords were open to ‘ridiculous’ offers. ‘

    Jamie & landlords, meet price discovery.

  11. Ben Jones how will the next civil war in the U.S. affect real estate?

    “This sucker could go down” — George W. Bush

    1. “Wheeler got quiet for a few moments, and then he said something that I will never, ever forget.

      ‘These people are playing with matches… I don’t think they understand the scope and scale of the wildfire they are flirting with. They are f**king around with a civil war that could last a decade and cause millions of deaths… ‘”

      http://taxicabdepressions.com/?p=1193

        1. What would be the grounds for a civil war? That whites need to have their civil rights taken away because in history slavery existed but has been long abolished.

          Or a civil war over the rights of ilegals to break our laws and take taxes from citizens.

          Or,would it be a civil war over the government taking assets and wealth from citizens, to redistribute to whoever they choose.

          What would the civil war be over?

          2. All of the above. Basically people who believe that the constitutional should be changed only by constitutional amendment and those who believe that judges should be able to change it whenever in a judge’s subjective view it is impeding progress due to the framers not being perfect under today’s standards.

  13. Do you ever have the feeling that you would be better off investing in cans of sardines than in sh!tty assets?

    1. There’s a lesson here for people who buy airboxes off the plan:

      Know your underlying!

      Jun 17, 2019, 7:14 pm
      Trading Sardines: The Case Of Currency Hedged Negative Yielding Bonds
      Vineer Bhansali, Contributor
      Markets
      I find opportunities and risks in financial markets.

      You might have heard the story about the three traders who decided to go into the business of trading sardines. The first trader bought a can of sardines for $5. He sold the same can of sardines to the second trader for $10, doubling his money. The second trader again doubled his money by selling the can of sardines to the third trader for $20. The third trader, knowing very well that he was overpaying for the sardines said to himself that “if the market for sardines crashed, at least I will be able to open the can of sardines and eat it”. The market did crash, and he opened the can to find that the sardines were rotten. He promptly went to the trader who had sold him the bad sardines and said “these sardines are no good!”, to which the second trader responded “of course they are no good for eating – they are trading sardines”!
      …

      1. Great parable of sorts. I consider the rot to be the HOA and the carrying costs which make the base case of shelter in some of these overpriced abodes not that attractive.

  14. Are you buying Bitcoin because you are foolish, or do you believe there will always be a greater fool willing to pay more than you?

    1. Diplomacy
      Did the US-China trade war and Donald Trump just make bitcoin investors a small fortune?

      Value of cryptocurrency has risen by 26.5 per cent since president announced he would raise tariffs on Chinese imports

      Yuan, meanwhile, has fallen to its lowest level for six months

      Topic | US-China trade war
      SCMP Reporters
      SCMP Reporters
      Published: 9:29pm, 17 May, 2019

      https://www.scmp.com/news/china/diplomacy/article/3010709/did-us-china-trade-war-and-donald-trump-just-make-bitcoin

      1. China has a big problem with foolish gambling, debt, corruption, theft, amorality and elite autocracy. Other than that, they are the smartest people on the planet.

        Eh Dan?

        2. Unfortunately a high IQ and morality are not necessarily connected. See Epstein. Nor did I say that they were the smartest on Earth. However China’s average IQ is one of the highest in the world and is higher than the US. You can find plenty of websites which show IQs by country.

          1. Anyone who has studied IQ knows that it is not a fixed quantity. It is highly reflective of the environment a person is raised in. Nourishment that a mother receives during gestation, healthy diet, clean air/water, low levels of stress, parents who read to you, creative play, structured learning. IQ is as much a social construct as it is genetic.

          2. IQ is as much a social construct as it is genetic.

            Maybe so. Yet it seems to be a critical factor in how well you can function in modern society. Jordan Peterson points out that the military has found that there is an IQ line below which the person is literally useless or worse than useless. For non-military fields that line also exists and is almost always at a higher number. But only the military acknowledges it openly.

          3. So One the average IQ is dropping in the US due to dirtier air, worse nourishment or maybe immigration? On the world wide scale we have dropped from 100 to 98 in the last few decades. Social construct, I do not think so. Environment does have a role but the best IQ test is to look at the average IQs of the countries of the world, if you can see the pattern and the problem it presents for the US, your IQ is above room temperature.

          4. Social construct, I do not think so.

            Yes, I studied this at length at university. A lot of how one measures IQ is inherently flawed. The yardstick you use can determine the results you get. IQ treated like it is some fixed quantity like the Plank’s constant. But it is just a derived number from a battery of tests created by humans. It’s not like it is an SI unit. Those who really know IQ, know it’s uses and limitations.

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