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One Of The Most Testing Downturns In History

It’s Friday desk clearing time for this blogger. “Denver epitomizes the slowdown taking hold this year in the nation’s housing market. Until summer, broker Van Lewis in Aurora, Colo. was having his best year ever. Since then, he says, monthly sales have fallen 50 percent. He partly blames an influx of apartment buildings that are offering significant concessions, making renting more attractive than buying for many millennials. ‘The spread between income and (purchase) costs became too much,’ he says.”

“Holly Steele eventually sold her Aurora townhouse in late September but it took nearly three months instead of the two weeks she expected. And she had to drop the price three times, from $295,000 to $276,500. ‘It was getting a little stressful because I wanted to make my move,’ she says.”

“In the Bay Area, homes are taking longer to sell and aren’t getting as much money as they did just a few months ago. After years on the up, the red-hot housing market appears to be cooling off. In Sunnyvale, luxury property specialist Sherdin Betbabasi just lowered the price of a home on Windsor Terrace by about $250,000. However, it isn’t necessarily a bad thing for the seller. In fact, Betbabasi thinks it will help him generate some buzz.”

“‘Look at the quality of what you buy, not just the price. If you’re looking at a nice home to buy, in the right school district, with a good commute that you want to have, then go for it, understanding that the market will fluctuate,’ Betbabasi said.”

“An apartment glut, falling prices and slowing demand has almost tripled the number of off-the-plan Sydney apartments valued at less than the purchase price. CoreLogic research shows more than 14 per cent of Sydney apartment owners’ resales are at a loss, a rise from 11 per cent in the past 18 months. As well, the number of off-the-plan apartments that are valued at settlement below the price in the contract has jumped from 11 per cent in April last year to 30 per cent last month.”

“Sam Saliba, who has eight properties in his portfolio, said falling prices created opportunities, despite his having recently lost money on an off-the-plan purchase he describes as a ‘mistake.'”

“Mr Saliba is considering selling five properties in Hobart, where prices are still rising, and another in Albury to take advantage of lower prices in Sydney, which until the slowdown were too expensive. ‘I see this as an opportunity,’ Mr Saliba said. ‘A lot of people are going to have to start refinancing and there are going to be fewer buyers at auctions. I’ll wait until after Christmas and then I’m going to pounce.'”

“Aberdein Considine says buyers and investors from other parts of the UK are returning to the north-east market as the energy industry emerges from one of the most testing downturns in its history. Robert Fraser, senior property partner at the law firm, believes the current market is the best property buyers have experienced in two decades.”

“‘So far this year, the average sale price in Aberdeen alone is £179,485, down around 15% on the 2014 peak,’ he said.”

“Non-banking financial companies, which kept credit flowing for real estate developers, have finally turned off the spigots, sparking concerns of defaults and delays. A Bengaluru developer, who did not wish to be named, said while one or two months can be managed with sales, timely disbursement from the lender is required. ‘This month, a lender has already delayed payment and if it continues I may have to default,’ he said.”

“Welcome to China‘s ‘consumption downgrade’ culture, a potentially worrisome development for Beijing and the world. Housing is so expensive that Wang Jiazhi moved out of his own home. The 34-year-old semiconductor engineer in the southern city of Shenzhen bought a one-bedroom apartment in 2016. In addition to a mortgage of more than $700 a month, he needs to pay his relatives back for the money he borrowed for the down payment. So he rents his apartment and shares a four-bedroom apartment with nine other men. This way, Mr. Wang — who makes about $2,000 a month after taxes — saves $160 a month.”

“Like many Chinese men, Mr. Wang believes he needs an apartment in order to find a wife. But he is under so much pressure with his mortgage and debt, and with supporting his aging parents in the countryside, that he has had to postpone his plan for marriage. His prospects weren‘t good anyway: To save money, he has stopped dating.”

“‘I work long hours every day,’ he said. ‘It makes me feel occupied.'”

“Lots of people talk about affordable housing. But how many really want to do something about it? How many homeowners are interested in watching the value of their houses decline to more affordable levels. Anybody? Anybody? I thought so.”

“Are others truly interested in lower prices? When the housing bubble burst in 2008 and prices went into freefall, were affordable housing advocates cheering on the lower cost of housing? Were they urging the government to step aside and let the chips fall where they may? Or did they support the alphabet soup of programs such as HARP and HAMP designed to keep delinquent borrowers in their homes rather than allow foreclosed houses to come on the market at distressed prices?”

“When was the last time anyone in favor of lower prices spoke out against the microscopic interest rates and lenient borrowing standards that keep prices high? Rather than teaching homeowners and prospective homeowners that real estate prices go up and down, the clear message is that public policy stands ready to support housing prices come what may.”

“On the flip side, high prices in and of themselves reduce demand. The law of supply and demand cannot be repealed. Any proposal to increase affordability that does not recognize this reality is doomed to failure.”

This Post Has 48 Comments
  1. ‘I’ll wait until after Christmas and then I’m going to pounce’

    Until speculative fever is wrung from the participants, the mania isn’t over.

    BTW, I’ll be flying out of Texas tomorrow and getting back to my regular blog schedule.

    1. ‘I’ll wait until after Christmas and then I’m going to pounce’

      Remember, knife catchers, it’s the second mouse that gets the cheese.

    2. I’ve said it before but I think there is a morality component here, one that is necessary to address in order to truly eradicate this speculation culture. So far, getting burnt by one bubble has not been a sufficient deterrent for many who can’t wait to ride the next one, just from a more advantageous position.

      It requires recognizing that, unlike normal business dealings, bubble speculation is a win-lose arrangement – for one person to win (sell at the top), someone else has to get screwed over (buy in at the top). But it is common now for people to fancy themselves as savvy, cynical, stone cold gamblers in housing, stocks, bitcoin, ebay, whatever, and hang the consequences to others so long as they profit. Bubble gangsters.

      “back to my regular blog schedule.”

      Yikes, I’m already having trouble keeping up with the three posts a day! (Not complaining though – thanks for the frequent updates.)

      1. I’ve said it before but I think there is a morality component here, one that is necessary to address in order to truly eradicate this speculation culture.

        Didn’t one of the big players 10 years ago complain about the little people wanting the crash to be some kind of morality play and they needed to accept that the big fish needed to be saved regardless of morality?

        1. Is this the one?

          ‘Economics Is Not A Morality Play’ Paul Krugman, NYT 9/28/10

          https://krugman.blogs.nytimes.com/2010/09/28/economics-is-not-a-morality-play/

          “Economics is not a morality play. It’s not a happy story in which virtue is rewarded and vice punished… this is a situation in which virtue becomes vice and prudence is folly; what we need above all is for someone to spend more, even if the spending isn’t particularly wise.”

  2. “Denver epitomizes the slowdown taking hold this year in the nation’s housing market. Until summer, broker Van Lewis in Aurora, Colo. was having his best year ever. Since then, he says, monthly sales have fallen 50 percent. He partly blames an influx of apartment buildings that are offering significant concessions, making renting more attractive than buying for many millennials. ‘The spread between income and (purchase) costs became too much,’ he says.”

    EBOLLLAAA Aurora!

    “Mr Saliba is considering selling five properties in Hobart, where prices are still rising, and another in Albury to take advantage of lower prices in Sydney, which until the slowdown were too expensive. ‘I see this as an opportunity,’ Mr Saliba said. ‘A lot of people are going to have to start refinancing and there are going to be fewer buyers at auctions. I’ll wait until after Christmas and then I’m going to pounce.’”

    Soon to be EBOOLAAA to Hobart and Albury! Prices are about to crash there too so better sell now or get Schloonnngggeed!

    1. ‘Steele eventually sold her Aurora townhouse in late September but it took nearly three months instead of the two weeks she expected. And she had to drop the price three times, from $295,000 to $276,500′

      And they’ll say days on market is less than a month, but people are a sawin’ and a slashin’.

      1. What was her first cut if all together they were $18500? She overpriced and then made less than 10 percent cuts three months later. She seems like the type of personality who might ride it to the bottom

    2. Until summer, broker Van Lewis in Aurora, Colo. was having his best year ever. Since then, he says, monthly sales have fallen 50 percent.

      Not a twinge of conscience for the FBs he put into shacks that are going to end up being their financial Waterloo.

  3. Just got this email from realtor
    ——————-
    Dear Friends and Clients,

    Our coastal Orange County real estate market has had some notable changes these last few months, so I have put together an update for your review.

    MARKET PULSE:

    The market overall is relatively flat, which is causing some unnecessary anxiety in the marketplace. There has been a lot of chatter about the market correcting, however what we are really experiencing is more of a plateauing. We have had a tremendous 6 year bull-run of values climbing, so plateauing feels like a shock when it really shouldn’t. This is all part of a healthy market cycle, in fact it would be completely unrealistic to expect 10-15% year over year returns indefinitely…that is not sustainable.

    With that being said, the plateauing in pricing does tip the scales into the buyer’s favor because it is forcing sellers to get real with their pricing. Buyers don’t have to pay the one-up premium over the last comparable sale in order to secure the property they want anymore. Additionally, there is now a larger inventory of homes on the market to choose from so buyers can be more discerning with their choices and a good agent can negotiate a steeper discount off of the list price for their clients. Even Warren Buffet took a $3M haircut when selling his Emerald Bay vacation home, which was originally listed at $11M and recently sold for just under $8M. Don’t feel too bad for him, he only paid $150,000 when he purchased it in in the 1970s.

    THE NUMBERS:

    -Values overall are still about 73% higher today than they were at the bottom of 2012
    ^ This is an average gain of 12% per year

    -Sellers are taking a 7% average haircut from their original listing price to ultimate sale price
    ^ These are the steepest discounts we have seen in over 3 years.

    -Inventory of homes available for sale on the market is currently at a 2 year high

    -Closed sales volume is down about 10% this past quarter
    ^ Compared to previous 4 years of Q3 sales volume

    1. “This is all part of a healthy market cycle, in fact it would be completely unrealistic to expect 10-15% year over year returns indefinitely…that is not sustainable.”

      What happened to the love letters and “You got to roll with it”???
      I bet you were telling buyers from 2013-2018 that this was not sustainable along.

    2. “Values overall are still about 73% higher today than they were at the bottom of 2012”

      A lot of economists and housing experts have wasted many words trying to obscure this fact, which is so simple and clear it would make most normal (non-speculator) buyers run a mile. It’s the equivalent of a “you are here” graph, and the “here” is the very tippy top of the roller coaster.

      Great email, thanks for posting.

    3. “recently sold for just under $8M. Don’t feel too bad for him, he only paid $150,000 when he purchased it in in the 1970s.”

      Some fun with percentages:
      Buffet’s house is up +5,233%. He would have done better to buy middle class housing nearby, which is up +9,900% in the same time frame.

      In that time his net worth was up aprox +99,900% (from $67 million at the end of the 1970s to $67 billion in 2015 according to a ValueWalk article). While the median family income of a nearby area was up around +200% in the 70s to now.

      Or, his net worth of $67mil was +405,323% of the median US household income of $16,530 in the 1970s. Today his net worth of $67 billion is +128,997,477% of the median household income of $51,939 in 2015.

      These numbers should cast doubt on any argument that bubbles exist to benefit/protect the middle class and their 401ks and household net worth. Clearly some wealthy people like Buffet have benefitted from serial bubbles immeasurably more and been hurt immeasurably less than middle class Americans.

      New gilded age indeed.

      1. There is something terribly, terribly wrong with a system where certain people are able to amass tens of billions of dollars while millions of homeless people have absolutely nothing.

  4. ‘were affordable housing advocates cheering on the lower cost of housing? Were they urging the government to step aside and let the chips fall where they may? Or did they support the alphabet soup of programs such as HARP and HAMP designed to keep delinquent borrowers in their homes rather than allow foreclosed houses to come on the market at distressed prices?’

    ‘When was the last time anyone in favor of lower prices spoke out against the microscopic interest rates and lenient borrowing standards that keep prices high’

    As the article points out, almost all the programs we see increase demand which makes shacks more unaffordable.

      1. This man made millions suffer: Tim Geithner’s sorry legacy on housing …
        https://www.salon.com/…/this_man_made_millions_suffer_tim_geithners_sorry_legac…

        May 14, 2014 – In fact, the programs were never meant to help homeowners, designed only to “foam the runway” for the banks, to spread out foreclosures and …

        1. “This man made millions suffer: Tim Geithner’s sorry legacy on housing …”

          Geithner was a scumbag, but this is on Obama. Remember this?

          “Timothy Geithner says he offered to resign three months into his stint as Treasury secretary, and supposedly it was only the first of multiple times he tried to quit.

          But President Barack Obama refused to “liberate” him, he told Andrew Ross Sorkin…”

          https://www.huffingtonpost.com/2014/05/08/geithner-resign-treasury_n_5291180.html

          It is simply amazing to me, almost surreal, that Obama ran for President as a champion of the little guy, only to become the biggest banker bootlicker in history, having the audacity to invite Jamie Dimon to the White House more than almost any other person during his entire time in office. Not only that, Obama publicly stated, on countless occasions, that we “had to get house prices up.” High house prices do nothing but make everybody poorer, save for speculators.

          The situation we have in this country now is unconscionable. I was just eating lunch in my vehicle today when I saw a small group of homeless men in an area I have never seen them before. It’s epidemic.

          And Obama rode off into the sunset with all of his newfound riches, at the expense of the poor he was supposedly championing. The guy should go to prison.

      2. Yes and it is all part of the globalists plan, get Americans to spend more for foreign goods with borrowed money on their inflated assets. When the other countries had built enough wealth the bubbles would pop and Americans would find themselves at the same level as the rest of the world. This world socialism would equalize wealth except for the new royalty of Soros, Koch brothers etc.

    1. Many would argue that HARP and HAMP existed mainly to keep people hopeful and paying the mortgage on their underwater house long enough that banks could recoup enough of their loan not to lose money on the eventual foreclosure, while foisting extra losses onto the borrowers. For extra bonus, postpone foreclosure long enough that Wall St landlords could borrow extra funds (thanks to ZIRP and QE forcing investors into more risky bonds and stocks), and then have companies like AmericanHomes4Rent buy the foreclosures.

      Not that borrowers had not sinned, but it is obscene to protect only the banks, and then let Wall St profit off the carnage,

      The correct approach would be to force both banks and borrowers to take their losses, and let conscientious savers buy the properties at non-bubble prices.

  5. “The 34-year-old semiconductor engineer… has had to postpone his plan for marriage. His prospects weren‘t [sic] good anyway: To save money, he has stopped dating.”

    Debt has stripped this man of nearly everything. He would be far better off had he stayed home in the countryside. Probably would have his own mud hut.

    1. Unfortunately, Mr Wang is in an especially bad situation. Culture there dictates that he, and the millions of surplus men like him, demonstrate wealth in the form of a house/apartment and cash gifts to the bride’s family. Without that it like a being a young Mormon man in Utah who hasn’t gone on a mission – the women aren’t hardly even look at you, much less take you seriously.

      Chinese demographics ( the Huge surplus of 30-60 Million young men) and recent history ( cultural revolution+communism wiped out lots of familial wealth that would otherwise be passed down), combined with the modernization & westernizing has impacted Chinese women to get more educated and delay children, despite the huge cultural preference that the wife be much younger and less educated.

      Throw in the bubbles that are Chinese real estate and stock markets, and add that all up and you get — and Mr. Wang, and millions like him, who are realizing they have been fu*ked over in multiple ways including the mating and wealth games… and angry young(ish) men with no prospects are a huge source of problems.

      https://www.scmp.com/news/china/society/article/2072313/cost-bridegroom-gifts-secure-permission-marry-soars-china

    1. ‘You might know OZK, even if you don’t recognize the name. That’s because it used to be called Bank of the Ozarks until it changed its name in July. One reason for the rebranding could be its growing reputation as a risky lender. Two years ago, noted short-seller Carson Block, who goes by the name Muddy Waters, warned that the bank could stumble soon. But another reason for the rebranding could have been so it could do more risky lending with an image friendlier in the hot condo markets of Miami and New York, where the bank is doing much of its lending these days.’

  6. I just got the September numbers from a Flagstaff broker I know. The ebola hit there last month:

    ‘September housing sales in the greater Flagstaff region dropped 38% with monthly sales totaling 100 units. For September 2017 there were 138 sales. Prices for the month also declined, dropping 1% with the median sale price coming in at $380K down from $383K last year. For the third quarter, sales dropped 16% and prices were unchanged from the same period a year ago. Here are the numbers for September, the third quarter and year to date. ‘

    ‘As you can see the Flagstaff real estate market is slowing considerably with only one new price high and no new sales highs. At the end of the second quarter of this year, there were two new price highs and three new sales highs. This turnaround is being fueled by mortgage rates which have hit a 7-year high and inventory levels which remain high. Weather also plays a factor up here in the mountains and this week we got our first measurable snowfall. It will be an interesting 4th quarter.’

    1. Home sales haven’t drop this much since late 2007 and late 1999…buckle up
      ————————————-
      Ugh. Just in time for our lease renewal here in Las Vegas at the end of the year.
      I’m not thrilled with our choices – pay a possibly outrageous increase in rent like last time, buy at the peak (even if that was a good idea, I doubt we could afford it) or shove off. Should be notified by end of November; thirty days to get out.

  7. Very, very interesting… I just checked listings for the entire island, which I haven’t done in a few months…. and there’s been a big surge in listings at the $5M and up mark…

    Now in absolute numbers, it’s small, especially compared to the total number of properties valued that high (remember, we’ve got something like 15+ miles of Lake Washington waterfront properties) and I would need to run some sort of report on a MLS history database to confirm, but the immediate impression is basically “Holy Sh*t!”

    I’ve watched this area for 6+ years now (been living here 5), and I can not ever recall seeing such a large inventory of very high priced properties. Usually it’s been 1, 2 or 3 at most at a time, not 15+.

    So for all those people who decided their fancy house is a bit too much and it’s time to go… they’ve got 5-10x the historical competition for the ultra-well heeled buyer they seek… and oh yeah.. I’m seein multiple price reductions of over 500K, which puts price pressure downward on all the listings.

    Could this be a negative feedback loop spinning up? Pass me the popcorn, and I think I should go to some open houses this weekend…

      1. As a curiosity/tourist thing. Just to see what a house that expensive looks like up close, and to chit-chat with the realtors and see what sort of spin they put on things.

        I still think I bought rather well – you’d call it a boring purchase if it was in some of the other areas around here – and I’m not going anywhere for a long, long time – retiring here if I can manage it.

        1. I’m not going anywhere for a long, long time…

          For most people, that will be the result of overpaying by several hundreds of thousands, not an excuse for it.

  8. Just look at today’s stock market. Dow slightly up today. Many of major homebuilder down 3 to over 4 per cent. These are big numbers and seem to progress every day. Where will it stop. If you can’t connect the dots out then god help you.
    A small modest house on a canal front, boating water lot on one of our barrier islands just went on the market for $500k. Over the past couple of years, canal teardowns typically have fetched around 650k.

    Will see how long this one takes to get under contract. Things are a changin.

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