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There’s Some Desperation In The Market

A report from the Vancouver Courier in Canada. “The dramatic slowdown in the detached home resale market combined with the introduction of the speculation and vacancy tax and other demand-side measures have prompted a host of owners of pricey houses to rent their homes, according to the president of a property management company.”

“‘The speculation tax, as well as the collapse in the housing market, is definitely going to affect rental rates in the high-end rental market,’ said Petr Vokoun, who co-owns Orca Realty. ‘A $3 million house that would have rented for $5,000 a year ago will likely rent for around $4,000 a month today. What we’re seeing is that rental rates have decreased up to 20 per cent from the spring of 2017, and it’s getting even worse. And when you look at the ratios, if a person owns a $3 million property, to get $4,000 a month for it probably doesn’t make financial sense for them.'”

“He added, ‘It’s getting to the point where there’s some desperation in the market, especially as now these owners also can’t sell these homes. It’s really spiking the rental inventory, in a way that I haven’t seen before in over a decade of property management.'”

“‘The market can’t bear those kinds of prices, and it just takes time for owners to get educated,’ said Nan Kumlin, property manager with Luxury Rental Suites. ‘In the past couple of months I’ve seen huge price reductions. Those price reductions are to do with the recent freeze in the sales market, the empty homes tax and the Airbnb rules.'”

“Will there be a trickle-down effect that will reduce rents on less-expensive properties? ‘Absolutely – it has to,’ said Vokoun. ‘The sales slowdown started with detached homes, but now also condos and townhomes are slowing down too, which in turn will spike rental inventory in the market and rental rates will go down. That’s what I’m seeing. And the speculation tax – as well as Vancouver’s empty homes tax – will exacerbate this effect.'”

From News.com.au in Australia. “Having one conversation right now could potentially save scores of Aussies up to $3120 every single year. That’s according to comparison site finder.com.au, which argues now is the perfect time to strike to negotiate a better rent rate, as the price of rent continues to drop across Sydney in particular.”

“The statistics are convincing — recent CoreLogic rent data has revealed rent for apartments has fallen or stagnated in 38 per cent of Sydney suburbs, while 40 per cent of suburbs across the NSW capital have seen either flat or decreasing house rent prices.”

“Finder.com.au money expert Bessie Hassan said while plummeting rent was welcome news to renters, it was a also a warning sign for residential property investors. ‘Investors unfortunately will not fare as well as renters as cheaper rent means smaller returns,’ she said. ‘However, what landlords may lose in rental income, they could make up by negatively gearing the property as this reduces their overall taxable income.'”

From Mingtiandi on China. “China’s long-term rental housing market hits the headlines again a Yujian Apartment, a startup backed by Xiaomi founder Lei Jun this week received debt payment notices from a major bank, and is said to owe back rent to its landlords.”

“Yujian, which operates a network of around 20,000 apartments nationally is the sixth major rental housing enterprise in China to fall into financial distress so far this year, following Yozook, Love Apartment, Cres & Asia, Dingjia and Hao Zu Hao Zhu.”

“Privately-owned Huarui Bank issued a notice to Yujian, warning the rental housing operator to meet its commercial obligations, citing numerous complaints from owners of apartments from among Yujian’s network claiming that the residential startup had failed to pay rent on schedule.”

“A Weibo user named Zhao Zilong Zhi Yun Kan Pan who identified himself as a homeowner who had leased his apartment to Yujian posted on the Twitter-like service on Monday that the rental housing operator had failed to pay its rent on time.”

“Yujian has also made enemies on the tenant side with over 300 consumers having complained about Yujian Apartment failing to return rental deposits within the agreed 15 business days, according to data from the Shanghai Consumers Association, with the average time for rendering deposits said to reach three months.”

“By the time that this article was published, Yujian Apartment’s website had become unreachable.”

The South African. “Oh, how the tables are turning. Renting in Cape Town looks set to ease the strain on the bank balance of locals, as a leading housing expert predicts landlords will be unable to raise rental prices for the next two years.”

“Speaking to Home Times, Matthew Taylor of Greef Rentals summarised what’s happening with the letting market in Cape Town’s properties. After years of spiralling costs, it would seem that a myriad of factors is aligning to make living in the Mother City affordable once more.”

“Plenty of new apartment blocks have been built in the last few years, and are ready to go ‘on stream’ within the next 12 months. The market has become more competitive, and money talks. According to Taylor, many landlords will have to lower their rates in a bid to keep the money coming in.”

From Gulf News on Dubai. “Dubai’s real estate market is getting set for the ‘ready’ wave — and it will have a telling impact on the city’s residential rents and even on how developers price their off-plan launches. Between 15,000 to 20,000 new homes will get delivered in Dubai this year, and in locations such as Al Furjan, Jumeirah Village Circle and Sports City, the new additions are being backed up by some eye-catching incentives.”

“And that adds to the pressures on the rest of the rental marketplace. Rents in Sports City and JVC are down by 10-15 per cent on average since early 2017. A three-bedroom unit at both locations are in the range of Dh90,000-Dh100,000 a year.

“‘Rents are falling across the board and that is due to a number of reasons, one of them being the fact there are now generous incentives given on ready properties,’ said Sameer Lakhani, Managing Director at Global Capital Partners.”

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This Post Has 34 Comments

  1. ‘The speculation tax, as well as the collapse in the housing market, is definitely going to affect rental rates in the high-end rental market…A $3 million house that would have rented for $5,000 a year ago will likely rent for around $4,000 a month today. What we’re seeing is that rental rates have decreased up to 20 per cent from the spring of 2017, and it’s getting even worse’

    Behold, this is the Vancouver that had hit bottom over a year ago. (Buck up Toronto, Vancouver is your future, hurrah!) Even though the UHS put out phony numbers, it’s been reported a continuous crater.

    1. “What we’re seeing is that rental rates have decreased up to 20 per cent from the spring of 2017, and it’s getting even worse.”

      Sounds like it is getting better to me. Hopefully, it will got a lot better.

      Why are most articles written from the investor’s perspective rather than what is best for society as a whole?

      1. Why are most articles written from the investor’s perspective rather than what is best for society as a whole?

        If you’re not a shark you’re chum. Nobody writes for chum.

        1. Investors are the new chum, and you can bet they will start pandering for bailouts any day now, as they realize the Fed has their backs.

    2. Isn’t it interesting how the Fed gradually curtailing its easy money policies is causing housing to simultaneously collapse all over the globe? I wonder whether this has ever happened previously?

    3. if a person owns a $3 million property, to get $4,000 a month for it probably doesn’t make financial sense…

      What makes sense is that your property is worth less than $400,000.

    4. Didn’t the speculation tax have exactly the expected effect? Maybe after a few years of declines peoples kids can afford a house.

  2. ‘Yujian, which operates a network of around 20,000 apartments nationally is the sixth major rental housing enterprise in China to fall into financial distress so far this year’

    This was another stroke of genius out of the government.

    DONG!

    3. My Aunt and uncle owned 80 Lloyd, Montclair.
      One of the nicest streets in Montclair besides upper Mountain Ave.
      Beautiful view of the city

  6. It’s time for real estate specuvestors to read the handwriting on the wall and weep.

    Economics
    Warning Signs in the Housing Market: Weekend Edition
    Here are Bloomberg Opinion’s top stories this week.
    By Mark Gongloff
    October 20, 2018, 5:00 AM PDT
    This is getting harder to do.
    Photographer: Joe Raedle/Getty Images North America

    Mark Gongloff is an editor with Bloomberg Opinion. He previously was a managing editor of Fortune.com, ran the Huffington Post’s business and technology coverage, and was a columnist, reporter and editor for the Wall Street Journal.

    The Housing Market Is Raising Serious Red Flags – Lakshman Achuthan

    Despite a robust U.S. economy, at least as measured by gross domestic product, real home price growth is locked in a cyclical downturn. If that’s not bad enough, it will likely get worse based on the same approach and factors that correctly flagged the housing bust — in real time — in early 2006.

    Home prices are highly cyclical and, as everyone discovered from the last recession, their movements can have material consequences for the broader economy. Yet, according to the minutes of the Federal Reserve’s Aug. 1 monetary policy meeting, policy makers are only starting to recognize the “possibility” of a significant weakening in the housing sector as a “downside risk.” Our research suggests that real home price growth has already entered a cyclical downturn that is likely to intensify. Data this week is forecast to show a drop in housing starts and existing home sales (editor’s note – they did).
    …

  7. As the Wall Street Journal writer duly notes, the nascent housing downturn is playing out against the backdrop of an economic boom, which includes nearly the lowest unemployment on record.

    Can anyone predict how the situation will change if the post-Great Recession-stimulus U.S. economic sugar high ever comes to an end?

    The Wall Street Journal
    Economy
    Economic Data
    Housing Market is Faltering and Strong Economy Offers No Cure
    Existing-home sales fell 3.4% in September, extending a weak stretch for the housing market
    By Laura Kusisto and Sharon Nunn
    Updated Oct. 19, 2018 4:01 p.m. ET

    The housing market is stumbling through its longest slump in four years, as the divergence between a booming U.S. economy and weakening home sales that many had dismissed as temporary now looks poised to continue.

    A combination of rising mortgage rates and high home prices, a dearth of inventory and a new tax law that reduces incentives for homeownership have weighed on the housing sector this year.
    …

  8. Investing
    Up and Down Wall Street
    What to Blame as Housing Drags on the Economy
    By Randall W. Forsyth
    Oct. 19, 2018 4:35 p.m. ET

    The chorus of criticism of the Federal Reserve’s interest-rate increases is growing, from President Donald Trump on down to the touts on TV. The rate hikes, totaling some two percentage points since the Fed started back in December 2015 from nearly absolute zero, not only are “crazy” and “loco,” according to the president, but also pose “my biggest threat,” he commented this past week. That’s even though the Fed’s federal-funds target range of 2% to 2.25% is actually below zero in real terms, after adjusting for the 2.3% rise in consumer prices in the 12 months through September.

    To be sure, those rate hikes, plus the prospect of more to come, have rippled through all borrowing costs, including those for home mortgages, lifting the 30-year fixed rate to 4.95% in the latest week, up nearly a full percentage point from its level a year earlier. And that would appear to be weighing on the housing market.
    …

    1. “That’s even though the Fed’s federal-funds target range of 2% to 2.25% is actually below zero in real terms, after adjusting for the 2.3% rise in consumer prices in the 12 months through September.”

      Dumb question of the day: If higher rates are such a nagging concern, couldn’t the Fed simply hold rates to historically low levels forever? What is forcing their hand to raise rates at a point when the economy and housing are doing so very, very well?

      1. What is forcing their hand to raise rates at a point when the economy and housing are doing so very, very well?

        This “boom” has foundations of sand, since it’s built on inherently unsustainable levels of debt and trillions in Bernanke-Yellen printing press “stimulus.” Powell is wisely taking the punchbowl away, years too late. The full magnitude of the swindles perpetrated on the real economy and the middle and working classes by Bernanke and Yellen will only be fully exposed when our financial house of cards collapses under the weight of its own fictitious valuations and unpayable debts.

      2. What is forcing their hand to raise rates at a point when the economy and housing are doing so very, very well?

        Nothing. Except the need to put some ammo into the empty magazine for the firefight you can already hear off in the distance. We don’t need any talk of the Fed being “out of ammo”.

  9. Sentiment Sours On Housing Market
    Oct. 20, 2018 5:51 AM ET
    Summary

    Bouncing back from the worst week for US equities since March, the S&P 500 squeezed out a modest weekly gain, led by the defensive and yield-oriented equity sectors.

    On a jam-packed week of housing data, homebuilders and building suppliers took another leg lower, extending their steep YTD losses. The Housing 100 has dipped 10% over the last month.

    After dipping more than 6% over the last two weeks, REITs surged more than 3% on the week as real estate earnings season began on a solid note.

    Housing starts, permits, and existing home sales data all missed estimates in September as the single family markets experience headwinds from higher mortgage rates and the effects of tax reform.

    US labor markets and industrial production continue to show unrelenting strength. Job openings data broke new records while industrial production is growing at the strongest rate since 2010.
    …

    1. What’s going to be unreal is the amount of smoke that stove generates as it burns off all that new paint. Must be a cold place to need both the wall heater and the stove.

  11. How does “handholding of potential homebuyers” make subprime lending with no skin in the game at the peak of an economic boom any less scary? That makes zero sense whatsoever.

    When the waters of the present mania recede, naked subprime swimmers will be found flopping around on the beach while bemoaning their financial victimhood.

    Subprime, Zero Down Mortgages Are Back But With A Catch
    John Wake
    Contributor
    Real Estate
    I write about real estate economics, home buying and house selling.
    Credit: Getty Royalty Free
    [While writing this post, I found something that surprised me. See below.]

    The reaction on Twitter was swift and negative to this headline on CNBC.com, “Thousands line up for zero-down-payment, subprime mortgages.” Fears from the last real estate bubble were awakened just seeing the words “subprime” and “zero-down-payment” together.

    The Neighborhood Assistance Corporation of America, or NACA, which has called itself a non-profit, community advocacy, mortgage broker, and which has over 40 offices throughout the country, was having a multi-day event in Miami to promote what they call “The Best Mortgage in America,” mortgages with no down payment, no closing costs and below market interest rates. The nonprofit doesn’t use credit scores but “character-based lending criteria” according to The Real Deal.

    The Bank of America committed to buying $10 billion worth of these mortgages from NACA, according to the articles. NACA can “originate” mortgages, that is, manage the mortgage application process for potential homebuyers, but NACA isn’t a bank, so they need to sell the mortgages they originate to someone and in this case that someone will be Bank of America.

    Subprime, zero-down-payment mortgages are scary but in this case they’re probably less dangerous than usual because NACA is doing a lot of handholding of the potential homebuyers. To qualify for one of their mortgages a homebuyer has to attend a homebuyer class and meet one-on-one with a NACA housing counselor. Perhaps most importantly, none of these mortgages are going to investors.
    …

    1. Zero down makes sense from a borrowers perspective. The guys that get creamed are the 10% down 20% down crowd they lose their equity as opposed to the banks equity.

  13. I have some significant savings in a local bank who is recognized in our community for making risky business loans so I’m thinking of moving my money. Any suggestions for a “safe bank”? Should I move the money to a credit union?

    1. I like First Republic – they’re a private bank.

      If this is the bank that you’re referencing, do let me know!

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