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A Housing Crash Is No Longer A Wild Hypothesis

It’s Friday desk clearing time for this blogger. “Home buyers took a breather in August, a month when the typical price of a Palm Beach County house slipped to the lowest level since January. The median price of single-family homes sold by Realtors was $340,000 last month, the Realtors of the Palm Beaches and Greater Fort Lauderdale said. That was down from July’s median price of $350,000.”

“New York City’s home sellers, tired of waiting for buyers, slashed prices on almost 800 listings in a single week this month, the most in at least 12 years. In the week through Sept 9, there were 774 homes in Manhattan, Brooklyn and Queens that got a price cut, the most for any seven-day period in data going back to 2006, according to a report Friday by listings website StreetEasy. The previous weekly record was in March 2009, during the global recession, when 713 properties were reduced.”

“‘It’s a big gut-check for sellers,’ said Grant Long, senior economist at StreetEasy. ‘We’re at a period in the sales market where sellers have been incredibly ambitious with the prices they’re asking. They’re having to come down and bring prices to where demand actually exists.'”

“The Cape Cod & Islands Association of Realtors reports a slight dip in the number of homes sold on the Cape and Islands in August. ‘A key indicator we usually look at is ‘months supply of inventory,’ meaning the number of months it would take to sell all supply at the current pace. That is rising, fueled by a lower number of sales Cape-wide, which leads to a longer time to sell off all inventory, and double-digit percent increases in homes for sale in what were the most inventory starved towns, such as Yarmouth, Falmouth, Harwich and Provincetown,’ said CCIAOR President Martha Knapp.”

“In the Seeley Lake residential market, there have been 36 sales in 2018. With the majority of the homes selling under $300,000, only 23 percent of the active inventory is priced in the range that is attracting the majority of buyers. Seeley Lake is experiencing a shortage, or lack of inventory in the price range that exhibits the strongest sales numbers.”

“When this happens, sellers are tempted to price their homes too high. With higher-end sales lagging, we are seeing motivated sellers reducing their prices trying to attract the attention of buyers. Remember, the buyer sets the price; your home is only worth what a buyer is willing to pay in the current market. If your home has been sitting on the market for most of the summer, you may want to consider a price reduction to attract more attention.”

“There are growing calls for stronger homebuyer protections in the wake of a second major condo cancellation at the Vaughan Metropolitan Centre, this time affecting buyers of 1,633 units in the sold-out Icona buildings that were launched between January and March last year. The cancellation comes about six months after Liberty Developments cancelled the Cosmos condos along the same stretch of Highway 7. ”

“The project by the Gupta Group at Highway 7 and Edgeley Blvd. was supposed to include the tallest condo in Vaughan at 55 storeys. But this week, the developer sent cancellation letters dated Sept. 14, citing ‘circumstances beyond our control that make the project unfinanceable.’It’s not fair,’ said Patricia DeBartolo, who invested in a $530,000, three-bedroom condo for her daughters to live in while attending school and starting their careers in Toronto.”

“As Nigeria contends with the over 17 to 20 million housing deficit, the pertinent question is whether registered agents are insufficient to serve the increasing population or whether the sector is too porous that it cannot cripple the activities of quacks.”

“Consultant Abdulfatai Abdulrauf pleaded with real estate experts to intimate their clients on the actual value of any property saying that some properties are over-valued. He asserted that the entire properties in Abuja were built on artificial value both for the landlord and tenant. He said, ‘It’s now that we are facing the reality of what the actual rate should be either for the landlord or tenant but the issue is that landlords should accept the economic hardship and review the rent downward.'”

“Following the recent announcement of a 0,7 per cent drop in GDP in the second quarter of 2018, South Africa has fallen into another technical recession. In the world of real estate, this translates into a buyers’ market where the supply of properties outweighs the demand from buyers.”

“‘While this does not spell good news for sellers, buyers who have planned for the possible recession will be able to purchase a property at much lower prices,’ said Adrian Goslett, CEO of RE/ MAX of Southern Africa.”

“Sentosa Cove, a residential enclave nestled on an island off the coast of Singapore, is quiet at the best of times. Of a weekday, its frangipani-lined streets are mostly devoid of life. The stillness, however, belies the real estate shuffling taking place behind the scenes.”

“Property listings here have been rising. But unless you’re buying, there’s no cause for celebration: sellers are stomaching losses as steep as 40 per cent. Average prices are down almost 30 per cent from their 2011 highs, a far more severe slump than in prime central London areas reeling from Brexit.”

“Sentosa Cove stands out as a rare cautionary tale about the perils of international property speculation. The hot money from a commodities frenzy that peaked about seven years ago has fizzled. And now, after years of predominantly loss-making transactions, the enclave on Sentosa island faces yet another blow, this time from the government’s decision in July to further raise stamp duties.”

“But deep-pocketed international buyers, with plenty of luxury markets to choose from, are playing a patient game. ‘I have a few Russian investors that are interested in buying, they want to enjoy the island life, but they’re waiting for the right price,’ said Chandran V R, managing director of Cosmopolitan Real Estate Pte. ‘Some bungalows have been on the market for four, five years.'”

“Now even the Prime Minister is talking about it. An Australian housing crash is no longer a wild hypothesis pushed by a few people, it is a major talking point. The TV program 60 Minutes did a big investigation last week and now PM Scott Morrison has been out warning we could have a devastating house price crash if a few policies are tweaked. (Is it wise for him to talk like that when these things run on confidence? That’s another question.)”

“Are you going to see a removal truck in your street one day and discover the bank has taken your neighbour’s house? Could the bank come for your house? The data show a concerning picture.”

“As Australia’s levels of household debt relative to disposable income hit historic highs, experts are warning of a perfect financial storm on the horizon for struggling home owners with a surge in repayments set to hit interest-only home loans over the coming 12 months.”

“‘We see a lot of people who see housing an an investment and that’s part of our difficulty — there’s accommodation there that people don’t have access to because it’s being used as an investment,’ said Anglicare’s Mark Glasson.”

“Andrew and Rachel Hayden built their dream home in Perth’s south-eastern fringe three years ago, but they are expecting a mortgage default notice from their bank within a month. ‘We put probably $600,000 into it and [are] probably going to sell it for $480,000 — shocking,’ Andrew Hayden said.”

“The couple’s financial problems began when Rachel Hayden fell ill 18 months ago. The mother of five was forced to stop work and Mr Hayden had to shut down his business to care for her.”

“‘[I feel] absolutely gutted,’ she said. ‘You do everything by the book, everything. Gutted for the kids, they don’t do sports or anything and haven’t because you just can’t afford to. It took us so long to get here and we thought yes, no wasted rent money or anything like that.'”

“The Haydens are still hopeful of selling their house, and are now renovating a bus which will become their next home.”

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This Post Has 58 Comments

  2. ‘It took us so long to get here and we thought yes, no wasted rent money or anything like that’

    You took the words out of my mouth Rachel.

  3. wonder if she paid cash …. or did she do a 10% down payment to ride the expected appreciation train

    “The project by the Gupta Group at Highway 7 and Edgeley Blvd. was supposed to include the tallest condo in Vaughan at 55 storeys. But this week, the developer sent cancellation letters dated Sept. 14, citing ‘circumstances beyond our control that make the project unfinanceable.’It’s not fair,’ said Patricia DeBartolo, who invested in a $530,000, three-bedroom condo for her daughters to live in while attending school and starting their careers in Toronto.”

    1. So…if I’m reading correctly, they got their deposit back in full. But they think they got cheated out of the appreciation they were banking on when they bought their lottery ticket. Bullet dodging victims…

  4. “Remember, the buyer sets the price; your home is only worth what a buyer is willing to pay in the current market. If your home has been sitting on the market for most of the summer, you may want to consider a price reduction to attract more attention.”

    Wait a second here!?! You mean no more love letter to sellers or skipping house inspection? Geezz, I sure hope no one overpaid during the bubble years from 2013-2018. I guess this is the “shift” all realtors were referring to. I guess I will decelerate my bid prices….or just wait a few years for foreclousure deals LOL.

    1. Oh, there will still be love letters but it’ll be the sellers wooing the buyers. Myself and my wife are looking to buy in 2020, and depending on how savage we feel I may request a love letter from the seller. “I have so many houses to buy, why yours”?

    2. “You mean no more love letter to sellers…………………?”

      Hold on. Who’s going to feed the squirrels?

    3. I wonder how former HBB poster SFhomowner is doing. She’s the gay teacher in San Fran who wrote a love letter talking about fairies living in the backyard. The homeowner was an old lady who really did believe in fairies so she sold SFhomowner the house. IIRC SFhomowner got some downpayment assistance from the state because she was a teacher. That was 4-5 years ago so I don’t know if SF is still above water.

      1. If she bought in SF 4 years ago, she is doing fine. Prices have not dropped. They just slowed in the rate of appreciation.

      2. “the gay teacher in San Fran”

        Oxide, can you narrow it down a little? If you said the Republican, people could probably give you the address. Seriously, I remember her, if she sells now she will do quite fine. However, if she hangs on a few years she will probably go underwater.

  5. “‘While this does not spell good news for sellers, buyers who have planned for the possible recession will be able to purchase a property at much lower prices,’ said Adrian Goslett, CEO of RE/ MAX of Southern Africa.”

    NOW is the best time to buy guys!!!!

      1. They are not making anymore jobs, gold, electricity or water in South Africa either, only people and radical politicians.

  6. Do we need to enter our name and email for each comment? The former blog remembered that data and we could enter multiple comments. Testing.

    1. Everything is sorta to be decided. I’m going to reactivate the email/name thing because that keeps people from hijacking screen names.

      1. Oh, I see. If we have to enter our matching email to our bloger identity, no one can hijack our ID. I did not realize that was a problem. I don’t think anyone ever stole my ID, but no one wants to be me anyway! 😎

  9. New blog format seems good. Thanks Ben for all of your hard work here.

    I mostly read blogs vs. MSM, since the former are more fact-based, while the latter are clearly biased and with an agenda. For example: “Home buyers took a breather in August,…” “aspirational pricing”, “higher prices due to lack of inventory”. Just some examples of saying something, while not really saying anything (factual) at the same time. Kind of like the Fed. 🙂

    Well, it looks like we’re somewhere past the peak for housing bubble 2.0, but this will probably take several years to unwind. Minsky identified five stages in a typical credit cycle – 1) displacement, 2) boom, 3) euphoria, 4) profit taking and 5) panic. We’re likely somewhere between (3) and (4), as some are just starting to notice, and many haven’t yet noticed.

    The blame for this bubble and the two that proceeded it can be laid squarely on the Fed, since they created the ideal conditions (again) for bubble 3.0, the “everything bubble”. A perfect trifecta. Cheap credit leads to malinvestment due to yield-chasing. Of course they will tell you in hindsight that they “never saw this coming”. Rule of thumb: Centrally planned, command economies (or markets) never end well because socialism and intervention are poison to free markets. The examples from the dust bin of history are too numerous to mention. Hey Venezuela, how’s that workin’ out for ya?! Hey housing bubble 1.0, how’d that work out? Etc.

    Here are a few parting quotes:

    “The enduring lesson of the 20th century is that socialism is a failure, and free markets are a success. But the politicians keep advocating just a little more socialism.” – Milton Friedman

    Stein’s Law: “If something cannot go on forever, it will stop.” – Herbert Stein (1916-1999), Economist

    “Genius is a rising market.” – Canadian-born economist John Kenneth Galbraith

    “No warning can save people determined to grow suddenly rich” – Lord Overstone

    “The conventional view serves to protect us from the painful job of thinking.” – John Kenneth Galbraith

    “The credibility of any item in finance is inversely proportionate to the amount of publicity it receives.” – Michael Scott.

    “We no longer have business cycles, we have credit cycles.” – Peter Boockvar

  10. Inventory in Gilbert AZ is up 9.45% in the last week. Asking huge $150 – $250 sq ft prices. Lets see if it sticks or gets gobbled up by knife catchers.

    2. $200/sq ft is a suburban DC price. But DC is stuffed full of $100K jobs, with many $150K household incomes. It’s not difficult to afford a $300K house here. I don’t know if the Phoenix burbs have that.

  11. There are differences between this bust and the last bust. As Ben has mentioned, this bust has come on extremely fast as opposed to last time.

    Also, we are truly in an “everything bubble” this time. I don’t recall insane new and used vehicle prices going into the last bust. I do recall, however, crude oil at $147 barrel which precipitated the nasty economic meltdown. And I also recall that you couldn’t even sell a gas guzzler at any price, trucks included. I remember seeing them parked all over the place with “for sale” signs on them, their owners electing to drive cheaper means of transportation – if they even had a job anymore.

    This time around we are still seeing swift auto sales entering the housing price drops. I wonder if/when dealerships will start seeing mass inventory builds and will have to start slashing prices to reduce their stock.

    1. You aren’t kidding. I took a passive look at upgrading my small Journey to a Tahoe. A three year old Tahoe with 45,000 miles for $50,000?!?!? No way in heck I’m doing that. Of course it comes with the “Bad credit, no credit, we finance everyone!” This is how poor people remain poor

      1. It’s truly nutty. I think Millennial debt junkies bear a lot of responsibility for the massive run-up in vehicle prices. They seem to have a “pay anything” mentality.

        I wouldn’t pay $50,000 for ANY used vehicle with over 40,000 miles, I don’t care if it’s a Ferrari.

    2. Looking forward to watching a crash play out which happened so swiftly that nobody could have seen it coming.

    3. “As Ben has mentioned, this bust has come on extremely fast as opposed to last time.”

      A lot of speculators were burned during the last bubble. So any hint that we are at the peak (e.g., rising inventory, falling prices, longer DOM), has them running for the exits. The smarter ones know it is a game of musical chairs, and know the warning signs. The alarm is going off right now, and it cannot be stopped. Burn baby, burn. There are 12 open houses today in my target neighborhoods and price range in Denver today. They are at price that would have caused a bidding war 4 months ago. Every single one with a price reduction, and notes, the seller wants an offer today. I have started going to open houses every weekend again now. Not because its the right time to buy yet. Purely to get a front row seat to the collapse, and to talk to realtors. They all know me by name and hate me. Yet is a perverse pleasure. I expect at least a 20% drop in Denver, although we would need a 50% drop to get back into historical ratios. Any crack in the economy would make the chance of the 50% drop more likely. Again, that of course would lead to massive unemployment and potential bank failures. I wont enjoy that part, but Americans are do for a purge.

    4. “There are difference$ between this bu$t and the la$t bu$t. As Ben has mentioned, …”

      Yepper$, the houseloanowner$ folk$ who defaulted on amount$ of $250,000 / $350,000 / $450,000 …
      Will bee declaring to the court$ lo$$es of
      $500,000 / $700,000 / $900,000

      The amount$ have changed, but the victim$ remain the $ame, …

  12. Time to slap housing speculators everywhere with vacancy taxes to force them to rent or sell their empty “investments” to alleviate housing shortages.

    https://www.scmp.com/business/companies/article/2165220/looming-vacancy-tax-prying-long-held-flats-hong-kong-developers

    Looming vacancy tax is prying long-held flats from Hong Kong developers who kept them locked away for future appreciation riches.

    Developers have sold 1,677 empty flats – some luxury ones held empty for more than a decade – in a scramble to avoid paying a big penalty. That is 12 per cent of all flats sold in a 10-week period

    1. I met a property owner with 5-6,000 apartment units in the US. He has 500 units in San Francisco, where is is trying to empty them all. About 25% are vacant. Rent control holds down the values so much they are worth more empty, so they can be sold to sold to developers who will make them into condos and sell them individually. I think a vacancy tax would change this if it was steep enough. Ending rent control would also do it. Weird Dynamics.

  13. “But unless you’re buying, there’s no cause for celebration: sellers are stomaching losses as steep as 40 per cent. Average prices are down almost 30 per cent from their 2011 highs, a far more severe slump than in prime central London areas reeling from Brexit.”

    You ain’t seen nothing yet.

  14. “‘[I feel] absolutely gutted,’ she said. ‘You do everything by the book, everything. Gutted for the kids, they don’t do sports or anything and haven’t because you just can’t afford to. It took us so long to get here and we thought yes, no wasted rent money or anything like that.’”

    You did everything by the book? Whose book was that, Rachael? You & hubby are greedy, foolish speculators who bet the wrong way on a bubble and now you’re in over your heads. Boo f^cking hoo.

    BTW, I’ve been renting for the past ten years and I’m certainly not feeling gutted – we live quite well. But hey, enjoy life in your renovated school bus adding up those massive debts you racked up while not throwing away money on rent.

    1. I do feel bad that it was her health that brought them to this situation. It sucks when you have to deal with that, the unknown of the future and you just can’t make it work because you never asked for this. The problem I have is they lump her into these FB stories about being victimized. Their family and the family that HELOCed their scack to buy 5 jet skis and a RV are light years apart.

      1. Yeah, it’s a sob story. I’ve seen videos from the same area with people who got stuck with 10 shacks. And this article could have found scads of the same but didn’t. Is it a mystery why?

        Here’s what matters: it’s a bubble!

        ‘Andrew and Rachel Hayden built their dream home in Perth’s south-eastern fringe three years ago, but they are expecting a mortgage default notice from their bank within a month. ‘We put probably $600,000 into it and [are] probably going to sell it for $480,000 — shocking’

        They didn’t put squat into it or they wouldn’t be remodeling a bus. Their dream home was going to rake in sweet equity! And to show you how seriously shallow the reporting is, why not ask, “you knew Perth was a collapsing market three years ago (or should have), why on Earth would you borrow California prices in that situation?”

        Yes folks, these knife catchers really have no one to blame but themselves.

  15. Australian banks are so schlonged. Couldn’t happen to a nicer bunch.

    https://www.zerohedge.com/news/2018-09-20/one-australias-biggest-banks-caught-committing-mortgage-fraud-elderly-couple

    An elderly couple in Western Australia found themselves to be victims of a mortgage fraud that ultimately cost them about $200,000 and their marriage, when a door-to-door salesman on behalf of a real estate developer pushed them toward an overpriced home purchase – and one of Australia’s “big four” banks, Westpac reportedly modified the couple’s disclosed income in order to get them a loan that they shouldn’t have qualified for. Internal documents from Westpac shows that the bank’s staff inflated the income of the couple in order to approve a $464,000 loan in early 2012.

    After the couple’s monthly income was changed from $4561.67 to $5797, modified using a one time bonus the husband received, the couple quickly started struggling to make repayments on the new property. They were also unable to find a tenant for the property for long periods, which exacerbated their financial situation.

  17. I just got this email from a UHS I know in Flagstaff. He does a monthly summary:

    ‘Hello Everyone-August housing sales in the greater Flagstaff area dropped 10% from August 2017. August 2018 saw a total of 113 sales and prices remained flat with the median sales price coming in at $380K which is exactly where it was a year ago. However, on an average price paid per-square-foot basis, we’re up 4% from last year and now at $220psf.’

    ‘Looking at the 2018 figures year-to-date thru August, prices are up 4% and sales are up 8%. The real estate market has been doing well but it now seems to be starting to slow down a little bit. Some of that slowing is attributable to seasonality of course but mortgage rates are rising which makes a home purchase more expensive if you’re financing. A 30-year fixed rate mortgage is now at 4 ½% up 1/8th of a point from last month. The concern is that with 10-Year Treasury Bonds now yielding over 3% rates will continue to move higher. There are a lot of properties still sitting out there for sale and with winter right around the corner you can expect to see quite a few price reductions and sellers becoming more willing to negotiate.’

    Eeee-bola Flagstaff!

    1. lies all realtor lies! I get that the UHS puts these out to fish for his FBs but work on your marketing buddy. Start off with a decline, mix in some increases, end with more declines, and wrap it up with letting the FB know the bag holder may be “willing” to negotiate. Oh it’s my lucky day! The seller has agreed to negotiate with me. UHS to FB marketing 101, work on your lies.

  19. Congratulations on the new blog. The text is too large for mobile devices. I strongly suggest that you implement “responsive design” features that scale different attributes of the blog depending on the detected client device (e.g. computer, iPad, iPhone, etc.). This will maximize the improvements desired by the upgrade.

  20. So much bad journalism in this article:

    “We are seeing significant vacancies in brand-new developments,” Nicolais says. Those big, high-end rentals aren’t renting quickly.

    Jenny Usaj, who owns Denver’s Usaj Realty, says that first of all she’s “super bullish” on Denver metro real estate.

    One last thing Usaj is curious about: Who’s actually moving into some of those high-end rentals?

    “I have a boots-on-the-ground intuition that it’s because people are choosing Denver based on lifestyle, not economic opportunities.”

    https://denverite.com/2018/09/19/as-housing-prices-climbed-last-year-there-were-even-more-empty-residential-units-than-before/

    1. “I have a boots-on-the-ground intuition that it’s because people are choosing Denver based on lifestyle, not economic opportunities.”

      The demographic moving in is a huge influx of druggie riff-raff, illegals, and dependency voters who are going to cause a further deterioration in Denver’s quality of life and the tax base. They won’t be moving into Ujay’s luxury apartments, either. BTW, there is a nascent succession movement among Colorado’s more conservative rural counties to break away from the Bolsheviks in Denver and form a separate state that doesn’t have to subsidize the parasitic element that is flocking into our state from elsewhere.

    1. My understanding is falling prices happens at higher end first, which makes those more attractive (why pay 1.00 for this starter when for 1.01 gets mega improvements on fit & finish). This alleviates the pressure on the starter market, which causes price reduction there. It takes time to percolate through the system. Someone correct me if needed 🙂

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