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The Store Of Wealth Is Looking Increasingly Shaky

A report from the Daily Telegraph in Australia. “It has been a catastrophic summer for the Sydney housing market. New housing data revealed prices fell by a whopping 1.8 per cent over December, an acceleration of the 1.4 per cent drop recorded over November. It meant the total fall in prices for 2018 was 8.9 per cent — the largest yearly decline in values since January 1983.”

“An average Sydney home now costs $808,494, the same it did in August 2016, according to CoreLogic. Senior analyst Cameron Kusher said the decline over December, usually a quiet period for real estate, went beyond ‘seasonal factors.’ ‘The market is much weaker than it was at the same time last year and a lot weaker than it was in (December 2016),’ he said.”

“Among the forces pushing prices down was a glut of unsold properties still on the market, which meant buyers had more choice and could negotiate better deals, Mr Kusher added. ‘Buyers can see there is a downturn, so there is no impetus to jump into the market,’ Mr Kusher said. ‘There could be a feeling from buyers that if they wait prices will be even lower and they can get a property for less.'”

“Falls in prices varied across Sydney regions. The Ryde region recorded the biggest drop, with the median home price decreasing 13.3 per cent for the year. Prices fell by 10.9 per cent in the Canterbury-Bankstown area and in the Sutherland Shire, while in the Hills area the falls were similar at 10.8 per cent.”

“Sydney areas with a long pipeline of new housing projects could record even bigger falls in prices over the year ahead, Mr Kusher said. This was largely because of the high level of properties up for sale, but there would also be aftershocks from the collapse of the Opal Tower in the Olympic Park area.”

“‘People will be very cautious buying new builds now,’ he said. ‘A lot of buyers may be scared off (from a purchase).'”

The New York Times on China. “Unwanted apartments are weighing on China’s economy — and, by extension, dragging down growth around the world. Property sales are dropping. Apartments are going unsold. Developers who bet big on continued good times are now staggering under billions of dollars of debt.”

“In places like Jurong, homeowners are paying the price. Some property developers have slashed prices on new apartments to gin up business or cut corners to save money. That undercuts the property values of earlier buyers, who increasingly are taking to the streets to protest.”

“‘I am very angry,’ said Jia Rui, 24, who bought a Center Park apartment a year ago. He watched last year as property prices rose for months before deciding to buy the apartment, which will be bigger than the one he currently lives in with his wife and parents. When he learned that similar apartments were later being sold at nearly half the price, Mr. Jia said, he felt helpless.”

“‘It is not possible to get a refund,’ Mr. Jia said. Then again, he added, Jurong will have a subway line connecting it to Nanjing, a major city, by 2023. ‘Maybe the price will go back up by then,’ he said.”

“Property is the largest source of wealth for households, a given in a country with strict rules against moving money overseas and a volatile stock market. In major cities, it sometimes accounts for as much as 85 percent of a family’s assets, according to researchers at Southwestern University.”

“That store of wealth is looking increasingly shaky. Sales in terms of gross floor area on the market have dropped sharply since September. The share of apartments in new developments that are being sold has plunged since the summer. The number of failed land auctions has doubled this year, indicating that property developers are unwilling or unable to buy land for new developments.”

The South China Morning Post. “A home in Hong Kong’s ultra-exclusive Mount Nicholson neighbourhood on The Peak is the latest victim of souring sentiment in the world’s most expensive property market. On Monday, House 16 sold for 7.4 per cent less – or HK$58.12 million (US$7.42 million) – than House 17, which was sold in April this year.”

“The difference in prices reflects a souring market, said Billy Mak, an associate professor at Hong Kong’s Baptist University. ‘The drop in price is similar to the level of drop in home prices [ on the basis of data provided by] the Rating and Valuation Department, and reflects the downward trend in the residential property market,’ said Mak.”

“The drop in home prices of apartments measuring more than 1,722 sq ft amounted to 5.4 per cent between August and November this year, according to Hong Kong’s Rating and Valuation Department. The overall home prices have slumped by 7.2 per cent after peaking in July, following a 28-month surge that started in April 2016.”

“Mak said the correction would continue into the first quarter of 2019. ‘The correction in the property market will not end so soon, as it only started in August and has lasted for four months so far. Previous corrections, after 2003, lasted for about a year.'”

From Free Malaysia Today. “A developer has dismissed criticism that property developers are ‘partly’ at fault for the oversupply of unsold properties due to a lack of understanding of the needs of the market, saying this was ‘absolutely not true.'”

“Melaka-based developer Anthony Adam Cho was commenting on a recent news report in which real estate portal Hartabumi’s chief executive Radzi Tajuddin said developers were partly to blame for the glut of unsold property as many built without understanding market demand.”

“Official figures indicate that some RM19.54 billion in unsold units were recorded in 2017 and that at present, the bulk of unsold properties are valued at RM500,000 and above per unit. Cho said that there were buyers who were keen, but unable to obtain the loans or were waiting for prices to fall further.”

“‘Prices reflecting the current market conditions are normal and should not be a result of overpriced property. Developers treat properties as stock, so just like supermarkets, they will sell their stock, even at losses to recoup their capital for future investment,’ he said.”

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This Post Has 43 Comments

  1. ‘I am very angry,’ said Jia Rui, 24, who bought a Center Park apartment a year ago. He watched last year as property prices rose for months before deciding to buy the apartment, which will be bigger than the one he currently lives in with his wife and parents. When he learned that similar apartments were later being sold at nearly half the price, Mr. Jia said, he felt helpless.’

    Stamp those little feet Jia.

    2. Jurong will have a subway line connecting it to Nanjing, a major city, by 2023.

      A lot can happen in 4 years like finding gold, oil or an Indian burial grounds that will halt construction for years.

  2. ‘It has been a catastrophic summer for the Sydney housing market’

    This data is hot off the presses. The Opal tower screw up has the Aussies in a serious sad panda thing.

    1. This may be the wave of the future…. if developers build housing that self destructs, there will always be new demand.

    2. the usual thing.

      Unproductive folks (real estate agents, local mortgage writers etc) were making more than chemists, engineers, doctors etc, and were working much less. People switched to the ‘new economy’

    1. ‘There could be a feeling from buyers that if they wait prices will be even lower and they can get a property for less.’

      If prospective homebuyers in the US collectively caught on to this simple principle, and stopped drinking the crazy loan koolaid served up by the GSEs, American home prices could drop to affordable levels within a few months.

      1. “If prospective homebuyers in the US collectively caught on to this simple principle”

        I think most are getting the feeling that we have hit the peak and it’s downhill from here. I have heard a major tone change from realtors and prospective buyers alike. Realtors have to eat and will do whatever it takes to trap a potential knife catcher into purchasing. Then the FB will play the “victim” when they realize they made a bad decision. Even though most people are ignorant to the market they will likely always have some voice of reason (family member, friend, colleague) that will help them to rationalize such a big purchase as a home. Those that do not will just be added to the pile of sad stories down the road.

        1. People generally seem more readily able to grasp that rising home prices can enrich them, due to home equity wealth effects, than to understand the reciprocal principle that falling home prices can impoverish them in ways that “nobody could have seen coming.”

  5. The comment above about lost confidence says it all. Confidence in appreciation, is larger then all metrics combined.

    In my favorite zipcode (one I wish to return to), a high demand, high value island area, there have been 8 closed sales of single family houses in last 30 days with 152 active listings. That’s 19 months supply and during our peak season (Nov through April).

    I think the knife catcher concept is catching on. Finally, price reductions are occuring which is not common this time of year. It is happening!

    Can’t wait to see how the numbers start to show over the next few months. Once reductions start, then tend to progress further, like a big Ole mack truck gaining speed. Very exciting times. Grew up there and want to return but priced out over last several years. Many childhood memories. Hoping for good things.

  6. “Grew up there and want to return but priced out over last several years. Many childhood memories. Hoping for good things.”

    That is nice. Best of luck.

    1. Thanks.

      Like the proverbial salmon returning home. Hopefully not to die however or be eaten by a lurking bear! As in market bear.

      1. You needn’t worry about bear predation, provided you are patient and don’t buy before the next recession is in full swing. Most prognosticators expect this development by 2020.

        1. Yep. Certainly like the last downturn. Don’t want to give in to temptation too early. A slow downward erosion.

          Only difference I can fathom between now and then is that those who remember those days and learned lessons may reduce more quickly to avoid long term hammering. A few listing have shown up at pretty reasonable prices. Naturally these come under contract fairly quick.

          Unfortunately, none of them have met my family’s criteria, so I have passed. But I am confident that as fear sets in deeper, so will listings of appropriate properties. Will compare list prices to those for similar property from oak lows in 2010 to 2011 period. If close, then I pull trigger. May be hoping for too much too soon, but you never know what will happen. In general, good things come to those who wait.

          1. Here are a couple of useful references:

            1) The early 1990s recession started in the summer of 1991. California housing didn’t bottom out until 1996 or so.

            2) The so-called Great Recession started in December 2007. California housing didn’t bottom out until the second quarter of 2012, according to this chart.

            So I’d advise young people who wish to maximize their long-term financial wealth to hold off for five years after the onset of the next recession before buying in California.

            Of course if you have money to burn, then by all means ignore my advice and buy as soon as you can no longer contain your FOMO.

          2. Reply to your post below (the reply button is not there for some reason)

            “So I’d advise young people who wish to maximize their long-term financial wealth to hold off for five years after the onset of the next recession before buying in California.”

            5 years from mid 2018? What if we see this snowball even faster due to a recession or other factor(s)? What would be the baseline historical pricing point year (2011/2012)? I do have a family I am raising and as much as I do not want to be a knife catcher, I do want a permanent shelter for them. I refuse to pay at current prices but am willing to sync up when it gets back or near to 2011/2012 housing prices so I can buy without the assistance of a loan. I can hold off for 1-2 more years if necessary but beyond that I think I will be taking the plunge. My backup plan is to locate out of my currently over priced bum ridden town if the RE market doesn’t cooperate in my and many other side liners favor.

          3. “5 years from mid 2018?”

            Yes, if that turns out to have been the start of the next recession. Based on this chart, we’re not there yet, but could be any day now.

            “What if we see this snowball even faster due to a recession or other factor(s)?”

            It could happen that way, but normally housing is very sticky on the way down, due in part to impatient buyers who decide to catch themselves falling knives, and somehow find a lender who is willing to hand them a loan to puchase a home when prices are dropping faster than a turd in a well, and owners whose life circumstances dictate they should currently be selling instead postponing a sale to avoid losing money in a downturn. After five or so grinding years of recession, prices somehow find their way down to a new equilibrium reality.

            “What would be the baseline historical pricing point year (2011/2012)?”

            Not sure what this means or why it matters, as I am not a chartist. I would suggest aiming for the trough of the upcoming bust, keeping your powder dry for a purchase about five years after the onset of recession. If everyone you know tells you that you’d be crazy to buy a house, then you’ll know that your timing is good.

            “I do have a family I am raising and as much as I do not want to be a knife catcher, I do want a permanent shelter for them.”

            We bought in 1996 when we were still in the process of starting our family. Through dumb luck, this turned out to be a historically good time to buy. When we moved to SoCal in the mid-2000s, we decided to sell and sit out the upcoming collapse by renting. (I started reading and contributing comments to the HBB in 2004). We’ve been renting ever since, yet somehow all of our kids survived to adulthood.

            My main suggestion is to stay employed, rent, save, and be patient until the next good time to buy, which is likely to be five or so years from now.

            Good luck!

          4. One more detail of timing: In early 2012, the Fed came out with a white paper on housing, which was a prelude to aiming the Quantitative Easing firehose on the mortgage market and driving mortgage rates down to generational if not historic lows. Absent this intervention, it might have taken much longer than five years after the onset of The Great Recession for housing to bottom out.

          5. “5 years from mid 2018?” Yes, if…

            Actually No. Five years into the last interrupted correction, prices had not yet fallen out of bubble territory. There was intervention. If you read house prices like they are in some sort of natural cycle, prepare to lose alot.

      2. Like the proverbial salmon returning home. Hopefully not to die AFAICT, in the “real reality” salmon die whether they make it home or not. The upside is some males get to spawn until they die.

      1. I had two Macbooks (both GPU failures) die within a week of each other and I need to get something. I’m using an iPad and despise it. It kills me to even consider buying a Windows laptop after being a Mac user since 1995. Their machines were pretty easy to fix or upgrade. Now RAM, batteries, etc. after 2015 are glued in, and upgrade components are no longer available like the old days. I don’t have anywhere near the skills to build a hackintosh; wish I did. Also, the prices Apple charges were always ridiculous, now they’re insulting.

        Cracked me up the way Apple Genius Bar guy spoke (uptalk?) He sounded like a valley girl. “So this is going to cost a thousand dollars?”

  8. “The downside (to the Chinese stock market) is cushioned by valuation.”

    Hogwash! The lower bound on valuation is 0, and there is a lot of downside between current levels and 0.

    There more lies are offered to suggest China’s market is decoupled from the rest of the world. In fact, China’s stock market crash is driving the rest of the world down.

    Markets
    Stocks Can’t Shake Off 2018 Blues on Growth Nerves: Markets Wrap
    By Andreea Papuc
    January 1, 2019, 1:52 PM PST Updated on January 1, 2019, 11:14 PM PST
    – S&P 500 futures sink after gauge has worst December since 1931
    – Aussie dollar drops, oil retreats; yen leads havens higher

    Stocks in Asia fell with U.S. futures and oil reversed gains as evidence of slowing Chinese growth compounded investor fears about the world economy as they reel from the worst year for global equities since the financial crisis. The yen touched a six-month high.

    Declines spread from Hong Kong to Sydney after a closely watched Chinese manufacturing gauge showed factory conditions slumping in December amid the trade war with the U.S. Equity markets in America and Europe also look set to start the first trading day of the year in the red. S&P 500 Index futures reversed an advance that had been spurred by signs President Donald Trump may be willing to make a deal to end a government shut down.

    Risk aversion had shown signs of returning after the S&P 500 ended the worst year for U.S. stocks since 2008 with a narrow gain in thin pre-holiday trading Monday on optimism about a deal on trade between the U.S. and China.
    …

    1. OMG, the smart Chinese lady in the news real told me that China’s stock market movements are uncorrelated with the rest of the world!

      Dow tumbles by more than 350 points at the open as China slowdown spooks Wall Street to start 2019
      By Mark DeCambre
      Published: Jan 2, 2019 9:33 a.m. ET

      U.S. stock indexes on Wednesday opened sharply lower on the first trading day of 2019, amid mounting concerns about a slowdown in China’s economy, which could ripple internationally. The Dow Jones Industrial Average (DJIA, -1.49%) declined 354 points, or 1.5%, at 22,972, the S&P 500 index (SPX, -1.39%) retreated 1.4% at 2,472, while the Nasdaq Composite Index (COMP, -1.63%) fell 1.6% at 6,526. The China Caixin manufacturing purchasing managers index fell to 49.7 in December, marking the first time the sector has been in contraction territory since May 2017. A reading below 50 signals worsening conditions. The retrenchment in the world’s second-largest economy comes as Beijing and Washington remain locked in a protracted dispute on tariffs that threatens to unhinge global economies. The S&P 500 was 14.5% short of its Aug. 20 peak, and the Dow was off 13% from its recent high on Oct. 3. The Nasdaq, which is in a bear market, defined usually as a decline of at least 20% from a recent peak, was currently off by about 18% from its apex. Markets were closed on Tuesday for New Year’s Day. In corporate news, shares of Tesla Inc. (TSLA, -9.34%) were sinking after deliveries for the electric car maker increased 8% from a year ago to 90,700, but below the FactSet consensus of 92,000.
      …

      2. stock market ended as they wanted it to for 2018, well maybe not quite as well but not as negative as it organically would have if the PPT didn’t step in. I bet they will let it slide now that we are into 2019.

          1. Can’t beat em join em!

            Also appreciate the advise given from the previous post I cannot reply to. The question I made in regards to 2011/2012 pricing was referring to a pricing point in which I would consider entering back in. I’m hopeful it would actually crater below that 😉

            “My main suggestion is to stay employed, rent, save, and be patient until the next good time to buy, which is likely to be five or so years from now.”

            I prefer not waiting 5 years but also prefer not to catch a falling knife from the peak so time for me to start working out my 5 year plan

    2. The Financial Times
      Markets
      Slowdown fears stalk global stock markets
      Wall Street falls as manufacturing contraction in China sets jittery tone to 2019
      updated 29 minutes ago
      …

    1. It’s a good thing that Secretary Munchkin called up all of his banker buddies over the holidays to make sure they have ample liquidity in their coffers.

      1. “It’s a good thing that Secretary Munchkin called up all of his banker buddies over the holidays to make sure they have ample liquidity in their coffers.”

        LOL, no one was worried about bank liquidity until Treasury put out a press release about that phone call.

  12. “‘It is not possible to get a refund,’ Mr. Jia said. Then again, he added, Jurong will have a subway line connecting it to Nanjing, a major city, by 2023. ‘Maybe the price will go back up by then,’ he said.”

    Go ahead then and buy some more Jia.

    1. Something tells me that Jia won’t be able to borrow the money to fund any real estate investments in 2019 or beyond.

    2. By the time that subway train is built, Jia, you’ll have long since boarded the express train to Schongville. And with China’s central bank-blown bubbles cratering from their unsustainable peaks, good luck with your “prices may go up by then” pipe dream.

  13. Markets
    Leveraged Loans Suffered Biggest Monthly Decline in Seven Years
    By Lisa Lee
    January 2, 2019, 6:47 AM PST
    – December’s 2.5 percent drop was biggest since August 2011
    – Loans still outperformed most other parts of credit last year

    U.S. leveraged loans suffered their biggest loss in December since mid-2011, following record-breaking fund outflows. Despite this, the floating-rate asset class eked out a slim gain for 2018.

    Loans posted a 2.5 percent loss in December, the worst since August 2011, when S&P downgraded the U.S. AAA credit rating and loans lost 4.4 percent in the month. This followed a 0.9 percent drop in November and compared to a 2.1 percent loss for U.S. junk bonds last month, data compiled by Bloomberg show.
    …

  14. “APR 20, 2017

    Property prices have increased yet again in Sydney, to a record $1,151,565 median house price over the March quarter, data released on Thursday shows.

    Sydney house prices grew 13.1 per cent over the year, according to Domain Group data.”

    …Based on this figure, the drop is 29.8%, not 13.1%…

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