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A Cruel Reality In Which Homes Are Increasingly Being Sold At A Loss

A report from the Globe and Mail in Canada. “A Toronto-area real estate development company that in recent months has cancelled two condominium projects has filed for court protection from its creditors after failing to make payments on about $220-million in debt obligations. The fate of two more condo projects, one completed but not closed and one at least partly pre-sold to buyers, remains undetermined.”

“The appraised value for all the properties is more than $354-million, but Forme owes tens of millions of dollars in mortgage debt to dozens of banks, credit unions, alternative lenders and individuals. In addition to the mortgages, dozens of suppliers are owed millions in fees and payments. About a dozen real estate brokerages are collectively owed hundreds of thousands of dollars in commissions for some of the projects.”

From The Guardian in the UK. “Home prices in some of Britain’s wealthiest areas have had up to 25% wiped off their value in 12 months as Brexit turmoil continues, according to the estate agent Your Move. That has meant typical price falls in some cases of almost £500,000.”

“The average house price in Kensington and Chelsea, the UK’s most expensive place to buy a home, dropped by more than a fifth (21.2%), during the last 12 months, from £2.25m to £1.77m. In Westminster, the second most expensive area, typical prices fell by a quarter (24.8%), from £1.93m to £1.45m. Other London boroughs said to have experienced double-digit price falls over the past year include Hammersmith and Fulham, where the average property value dropped 19%, from £1.08m to £873,000, Camden (down 11.5%) and Tower Hamlets (down 11.3%).”

The Nikkei Asian Review. “The economic downturn in China and the darkening global outlook have reversed the momentum in Asia’s property markets, giving homebuyers painful whiplash and raising fears of spillover effects on consumer spending.”

“Eason Shao is one condo buyer caught by the sudden shift. For about six months last year, he repeatedly signed up for ‘housing lotteries’ in the eastern Chinese city of Hangzhou, determined to purchase an apartment where he could start a family. Developers had introduced the lotteries in big cities in late 2017, as the number of buyers had far exceeded the available units during a three-year property frenzy.”

“Shao would get up at 6 a.m. and join long lines of hopefuls outside a local bank. The eighth time was the charm for Shao. His number was finally called in October. Then, only a few months later, the rush died down. Shao heard that people were buying more attractive homes in better locations without going through a lottery at all. ‘Of course I’m a bit disappointed,’ he said. ‘But I made the best decision I could manage back then.'”

“In Hong Kong, owners are grudgingly adjusting to a cruel reality in which homes are increasingly being sold at a loss. A huge influx of mainland capital was one reason Hong Kong’s residential prices more than tripled after 2009. ‘Hong Kong’s almost 10-year housing market bull run looks like it is coming to an end,’ said Joseph Tsang, executive director at Jones Lang LaSalle in the city.”

“In Japan, housing prices in some Tokyo suburbs are falling sharply as buyers become pickier. In early January, the price of a condo in the Eravio Todoroki development just 30 minutes from the central Tokyo Station business district was cut by 13%, to 59.8 million yen ($550,000). ‘We started to sell this apartment a year and a half ago, but it was taking too long,’ said a manager with developer Dynacel ‘We wanted to sell out all the units to avoid additional operating costs.'”

“Thailand is also tightening its lending criteria for housing loans this year, aiming to rein in household debt. The country is concerned about the rising ratio of nonperforming housing loans, which stood at 3.37% at the end of September, according to the Bank of Thailand.”

From Domain News in Australia. “Sydney’s median house price has dropped almost $120,000 in the past year as the city faces its steepest property downturn in decades, new figures show. ‘House prices have fallen 11. 4 per cent from the mid-2017 peak, pushing them back to mid-2016 levels,’ said Domain senior research analyst Nicola Powell. ‘It’s the sharpest downturn in more than two decades, although the duration is yet to surpass the 2004-06 slump.'”

“Double-digit declines are already widespread, with an annual drop of more than 10 per cent seen in regions including the inner-city and eastern suburbs, inner-west, north-west, south and Canterbury/Bankstown. The south was hardest hit, with the median price dropping 14.8 per cent — a fall Dr Powell attributed to a dramatic increase in the number of houses for sale last year.”

“ANZ’s head of Australian economics David Plank said for price falls to remain below 20 per cent, the pace of decline would need to slow. ‘If we continue to see prices decline in the order of 1 per cent per month, we’ll exceed our forecast for [a 15 to 20 per cent] peak to trough fall,’ Mr Plank said. ‘I don’t really see any signs, certainly in the next six months that prices will stop falling.'”

From Stuff in New Zealand. “Plans for two new Christchurch apartment towers promising million-dollar homes have been dropped, with a slow market getting the blame. When they first hit the market in 2016, the 14 apartments were priced at $1.6m and up. Advertising for the vacant site is headed ‘Owner needs to liquidate.'”

This Post Has 55 Comments
  1. ‘Shao would get up at 6 a.m. and join long lines of hopefuls outside a local bank. The eighth time was the charm for Shao’

    Winner, winner, chicken dinner!

  2. All of these countries, with the possible exception of Japan, have been actively popping their housing and real estate bubbles. Japan may be doing so as well, I’m not sure.

    So for all the whining here, “oh prices are too high, we gotta build more!” Just whack the financing. You’ll have much lower prices. These US loans are subsidized by the government anyway, so it’s a risk to all of us.

    1. “These US loans are subsidized by the government anyway, so it’s a risk to all of us.”

      Arguably the federal guarantees were slapped on without voter approval. What if I don’t want to subsidize the loan on someone else’s house, especially given that I don’t even own a house myself?

      1. “What if I don’t want to subsidize the loan on someone else’s house…”

        “You are either with us or against us.” —Dubya

        1. Taxpayers didn’t cover FBs’ underwater mortgages. They bailed out the reckless and greedy lenders who lent money to the gullible and stupid so they could buy into a housing bubble, even though they were manifestly non-creditworthy (subprime) or would walk away from their underwater shacks since they had no skin in the game.

          1. The only people who got much help were the banksters. But the farce was that Wall Street made it into a morality play and made it made a big stink about paying the losers’ mortgages while they were robbing the treasury.

        2. “… he said he didn’t want to pay the loser$’ mortgage$?”

          Iffin’ one prepare$ for such an event as a “true.believer” & with “forward.thinking” … You might be charged with: “pre.mediated malice.aforethought”

    2. “‘oh prices are too high, we gotta build more!’”

      Recently the calls have also been: “oh prices are too high, we gotta tax more!” Vacancy taxes for commercial and residential, wealth taxes, higher property taxes, stamp duties, higher capital gains taxes, etc. Several of these were mentioned today.

      Like building more, taxing more is a solution that doesn’t address the real problem. Before considering new taxes, simply stopping tax incentives for developers, second home owners, mortgage holders, and taxpayers in high-tax states will make a huge difference.

      Then as Ben said, “Just whack the financing.” Bubble gone.

  3. ‘cut by 13%, to 59.8 million yen ($550,000). ‘We started to sell this apartment a year and a half ago, but it was taking too long,’ said a manager with developer Dynacel ‘We wanted to sell out all the units to avoid additional operating costs.’

    So we hosed the poor bashtards who bought from us previously without a thought.

    1. “So we hosed the poor bashtards who bought from us previously without a thought.”

      I get the sentiment but aren’t they hosing every client who buys in this bubble market, just to slightly different degrees?

      I guess I don’t see the problem of a developer discounting prices to move units. That’s how most things work – Macy’s sales rack undercuts buyers who paid full price without a thought too. The idea of stuff needing to get cheaper to attract new buyers as it sits is only crazy in the world of housing, where it’s always supposed to go up.

      1. I suppose one difference is that when you are buying on the Macy’s sales rack you are typically buying at the end of the season and the picked over stuff. Those paying full price are in some sense paying to have the privilege of having first dibs on a new trendy fashion. Not sure what the housing analogue is for that.

        1. “Those paying full price are in some sense paying to have the privilege of having fir$t dib$ on a new trendy fa$hion.”

          Doesn’t Macy’$ issue weekly coupon$? Oh wait, u$ing coupon$ would be neither “fa$hionable” nor “trendy”.

      2. The idea of stuff needing to get cheaper to attract new buyers as it sits is only crazy in the world of housing, where it’s always supposed to go up.

        Because of that crazy system we have that Mr. Banker likes to talk about. If we let the market actually work, then the comps fall, and then trillions of imaginary wealth goes poof. Our system now depends on that “wealth” to function.

  4. ‘A huge influx of mainland capital was one reason Hong Kong’s residential prices more than tripled after 2009’

    One by one, every market the Chinese inflated is getting crushed. Coming to a city near you!

    1. Obviously the Chinese investors were a huge factor in driving up U.S. west coast prices. What will happen when they cash out?

      1. I mentioned back in 2012 seeing a Chinese man on a golf course at Tahoe, sneaking around looking in windows and at houses from the fairway. He was not golfing. These guys have been buying for a LONG time, not just recently.

  5. If an open house looks like a cocktail party, don’t buy. If yours isn’t the only offer on the place, there is too much competition. Give it a 2 or 3 years should be there again

  6. ‘It’s the sharpest downturn in more than two decades, although the duration is yet to surpass the 2004-06 slump.’”

    Don’t worry, Nicola. The coming collapse of the central bankers’ Ponzi markets and asset bubbles will make all previous imploding bubbles look like child’s play.

      1. They’re edicated Professor, news spreads fast on their digital device$!

        ‘Super-gonorrhoea’ not the only sexually transmitted infection becoming drug resistant

        Mar 29, 2018 · Syphilis, HIV and a relatively new sexually transmitted disease – Mycoplasma genitalium – are also developing resistance to antimicrobial treatments. … Infectious disease experts have long warned about the spread of drug-resistant gonorrhoea

    1. “In hot markets like Seattle, San Jose, California, Las Vegas and Portland, Oregon, the number of homes for sale rose last year.”

      Just about every metro area today is a “hot market.” The only safe refuge is fly-over.

  7. Some naked swimmers are beginning to get exposed …

    “Metro Bank Plunges on Misclassified Assets, Capital Concern”

    (snip)

    “Metro Bank Plc fell the most since going public after applying an incorrectly low risk weighting to parts of its loan book, with the British lender’s chief saying he doesn’t know how long the mortgages in question had been wrongly classified.”

    https://finance.yahoo.com/news/metro-bank-plunges-misclassified-assets-105547134.html

    1. More humor …

      The bank previously put a 50 percent risk weighting on its commercial mortgages, but said it has now increased this to the correct level of 100 percent, a spokesperson for the lender said. For buy-to-let mortgages, the portfolio had been held at a risk weighting of 35 percent, but this has also been increased to 100 percent.

      “’I have never seen this before,’ said Timothee Pubellier, a portfolio manager at Financiere de La Cite in Paris who doesn’t own Metro Bank’s shares or bonds. ‘How can investors trust management from now on? And even more importantly, what is their setup for internal controls? It also raises questions on other parts of the business that could have been misinterpreted as well.’”

      😁

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