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We Had A Boom In Prices And Debt, Now We’re Falling Back To Earth

A report from the Wall Street Journal on Dubai. “When the world’s tallest building opened here in 2010, a one-bedroom apartment with a view of the Persian Gulf sold for about $800,000. Four years later that apartment would fetch $1 million. Today, the same apartment at the Burj Khalifa goes for less than $550,000, according to brokers.”

“Dubai’s property prices have fallen by around 25% on average since hitting a peak in 2015, according to global property firm Jones Lang LaSalle. Lower oil prices, weaker currencies in nearby countries, and Middle East political turmoil have all undercut property prices.”

“So has a glut of high-end housing, part of Dubai’s ‘Build and they will come’ approach to development. ‘The only reason the market hasn’t bottomed out is simply that there is so much new supply coming on the market,’ said Craig Plumb, head of research for Middle East and North Africa at JLL.”

The Globe and Mail in Canada. “When the newlywed couple that purchased the Coquitlam, B.C. unit walked through the door, they knew they wanted it, buyer’s agent Adam Senuik said. But their pre-approved mortgage was only $515,000. Mr. Senuik knew the condo had been on the market for two months at that time and had been reduced from $618,000. After three counter offers, the couple went back to the mortgage broker and came up with pre-approval of $525,000.”

“Prices started dropping in the fall of 2018, Mr. Senuik says. ‘Vancouver’s property buyers are winning in a shifted market,’ he says. ‘We have seen a lot of listings on the market much longer than the year previous.’ In 2017, he’d see multiple offers drive the closing price above the asking price. It’s a different market today.”

From Domain News in Australia. “The number of new home loans approved last year plunged almost 20 per cent, signalling further price falls and cheaper houses, according to economists. ABS chief economist Bruce Hockman said: ‘The slowdown in lending for investor dwellings this month continues the steady decline over the past two years, with the value of new investor loan commitments down around 40 per cent from the peak at the start of 2017.'”

“‘The slowdown in lending for owner-occupier dwellings is more recent, with falls concentrated in the last half of 2018,’ he said.”

“AMP Capital chief economist Shane Oliver said both supply and demand contributed to the overall decline in home lending last year. ‘The banks have made it harder to get a loan but there’s also less demand for loans. A lot of that weakness is concentrated in investors,’ Dr. Oliver said. ‘They’ve lost a bit of interest with the expectation prices are still falling.'”

“The decline in home lending was inevitable, said Dr Oliver. ‘The boom time is coming to an end. Conditions are ultimately getting easier for first-home buyers, which makes it easier to get into the market,’ he said. ‘They’re the winners in this. The losers are people who might have got a mortgage a couple of years ago and are seeing less demand and falling prices and wondering whether they should have waited.'”

“‘We had a boom in property prices and boom in debt levels. Now we’re falling back to earth, which is probably a good thing and will ultimately mean sustainable house prices and sustainable debt levels,’ Oliver said.” .

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This Post Has 33 Comments

    1. “High earners are the fastest-growing segment of the renter population,”

      If you want the raises, you gotta keep movin’ on.

      1. “If you want the raises, you gotta keep movin’ on.”

        The crux of the story is that high-income earners also tend to be more intelligent. Hence their avoidance of over-priced assets.

  3. “Prices started dropping in the fall of 2018, Mr. Senuik says. ‘Vancouver’s property buyers are winning in a shifted market,’ he says. ‘We have seen a lot of listings on the market much longer than the year previous.’ In 2017, he’d see multiple offers drive the closing price above the asking price. It’s a different market today.”

    “Winning”. An interesting word, especially as to how it is used here.

    Lookie here: First we are given “Prices started dropping in the fall of 2018”. Then just one sentence later we are given “buyers are winning”.

    Buyers are winning because prices are dropping. This suggests that the intensity of this winning will increase as prices drop furthur.

    Stay tuned for some furthur price drops when we can get to see first hand how all of these winners handle the experience of all of this winning.

    1. There is no end to the jokes that can be found on this blog:

      “The decline in home lending was inevitable, said Dr Oliver. ‘The boom time is coming to an end. Conditions are ultimately getting easier for first-home buyers, which makes it easier to get into the market,’ he said.”

      Now for the punch line: “They’re the winners in this.”

      There’s that “winning” word again. Moving on …

      “The losers are people who might have got a mortgage a couple of years ago and are seeing less demand and falling prices and wondering whether they should have waited.’”

      Which is the same place today’s winners will be as prices continue to fall.

      3. The knife-catchers allow us to experience an orderly, linear decline in house prices which help some current owners and speculators exit their bets. Without their selfless purchases of post-peak houses, we would have a step function in prices from peak to trough overnight. We are eternally grateful for your humble sacrifice dear knife-catchers.

  5. After three counter offers, the couple went back to the mortgage broker and came up with pre-approval of $525,000.”

    The schlonging the bride got on her honeymoon pales in comparison to the schlonging she’s going to get on her house.

  6. After three counter offers, the couple went back to the mortgage broker and came up with pre-approval of $525,000.

    They’re so lucky that guy was so helpful.

  7. “When the world’s tallest building opened here in 2010, … ”

    “Dubai’s property prices have fallen by around 25% on average since hitting a peak in 2015.

    Sorry, but using the words “falling & hitting & middle east”, when referring to high $ky$caper building$ … leaves a very sad, sad mental image in me brain.

  8. Over the weekend, I collated data from a central zip code in San Diego with diverse demographics. Some of the data requires manual inspection because RE agents are clever when it comes to hiding price reductions and days on market. The most egregious case was a house annotated as being on the market for 31 days; however, upon closer examination of the property history it could be observed that the first listing was 277 days prior. Also numerous properties are listed and deleted and relisted such that the property does not get flagged as having a price reduction. My data showed 44% of listed properties having a price reduction and an average of 73 days on the market for all listed properties in the zip code. The average price reduction from original list was 33420$ for listings with price reductions. For recent sales, average DOM was 48 days to contingent. 100% of recently sold properties sold for less than list. The average difference between list and closing sale price was ~23k$. I project from the data that prices for single family homes in San Diego will decrease by 0.5-1% in the first quarter of 2019 with the first YOY price declines becoming apparent in May or June. CAVEAT: this is my personal opinion based on observation and not financial advice of any kind.

    1. “ 100% of recently sold properties sold for less than list. “

      What was the timeline and measurement of your research? Not that I would want to disagree with what appears to be some great research on your part but let’s say you have one house that sold in the last day and that was your criteria, it would in fact return a 100% reduction in ALL homes (1) that sold. My gut tells me you likely have some good data and history behind it. Good work, look forward to hearing more as the NAR seems to be a bit biased.

        1. Thanks for that. I can confirm similar results up in the Bay Area. Switched from trulia app to Zillow web search (Zillow shows the listed price whereas trulia app does not). Found 1 home that sold for list out of 28 homes sold in the last 3 months. This is eye opening to say the least. Imagine if the transparency of this was shown without having to dig for it, that would add a whole new level of housing pessimism.

          1. Another interesting thing to see was the flips on the market that were purchased around the peak of the market last year. A few of them are listed at ~30% above the price/sq ft of recently sold homes. 2019 may be the year we start to see flippers getting caught with their pants down. Especially those who bought at the peak and end up covering the carrying costs for multiple properties in a declining market.

  9. Ah, yes. Dubai.

    Interesting place, but too hot, too humid, and lacking in rights for me (my wife especially).

    But they have a mall, and a Legoland….so that’s nice.

    1. “Legoland”
      Carl$bad, CA … closer to the cool Pacific ocean, & $pecial parking iffin’ ya drive in riding a Volvo!

      2. Many years ago a sailor who had been patrolling the Strait of Hormuz was explaining the ship’s reverse osmosis system, and I recall him mentioning the sea water inlet temperature of 80-degrees F. Little wonder they call it a tropical desert.

  10. “When the world’s tallest building opened here in 2010, a one-bedroom apartment with a view of the Persian Gulf sold for about $800,000. Four years later that apartment would fetch $1 million. Today, the same apartment at the Burj Khalifa goes for less than $550,000, according to brokers.”

    Bubble up, melt down, bubble over.

    1. Wasn’t it Dubai that had Ferraris and Bugattis left abandoned at the airport parking lot after the last bust?

    1. That second video of the underground home was interesting especially the upright supports camouflaged as palm trees and the faux windows painted to depict outdoor scenes.

  14. A sad tale of an over optimistic greedbag who priced her home at 1.3m and sold for almost 1/2

    https://www.thebalance.com/the-worst-home-selling-mistake-1798971

    FBs should not be listening to the used shack sellers. Putting 8’s in your homes listing price and wall art that says “eat” or “sleep” in the kitchens and bedrooms also does not help. What helps is pricing your shack for a realistic value from an honest appraiser.

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