Showing posts with label housing. Show all posts
Showing posts with label housing. Show all posts

Monday, November 24, 2014

Yet another empty Chinese city - New York version

Stumbled across another empty Chinese city, this one thanks to @TheCreditBubble and his blog post

He so kindly provided a video link showing the full scale of the project.  While some may claim there is progress and construction still going on, please compare the level of activity to the massive size of the project.



Here's a Google Maps screenshot of the place.  Just look at all those skyscrapers that need to be filled.



So what happens when all those skyscrapers go up, no one fills them, and the 'need' for more slows down? Iron ore prices fall back into the earth

ht @soberlook

Monday, March 4, 2013

60 Minutes discovers the Chinese Housing Bubble

Last night 60 Minutes ran a piece on the housing bubble of China:



Link to video
I have written about the Chinese Housing Bubble at length and it is nice to see the popular media pick up on it as well.  I wonder how much longer this can go on.

Wednesday, March 14, 2012

Diesel usage diverging from overall economy

While the economy has been recovering nicely from the Great Recession there are some interesting divergences which are popping up with this recovery.  One of them which has been discussed elsewhere in the blogosphere (sorry no links) is the apparent divergence between fuel usage and economic activity.

Diesel fuel usage
The Ceridian Index reports monthly on diesel fuel used by the trucking industry.   Unlike retail sales which continues upwards the Ceridian fuel index is now declining on a year over year basis. From their most recent report you can see the decline.

One can see in the next chart the apparent divergence between retail sales and diesel usage.

The researchers at Ceridian note the divergence as well and have a possible solution  Unlike the rest of the economy which is improving on a year over year basis, the housing market remains stuck in the duldroms and is still sputtering along the bottom. (See page 6 in the above linked report)

While productivity improvements are also possible I find it unlikely the rate of improvement would be enough to create the entire divergence.  Perhaps the lack of a growing home market and improved fuel usage (or the continued virtualization of our economy) are enough to close the gap between retail sales growth and flat fuel usage.  Only time and further research will tell.  Regardless this indicator bears watching.

Fuel usage and retail sales

Monday, February 6, 2012

A housing update -- at best a flat market

Over the last few years during conversations with clients I've frequently been asked my opinion about the housing market and whether now is a good time to buy.  Home prices are naturally a point of conversation as they are a large part of most people's net worth and the loss of equity is preventing some people from moving up or refinancing.  So the question of whether we are at the bottom of home prices is an important one.  Unfortunately I don't think we are at the absolute bottom of home prices and we will most likely continue to see a slow decline in prices in the near future.  My non-prediction for 2012 is we will not see a rebound in home prices; at best we'll see a flat to slightly down market.

Home prices have strong local factors so this conversation is about national trends, your local market will vary.

Unfortunately right now home prices are continuing their decline nationwide:
Home prices still dropping - (Source: Paper Money)


Outstanding mortgages still contracting
Mortgage loan balance still declining
There are several headwinds the housing market needs to overcome before it is fully healed. This chart shows the change in mortgage values outstanding since 1975 (Source: Federal ReserveLooking at loan balances to predict home prices may seem counter intuitive but remember a rising total national loan balance means there are more buyers (and borrowers) entering the market.  Some interesting aspects of this chart are how even during other previous recessions (shown in gray) the value of outstanding mortgages continued to rise on a year over year basis; until our most recent recession in 2008/2009.  This was the first time during this entire data series when the total value of all mortgages outstanding declined on a year over year basis. One would not be engaging in hyperbole to call our current decline in home prices exceptional.

An overhang of foreclosed homes
While it appears the primary wave of home foreclosures is past us there still is a large backlog of homes in the foreclosure process. Until this backlog is completely cleared and returns to more 'normal' levels, the amount of housing coming on the market by 3rd parties (not the person who currently lives/owns the home) will put downward pressure on prices.

Single family delinquency rate (Source: CalculatedRisk)

Another negative factor is the hidden inventory of homes out there from people who want to move up or out but are waiting until home prices stabilize before putting the place on the market. I personally know of a few people who are accidental landlords and are hoping and waiting until prices stabilize before putting their rentals on the market.  While this is purely anecdotal I'm sure its not just a local or isolated phenomenon.

Renting versus Owning coming into balance
Fortunately there are some positive factors which should mitigate a continued decline in home prices.  Home prices and mortgage rates have declined to the point where a mortgage now equal to rent.
Rent versus Owning (Source: Soberlook)
As you can see for a very long time it was cheaper to rent versus own. We are approaching a point where this may invert and owning a home would be cheaper than renting. There are other upkeep and time costs associated with home ownership (as a homeowner I can assure you there are many!) but the primary costs are approaching parity.  

Clearing the excess inventory
The number of unsold homes is beginning to stabilize as a percentage of US population.  The hidden inventory is of course hard to measure but at least we are getting closer to 'normal' for this data series
Unsold homes as % of population - (Source: Sober Look)

The long decline in construction spending does appear to be finally over which will help the building trade and stop being a drag on overall GDP growth.
Construction finally bottoming? (Source: Federal Reserve)

Even though the housing market decline appears to be slowing forecasting when we finally reach bottom is not something I'm willing to predict right now. I believe the worst of the declines are behind us so if you are looking for a home now would be a good time to start looking but be picky and drive a hard bargain! There is going to be lots of supply coming on the market over the next few years.

One aspect of the crushing decline in home prices is it has popped the speculative mindset so very prevalent in American thinking a few years ago. (I'll admit to falling a little under that spell myself)  Take your time and find a house to live in, not one for profit.

Additional reading:
http://www.calculatedriskblog.com/2012/01/fannie-mae-serious-delinquency-rate.html
http://soberlook.com/2012/01/two-data-points-on-us-housing.html
http://paper-money.blogspot.com/2012/01/new-home-sales-december-2011.html
http://soberlook.com/2012/01/five-reasons-2012-will-be-start-of-us.html
http://paper-money.blogspot.com/2012/01/radar-watching-november-2011.html
http://paper-money.blogspot.com/2012/01/fhfa-monthly-home-prices-november-2011.html
http://paper-money.blogspot.com/2012/01/radar-watching-november-2011.html
http://pragcap.com/why-home-prices-have-much-further-to-fall
http://www.tilsonfunds.com/JohnBurnshousing.pdf
http://research.stlouisfed.org/fred2/graph/?graph_id=62720&category_id=4082
http://research.stlouisfed.org/fred2/graph/?graph_id=64527&category_id=4082
Calculated Risk calls a housing bottom
http://www.calculatedriskblog.com/2012/02/housing-bottom-is-here.html

Tuesday, November 1, 2011

Linkage roundup

Some reading material for you from my twitter stream:


RT @edwardnh: Why the latest eurozone bail-out is destined to fail within weeks - Telegraph http://t.co/sgj8HQcn
RT @credittrader: GReader: The Global Moral Hazard Dawns: Merkel Says "It Must Be Prevented That Others Come Seeking A Haircut" As... http://t.co/Tjd22kbQ
RT @theanalyst_hk: $$ Jim Chanos: Not Impressed By The Europeans, And Still Shorting #China http://t.co/OvdXeWIr #economy #europe
RT @JackHBarnes: Chart of the Day: North Dakota Annual Oil Production: http://t.co/lUWOqWst -- need to do more research myself on shale oil
Transfer payments over time in US http://t.co/sxiw6sF8
RT @zerohedge: And Now, For Some Semblance Of Sanity, Here Is One Hour Of Hugh Hendry http://t.co/5A5Jwgxu -- separate post on this soon(tm)
CITI: Failure To Trigger Greek CDS Could Cause The Whole Euro Bailout To Fall Apart http://t.co/TLDjUF7L -- be careful what you wish for
Meanwhile in China a swan finally takes flight... http://t.co/Z8w40PKd -- Condo prices are falling hard.
RT @AlephBlog: Fannie Squeezing Banks Makes 4% Mortgage a Mirage, Hinders Housing Rebound http://t.co/BKikceRX Higher lending standards fight lower rates
RT @AlephBlog: Money managers and commodities, the case against http://t.co/ynsn1qT3 Graph shows $$ managers drove commodity prices http://t.co/eNKE3nFA
RT @andrewyorks: *EU LEADERS CALL FOR BANKS TO HAVE 9% CORE CAPITAL LEVEL ok move that dial on the upper left to 9 http://t.co/WHLMk6Dm -- should be interesting when taking haircuts on Greek debt.
Skyscraper taller than any in London or Tokyo opens in Chinese village of 2000. http://t.co/IvHoRw4j #thiswillnotendwell
Underground bank lending in China - NPR - http://t.co/677IPKYK
RT @historysquared: $$ The cash commodity trading firms that account for 1 trillion in annual revenue 50% of all transactions http://t.co/TqTvhHM1
RT @ftasia: Iron ore plummets to 15-month low: As Chinese steel mills cut production, the price of iron ore dropped 7.2 per ... http://t.co/RVfC48zy
Blackberry outage made roads safer. http://t.co/agSNxNGX

Thursday, September 1, 2011

Time to refinance your home (again?)

One year ago I stated it would be a good time to refinance your home.  Once again the opportunity presents itself. The 30 year conventional home loan rate is near historic lows.

Conventional 30 year home loan rates

Theoretically the vast majority of home loans out there could be refinanced but there are a few unfortunate facts which may prevent many from refinancing: Negative equity, conservative valuations and high unemployment.  

CNN Money has a good article detailing the these 3 challenges.  

If you are wondering how monetary policy can have limits this is a good example of how and why.  In an effort to continually re-stimulated the economy and encourage society to take on more debt over time we have reached a point where historic low interest rates will just not do much for the US consumer. They are already too tapped out and low interest rates will not encourage them to borrow more let alone take advantage of the lower interest rates and buy a home; they just can't.  People 'trapped' in their homes due to negative equity also hinders future home sales as it inhibits consumers from being able to move or trade up.

Consumer home debt / GDP

The ratio of consumer mortgage debt to gdp (both nominal) was at data series highs at the beginning of the great financial crisis. Yes I know I'm comparing home debt to national GDP and not home prices but it's yet another reminder of how much debt our society has taken on.

If you are in the position to refinance and have questions give me a ring and we can talk about some of the options / pitfalls when looking for a new mortgage.

Thanks: David Merkel

Tuesday, August 2, 2011

Home prices going up? Not until you show me the money.

Are home prices going up in a sustained manner anytime soon? No


A recent presentation by Australian Professor Steve Keen inspired me to search for a similar American data series. One exists and it does not predict any sort of sustained bounce in American home prices. (I am simplifying Mr. Keen's presentation as he looks primarily at the 2nd derivative of loan levels but the level of destruction in American mortgages outstanding is epic)

As Mr. Keen states, it is not people who buy homes, it's people with money who buy homes.  Just to show you the magnitude of the home devastation we are experiencing here's the entire home loan series:
For the entire data series, going back to the mid 50's we've never seen a year over year decline in the total value of home loans outstanding.  Yes, some of this decline is due to homes being foreclosed and the loans vaporizing as a result, but that also eliminates yet another person who cannot trade up from their current home to something larger as their equity and credit score head towards zero.

Until we see year over year growth in mortgages outstanding we will not see a sustained nationwide rise in home prices. We will of course see localized variation in this with some pockets of growth but nothings happening until You show me the money.



Disclosure: The author is short some housing related stocks.

Wednesday, June 15, 2011

Housing update -- Build it and they will come?

Does supply lead demand or the other way round?
Attached is the year over year change in the Case-Shiller home price index and new housing permits.  The year over year rise in 2010 was most likely due to the one time tax credit provided by the Federal Government.  
One may notice it appears new home permits lead the rise and fall of home prices.  Regardless both prices and new home permits are negative on a year over year basis which does not bode well for future employment or home price appreciation. 

Thursday, December 30, 2010

Housing -- Been down so long, it looks like up to me

The home market appears to be taking another leg down after the tax rebate induced spike earlier this year.

More details on home prices can be found here:
Paper-economy tracks (2nd link) the Radar Logic index which appears to lead the more well known Case/Shiller index.

Unfortunately if home prices fall further this may set up a feedback loop as more households with negative equity decided to strategically default.  Furthermore the recent rise in long term interest rates will not help affordability either

Housing permits are falling again and coming very close to putting in an all time low for the time series (The all time low was hit just a few months ago)  Looking at the graph you will also notice how in previous recoveries housing permits quickly rebounded.  Not this time.  Considering home values are falling this puts pressure on new home construction.  Lumber prices are also going up.

Eventually home prices will fall enough for demand and supply to finally balance but it doesn't look like we are there yet. For now the downward trend appears it will continue.


Disclosure: Short housing related stocks

Tuesday, October 12, 2010

Foreclosure mess update: Why this is important

Barry Ritholtz clearly explains why this foreclosure mess is so important and how all the cutting of corners by the loan servicing organization has gotten completely out of control.

http://www.ritholtz.com/blog/2010/10/why-foreclosure-fraud-is-so-dangerous-to-property-rights/

I could try to paraphrase it but you really must read it ALL to understand why this scandal is more than just some 'goofed up paperwork'

http://www.marketwatch.com/story/bank-of-america-halts-all-foreclosure-wsj-2010-10-08?siteid=bnbh
Bank of America halts all foreclosures.  This is a few days old but just the latest in a long march of banks who are calling a full halt to foreclosures.

BofA's sterling efficiency is demonstrated by them foreclosing on a house with no mortgage. Whoops!
http://www.businessweek.com/news/2010-10-07/man-who-had-no-mortgage-faced-foreclosure-anyway-ann-woolner.html

This is going to get worse before it gets better . . .

Wednesday, October 6, 2010

Foreclosure mess roundup

I have not commented on the foreclosure mess but considering how it may impact you, gentle reader, I thought it worthwhile to repeat.

In short, the mortgage processors and servicers did not keep a proper chain of custody and MBS Pool 'C' which believes they own the mortgage does not have the paperwork proving they purchased it from Loan Company 'A' which sold it to 'B', who packaged it up into MBS (Mortgage backed security) 'C', and Bank 'D' now owns said MBS.

Some people along that chain over ownership have been caught forging paperwork.  It's a long and nasty tale that will remain stuck in the courts for a while.

If you know of someone who is going through foreclosure and they want to keep the house this is something to keep in mind. Talk to a lawyer about ensuring the bank has all the proper paperwork.


From the WSJ, October 4
First, the affidavits IndyMac used to file the foreclosure were signed by a so-called robo-signer named Erica A. Johnson-Seck, who routinely signed 6,000 documents a week related to foreclosures and bankruptcy. That volume, the court decided, meant Ms. Johnson-Seck couldn't possibly have thoroughly reviewed the facts of Mr. Machado's case, as required by law.

Secondly, IndyMac (now called OneWest Bank) no longer owned the loan—a group of investors in a securitized trust managed by Deutsche Bank did. Determining that IndyMac didn't really have standing to foreclose, a judge threw out the case and ordered IndyMac to pay Mr. Machado's $30,000 legal bill.

From Bloomberg, October 4
Citigroup Inc. and Ally Financial Inc. units were sued by homeowners in Kentucky for allegedly conspiring with Mortgage Electronic Registration Systems Inc. to falsely foreclose on loans. The homeowners claim the defendants filed or caused to be filed mortgages with forged signatures, filed foreclosure actions months before they acquired any legal interest in the properties and falsely claimed to own notes executed with mortgages.
Video from NBC Nightly News, October 1
http://www.mefeedia.com/video/33073666

Calculatedrisk blog:
http://www.calculatedriskblog.com/2010/10/nightly-mortgage-mess.html


Nakedcapitalism has posted several entries regarding this topic.  Here's just one entry:
Lender Processing Services, a crucial player in the residential mortgage servicing arena, has been hit with two suits seeking national class action status (see here and here for the court filings). If the plaintiffs prevail, the disgorgement of fees by LPS could easily run into the billions of dollars (we have received a more precise estimate from plaintiffs’ counsel). To give a sense of proportion, LPS’s 2009 revenues were $2.4 billion and its net income that year was $276 million.
Here's one MSNBC Video on the mess:


I don't do this nasty tale of cutting corners and deception any justice with this overview. Read all the links above for a fuller story. 

Tuesday, September 21, 2010

Shadow inventory: More homes coming

I have spoken before about how the supply of forced sale (foreclosed or short sale) inventory continues to increase but may be close to peaking. Here's an article stating the peak is not yet in and we have more to come:

From Realestatechannel comes some rather scary data regarding how the pipeline continues to be filled and they see no let up on new supply being dumped on the market.

If this were early 2005, one could claim that 40% of homeowners who were delinquent 90 days or longer would eventually bring the mortgage current. But the cure rate has plunged along with home prices. As early as one year ago, the cure rate had dropped to almost zero. A delinquency of 90+ days now means almost certain foreclosure or short sale.

. . .  To come up with a total for the shadow inventory, let's first add the total number of loans in default to those delinquent 90 days or more since we know that these loans are headed for foreclosure or a short sale. That comes to 4.5 million properties. Based on the cure rate for loans delinquent at least 60 days, we will add 95% of those 60-day delinquencies. That is an additional 723,000 residences. For the same reason, we will add 70% of those delinquent for at least 30 days - 1.25 million properties.
And, of course, let's not forget the REOs that have not yet been placed on MLS listings by the bank servicers. We'll be conservative and estimate them at 500,000. Adding all of these together, we come up with a total of roughly 6.97 million residences which are almost certainly going to be thrown onto the resale market as distressed properties at some point in the not-too-distant future. This massive number of homes will put enormous downward pressure on sale prices. To believe that prices are firming now is to completely ignore this shadow inventory. Ignore it at your own risk.
I suggest you read the whole article.

ht: PragCap

Monday, September 20, 2010

One small facet of the the mortgage mess

NPR (National Public Radio) has a great ongoing series about the mortgage mess.  As a centerpiece to the series they purchased a slice of one very sick package of mortgages and are investigating the mortgages inside it.  So far they have found some serious mortgage fraud as well as some other interesting stories.  Take a look at one small facet of the housing bubble:

NPR: Planet Money's Toxic Asset

ht: NicTrades

Wednesday, August 25, 2010

Refinance your home if you haven't done so already

Now is a good time to consider refinancing your home if you have not done so already. As you can see from this graph mortgage rates are at generational lows. The recent decline in long term rates was a 'surprise' to the markets but not unanticipated by some. (Clients please look at your account statements.)


The Wall Street Journal had a recent article about shopping for a home loan:

The interest rates for 30-year fixed-rate mortgages are in free fall, averaging just 4.44% on Aug. 12, according to Freddie Mac. Not only was that down from 5.07% in January, it was the lowest since Freddie began keeping records in 1970.
But even better deals can be found at smaller banks and credit unions.
"I've found that my clients can get routinely better rates by heading to a more regional lender and forgoing the bigger lenders," says Sean Satkus, a real-estate agent in the Washington, D.C., area.
The differences can be stark. On average, the three biggest banks—Bank of America Corp., Wells Fargo & Co. and J.P. Morgan Chase & Co.—offer rates of 4.66% on 30-year fixed mortgages for home purchases, according to Bankrate.com. By contrast, St. Louis's Heartland Bank is offering a rate of 4.50%. Acacia Federal Savings Bank comes in at 4.25%. And Rockland Trust Co. in Boston is offering just 4.13%. (None of these offers include "points," or extra fees to secure lower rates.).
As the article mentioned some very good deals can be found at smaller banks and credit unions. Our family's primary checking account is at a credit union and their excellent customer service and low fees are a stark contrast to the national chains.

If you are in the position to refinance and have questions give me a ring and we can talk about some of the options / pitfalls when looking for a new mortgage.

Tuesday, August 17, 2010

China lending update. Is bank lending speeding up or slowing down?

It has been a while since I have updated you on the bank lending situation in China.   This is not due to me slacking off (I'll admit to a slower pace of posts recently, but I have some good excuses, really)  following this topic.  The data source, People's bank of China, has suddenly been a little more reticent in publishing this data in English and as my Chinese language skills are a bit lacking this data series has languished....

Data released recently shows a continuing trend of official slowing in the rate of loan growth.  I put official in italics because there appears to be some off balance tomfoolery going on. . .

From Caixin Online:
Despite regulatory directives aimed at preventing banks from removing loans off their balance sheets to dodge credit restrictions, China's banks did not slow down their pace in packaging loans as wealth management products.

Banks and trusts cooperated on wealth management products, effectively allowing them to shirk their responsibilities toward credit limits imposed nationwide under the central government's macroeconomic controls.
In the first half 2010, according to trust company reports, the value of wealth management products cooperatively offered by banks and trusts rose to 2.6 trillion yuan, topping the previous year's 1.77 trillion yuan.

This amount combined with the 4.58 trillion yuan in on-the-books, new credit issued by banks in the first half brought total lending in China through June 30 to near the 7.5 trillion yuan limit set by the government for all 2010.
[The 4.58 trillion yuan number matches my data.  Look at the 'wealth management products' value of 2.6 trillion.  Greater than 50%  of the 'on the books official' value of 4.58 trillion.  Continuing . . ]
By charging fees as well as commissions of up to 2 percent, banks earn more than trusts when they jointly market bank-trust products. Moreover, by cooperating with trusts, banks keep customers otherwise unavailable due to credit controls, since off-book business doesn't require bank capital and thus avoids CBRC capital constraints.
When companies start hiding assets off balance sheet it rarely ends well.

If you are wondering where all that money is going, this blog entry by staff at the World bank is stunning. Not only for the information presented but the absolute lack of surprise. (ht Mish)
In Chenggong, there are more than a hundred-thousand new apartments with no occupants, lush tree-lined streets with no cars, enormous office buildings with no workers, and billboards advertising cold medicine and real estate services – with no one to see them.
I went to China in 2003 and I can assure you I NEVER saw a single piece of urban pavement that was not completely full of cars, trucks, bikes, scooters, etc at all times.   I have mentioned empty Chinese cities before such as Ordos. How many more empty cities in China are there? Andy Xie has wrote about this before. Here is his latest article regarding the excess housing stock in China:
What distinguishes China’s property bubble from others is its unprecedented quantity dimension. China just doesn’t have any constraint limiting supply. The current debate about the quantity of empty flats is about the extent of quantity excess. The stock of empty flats measures the size of the quantity bubble. Taiwan experienced a price-cum-quantity bubble in late 1980s. At the time the market quantified the number of empty flats by obtaining data from the electricity supplier on flats without usage of electricity. The stock of empty flats measured this way was about 15% of the total households. Some analysts are trying the same tactic to quantify the volume of empty flats in China. The problem with this methodology is the complexity of China’s housing conditions.  . . . While the data are not accurate, we can confidently conclude that China doesn’t have absolute housing shortage and the per capita space is above Europe and Japan’s level. Indeed, if we adopt Japan’s standard, China already has sufficient urban housing space for everyone in the country, i.e., there is housing for every person in the countryside to move into city. . .  Four unique factors may explain China’s unique phenomenon.

1) Sustained negative real interest rate has led to declining demand for money and rising appetite for speculation. Greed and fear of inflation are working together to form unprecedented speculative demand for property.
2) The massive amount of gray income looks for a ‘safe’ haven. China’s gray income of various sorts could be around 10% of GDP. In an environment of rising inflation and depreciating dollar-the traditional safe haven, China’s rising property market is becoming the preferred place for this money.
3) China’s masses have no experience with property bubble. The property crash in the 1990s touched a small segment of the society. Foreigners and state-owned enterprises were involved. Geographically, it was restricted to Southern freewheeling zones like Hainan and Guangdong and Shanghai. Most people in China don’t know that the country had a property crash. Lack of fear is turbo-charging the greed.
4) Speculators believe that the government won’t let property price fall. They correctly surmise that local governments all depend on property for money and will try every effort to prop up its price. But, their faith in the government omnipotence is misplaced. In the end, market is bigger than government. Government behavior can delay, not abolish market force. Nevertheless, this faith in government is removing the fear over the downside. Hence, the speculative demand just grows with credit availability unchecked.

When this bubble goes pop you better have some popcorn and a good seat because the explosion will best any action film explosion sequence.

Monday, August 16, 2010

Housing update -- Some good news. Some bad news.

The good news is it appears the number of people with late home loans may have peaked.  From the data released by Fannie Mae and presented at blog Paper Money it looks like the percentage of seriously delinquent home loans may have peaked and is on the way back down.

Unfortunately one reason the late pay rate is falling is Fannie Mae foreclosing on homes. From Calculatedrisk one can see the total real estate owned (REO) by the big 3 goverment agencies continues to rise.   These homes owned will need to be eventually sold by the Gov't agencies and until both the late pay rate and excess inventory is worked off home prices will remain sluggish at best.

Another wrinkle is the late pay rate may be declining if Fannie Mae is increasing their foreclosure rate and 'clearing out' some of the late payers by taking their homes.  Only when both the late payer rate and REO's in inventory are on the decline can we start considering the worst of the storm as having passed.

Monday, July 26, 2010

Chinese property developers cut prices.

From Chinadaily:
BEIJING - More property developers have began to cut prices and adjust their business portfolios to cope with sluggish transaction numbers due to government tightening of the real estate sector.   According to Li Wenjie, general manager of property agency Centaline China's North China Region, most Beijing developers have lowered prices by 15 percent on new projects.
Shenzhen-based Vanke, the country's largest real estate firm, made public sale prices of a large-scale project in Beijing over the weekend, with units priced 1,600 yuan ($236) lower than the expected price of 15,000 yuan per square meter.

Shanghai-headquartered Shimao Group just launched an upscale residential project called "Royal Garden" in Beijing's Central Business District area at a price of 65,000 yuan per sq m. The average price of similar projects nearby has been close to 70,000 yuan per sq m.
Of course the article quotes real estate firms spinning the lower prices but as I have mentioned previously first volume slows and then the price cuts start.  Is the beginning of the end or just the end of the beginning? 

Thursday, July 1, 2010

China's property 'boom'

Patrick Chovanec has a good post on several topics but one passage really jumped out at me:
Even before my plane landed in Changchun, I could tell from just looking at the city out my window that it was in the midst of an incredible building boom. Row upon row of high-end villas and apartment towers were sprouting like crops all along the outskirts of the city. The same image greeted us on our approach to Jilin City by bus — I couldn’t even count the number of cranes rising over half-completed projects. It’s not any one development, it’s a cumulative impression made by dozens of projects, one after another, on a scale that’s overwhelming. Remember, despite the booming auto industry, this is still a relatively depressed and out-of-the-way part of China. I don’t like to use the Dubai comparison — China is not just a dream in the desert — but I was in Dubai two years ago, and the resemblance is creepy.
We visited one luxury residential development up close. I won’t name the developer, not only because they were our hosts, and I don’t want to be ungracious, but also because they don’t really deserve to be singled out. They’re just doing what dozens of other developers are doing, all around them. This particular project, we were told, had 100 buildings (although I only saw about 40 or so on the display model), the last of which had just been completed. Over the past two years, prices had risen from RMB 3,000 per square meter to RMB 6,000. The entire project was 90% sold out. It was clear, though, that it was also completely unoccupied. Row upon row of buildings stood in pristine luxuriousness, with not a resident in sight.
I suggest you read the whole post.
The anecdotal evidence of residential overbuilding keeps piling up . . .

Friday, June 11, 2010

Timberrrrr! -- Lumber prices hitting the ground.

A few months ago I commented on rising lumber prices and how in my opinion they were due to short term supply problems instead of demand.   It appears now that between winter rains ending and the home buyers tax credit expiring, the supply/demand situation has reversed itself.   Lumber futures prices peaked in mid April and are now below when I first posted on Feb 8, 2010.

The full impact of the tax credit's expiration is not yet known but home mortgage purchase application data is not promising.  Calculatedrisk (2010 June 9) states:
Purchase and refinance applications dropped this week, even after an adjustment for the Memorial Day holiday. Purchase applications are now 35 percent below their level of four weeks ago, as home buyers have not yet returned to the market following the expiration of the home buyer tax credit at the end of April.
A longer term graph from Calculatedrisk does not show any sort of bottoming in the trend either.

The elevated level of mortgage delinquencies and real estate owned by the GSE's provides a very clear glimpse at 'shadow' inventory that may appear in the comings months.  (Data from May 12 posting) Add it all up and existing housing supply looks to increase and demand continues dropping.  

Disclosure: Short PCL (Plum Creek Timber)

Tuesday, June 8, 2010

China home sales decline

If the results from Vanke (A Chinese property developer) are indicative of the entire nation, home sales are declining rapidly.   The property developers can hold on for a while but eventually their pipeline of developments are going to cause some 'indigestion' and they will be forced to cut prices, reduce the pace of new home construction, or a mixture of both.  This bears watching in the future.

From China Daily:
China Vanke Co, the country's largest property developer by market value, announced on Sunday that its sales revenue in May decreased 20.2 percent from a year earlier amid the government's tightening moves.