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Real Estate Rolling Over — Everywhere

The double dip in the US housing market isn’t unique, based on all the similar reports popping up around the world. Here are four from yesterday:

Hong Kong Home Sales at Lowest Since Early 2009 on Rates, Curbs
The number of housing transactions in Hong Kong plunged to the lowest in 30 months on rising mortgage rates and government efforts to curb real-estate prices.

The number of deals fell 60 percent in July from a year earlier to 5,254, the seventh straight month of declines, according to Land Registry data. The value of the transactions dropped 39 percent to HK$31.8 billion ($6.8 billion), the lowest since April 2009.

Mortgage rates have been rising at an accelerated pace since March following decisions by HSBC Holdings Plc, the city’s biggest bank by number of customers, and rivals to raise them again in July. The Hong Kong government on June 10 increased down-payment requirements for some home purchases and foreign buyers, the fourth set of restrictions imposed since October 2009 to curb surging residential values.

“It’s the lagging effect of the government’s June curb, in addition to the summer holiday factor,” said Wong Leung-sing, an associate director at Centaline Property Agency Ltd., the city’s biggest closely held realtor. “We expect volumes to continue to decrease in August.”

Home prices in the city have risen more than 70 percent since the beginning of 2009 on record-low mortgage rates and an influx of buyers from China.

The number of transactions fell 42 percent in July from June, while the value dropped 40 percent, according to the data.
No sales were recorded at five of the city’s 10 biggest private apartment projects over the weekend ended July 10, the first time since November, according to Midland Holdings Ltd., Hong Kong’s biggest publicly traded realtor.

Victoria home sales dropping and inventory increasing
Homes sales in Victoria dropped last month compared with June while inventory numbers continued to increase according to figures released Tuesday by the Victoria Real Estate Board.

A total of 523 homes and other properties sold in July through the board’s multiple listing service down from 618 sales in June.

Overall prices declined somewhat across all major property types, likely a result of inventory levels increasing to 5,094 up from 5,050 in June.

The average price for single-family homes sold in Greater Victoria last month was $581,117, down from $629,292 in June. The median price also declined to $535,000 while the six-month average declined to $615,439.

The overall average price for condominiums last month was $315,371, down from $320,172 in June. The average for the last six months declined to $327,762. The median price for condominiums in July also declined to $289,000.

The average price of all townhomes sold last month declined to $412,178 from $444,768 in June. The median price also declined to $385,000 while the six month average declined to $443,341.

Mumbai Home Sales Drop to 30-Month Low With Record Number of Unsold Units
Mumbai’s residential sales dropped to a 30-month low in the quarter ended June as record home prices and higher interest rates crimped demand, according to Liases Foras Real Estate Rating & Research Pvt.

Sales in Mumbai, India’s most expensive property market, fell 11 percent from the previous quarter to 8 million square feet, the lowest since the three months ended December 2008, said Pankaj Kapoor, founder of Liases Foras. The number of unsold homes also rose to a record, he said.

“This clearly shows the inefficiency in the market, that the developer will have to lower prices to increase sales,” Kapoor said in an interview in Mumbai yesterday. “The market has become off-balance.”

India’s central bank, which has increased rates 11 times since March 2010, may add another half a point to the benchmark borrowing cost by the end of 2011, the median of 11 estimates in a Bloomberg News survey showed. The bank increased the repurchase rate to 8 percent from 7.5 percent on July 26.

Mumbai land prices may fall as much as 30 percent over the next year as higher borrowing costs force some indebted developers to sell real estate, Oberoi Realty Ltd. (OBER) Chairman Vikas Oberoi said. He expects a “cash crunch” within the real estate industry with higher interest rates.

The city’s unsold inventory climbed to 40 months, according to Liases Foras, a Mumbai real estate research company whose clients include Housing Development Finance Corp. (HDFC), India’s largest mortgage lender. A healthy market normally maintains about eight to 10 months of inventory, according to the report.

Australia Home-Building Approvals, House Prices Drop on Rates
Australian home-building approvals unexpectedly declined in June for a third straight month and house prices fell, prompting the local currency to pare gains as traders reduced bets on an interest-rate increase this year.

The number of permits granted to build or renovate houses and apartments slid 3.5 percent from May, when they dropped a revised 6.3 percent, the Bureau of Statistics said in Sydney today. A separate index measuring the weighted average of prices for established houses in eight major cities declined 0.1 percent last quarter to the lowest level since 2009.

Reserve Bank of Australia Governor Glenn Stevens today will keep the developed world’s highest interest rates unchanged at 4.75 percent, according to most economists surveyed by Bloomberg News, after the labor market lost 5,400 jobs in the April-June period, the weakest quarter since 2001. The RBA increased rates seven times from October 2009 to November, helping drive the currency to a record.

“Interest-rate sensitive sectors in the economy are soft and responding to the central bank’s mildly restrictive policy,” said Su-Lin Ong, head of Australian economic and fixed-income strategy at RBC Capital Markets in Sydney. “For the RBA, it probably confirms the trends in place for a while that its policy stance is still working its way through the economy.”

The local currency declined to $1.0981 at 12:20 p.m. in Sydney from $1.0993 before the data. Traders see a 14 percent chance the RBA will boost borrowing costs by a quarter percentage point today, interbank cash rate futures show.

Today’s report showed house prices fell 1 percent in Perth and dropped 1.6 percent in Darwin from the previous quarter, while they advanced 0.4 percent in Sydney and gained 1.1 percent in Canberra. In Melbourne, prices slipped 0.1 percent.
A jump in home prices was among reasons Stevens increased the benchmark rate by 175 basis points from October 2009.

Building approvals fell 15.5 percent from a year earlier, the report showed. That compares with economists’ forecast for a 10.3 percent drop year-over-year.

Approvals to build private houses dropped 3.2 percent to 7,604 in June from the previous month, the report showed. Approvals for apartments and renovations declined 4.2 percent to 4,274.

It shouldn’t come as a surprise that the rest of the world has had to raise interest rates to counteract all the hot money flowing out of the US. Our trading partners are paying the price for US profligacy.

Then there’s this: “Reserve Bank of Australia Governor Glenn Stevens today will keep the developed world’s highest interest rates unchanged at 4.75 percent…” Think about that. The developed world’s highest current interest rate is actually lower than the US historical average. Which is what you get when you borrow so much that unnaturally low interest rates are the only thing standing between you and a debt implosion. Savers and retirees on fixed incomes are the inevitable, predictable collateral damage.

Can there be a global recovery while home prices are falling? Housing isn’t as crucial to most other countries as it is to the US, but still, it seems unlikely. This, in short, is yet another ugly data point in the long, scary list that leads to the next round of currency debasement.

10 thoughts on "Real Estate Rolling Over — Everywhere"

  1. @Brad – good points, but remember that you are talking about 50% of homeowners that HAVE A MORTGAGE – not 50% of US homeowners; in fact, 1/3 of US homeowners own their home OUTRIGHT.

    Also remember that underwater does not equal foreclosure. Most debtors seem to only care about their monthly payment anyway, which in todays market is probably lower than it would cost to go into foreclosure and then rent a comparable home if they have a fixed interest rate.

  2. On this weeks Suze Orman show, she advises that if you’re upside down to get out NOW!!! While Orman lacks the influence to move markets she’s spot on. In 2013 mortgage debt forgiven by lenders will be treated as ordinary income by the IRS. Essentially, this means that we have 16 months to effect short sales or deed in lieu give backs to avoid the severe tax consequences.

    Come January 1, 2013 the amount of mortgage debt forgiven by lenders will be treated as ordinary income for tax purposes. Additionally, an individual may also have to payback all of the interest deduction taken during the life of the loan. The latter, is a significant detail Orman neglected to mention.

    With about 50% of owners still underwater and U3 a stubbornly high 9.1% there is currently more downside than upside to home ownership.

  3. I had been monitoring house prices in Brisbane, Australia for past two and the half years as I am looking forward to buy one at a good price. Although reports indicated a drop in prices, I am very sure that prices had gone up when house prices are compared on an apple to apple basis. Median prices may have dropped but the houses sold would have been smaller in land or building area. Median prices are close to A$500,000 here. This is the kind of hyperinflated prices we are paying for houses in Australia.

  4. I don’t understand why anyone views this long-overdue correction as a problem. For years I was puzzled as to how something like a house could possibly cost so much. Year after year I watched multi-hundred-acre farms to the west of my west-suburban-Chicago home being converted into massively dense housing developments that far outstripped any conceivably occupancy needs. In retrospect (and in view of the over 100,000 distress sales in the Chicagoland area) I now understand the effect of our government policy that has been over-stimulating real estate growth for 80 years. Given that this is the greatest buying opportunity in decades, with prices allowing millions who could never previously afford a house to now own one, I would think that the media would view this event more charitably.

  5. My prediction for the housing market and its effect on the economies of developed nations: pain. We can’t allow asset values to fall back to their long-term mean, reflate, reflate!

  6. Here in New Zealand there has been a 5% drop in house prices over the last 2 years.

    But in the previous 6 years they just about doubled, and of course our wages only went up by the amount of inflation.

    So By all accounts our New Zealand housing market is well over priced, and al of the “affordability” surveys show the same.

    But our house prices refuse to drop like in other markets.

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