NEW$ & VIEW$ (22 OCTOBER 2013)


Sales rose 1.4% last week. The 4-week moving average declined for the 10th consecutive week however and is +1.6% YoY. Last year, sales remained weak until early December and recovered somewhat during the final 3 weeks, possibly due to a sharp decline in gas prices. Will we witness the same this year?




Demand is flat while U.S. supply is rising (chart from Doug Short):



U.S. Existing Home Sales and Prices Move Lower

Sales of existing homes declined 1.9% (+10.7% y/y) last month to 5.290 million (AR). The drop followed no-change during August revised from a 1.7% rise, according to the National Association of Realtors. Consensus expectations had been for 5.30 million sales. Sales of existing single-family homes alone fell 1.5% to 4.680 million (+10.9% y/y).

The median price of an existing home fell to $199,200. The decline was the third straight down month and left prices at the lowest level since April. The peak was $230,300 in July 2006.

Sales performance was mixed during September. The greatest m/m decline occurred in the Midwest with a 5.3% shortfall (+12.6% y/y). Next was the Northeast which posted a 2.8% sales drop (+15.0% y/y. In the South, sales fell 1.4% m/m (+9.9% y/y) but sales in the West improved 1.6% (7.8% y/y).

The supply of homes on the market was roughly unchanged at 5.0 months of sales, down from a high of 11.9 months in July of 2010. The actual number of homes on the market increased 1.8% y/y last month. That started to reverse a 21.1% decline during all of last year and a 23.2% drop in 2011.

Listed inventory, now up YoY (+1.8%), typically declines a little in September. Listings are creeping up.


Sales of homes priced above $500,000 (10% of the market) jumped 37.2% YoY, while sales of homes under $250,000 (60% of the market) are up only 6.3% YoY. First-time buyers (normally 40-45%) accounted for 28% of September sales, down from 32%
last year. More examples of the two-speed economy: that of the top 1% is in high gear while the remaining 99% are in neutral at best.

CalculatedRisk notes:

The NAR reported total sales were up 10.7% from September 2012, but conventional sales are probably up close to 25% from September 2012, and distressed sales down.  The NAR reported (from a survey):

Distressed homes – foreclosures and short sales – accounted for 14 percent of September sales, up from 12 percent in August, which was the lowest share since monthly tracking began in October 2008; they were 24 percent in September 2012.

Although this survey isn’t perfect, if total sales were up 10.7% from September 2012, and distressed sales declined to 14% of total sales (14% of 5.29 million) from 24% (24% of 4.78 million in September 2012), this suggests conventional sales were up sharply year-over-year – a good sign.

China Housing Prices Rise Faster

(…) Prices were up from a year earlier for the ninth consecutive month, data released Tuesday by the National Bureau of Statistics showed, with the pace accelerating for the eighth consecutive month. As in August, prices were up in 69 of the 70 cities in September, despite nearly four years of controls on the property market. Month-on-month price increases moderated slightly. In August, prices were up from a month earlier in 66 cities. (…)

The average increase from a year earlier accelerated to 8.19%, from 7.48% in August and 6.70% in July, calculations by The Wall Street Journal showed. The average rise from a month earlier in September was 0.67%, moderating from 0.79% in August. (…)

In particular, there have been steady increases in home prices in tier-one cities—Beijing, Shanghai, Shenzhen and Guangzhou—which offer the best jobs and schools and so attract home buyers from the rest of the country. And the pace of increase accelerated in all four cities last month: Average home prices in Beijing were up 16% from a year earlier, beating August’s 14.9%. In Guangzhou, the pace increased to 20% from 18.8%; in Shanghai, to 17% from 15.4%; and in Shenzhen, to 19.7% from 18.1%. (…)

Soaring London House Prices Fuel Concerns

Home sellers in London raised their asking prices by 10% during early October, adding to concerns that the U.K. capital may be on the verge of a fresh property bubble.

The average asking price for a London home advertised via online real estate agency Rightmove’s website surged by £50,484 ($81,617) to a record-high £544,232 in October. By contrast, house prices rose between 1% and 4% in most of England and Wales, falling in two regions.

Asia’s housing bubbles put UK in shade

(…) Property prices in Hong Kong rose by 19.1 per cent year-on-year in Q2, and those in Taiwan swelled by 15.4 per cent, according to Knight Frank’s global pricing index. House prices in Shanghai and Beijing look pretty heady, too, growing at 14.8 per cent. Look at a longer time frame and there is evidence of a boom:

Source: Capital Economics

The fast pace of price rises, in comparison to incomes, indicates that Hong Kong and Taiwan are going through a bubble, according to Capital Economics. The Chinese story is more complicated (more of this later).

Hong Kong’s house prices have more than doubled in under five years. (…) Gareth Leather of Capital Economics thinks prices are over-valued by at least 40 per cent, and even bigger falls are possible. House prices in Taiwan’s capital, Taipei, are over-valued to a similar degree. But there need not be a crash like the US 2007 housing bust. Leather writes:

Housing construction in Hong Kong and Taiwan accounts for a relatively small share of GDP compared to the US on the eve of the global financial crisis. Meanwhile, banks in Hong Kong and Taiwan have required much bigger down-payments […] If property prices fall sharply, the damage to local banks should be limited.

In China’s larger Tier I cities, house prices are high: the move from countryside to city means housing demand outstrips supply. But the reverse is true elsewhere: in over 200 small cities – which make up more than half of total property sales – there is a downward pressure on pricing. This explains why China’s average house prices rose about 5 per cent year-on-year in Q2:

Source: GK Dragonomics

Supply now exceeds demand in a number of small Chinese cities. Easy money and government subsidies after 2009 pushed up the supply of housing in small prefectural-level cities. But the demand has not kept up, as rural dwellers often cannot afford to move, according to Rosealea Yao of GK Dragonomics. “We are more worried more about falling prices in small cities than high prices in big cities,” she writes. (…)

Bundesbank warns of property bubble Report fuels concern on impact of loose ECB monetary policy

The Bundesbank has warned that apartment prices in Germany’s biggest cities could be overvalued by as much as 20 per cent, stepping up its concern about a real estate boom in the powerhouse of the European economy.

The warning will feed into German concern that the European Central Bank’s monetary policy is far too loose for the country. The bank’s main refinancing rate is 0.5 per cent, a record low.

It also adds to signs that international investors are fuelling rising property prices around the world. The trend reflects the lack of opportunities investors regard as a safe haven and low returns for traditional asset classes such as bonds and stocks.

Rapid price rises have particularly affected the seven largest cities in Germany, the central bank said on Monday, although the value of houses had risen at a more moderate pace. Flats in Berlin, Munich, Hamburg, Cologne, Frankfurt, Stuttgart and Düsseldorf had, on average, seen prices rise more than 25 per cent since 2010.

“After the real estate bubbles in the US and several European house markets burst, the German property market, which had been quiet for many years, became more attractive to international investors,” the Bundesbank said in its monthly report for October. (…)

Asian cities such as Hong Kong and Singapore have imposed new taxes on foreign buyers in an attempt to limit the effect on their housing markets. Prices of the most expensive homes are now above their pre-crash highs in Hong Kong, according to data from estate agent Knight Frank. (…)

The property market trend is unusual in Germany, a nation of home renters with historically slumbering property markets, and is in sharp contrast to the rest of the eurozone, where house prices are near seven-year lows following property slumps in Spain, Ireland and the Netherlands. (…)

“In the short term, the [upward] price pressure will not ease,” the Bundesbank said. But it was “not very likely that the price structure on real estate markets currently represents a serious macroeconomic risk. The observed price movements are an expression of delayed increases in supply.”

However, “the empirical evidence shows there is no substantial overvaluation of the German residential property market as a whole”, the central bank said. (…)


Eni chief warns on impact of shale gas
Energy intensive industries drawn to US from Europe over prices

Paolo Scaroni, chief executive of the Italian oil and gas group, warned that European economies face a long-term structural challenge of competing with industrial operators in the US, which now enjoy far cheaper gas and electricity prices than those prevailing across the EU.

“Why would anyone invest in anything energy intensive [in Europe] rather than go to Texas, where the cost of electricity is half and gas a third, on top of all the other favourable factors,” he said on Monday. “We have seen clients moving investment from Europe to the US.”

Speaking at the Financial Times Global Shale Energy Summit, Mr Scaroni said the start-up of exports of liquefied shale gas from the US to European markets, combined with other global supplies coming on stream, could see European gas prices moderating from a predicted $10-$11 per million British Thermal Unit (mBTU) to $8 in the coming years.

However, he said the differential would still leave Europe disadvantaged. “Is $8 per unit enough to compete with the US? I think that it isn’t enough.” (…)


Leave a Reply

Your email address will not be published. Required fields are marked *