Foreign demand keeps prices from falling too far

Jesse pointed out this article bloomberg: Asian Buyers Buoy New Home Demand in California’s Orange County.  It turns out we’re not the only place that get’s the hype about suitcases of cash:

“You know why Orange County is doing better?” said Wang, a native of Taiwan who splits her time between Shenzhen in southern China, where she oversees a toy-manufacturing business, and Irvine, California, where she raised her three children. “It’s because all my neighbors are from China and Taiwan, and they all bought their homes in cash.”

And you know what ‘doing better’ means?  It means house prices dropping by ‘only’ 39%.

Demand has kept property values from declining as much in Orange County as in other regions. The median home price was $392,000 in January, down 39 percent from the June 2007 peak. That’s less than the 49 percent decline across Southern California and the 51 percent slump nationwide, DataQuick said.

Pretty good news eh?

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WS
WS
8 years ago

@JB:

Restore itself? What are you talking about? Orange County median price is down 40% from the peak and as of February 2012 down 5% Year over Year.

JB
JB
8 years ago

The situation in Orange County is not surprising. If you check the selling rates in the big Canadian cities, there is no decline at all and the speculation is still growing. Toronto year to year change was 10.8 per cent in February and Calgary year to year change was 6.96 per cent(Real Estate Market: Calgary vs Toronto).
Orange county is just an example of how can the market restore itself by the same means which destroyed it.

A
A
8 years ago

I’m not too familiar with presales. But 415 units in 4 hours sounds really speculative. How does one determine that the 415 units have been legitimately sold and contracts have been signed? Or do we just take Rennie’s word? We all know he’s an honest guy:=)

Anonymous
Anonymous
8 years ago

119 @Anonymous: “No one cares anymore if those units are livable or not. Speculators could as well buy real plastic green Monopoly houses.”

That’s actually a good strategy because it can block your opponents from building up to hotels.

Devore
Devore
8 years ago

@Vansanity: You’re confusing cause and effect. They will continue to line up, until the writing is on the wall.

paulb.
paulb.
8 years ago

New weekly stats section!! http://www.laurenandpaul.ca/Dexterselectmarketstats.ubr

New Listings 267
Price Changes 118
Sold Listings 158

TI:15837

Bull-Market
Bull-Market
8 years ago

@Jimbo:

By my totally non-scientific analysis of Craigslist ads, it seems that newer downtown 1-bed condos tend to rent for about $3 per square foot, while bachelor/studios seem to go for around $2.75 and 2-bedrooms around $2.25 psf.

Not that you can actually cover your mortgage + taxes + strata with the rent, but at least the numbers look slightly better for 1-beds than 2 and 3-bed units.

How can that amount you’re counting not cover the mortgage. Do the math before you blab. eg, 500,000 for a 2 bedroom 800 sq/ft condo, put 130k down, then do the math. That’s more than 2k a month.

Apocarypse Mao
Apocarypse Mao
8 years ago

#110 Vansanity Says:

“415 condo units sold in 4 hours… this bubble’s got a way to go still before we see it burst”

With 16,000 plus listings in Metro Van, 415 is 2.5% of the supply. Not a big deal in the scheme of things, especially as these are only assignments that probably have not gone to many end users.

Frank
Frank
8 years ago

Sub 50% sell for today according to larry

Vancouver East & West*
New Listings – 60
Back On Market Listings – 3
Price Changes – 33
Sold Listings – 35
Vancouver All Areas*
New Listings – 214
Back On Market Listings – 6
Price Changes – 89
Sold Listings – 96

*Attached & Detached – Date: 2012/03/16 Time: 18:36 Pacific YatterMatters.com: Courtesy REBGV. Data believed to be accurate but is not guaranteed.

VMD @ work
VMD @ work
8 years ago

@VMD:

the source was correct:

CdnMortgageNews: “Scotia’s 2.99% 4yr fixed promo has ended. Watching to see if other banks pull theirs as well… ”

http://mobile.twitter.com/cdnmortgagenews

Anonymous
Anonymous
8 years ago

@ewman: Great stuff! This is why I keep coming back to this board. It would be valuable if this information were collated and summarized in one document. Maybe I’ll try to do so this summer.

ewman
ewman
8 years ago

Correction to my post: it is 2001 that Canada Housing Trust started. Here’ an old article on it:

http://www.financialpost.com/scripts/story.html?id=d0c20b90-8b0b-4506-991e-a30a82981cb4&k=20957

patriotz
8 years ago

@Jimbo:
“Not that you can actually cover your mortgage + taxes + strata with the rent, but at least the numbers look slightly better for 1-beds than 2 and 3-bed units.”

I think you’re forgetting that 1-beds sell for more per square foot than the bigger ones, too, so I don’t think the rent coverage would likely be any better (% wise).

But in terms of $ the rental deficit is smaller, so it’s easier for a specuvestor to feed the alligator.

🙂

ewman
ewman
8 years ago

There’s more to the MBS market. CHMC owns a subsidiary called “Canada housing trust”. Canada housing trust issues “Canada mortgage bonds”, these AAA rated government bonds that it sells on the bond market. It then uses the proceeds to purchase NHA-MBS (national housing act mortgage backed securities, also AAA rated). This effectively converts the NHA-MBS into plain bonds, the goal is to make access to credit easier and cheaper for the banks. It’s all backed by CHMC and started in year 2000 when the bubble was just starting to take off (NHA-MBS dates back to 1986 but appears to have had little impact by itself).

You can see “Canada Housing Trust” listed in the holding of many bond funds, see ishares XBB for example: http://ca.ishares.com/product_info/fund/overview/XBB.htm

patriotz
8 years ago

@N:
“I would have imagined that they (CMHC) had cash or government bonds or something that they could draw on to make the payments.”

CMHC is an arm of the government, so it wouldn’t make sense for it to own government bonds and the same time be short government bonds (its own). Nor would it make sense for it to hold cash and be short its own bonds, since it would be paying interest for no reason.

Anonymous
Anonymous
8 years ago

Those condo units are not designed as places to live in, but as shares to be bought in a speculative bubbly market. The developer is only after what sells and max profit. Another example. Friends recently bought a 2 bedrooms unit in a new frame building. You know, the only units that can accomodate a family of four. The proof is, there is a micro playground down the building for the kids to play just before becoming insane for being trapped in a 800 sqft shoe box (with two bathrooms!). The living space is a thin rectangle along an oversized fireplace = a “living” room. Well, the building’s design allows my friends to hear their upstair neighbours urinate… So you can imagine what it is like having small kids there, and weekly notices from the management to remind you that… Read more »

N
N
8 years ago

@patriotz:

But when they insure mortgages, they are using other mortgages as the assets to back up that insurance. I would have imagined that they had cash or government bonds or something that they could draw on to make the payments. As it is, when the market tanks, their assets will tank, so that they will have to pay out to cover the defaults, but at they same time, they will have less to pay out with. I may be missing something, but if that is the case, it seems like a recipe for disaster.

Jimbo
Jimbo
8 years ago

Marine Gateway doesn’t meet the “family-style” dwelling requirement by North American standards and frankly I share his disdain for the project.

I’ve wondered why there were so many 1-bedroom units in this development, as there seems to be in most new condos lately. But it makes sense from a speculator’s perspective, because these units seem to rent for the most money per square foot.

By my totally non-scientific analysis of Craigslist ads, it seems that newer downtown 1-bed condos tend to rent for about $3 per square foot, while bachelor/studios seem to go for around $2.75 and 2-bedrooms around $2.25 psf.

Not that you can actually cover your mortgage + taxes + strata with the rent, but at least the numbers look slightly better for 1-beds than 2 and 3-bed units.

shriller
shriller
8 years ago

,
I wish I had a bond prospectus which would explain the default mechanism for NHA-MBS bonds in front of me. I don’t so I have to go with CMHC’s on-line guide. To be eligible for a MBS pool, a mortgage has to be insured (by anyone). As I read it, if CMHC agrees that a mortgage meets this definition they have agreed to insure the bond. So while they may decline to pay the mortgage insurance because of fraud, they do not appear to have left the same option available for bonds unless they can show it did not have insurance when entered into the pool. So I don’t believe CMHC can avoid paying to bond holders because of mortgage fraud.

jesse
8 years ago

@VMD @ work: “Geller adds when projects sell out in a matter of hours like this, it’s usually investors driving the sales.”

Geller is heavily involved in investigating alternate housing forms more in line with mixed-demographic growth, i.e. building diverse family-style dwellings in an urban setting. This also happens to be his area of expertise as an architect. Marine Gateway doesn’t meet the “family-style” dwelling requirement by North American standards and frankly I share his disdain for the project.

VMD @ work
VMD @ work
8 years ago

uh-oh…
[Toronto high-rise condo sales slide 59% from last year]
Mar 20, 201

Builders call it “stability” in the housing market but sales in Toronto’s high-rise market, which includes the volatile condominium sector, saw a 59% decline in sales from a year ago.

“After a record-breaking sales year in 2011, it would appear that the GTA new housing market is easing back into stability in early 2012,” says the Building Industry and Land Development Association in a release.

How much is it easing? For the first two months of the year RealNet Canada Inc. there were 1,633 high-rise sales compared to 3,348 a year earlier.

http://business.financialpost.com/2012/03/20/toronto-condo-sales-slide-59-from-last-year/

VMD @ work
VMD @ work
8 years ago

@Vansanity: re: marine gateway. Lots of specuvestors (and lots Asian) eyeing this development for the good location (close to Richmond but higher above sea level) and the major chinese supermarket (T&T) on-site. However, we’re already faced with a glut of condo/multi-family units in the coming months. Lending restrictions are likely soon upon us (in matter of weeks re: possible Flaherty/CMHC changes, and in the near future re: OSFI-proposed lending restrictions – see yesterday’s news). Although rates will still be at historically low levels, several banks are likely to ditch the 2.99% 4-5 year fixed rates as soon as this week judging by the spiking 5-yr bond rates that’s now at 8-month high. While prime rate are seen to go up in early 2013 (if not sooner..?). Chinese economy is medium/hard landing, euro going deep recession, Canadian employment disappointing, oil price… Read more »

Best place on meth
Best place on meth
8 years ago

That survey of best cities in Canada had Vancouver #5 in 2009.

The cost of housing was already the worst in the country at the time so what else has changed so drastically in the last 3 years that would cause us to drop to #56?

http://list.canadianbusiness.com/rankings/bestplacestolive/2009/include/bestplacestolive2009.xls

Vansanity
Vansanity
8 years ago

415 condo units sold in 4 hours… this bubble’s got a way to go still before we see it burst. With that kind of demand still out there, I don’t see much changing until new rules come down or higher rates. Both of which, I don’t expect any time soon.