A weekend topic starting with Market Place. “The following is an excerpt from Christopher Knowlton’s new book, ‘Bubble in the Sun: The Florida Boom of the 1920s and how it brought on the Great Depression.’ ‘My first impression, as I wandered out into the blazing sunlight of that bedlam that was Miami, was of utter confusion,’ remembered Theyre Hamilton Weigall, a twenty-four-year-old Australian- born, London-based journalist who arrived in Florida by train at the peak of the boom and stood stunned among the screeching motor horns and the deafening cacophony of rivet guns, drills, and hammers. ‘Hatless, coatless men rushed about the blazing streets, their arms full of papers, perspiration pouring from their foreheads,’ he recalled. ‘Every shop seemed to be combined with a real estate office; at every doorway, crowds of young men were shouting and speech-making, thrusting forward papers and pro- claiming to heaven the unsurpassed chances they were offering to make a fortune. . . . Everybody in Miami was real estate mad.’”
From The Atlantic. “In Manhattan, the homeless shelters are full, and the luxury skyscrapers are vacant. Such is the tale of two cities within America’s largest metro. Even as 80,000 people sleep in New York City’s shelters or on its streets, Manhattan residents have watched skinny condominium skyscrapers rise across the island. These colossal stalagmites initially transformed not only the city’s skyline but also the real-estate market for new homes. From 2011 to 2019, the average price of a newly listed condo in New York soared from $1.15 million to $3.77 million.”
“But the bust is upon us. Today, nearly half of the Manhattan luxury-condo units that have come onto the market in the past five years are still unsold, according to The New York Times. In the past decade, New York City real-estate prices have gone from merely obscene to downright macabre. From 2010 to 2019, the average sale price of homes doubled in many Brooklyn neighborhoods, including Prospect Heights and Williamsburg, according to the Times. Buyers there could consider themselves lucky: In Cobble Hill, the typical sales price tripled to $2.5 million in nine years.”
The Wall Street Journal. “Robert Knakal, chairman of New York investment sales at JLL Capital Markets, said that investment sales hit a peak in 2014 and 2015, and have been slowing since October 2015, though price declines on sales that have closed have been modest. The slump has extended to land prices, hotels and condominiums, he said. He said the market was down 10% in value, but in terms of sales volume, ‘This is the longest correction we have ever seen in the 36 years I have been’ in the business.”
From the Independent on Singapore. “The Urban Redevelopment Authority (URA) revealed late last year that Singapore had an overhang of 31,948 units and observers believe that this property glut could take years to clear, exacerbating concerns over the already uncertain economic climate. Christine Li, head of research for Singapore and South-East Asia at Cushman & Wakefield plc, told Bloomberg that ‘excessive exuberance’ in buying en-bloc sites, which are entire apartment blocks that are sold by a group of owners to a developer for redevelopment, caused the glut.”
The Daily Mail on Australia. “Investors made up a record-low 24.8 per cent of real estate buyers this year but that is set to change – locking more Generation Z buyers out of real estate. Property data group CoreLogic’s head of research Tim Lawless said their numbers were set to increase next year as another interest rate cut made it easier for them to pay off an investment loan.”
“Mr Lawless said investors would flock back to the property market to make a capital gain. Another interest rate cut in the first half of 2020 would also reduce monthly mortgage repayments. This would enable landlords to pay off an investor loan through rental income – saving them from making a loss. ‘Investors are likely to be motivated by prospects for capital gain, as well as the fact that gross rental yields, although generally low, are likely to be higher than the cost of debt,’ Mr Lawless said.”
From Domain News in Australia. “Rents in pockets of Sydney have been slashed by almost a quarter as new supply from the city’s building boom continues to hit the market, new data shows. Oran Park, about 45 kilometres south-west of the city centre, recorded the biggest decline with the median unit rent in the suburb dropping 24.5 per cent, to $378 a week. It was one of six suburbs to see double-digit percentage declines for unit rents, including Glenmore Park, Rouse Hill, Barangaroo and St Marys.”
The Irish Independent. “Location! Location! Location? Not any more! We can start 2020 by throwing that old chestnut under a bus. Kerunch! In the emerging Irish property market of 2020, location is just one of myriad factors influencing buyer decisions, sales and prices; to the degree that house values are rising and falling simultaneously in the same locations, and even on the same streets.”
The Irish Times. “Chronic undersupply is frequently blamed for pushing up house prices. It’s the dominant narrative here. But a recent Bank of England study suggests the supply thesis may be a major misdiagnosis. The paper by two economists published just before Christmas claims that the four-decade long surge in house prices in the UK – property prices have quadrupled since the 1980s (we’ve had an even steeper ascent here)– has been caused by low interest rates, and not by a lack of supply of new homes.”
“The Bank of England researchers calculated that even with a significant supply response, the jump in real house prices since 1985 wouldn’t have been that much less, and that the real driver of prices was cheap credit. Think of it this way: a €1 million mortgage borrowed at 0.75 per cent and €450,000 mortgage borrowed at 7.5 per cent have the same repayment of €3,100 per month.”
“‘Nearly all of the rise in average house prices relative to incomes can be seen as a result of a sustained, dramatic, and consistently unexpected, decline in real interest rates,’ the researchers write.”