A report from Mediafeed. “One longstanding guideline for property investors that has been the subject of countless articles is ‘the 1 percent rule in real estate.’ The 1 percent rule is a formula that says the monthly rental should equal at least 1 percent of the total cost of an investment property to return a positive cash flow. As an example, the median home price for a single-family home in Austin in 2019 was $335,095. For that price, an investor would have to charge about $3,350 in rent to meet the 1 percent rule. But the median rent at that moment was about $1,550, so the investor following the 1 percent rule would have looked elsewhere.”
“The median home price in the Texas capital, as of September 2021, was a whopping $536,000, so that hypothetical investor would have missed out on a 60 percent appreciation. Even factoring in two years in which the investor accepted the median $1,150 in rent rather than the $3,350 required to pass the test, that’s a loss of $52,800, against a home appreciation of $200,905. ‘People are paying a premium for future value in markets like Charlotte or Atlanta,’ says Thomas Stepp, Mynd Management’s director of investment services.”
From Washington Monthly. “Loudoun County, Virginia, outside Washington, D.C., is notable for possibly being the McMansion headquarters of America—at least insofar as it has managed to sustain itself over time. When the 2008 crash descended on America, other developments across the country were abandoned like Machu Picchu, their pools filling with algae and mosquito larvae, or turning into crime-ridden hellholes like Victorville, California.”
“The country is now emerging from another deep recession, albeit with a twist. Thanks to the dubious economic ‘innovations’ that have structurally changed the economy, income inequality has accelerated, and one sees it in the booming real estate market. The modus operandi is always the same: Take a totally usable older house that is the same style and size as neighboring dwellings, though perhaps needing a rehab, and knock it flat, along with every mature tree on the property—there will be no room for them, owing to the enormous footprint of the planned structure. Then construct a particle-board chateau that has at least 75 percent more square footage than the neighbors, complete with a quarter-acre driveway for the obligatory Range Rover.”
“One by one, relatively affordable houses—and I emphasize relatively, in today’s market—are being systematically erased and substituted with houses costing twice as much. All of this is rationalized by the fact that land prices in cities and inner suburbs are considered too high to economically justify building smaller houses on the same lots. This is correct as far as it goes, but it is a symptom of a larger problem. Land prices are high because FIRE interests (finance, insurance, and real estate) want them that way as they ceaselessly work to pump up demand.”
From Fox Business. “‘It’s not so easy to raise interest rates to fight inflation when public and private data is high, when the stock market is high, when housing prices are high, when the economy is still weak,’ Harvard University professor Kenneth Rogoff explained. He also pointed out that the Fed hasn’t ‘tried to raise interest rates to stop inflation really for almost 30 years now. It’s not clear how it’s going to work,’ he added.”
From Yahoo Finance. “BMO senior economist Robert Kavcic says 2021 was the year Canadian real estate ‘became unhinged.’ He expects the Bank of Canada will act in 2022. ‘Expectations and investor appetite took over Canadian housing in 2021. We know it, and policymakers now know it too,’ said Kavcic.”
The Daily Telegraph. “Rich Dad Poor Dad author Robert Kiyosaki has warned an economic crash worse than the 2008 recession is coming and Australia’s negative gearing policies are a form of ‘Marxism.’ ‘2008 was the first big crash and a bigger crash is coming,’ he said, explaining that, like in 2008, world governments were printing too much money.”
“Mr Kiyosaki has dabbled in Australian real estate, including purchases in Sydney and Brisbane, and said he took issue with some local government policies around taxes. This included negative gearing. ‘My concern is that … with negative gearing it’s monetising debt and property values are overinflated … it’s not real. It’s got to make economic sense.’”
From Radio New Zealand. “The housing market appears to be hitting the pause button after a period of rapid growth. Kiwibank senior economist Jeremy Couchman said ‘cracks are certainly appearing’ in the market after nearly two years of record growth. ‘The dynamics of the market have certainly changed in the last few months. The number of new property listings is trending higher. And as the market fails to absorb new listings the total available supply for sale has begun rising off record low levels.’”
“Couchman ruled out a major housing market correction, instead forecasting the market would consolidate. ‘Looking at the past 30 years, meaningful corrections typically occur when credit conditions tighten rapidly and we have an unemployment rate rising fast. We certainly have tightening credit conditions and rising mortgage rates. Yet we see the labour market as a source of strength for households, not weakness.’”
“ASB Bank said the latest REINZ report ‘effectively confirmed’ the housing boom was over. Senior economist Mike Jones said the data validated forecasts of a sharp pull-back in housing demand in response to higher interest rates and tighter lending standards.”
From Bloomberg. “Investors who injected about US$20 billion into China Evergrande Group’s main operating unit five years ago are starting to count their losses amid the company’s slide into default and restructuring. Shenzhen Investment, an investment arm of the government of the south China city that is home to Evergrande’s headquarters, said in a stock exchange filing on Friday night that it likely fell into the red last year after recording a fair value loss of about HK$6 billion (US$770 million) on its holdings in Hengda Real Estate, the developer’s unit, ‘mainly due to the considerable drop in the share price of China Evergrande Group.’”
From Reuters. “China’s biggest homebuilder by sales, Country Garden, scooped up $10 million of its own bonds on Monday as the country’s ongoing property crisis sent them sprawling again. Last week was the worst on record for Country Garden’s bonds and fresh falls of up to 17 points on Monday left most of its international market debt at 25-35% below its face value.”
“Analysts cited reports that it had dropped plans to raise $300 million last week after debt market investors had shown insufficient appetite. ‘It just seems to be the fear factor playing out,’ said Seaport Global analyst Himanshu Porwal. ‘People are just marking things down as much as they can.’”