A report from the Review Journal on Nevada. “The last time Las Vegas had a major housing bubble, things didn’t end well. Here’s hoping it ends differently this time. It’s not fun to think about, but there are many signs that current Las Vegas housing prices aren’t sustainable. Last year, prices soared 26 percent. The median cost of a single-family home jumped from $345,000 in January 2021 to $435,000 last month. Before the bubble burst in the mid-2000s, Las Vegas housing prices peaked at $315,000. After adjusting for inflation, that amount is roughly $436,000. Uh oh.”
“It would be one thing if this 26 percent spike happened when prices were near record lows. In January 2013, prices jumped 27 percent over the previous year, going from $118,000 to $150,000. But that followed six years of falling prices. That was a market recovery. It’s a red flag when prices shoot up 26 percent in a year, nearing the inflation-adjusted number that preceded a massive downward spiral 16 years ago.”
“If the Las Vegas economy were especially robust, that price increase would be less concerning. But the Las Vegas area has the highest unemployment rate of any large metro area in the country.”
The Miami Herald. “It would seem the sky’s the limit when it comes to pricing for South Florida’s high-rise living with sales prices reaching new heights in January. House hunters, however, are catching some relief — as prices steadied or dipped for the first time in months.”
The Financial Post. “The reality of higher interest rates is almost here. The Bank of Canada meets next week, and the market is all but certain that a hike is in the cards. Those due to renew their mortgages in the next year are especially concerned, with 61% saying that if their borrowing costs go up much more, they worry that they will be in financial trouble. Thirty-five per cent of all surveyed agree that rising rates could move them toward bankruptcy.”
“‘Variable-rate mortgage holders will be the most significantly impacted. Especially with talk of there being a string of rate increases in 2022,’ said Grant Bazian, president of MNP LTD. ‘Households may need to re-adjust their budgets to accommodate for hundreds or thousands of dollars more a year in mortgage-related costs.’”
From Radio New Zealand. “Experts say today’s raise in the official cash rate will sting for struggling businesses, first-home buyers, and the recently indebted. Michael Gallagher from Financial Advice Hawkes Bay said those who had recently taken out substantial debt, or a mortgage, could also feel a squeeze. ‘Interest rates have gone up 75bp since October and we’re talking them going up another two percent by 2023 which is a year away. If you owe a million dollars, that’s another $20,000 you might have to find. That’s going to have a big impact. People, I don’t think, have that money lying around to pay additional interest costs so it’s going to be challenging,’ he said.”
From Voxy New Zealand. “Policymakers need not be shy about their role in this, says Westpac’s Acting Chief Economist Michael Gordon. ‘The Government and the Reserve Bank’s stated intentions were to err on the side of doing too much rather than too little. And to their credit, they achieved that. Stubborn inflation is a better problem to have than stubborn unemployment.’”
“‘But there was never going to be a cost-free solution to a shock of this nature, and the bill is now coming due,’ says Mr Gordon. ‘Our view remains that the RBNZ will need to lift the Official Cash Rate beyond its estimates of ‘neutral’ and into tight monetary policy settings, at least for some time.’”
The Daily Mail. “Typical Australian borrowers could see their monthly mortgage repayments climb by a third or $721 during the next 18 months, National Australia Bank predicts. A surge home loan pain would also see Australian borrowers lumped with the tightest budget pressures in a decade. Should variable rates rise to 4.64 per cent, as predicted, monthly repayments on a mid-priced Australian home would climb by $721 to $2,959, marking 32 per cent increase in just 18 months.”
“KPMG senior economist Sarah Hunter said the latest wages growth data was still below the RBA’s preferred level before it raised rates. Wages are also well below the inflation rate of 3.5 per cent. ‘At the moment the average worker is experiencing declining real wages,’ Ms Hunter said.”
From News.com.au in Australia. “Chris Richardson, partner at Deloitte Access Economics, told news.com.au those who had taken advantage of record-low interest rates during the pandemic, and bought a home that would usually be out of their price range were in for a rude shock. ‘Your specific group is the same people who are always at risk when interest rates start to climb up after a long period of fall,’ he said. ‘They are the people who just bought a house. They paid too much. They were funded by the bank of mum and dad.’”
“‘It’s that group who will need to stretch because they will genuinely need to save, or save more than they’re doing. That’s painful. It’s a bigger group than usual because it’s basically been over a decade since interest rates went up,’ he said. As for those looking to buy, Mr Richardson said prospective homebuyers should no longer feel pressured to enter the property market, because rapidly rising housing prices have eased. ‘If you’re thinking about being in the market, there’s no rush,’ he said. ‘Give FOMO the boot.’”
From Bloomberg. “Three months ago, Chinese authorities saved the country’s largest manager of distressed debt from a potentially disastrous collapse. Now, they’re turning China Huarong Asset Management Co. and its peers into a key line of defense for the $54 trillion financial system as defaults in the property sector soar.”
“In a sign of growing urgency within Xi Jinping’s government to stabilize the world’s second-largest economy, regulators have asked Huarong and other so-called AMCs in recent weeks to buy property assets from troubled developers and formulate plans for taking over or restructuring smaller lenders, according to people familiar with the matter. But the AMCs’ capability to provide large-scale aid to developers could also be constrained by their own liquidity and capital requirements unless there’s policy support, according to China International Capital Corp.”
“The four bad-loan managers together had almost 5 trillion yuan ($790 billion) of combined assets, and about $62 billion in cash, according to Bloomberg Intelligence. By comparison, total liabilities of 38 Chinese developers rated BB or lower by Fitch Ratings amounted to $1.3 trillion, excluding opaque debt residing off their balance sheets.”
“Andrew Collier, managing director of Orient Capital Research Inc. in Hong Kong, said the use of AMCs is another shortcut to backstop the economy without adding to the debt burden of the central government. ‘The leadership is afraid of an economic downturn but even more concerned about a massive, central government stimulus that would lead to an even worse property bubble whose collapse would call into question the effectiveness of the Communist Party,’ he said.”