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Category Archives: Housing

Chart: China Housing Market Cools Down Quickly

Source : Chartr

Chart: U.S. Builder Confidence Underwater After Falling for Eighth Consecutive Month

Source : Calculated Risk

Charts: U.S. Rent Is Moving Higher at the Highest Pace in Three Decades

Source : CoreLogic and RealPage

China Takes Steps to Support Some Property Developers, Boost Demand in Economy

Clare Jim wrote . . . . . . . . .

China will guarantee new onshore bond issues by a few select private developers to support its embattled property sector, sources said on Tuesday, while the state planner said it would boost economic demand and speed up infrastructure projects.

News of the planned state support for some better-quality private developers saw the Hang Seng mainland properties sub-index rise by as much as 10% at one point, before profit taking pared gains.

Policymakers have been trying to stabilize the sector that accounts for a quarter of the national GDP after a string of defaults among developers and a slump in home sales.

The property sector’s troubles and weak consumption have weakened a nascent recovery in an economy that has been hobbled by strict COVID-restrictions.

Bleak data for July showed that the world’s second-biggest economy unexpectedly slowed and property investment fell at the fastest clip this year.

And on Tuesday, officials from the state planner gave assurances that policies would be geared to boosting economic demand in “a strong, reasonable and moderate manner” and infrastructure construction would be accelerated in the third quarter of the year.

Yuan Da, a spokesperson at the National Development and Reform Commission (NDRC), told a news conference that policy banks would grant more credit and more special local government bonds would be issued.

Homebuyers, and existing owners looking to improve their home, would also receive support, Yuan said.

There are also expectations for a cut in the loan prime rate later this month, which could give some relief to mortgage holders.

On Monday, the central bank unexpectedly cut the rate on 400 billion yuan ($59.33 billion) of one-year medium-term lending facility (MLF) loans to some financial institutions by 10 basis points (bps) to 2.75%.


Addressing fears that developers regarded as financially sound could also be impacted by the malaise gripping the property sector, four sources with knowledge of the matter said regulators have asked state-owned China Bond Insurance Co Ltd to provide guarantees for bond issuance by Longfor Group and CIFI Holdings.

Two of the sources said Longfor has already sold 3-year and 5-year medium term notes totalling up to 1.5 billion yuan ($220.80 million) with a guarantee from China Bond Insurance.

China Bond Insurance Co will provide “full amount, unconditional and irrevocable joint liability guarantee” to these medium-term notes, sources told Reuters.

Financial information provider REDD first reported the plan to provide guarantees for new bond issues by a few select mainland bond issuers on Monday evening.

Its report said policymakers had drawn up a list of half a dozen developers regarded as financially stronger, including Gemdale Corporation and Country Garden Holdings, whose bond issues would receive guarantees.

REDD also said policymakers were considering asking state investors to subscribe for new notes issued by developers. The issuers would have to provide collateral for the state guarantee but the use of proceeds would be flexible, it said.

Source : Reuters

Charts: The Cost of Building a House in the U.S. Remains High

Source : Mish Talk

Charts: 63,000 U.S. Home-purchase Agreements Were Called Off in July

Source: REDFIN and Bloomberg

China’s Property Crisis Threatens to Drag Down Steel Industry

China’s steel industry is entering a precarious new era as a worsening property crisis imperils demand and Beijing’s construction-led growth model looks increasingly untenable.

Almost a third of China’s steel mills could go into bankruptcy in a squeeze that’s likely to last five years, Li Ganpo, founder and chairman of Hebei Jingye Steel Group, warned at a private company meeting in June. “The whole sector is losing money and I can’t see a turning point for now,” he said, according to a transcript of the gathering seen by Bloomberg News.

The real-estate crisis has ballooned this year, engulfing developers to banks, and forcing Beijing to soften its growth ambitions. Steel mills that churned out more than a billion tons last year, around half of global output, are highly vulnerable to the slump that’s also hit iron ore prices and miners from Australia to Brazil.

After more than a year of property pain, the outlook is worsening as the government baulks at big bailouts and keeps stringent debt rules in place. A steel purchasing managers index for July tumbled to its lowest reading since 2008, and Goldman Sachs Group Inc. sees demand down by 5% this year. The property sector accounts for at least a third of Chinese steel demand.

Beyond the current crisis, the industry is facing profound challenges as the growth model that’s sustained China’s economy for decades shows signs of strain. President Xi Jinping looks reluctant to deploy the levels of infrastructure spending and financial stimulus that revived the sector after the great financial crisis and the property market downturn in 2015-2016.

“This time really is different,” said Leland Miller, chief executive officer of China Beige Book International, which monitors the steel industry. “With property having lost its mantle as the preeminent growth driver, key commodities like steel no longer have the benefit of endless credit access.”

In the short term, the major obstacle for steel is the large stock of unfinished properties, highlighted by a recent wave of mortgage boycotts. Prices of construction steel have also plunged, with rebar — twisted steel rods that strengthen concrete — falling to a two-year low last week. That’s even as output has dropped to the lowest in Mysteel data that goes back to 2015.

Tough Times Ahead

“Demand is slipping fast,” Xiao Zunhu, chairman of state-owned Hunan Valin Steel Co., told an industry meeting in Beijing last week where speaker after speaker warned of difficult times to come. Markets “will remain complicated and tough” this half and stimulus measures need time to take effect, Chen Shaohui, vice president at Jiangsu Shagang Group, said at the same meeting.

The demand weakness has flowed through to key steel-making ingredient iron ore. Futures in Singapore fell for a third day on Tuesday, and are down more than a third from a peak in early March. China’s steel industry is in “sharp contraction on all fronts,” Liberum Capital said in a note on Tuesday, in which it maintained sell recommendations for miners BHP Group Ltd., Rio Tinto Plc and Antofagasta Plc.

Steelmakers may have limited room for maneuver when it comes to trimming output. Local governments are putting pressure on mills to maintain activity to prevent weakness in economic data, according to executives from four producers, who asked not to be identified as the matter is sensitive.

Steel mills were once seen as champions of China’s economic expansion, with some growing from rural casting workshops to multi-billion dollar conglomerates. While real-estate activity should stop contracting at some point, the chances of it delivering the kind of booms that buoyed Asia’s largest economy over the past few decades seem slim.

“The third quarter will be the most difficult time for the industry,” Zhu Guosen, vice director at Shougang Group’s technology research institute, said at the meeting in Beijing. “We should abandon any illusions about the market and focus on what we can do ourselves.”

Source : Yahoo!

Chart: China Home Prices Fall for 11th Straight Month

Source : Bloomberg

Sweeping Mortgage Boycott Changes the Face of Dissent in China

In a country that only tolerates dissent in small doses—and relies on property as its economic growth engine—a mortgage boycott by hundreds of thousands of middle-class Chinese has become a five-alarm fire for authorities.

It began with a 590-word letter penned by angry purchasers of the half-built Dynasty Mansion project, whose pleas for China Evergrande Group to complete homes they’d long been paying for had fallen on deaf ears. “All homebuyers with outstanding mortgage loans will stop paying,” unless construction resumes before Oct. 20, they threatened.

The ultimatum raced across social media platforms WeChat and Douyin, becoming a call to action for those caught out by China’s rapidly deflating property bubble. In days, the letter became a template for protests from Shanghai to Beijing, and Shenzhen to Zhengzhou, with homeowners cutting and pasting from it to draft their own boycott manifestos. Within four weeks, more than 320 projects in about 100 cities were facing similar protests, roiling markets and forcing authorities to corral banks and developers to defuse the unrest.

“We didn’t mean to make a scene deliberately, but we didn’t have a choice,” said one buyer at the 14-tower Evergrande project in the city of Jingdezhen, who asked not to be identified for security reasons. “All we want is the attention of the local government. We hope they bear the responsibility.”

The protesters have achieved much more. With social stability a must ahead of this year’s Communist Party Congress, their voices have reached the highest office. President Xi Jinping’s Politburo last week called on local officials to “ensure the completion” of housing projects, and state-owned banks are being strong-armed to finance the work.

Censors have simultaneously stepped in to quell dissent, scrubbing posts, silencing protesters and banning document-sharing links. Still, the breadth of the support, and the speed with which it spread, shows that the Chinese aren’t afraid to band together on a national scale, especially when their treasured homes are at stake. While real estate has been the most common cause of protests in recent years, a co-ordinated boycott of this scale has never happened before in China, said Christian Goebel, a University of Vienna professor who studies the topic.

“The security services must be very concerned about how quickly this movement spread, not just within cities but across the country,” China-watcher Bill Bishop noted in a recent newsletter. “Cross-geography organizing is the stuff of nightmares for the government.”

For the 100 or so buyers who signed that first letter, complete with red fingerprint stamps, it was a last resort after every other effort to get construction finished had failed. Though the protest exploded across social media with the letter posting on June 30, homeowner frustration had been brewing for months.

A crackdown on overleveraged property firms that started in 2020 sparked a liquidity crunch and kept developers like Evergrande out of credit markets, depriving them of cash to complete the apartments. Suddenly, construction that used to take 12 to 18 months was taking years, or was halted altogether. All the while, buyers had to keep paying their mortgages, a quirk of the Chinese market where payments start with a pre-sale deposit, long before work is complete.

Homeowners staring at unfinished gray concrete blocks, and watching developer after developer default on their debt, began to compare notes about what to do to salvage their investments.

Li was one of them. Checking on the construction site of his yet-to-be-built apartment in Wuhan had become a form of mental torture, he said. He made a 40% down payment on an Evergrande condo, eating up all his savings after several frugal years. Whenever he visited the complex of 39 skyscrapers he would see one or two workers, with only a few machines humming.

“I only hear the birds sing,” said Li, a 26-year-old tech worker who didn’t want his full name used for security reasons. “If I have to pay a mortgage for a home that’s never going to be finished, I feel my whole life would be ruined. Deep down, that makes me terrified.”

With frustration mounting, one homebuyer in Jingdezhen brought up the idea of a mortgage boycott in a WeChat group. The move wasn’t without risk, as any missed payments can ruin a credit score and make it harder to buy real estate down the line. Still, a few others echoed the idea after hearing of buyers doing the same at several Evergrande sites. Others turned to Douyin, the Chinese version of TikTok, where many disgruntled people had posted their own videos and photos.

Those voices languished though until the letter from Jingdezhen landed. After delivering it to authorities, the boycotters pasted the missive on Douyin. Homebuyers in dozens of projects followed suit each day, copying the letter and publishing similar pleas there and on the Twitter-like Weibo platform. Some posts attracted millions of “likes.” They uploaded videos of stalled construction sites, along with photos of notes detailing negotiations and their quarrels with local authorities. The demands also grew bolder, with buyers seeking home completion in a month.

Read More: Why China’s Developers Are Facing Mortgage BoycottsThe collective movement, both sudden and unprecedented, was dubbed “tingdai” in Chinese, a phrase taken from the first boycott letter that typically refers to banks halting home loans. “Duangong,” or halting mortgage payments, would have been more accurate, but “tingdai” continued to trend on social media, demonstrating the influence of that first letter.

A shared document managed by a lawyer using online platform Zhihu Inc. became the public battleground, tallying the extent of the protests as more home owners joined the fight. It was quickly picked up by research firms and global investment banks like Citigroup Inc. to assess the impact of the boycott. The lawyer confirmed he compiled the list, but wouldn’t comment further.

As the protests mushroomed—and even spread to construction suppliers—authorities took steps to stifle them. Document-sharing links such as kdocs and wolai were banned, as well as overseas platforms like Google Docs and Notion. Only a web page on the GitHub community remains accessible, in part because the platform is vital for many Chinese tech companies.

Posts listing all the delayed projects were deleted, as were numerous social media accounts of furious homebuyers. Some of them told Bloomberg News that they had been contacted by police. Meanwhile, the majority of buyers in the Evergrande project where it all started have “shut their mouths,” according to one person, who was also warned by police to stop posting on social media.

Evergrande, the property giant at the center of China’s real estate crisis, declined to comment on the boycotts.

With the online movement increasingly censored, some have turned to the old-school approach of street protests. On July 25, a loosely organized group of about 50 people went to the county government in Jingdezhen demanding action. Waving small national flags, they chanted “Restart Construction, Restart Mortgage Payment (早日复工,早日还贷).”

Even as the movement slows amid the social media crackdown—and homebuyers await concrete results—supporters can take solace knowing the revolt has sparked plenty of responses. In Jingdezhen, authorities have pledged to press Evergrande to restart construction, according to one of the protesters. The city government is asking four state-owned firms to tackle Evergrande projects, aiming to deliver them by the end of 2023, according to a July 8 update posted on the city’s website. Calls to Jingdezhen government and housing authorities went unanswered.

Nationally, there has even been some discussion of a mortgage holiday for buyers until construction is complete, Bloomberg News reported. The government is also pushing banks to lend to developers to get projects done, and may take over undeveloped land from distressed companies to pay for the work, according to people familiar with the matter. In addition, China plans to set up a central bank-backed fund to finance construction, people familiar said. The People’s Bank of China didn’t immediately respond to a fax seeking comment.

The boycott shows “something is really wrong with China’s real estate sector,” said Goebel in Vienna. “In terms of teaching a lesson, I think the government is more likely to target the companies than the homeowners.”

Still, it remains to be seen whether all the proposed money will be delivered and how soon the apartments will be finished. Homeowners like Peter, who bought a 2 million yuan ($296,000) condo in Zhengzhou last May after borrowing from his parents and saving for years, want it all to end.

“The developer has caused us tremendous harm and a lot of homeowners are depressed,” he said. “I just want to get my apartment.”

Source : BNN Bloomberg

Canadian Real Estate Affordability Hits Worst Level Since the 90s

Canada’s central bank found housing affordability eroded further in the first quarter. The Bank of Canada (BoC) Housing Affordability Index (HAI) showed a sharp jump in Q1 2022. Affordability is now the worst in 3 decades, with the most recent erosion due to rising financing costs. However, this is likely to be temporary as home prices adjust to more expensive borrowing costs. The index will see a short-term increase, but the trend can reverse as early as this year.

The Housing Affordability Index (HAI)

The BoC HAI looks at housing affordability as the basic carrying costs for a home compared to income. Carrying costs are mortgage payments and utilities. Mortgage payments are calculated using a basket of discounted rates, weighted by use. Income is disposable income, which is what’s left after mandatory transfers. The result is the share of income needed to carry these payments, with higher being worse.

Canadian Real Estate Is The Least Affordable Since The 1991 Bubble

The BoC HAI ripped to the highest level in a generation, and the highest share in 3 decades. The HAI shows a household needs 42.8% of their disposable income to carry a home in Q1 2022. It’s an increase of more than 3 points from the previous quarter and 8.1 points from last year. The HAI hasn’t been this high since Q3 1991, which was the previous peak of the real estate cycle (i.e. the bubble peak).

Demographic Distribution Means It’s Harder To Catch Up Without Price Corrections

Age distribution and demographics are important to understand why it’s different this time. Back in the early 90s, the median Canadian was in their early 30s. Today the median person in Canada is a third older — in their early 40s. Half the population in the 90s was below their peak earnings years, making it easier to stomach the costs. This helped to prevent the need for prices to fall as much.

Today, Millennials are expected to reach their demographic peak in the next few years. They’re already past or approaching peak earnings growth, meaning there’s not much income relief. Most of the affordability improvement has to come from falling home prices. They also can’t depend on interest rates to drop 14 points to help alleviate pain and inflate the asset.

Then there’s the whole down payment issue at extended valuations, not factored in by the HAI. The 90s had extreme valuations, with Toronto’s average home sold at 6x the median income. Today that number is closer to 10x, so there’s a considerable gap compared to that period. This isn’t about who had it worse, but the fact that things haven’t improved over the past 30 years.

The BoC HAI is likely to pop even higher over the next quarter but the direction is expected to change fast. Financing costs surged in Q2 2022 while home prices only made a minimal decline in the quarter. This will result in the ratio rising, but more recent activity shows this can change fairly fast.

In June, home prices across Canada fell by the equivalent of a third of a median household’s annual income. They didn’t make that drop over the past year, but just in that month. July’s data for Toronto and Vancouver also has experts seeing further national price drops. As early as Q3 or Q4, affordability can start improving — RBC is calling a “historic price correction,” while BMO recently revised their Canadian real estate outlook much lower, expecting big drops in the future.

Source : Better Dwelling