In “IPOs Boost Demand for Silicon Valley Mansions“, Bloomberg attributes the robust housing market in Silicon Valley to the increasing numbers of instant millionaires benefiting from IPOs. The price gains are startling given the second-dip recession that has descended upon so many other neighborhoods across America (for the latest see “US Housing Crisis Is Now Worse Than Great Depression.”)
“The real estate gains in the valley, located primarily in the San Jose metropolitan area, are mostly occurring in towns where million-dollar values are already the norm. The median price in Cupertino gained 12 percent last month from May 2010 to $1.08 million, and values in Saratoga rose 4.7 percent to $1.62 million, according to San Diego-based DataQuick…
…The median price of single-family houses sold in Palo Alto, home of Facebook Inc., climbed 20 percent in May from a year earlier to $1.63 million, the biggest jump since 2008, according to preliminary figures from research company DataQuick. In Mountain View, the base of LinkedIn Corp., prices rose 3.1 percent to $957,500, the ninth year-over-year gain in 12 months.”
In “Homes: Chinese Buyers Make Vancouver Pricier Than NYC“, Bloomberg provides a startling and illuminating account of the dynamics in Vancouver’s over-heated real estate market. The statistics are absolutely astounding. Here is a sample:
“Sales of detached homes, townhouses and condominiums in metropolitan Vancouver jumped 70 percent in February from January, to 3,097 units from 1,819, and were up 25 percent from a year earlier, according to the Real Estate Board of Greater Vancouver. In March, sales climbed 32 percent from February, to just shy of a record for the month of 4,371 transactions set in 2004. Sales increased by 80 percent from two years ago.”
“In 2010, Vancouver had the third-highest housing costs among English-speaking cities worldwide, according to Canada’s Frontier Centre for Public Policy. Only Hong Kong and Sydney, another magnet of Asian immigration, were more expensive. Vancouver’s median home price of C$602,000 ($618,000) was 9.5 times the annual median household income of C$63,100, the group said in a study released Jan. 24. Canada had a 4.6 national multiple, making it ‘seriously unaffordable,’ while the U.S. at 3.3 was ‘moderately unaffordable,’ the study showed. To be affordable, the multiple must be 3 or less.”
The rest of the article explains how buyers from China are helping to drive prices in Vancouver as they escape property restrictions back home. Given three waves of Chinese buyers have descended upon Vancouver since 1990, market participants must feel like everything is normal. As an outsider, this market seems to have all the classic markers of a bubble. As long as the money keeps flowing, the market will remain inflated…
Most interesting was the core CPI, CPI less energy and food, remained flat. Most notable amongst the basket of items was apparel and shelter. These are the only two items that have declined in price over the past 12 months, and their monthly price changes for August were also amongst the lowest, -0.1% for apparel and flat for shelter.
The persistence of these low readings now has analysts speculating that the odds have increased that the Federal Reserve will announce next week a second official round of quantitative easing.
Reuters reports that “China Steps up Fight Against Property Speculation“:
“Provincial and municipal governments in areas experiencing rapidly rising property prices may temporarily restrict the number of properties people may buy, in accordance with the situation in their jurisdictions, the State Council said.
The measures also made clear to banks that they would be expected not just to raise mortgage rates and down payment requirements, but to refuse credit to people who are clearly buying homes for speculative purposes.”
Specifically, banks are being asked to increase down payments and mortgage rates for people who already own two homes or more.
Apparently, China has a working definition of an asset bubble and is getting increasingly proactive about preventing (or slowing down) rampant asset inflation.
Yep, you read it right. The S.F. Chronicle:
A total of 3,582 existing single-family homes changed hands in the nine-county region in February, down 8.5 percent from the same time last year, according to the DataQuick report. Their median price was $370,000, a 24.8 percent increase from February 2009.
And then there’s this: “California’s median home sale price jumps 11.2% in February.”
In “Housing Rebound in Canada Spurs Talk of a New Bubble” the WSJ paints a familiar picture of what can happen to an asset market when interest rates drop to extremely low levels. Although Canada never experienced a housing crash like that of the U.S., the Bank of Canada still dropped rates to near-zero to help support the domestic economy. Its efforts to support exports (primarily to the U.S.) have been thwarted for much of the past year given the sharp rise in the Canadian dollar.
Here are some highlights from the article that describe the frenetic pace of the current Canadian housing market:
- The average home price rose 23% from the trough in January, 2009, hitting a record according to one broad measure.
- Home-sales volumes are up 70% since January, 2009.
- Housing starts in December reached levels last seen October 2008 (no indication whether these stats were seasonally adjusted).
- “Household debt—largely mortgages—was 1.42 times disposable income during the second quarter of 2009, a record high.”
The response of the Bank of Canada speaks to the trap facing policymakers as they contemplate transitioning monetary away from extremely accomodative levels. The WSJ reports:
“…Canada’s central bankers appear reluctant to take any steps that would hurt the economy. In a Jan. 11 speech, a representative of the Bank of Canada said: ‘If the Bank were to raise interest rates to cool the housing market now…we would, in essence, be dousing the entire Canadian economy with cold water, just as it emerges from recession.'”
The Canadians avoided the worst of the recent global meltdown. Let’s hope they did not avoid the fire only to land in the frying pan.
Yesterday’s release of the latest S&P/Case-Shiller Home Price Index showed that house prices are holding up reasonably well:
Data through October 2009, released today by Standard & Poor’s for its S&P/Case-Shiller Home Price Indices, the leading measure of U.S. home prices, show that the annual rate of decline of the 10-City and 20-City Composites improved compared to last month’s reading. This marks approximately nine months of improved readings in these statistics, beginning in early 2009.
On a non-adjusted basis housing prices were flat. On a seasonally adjusted basis, which is probably the better measure, home prices increased by 0.4%. Some large post-bubble cities continued to show month-over-month home price increases, even on a non-adjusted basis:
San Francisco has reported seven consecutive months of positive returns, San Diego has reported six and Los Angeles and Phoenix are close behind with five.
In short, the latest Case-Shiller report shows that after a big run-up over the last five months, housing prices are now essentially flat. They are rising a bit in some markets and falling a bit in others, but this report was mostly a yawner, showing neither a big decline nor a big increase in prices nationally.
But that didn’t stop various commentators from trying to put a strong negative spin on the numbers. At Seeking Alpha, Cliff Wachtel saw evidence of a brewing calamity: “Latest Case-Shiller Housing Report and its Ramifications: Seeds of a 2010 Crisis?”
Wachtel’s Seeking Alpha colleague Markos Kaminis had misgivings too: “S&P Case Shiller’s Home Price Index Concerns Me.”
At the Seattle Post-Intelligencer, Gerry Spratt wrote, “Report: Housing prices up, but for how long?” I wonder if Ms. Spratt was equally skeptical of housing price increases when prices were soaring a few years ago.
The Wall Street Journal’s Real Time Economics ran this re-assuring headline in response to the Case-Shiller report: “Economists React: ‘Prices Have Further to Fall.'”
When I wrote a post last month arguing that housing prices had bottomed, the response I received from our readers was uniformly negative. Clearly a large swathe of the public (including the Inflation Watch readership) does not think the recovery in housing prices is for real. Since markets often surprise the majority of people, the prevalence of bearish sentiment makes me more bullish about the housing recovery.
The last time I saw sentiment on housing prices running so strongly in one direction was 2004-05, when almost everyone seemed convinced that prices in bubble markets would continue to rise at 10-15 percent per year in perpetuity.