Situs Newswatch 6/5/2017

Australian Real Estate Prices Hop Even Higher

Australia is entering the third decade of a real estate boom that has seen many Aussie jumping like kangaroos to buy housing.

Over the past 30 years, housing prices In Australia have risen 7.25 percent a year, leaving the country with some of the most expensive real estate in the world. In the first quarter of this year, real estate prices in major cities rose 11.2 percent on an annualized basis, dashing some experts’ predictions that they were starting to taper.

Deregulation of the financial markets in the 1980s and 1990s made credit more available, leading Australians to borrow big-time for housing, which drove up prices. The market has surged ever since; it even avoided a crash during the Great Recession.

“The majority of the activity where there has been capital appreciation in residential real estate has been in the big cities like Melbourne and Sydney where homeowners are seeing 15-16 percent annual appreciation,” says Sam Tamblyn, Managing Director of Urban Property Australia and contributor to the Situs RERC Australia Report. “Other areas are not doing quite as well. So when you look at a potential housing bubble, you need to remember that it’s a regional housing phenomenon.”

Good middle-class family houses in the most popular Sydney suburbs are hard to find for less than $1.5 million. Not even in San Francisco, the most expensive metropolitan area in the U.S., have prices grown so fast.

“I do think the market is close to leveling off, but there are still plenty of properties to make money on,” says Tamblyn. “Come on down!”

Australia’s Housing Boom Attracts Wall Street Investors
Wall Street has started a bidding war for Fairfax Media, an Australian company best known for the dowdy business of publishing newspapers. To understand why, look no further than Deanna McMath.

Ms. McMath, owner of a small business specializing in print and design, is trying to determine the value of the fixer-upper house she bought in 2009 in the Sydney suburb of Stanmore, and whether to sell it and cash in on the area’s wild property boom. Where she once would turn to the real estate pages of The Sydney Morning Herald, a Fairfax paper, she now scours two online real estate portals:, which is part of Rupert Murdoch’s media empire, under News Corporation, and Domain, which has quietly become Fairfax’s most lucrative business.

Two large American private equity firms, TPG Capital and Hellman & Friedman, are bidding to buy Fairfax, valuing the company at nearly $3 billion. That isn’t bad for a company that, just weeks ago, said it would have to sharply reduce staffing at many of its newspapers to contain costs.

Australia’s remarkable — and unbalanced — property boom appears to be the driver behind the bids. “They’ve formed an investment thesis that real estate’s just got a lot of value in it,” Damien Tampling, a partner in Deloitte Australia’s technology and media practice, said of the bidders for Fairfax.

That has raised concerns that the intense focus on a real estate market that may or may not keep growing will put at risk Fairfax’s most visible assets: major newspapers including The Sydney Morning Herald and The Age, based in Melbourne. Staff members at those papers went on a weeklong strike this month over imminent job cuts, and they fear that both Fairfax bidders would further shrink print operations in order to invest in the company’s digital real estate advertising arm.

read more: NY Times

Situs RERC and Urban Properties Australia teamed up to deliver the inaugural Australian Real Estate Trends report. Click here to download your copy for free.

Housing Market’s Catch-22
The U.S. housing market’s comeback after the financial crisis has turned out to be a double-edged sword.

Prices have recovered to pre-housing-crisis levels. But with inventories near historic lows, there are fewer affordable houses available for millennials, first-time buyers and even buyers looking for a bigger home to move up to, especially in bigger cities.

On the surface, that ought to be good news for existing homeowners looking to sell.

But, says The Collingwood Group Chairman Tim Rood, who spoke at the FHLBanks Conference two weeks ago, “Prospective sellers are not looking to sell their homes because there’s nothing for them to buy and move up into. There’s nothing to buy, because nobody is willing to sell. It’s a truly marvelous and maddening Catch-22.”

This gap has created the most competitive buyers’ market on record for existing homes, judging by how long homes stay listed, according to the National Association of Realtors. In April, existing homes listed for a record-low median of 29 days. Shorter listing times suggest buyers are snapping up houses as quickly as possible, indicating a hot market.

As for all those distressed houses snapped up by companies that fixed them up and are now renting them, Collingwood’s Rood says, “They don’t want to sell (great cash flow and great appreciation rates) or they want to and can’t because the institutional owners, e.g. Blackstone’s Invitation Homes, packaged the underlying loans into an asset-backed security that prohibits them from selling for upward of nine years.”

Catch-22 indeed!

Situs is proud to be a sponsor at AFME & IMN’s 21st Annual Global ABS conference in Barcelona, Spain, June 6-8. Click here for more details.

Canada’s Housing Boom
While worries over housing-market froth are nothing new in Canada, they have reached fresh heights in recent weeks. Although the nation’s major banks don’t face huge risks immediately, investors still should avoid them.

Last month, Canadian authorities accused nonbank mortgage lender Home Capital Group of misleading investors about the extent of mortgage-application fraud in its loans. Soon afterward it began tapping an emergency line of capital.

Also in April, the province of Ontario unveiled measures to curb Toronto-area house prices, which are up around 30% from a year earlier. These included a 15% tax on foreign buyers, mimicking a move taken by British Columbia in 2016. And, earlier this month, Moody’s Investors Service downgraded the Canadian banking sector, citing high private-sector debt levels. The country’s private-sector debt rose to 185% of gross domestic product last year, the agency noted, from 167% three years earlier.

read more: Wall St Journal

Doubts Cloud Fed’s Rate Increase Plans Beyond June
Federal Reserve officials are set to raise short-term interest rates at their meeting in two weeks but could defer the following expected rate move in September if Congress roils markets by delaying action on raising the federal government’s debt ceiling.

The possibility that Congress and the White House might have trouble reaching agreement in September to raise the federal debt limit and approve government funding for the year beginning Oct. 1 has surfaced as a new source of uncertainty in recent weeks.

Since raising rates in March, many officials have said they probably would want to lift rates twice more, likely in June and September. After that, some officials have said they might pause rate increases to start the process of slowly shrinking the Fed’s $4.5 trillion portfolio of bonds and other assets at year-end before resuming rate increases in 2018.

Now, the looming debt-limit fight has some officials pondering whether they might delay the third rate increase until after September or initiate the portfolio wind-down sooner, perhaps as early as September, if a rancorous fiscal fight threatens to disturb markets.

For now, though, Fed policy is on a smooth track. At their May meeting, officials forged consensus around a strategy for slowly and predictably reducing the balance sheet of Treasury securities and mortgages by allowing a small number of assets to mature every month without reinvesting any proceeds, according to interviews and their public statements.

read more: Wall St Journal

The $50 Billion Question: What Makes a Bank Big?
There’s a magic line in banking, and it is $50 billion.

That is the boundary that separates the big banks from the small. Firms with assets in excess of that figure face stricter rules on capital, mergers and other business, thanks to the Dodd-Frank Act of 2010.

Now, as the Trump administration and Republican-controlled Congress look to overhaul Dodd-Frank, one of the few points of bipartisan agreement is that $50 billion isn’t the right number.

Lawmakers can’t agree on a better one, though.

Banks over the threshold are getting used to the fact that, despite President Trump’s promises to deregulate the banking industry, even an unpopular provision is hard to overturn in the current polarized political environment.

To many banks and industry analysts, change seems commonsensical. The Dodd-Frank rule was implemented to help prevent another financial crisis. But as Treasury Secretary Steven Mnuchin recently told the Senate Banking Committee, banks with $50 billion in assets don’t pose “the same risk as a bank that has $750 billion or $2 trillion.”

read more: Wall St Journal

More People Will Be Driving Ubers & Renting Airbnbs than Working in Finance
There’s a growing demand for on-demand jobs.

The gig economy, which includes the freelance workers driving your Uber, doing your Task Rabbit chores or hosting your Airbnb, is expected to double to 9.2 million people over the next four years.

In fact, Intuit and Emergent Research reported last week that these on-demand jobs will make up 43% of the workforce by 2021, which is more than the current number of full-time workers in finance or construction. There are already more gig workers hustling than people employed in the entire information sector (including publishing, telecommunication and data processing jobs) and IT services combined, according to the Bureau of Labor Statistics.

The Netflix comedy “Unbreakable Kimmy Schmidt” has even shown the title character trying to make ends meet in NYC by working for TaskRabbit and driving an Uber. Freelancers told Moneyish that this gig work empowers them by making them their own bosses.

“You’ve got flexible hours, unlimited vacation and time to do other projects,” said Matthew Ernst, 29, a Manhattan personal trainer. But while he’s benched as much as $12,000 on a good month, he’s had slow seasons — like summers in the city when clients are away on vacation — when he’s only made $1,000 or so.

“It can also be long, odd hours, since you’re training people before and after they get out of work at their day jobs,” he said. “And I’ve got to pay for my own health insurance.”

read more: Money-ish

Robots are Coming: Morgan Stanley’s Brokers Get Algorithmic Makeover
Call them cyborgs. Morgan Stanley is about to augment its 16,000 financial advisers with machine-learning algorithms that suggest trades, take over routine tasks and send reminders when your birthday is near.

The project, known internally as “next best action,” shows how one of the world’s biggest brokerages aims to upgrade its workforce while a growing number of firms roll out fully automated platforms called robo-advisers. The thinking is that humans with algorithmic assistants will be a better solution for wealthy families than mere software allocating assets for the masses.

At Morgan Stanley, algorithms will send employees multiple-choice recommendations based on things like market changes and events in a client’s life, according to Jeff McMillan, chief analytics and data officer for the bank’s wealth-management division. Phone, email and website interactions will be cataloged so machine-learning programs can track and improve their suggestions over time to generate more business with customers, he said.

“We’re desperately trying to pattern you and your behavior to delight you with something you may not have even been asking for, but based on what you have been doing, that you might find of value,” McMillan said in an interview. “We’re not trying to sell you, we’re trying to find the things you want and need.”

Faced with competition from cheaper automated wealth-management services and higher expectations set by pioneering firms like Uber Technologies Inc. and Inc., traditional brokerages are starting to chart out their digital future. It turns out that the best hope human advisers have against robots is to harness the same technologies that threaten their disruption: algorithms combined with big data and machine learning.

The idea is that advisers, who typically build relationships with hundreds of clients over decades, face an overwhelming amount of information about markets and the lives of their wealthy wards. New York-based Morgan Stanley is seeking to give humans an edge by prodding them to engage at just the right moments.

read more: Bloomberg

Have a prosperous day and great week ahead.

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