February 5, 2014

A Herd Mentality

The San Francisco Examiner reports from California. “Potential homeowners in San Francisco are not waiting around. This current mentality in the housing market characterized much of 2013: ‘If I don’t buy this house now, then next month it’s going to be more expensive,’ according to real estate agent Ruth Krishnan. A large component of 2013’s real estate market was driven by luxury home sales. ‘A lot of my clients are tech clients and a lot of my clients have cash,’ she said. ‘Because of how they came by it, they — I don’t want to say they didn’t work for it, but all of a sudden they had a lot of cash. They say, ‘What do I need to spend?’ They say that all the time.’”

Fox 5 San Diego. “Crowned by the sale of a Malibu estate for $74.5 million, the number of houses sold last year at $1 million and above statewide jumped to a six-year high, according to DataQuick. Appreciation-fueled gains in home equity allowed others who had been waiting on the sidelines to move up to bigger and better digs, releasing pent-up demand from recent years. ‘It’s a herd mentality,’ said Westside Estate Agency co-founder Stephen Shapiro, who last year saw well-priced homes drawing multiple bidders. ‘When people start paying more for houses, other people don’t mind paying more.’”

The Santa Monica Mirror. “As we began 2014, the number of homes available for sale in Santa Monica was as low as it has been in many years. There are only 33 homes on the market. Due to the high demand for Santa Monica houses especially under $2 million, the median $3,250,000 list price is almost unbelievably 50 percent higher than it was 12 months ago.”

“There are a few reasons for inventory being so low at this time. One factor is that the level of purchasing by investors has continued to increase through 2013. Additionally, banks own 25 Santa Monica homes, which have not yet been listed for sale. Also, 24 local homes are either in pre-foreclosure stages or already have had bank auction dates scheduled.”

The Desert Sun. “The asking price of the iconic Palm Springs estate of Bob and Dolores Hope, initially offered privately for $50 million, has been dropped to $34 million. The 249-acre estate of Porcupine Creek sold in 2011 to billionaire Larry Ellison for $42.9 million.”

“The Hope estate is not the only high-profile desert property to have its price cut. Originally listed for $27.5 million in 2008, the 73-acre Palm Springs home of actress Suzanne Somers and husband Alan Hamel, went on and off market for years. It dropped to $12.9 million in 2009, rose to $14.5 million in 2013 and is still available for sale.”

The Record Searchlight. “Skip Murphy of The Address Realty in Redding told me a couple of weeks ago that his phone wasn’t ringing this January like a year ago. And the numbers are backing that up. Pending home sales in Shasta County - a forward indicator of future sales activity - are down dramatically from a year ago. Statewide, 2014 also is off to a slow start. The California Association of Realtors reported last week that its Pending Home Sales Index dropped 25 percent in December to 68.8 from a revised index of 92 in November. Pending sales in California last month were down 17 percent from December 2012.”

“Brad Garbutt of Real Living Real Estate Professionals in Redding said there are just over 800 homes (more than twice the number of pendings) for sale in Shasta County and he expects the inventory to go up. ‘The pendings bottomed out two weeks ago at 328, the lowest it’s been the last few years,’ Garbutt said. ‘So we have more inventory and less pendings and it’s a significant percentage, so we are definitely getting off to a slower start than last year.’”

“An Inland Empire congressman said that rental housing in Riverside County is becoming less and less affordable because of real estate investment activity the lawmaker believes should be the subject of congressional hearings. U.S. Rep. Mark Takano, D-Riverside, pointed to his just-released report ‘Rent on the Rise in Riverside’ as a compelling illustration of how people are being priced out of single-family homes.”

“Citing U.S. Census data, Takano’s report indicated that despite many workers’ wages being bogged down at pre-recession levels, housing rents have kept up with or exceeded the annual rate of inflation, with one in three renters in the county forking over more than 50 percent of their household income to keep a roof over their head. The report stated median rents have climbed $756 from 2007 to 2013.”

“Takano said the Inland Empire has been a favorite of real estate investment trusts and private equity firms. He expressed concern about the number of investor-owned rental properties and the growing popularity of ‘rental-backed securities’ issued by firms such as the New York-based Blackstone Group. The congressman quoted a Federal Reserve report that warned of ‘risks to local housing markets if investors have difficulties managing such large stocks of rental properties.’”

“‘If vacancy rates rise or renters are unable to pay their rent, Blackstone and others may be forced to sell off vast amounts of property to make investors whole,’ Takano said. ‘Selling a large amount of properties quickly would not only deprive renters of their home, but destabilize the market for homebuyers and send housing prices into a freefall.’”

“He suggested another housing ‘bubble’ similar to the sub-prime market bubble that burst in 2008.”

From Bloomberg. “For Mark Takano, a first-term Democratic Congressman representing a district east of Los Angeles, it’s all too reminiscent of last decade’s financing binge. Rental bonds are one of the first new types of securitization since the 2008 credit crisis. ‘The Street is looking for another product to sell,’ said James Grady, head of structured finance at Deutsche Asset & Wealth Management. ‘Back in the day we had the CDO machine and I think they’re looking to replicate something along those lines.’”

“Takano isn’t the only voice expressing concern about the potential growth of rental-home bonds, with Federal Reserve economists Raven Molloy and Rebecca Zarutskie writing last month on the subject. ‘Financial stability concerns may become more significant should debt financing become more prevalent or if the share of homes owned by investors in certain markets rises significantly further,’ they wrote in a Dec. 5 note. ‘Greater use of leverage makes financial distress of the investors more likely, which may force them to liquidate their asset holdings at suboptimal values.’”

“Neighborhoods built for owner-occupied homes are now dominated by rentals, a change that led to more police calls, lower student performance and poorer property maintenance, said Husing, who lives in Redlands, California, across the street from a vacant foreclosed house. ‘You’ve got this lemon sitting in the middle of the neighborhood that’s not well cared for,’ said John Husing, an economist whose firm focuses on the Inland Empire, in a telephone interview. ‘I’m looking at a dead lawn because there’s nobody in it right now.’”

Bits Bucket for February 5, 2014

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