November 13, 2014

The Void Left By The Drop-Off In Investors

The Union Tribune reports from California. “The median price for a home in San Diego County fell from September to October, but the pace of annual appreciation still ticked up. The pace of annual home price appreciation has been slowing since peaking at 24.1 percent in June 2013, led largely by investor activity such as foreclosure resales. It has been in the single digits since April, with activity in the market down each month compared to the same in the prior year. Andrew LePage, a CoreLogic DataQuick analyst, said that consumer homebuyers haven’t flooded the market since investors exhausted the supply of foreclosure properties. That’s made for a markedly slow 2014.”

“‘We’ve yet to see traditional buyers fill the void left by the drop-off in investor and cash buyers, which began in spring last year,’ LePage said. ‘New-home transactions are still running at about half their normal level. The resale market is hampered by constrained inventory in many areas, in part because some people who want to put their homes up for sale still haven’t regained enough equity to purchase their next home.’”

The Los Angeles Times. “The Southern California housing market took a step back last month, as home sales fell and price gains slowed. The economy is improving and mortgage rates aren’t likely to soar, factors that will produce enough demand to make price declines extremely unlikely, said Stuart Gabriel, director of UCLA’s Ziman Center for Real Estate. Gabriel said he expects prices to appreciate 4% to 6% next year. Richard Green, director of USC’s Lusk Center for Real Estate, is unsure middle-class incomes will grow. There’s little evidence middle-class incomes are set to improve, he said, and price appreciation is likely to slow to 1% to 2% next year. If homeowners build less equity, they’ll find it harder to trade up to a bigger house, he said.”

“Given the weak price gains, Green said Americans should stop viewing their house as an investment and instead see it as a long-term home that they can afford throughout the life of the loan. ‘You should make a hard calculation whether it costs more to own or more to rent,’ he said.”

The Los Angeles Daily News. “The Southern California housing market continued wallowing last month, with sales sinking to a three-year low for October and the year-over-year price increase the smallest in 28 months. Last month, sales of new and previously owned houses and condominiums in all six of the region’s counties fell 4 percent from a year earlier, to 19,271 — but 18 percent below the October average of 23,413 properties — CoreLogic DataQuick said. The median price fell 7 percent to $410,000.”

“‘The investor part of it — buying on spec or to rent it out — has tapered off quite a bit,’ said Michael Carney, executive director of the Real Estate Research Council at California State Polytechnic University, Pomona. ‘The tapering off in home prices is a good thing. To have those large increases in home prices is not a good thing.’”

The LA Downtown News. ” Last December, Beijing-based Oceanwide Real Estate Group bought the 4.6-acre site of the Fig Central mega-project. The company is looking to build three towers, one with 49 stories and two others with 40 stories, with condominiums, hotel rooms and nearly 167,000 square feet of retail space. The following month, Shanghai-based Greenland Real Estate Group purchased the 6.33-acre Metropolis site, which had been stagnant for nearly three decades. Already the company is in the midst of construction on a $1 billion, multi-phase project that will create three condominium towers and a 19-story hotel.”

“Then in August, real estate investment firm Shenzhen Hazens snapped up the Luxe City Center hotel, also across from L.A. Live, and two adjoining lots for $105 million. The company is looking at a $250 million reworking of the site, according to the Wall Street Journal. That’s three huge Chinese investments in less than a year in Downtown Los Angeles. According to real estate and global market watchers, it may also just be the start of a flood of cash from China into the community.”

“The sheer mass of capital that institutional Chinese firms hold makes it difficult for some local players to compete, said Hamid Behdad, president of the Central City Development Group. As occurred during the Japanese boom, Chinese investors are able to pay more than market value if they treasure a particular asset. ‘How can local developers compete with the money and speed of investment of Chinese firms?’ he said. ‘I don’t know whether it’s good or bad, but it’s reality. They’re overpaying by a certain percentage, but for the developer it’s safer than just leaving the money in Chinese assets.’”

“That isn’t to say that there is no ceiling to what Chinese buyers will pay. Jones Lang LaSalle Vice President Rob McRitchie has closely watched the situation, and thinks there may be a pullback from Chinese investors. ‘Prices this summer, both for ground-up developments or acquisitions, got to the point where it didn’t make economic sense. I’m hearing prices of $200 a foot in the Historic Core and that’s just not sustainable,’ he said.”

The Potrero View. “It seems like everyone wants to live in San Francisco, and that’s reflected in residential rent and sales prices. In Potrero Hill both have jumped by 50 percent over the past five years, according to several real estate agents. In the last year alone prices rose by 20 percent. According to Susan Olk, a real estate agent with Zephyr Real Estate, the Hill has the lowest inventory she’s ever seen, which drives prices up. But there’s more inventory available now than there was in the spring, she added. ‘There’s been a bit of buyer burnout, so there’s more inventory available.’”

“The realtors generally agreed that the only way housing prices are likely to drop is through a macro change, like an earthquake or recession.”

The Concord Transcript. “Anxious homeowners questioned city engineer Rick Angrisani about a recent earth movement geotechnical monitoring report showing ‘there is a continuation of surface and subsurface movement’ in the vicinity of Pebble Beach Drive. A landslide was discovered in the Presley-built development in 2005. Six large dewatering wells and four inclinometers were installed last year to monitor further movement. Since then, one of the meters has been broken by earth movement, Angrisani said.”

“A homeowner claimed he had a contract with a potential buyer who rescinded the offer when an engineer’s inspection cited cracks in the street and other evidence indicating earth movement. ‘On the ridge, I think the city has to get involved,’ homeowner Juanita Jester said, claiming that she was not informed of the earth movement when she bought from the original owner.”

Bits Bucket for November 13, 2014

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