March 28, 2016

Paying More Kind Of Got Into Everybody’s Mind

The Tribune Live reports from Pennsylvania. “Lawrenceville has become something of a ground zero for house flipping in Pittsburgh, which was cited by real estate data tracker Realty Trac as among the most profitable markets for property investors. These arms-length sales are now more common in Pittsburgh than during the peak of the nationwide housing bubble in 2005, according to Realty Trac, leading to concerns about whether a bubble is building. Josh Adamek buys, renovates and sells homes around the city through his real estate investment firm. Last year, Adamek sold a four-bedroom home for $399,000. He won’t say how much he paid for renovations, but said it was into six figures. Adamek had plenty of room to clear a decent profit. He paid just $110,000 for the property less than eight months before. There are plenty of people willing to pay up to half a million dollars to live in Lawrenceville, he said. ‘Definitely, prices are on the rise, but I don’t think there’s a bubble that’s going to burst,’ he said.”

“Josh Caldwell, president of the Pittsburgh Real Estate Investors Association, said he fields daily inquiries from people who want his advice on how to make easy money flipping homes. He tells them it’s not that easy. Pittsburgh’s housing stock is cheap for a reason, he said. Much of it is more than a century old and requires $100,000 in renovations just to address structural issues to make them safe. ‘We’re getting a heating up in inflation right now because of this national attention,’ he said. ‘A lot of uneducated people are jumping into rehabbing who should not be rehabbing. And they’re going to lose their (backsides).’”

The Real Deal on New York. “Sales of Manhattan development sites slowed significantly in the first months of 2016, adding to broader concerns over the health of the New York real estate market. Bob Knakal, who heads New York investment sales at Cushman & Wakefield, argues that the average market value of development sites has fallen by 25 to 30 percent over the past few months. That price drop isn’t reflected in sales data because most sellers have yet to accept the new market reality and adjust their expectations downward, he explained. Until they do, he said, few sites will trade.”

“A key culprit: weakness in the high-end condo market, which accounted for a large share of Manhattan’s new development activity over the past three years. ‘When you can buy and sell out a building as condos you can afford to pay more for the land and that kind of got into everybody’s mind,’ said Bob Faith, CEO of real estate fund manager Greystar. ‘Now you’re starting to see a pause.’”

The Desert Sun in California. “Canadians have all but stopped buying desert homes, local specialists say. Many are selling their homes instead. Canadians have made up as much as a third of the desert’s homebuyers in recent years and the market is missing them. ‘They’re not buying. Our Canadian buyers are not buying,’ said Kelly Trembley, a Realtor with Bennion Deville Homes who often represents Canadian buyers. ‘This was the perfect storm for the desert, and that’s why our real estate right now is in a bit of a slump.’”

“In the desert, home prices have fallen and the number of homes on the market has spiked. Coachella Valley homes sold for a median price of $283,000 in February — by far the lowest of the winter selling season, according to CoreLogic DataQuick. And inventory jumped by about 25 percent year-over-year, according to data from the California Desert Association of Realtors.”

The Houston Chronicle in Texas. “The hot rental market that enticed developers to launch projects has gone the way of $100-a-barrel crude oil, leaving multifamily property owners worrying about how they will fill their units. Energy companies are cutting the very employees the housing was being built for, and hawkers are now a common sight in front of new projects, spinning signs that advertise free initial rent and other concessions.”

“‘Unfortunately, we can’t turn off the switch and put our shovels down,’ said Philip Morgan, vice president of development for Morgan, a Houston-based multifamily developer that has projects underway near City Centre in west Houston, the Heights and Midtown. ‘There is an imbalance of supply and demand. It’s going to get worse before it gets better.’”

The Alaska Journal of Commerce. “Alaska housing prices peaked in 2015 – and according to statistics, so did homeowners’ willingness to pay them. With layoffs on the North Slope and a precarious fiscal situation for the state government, homeowners in Anchorage appear less willing to fund new residential construction projects than in 2015. An existing home in Anchorage cost $368,012 in 2015, while a new home cost $574,333 to build, according to municipal data.”

“Karen Kissik-Michelsohn, vice president of Michelsohn and Daughter Construction Inc., said her company is beginning to see a new reticence for home building projects. ‘Anybody in the oil industry…they’re all scared,’ Kissik-Michelsohn said. ‘The state of the Alaska economy in general has really had a big impact.’”

Inforum on North Dakota. “The developers of hotels, motels and apartments in North Dakota’s once-booming oil country find themselves in a free-market vice of their own making. Having determined they would invest millions in hotel rooms to accommodate the influx of Bakken oil workers, they now find their new buildings struggling to keep the doors open as occupancy rates plunge to unsustainable lows, sometimes as low as 40 percent – from highs that were routinely at 100 percent.”

“During that period, room rental rates at new (and old) hotels and apartments went sky high, fairly described as ‘gouging.’ Not so, said developers and owners. It was the market at work. The supply-and-demand equation was working in the free market; rates reflected that reality.”

“If it was true then, it’s true now. The ‘free market’ the hotel and apartment folks loved to use as the excuse for exorbitant prices is still at work. But now it’s reflecting a new and bleak reality for the hotel operators and landlords. If they worshiped the free market when times were good, they should not throw their religion under the bus when times are bad. But that’s what they are trying to do by getting government – in the most high-profile case, Williston city government – to force man camps to close in order to shore up sagging hotel, apartment and housing sectors.”

“Williston leaders might conclude man camps – which were enthusiastically invited to town when the boom was booming – should go in favor of ‘protecting’ the city’s hotels and apartments. But let’s not sugarcoat it: It would be a rescue mission that scuttles the free-market principles that conservative business people say they believe in. It would be a not-so-subtle exercise in hypocrisy.”