April 1, 2016

The Commodity Class Of Choice For Investors

It’s Friday desk clearing time for this blogger. “While the percentage of Americans who own their own home has declined for more than a decade, according to a new report, Hispanic homeownership rates are soaring, especially in traditional Hispanic population centers like the Central Valley. And the momentum is clearly building. In 2015, Hispanic homeownership across the U.S. registered the largest one-year spike in more than a decade. Eric Becerra is a division manager for Alterra Home Loans, a Las Vegas-based company that recently expanded into the Central Valley, in part, to service the area’s booming Hispanic market. One major factor fueling the rise in Hispanic homeownership is the number of new programs offering down payment assistance for first-time homebuyers.”

“‘We’re seeing more first-time Hispanic homebuyers with better credit taking part in these programs that allow them to come in with little to no money down,’ Becerra said. ‘Up to now, coming up with a down payment has usually been the biggest barrier for this segment of the market.’”

“The demand for apartments in Dallas-Fort Worth staggered in the first quarter of the year, with leasing velocity dropping more than a third compared with the first quarter of 2015, according to MPF Research, a division of RealPage Inc. The disappointing demand for apartments were seen throughout the country in early 2016, said RealPage Chief Economist Greg Willett. In North Texas, the first quarter showed a demand for 1,989 apartment units, which is roughly a third the absorption volume seen in the first quarter of 2015. Meanwhile, developers finished building 5,763 apartments in the initial three months of 2016.”

“‘New household just didn’t form at the pace normally supported by solid job expansion,” Willet said. ‘That slow rate of household creation likely reflects some concern about the near-term economic outlook.’”

“Parkway Corp. has carved its development niche amassing Center City property, building it up when the time is right. But it’s trying something new at the lot it owns at 20th and Arch Streets, which it is now looking to sell as undeveloped land. The shift comes amid concerns that Center City’s rising real estate values may be losing some momentum. Developers are due to complete more residential units in the area than would be filled under current growth rates, the Center City District business association said in a report.”

“That potential oversupply, combined with expected higher interest rates that would make financing projects more expensive, could conspire against the market, said Michael Silverman, a managing director at Integra Realty Resources in Philadelphia. ‘The music’s going to stop at some point,’ he said. ‘But it’s still pretty strong.’”

“Nevada led the nation in foreclosure rates from 2007-2012 and reclaimed the top spot in February. It ranks among states with the highest percentage of underwater homeowners, those owing more on their mortgage than their home is worth. ‘Banks have held off or slowed down the (foreclosure) process because of legislation in recent years,’ says Scott Beaudry, president of the Realtors’ association. ‘They’ve spaced it out, and they’re really trying to work with homeowners to keep them in their property. It saves them money and resources. They don’t want to flood the market, not at all.’”

“Loria and Mitchell Versher bought their home in Markham for nearly $140,000 in 2007. Almost a decade later, it’s up for a bank ordered short sale for $29,500. Even in the waning days of the boom, it was easy for them to get a $137,000 mortgage at 7.5 percent with no money down, for a home that sold for $87,000 in 2004 and $115,000 in 2005. ‘It took a few minutes,’ Loria Versher said. ‘Everyone was talking about buying property at church — it was a time where people just felt like, ‘I qualify — let’s do this.’”

“In 2015’s fourth quarter, the percentage of underwater local homeowners was nearly 17 percent, topped only by the 22 percent of homeowners in Miami and 21 percent in Las Vegas-Henderson, Nev. ‘Everybody seems to think we’ve recovered from the housing crisis, but for many communities of color that’s not the case,’ said John Petruszak, executive director of the South Suburban Housing Center, which helps homeowners with distressed mortgages.”

“Apartments in central Melbourne are being resold at up to 30 per cent less than their off-the-plan purchase price, sales data shows. One property where prices have fallen is 27 Little Collins Street, which has 171 apartments in a 32-storey tower above a Sheraton hotel. The building was completed by developer Golden Age in July 2015. A three-bedroom, two-bathroom apartment occupying 140 square metres and with two car parks sold for $1,565,000 in August, which is 29 per cent below the purchase price of $2,195,000 in November, 2010. The price of a two-bedroom unit in the same building fell almost 23 per cent in a year, when it was sold for $1,075,000 last April, having previously been bought for $1,320,000 in June 2014.”

“Figures compiled by valuation firm WBP showing half of 1794 properties purchased off-plan between December 2009 and August 2015 had been revalued below their purchase price. In one case, a two-bedroom, one-bathroom unit purchased for $740,000 on 3 August last year was revalued at $600,000 – a 23 per cent discount –16 days later. With the number of apartments due for settlement ballooning, concern is rising about whether buyers will be able to pay for them, especially at a time when banks are tightening rules. If banks value properties for less or cut the loan-to-value ratio they will offer customers, buyers will be forced to pay more at time of settlement. If they cannot pay more, they may be forced to sell into a weaker market.”

“‘For settlement risk, are we cautious? Yes, but are we worried? No. I’m not,’ said Golden Age managing director Jeff Xu.”

“The high point of most housing bubbles is often marked by gleefully reported examples of sellers seemingly stretching feasibility to its limit. Amid the flying ‘skypools’, Versace-designed apartments and Deconstructivist architectural extravagances sprouting up in Nine Elms can be found 400-ish sq ft studios that have been listed for resale on Rightmove for several months for not far south of ‘half a bar’. A common response by many developers to any claim that the capital is overheating is that any such risk is contained within the central London high end. Basically anything above £2m (encompassing larger units), bad; smaller units below £1m, good.”

“In fact, it could be ‘cheaper’ places that face the greater downward pressure (for now, this refers to below approximately £1.5m), particularly two-bed apartments. To support this view, scour the developments at and immediately surrounding the iconic Battersea Power Station. More than 500 units are listed, largely it would appear, by would-be ‘flippers’. The number itself is distorted by a degree of multiple listing, so cannot be entirely scientific. But the total has been going up steadily for a year and some units have been languishing for many months. Some 40% have been reduced in price since they were listed. But, intriguingly, a greater proportion, some 60%, recorded price cuts at the lower price points and in the two-bed category.”

“As attractive as the designs and eventual facilities may be, two-bed apartments have been the commodity class of choice for off-plan investors (mainly Asian) in this London-focused bubble as they were last time around in the boom and bust in northern cities (when there was a greater preponderance of UK investors who ended up carrying the can).”

“More than a hundred houses in southern China have been demolished after the property developer failed to sell them for almost a decade. The houses, located in one of the biggest residential compounds in Heyuan in Guangdong province, were built in 2004. The property is located in one of eastern Guangdong’s poorest cities. According to Jiang Rong Real Estate Development, the property developer, only apartment buildings were sold, while the more expensive houses have never even seen a sale.”

“The company did not give any detail regarding its plans for the land where the demolished properties lay. The demolition project reportedly cost them 120 million yuan ($18 million). China is currently facing a serious issue with the oversupply of new homes in the mainland that remain unsold, the South China Morning Post reported earlier this month. By the end of 2015, of China’s 720 million square meters worth of unsold homes, Guangdong alone had 160 million square meters of unsold housing property.”

“It seems that hardly a day goes by without Portland receiving another placement in the top ranks of a ‘best places’ list. But have we reached ‘peak Portland’? Are we on the precipice of a decline in those scores? Bert Sperling thinks so, and as the architect of many of the studies, he should know. Over the past five years, Portland had the 16th-greatest increase in home prices, but over the past year it moved into third place. No other metro area among the group of 50 largest places shows such a significant spike, Sperling says.”

“‘Creative spaces are being disrupted, housing is going to become less affordable, and traffic congestion is only going to increase,’ Sperling says. ‘There will be overbuilding — building that is done as an emergency, and development that is suboptimal.’ Sperling doesn’t see how the creative, innovative and entrepreneurial activity can happen in a high-cost environment. ‘Affordability is important, because it allows you to take more risks,’ he says. ‘You can afford to take more swings at the plate.’”

“But now Portland is heading in the opposite direction, and it’s hard to buck the market. ‘It’s not like you’re able to roll back the tide.’