May 31, 2016

The Money Started Leaving

A report from Fairfax New Zealand. “The Government may be denying the hot-property interest of Chinese investors but real estate agents are opting for the reverse tactic in a wave of new marketing material being sent out to homeowners. Ray White’s Mt Albert branch in Auckland recently posted a flyer to local residents about a ‘new generation of Chinese investors’ looking to make their ‘presence felt’ in the property market. The company claims it can connect vendors with ‘Chinese clients looking to buy in New Zealand.’”

“It comes after a Barfoots market newsletter in March, headlined ‘Chinese buyers coming back to Auckland property market.’ It quoted property coach Ron Hoy Fong predicting a huge increase in house values. ‘The market is going bananas after May. I anticipate we’ll jump back up to the 50 per cent over capital values this year,’ the newsletter said. Ray White agent Susan Woods-Marwick said the flyer was solely aimed at those who might be interested in selling their house. ‘My flyers aren’t for the Chinese buyers. My flyers aren’t directed at buyers at all. My flyers are directed at the vendors.’”

The Business News Network in Canada. “More homeowners in the oil patch are falling behind on their mortgage payments as Canada’s housing agency warns crude prices remain the most significant threat to the market. The number of Alberta and Saskatchewan homeowners falling 90 days behind or more on their CMHC-insured mortgages continued to move higher in the first quarter, according to the Canada Mortgage and Housing Corporation. In Alberta, the arrears rate hit 0.35 per cent as of March 31 from 0.25 per cent a year earlier. While the rate is still low, it has increased 40 per cent in one year. In Saskatchewan, the arrears rate was 0.70 per cent at the end of the first quarter – up from 0.48 per cent a year earlier. That’s an increase of 45 per cent.”

“Meanwhile, fresh concerns were raised Monday about foreign money and the potential to derail the Vancouver and Toronto markets. Sherry Cooper, chief economist at Dominion Lending Centres, notes Vancouver home prices have ’surged exponentially with the rising outflow of Chinese capital looking for a home.’ To a lesser degree, the same is true in Toronto, Cooper wrote in a note to clients. That said, ‘A slowdown in the volume of Chinese capital moving into Canadian housing is a meaningful risk factor for the hottest markets in Canada,’ according to Cooper.”

Channel News Asia on China. “China’s US$50 billion replica of Manhattan in the northern port city of Tianjin still lies mostly unfinished and empty nearly a decade after construction began. Several reports have labelled the development in Yujiapu a ghost town. It is being billed as China’s version of the Big Apple. But 8 years after construction began, many of the buildings appear unfinished. Some construction sites have been abandoned, while the streets are deserted.”

“A newly-built shopping mall lies just a short walk away from a brand new train station connecting Yujiapu to Beijing. But there are hardly any shoppers. Restaurants in the mall are struggling to stay afloat. The Hexiangan hotpot restaurant started operations in January. On most days, it is raking in only about US$300 a day. Its manager Mr Lin said: ‘We had high hopes for the future of this place when we selected this site, but we didn’t think it could be as bad as this.’”

The South China Morning Post on Hong Kong. “Homes in Hong Kong are among the world’s most expensive, but getting a foot on the property ladder has become surprisingly easy recently, thanks to aggressive mortgage tactics by developers desperate to push sales in a falling market. Offering home loans of up to 80 to 95 per cent of a flat’s value, without the need for proof of income, has become the sales tool of choice for many developers, allowing buyers to bypass strict guidelines on mortgages offered by banks but sparking concern that buyers may be setting themselves up for defaults and the loss of their homes should the economy remain sluggish.”

“‘Developers provide a solution for those who cannot pass the banks’ mortgage stress tests. Recently, about half of the new flats sold have gone to buyers without regular incomes,’ said Louis Chan Wing-kit, Centaline Property Agency’s managing director for residential.”

“These buyers, whatever their jobs, either had insufficient savings to make the down payment of 40 per cent of a flat’s value under banks’ standard mortgage lending requirements or were those able to pay upfront but whose monthly salaries failed to meet banks’ requirements, he said. He expected some developers could even offer 100 per cent mortgages if the market deteriorated further.”

Bloomberg on Taiwan. “Taiwan’s home prices, which have fallen in the past year ending a decade-long bull run, are poised to extend declines as the economy contracts and a new presidential administration focuses on equitable wealth distribution.”

“Home values in Taiwan dropped 1.2 percent and transactions declined 15.5 percent since the first quarter of 2015, according to data from the Interior Ministry, while capital Taipei was the world’s worst property market in the year ended March among major cities tracked by Knight Frank LLP. Taiwan unveiled measures targeted at speculators after home prices as much as tripled since 2004 amid low mortgage rates. The central bank in 2010 started limiting the amount of funding property buyers can borrow, while a transaction tax of as much as 45 percent, which takes into account both land and home values, took effect this year.”

“Sentiment started slowing in late 2014 and in 2015 ‘the money started leaving,’ Billy Yen, Taipei-based managing director at DTZ Cushman Wakefield, said, referring to wealthy Taiwanese who started to invest outside of Taiwan. In the wake of the new policies geared toward more affordable housing, would-be buyers found ‘the government is no longer friendly to the market,’ Yen said.”

The Media Max Network on Kenya. “Is the property market as lucrative as we are being made to believe? Of course developers and those selling plots want to make everyone believe so. But the bitter reality is that the property market is cooling off. Recent real estate market development indices by Kenya Bankers Association and Hass Consult have been pointing to a slow down. This is manifested in a drop in demand for houses and reduction in rents due to an oversupply in certain segments of the market.”

“While these indices often give a short-term view of things, if looked at in the long term by studying trends, you can see the warning signs. The verdict from anyone, including lay investors, is that ‘you can’t go wrong with land.’ But these people are not telling first-time investors that most of the prime land that delivered the quick riches has shrunk and the remaining small swatches will cost you an arm and a leg. Now investors have moved into agricultural land far off Nairobi and other towns, buying farm land then parceling them into smaller plots. These are the people who are making a killing.”

“The smaller plots are sold at prices that give them over 500 per cent returns. Sellers will use any infrastructure nearby – be it a school, college, road or even factory – to squeeze premium price. But looking at most of the land on sale, some very many kilometres from the nearest town (in Nairobi the distance is reaches even 70km), you can easily see land is over-valued.”

“People who are buying as short-term speculators to double or triple their investments in a year or so are getting so disappointed. At times they can’t even get interested buyers if they wanted to get their money back.”

It Is Quite Obvious There Is Going To Be A Problem

A report from the Australian Financial Review. “Apartments in Melbourne’s Docklands, CBD and Southbank are being resold up to 24 per cent below their previous off-the-plan purchase price, catching out vendors, many of whom bought them from investment companies or spruikers. AFR Weekend has found numerous examples of such apartments, most of which are small studio or one-bedders, acquired after the global financial crisis. The revelations come as concerns build about an oversupply of apartments, as a record number of completions loom, and following Macquarie Bank tightening its lending to high-rise apartment postcodes, including in Docklands, the CBD and Southbank.”

“In one example, a one-bedroom apartment measuring 56 square metres in the Site One Complex at 757 Bourke Street has an asking price of $290,000 to $319,000, having been bought off-the-plan for $380,000 in 2009.”

“Evidence of falling apartment values was identified broadly by valuation firm WBP Property Group last year. The study found that half of all off-the-plan properties were valued at a minimum of $1000 less than the purchase price with the average loss being $40,000 or 9.4 per cent. In Central Melbourne, the fall was greater at 11.5 per cent. In one extreme example, a two-bedroom apartment in Abbotsford suffered a loss of $623,000, a decline of 46 per cent. ‘In real terms, this loss equates to the cost of a typical deposit, which most people take several years to save,’ said WBP Property Group chairman Greville Pabst.”

The Canberra Times. “Real Estate Institute of the ACT board member Michael Kumm, speaking personally, said Canberrans were conservative borrowers who posed no risks to banks, but there was a clear oversupply of units in the city and the government should be told it was releasing too many. ‘On Allhomes now 70 per cent of properties [for sale] are units, and some of those might represent a development so we could be getting up to 80 per cent units,’ he said. ‘We don’t have to hit the panic button, but the warning signs are there that they want to give it some consideration. The units are selling, the sellers just have to meet the market.’”

The Daily Mail. “Developers are reportedly getting cold feet on Australia’s once booming property industry as the value of projects taken off the table nears $5billion. Property construction is slowing across the country as the cost of labour rises and an oversupply of apartments means there is less money to be made in new building projects. In Sydney, the Brookfield Multiplex construction company has reportedly withdrawn from its contract to build the Greenland City Centre, billed as the tallest apartment block in the city. Almost all the apartments in the $700m tower have already been sold off the blueprints, but Brookfield reportedly could not see a way to make money from the project.”

“In Brisbane, the construction of a $1bn apartment tower at 545 Queen Street has reportedly slowed as developers keep an eye on property forecasts which predict a glut of apartments in the city. On Tuesday developer Mirvac reportedly ceased an agreement to build the $3bn Perth City Link, which would have seen 1,200 apartments built in the city centre. And in Melbourne cost comparisons show drastic falls in the asking price of luxury city apartments as the supply of property outstrips demand.”

“On Friday property lender Firstmac reportedly announced it was cutting the amount it was prepared to lend to city apartment builders. The same day Westpac Bank announced it was stopping all lending to foreign property buyers looking to build apartments. Firstmac chief executive Kim Cannon said: ‘It is quite obvious there is going to be a problem in the future.’”

The Australian. “Up to 30 per cent of foreign-owned city apartments are likely to be left empty after a splurge by mainly Chinese investors, says National Australia Bank chief economist Alan Oster. Mr Oster estimates more than 60 per cent of off-the-plan apartment purchases in the Melbourne CBD and half in Sydney are being financed outside the big four banks, likely through offshore institutions and cash.”

“The offshore buying spree — which is compromising the banking regulator’s tough standards on risky investor lending — has led to the Melbourne CBD apartment market being three times oversupplied, while Sydney is two times overbuilt. Offshore investors are increasingly using alternative funding because the major banks are limiting lending in inner-city apartment markets due to fears of overheating.”

“‘With up to 60 or 70 per cent of the apartments in Melbourne (CBD) we do not know who is ­financing them,’ Mr Oster told The Weekend Australian. ‘We just don’t know if they are going to use cash, whether they have got a foreign bank ­account somewhere within China, if they have an account somewhere in Hong Kong or somewhere else.’”

“Melbourne-based Jerry Pan co-owns a Chinese-backed development and apartment sales company, Monolith International, which sells units locally and to Chinese investors. Mr Pan said many Chinese investors were forced to delay settlement of their apartments as they could not get funding from stringent Australian banks.”

The Daily Telegraph. “Let’s not beat around the bush. Broken Hill has the cheapest real estate in NSW with houses going for the price of a car. The mining boom turned house prices to gold but its end has seen them turn to dust. Investors who snapped up properties at the start of the mining boom more than a decade ago are now offloading houses for rock-bottom prices. For the price of a standard car, homebuyers can purchase a two-bedroom house. Just $35,000 will get the house and, for an extra $6000, you get the land next door.”

“Broken Hill Real Estate director Cliff Wren, who has been in business for 20 years and has the cheapest properties in NSW, said investors flocked to the outback town in 2003 because they could get a great rental return of $180 every week. But now, with mining in a slump, he said investors running for the hills were flooding the market. ‘We are used to that cycle every seven years and what goes down must come up again,’ Mr Wren said.”

May 30, 2016

It’s A Buyer’s Market Because Prices Are High

A report from the New York Times. “One of the latest symbols of the overinflated luxury housing market is a pink mansion perched above the Mediterranean on the French Riviera. The home’s name befits its price. ‘Le Palais Bulles,’ or ‘the Bubble Palace,’ is being offered for sale at approximately $450 million. The listing is part of a global pileup of homes listed for $100 million or more. A record 27 properties with nine-figure prices are officially for sale, according to Christie’s International Real Estate. That is up from 19 last year and about a dozen in 2014. If you add in high-priced ‘whisper listings’ that are offered privately, brokers say the actual number of nine-figure listings worldwide could easily top 40 or 50.”

“The rise in nine-figure real estate listings comes just as sales of luxury real estate have cooled. Last year, only two homes in the world sold for over $100 million, according to Christie’s. Many say the sudden surge in hyperprice homes — often built and sold by speculative investors — is the ultimate bubble signal. The last time a sudden pop in $100 million-plus listings occurred was in 2007 and 2008, just before the housing crash. ‘When you have a record number of homes for sale at a price point of $100 million or more, that tells you these homes aren’t selling,’ said Jonathan Miller, president of Miller Samuel Inc., a real estate appraisal and research firm. ‘It’s not as deep a market as some might hope.’”

The Wilmington Biz in North Carolina. “The Wilmington area’s real estate industry has been booming in many ways in recent months and years, but when it comes to the area’s highest-priced homes, the numbers tell a different story, experts said. ‘In the luxury portfolio division, it’s a buyer’s market because prices are high, inventory is excessive,’ said Chris Livengood, vice president of sales at Wilmington-based Intracoastal Realty Corp. ‘We’re [at] about 20 months of inventory in New Hanover County in the million-dollar-plus category.’”

“Compiled from N.C. Regional MLS statistics, the report said New Hanover and Brunswick counties saw a decline in the combined number of closed sales on homes priced at $1 million or more, from 10 in April 2015 to six in 2016. Total volume in that category was down from $17.4 million to $7.15 million, according to the report. ‘April marks the second month in a row with total sales volume of high-end homes down more than $10 million compared to the same month last year,’ the report said.”

“‘I don’t anyone thinking, ‘What’s wrong with Wilmington?’ There’s nothing wrong with Wilmington. … This is happening across the entire country that in the upper end there’s too much inventory, and we have to get those prices right,’ said Steve Harney, founder of a New York-based company that tracks and analyzes real estate trends.”

The New Canaan Advertiser in Connecticut. “A national story about the value of various residential home renovations in the Saturday, May 28, edition of the New York Times (Renovations that add value… ) suddenly went hyper-local when discussing the housing market in general, and targeted New Canaan specifically as having a ‘glut’ of large homes listed for sale at present. Paul Sullivan, writing in a Wealth Matters story, quoted Amanda Briggs, brokerage manager at Houlihan Lawrence, saying that the town had a lot of listings for ‘large, four-story homes that are 10 to 15 years old.’”

“[Editor’s note: Typically New Canaan homes are not referred to as four-story, unless one counts finished basements and finished third floors. New Canaan homes are commonly referred to four-acre homes, if they are in such a zone.]”

WTOP on Virginia. “Arlington County remains Northern Virginia’s most expensive housing market, but prices fell last month. Long & Foster Real Estate Inc. said that based on 261 closed sales in April, the median price of homes in Arlington County was a hefty $587,470. Arlington’s median home value was more than $100,000 higher than the next-most expensive Northern Virginia jurisdiction: Alexandria. But Arlington County’s median price last month was down 6 percent from a year ago. And it was the only Northern Virginia community to see median prices fall.”

The Sun Sentinel in Florida. “Palm Beach County’s total taxable property value has increased for the fifth consecutive year, rising to a level not seen since the peak of the housing boom, according to preliminary estimates. But the most recent economic indicators show growth could be slowing, said Ken Johnson, a real estate economist at Florida Atlantic University. ‘We are seeing a rebound, but we are seeing a slowdown of the rebound,’ Johnson said. ‘We seem to have learned on the residential side that prices can get too high.’”

Southern California Public Radio. “In her campaign for Barbara Boxer’s U.S. Senate seat, California Attorney General Kamala Harris often mentions the record settlement her office negotiated with five of the largest mortgage lenders after the home foreclosure crisis. The deal that brought about $20 billion in relief to California won national media attention for Harris. But the mortgage meltdown continues affecting homeowners to this day.”

“In the home Rosario Frisse rents in a quiet neighborhood in Antioch — a city about 45 miles east of San Francisco — there aren’t many decorations on her walls. Even though she’s been living there for a few years, there are unpacked boxes on her patio outside and more in the garage. The home she once owned sits about a mile away. In 2009, Frisse lost the house after her adjustable mortgage was raised to an amount she couldn’t afford. Her husband was working with the bank to modify the loan. At one point working out a deal looked promising and they were waiting on an offer from the lender, she said. Instead, the lender foreclosed on Frisse’s house and it was sold at auction, she said.”

“For all the settlement relief that homeowners received to help them stay in their homes, the smallest number got a first mortgage reduction. The most widely distributed relief, which was given to about 200,000 homeowners, was the $1,500 in restitution that Rosario Frisse got. ‘That was like a slap in the face for a lot of us,’ she said.”

May 28, 2016

Bubbles Burst At The End Of Euphoria

A weekend topic on manias starting with Maclean’s written by Bob Thompson. “Every 20 years or so, investor dementia sets in. Memories are wiped clean, allowing individuals to make the same mistakes over and over again. It doesn’t matter if it is real estate markets, stock markets, commodity markets, or tulip markets. They are all the same. Why? Because markets are a reflection of people, and people are hard-wired to have emotional instincts that don’t change. It starts with something actually changing, a new development. There is a valid game changer that starts the boom, and lots of people question whether the valuations of whatever asset we happen to be discussing are overvalued. The underlying asset continues to go up however, seemingly proving the disbelievers wrong.”

“Market bubbles don’t pop during this phase, when there are rational buyers and disbelievers. Bubbles burst, and people’s financial lives are destroyed at the end of the next phase: euphoria. During this phase, caution is thrown to the wind, people’s hard-wired desire to ‘not want to miss out’ comes into full play: ‘I have to get in now, my next-door neighbour is making money and I am not.’”

“During this phase, even the smartest believe that we are in a ‘new paradigm’ and the old ways of valuing things are thrown out. Whatever the asset is, it becomes too expensive for the average investor, which is especially true of real estate. Prices go up, people panic to buy more and they outbid each other in an orgy of greed. Amazingly even the experts begin to extrapolate out recent trends well into the future.”

“Even so-called experts get sucked in during the euphoria stage when all the news is good. That is another absolutely necessary component of any bubble: there is no bad news. The problem is that massive amounts of debt are created in any bubble, and at the end, the market gets crushed under its own weight.”

“Politicians are generally oblivious to the bubble as it is happening, or at least do very little to get in the way of it. After the fact, however, when the catastrophic collapse happens, another necessary component is the blame game. Nobody ever blames themselves for getting caught up in euphoria, which always seems so obvious after the fact. People look to blame someone else for the collapse, pressing politicians and regulators to make an example of someone and to regulate something. Some messenger gets shot, and everyone is happy, and the politicians get to be reactive and the saviours of future generations.”

“Are there irregularities going on right now in the real estate market? Of course there are. Is there some form of fraudulent activities going on or at least a massaging of the truth? The answer is most likely—it is a necessary component of the bubble, an effect of the euphoria. It is also a natural progression of the underlying asset, in this case real estate, which has become too expensive for the consumer to buy. In a competitive system, people will find creative ways to finance the boom.”

An piece by Michael Pento. “It shouldn’t be hard to understand that nearly 90 months of ZIRP has regenerated the equity and real estate bubbles that first pushed the global economy off a cliff back in 2007. In fact, the Fed’s unprecedented foray with interest rate manipulation has caused these assets to become far more detached from underlying fundamentals than they were prior to the start of the Great Recession.”

“The reemergence of equity and bond bubbles are being debated in the financial media. But what is less known to investors is the massive amount of forced hot air that has been blown into the commercial real estate market. For example, commercial real estate prices have increased by double digits for the past six years, according to The National Council of Real Estate Investment Fiduciaries. Also, according to the Real Estate research firm Green Street Advisors, commercial property prices now exceed the 2007 prior peak by 24% overall.”

“And in cities such as Manhattan, preferred office buildings and apartment complexes are 60% higher than what existed during the previous housing bubble. Of course, such lofty values have driven National Retail cap rates down to the subbasement of history, at just 6.5%. But this Fed induced famine has caused yield-starved investors to embrace low income streams in the hopes if they ignore this current bubble it won’t pop in the same manner as it did eight years ago.”

“It should be self-evident that eight years’ worth of unprecedented money printing and interest rate manipulations have caused the greatest distortion of asset prices in history. Therefore, the inevitable conclusion is for an unprecedented economic contraction to occur once the party inevitably comes to a close.”

From Bloomberg by Prashant Gopal. “Miami’s crop of new condo towers, built with big deposits from Latin American buyers and lots of marketing glitz, are opening with many owners heading for the exits. A third of the units in some newly built high-rises are back on the market, though most are listed for more than their owners paid in the pre-construction phase. At the current sales pace, it would take 29 months to sell the 3,397 condominiums available in the downtown area, according to South Florida development tracker CraneSpotters.”

“Some are offering homes at a loss as demand cools. Condo purchases from January through April slid 25 percent from a year earlier, while the average price fell 6 percent on a per-square-foot basis, CraneSpotters data show. ‘The problem is that investors are no longer buying, and now they’re going to be looking to sell,’ said Jack McCabe, a housing consultant based in Deerfield Beach, Florida. ‘And what buyers are going to replace those other than vulture buyers looking for deals?’”

“After several price cuts, one Brazilian owner at Related Group’s new Icon Bay tower is offering his two-bedroom condo for $539,000, 7 percent less than he paid in July. It’s now one of 100 listings in the 299-unit building. ‘We are now the most affordable unit in Icon,’ said listing agent Anthony Giuffrida of Elite International Realty. ‘To sell it quick, you have to put it at the right price.’”

“The strong rental market is giving many would-be sellers the opportunity to cover their costs. But there’s also a flood of new, professionally managed apartments under construction. And apartment vacancies in the downtown Miami area rose to 11.8 percent in the first quarter, double the rate two years earlier, according to property-data provider Reis Inc.”

“‘The ticking time bomb is based on rental rates,’ said Peter Zalewski, owner of CraneSpotters. ‘When some of the foreign investors sitting on the sidelines have to dig into their pockets and subsidize renters, that’s the fuse that will lead to a correction.’”

“Of 14 new Miami towers from downtown to Sunny Isles, the share of resale listings ranged from about 7 percent at MyBrickell tower to about 40 percent at 400 Sunny Isles, according to a report this month by Andrew Stearns, founder of, which provides residential mortgages for foreign nationals. A healthy building should have no more than about 10 percent of its units up for resale at any given time, Zalewski said.’The concern is we’re in a price-discovery phase, and the prices people are trying to get for their condos is a lot higher than the market will bear,’ said Stearns. ‘That may signal a coming price correction.’”

May 27, 2016

There’s A Crater Under Every Bubble

Its Friday desk clearing time for this blogger. “With a dire housing crunch squeezing out full-time residents, the Point Reyes Station Village Association and the Community Land Trust of West Marin held a forum to assess the damage and discuss solutions. Startling facts and anecdotes were on hand to illustrate the impacts of a rapidly depleting housing stock, which has tumbled as record-breaking crowds of visitors to West Marin’s natural attractions shack up in vacation rentals. In Marshall, less than a third of the houses are occupied full-time, according to resident and dairy rancher Albert Straus. He slammed county officials for not enforcing zoning rules for Marshall, where zoning is not meant to encourage people ‘to make profits from short-term rentals and business out of permanent residences,’ he said.”

“Land trusts need money to purchase homes dedicated to low-income housing in perpetuity. Rachel Ginis, a panelist and founder of the Corte Madera-based housing nonprofit Lilypad Homes, suggested that money could come from broadening the county’s transient occupancy tax—which levies a monthly fee on registered vacation-rental operators—to include more casual AirBnB-style rentals. ‘People have a bad habit of buying second, third and fourth homes,’ said Ms. Ginis. ‘If they can afford those homes, they can afford a vacancy tax.’”

“Is Airbnb a casual home-sharing service or a commercial rental business posing serious competition for South Florida hotels? Several Miami Beach residents, too, have spoken out against Airbnb. ‘It is so pervasive,’ said Philip Berry, the board president of a 25-unit condo building south of Lincoln Road. ‘I can point out at least 20 buildings in a secure four-block area where this is occurring.’”

“China’s efforts to stem capital flowing out of the country so its economy, and currency, stabilize, may dampen the fast-and-furious pace of investment in U.S. real estate. But as a new report from the Asia Society and Rosen Consulting Group predicts, China’s controls on this capital outflow only stand to temporarily slow — and will hardly stop — the tide of cash streaming to U.S. real estate.”

“The rich are buying homes and luxury apartments, but they’re also investing in funds and partnerships that are buying into commercial projects. There are also uncounted smaller real estate investment projects funded by individuals who pool investors together to buy, say, a handful of budget hotels or several apartment units in a high-rise. ‘That’s going on way below the radar of what can be specifically tracked down and quantified and also from what most people see going on,’ says Arthur Margon, partner at Rosen Consulting Group and an author of the report.”

“Half of central Melbourne’s new apartments are being built and bought by off-shore investors, as the city grapples with what one development industry figure has labelled an ‘unprecedented level of supply.’ And he warned that a slowdown in the property market meant it was harder to sell apartments, and tougher for developers to get a final settlement out of buyers. It has led a prominent housing academic to question whether the city’s apartment boom was being driven by investors who needed a high-end product to park money rather than addressing housing affordability.”

“Melbourne University housing expert Kate Shaw said these investors were ‘generating enormous upward pressure on prices.’ ‘Much of the increase in central city housing supply is high-end investment product – not housing that meets local demand,’ Dr Shaw, an urban geographer, said. ‘How much of this investment stock is fully occupied? Most research suggests very little.’ Dr Shaw said new inner city apartments were failing simultaneously on three fronts: they were not making housing more affordable, not meeting local housing needs, and not curbing urban sprawl. ‘So why exactly are we building them?’ she asked.”

“Standing nearly 600ft high and boasting 50 storeys, it is hard to miss 1 St George Wharf. There are only eight buildings taller in the whole of Britain. It’s the country’s tallest residential skyscraper. There can be no doubt this huge cylindrical edifice is a symbol of how Britain is changing — and, in particular, how successive governments have been far keener to embrace foreign millions than to worry about the interests of their own citizens.”

“Yesterday it was reported in the Guardian newspaper that almost two-thirds of the tower’s 214 apartments are owned by foreigners, and furthermore, by foreigners who seldom bother to live in them. Indeed, these apartments, which have been sold from £600,000 to a staggering £51 million, cannot really be considered homes. They are, above all, investment opportunities for the world’s super-rich, towering over a city which has a notorious shortage of affordable housing. And — surprise, surprise — what also emerged yesterday is that a quarter of the apartments have been bought by companies registered in offshore tax havens.”

“For St George Wharf, the statistics are damning. No fewer than 62 per cent of the 210 apartments where the title deeds are available are believed to be in foreign ownership. Out of a total of 214, no one is registered to vote in the UK in 184 of them.”

“It is a sign of the times that some of my local estate agents don’t look like estate agents. There are no pictures of houses in the windows. Instead, there are arrangements of twigs and some desks. Presumably, one goes into them just to hang out and chat about buying a house in this gallery-type environment. No one needs, I suppose, to see any images. House buying is an abstract concept for so many these days.”

“The air of unreality about these hip house floggers is entirely fitting. House prices are unreal. Ridiculous. Every day there are stories about the insanity of our current housing crisis, but it goes on and on. We laugh at images of what are basically cupboards for sale or rent. We cry or sigh with identification at the tales of young folk who can never really leave home. Except that some are not so young. Fortysomethings are having to move back in with their parents after marital bust-ups or because they no longer manage their own housing costs, the so-called ‘doomerang generation.”

“What does it now mean to be an adult if the old markers of adulthood become out of reach? Levels of home ownership are in decline. We now have a fully fledged caste system delineated by property. This is happening in the US, too. Wages for under-30s are going down.”

“Factors such as delinquencies from the long-struggling oil sector and emerging evidence of weakness in overheated housing markets are placing the Canadian economy at significant risk of a major downturn, according to an analysis. In particular, bad debts from the energy sector and increased competition from online counterparts are forcing Canadian banks to downsize and even retreat altogether from at-risk markets.”

“Writing for CBC News, Don Pittis noted that while the Bank of Canada’s interest rates are still showing an optimistic view of the economy’s prospects, signs of eventual trouble are gradually popping up. ‘The painful bankruptcy of Canadian home builder Urbancorp and pressure for governments to intervene in what many are calling an affordability crisis have some commentators worried that Canadian real estate is at a peak,’ Pittis explained. ‘Despite evidence that real estate is a major driver of jobs and the economy, ominous warnings are easy to dismiss because they have been offered so often. This time, however, we have real evidence that markets outside Vancouver and Toronto have begun to weaken,’ he added.”

“Most worryingly, BoC Governor Stephen Poloz himself said that Canadian real estate is not all that it seems, Pittis noted. ‘There’s a crater under every bubble,’ the analysis quoted the BoC Governor as saying.”

“While artisans prefer Ubud in Bali’s central foothills, serious surfers turn to ‘the Bukit’ to find the waves. Here on Bali’s southern tip, cliffside homes overlooking the ocean go for $3 million to $8 million. It’s only minutes from some of the island’s most famous surfing spots. While prices have been rising steadily since 2004, the real-estate market is in the midst of a correction, as fewer properties have sold since the speculative market rush that ended in 2014, says Eugene Shivnan, a local real-estate agent at Exotiq Property. Upscale homes start at $500,000, though smaller condos can be purchased for around $200,000.”

“Currently on the market for $5.5 million: a cliffside, six-bedroom property that overlooks the Indian Ocean and includes an infinity-edge pool, a large living and dining room and marble floors. ‘Now it’s become a buyers’ market and there are too many listings,’ says Neil Power, owner of real-estate firm Xclusive Property.”

“Leasing activity in Dubai’s residential market tailed off towards the end of the first quarter as landlords proved more willing to negotiate on rents to keep existing tenants in place, according to a report from Asteco Property Consultants. At Jumeirah Lakes Towers, for instance, rents declined by 6 per cent quarter-on-quarter and 12 per cent year-on-year by the end of March. Asteco said that luxury apartments have proven hardest to let and remain vacant for longest, despite significant year-on-year rental declines.”

“Meanwhile, sale prices for apartments remain 5 per cent lower year-on-year, with luxury units experiencing the steepest declines – Jumeirah Beach Residences properties are 18 per cent cheaper than in the first quarter of last year, while Palm Jumeirah homes have fallen in value by 11 per cent and Dubai Marina by 10 per cent.”

“‘People are being more budget-conscious,’ said Julia Knibbs, the UAE associate director of research and consultancy at Asteco. ‘Landlords are realising how important it is to retain tenants rather than risk having a vacant unit and then later having to reduce the rent anyway.’”

May 26, 2016

A Pagoda Of Cards

The Atlanta Journal Constitution reports from Georgia. “To afford an average apartment, low-wage earners in Atlanta must work many hours of overtime or else live with other wage-earners, according to a national advocacy group. Georgia is not even one of the more expensive states, in fact it ranks 27th – pretty much in the middle of the pack, according to the report, released by the National Low Income Housing Coalition. In no state – not even those with higher minimum wages – can a minimum wage renter afford the average two-bedroom apartment working just 40 hours a week. ‘In many counties of the metro Atlanta region, affordable apartment complexes and small but solid houses are being torn down to make way for luxury housing and more retail, while the average wage-earner is priced out,’ said Kate Little, chief executive of Georgia group.”

“The report concluded that a ‘modest, two-bedroom apartment’ at fair market rent and utilities would cost $949 a month in metro Atlanta. To afford that, renters need to earn $18.25 per hour, or about $37,960 a year, the report said. In metro Atlanta, the median wage – meaning half of wage earners are above and half below – is $17.47 an hour. Among the lower 48, the most costly state is California, where a worker needs $28.59 an hour to afford an average two-bedroom apartment, according to the housing report.”

From Michigan Live. “Realtor Dale Stuckey says he was floored last month when he got 38 offers on a home listed for $105,000 on the Northwest Side. ‘We had it on the market for one or two days,’ said Stuckey, whose buyers are waiting to close on an offer that was 10 percent over the asking price. Another listing for $175,000 in the Northview School District ended up getting 10 offers at $10,000 over the asking price, said Stuckey, president of the Grand Rapids Association of Realtors.”

“‘The panic mode is there from a buyers’ standpoint,’ said Stuckey. ‘You get people writing offers sight unseen, you’re getting offers now without inspections.’”

The Associated Press. “Stiffer competition among real estate agents also makes it harder to make money, especially since the improvement in the economy has made selling real estate more appealing to people in search of work. Membership in the National Association of Realtors totaled 1.17 million at the end of April, up from the post-collapse low of nearly 1 million in 2012. The Realtors had 1.36 million members in 2006, the year that the housing market began its crash.”

“‘Everyone was dropping out of the business in 2008. Now we’re flooded with real estate agents without a lot of inventory,’ says Janine Acquafredda, a broker with House N Key Realty in Brooklyn, New York.”

“Acquafredda’s sales over the past year are down about 25 percent from the previous year. In addition to a shortage of available homes, she sees fewer buyers with deep pockets from other countries who are able to put cash down and finalize a deal quickly. One reason: the stock market drop in China, where the Shanghai Stock Exchange’s major index is down 45 percent since June. ‘The business is just not as much fun as it used to be,’ Acquafredda says.”

The Ledger in Florida. “Florida’s economy continues to outpace the rest of the nation, but another recession is on its way, University of Central Florida economist Sean Snaith said. ‘It’s time to start talking about the next recession,’ Snaith said. ‘We will have a recession. I don’t know when exactly, but we’re going to have one.’”

“The current recovery already has lasted longer than most — the last upswing after a recession ended in six years, he said. But for many Americans, this expansion has not delivered prosperity, he said. GDP growth, the measure of output of the economy, has averaged 2.1 percent, compared with a historic average of 3.5 percent. ‘This has really been a lackluster recovery, to say the least,’ he said. ‘Wage and salary growth has been stuck in the 2.3 to 2.4 percent range for some time. Usually at this point in a recovery, we see wage and salary growth at 4.5 to 5 percent.’”

“The weak economies of other nations also are weighing down the U.S., representing what he called ‘the greatest threat to the current expansion we are currently in.’ ‘The Chinese economy is a pagoda of cards that will come down at some point,’ he said. So, Snaith warned the audience, put the next recession on their radar. ‘More likely the next recession will be triggered by some sort of global shock rather than something internally, not by a housing bubble or a dot-com bubble like in previous recessions,’ he said.”

The Press of Atlantic City in New Jersey. “Homes sold faster all over South Jersey last month, with the number of closed deals up sharply in most of the region from April 2015. Atlantic County led the way with an increase of almost 27 percent in completed sales of single-family homes over the year before, but prices continued to drop in the county, according to data from the New Jersey Association of Realtors. The median price of a single home fell to $168,500 this April, down more than 12 percent from last year.”

“‘Typically in Cape May County shore towns … we’re seeing steady numbers. People are buying, they’re coming down and looking at stuff and pulling the trigger,’ said Damon Bready, of ReMax at the Shore, who handles listings in several of those shore towns and on the Atlantic County mainland. ‘The majority in Atlantic County are (bank-owned) or short sales. They’re distressed.’”

NPR News on Massachusetts. “In 2005, Guillermo Galindo and his wife bought their house in Revere, Mass., for $450,000. They put about 5 percent down and ended up with a manageable monthly mortgage payment of about $2,000. He worked delivering medical supplies, and they got monthly payments from a family who rented the unit on the second floor. Galindo and his wife lived there for a few years with their baby daughter, and life felt pretty stable.”

“But that security began to crumble in 2008, when his employer started cutting his hours. The interest rate on his adjustable mortgage started creeping up. Then, he lost more income from his second floor tenants. Eventually, the young woman’s husband abandoned her and the baby. ‘At the end she was just was left alone and she stopped paying rent,’ he says.”

“He wouldn’t kick her out, but that meant Galindo was now really struggling to make his mortgage payments. Around the same time, he found out that his home had lost a huge amount of its value, about 50 percent, so he got in touch with his bank hoping to work out a deal. ‘They asked for more papers, I send them all. It was back and forth, back and forth, until they said they couldn’t help me, that the price was that. And they couldn’t do anything,’ he says.”

“His life savings were wrapped up in this house, and that’s where he wanted to raise his daughter. He kept talking with the bank, trying to figure out how to stay. Eventually they sent him a letter saying they were foreclosing. He fought it for another five months and finally said, fine, take it. They gave him $3,000 and he handed over the keys.”

“Galindo rents an apartment. His credit rating is still in the tank because of the foreclosure. And they don’t have any money for a down payment, so buying another house is not an option right now, and might not be for a long time.”

May 25, 2016

Everybody’s Dream Started To Scare Everybody

The Richland Source reports from Ohio. “An unusual, but optimistic trend is unfolding in the Richland County housing market, much different than years past. ‘It looks like what’s happened is there are so many buyers in the market that as soon as a home is put on the market, it’s taken,’ said Rich McCleery of Coldwell Banker Mattox McCleery Realtors. ‘It’s crazy what’s happening. I think people are seeing they need to get on the bandwagon and purchase a home before prices go higher.’”

“Jerry Holden of The Holden Agency, as well as Peter Haring of Haring Realty, have also noticed that if homes are reasonably priced, it’s not long before one or more offers are made. ‘Right now we have less than a two-month supply of homes on the market in Lucas,’ Haring said. Lexington is another area where demand is greater than supply. ‘That’s probably where we have the biggest shortage right now, and that’s for anything under $300,000,’ Haring said. ‘I’ve never seen a real estate market like the one we’re having now.’”

11 Alive on Georgia. “Luxury apartment buildings are taking over Atlanta. Nearly a 900 percent increase between 2012 and 2015 in the number of high-end high rise buildings according to a study by Rent Café. The question is, is the luxury market inching toward over-saturation and how are middle-income people supposed to live in a city of rising rents? ‘We have all of the housing being built for a tiny portion of the population,’ said John O’Callaghan, President and CEO of Atlanta Neighborhood Development Partnership.”

The Real Deal on New York. “The Real Deal counted it up, and the pessimists are right: Modern aristocrats’ appetite for en suite lap pools, members-only pet spas and penthouse views of New Jersey really seems to be on the wane. Luxury sales volume is down a stomach-churning 25 percent in the first 20 weeks of 2016 compared to the same period last year. Major developers such JDS Development and the Chetrit Group have either halted sales plans for marquee skyscrapers packed with luxury condos, or scrapped them altogether. Some condo builders are lowering their planned sellout prices, while others are aggressively cutting asks, notably on penthouse units, a StreetEasy analysis found in April.”

“Other developers say the slowdown in the luxury market is mostly about perception, blaming the press for sullying the mood. ‘There’s no liquidity issue, there’s a mood issue,’ said Michael Shvo, who’s in the planning stages of a high-rise condo at 125 Greenwich Street. ‘The only thing wrong with the market is an oversupply of overpriced, average apartments. Those are in buildings that should not have been built and they’ll suffer.’”

The Valley News in Vermont. “It’s generally accepted that the Upper Valley is sheltered from severe economic headwinds by the presence of two large, stable employers. Nevertheless, a trio of stories in the business section of this week’s Sunday Valley News served as a useful reminder that despite its good fortune, the Upper Valley economy does not operate in splendid isolation. The third story discussed home sales, which are in the doldrums, according to a biannual report sponsored by the Upper Valley Housing Coalition.”

“It found falling sales prices for existing homes during the first quarter, along with shrinking inventory (although there were also some bright spots, including that homes were selling more quickly). One of the authors of the report, Ned Redpath, owner of Coldwell, Banker Redpath & Co., pointed to stagnating middle-class wages as one possible reason: It’s hard for people to put aside enough for a down payment. ‘Everybody says the economy is strong, but it’s nowhere near as strong as they say it is,’ Redpath said.”

The Guardian on Texas. “Shawn Baker had an entrepreneurial epiphany years ago when she saw a group of young people outside a concert venue throwing junk out of a truck and pulverizing the trash with a bat. It looked fun. She wondered: could there be a way of monetizing our appetite for mindless destruction? She put the idea on hold. Then oil tumbled below $50 a barrel and in May 2015, after more than 20 years at the same company, the 45-year-old was let go from her job along with a quarter of her colleagues. ‘It was devastating. I had never been laid off or fired or anything,’ she said.”

“Baker now had spare time, little prospect of quickly finding another role in the energy industry, and a hunch that thousands of others could be sharing her sense of frustration. So she returned to her idea and started Tantrums LLC, one of a growing number of ‘rage rooms’ in America where her frustrated clients come and blow off steam with the help of a baseball bat and some inanimate objects.”

“The city’s economy is far more diverse and resilient than during the oil bust of the 1980s, but Houston is nevertheless feeling the hit of the slump. New high-end apartment complexes built to appeal to now-departed expats are so empty they are offering perks such as rent-free months, Apple watches and cruises, according to the latest economic report from the Greater Houston Partnership, which anticipates the city’s unemployment rate will soon rise above the national level.”

NPR News on Nevada. “For 26 years, Brian Burns watched Vegas grow. He saw the desert dirt roads transformed by construction projects. The land was available and cheap. By 2004, housing prices soared. Burns and his then wife had bought into the dream. They lived in a huge house he estimates was 3,500 square feet. ‘There were parts of the house you never even saw – that’s how big it was,’ he says.”

“When a realtor friend convinced him to sell, he was blown away by the profit he turned. ‘That house that I bought for $250,000, my friend sold for $645,000 three years later,’ he says. ‘I had never had remotely that much money in my life. Probably never had more than $10,000 to $15,000 in the bank before. And I took $40 out one time and I showed my friend my ATM receipt and it said $228,000 balance. And we just looked at each other and laughed, it was ridiculous. I didn’t know what to do with it.’”

“He decided to keep it in the bank and buy another, smaller house in a brand-new development in the town of Henderson, Nev. Sure, the tan, stucco tract-style housing didn’t have a whole lot of charm, but Burns didn’t care. He convinced some of his friends to buy other houses in the neighborhood. He had cash in the bank, excellent credit, and he put no money down.”

“‘I think everybody’s dream, when you are a normal person — not super rich, not super poor — is that your home is kind of your biggest asset,’ Burns says, ‘that you feel like, ‘I’m going to play by the rules, I’m going to pay my mortgage, it’s just going to continue to increase in value.’ Maybe not by leaps and bounds, but by no means should it be worth a third of what you paid for it. And it started to scare everybody.’”

“He found out that the house he bought for $320,000 was now worth only $140,000. At the same time, his work as a graphic designer was drying up. Eventually, he chose to stop paying his mortgage. He didn’t feel good about it. He could have used his savings to keep paying his mortgage payments, but he thought that was a bad idea. The decision destroyed Burns’ credit, he let the bank take his house and he moved to Oregon to start over again. ‘The analogy I use back then is, I’m not going to pay Mercedes prices for a Kia. Why would I pay $320,000 for a house that’s never going to be worth that?’”

“Today, Brian Burns is back in Las Vegas, where he rents an apartment with his fiancée. They feel really gun-shy about buying anything, mainly because it doesn’t seem like the housing crisis is over in Vegas. Roughly 20 percent of homeowners are still underwater there, and it doesn’t look like a recovery. ‘I drive up into suburbia, and there are streets still of empty houses. No curtains, no nothing, weeds in the yard,’ Burns says. ‘There are still a lot of empty houses in this town.’”

May 24, 2016

A Good Many Of These Have Been Bought By Investors

The Sydney Morning Herald reports from Australia. “In the hyperactive world of online Chinese property forums, prospective buyers swap tips on real estate trends. But the talk on Australia-focused chat threads have been tinged with one worry after another. Chief among those worries are the increasing difficulty to get large amounts of cash out of China, and a crackdown from the big four Australian banks on loans obtained based on overseas income. ‘I bought an off-the-plan apartment and now the settlement date is getting close. My agent and loan planner told me that banks now are not accepting loan applications with overseas income,’ asked one poster on Tigtag. ‘They also say I need to make a face-to-face interview if I apply for loan. I’m now back in China so I’ll have to authorise an agent to manage the handover [in Australia]. So they suggest I sell the property before settlement. Is this right?’”

“Wang Peng, general manager of overseas-focused Chinese property group UNME, says the tightening of rules aimed at foreign buyers were being interpreted by Chinese buyers as a potential signal of more to come. The crackdown on loans substantiated by overseas income has the greatest potential to impact all but the wealthiest of Chinese buyers, says Wang, who owns investment properties in Australia himself. He says many buyers had bought off-the-plan properties but are now scrambling to find alternative loans before settlement, often forced to pay higher downpayments. ‘This is the most disadvantageous part to overseas investors. The impact is quite big and very direct.’”

From MarketWatch on China. “The slumping property markets in many Chinese cities are generating one kind of boom: in legal disputes. Even as the beleaguered property market shows signs of inching out of a two-year property downturn, some home buyers have begun suing property developers over facilities advertised at the time of purchase that were never built. Developers, meanwhile, are taking local governments to court for refunds of money spent to buy land when prices were soaring.”

“In Yuyao, a small city south of Shanghai, a group of nine home buyers last year sued state-owned Poly Property Group Co., alleging false advertising. Home prices have been falling in Yuyao, according to local residents and property developers. The plaintiffs said Poly failed to build a shopping mall, theater, school and other amenities included in the marketing for Poly Jordan International. Initially, the company offered a settlement that included 50,000 yuan in cash and a parking lot, but the plaintiffs declined. ‘We’ve tried to talk to the developer many times to resolve this but they never offered fair compensation,’ said Zheng Zhixin, one of the plaintiffs, who bought an apartment in 2012. ‘Litigation appears the only way left.’”

The Financial Express in India. “Inventories of luxury apartments in Mumbai remain high with real estate watchers counting close to 2,300 unsold apartments across the city. Each of these spacious apartments is priced at a minimum of Rs 10 crore taking the total value of the flats to an estimated Rs 23,000 crore. According to data sourced from PropEquity, the unsold inventory in projects coming up in just the five micro markets of tony south Mumbai — Lower Parel, Mahalaxmi, Mumbai Central, Prabhadevi and Parel, stands at a staggering 928 apartments.”

“Because unsold inventory is in advanced stages of construction, some of it commands a premium to the launch price. The value of unsold inventory in these five micro-markets could be in the range of R10,000 crore, if one assumes they’re between 4,000 sq ft and 7,000 sq ft, and fetch the current market price. Ashutosh Limaye, head (research), JLL India believes sales of these top-end homes could be ‘just about okay’ over the next three to four quarters. However, as he points out, ‘a good many of these have been bought by investors.’ That means these may remain unoccupied for a long time.”

From Gulf News on Dubai. “Dubai’s high-end apartment rentals are facing extreme duress, with the number of enquiries recording a marked decline in March. Landlords with units in upscale high-rises in Downtown, Business Bay and those on Shaikh Zayed Road are reacting by dropping rents or being forced to leave their units vacant for longer, according to a new update from Asteco.”

“‘On SZ Road where rents for a two-bed might have been Dh160,000-Dh190,00, landlords are being forced to bring it down if they need to retain the tenant,’ said Julia Knibbs, Associate Director – Research & Consultancy at Asteco Property Management. ‘A similar trend is happening in Business Bay, though maybe not to a similar extent. Wherever a tenancy contract is deemed as too expensive, tenants are demanding a downgrade. And in most instances they are getting it.’”

From Fulham SW6 in the UK. “Fulham’s property market continued to cool off in the frosty first three months of 2016, with prices falling and the volume of sales down - mainly due to the lack of flats changing hands. The overall average price fell by a modest 2.9% from £1,124,412 between October and December to £1,078,996 between January and March. Terraced houses also fell by 2.9% from £1,742, 138 in the previous quarter to £1,642,130. The average flat price however fell from £813,530 to £694,086 - a drop of 14.3%.”

“Also alarming for local agents was the reduction in the number of sales - down by almost a half from 230 to 126. And again flats and apartments were hardest hit, down from 153 to 74. This slowdown seems surprising, since there are two large developments in Fulham with apartments for sale. The top of the market also remained slow withthe highest priced sale so far this year is a six bedroom house on Broomhouse Road which went £3,010,000 - having previously been on the market for £3,350,000.”

“Josh Woodfin of local estate agent Brik, says the slowdown has a number of reasons: ‘Many wealthy overseas buyers have been deterred by high house prices in London, a weak eurozone economy and the fact that the pound has strengthened significantly against the euro in the past year, making it even more expensive for many Europeans to buy property in the English capital.’”

The Daily Mail in the UK. “For those of us stuck in the mundane world of mortgages and rent, it’s hard to feel sorry for them, but spare a thought for celebrities trying — and failing — to sell their homes. Palatial pads that would once have been snapped up within days are lingering on the market for months at a time, forcing sellers to slash the asking price. Shirley Valentine star Tom Conti has reduced the asking price for his house to £15million, from £17.5million. Meanwhile Ricky Gervais has reduced his from £7.7million to £6.9million.”

“Many thought that former Take That star Robbie Williams had overpaid when he bought his seven-bedroom, eight-bathroom Wiltshire manor house for £8million in 2008. Only 18 months after buying it, he tried to sell for £7.5million — and it’s been on and off the market ever since. In 2013, it had an asking price of £5.5million. Now it’s believed to be quietly for sale again at the same price — a hefty loss on what he paid.”

“Former hell-raiser Noel Gallagher’s pretty West London home — on the market since last October — is now on the market for £11.5million, down from £13.5million. He has three other properties, but wants to ‘upgrade’. The Oasis singer has complained that the home is proving hard to shift in the current market, saying: ‘If there are any wealthy Russians reading this story, give me a call, please.’”

May 23, 2016

The Bubble Is Losing Its Air

A report from the Oregonian. “For the first time in recent memory, the number of closed and pending home sales in the Portland area saw an annual decline, according to the April Regional Multiple Listing Service’s monthly report. With the housing market on a tear, the report had become predictable from last summer into this spring – the number of closed and pending sales for a given month was either the most since before the recession, or the most of all time. But the 2,611 closed sales in April marked a 4.5 percent drop from the same month last year, and pending sales fell from 3,613 in 2015 to 3,076 this year.”

“The median reached $350,000 last month, the point at which half of homes are more and half are less; in April 2015, the median was barely above $300,000. Homes in desirable areas often receive double-digit numbers of offers. ‘The buyer who did win the bid may have a Monday-morning headache crunching the numbers on how much they just paid,’ said Israel Hill, a managing broker at John L. Scott Real Estate specializing in Northeast Portland.”

The San Mateo Daily Journal in California. “The residential real estate market typically heats over the summer, but after years of a sizzling home sales industry along the Peninsula, some local money lenders are sensing a cooldown on the horizon. Uncertainty regarding the sustainability of the ongoing economic boom has caused more to put their house up for sale, for fear of missing the chance to strike while the market remains hot, according to some lenders.”

“‘I think a lot of people are starting to realize that if you are going to sell something, do it before it drops,’ said Rich Wachter, of Wachter Investments in Burlingame. Homes for sale are staying on the market longer, bidding is not as competitive as it has been and inventory numbers, though low, are gradually creeping up, according to Wachter, who identified the trends as potential signs of an industry turning. ‘I just think that I see a softening in the market,’ he said.”

“Ted Yamagishi, a broker with Spinner Mortgage in San Mateo, expressed a similar sentiment. ‘The bubble is losing its air,’ he said. ‘I think it is at an all-time high.’”

The Naples Daily News in Florida. “In real estate, slowdowns require quick thinking. And that’s just what real estate agents and homebuilders are doing as Southwest Florida’s housing market rounds the curve from hot to not-so. Matt Lane, managing broker of William Raveis Realty LLC in Naples, said his firm leaves no stone unturned in its marketing. Yet one of the brokerage’s most effective tools, he said, is also one of its simplest — an emailed sheet that sorts local data into ‘changes favoring buyers’ and ‘changes favoring sellers.’ ‘Data doesn’t lie, and when a market slows, the best content to market is the facts,’ he said.”

“Fahada Saad, an agent with Premier Sotheby’s International Realty in Naples, has used creative marketing techniques over the years. But ultimately, she said, all of the promotional tools in the world can’t make up for the one thing that sells a home the quickest: A seller who sets a realistic price. ‘The market is contracting, and for what we have in our inventory now, we just need to be super sharp on pricing,’ she said.”

The Odessa American in Texas. “Odessa home sales increased modestly in April while prices continued to fall, reflecting a more balanced market, a report by the Odessa Board of Realtors found. April home sales increased 2 percent from the same month of 2015 to 115 homes sold. Median home prices fell by 3 percent to $165,000 from the same period. Meanwhile, the board reported Odessa’s monthly housing inventory climbed to 5.1 months of inventory in April, 2.3 months more than the same month of last year. The Real Estate Center at Texas A&M University considers 6.5 months of inventory a balanced market.”

“Homes spent an average 58 days on the market in April, a week longer than April 2015. In the same time frame, active listings increased 63 percent to 473. ‘Although we are seeing a slight down turn in the housing market, indicators continue to point to a more balanced market,’ Tommie McClane, president of the Odessa Board of Realtors, said in a news release.”

The Inland Valley Daily Bulletin in California. “It’s a scene out of the Great Recession: A half-built housing tract serves as a modern-day ghost town, dreams of both the developer and future residents dashed, dust accumulating, imaginary voices echoing in the unfinished structures. Except this is not 2008-09. This is today, a post-recession real estate market many describe as hot. And this is Claremont, dubbed the ‘best suburb’ in the West by Sunset magazine.”

“At Towne Avenue and Base Line Road sits more than a skeleton of what was supposed to become a 95-unit town home project on a former strawberry patch. Like abandoned projects in the desert during the Great Recession, infrastructure has been laid and the first buildings are almost complete — on the outside. In February, the council learned that construction came to a stop. Claremont Director of Community Development Brian Desatnik reported the developer — Newport Beach-based William Lyon Homes, a longtime builder with 19 other projects currently for sale in Southern California — needed 60 days to reaccess the market. With time up, Desatnik said he still hears the same in recent communication from the developer.”

“‘It was a shame,’ said Mayor Sam Pedroza. He finds it especially surprising coming from a builder so ‘well-known and established.’ He acknowledged the market maybe be oversaturated with that type of high-density product.”

May 21, 2016

An Imbalance That Works In Favor Of Special Interest Groups

A weekend look at housing supply and demand starting with the Lincoln County Journal. “We keep hearing how low inventory is in today’s housing market, but why is that the case? New Construction– Though housing starts were up 12.4 percent in 2015’s first quarter, homebuilders are constructing new single-family homes at a 680,000 annual rate, which is roughly 400,000 units below historic averages. So all builders have to do is up their construction and our inventory problems will be solved, right? Well…not necessarily.”

“The relatively low rate of new construction is a common target of industry analysts (NAR has especially harped on that point), but we think the problem is more insidious than that, and for a number of reasons. For one, new construction has responded to consumer demand and shifted towards multifamily developments in a major way, with 90 percent of those units being intended for rentals; so new construction is higher, but it’s not as top-heavy for single family as it used to be.”

“Two, the vacancy rate for new single-family homes remains historically high, so builders are keeping their construction numbers in check (indeed, some have argued that today’s level of construction is even too high).”

“And three, the new construction that does make its way to the market, on both the buying and renting side, is intended almost solely for more affluent consumers (and is therefore unaffordable to most consumers). Why? Simply, builders are limiting their products for safer terrain, aka the more affluent consumers who can absolutely buy what they are offering. So yes, new construction is low by historic standards, but for very precise (and deliberate) reasons.”

“Exclusionary Inventory – Finally, even when housing inventory has increased, it has not done so in an equal manner. In the first seven months of 2014, housing inventory jumped 18.5 percent over 2013; yet, according to a Redfin study of that increase, those gains were exclusively for higher-priced listings. So while the inventory of homes priced $549,800 and above rose 15.6 percent, the inventory for homes priced $227,500 and below fell 15.7 percent.”

From Quartz. “Across the country a wave of dual-income couples and down-sizing baby-boomers are skipping home ownership and choosing apartment living instead. Meanwhile, other renters—who have a median household income less than half that of homeowners—are finding that fewer and fewer homes fit their budget. Developers have responded by flooding the market with new apartments—nearly 250,000 were completed in 2015 alone.”

“However, those who hope the building boom will provide shelter for the huddled masses are in for a nasty surprise: Three out of every four new apartment buildings are luxury designs targeted at high-end renters. Housing data compiled by RentCafe, a rental search company, track completion of all new apartment buildings with 50 or more units. These buildings are graded based on presentation and amenities. The top two grades are classified as ‘luxury,’ indicating that they are primarily targeted at those who choose to rent, even though they could afford to buy. Last year there were 895 such buildings completed in the US, up 134% from 2012.”

From Bloomberg. “Central banks may be partially to blame for the misperception that economic conditions will be materially better than they are now when inflation is higher, contends Citigroup Inc. Global Head of G10 FX Strategy Steven Englander. To the extent that this true, it probably has much to do with the increased emphasis the Fed has placed on the wealth effect as part of the transition mechanism by which unconventional accommodation boosted activity when policy rates approached zero.”

“Asset price inflation, improving Americans’ aggregate net wealth in the process, has been an explicit goal of Fed policy.”

“This combination of low interest rates and large-scale asset purchases laid a solid foundation for the improvement of household balance sheets that occurred during the recovery. But it can’t do much to spur a higher trend rate for real growth. ‘It may be more accurate to say that the economy at 2 percent inflation will be as good as it gets, but as-good-as-it-gets may be very mediocre,’ Englander concludes. ‘Expectations of currency strength and asset market stability are likely exaggerated as well.’”

The American Enterprise Institute. “If anything, this election cycle has revealed the anger and frustration on both sides of the aisle with an economic and political system that many view as rigged. Maybe nowhere more so than in the housing finance ’system’ do the people have a point. After all, the deck is stacked against low- and moderate-income borrowers due to to rent-seeking behavior of special interest groups such as the National Association of Realtors (NAR), which government loan guarantee agencies and regulators are all too willing to accommodate.”

“The resulting loans enable borrowers to buy more expensive homes than they can truly afford, typically through minimal downpayments, underpriced mortgage insurance, or monthly payments too high in comparison to the borrower’s income. These various forms of excessive leverage continually set the little guy up for failure.”

“The fundamental problem in today’s government-centric housing finance system is a supply-demand imbalance that works in favor of homeowners who see their assets appreciate faster than wages and inflation. According to S&P/Case-Shiller, house prices are now over 30% higher than four years ago.”

“Who else benefits from higher prices? Realtors. That is why the NAR, whose sole mission is to ‘help its members become more profitable and successful,’ keeps pushing for even more demand against a constrained supply, which will ultimately drive prices even higher and make commission checks even fatter.”

“Who benefits from more demand? The Federal Housing Administration (FHA) — which is in the business of providing loans to primarily lower-income borrowers — was able to overcome its chronic funding shortfall by expanding demand through a mortgage premium cut that not only drew in new borrowers by providing them with more leverage, but also poached from other agencies.”

From Reuters. “Conventional wisdom maintains that the bubble in UK home prices is due to inadequate supply. Conventional wisdom is wrong. Despite tough British planning laws, the shortage of housing across the country is not acute. Overvaluation is largely the result of ultra-low interest rates. London property prices have also been boosted by foreign capital inflows. Low interest rates may be with us for a while. Global capital flows, however, are prone to sudden reversals.”

“A better explanation for high house prices is that interest rates are incredibly low. Over the last 15 years, falling interest rates have reduced the cost of buying a house with borrowed money. Land and home prices have climbed. This all suggests that Britain’s housing crisis is largely the consequence of the extreme affordability of mortgages. This conclusion is confirmed by the behavior of other housing markets around the world where interest rates are also at abnormally low levels.”

The New Zealand Herald. “Government ministers seldom lose an opportunity to lambast Auckland Council, as Housing Minister Nick Smith did again at the weekend, for inhibiting residential development in and around the city. It is convenient for the Government to attribute the price of houses entirely to a lack of supply because it enables it to avoid taking effective action to reduce demand for investment homes. It is an argument that makes the Government popular with home owners who have already invested heavily in multiple houses, for it not only relieves them of effective taxation but promises to supply Auckland with many more potential investment properties.”

“The pace of house price rises cannot be slowed just by building more houses, particularly more ‘affordable’ houses. Those are exactly the stock investors are looking for. The cheaper the house for its location, the better the likely capital gain. There is no limit to the demand for speculative property in and around Auckland, and making more land and housing available will only add more fuel to the fire.”

“Obviously Auckland’s projected population growth requires a much greater rate of house building than we have yet seen. But the problem does require a multi-pronged solution. Whatever the source of the demand for Auckland houses, it will remain insatiable if the Government pretends it is purely a problem of supply.”

May 20, 2016

They’ve Had It Way Too Good For Way Too Long

It’s Friday desk clearing time for this blogger. “The median price of a single-family home in Santa Clara County hit seven figures for the first time last month: $1 million on the button. Prices grew even dizzier in San Mateo County, where the $1.2 million average matched the previous record, set in May 2015. Two years ago, Eugene Jong and his wife, Linda moved from their San Jose townhouse to a single-family home in Los Gatos. He watched as San Jose prices kept rising. Then in April, he pulled the trigger, listing the 1,250-square-foot townhouse for $599,950. The townhouse drew 15 offers over the asking price and sold in seven days for $665,000.”

“Alain Pinel agent Mark Wong, who negotiated the sale, said it was a matter of good timing: If Jong had delayed and listed his townhouse in May, his fortunes might now be up in the air — at least in part because the amount of inventory is ‘creeping up’ and softening competition. ‘The market is shifting right now,’ Wong said. ‘The market is really mixed. Some people are getting multiple offers, some are getting no buyers. Just in one month, the market has changed a lot.’”

“You might think the sky was falling with all the hullabaloo over a 6-month moratorium on student apartment construction. But the temporary halt may be wiser than some people think. Two years ago, Bruce, Jon, and Nathan Odle published a 14-page report that painted a grim picture of college enrollment and student housing. The family — Columbia’s leading student apartment developers — predicted ‘obsolete, distressed properties’ in just 4-8 years. Yet student housing construction in Columbia has continued, even accelerated.”

“Jon Odle made these pessimistic prognostications when his family cancelled a 1,200-unit student apartment at Discovery Ridge. The student housing market, they told the Tribune, was overbuilt. ‘It’s institutional investors chasing higher return and having no knowledge’ of whether the Columbia ’student housing market’s economics are imbalanced,’ Odle said. ‘The market is more about flipping than looking at market dynamics,’ he added. ‘Anybody from out of town can come in and fill up [their apartment project] and sell it…one month after finishing. It’s a terrible deal for a college town like Columbia because they don’t care how healthy the market is, if the market’s in equilibrium or not.’”

“A newly built Sunny Isles Beach project may be telling of the state of the luxury market’s health. In August, Key International completed 400 Sunny Isles, a 230-unit luxury condo development, and by March the developer had sold nearly all of its units for a combined $206 million. Now, a surge of resale inventory has hit the market: 37 percent of 230 units are listed for sale for a combined listing volume of $119 million.”

“And 400 Sunny Isles is not the only newly completed project with significant listings. At Mansions at Acqualina, 14 units of 86, or 16 percent, are on the market for a combined $137 million. At Regalia, 11 units of 39, or 28 percent, are available for sale for a combined $146 million. Overall in Miami’s luxury condo market, inventory was up 55 percent at the end of April 2016 compared to a year earlier,Ron Shuffield, president of EWM Realty International said. Sales of luxury condos, defined as $1 million and up, were down 24 percent during that same period. At a commercial real estate summit in New York last week, developer Steve Witkoff, who owns a hotel in South Beach, commented on the Miami market: ‘Miami is a brewing storm,’ he said, ‘and it’s going to get even worse out there.’”

“New data from Wyoming Workforce Services shows Natrona County had the largest employment drop for any metropolitan area in the country for the month of March. The housing market has taken a big hit too. The median home price is now about 190 thousand dollars. One year ago it was 215 thousand. Realtor Gary Bryan with Broker One Real Estate said ‘Because of the economy its taking houses a little longer to sell. So I’m not seeing that more people are selling their house per say than they were a year ago. But it might be taking a little bit longer for that house to sell.’”

“The oil bust is spreading to the broader Houston economy, suggesting at least two years of job losses, sluggish growth, and softening home sales before the region sees a rebound, according to a new forecast from the University of Houston. The forecast by economist Bill Gilmer, is considerably darker than projections made just six months ago, when it looked like the oil crash would bottom out in 2015. Instead, prices and production continued their free-fall, nearing the proportions of the epic oil bust of the 1980s and rippling into retail, restaurants, real estate and other sectors supported by the wages, salaries and spending of the local energy industry, the forecast said.”

“The headline number: a projected 40,000 net jobs lost in Houston through 2017. ‘I hope you didn’t come looking for a lot of good news today,’ Gilmer told the audience of about 800 business people downtown. The intensity of the crash has been unprecedented, Gilmer said. In the 1980s the number of rigs in operation plunged 82 percent over four years; this time, the rig count has plunged nearly that much - 79 percent - but in just two years. ‘This has come harder and faster than anything we have ever seen before, in terms of damage to the American oil industry,’ said Gilmer.”

“As the economic contagion spreads through Aberdeen, so do the anecdotes of its fall from one of the richest cities in the UK to a city in crisis. Tales of oil executives queuing up for food banks or to sell their Rolexes to overwhelmed pawn brokers are breathlessly repeated by cab drivers. One tells of how financed sports cars are being abandoned in dealership forecourts overnight by those unable to keep up with payments.”

“According to rating agency Moody’s mortgage arrears in Aberdeen have spiralled to double the national level and could rise further. One estate agent who quickly asks not to be named says: ‘They’ve just had it way too good for way too long. Rent keeps falling but we still have people who aren’t able to pay. A lot of landlords depend on their rental income, which is a lot lower now than it was. A two bed flat in some of the better parts would have been about £1,300 before the downturn but you’d only get £900 now.’”

“Prestige rents are under pressure in a number of blue-chip suburbs across the capital city markets, according to CoreLogic RP Data. Beach and harbourside Sydney suburbs like Tamarama, Dover Heights and McMahons Point all recorded falls of more than 20 per cent in median asking house rent, while in Point Piper, unit rents fell 13 per cent to $950 a week. In Melbourne, the inner eastern suburb of Kew recorded a 11 per cent fall in asking rents to $720 a week, while in Perth’s most prestigious suburb of Peppermint Grove, asking rents for houses fell 33 per cent over the past year to $1250 a week.”

“In Peppermint Grove, Joseph Rooney, property manager at William Porteous Properties International, said rents were down 15-20 per cent due to a drop in demand from foreign expats following retrenchments at companies like Shell and Chevron. ‘A lot of people are not moving and instead hammering down their rental price. We’re advising clients to accept a lower rent rather than face the possibility of a property sitting vacant for two months,’ he said.”

“Long the golden privilege of the Hong Kong-based finance and banking crowd in Asia, the days of guaranteed housing allowances fat enough to rent a 4,000-square-foot harbor-view home on the Peak or a townhouse in exclusive Repulse Bay for HK$300,000 ($38,650) a month are gone. And it’s putting a damper on the luxury rental market.”

“The downsizing trend is occurring against the backdrop of Hong Kong’s biggest property correction since the severe acute respiratory syndrome, or SARS, epidemic of 2003. After climbing 370 percent until their September peak, housing prices have since fallen about 14 percent. After more than a decade of steady rental increases, luxury landlords are now looking at reductions of as much as 30 percent for properties at the very top of the market, said Walker Lam, director of the Hong Kong market at Landscope Christie’s International Real Estate. ‘It’s humbling times,’ said Joanne Lee, associate director of research and advisory for Hong Kong at property agency Colliers International Group Inc.”

“The man behind China’s tallest tower has a message for developers scrambling to erect skyscrapers across the country: Less is more. At an awards ceremon for tall buildings in China, the general manager at Shanghai Tower Construction & Development Co. sounded a downbeat note, appealing to his peers to think twice about planning another skyscraper.”

“‘The biggest challenge facing China is how to build fewer skyscrapers,’ Gu Jianping said during a panel discussion. ‘A tall tower surely has huge costs and rents would be high. Would there be demand for such a tower? If there is no market, the building will become a ghost tower, or you will have to cut rents, meaning it will fall short of your investment,’ Mr. Gu said.”

“As prices continue to soar in Vancouver’s infamous real estate market, a bold new solution has emerged to cool down a crisis that is driving young people deep into debt and forcing thousands of families to flee. But Vancouver-based economist Marc Lee says the key question is whether elected officials have the political will to fix the sizzling market. The city’s housing market is broken, he said bluntly after releasing his new report on tackling its housing affordability crisis. Yet as far as the author is concerned, the real heart of the issue is overcoming vested interests in real estate and property development industries.”

“‘My sense is that Premier Clark is not interested in really addressing affordable housing, or maybe she wants to appear to be addressing it,’ Lee, who does research for the Canadian Centre for Policy Alternatives (CCPA), told National Observer. ‘All of the things they’ve been saying in terms of wanting to preserve the windfall gains that have occurred in the property market suggest that they’re not serious about affordable housing.’”

“Since 2005, real estate boards, associations, and corporations have donated more than $360,000 to the BC Liberals, while real estate property and development groups have donated a whopping $2.8 million. Premier Christy Clark’s own party fundraiser is Bob Rennie, owner of Vancouver’s largest real estate market firm, whose company has shelled out over $250,000 to her party in the last six years alone.”

May 19, 2016

A Combo Of Falling Prices And Unrealistic Expectations

NBC 26 reports from Wisconsin. “Home sales for the first quarter of 2016 are the best we’ve seen in nearly ten years. Inventory of homes for sale is down and that means the prices are rising. But many are prepared to shell out some extra cash in this market for the right home. ‘Our neighbors across the street just sold their house and it hadn’t even been listed and they sold it above asking price,’ says Monica Merriman of Green Bay.”

“At Keller Williams Realty they’re selling nearly 30 percent of their homes in less than five days right now. And while sale prices have risen nearly 20 percent in just three years many are finding out the inventory of homes available, has dropped 20 percent over that time period as well. Housing experts predict that sales will continue to be strong throughout the summer. That is, just as long as interest rates remain low.”

From Mid-Missouri Public Radio. “Multi-family housing development downtown will be put on hold after the Columbia City Council adopted an ordinance imposing an administrative delay on approvals. The bill, which passed with a vote of 5-2 after just over an hour and a half of tense discussion and public comment, was specifically designed to target the rapidly growing number of luxury student housing complexes.”

“‘I just think the council…needs to be very concerned that we’re not inadvertently contributing to this luxury student housing bubble,’ Mayor Brian Treece said, citing concerns over declining student enrollment and issues filling some existing spaces. ‘The reality is no one makes money, whether it’s the university with their dormitories or private sector housing, when these facilities are only 80 percent occupied.’”

The Miami New Times in Florida. “New data suggests Miami’s average rental rates have already begun to dip and may experience even further drops. Abodo found that the average rent for a one-bedroom apartment in Miami fell 3 percent between April and May. It was the eighth-largest dip of any market in the nation. Another report, from Andrew Stearns of Stat Funding (via Curbed Miami), also points to the possibility of tumbling rents.”

“That means buyers who scooped up apartments for investment properties may have a difficult time flipping them for a profit, so they may put the units on the rental market instead. ‘Rents will likely tumble as preconstruction buyers unwilling to take losses on their condos flood the rental market with new units,’ the report reads. But those owners may have a hard time finding anyone to pay top-market rents for those units, meaning that some who ‘choose to rent their units will have to rent for an operating loss… resulting in negative carry/negative cash flow.’”

The Observer in New York. “No one wants to be the bearer of bad news, but for brokers it’s sometimes part of the job description. Right now is one of those times, as real estate pros laboring in the fields of New York’s highest end find themselves, in many cases, contending with a combo of falling prices and unrealistic expectations. Most sellers are willing to be flexible, said Miron Properties agent Robert Halperin. ‘I’m not really wrestling anyone [about pricing] right now,’ he said. ‘For instance, I have a townhouse listing on 55th Street between Park and Madison, and we have adjusted pricing over the past few months. But it’s just about having patience, keeping everyone informed and acknowledging that there is a slowdown. You can’t pretend like it hasn’t happened.’”

“Then again, maybe you can. Citi Habitats broker Victoria Rong Kennedy said that some of her clients are still taking a ‘wait and see’ approach. ‘They want to see how bad it can get before they really drop their price,’ she said.”

The Springfield News-Sun in Ohio. “The number of foreclosed homes in Clark County sold at sheriff’s sales is at the lowest in a decade. Although the numbers are down, Tina Koumoutsos, executive director of the Neighborhood Housing Partnership of greater Springfield said they are still significantly higher than numbers the community saw before the most recent housing collapse. Since the housing bubble burst in 2008, banks had been holding on to properties, buying them back at sheriff’s sales to not lose money from defaulted mortgages, said Koumoutsos.”

“‘One of the things that we’ve seen happen is when the bank gets these houses back, they could sit on them for years,’ she said.”

Reuters on North Dakota. “More than 80,000 people poured into North Dakota, looking to stake their future on the fracking economy. The state’s Bakken oil patch, centered here in Williston, was a magnet for oil workers, business investors and job-hungry folks. That future has evaporated. Those who haven’t packed up and left the Bakken are facing a new reality of smaller budgets, fewer residents and the physical detritus of a building boom that left behind hundreds of empty apartments.”

“In downtown Williston, near the strip club, a $15 million building with retail, residential and office space opened last March. All of the retail spots and more than half of the apartments sit empty. ‘It seems like people are on the fence, waiting,’ said Paul Russo, a vice president at The Renaissance Cos. The developer named the property Renaissance on Main, thinking it would serve as a symbol of western North Dakota’s rebirth.”

“Instead, it has become a monument to the overbuilding that continues in a region quickly losing residents. The 900 apartment units under construction today in Williston will soon join the more than 10,000 already built since the boom began in 2009, according to a study from THK Associates, an architecture firm. ‘No one has any money to spend here anymore,’ said an exotic dancer at Williston’s Heartbreakers strip club. She estimated that tips had gone down more than 60 percent since last fall. One recent evening, Heartbreakers attracted only three customers. Since then, the club’s owner has closed Heartbreakers and is planning to reopen the venue in coming days as Williston’s first gay bar.”