The Housing Bubble

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.”