June 30, 2016

Investors In­creasingly Face A Funding Gap

The Herald Sun reports from Australia. “One in five apartments in inner Melbourne resold at a loss in the first three months of the year — the highest proportion in over a decade. And experts expect the number to continue to grow, as the ‘huge amount’ of new units coming on to the market impacts the resale of existing apartments. The losses worn by home sellers in council area totalled $5.38 million in the three months to March, or about $39,000 per property. This was the highest total deficit recorded by a council area in metropolitan Melbourne in that period.”

“‘Obviously, this is because of the unit supply,’ said CoreLogic senior research analyst Cameron Kusher. ‘People are probably purchasing these properties off the plan and having to sell when they come up for settlement, and the property is worth less. The huge amount of new supply impacts on existing stock as well. I would expect that we are going to see the number of losses trend a bit higher.’”

The Morning Bulletin. “Central Queensland is the affordable housing hot spot for the state. Domain chief economist Dr Andrew Wilson said prices in towns like Moranbah had been driven up by property speculators in 2011 and 2012 before the coal slump caught out investors who had bought near the peak. ‘A lot of smaller investors were left high and dry,’ he said in the report. ‘(The Moranbah median price) was very high at one stage ($469,000 in 2011, $160,000 in 2016), the mining bust has certainly worked its way into the area.’”

From NT News. “Darwin real estate profits took a dive in the March quarter with one in four units reselling at a loss, according to Core Logic. The number of loss-making sales during the March quarter was up from 13.5 per cent in the previous quarter and nearly double the 11.1 per cent recorded the March 2015 quarter. Real Estate Institute NT chief executive Quentin Kilian said many of the homes that resold at loss in the March quarter were likely bought at the height of the market a few years ago. Mr Kilian said while the reduction in home prices wasn’t the best news for vendors, it was good for buyers.”

“‘It’s a great time for not only first homeowners to get into the market but for investors to buy as well,’ he said.”

From Domain News. “Almost one in four NSW investors have bought an investment property in Queensland, leaving them exposed to a potential oversupply and price drops, new data shows. Sydneysiders are the most active interstate investors in the Sunshine State, with its popularity surging as the harbour city’s four-year property boom wanes, figures provided by Australia’s biggest landlord insurer Terri Scheer show. The figures, which cover those who hold a policy with the insurer, includes about 20,000 NSW landlords in addition to those in other states. The most common location for their Queensland investment properties is likely to be the Brisbane area.”

“The Reserve Bank of Australia, credit ratings agency S&P Global Ratings and property researcher BIS Shrapnel are among those who have voiced concerns over the big pipeline of inner-Brisbane units. Between January 2015 and April 2016, more than 26,000 apartments were approved in Brisbane, Australian Bureau of Statistics data shows. This increased building activity, in conjunction with a sharp decline in net migration into the state, is exacerbating a mismatch between supply and demand, Domain Group chief economist Andrew Wilson says.”

“‘And the growth trend continues to accelerate with the latest data, for April, showing a remarkable 2500 apartment approvals, which is the highest monthly total ever recorded for Brisbane,’ he says.”

From Perth Now. “Squatters are taking advantage of Perth’s highest residential vacancy rate in 20 years by moving into empty rental homes and barricading themselves inside for weeks. Trespassers were also changing locks, breaking door handles and threatening landlords to squat in empty rental properties or vacant homes that were up for sale. EBM RentCover executive general manager Sharon Fox-Slater, whose company is one of Australia’s biggest providers of landlord insurance, said while she used to see a squatting related claim every few years, incidents were becoming commonplace in WA. There are more than 10,000 properties available for rent in Perth, up 35 per cent from this time last year.”

“Judy Luxton, who is based in the UK, had squatters evicted from her two-bedroom apartment in the Perth CBD this week. The property had been rented but the tenant illegally sublet the home. The subletters didn’t pay rent and barricaded themselves within the unit. The Sunday Times joined the property manager in an inspection of the building after the eviction this week which revealed the apartment had been trashed with food left to rot, furniture dissembled and carpets stained beyond repair.”

“It is believed about five people had been living in the unit. ‘I know people are people, but I don’t understand how someone can think it’s OK to do that to a half-a-million-dollar apartment,’ Ms Luxton said.”

The Australian. “Rich-listers and wealthy private investors are setting up funds aimed at lending to foreign apartment buyers left stranded by the banks’ lending bans, in a move that will create a new tier of subprime lending. The apartment market faces the perfect storm of a wave of new development, banks pulling back lending to both apartment investors and developers, rising building costs and recently increased state taxes on foreign buyers.”

“Meanwhile, offshore and local investors are expected to ­in­creasingly face a funding gap as banks revalue off-the-plan units approaching settlement, leaving many below their purchase price. Bill Moss, former head of property for Macquarie Group, expects Asian banks, particularly from China and Malaysia, to enter the Australian market in a bid to bridge the funding gap. The loans were made against the value of the asset, not the borrowers capacity to repay the debt, he noted. ‘This is subprime lending,’ Mr Moss said. ‘It is no different to what happened 10 years ago on low-doc lending.’”

“Deloitte Real Estate partner Damian Winterburn said he was aware of two separate ­$100 million-$300m funds established in the past month by wealthy private investors to fill the funding gap, while a US-based fund was looking at entering the Australian market. These funds were targeting foreign buyers looking to borrow 60-70 per cent of the purchase price. They were charging ­between 8 and 12 per cent, he said. ‘I don’t want to name the funds as they are already being overwhelmed by demand from largely Chinese and other Asian investors,’ Mr Winterburn said.”

June 29, 2016

Markets Flooded With Investors Chasing Yield

A report from Real Estate Weekly. “When The RADCO Companies CEO Norman Radow was in the workout business, his company foreclosed on $8 billion worth of real estate over two years. After the workout business, Radow transitioned into buying multifamily, ‘because Fannie Mae and Freddie Mac were there, and it had liquidity.’ But he quickly learned he couldn’t compete for shiny new apartments against the Behringer Harvards of the world, which could close in 30 days. That’s when he discovered the Class-B value-add space. ‘Eighteen months later, something profound was going on,’ he recalled of the year 2013. ‘There was the most dramatic demographic change since the end of World War II … and we were seeing it in reverse. The market was moving faster than we could catch it.’”

“Since then, rents have grown each year — in Atlanta, as much as 10 percent or more. ‘This isn’t an inning,’ he said of the market. ‘This is a whole new season.’”

The Arizona Daily Star. “Activity in Tucson’s commercial real-estate market was a mixed bag in the first half of the year, with some sectors performing better than expected and others struggling. The multifamily market has been the star of the show so far this year, attracting big investors and record sales. ‘The apartment market in Tucson and the entire West Coast is on fire,’ said Kami Taylor, sales manager for CBRE’s Tucson office. ‘It’s a safe investment; you’re not looking at big dips in income stream. Markets of our size have been flooded with investors in apartments.’”

“Michael Gross, investment specialist with Tucson Realty & Trust, said there have been 41 sales of communities with 25 or more units so far this year. ‘Apartments have been the king and leading the investment market,’ he said. ‘Unheard of, but in a low-return market, investors are chasing yield.’”

The Dallas Morning News in Texas. “North Texas apartment construction has exploded in the last few months, reaching almost unheard of levels. More than 50,000 apartments are currently being built in the Dallas-Fort Worth area - a jump of almost 7,000 units in just the last three months, according to a new report by MPF Research. More apartments are under construction in D-FW than anyplace else in the country. Apartment building volumes in North Texas at midyear are about seven times what they were five years ago, according to MPF Research.”

“Almost 10 percent of all the apartments being built in the entire U.S. are in the D-FW area.”

“Most of the leasing has been in the second quarter, after a slump in apartment renting during the early months of this year. ‘After demand lulled briefly right at the start of the year, leasing now has surged again,’ said Greg Willett, MPF Research vice president. ‘If the economy stumbles for any reason and there are 50,000 units on the way, that means a big correction.’”

The San Francisco Business Times in California. “New data on residential rents in San Francisco shows two trends: a flood of new supply had led to flattening prices and renters have started to look outside the city for more affordable options. Real estate data website Zumper’s latest San Francisco rent map tells a revealing story of how the market and renters are responding to the city’s stratospheric rental rates. Devin O’Brien, head of strategic marketing at Zumper, told the Business Times that new, higher-end units coming into the market as a reason why prices have started to stabilize. ‘Over time, this trickles down into lower-priced units as these buildings are ultimately just new supply,’ O’Brien said.”

“South Beach once again led pricing – even with a 2.5 percent drop from the last measured time period – with median one-bedroom apartments going for $3,860. Neighborhoods where median rental prices dipped include Hayes Valley, which was down 3.4 percent to $3,410 and the Tenderloin which dropped about 2 percent to a median price of $2,250.”

The Gothamist in New York. “For those of you who hoped news of the impending L train shutdown would drive out all the rich people so Williamsburg can dedouchefy, according to a new report, rents have, in fact, dropped slightly off the Bedford L stop. Real estate blog Brick Underground released their annual list of median rents within a five-block radius of stops ranging from Bedford Avenue to Broadway Junction, and it appears, blissfully, that median rents off the Bedford Stop have gone down 11.4 percent from 2015.”

“The site hypothesizes that the massive influx of high-end developments coupled with fears over the future LPocalypse likely contributed to the decrease, though perhaps ‘The Bedford Stop’ scared off some prospective renters, too. The median rent in Yupster Times Square is now $3,100/month—in 2015, it was $3450/month, up from $3,350/month in 2014.”

“The Lorimer stop also saw a decrease, with median rents going down 5.7 percent (to $3,300/month) from 2015. The number of rental units are also up a wild 93.7 percent from 2015, which likely lessened the burden on renters. As for stops further down the line: the Grand, Montrose, Halsey and Broadway Junction stops all saw decreases in median rent.”

June 28, 2016

A Seemingly Obvious Omission

The Calgary Herald reports from Canada. “The benchmark price on single-family homes in the city last month was $500,500, easing three per cent from $518,000 during the same time in 2015, says the Calgary Real Estate Board. Quick possession home buyers turning to Calgary’s northwest saw prices dip by more than $20,000 last month compared to the same period a year earlier, says Canada Mortgage and Housing Corp. The quadrant had 90 constructed but unabsorbed single-family homes, which was the most of any quadrant in the city. This statistic typically reflects the spec and show home segment. The average price on these homes in northwest Calgary was $640,951, which is down year over year from $667,423.”

“On the resale market, the most substantial setback in pricing for single-family homes came from an area that the Calgary Real Estate Board has identified as the city centre. Its benchmark price was $648,800, which is a five per cent dip year over year, says CREB.”

The Saskatoon Star Phoenix. “The market for cabins on popular lakes north of Saskatoon is ‘not especially strong,’ but price erosion caused by weak energy and commodity prices appears to be at an end, according to a local real estate agent. ‘I think it’s a little less reactive to the (economic) situation,’ said Matt Miller, an associate broker with Royal LePage Saskatoon. ‘Inventories have come up, prices have softened a little bit, but we aren’t seeing a dramatic change.’”

“Cabins in Melfort went to residents of nearby communities, while ‘financially secure millennials’ dominated the market in the Regina region. Cabins in Saskatchewan cross the price spectrum but are generally accessible only to people who can afford two properties. Miller said that means there is less pressure to sell quickly, which has contributed to higher inventories and softening prices.”

CTV News Vancouver. “B.C. Premier Christy Clark is addressing the issue of housing affordability in Metro Vancouver, appearing in a YouTube video promising the province is taking action to ease the Lower Mainland’s housing crisis. Economist Tom Davidoff called the principles a good start, but he joins the chorus of critics that say they’re baffled by a seemingly obvious omission – foreign ownership.”

“‘The most important [issue to be addressed] is the critical role of money coming in from overseas,’ said Davidoff. ‘People who don’t pay taxes here driving up real estate prices for those who do.’”

“The video includes no mention of foreign ownership, a factor that analysts and economists alike say plays a role in pricing out local families. A recent study found some 10,800 homes, many of them condos, sit empty in Vancouver. ‘How do we get control of the international money in our housing market that’s distorting prices so badly?’ NDP housing critic David Eby told CTV News. ‘It’s one thing to say you’re going to increase supply… but we have record housing starts in Metro Vancouver, and housing has never been less affordable.’”

From CBC News. “A major Chinese bank has obtained a court order in B.C. freezing the assets of a businessman accused of fleeing China and buying ‘luxury’ Lower Mainland homes after defaulting on a $10 million loan. In an application brought before a B.C. Supreme Court judge last week, lawyers for China CITIC Bank claim Shibiao Yan and his wife bought more than $8 million worth of properties in Surrey and Vancouver over a three-month period beginning in June 2014.”

“The court documents claim Yan, who was president of the Tanyuan Wood Company in Shijiazhuang, China, withdrew RMB 50 million from a line of credit he obtained on behalf of his company. The bank claims the 56-year-old provided a personal guarantee for the money. The loan came due last summer. But the bank claims Yan and his family had already fled to the Vancouver area. Yan could not be reached for comment. He was not represented at the ex parte hearing and none of the allegations against him have been proven in court.”

“Last year, Canada’s anti-money laundering watchdog FINTRAC claimed to have stepped up enforcement activities in Vancouver’s real estate market. A report prepared for the agency suggested the real estate sector was at ’significant risk’ for money laundering.”

“According to the court documents, Yan incorporated a company in B.C. called TYMY Investments in March 2014, and his 36-year-old wife paid $2.5 million for a house in Vancouver a month later. The bank claims Yan applied for the loan in June 2014, but did not reveal that he had a residence or any interests outside of China. He was allegedly given a line of credit in June 2014 and withdrew the entire amount within days. The documents claim Yan bought three homes in Surrey in the next three months, one worth $1 million, one worth $3.1 million and one worth $2.3 million.”

The National Post. “The planned auction for a Victoria mansion was scrubbed Wednesday evening after only one bidder showed up. But that bidder — a local resident — may end up owning the 7,200-square-foot heritage house. Negotiations were taking place. ‘We are going to work with that bidder privately,’ said real estate agent Andy Stephenson of Sotheby’s International Realty Canada.”

“Stephenson was optimistic about the eventual sale price, speculating it would be about $2 million. The 5 p.m. auction followed two weeks of open houses at the Samuel Maclure-designed house. The listing price for the property was $1.998 million. The minimum reserve bid was not disclosed. Stephenson had hoped that a number of bidders would be attracted to the auction, a marketing method that’s rare in Greater Victoria.”

“Stephenson estimated that about 2,000 people viewed the six-bedroom house during the open houses. There have been 2,600 hits on the video of the house posted on Sotheby’s website, he said. About 60 people showed up at the house to watch the auction play out in the 32-foot-long ballroom. Many were Rockland residents and real estate agents. Stephenson said he thinks other sellers might want to stage auctions in the future. ‘I think there are a lot of people in this room that are probably thinking about it with their own homes,’ he said.”

“The auction idea was launched at a time when Greater Victoria’s real estate market is repeatedly setting monthly sale and price records.”

June 27, 2016

The Increases In Prices Have Been Insane

The Traverse City Record Eagle reports from Michigan. “Chase and Brent Ritchie entered the housing market about a month ago with a firm $150,000 budget. ‘It’s sort of impossible in this market because as soon as you find something you like, there’s an offer on it the next day,’ Chase Ritchie said. The couple jumped into the market as buyers while the supply continues to tighten, said Catherine Barris, associate broker at Real Estate One. Barris has seen the definition of ‘affordable’ for such real estate push $250,000. ‘Between $200,000 and $225,000 is hot right now,’ she said. ‘Prices have been going up really rapidly and demand is huge.’”

“Those who do sell will have an upper hand, said Barris, who frequently sees prices on property listings inflated by 10 to 20 percent. A client recently sold a house for $159,000 that two years ago would have been lucky to sell for $130,000, she said.”

The Idaho Statesman. “In a perfect world, Boise couple Christi and Micah Farrell could take a day to talk about spending more than $350,000 on a house. Sellers often field multiple offers at asking prices or higher the day their homes hit the market. The Farrells have been house hunting for two months and have visited 10 homes in the past two weeks. Christi Farrell said each home was a little too small or needed a little too much work for the asking price. ‘It’s nerve-wracking,’ she said. ‘I want to walk through a house and be able to sleep on it, process it just a little bit. I feel this pressure that if you want something, you have to buy it now or it will be gone.’”

“Some buyers — especially those who have lost bids on other houses — are winning bids after writing personal letters to sellers explaining why their families would cherish a house. Under normal conditions, a market with low inventory and strong price gains would attract more sellers, said Mike Turner, owner of Front Street Brokers in Boise. ‘Some sellers are waiting because they aren’t excited about what they can get for their house yet,’ said Turner.”

“More than half of Turner’s buyers hail from outside of the state, he said. Turner said there’s no reason to think out-of-state money won’t continue to support rising home values as long as buyers in expensive markets, such as California, can sell homes there and replace them at a fraction of the cost in the Treasure Valley. ‘Maybe prices are higher than what we’re used to, but for those buyers, the cost of living is still a fraction of where they’re coming from. That’s why I think it’s sustainable,’ Turner said.”

The Seattle Times in Washington. “It’s not just Seattle that’s seeing eye-popping housing costs. Soaring costs from Bellingham to Spokane have propelled the state to a record for home prices, surpassing its pre-recession peak for the first time. Just in the last few years, Washington has zoomed up the list of priciest states in the nation. ‘There’s no reason to believe that this is going to stop anytime soon,’ said Peter Orser, director of the University of Washington’s Runstad Center for Real Estate Studies.”

“In coastal Grays Harbor County, home costs are now “only” $141,000 — but that’s way up from $88,000 four years ago. It’s among the regions seeing soaring housing costs despite remaining fairly economically depressed: The unemployment rate in Grays Harbor is 8.3 percent, third worst in the state and nearly double that of King County’s.”

“Gragg Miller, a managing broker at the Coldwell Banker Bain office in Bellingham, remembers hearing from Seattle agents years ago about getting 10 or more offers on houses in Seattle, creating bidding wars that drive up prices. ‘I thought, ‘I hope it never comes up to Bellingham,’?’ Miller said. Now, ‘It’s starting to come up here.’”

The Bend Bulletin in Oregon. “The number of cash buyers as a percentage of all homebuyers in Bend is on the decline, according to data from the Central Oregon Association of Realtors. ‘It’s a much different environment in real estate than when cash was being thrown around,’ said Carrie DiTullio, a Bend real estate broker.”

“Curtis Delamarter, a Bend broker, said newcomers often arrive in Bend with cash on hand from the sale of their property in Seattle, Portland or Southern California, looking for a lifestyle change and relatively cheaper deals on real estate. They’re not as willing to spend that money on a home purchase as they were when prices were at their lowest. ‘In 2011, you could buy a house in Bend for $150,000,’ Delamarter said. ‘That’s no longer possible.’”

The Orange County Register in California. “For those who think the housing market is too hot, here’s a bit of comforting news. A late spring slowdown in Orange County’s thirst for resale housing is the sharpest reversal in Southern California, according to one benchmark. As of June 16, Orange County’s market time was 69 days vs. 66 days four weeks ago and 60 days a year ago. Why has Orange County’s market time jumped? Well, listing inventory of existing homes for sale rose by 601 homes (10 percent) in four weeks to 6,868. New pending sales fell by 155 homes to 2,989, a 5 percent drop.”

“‘Basic Econ 101 tells us that when supply increases by 10 percent and demand drops by 5 percent, the pace at which homes sell cools. As a result, homes are not selling like hotcakes like they were a month ago,’ wrote Steve Thomas of ReportsOnHousing.”

“CoreLogic reported Orange County homebuilders had their best May in a decade with 421 new-home sales. That was up 49 percent in a year and almost 12 percent of all home purchases. Resales of homes and condos were up just 2 percent from May 2015. If homebuilders keep their hot sales pace, it may be competition – not skittish buyers – making the resale market look lethargic.”

The Mercury News in California. “After 12 years in Sunnyvale, Jason and Freda Collier and their two children are moving to Austin, Texas. ‘The increases in prices we’ve seen over the last 12 years have been insane, and I don’t know how sustainable it is,’ said Jason, a tech executive who sensed that ‘the market had reached its peak point’ and decided it was prudent to ‘make a move’ before prices fall. The Colliers sold their 1,600-square-foot Eichler home in Sunnyvale — which they purchased 12 years ago for $750,000 — for $1.7 million. In Austin, where Jason often travels on business, their new 5,000-square-foot home on half an acre with a swimming pool cost $740,000.”

“Real estate agent Kevin Swartz of the Sereno Group, who represented the Colliers, said their deal is a window on the current market, which he said has softened. The house attracted just one offer — and sold for $17,000 over its listing price, not much by recent standards. ‘A lot of buyers are really becoming very picky,’ Swartz said. ‘The market has changed. … It used to be, ‘How much do I have to pay to make sure I get this house?’ Now it’s, ‘Well, what do I really have to offer? Because I don’t want to overpay.’”

“Other agents agreed that the market has shifted in recent weeks — a change that might not be reflected in CoreLogic’s numbers, which are based on deals that have passed escrow and have been officially recorded. ‘It’s an interesting market right now,’ said Alain Pinel agent Mark Wong, who is based in Saratoga. ‘It’s transitioning. Before, the seller took all the control; they could ask anything they wanted. Now, the buyer can take a little bit more control.’”

June 25, 2016

Sellers Won’t See As Many Offers As Peak Frenzy

A weekend topic on some markets I missed in the excitement yesterday, the American Statesman in Texas. “Austin-area home sales and prices surged in May, the latest figures show, but some real estate agents says competition is easing a bit as buyers become more cautious with their bids. ‘Buyers are now more cautious and mindful about escalating prices, and aren’t as willing to get into bidding wars,’ said Yvette Evans, an agent in Austin with Redfin. ‘If a home is overpriced, the seller won’t see as many offers as they may have in March or April when the Austin housing market was at peak frenzy.’”

“Andrew Vallejo, an agent with Redfin, also is seeing competition soften slightly, ‘as buyers realize that not every home is necessarily worth 10 percent over list price.’ ‘One of my buyers recently made an offer on a home that six months ago would have received four or five competing bids, but we were the only ones to make an offer,’ Vallejo said.”

The Marin Independent Journal in California. “The median price of a Marin home jumped to a record high $1.2 million last month, up 8 percent from the previous May, according to CoreLogic. While this might seem like great news for Marin, some local real estate agents painted a different picture. ‘I think what you have is a lag effect,’ said Peter Richmond, a Pacific Union agent. ‘What you are seeing is homes that closed in May. Those homes probably went on the market in April or earlier. But houses that went on the market in May and June — even if they are holding the price, they are not moving as quickly,’ the agent said. ‘I’ve seen cases where multiple offers are not happening as often as they were and people are taking more time,’ Richmond said.”

“Agent Marilyn Rich said, ‘Luxury prices have not gone up at the same rate that lower-priced homes have. There have been a lot of price reductions and houses back on the market in the luxury market.’”

The Real Deal in Florida. “It might not be the bloodbath seen when Miami-Dade County’s housing market crashed in 2008, but many in the real estate community are likely feeling the pressure. As previously pointed out by market analysts like Jonathan Miller, pricing trends can lag behind sales by as much as 15 months. Others are saying sellers might have to face reality sooner than that. Researcher Anthony Graziano of Integra Realty Resources said at a recent panel discussion that many homeowners are still listing their properties at ‘aspirational’ prices, which means those homes end up staying on the market for longer.”

“That buildup of inventory is starting to show: May saw 14,107 active condos and townhomes on the market, a figure that’s surged 16.8 percent from the year before. All those units translate to 11.2 months of inventory.”

The Philadelphia Inquirer in Pennsylvania. “Philadelphia banks are worried about a couple of things, writes veteran bank analyst Frank Schiraldi in a report to clients of Sandler O’Neill + Partners: Too many apartments are being built for the ‘frothy’ Philadelphia market; ‘Irrational’ loan pricing is making it tougher to profit from loans.”

WNCT in North Carolina. “With a new class of ECU Pirates scheduled to move to Greenville in less than two months, one student apartment complex is going into foreclosure. Captain’s Quarters filed for foreclosure on June 17. Court records show the complex hadn’t made payments since November 2015, and owes more than $26.2 million. Occupancy rates are rumored to be around 13 percent, so low that the complex is offering free cruises for students who sign with them.”

“The foreclosure has led some Greenville leaders to question whether or not this is just a sign of things to come. Councilmen McLean Godley and P.J. Connelly both point at the student living marketplace being over-saturated in Greenville. In a statement, Godley said the foreclosure, ‘is a result of councils’ of years past who rubber stamped student housing requests while not taking their time to foresee their effects on our community.’”

From Prairie Business in North Dakota. “In a quarterly housing market analysis of 400 U.S. cities, Bismarck, N.D., ranked the worst overall and Grand Forks, N.D., had the third-largest decline in the past year. Ben Ayers, senior economist with Nationwide, which issues the report, attributes the poor markets in both North Dakota cities to the oil slump. It’s not surprising, he says, as the slowdown has affected many other industries and job sectors. ‘The whole story is the oil decline.’ Texas and Wyoming host many of the lowest-ranked housing markets, also, both feeling the pinch of their oil sector problems, Ayers adds.”

“House price growth is flat in Bismarck, as sellers are having trouble finding buyers, while in Grand Forks, employment growth is flat. Both factors translate into fewer people looking to invest in homes, Ayers says. Grand Forks also is seeing increased delinquency rates on home mortgage payments.”

June 24, 2016

The Problems Of Having A High Proportion Of Investors

It’s Friday desk clearing time for this blogger. “San Francisco Realtor Brendon Kearney said there is some weakening in the San Francisco market. ‘It’s definitely not as hot as usual’ for this time of year, he said. ‘I have had buyers pay 30 percent over asking to get the condo they wanted. I have had condos sitting 20 days on the market with no activity.’ As for those micromarkets, ‘we are definitely seeing softening in the $3 million-plus market,’ said Kearney, who is with Vanguard Properties. A home in that price range that used to take 14 days to sell is now taking 28 to 35 days, often after price reductions. Kearney said there is less demand for homes that need cosmetic fixing and for condos in and near the South of Market area. ‘They are not moving as fast as they were at the price point we would expect. It’s a very first-time home-buyer market, a very tech-driven market. With a shift in VC funding, we are seeing less activity there.’”

“Patrick Carlisle, chief market analyst with Paragon Real Estate Group noted ‘a significant shift in Bay Area employment numbers.’ He said that employment in San Francisco, San Mateo, Alameda and Contra Costa counties fell between December and May by a total of 5,000 jobs. This is the first time since 2009 that employment in these counties declined in the first five months of the year. ‘Changes in employment figures, up or down, typically affect the rental market relatively quickly and dramatically — more so than the real-estate purchase market — and that certainly appears to be the case in San Francisco, where softening demand and rents have been widely reported,’ Carlisle wrote.”

“The housing market has slowed down from and its 2015 rush, and according to some analysts, it’s sellers that are responsible. B.E.A.R., the real estate trade association which covers the Bonita Springs and Estero areas, reported that sales have dropped by 13 percent over the past year, and an 18 percent drop in pending sales. ‘Sellers have not yet come to understand the shift in the market,’ stated D. Michael Burke, 2016 B.E.A.R. President. ‘This shift requires lowering prices to real market value to generate sales activity, but many sellers have not realized this yet.’”

“A year ago, the area had just nine weeks’ worth of inventory on hand. Today, that’s nearly doubled. As many sellers see dollar signs in the sold listings around them and just into the market, realtors are struggling to get buyers to bite on prices they believe are too high. In its report, B.E.A.R. reported that open house activity has slowed to a near halt, ‘as they know that the most powerful marketing is useless if the price is not marketable.’”

“A mid-year report from the Greater Houston Partnership indicates apartment occupancy is at about 90 percent. Rates below 90 tip the balance in favor of renters, and occupancy is expected to fall into the mid-80’s. This is as developers are adding 25,000 more units over the next two years. ‘Job growth was, I guess in 2014 it was around 100,000 jobs and all of a sudden in 2015 it fell off the table,’ said Bruce McClenney with ApartmentData.com. ‘We got caught in a development stage and the job growth kind of ran out on us. So there’s more supply than demand right now, which would be a definition of overbuild.’”

“The inventory of single-family homes for rent has increased over the past year, and especially in the past 30 to 60 days. The market is forcing property owners to absorb increased property taxes and insurance costs. ‘So we definitely have a pressure on the rent from the market, and the pressure is to keep the rent — it must stay low, despite the fact that the taxes have gone up and insurance rates have gone up as well,’ said Wojciech Kic with ManageRentHouses.com. ‘Property owners have to absorb the difference between what the expectations were, perhaps, and where the market is today.’”

“The highest number of contracts this year were signed last week at $4 million and above in Manhattan — but only after many sellers agreed to hefty price cuts. According to Olshan Realty’s weekly snapshot of Manhattan’s luxury market, this was only achieved after desperate sellers, whose properties were languishing on the market, were forced to cut prices by an average of 11% from the original asking price amid a glut of luxury homes for sale. The average property was on the market for a lengthy 311 days.”

“‘The luxury market is bloated and choking with a lot of over-priced inventory, but once sellers capitulate and adjust to realistic price levels, the market moves. Not coincidentally, the May and June weeks that showed the strongest activity of the year were also those that saw prices slashed,’ said Donnan Olshan, president at Olshan.”

“A troubling trend has been gaining traction in one of the country’s most overheated residential real estate markets: condo developers in Vancouver privately offering their most affordable units to particular realtors as well as family and friends, prior to the sale dates of these units, thus revealed The Globe and Mail reporter Kathy Tomlinson. ‘I think we are being deceived,’ realtor Steve Saretsky argued, going on to say that most of the buyers who are granted exclusive access to these insider trades are speculators that do not plan on residing in the purchased units. ‘I think it’s giving local people a false hope – that if we keep building and building and building, it’s going to help them to find a home.’”

“In some suburbs across Australia almost all the homes are investment properties, including some of Sydney and Melbourne’s inner-most property hotspots, new research shows. ‘While investors have generally derived strong capital gains from their properties over recent years, growth in rental income has been comparatively soft. Investment is currently ensuring that there is ample rental accommodation and subsequently easing rental price pressures,’ said CoreLogic head of research Tim Lawless. Many of the areas with high proportions of investors are ‘renter’s, rather than landlord’s, markets,’ he said.”

“One of the problems of having a high proportion of investors in one area is more volatility in the market, said BIS Shrapnel senior manager of residential Angie Zigomanis​. ‘Investment properties are a discretionary purchase to some extent, and if times got harder they’re the properties that would be the first to go,’ Mr Zigomanis said. ‘It’s a risky proposition if you are forced to sell at the wrong time.’”

“For the past two years, Swadeep Sharma was on the lookout for a house in Noida. Last year, he zeroed-in on a house, in one of the newly-completed projects on the Noida Expressway. However, he was unable come up with the finance for the house that cost Rs 5,600 per sq ft. After sorting out his funding issues, he recently went to the same location, anticipating that he would need to shell out more money. He was surprised to find that an apartment in the same society, was now available at Rs 4,800 per sq ft.”

“‘Initially, I thought that it was a distress sale. On further examination, I realised that this was the prevalent rate in the locality. However, none of the developers in the region had reduced their prices. The first owner revealed that he had bought the house, when it was launched six years ago, at Rs 3,000 per sq ft,’ Sharma explained. The price of the property that Sharma had seen, had appreciated by 60% over six years, indicating that property was not the best investment instrument, in this case.”

“Moreover, the decrease in prices in the secondary market, by 10% to 20%, suggests that developers will have to keep waiting for buyers. Requesting anonymity, a Ghaziabad-based developer admits that transactions in the secondary market, indicate a sharp correction. In spite of this, he maintains that developers cannot reduce prices, due to high input and overhead costs and blames retail investors, for ruining the market. ‘Today, we are paying the price for selling our inventory to investors. They don’t have the patience to wait. Reports of price corrections are making them nervous and they are resorting to what can be described as distress sales,’ the developer explains.”

“Hong Kong property prices have plummeted in recent months as a consequence of weaker demand, with values dropping by an average of 11% since late last year. Many property developers in Hong Kong are now offering significant price reductions to help offload a high volume of new build housing stock in the city. Wheelock Properties recently sold a luxury home in Hong Kong’s exclusive Peak neighbourhood for around £73m which was 25% lower than estimates by some analysts. ‘I am very surprised [at the sale price],’ said Danny Leung at Centaline Property Agency.”

“Whether you are a buy-to-let landlord or a private residential owner, you may well feel as though there is a pressing need to sell your house in the current climate. Most recently, we have witnessed the collapse of Scotland’s very own property boom town: Aberdeen. After seven years of relentless growth, the average price of property in Aberdeen has fallen to £186,200. This represents quite a decline, especially for a location that up until recently was renowned as the energy capital of Europe.”

“At the peak of its growth, Aberdeen boasted more millionaires per 100,000 residents than London, which underlines just how far the town has fallen in the last two years. To make matters worse it is now officially ranked as the least attractive location for property investors with a score of -40. Given the size of London and the level of inflated growth that has defined the market during the last 18 months, and economic collapse could cause values to plummet and leave thousands in significant debt.”

“Almost immediately, you can see the similarities between Aberdeen and London and the portents for the capital. While the former towns’ decline was triggered by the decline of a specific industry, London could be even harder hit by a widespread economic collapse in 2016.”

“A few weeks ago we published a piece on the global property bubble – its causes and its consequences. This week has brought news of another one of its symptoms: two Australian states have announced that they are toin an attempt to deal with fast-rising house prices (there has been a wave of Chinese money hitting the market over the last few years).”

“New South Wales is to have a new stamp duty of 4% for foreign buyers and Queensland is to have one of 3%. New South Wales is also planning to charge a 0.75% land value tax on real estate investors. The news comes hot on the heels of a government decision earlier in the year to block the sale of S Kidman & Co, a company that holds nearly 1% of Australia’s land mass (25 million acres and 2.5% of its agricultural land), to a consortium of Chinese buyers on the basis that the sale would not be in the national interest.”

“The problem here is obvious – the latest wave of globalisation has made money movement international. But politics is still (quite rightly) pretty local. That means that politicians feel obliged to come up with local solutions to block the perceived problems of globalisation – and that those solutions are often (rightly or wrongly) protectionist.”

June 23, 2016

It’s Astounding How Universal It Seems To Be

Insider Louisville reports from Kentucky. “Ok, pop quiz! (applause) First question: In what month were Louisville homes selling the fastest? You guessed it, May! Second: What month had the lowest absorption rate in Louisville real estate history? Yes, again it’s May! How about a trick question? Since January 2006, which month had the highest median home sale price? Drat! You guys are smart. The answer here is also May 2016. Can you believe this stuff? If you walk up to the next real estate professional you see and ask them, ‘How’s the market?’ you’ll likely be met with a pregnant pause while they gather their thoughts, stridently searching for words to accurately describe what in the world is going on right now.”

The Seattle Times in Washington. “The building boom sweeping downtown Seattle is hard to miss, between the jostling cranes, giant holes in the ground and construction crews closing down streets. But new data shows just how intense things have gotten — and how much more is still yet to come. There are currently 65 major buildings under construction across downtown, South Lake Union and surrounding neighborhoods, more than at any point since the figures were first tracked in 2005, the Downtown Seattle Association said in a new report. The previous midyear high was 50 buildings under construction in 2014 and 49 last year.”

“And the frenzy isn’t set to end anytime soon: Most of the structures will take until next year to finish, and there are dozens more in the pipeline set to start in the next year and a half. About two-thirds of the project are residential. The number of housing units under construction downtown has also hit a new high since 2005. ‘There is a ton of development on all fronts,’ said Don Blakeney, a vice president for the downtown group.”

The Washington Post on Virginia. “Arlington County, which last year approved construction of a record 3,747 rental apartments or condominiums, has given the green light to build about 1,900 more so far in 2016. David Howell, executive vice president and chief information officer at the real estate firm Mc­Enearney Associates, said he sees no indication that residential units are being overbuilt in Arlington and other close-in communities. ‘I don’t think we’re there yet,’ he said. ‘Millennials are slowly coming out of mom and dad’s basement, and the first rental or purchase tends to be in these apartments and condos. There’s an enormous pent-up demand.’”

The Charlotte Business Journal in North Carolina. “One Charlotte City Council member stopped just short of mentioning an apartment moratorium during the public hearing portion of Monday’s zoning meeting. Though pausing new multifamily development in Charlotte wasn’t the focus of her comments, LaWana Mayfield, who represents District 3, said council and city staff needed to more closely examine the repercussions of proposed multifamily projects.”

“Tens of thousands of apartments are being developed or planned across Charlotte. But while demand is high, with low vacancy and high absorption rates, many have wondered when the boom will end. ‘If you notice where this project is located, it’s almost diagonal from Brookhill,’ Mayfield said. ‘You have a community that has been predominately lower-income (and) minority.’ In the wake of new development, she added, lower-income residents are ‘continuously being displaced.’”

The Wall Street Journal. “An annual report from Harvard University’s Joint Center for Housing Studies, the State of the Nation’s Housing, reveals that even while the housing market begins to recover and regain solid footing, large parts of the country are being left behind. Middle-income families are increasingly losing ground, facing housing affordability challenges that were once largely limited to the poor. One reason middle-income renters are struggling to find an affordable apartment: Developers are catering to a growing number of affluent renters.”

“While newer rentals have always commanded higher prices than older units, the premium for new apartments has risen sharply, the Harvard report finds. The median asking rent for new apartments built in 2015 was $1,381 per month, more than 70% higher than the overall median rent. The rent premium for new studio apartments was even more stark, at 90% above the overall price for a studio. ‘It is just astounding how universal it seems to be’ that the majority of new rental apartments in cities across the country are at the high end, said Chris Herbert, managing director of the Joint Center for Housing Studies.”

From National Real Estate Investor. “Tens of thousands of new apartments are now opening in central business districts (CBDs) around the country. Some will have a hard time finding residents. ‘There’s a lot of angst about downtown apartments right now,’ says Jay Parsons, vice president for apartment market intelligence firm MPF Research. ‘The real challenges will come in the next 12-18 months as supply further accelerates in downtown sub-markets across the country. Anyone who subscribes to the idea that downtown sub-markets offer a higher barrier to entry is holding onto outdated conventional wisdom. It hasn’t been true for a decade.’”

“In downtown sub-markets, the number of apartments is growing at a furious rate of 5.0 percent a year, on average. ‘That’s a huge number—particularly given that downtown areas are, by definition, smaller and more confined areas,’ says Parsons. ‘That means you have new apartments within walking distance of a ton more new apartments.’”

“Prices for apartment properties in CBDs have risen much more strongly than prices for suburban apartments, which helps explain why developers are eager to build downtown. Prices for downtown properties rose nearly 450.0 percent from 2000 to the end of 2015.”

“Prices also rose for suburban properties, but not nearly as much. And the more suburban locations resembled a downtown, the more price growth they experienced. Prices rose nearly 300.0 percent for suburban apartments in ‘highly walkable’ areas, close to 250.0 percent in ’somewhat walkable’ areas and just 200.0 percent in ‘car-dependent’ suburban areas, according to MPF.”

The Miami Herald in Florida. “It’s a trend that can’t last forever: Home sales in Miami-Dade County are falling, but prices are still going up. Total existing home sales slid to 2,435 in May, down 10.4 percent annually, according to data from the Miami Association of Realtors. Single-family homes — down 7.2 percent — fared better than condos, which fell 13.3 percent. (Existing condos are competing with a glut of new luxury construction.)”

“That makes sense, experts say. For now. ‘Historically, even after there has been a noticeable change in the market, home prices continue to increase for six to 12 months despite the shift in supply and demand,’ said Jack McCabe, a real estate analyst. ‘If you see a big change in the real estate market, it takes a long time to sell. It’s not like stocks or commodities.’”

“Sellers are already starting to respond, especially in the luxury market, said Ron Shuffield, president of EWM Realty International. About 37 percent of Miami-Dade listings over a million dollars have seen price reductions since Jan. 1, according to research conducted by EWM. ‘We’re seeing a lot of people reducing prices as inventory goes up and sales go down,’ Shuffield said.

June 22, 2016

Their Wager Might Be Shakier Than They Thought

WZTV reports from Tennessee. “To rent or to buy — that’s a tough question as Nashville’s ‘it city’ status drives an estimated 65 people to Music City each day. The continued boom means prices for both homes and apartments are rising, with builders working to keep up with demand. After years of paying rent, Travers Xanthos is now paying a mortgage. This millennial bought a house in Nashville’s Nations neighborhood after securing a sweet deal. ‘It’s three bedroom two and a half bath masters on the first floor, I paid $380,000 for it, but I only had to put three percent down,’ Xanthos said. ‘I really think it’s throwing your money away, especially if you’re going to be in an apartment downtown, you’re going to be paying $2,000 a month for a one bedroom a two grand mortgage would get a three bedroom house in the Nations.’”

“But with more apartment buildings going up, some others say renting gives you better flexibility. While all these new apartments being built may exceed the demand for them, it doesn’t mean rental prices will be coming down.”

The Wall Street Journal. “The largest U.S. apartment landlords are betting that hordes of millennials streaming into cities will keep pushing rents sky-high. But an expected spike in new supply in some key markets suggests their wager might be shakier than they thought. In 25 of the largest U.S. cities, multifamily permits in urban areas were up 39% in 2015 compared with a year earlier, according to a study by housing-research firm Zelman & Associates.”

“New York, for example, is poised to see 2.6 times more apartments come online in the next year than the historical average, according to the analysis. Boston is likely to see 2.5 times as much supply growth as usual, while Philadelphia is bracing for twice the usual supply increase. After the recession, ‘everyone rushed into the cities, land prices got bid up, construction got more expensive, so what you’re seeing is a lot of new supply coming on at the high end,’ said Alexander Goldfarb, an analyst at Sandler O’Neill + Partners. ‘You throw on a bunch more supply and the market really feels it.’”

“The slowdown already is beginning to be reflected in company results. According to Zelman & Associates, new apartment completions in the neighborhoods where Equity Residential’s portfolio is concentrated, such as Manhattan’s Midtown West, are forecast to increase 57% in 2016 compared with 2015. AvalonBay is likely to see a 50% increase in new supply in the neighborhoods where it has the strongest presence.”

“‘You can lean on the millennial argument…you can spin a story of how demand will absorb all of this,’ said Dennis McGill, director of research at Zelman & Associates. ‘Demand is not going to change by 50% in a year.’”

From Westside Today. “The average sale price of United States luxury homes fell 1.1 percent for the first quarter of 2016 according to internet real estate brokerage site Redfin. The definition of ‘luxury market’ for Redfin’s study is the highest 5 percent of homes sold in a particular quarter. Redfin reports that the ‘luxury home price decline was felt in cities across the country, including Miami Beach (-13.7 percent); Austin (-11.8 percent); Boston (-11.8 percent); Houston ( -5.1 percent); San Francisco (-4.7 percent); Washington (-4.2 percent); and Los Angeles (-1.3 percent).’ Except for Miami Beach, Redfin found these cities only fell at the high-end, with the bottom 95 percent seeing year over year price gains.”

“The explanation for prices going down at the high end but not the bottom 95 percent is that the global economic volatility caused luxury buyers to put the brakes on in the face of the volatility in asset prices including the oil and stock markets. The result was that the volume of inventory of homes priced above $5 million jumped up 13.2 percent from the prior year. Redfin explained that its numbers may understate the increased volume of inventory which may not include homes being built by speculators that are not yet officially on the market.”

“The Chief economist for Redfin explained further that, ‘instead of cheering rock bottom mortgage rates, luxury buyers recoiled from high–end spending in the face of volatile asset prices. Luxury demand, especially for vacation and investment properties, has been more fragile this year, causing prices to slump.’”

The Business Observer on Florida. “Coldwell Banker real estate agent Lynne Koy, specializing on Longboat Key and waterfront properties, had a golden week in early June, when she had three closings that totaled $6 million in sales. But the stellar week might not foretell a continuation in the housing market rebound. ‘I’m seeing a reduction in prices,’ Koy tells Coffee Talk. ‘We aren’t seeing the appreciation we saw in prices even a year ago.’”

“Koy says that reduction, even on sought-after waterfront properties, makes the science of how to price the listing even more of a priority. That was the case with one of her three recent closes, on Mistletoe Lane on Longboat Key. Koy actively watched the listing when it hit the market, first priced at $1,795,000. She reached out to the sellers when it didn’t move. Koy persuaded the sellers to relist with her at a lower price, $1,495,000. The 3,216-square-foot waterfront property, with four bedrooms and three and a half bathrooms, sold for $1.45 million 13 days after Koy knocked $300,000 of the list price.”

“‘Buyers are sophisticated shoppers,’ she says. ‘They will not be fooled into over-paying for properties, no matter how beautiful the view may be.’”

June 21, 2016

The Problem Is The Market Always Goes Down

CBC News reports from Canada. “The population of Grande Cache was 4,319 in 2011 according to the latest census but has reduced significantly in the past two years after nearly a third of the town’s jobs were lost. Housing values have dropped by nearly half in the last year. Coun. Shawn Moulun’s home was appraised at $282,000 this year but he predicts it will be worth $140,000 by the end of the year. Though Moulun has lived in Grande Cache his whole life he is thinking about leaving. ‘I’ve always loved Grande Cache but because of the outlook right now… yeah I would like to get out because my kids are turning college age too,’ he said. ‘But there’s no way to get out.’”

“So for now, he’ll stay. ‘I would love to sell my house because of the way Grande Cache is right now, but there’s no way I’m going to lose my $140,000. So I’m going to stick it out for the long haul here, until hopefully the coal mine returns.’”

The Guardian on the UK. “Flatpack furniture, stamp duty payments and three years of free tube travel are among the sweeteners being offered to buyers of luxury flats in London as developers scramble to revive a waning market. Jonathan Hopper, the managing director of Garrington, which finds homes for wealthy clients, said it had ‘been a few years in the making, but luxury property developers are now in the midst of a perfect storm.’”

“‘The challenges are particularly acute in the new build sector, with global economic turbulence curtailing demand from the overseas buyers who for years inflated the market in the mistaken belief that any luxury property with a London postcode would automatically turn to gold,’ Hopper said. ‘With so many luxury developments now being built, there’s suddenly a danger of oversupply – and some developers fear being left with unsold stock on their hands. As a result, there are some incredible offers out there and the dynamic has shifted firmly to a buyer’s, rather than a seller’s, market.’”

The West Australian. “Perth renters are demanding landlords cut rents and buy new furniture to woo them as the number of properties on the market hits an all-time high. Emboldened by a flood of new rental stock and WA’s slowing economy, agents say renters who would have queued for a property two years ago are now negotiating for a better deal or threatening to walk away. The speed of the market shift, particularly at the more expensive end of the market, has caught some landlords by surprise.”

“Corporate City leasing consultant Luke Lee said the market was at its weakest since 2008-09 in the wake of the global financial crisis. He said some renters were asking agents to drop prices to compete with similar properties advertised for less. A two-bedroom apartment that would have been rented for $1200 a week four years ago or $1000 two years ago now had agents ‘desperately trying to rent one for $650.’”

“REIWA president Hayden Groves said 10,800 properties on the rental market was ‘unprecedented.’ He said tenants had caught on and were bargaining for better deals, particularly if they saw apartments in their complex advertised for less than they were paying. ‘As soon as their leases come up they’re asking for a rent reduction and the smart landlords are taking it,’ he said.”

The Property Observer. “Australia’s richest man, Meriton boss Harry Triguboff, has slammed the NSW government for its plans to impose higher taxes on foreign buyers of residential property. ‘It is very bad. Without the Chinese nothing would ever get built,’ Mr Triguboff told The Australian Financial Review. ‘Never mind the bullsh– stories, sales volumes have already dropped and prices are coming down steadily. The Chinese buyers are already disappearing. This is not a joke. Chinese real estate agents are already sacking staff,’ he advised.”

“Mr Triguboff labelled the new taxes ‘very dangerous,’ coming as they did on top of moves by the banks to tighten up lending to foreign buyers. He also urged caution in light of the decline of the mining sector. ‘We have nothing else except real estate. We have to be very careful,’ Mr Triguboff told the AFR.”

From Shanghai Daily on Hong Kong. “Home foreclosures in Hong Kong have been rising and are likely to pick up pace as more owners default on high-interest loans from unregulated lenders in a weak economy, according to specialists in distressed property. For a city that relies on property-related businesses for about a fifth of its economy, any major distress in the apartment market would be a body blow. Buyers have in recent years got around the bank rules by taking out loans from these other sources and borrowing up to 90 or 95 percent of the value of the property. In some cases, they are even being offered the chance to borrow over 100 percent of the value.”

“That is fine when prices are rising but it doesn’t take much of a decline to put these borrowers underwater — which has been happening as the Hong Kong economy has struggled and home prices have dropped 11 percent from a September 2015 high. The situation is made worse by the repeated use of apartments for collateral in other unregulated transactions, including loans for stock trading. ‘More people (are) using their properties as collateral,’ said AA Property Services Managing Director Tsang Kit-chun, who auctions foreclosed properties. ‘Those who suffer a loss from the stock market are unable to pay back the mortgages.’”

From Eastday. “Real estate may be the most highly regulated and taxed asset class in the US and is considerably more regulated and taxed than in China, which can be challenging even to the most sophisticated and experienced investor, Alan Pomerantz, a senior counsel with Pillsbury Winthrop Shaw Pittman LLP, recently told a panel on Chinese investment in US real estate in San Francisco.”

“‘One of the barriers to entry in doing business in the United States for Chinese investors is failure to understand the nature of the laws of the United States when things turn not so good,’ he said. ‘The problem is the market always goes down, it always has and it will again,’ said Pomerantz. ‘When it goes down what happens in China is banks and borrowers sit down and talk about it. In the United States, not only do they not do that, the law prohibits them from doing that.’”

“‘Chinese people do not use lawyers the way US people use lawyers,’ he added. ‘We’d like to say that in China the negotiation starts after the deal is signed; in the US, it’s exactly the opposite.’ It would be a ‘big, big surprise’ for Chinese investors and their US partners, US construction companies and US banks if they were not aware of when there’s a hiccup in the real estate market, Pomerantz said.”

“When making decisions, Chinese investors tend to rely on trust, according to Zhengyu Huang, chairman and founder of ImmCaptial, a Chinese immigration capital service firm. When asked why they made the investment, the Chinese investors would say ’someone I trust invested there and told me to invest,’ he said.”

“‘I’ve seen a lot of deals. I’ve never seen a projection that didn’t make money, but not every deal makes money,’ said Pomerantz. ‘It’s easy to give your money to somebody to buy something. The barrier is how to make money and how when things don’t turn out exactly the way the projection shows, which is almost always the case.’”

June 20, 2016

The Frantic Pace Of Sales Has Abated

The Greeley Tribune reports from Colorado. “Weld County housing prices hit another milestone in May as the median sales price for the county shot up over the $250,000 landmark. During the past two years, the median price for single-family homes has risen 50.5 percent, from $172,700 to $260,000. But as housing prices continue to climb across the Front Range, wages remain stagnant, posing the question of affordability for those who live in the area. Mike Ramstack, a longtime broker and owner of Pro Realty, said he is nervous another housing bubble burst is on its way because people won’t be able to afford their homes. ‘I think we’re heading toward a big correction,’ he said. ‘We have people moving into the area, but from what I can see, wages haven’t risen that much to offset the increase in prices.’”

“Having so little inventory, or available houses, is causing a lot of the problem. He said some people are bidding $15,000-$20,000 more than the asking price and they’re still not getting the house. ‘People are getting what I call ‘auction fever,’ Ramstack said. ‘They’ve got to get it, and they overbid.’”

The News & Observer in North Carolina. “Triangle home sales rose 10 percent in May compared with the same period a year ago. The inventory shortage is particularly acute for homes priced under $300,000, as rising land costs have made it difficult for homebuilders to offer new product priced in that range. ‘It’s insane,’ said Van Fletcher, a real estate agent with Allen Tate, who has sold or put under contract 48 homes this year. ‘Every single one that I’ve put under contract, whether I represent the buyer or seller, is a multiple offer.’”

“Stacey Anfindsen, a Cary appraiser who analyzes MLS data, said the Triangle remains very much a bifurcated market. While demand is far outstripping supply at lower price points, it’s a different story at the upper end of the market. Sellers above $500,000 in many areas of the Triangle are having a much harder time selling their home. Anfindsen said a wave of new construction in the Falls Lake area is expected to make it even more challenging. ‘The re-sale market for $700,000 to $800,000 and above is going to get worse in the next six months to a year because there’s really nothing they can do to compete with new construction but lower the price,’ he said.”

The Naples Daily News in Florida. “A flood of new supply cooled sales of existing homes in the Naples area in May, though prices continued to inch forward. A report by the Naples Area Board of Realtors comparing May to the same month a year earlier showed inventory levels of resale homes and condos jumped 37 percent, to 5,207 from 3,800. That’s a boon to buyers, said Jeff Jones, managing broker at the Naples-Park Shore office of Coldwell Banker, in the report. ‘As more properties come on the market, buyers will have more options and won’t be forced to make aggressive offers,’ he noted.”

“Supply grew by more than 50 percent in the $1 million-and-above price range. But those who have been most squeezed by the housing shortage — buyers in the $300,000-and-below range — also found some relief. Supply in that segment jumped 29 percent in May over the year, to 1,391 from 1,076. Single-family home supply jumped 27 percent, to 2,744 from 2,168, while condo inventory increased 51 percent, to 2,463 from 1,632. With more to choose from and less pressure to buy immediately, the frantic pace of sales of last year has abated. Following a downward trend that began during season, overall closed sales dropped 17 percent, to 838 from 1,010.”

“‘The properties that are selling now are homes by owners who have priced their homes realistically,’ said Brenda Fioretti, managing broker at Berkshire Hathaway Home Services Florida Realty, in the report.”

Richmond Biz Sense in Virginia. “After dodging a foreclosure auction and weeks of negotiations with would-be residents, the developer of a stalled West End condo project has entered Chapter 11 bankruptcy. Tiber Partners LLC, the embattled ownership group behind the delayed Tiber condos at Libbie and Guthrie avenues, was ordered to enter bankruptcy protection. The ruling comes less than two months after three couples who put down deposits to purchase condos at the stalled development sought to force Tiber Partners into Chapter 7 bankruptcy.”

“In 2013, George’s John K. George & Company broke ground on the 15-unit condo development with units ranging from $575,000 to $1.2 million. Planned to be delivered to residents in 2015, the project remains unfinished with the delays coming to a head when John K. George & Co. and Tiber’s developers argued in court over completion of the project. While they traded allegations in court, people who put down deposits on the unfinished condos filed liens and lawsuits of their own.”

The Forum News Service on North Dakota. “Residential lots that Halliburton purchased for employee housing in Williston will soon be auctioned off to the highest bidder. The oilfield service company is selling 21 residential lots in Williston’s Harvest Hills neighborhood through a live auction June 30. The residential lots, as well as two commercial lots in Williston, will sell without a minimum bid, said Fontana Fitzwilson, executive VP of sales for Williams and Williams Real Estate Auctions, which is handling the sale. ‘They want buyers to know they’re committed to selling these,’ Fitzwilson said.”

“New home construction in Williston has significantly slowed with the drop in oil prices. Williston had issued four building permits for single family homes this year, according to numbers updated through the end of May. In 2015, Williston issued 76 building permits for new homes, the lowest number in six years. Williams County listed the value of the residential lots as between $50,000 and $70,000 in 2015.”

The Calaveras Enterprise in California. “Oak Canyon Ranch near Copperopolis, once planned as the largest golf course resort and housing development in Calaveras County, will instead remain as grazing land and could soon be permanently preserved through a conservation easement. The Calaveras County Board of Supervisors opened the door for that conservation easement by voting unanimously to give its blessing to the proposal. At a later date, the board will also have to rescind the development plans that were approved in 2003 for the 3,171-acre ranch.”

“The board acted at the request of members of the Airola family, who have leased the land and raised cattle on it for 60 years. Airola and his wife Deloris, 58, said that the family suffered through some glum years after the massive development was approved, never knowing when their lease might be canceled so that bulldozers could move in and construction begin. But larger market forces kept that from happening. After the housing crash of 2008, the demand for golf course homes in the Mother Lode stalled. Land prices came down until, last year, the Airolas were able to purchase the land.”

“Bill Airola is now retired from his veterinary practice, so he and Deloris have the time to run the ranch with a little help from their four sons. ‘Ever since we’ve been able to purchase it, it has been like a dream come true,’ Bill Airola said. ‘I have to pinch myself every once in a while about this.’”

“The project approved in 2003 would have allowed two golf courses, 2,675 single-family homes and a village center with a 300,000-square-foot commercial area, including 1,200 apartments and an 800-room hotel. ‘Unfortunately, the timing was not good for this project and it went belly-up,’ said Planning Director Peter Maurer. ‘The property owners have no intention of developing the property. This will continue the productive use of that property as a cattle-ranching operation.’”

June 18, 2016

A Lot Of Speculation Out There

A look at supply and demand in a housing bubble, starting with Radio New Zealand. “Reserve Bank measures have had little success in reining in the market, with house price growth in New Zealand’s largest city starting to accelerate again. According to figures from QV, the market has increased 15.4 percent year on year and 3.3 percent over the past three months - pushing the average house price to $955,793 in May. Prime Minister John Key told Morning Report the Reserve Bank still had options open to it to curb the city’s over-heated property market. ‘I know people are sick of it but all roads lead back to supply - you have to build enough housing. But my simple point would be if you want to do more around borrowing in that area, and the capacity for those people to access that market, the easiest road home there is through the Reserve Bank’s actions.’”

“Mr Key said he would potentially support Finance Minister Bill English’s loan-to-income ratio idea, and the bank could consider a range of actions. Martin Hawes said negative equity - when a home is worth less than the money owed on it, was a distinct possibility if the trend continued. Mr Hawes said, as an investor, he would not buy property in Auckland at the moment. He said the high value of the rental market and the easy availability of credit were signs the city was in a housing bubble.”

“‘There’s a loss of touch with intrinsic value, that is, the market becomes so highly valued that the income from the market, in this case in terms of rents, becomes quite different,’ he said. ‘Second, there’s almost always easy credit when a bubble inflates. My concern is that every day Auckland house prices continue to inflate, the chance of a violent end and a very unhappy ending to the whole market increases.’”

The New Zealand Herald. “More than 33,000 Auckland dwellings are officially classified empty as the city grapples with a crisis of affordable housing and homelessness. Auckland’s 6.6 per cent vacancy rate is higher than either Sydney (5.2 per cent) or Melbourne (4.8 per cent), where there has been an uproar over ‘ghost houses’ deliberately left empty by speculators trading on a soaring market.”

“Labour’s Housing spokesman Phil Twyford said it was not surprising that the super-rich were happy to leave houses empty when Auckland prices were rising so fast. ‘It’s madness, and says a lot about the housing crisis, that we’ve got thousands of homes deliberately left vacant by their owners while in South Auckland there are kids sleeping under bushes.’”

“Chris Haturini of Mt Albert said her family had suffered for two years living alongside a ‘ghost house,’ which she said was owned by an overseas-based investor. It had been infested with rats and occupied by squatters and drug users who left used syringes lying about. Ms Haturini, who is in the property management and now home staging business, said she had heard up to 35,000 residences in the city could be empty. ‘People are afraid to talk about this … But it’s just nuts.’”

News 1130 in Canada. “The Bank of Canada believes rising prices in Vancouver’s real estate market are not sustainable, but there seems to be two schools of thought on what is fueling them. One local academic says addressing foreign ownership, and not a lack of supply, is what will really calm things down. SFU Assistant Professor of Public Policy Josh Gordon says we keep building and so prices will keep rising and he thinks that’s enough evidence that pumping in supply will not slow the market down.”

“Gordon thinks government should address foreign ownership first. ‘[With] Some form of tax. I also think simply cracking down on money laundering and enforcing those provisions a bit more strictly.’ He’s concerned adding too much supply will worsen any correction down the road leading to unsellable condos. ‘There is this attempt to shift the blame and say it’s all about supply even when it obviously isn’t. This is really damaging and it’s upsetting to a lot of people. People in Vancouver just aren’t buying it anymore,’ adds Gordon.”

The Province in Canada. “A Vancouver west-side house that changed hands five times in just over two years shows prices are being pushed up by speculators, says a Vancouver real estate agent. The house at 6712 Adera St. first sold in March 2014 for $3.2 million, and last sold in May, for $7.6 million, said Steve Saretsky on his blog headlined: Vancouver Real Estate Speculation Runs Rampant.”

“He said the house’s final sale was among 179 west-side house sales in that month. Of those, 28 houses — or almost one a day — had been sold at least once in the previous 12 months, said Saretsky, who went through the tax histories of each of the sales to come up with the number. That works out to 16 per cent of all May sales, he said. ‘It’s like a lot of speculation out there,’ said Saretsky, who works for Sutton West Coast Broadway Realty. ‘It is happening. They (buyers) are hanging on to it like stock and then selling’ it at a profit.”

“The Adera property sold in July 2015 for $6.4 million before being sold for $7.6 million 10 months later, a $1.2-million profit. The buyer made a gross profit of $120,000 a month or $4,000 a day. Saretsky acknowledged there is ‘nothing illegal at all’ about homeowners selling properties held for a short period of time, and speculation is risky if the market crashes. But ‘it’s adding to the problem’ of unaffordable housing, he said. The rising prices ‘aren’t all about supply and demand.’”

The Tennessee Ledger. “It’s easy to watch a renovation show on HGTV or the DIY Network, see how much money can be made and think, ‘Hey, I can do that.’ And with a housing market as hot as Nashville’s, what could possibly go wrong? Turns out, many things can go wrong if you don’t have experience. One expert even suggests Nashville is getting close to ‘flipping out,’ reaching a peak at which house prices are so high that not everyone, especially less experienced or new flippers, can make a profit.”

“But it’s the hope that things will go very right – like $100,000-profit-on-a-flip right – that makes it so appealing for those already lining up financing in their mind while watching at home with a bowl of popcorn and a glass of wine. Nashville’s Troy Dean Shafer happens to be one of those creative contractors you’ve likely seen renovating old homes for a profit on TV. His show, ‘Nashville Flipped,’ premiered in April on DIY Network.”

“One of the homes Shafer flipped on his show was in Madison, a property he bought for $78,000, put $45,000 into and then sold for $169,000 the first day it went on the market. He’ll take profits like that all day. ‘It wasn’t like a grand slam as far as a ton of money coming in after Realtors and everything, but as far as an ROI, to only be into it for $125,000 and then to clear $25,000, that was a good ROI,’ he says. ‘I’m always thinking, ‘What’s next? What’s the next big area? Is it Madison? Is it Buena Vista? Is it Bellevue? Is it Hendersonville?’”

“‘What we’re seeing in the data is that basically Nashville is approaching its peak flipping point, which occurred back in 2006,’ says Ralph McLaughlin, chief economist with Trulia. ‘In 2006, about nearly 12 percent of all transactions were flips, and just in the last quarter of 2015, it was 8.3 percent, so it’s getting close to flipping out, so to speak, in that it’s approaching the peak level of flipping that was occurring before the crash.’”

“The big question is whether or not that is indicative of a bubble because a rise in house flipping can be considered a sign of an overheated housing market. But McLaughlin says they are not concerned about Nashville or any other hot flipping markets experiencing a bubble. ‘There was a sharp increase in flipping activity in Nashville since the recovery started,’ McLaughlin points out. ‘It looks like things are flattening out, so it doesn’t look like Nashville will totally flip out.’”

“David McKinney says the value of property has gone up so rapidly all over that it makes it difficult to find a flip property that is worth the return on investment. ‘Now the land’s more valuable than the house and property were just a short time ago, so that’s why so many of them are being torn down and two to four are being built in their place,’ he says. ‘The people who’ve been there are a long time, some of them are asking amounts for their property that they don’t necessarily think they’ll get and, lo and behold, someone ponies up the paycheck for it. It’s causing the property values to go up exponentially.’”

June 17, 2016

Time and Time Again, It Ends Badly

It’s Friday desk clearing time for this blogger. “The U.S. housing market accelerated to its fastest pace on record in May, according to Redfin. ‘After almost a decade of undersupplied housing stock, competition is fierce,’ said Redfin chief economist Nela Richardson. ‘What’s new in 2016 is that we’re seeing the intensity of fast sales and bidding wars even in affordable markets like Grand Rapids and Omaha, where the typical home sold within two weeks last month.’”

“In Michigan, Detroit and Grand Rapids saw the number of homes sold surge by more than 50 percent from last year. ‘We’re seeing an influx of buyers from places like San Francisco, Southern California, Seattle and Washington, D.C. Most new residents are lured by tech jobs and opportunities to work remotely,’ said local Redfin agent Kent Selders. ‘Locals are watching prices rise, and many realize if they don’t buy soon, they’ll miss out while homes are still affordable. The result is incredible demand and rapid sales. Nothing like this has ever happened in Grand Rapids.’”

“According to Douglas Elliman’s May 2016 report, average Manhattan rents are down 1.6 percent, year over year, while inventory, marketing time, and negotiability are all up. Karla Saladino, managing partner with Mirador Real Estate, suggested landlords are more often using incentives less out of strict necessity than a desire to goose their buildings’ values. ‘We are seeing more concessions because the landlords want to hit certain rent rolls, and the secret is out that you can do that with concessions,’ she said.”

“She said, ‘In new developments a lot of times [owners] were promising investors certain [rent] levels, so they will incentivize sort of non-stop.’ But wait, who do they think they’re fooling? Surely an investor can do the math and figure out that 12 months at $5,000 isn’t actually $60,000 a year if you’re giving away a month free, right? ‘That’s not always disclosed,’” Saladino said. ‘I’ve seen marketing contracts that put incentives into the marketing costs, and sometimes investors look at the marketing costs and don’t realize that’s in there.’”

“She cited the example of one project she looked into on behalf of an investor where tenants were allowed to move in months before their lease technically started. ‘It was like, ‘Well, we’ll let you live here under this rider [in your lease], but your lease actually starts on this date.’ So you see that, well, the lease started in March for $4,000 a month, but that person was actually allowed to move in four months prior. That is untraceable unless you look really, really deeply,’ she said. ‘And when you work with a REIT or a national pension fund or somebody like that, they aren’t going to the building making phone calls to the [marketing] person who worked there six months ago or really digging deep into the renewals.’”

“Those realtors who spoke with the New Canaan Advertiser this week said a number of homes currently listed are priced too high for the current market. Buyers, of which about one-third are from New York City or the West Coast according to agents, are looking to buy. The difference is that they aren’t willing to settle. ‘[Buyers] know the amount of inventory. They know know the trends and they think they should be able to get a bargain,’ said John Engel, realtor with Halstead Property. ‘Sellers are saying, ‘Nobody said we are in a recession. Nobody said the bottom fell out of the market. Why should I reduce my house 25% when we’re not in trouble and I’m not desperate.’”

“Las Vegas’ housing bubble reached its most bloated point 10 years ago this month, at least by one gauge: resale prices hit their peak. A total of 28 previously owned single-family homes were purchased for $315,000 in June 2006, according to a VEGAS INC analysis of Clark County property records. Among those, 18 were lost to foreclosure, including one home twice; four homes still are owned by the June 2006 buyers; and 23 homes were sold again, almost always in the $100,000 range. (Those sales do not include foreclosure auctions.)”

“A one-story, 1,725-square-foot house on Valley Regal Way in North Las Vegas was one of the few that sold at the peak of the bubble and didn’t change hands over the next decade — until lenders seized it through foreclosure in April. A neighbor said people come by about once a month to clear the weeds, but the house has been vacant for some time. ‘We’ve only been here for a year and a half, and it’s been empty ever since,’ she said.”

“The Kingdom’s construction boom will slow down in the next five years, according to government estimates, due to a glut of building space in the capital Phnom Penh and falling demand for new properties. ‘There is a current oversupply of properties,’ Kim Heang, president of the Cambodian Valuers and Estate Agents Association pointed out. ‘The rich have bought houses and condominiums as residences and for investment purposes, the middle class, too, have their own places ‒ some with investment properties. So there is a glut now,’ he said. ‘It’s the poor who cannot afford to buy any property that are left out. And no developer seems to be catering to them.’”

“Brisbane Lord Mayor Graham Quirk recently acknowledged in a national newspaper that ‘the booming apartment market is coming to an end.’ Does it all seem too little, too late? You warn the boom is over with 15,000 apartments still in the pipeline? Anyone with any brains knows a glut is coming, with crashing prices the likely result. A longtime housing investor said to me: ‘How in god’s name did this council approve so many apartment ­towers? Their job is to look over the horizon and predict what will be needed. That’s why they are called bloody planners – to plan.’”

“He has a point. Yet, has Brisbane and Queensland ever met a developer it didn’t like? It falls in love with big men with white shoes and too much money, time and time again, no matter how many times it ends badly. He advises: ‘If I owned an apartment and was thinking of selling it, I’d put it on the market right now for a sensible price.’”

“China’s use of administrative measures to control property prices can have painful repercussions for its swelling ranks of homeowners. Just ask Shanghai resident Yi Miaowen. Yi had to cut the price of the apartment he was selling by at least 8 percent after local authorities in March restricted purchases by non-residents, causing two prospective buyers to pull out. ‘I needed the money ready within two months to pay for a larger apartment I just bought,’ said the 42-year-old engineer, who sold his apartment for 5.31 million yuan ($808,502). ‘The buyers spotted my weakness and then asked for lower prices.’”

“Britain is a nation obsessed with bricks and mortar but experts have warned those thinking of investing in buy-to-let are facing headwinds that will only get worse. From next year landlords will see tax relief on their mortgage payments cut each year until 2021 - putting pressure on profits and potentially forcing them to raise rents. Coupled with the pending removal of a ‘wear and tear’ allowance and a 3 per cent stamp duty surcharge slapped on any buy-to-let purchase made after April this year, many landlords’ finances are suddenly looking like they might not stack up.”

“Graphic evidence emerged yesterday that landlords, both current and prospective, are seeing the writing on the wall: figures from the Council of Mortgage Lenders revealed a spectacular drop in the number of buy-to-let property purchases in April. Dominik Lipnicki, director of mortgage broker Your Mortgage Decisions, said: ‘If I could give one piece of advice to anyone thinking about becoming a landlord it’s no wishful thinking. Subsidising the mortgage by £2,000 a year if the capital growth is £10,000 can make sense to many but what if that growth stops or worse, tumbles? The mortgage will still need to be paid.’”

“A growing number of economists seem convinced that the US, the European Union and China are all headed for a prolonged period of sluggish growth. A parallel would seem to be 1990s Japan. There, too, the bursting of debt-funded asset price bubbles gave way to multiple rounds of fiscal stimulus, massive monetary easing and rock-bottom interest rates. Rescue efforts stabilized conditions but couldn’t spark a sustainable recovery, leaving the economy mired in low growth, low inflation and high debt.”

“When Japan entered its downturn, however, the country had several advantages that nations today don’t. For many, a Japan-style slump may be the best-case scenario. The political polarization and resistance to austerity policies evident in Europe and elsewhere underscores just how messy a prolonged economic downturn is likely to be. Japan’s experience is instructive, not predictive. Unfortunately, as Brazilian writer Paulo Coelho once observed, ‘Every time we repeat the same mistake, the price goes up.’”