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.’”