July 8, 2016

Looking At A Bit Of Saturation

It’s Friday desk clearing time for this blogger. “Apartment developers are starting to tread more carefully as cracks appear in the five-year-old boom that sent rents soaring to records across the U.S. Construction concentrated in fast-growing urban markets has left cities from New York to Denver and San Francisco with a surplus of high-end units. ‘Everybody fell in love with these markets and wanted to build — but you can’t build forever, it doesn’t work that way,’ said Ryan Severino, chief economist at research firm Reis Inc. ‘The apartment market is losing steam.’”

“The second quarter was the fifth straight in which construction exceeded net gains in occupancy, according to a report Reis issued late Tuesday. With almost 200,000 units completed over the past 12 months, ‘2016 is set to challenge records for construction figures, if not break them,’ the firm said.”

“As tens of thousands of Boston-area tenants get ready to move this summer, there are yet more signs that the region’s rental market might finally be topping out. A number of new apartment buildings are set to open around the city’s traditional Sept. 1 move-in date, putting more pressure on landlords, some of whom are already offering sweeteners such as a free month or two, to keep rent hikes in check. More buildings are covering upfront costs such as broker’s fees and security deposits. That effectively lowers their costs to tenants and forces owners of older buildings to do the same to compete.”

“‘You clearly see the trickle-down effect of new inventory,’ said Ishay Grinberg, president of RentalBeast, a Somerville-based rental website. ‘The big new buildings have to adjust to attract more ‘normal’ renters. That applies pressure on the mid-market buildings, too.’”

“Although the Baton Rouge apartment market remains strong, the dramatic increase in the number of new units completed or planned is starting to have an impact on rental trends in the area. Some older properties already are showing signs of struggling to maintain their vacancy rate, which has remained consistent with historical norms of slightly under 6% in Baton Rouge. ‘Some of the older complexes, those built in the late ’80s, are struggling to lease up,’ says Wesley Moore, a partner with real estate appraisal firm Cook, Moore and Associates, adding their occupancy rates remain in the upper 80th percentile for now.”

“In terms of inventory, there is virtually nothing under $400,000 within city limits, said Larry Kendall, co-founder of The Group Real Estate in Fort Collins. The inventory of higher-priced homes listed for more than $700,000 is 13.3 months, a buyers’ market. Kendall said it’s the best ‘move-up market’ he’s seen in his 43 years in real estate. ‘You can sell your $400,000 house in a few days and go buy a $700,000 house and be in a buyer’s market and close it at less than a 4 percent interest rate,’ he said.”

“Our housing market has nearly returned to the frothy prices seen in 2005 and 2006 before the real estate crash. And anyone who bought a home in the Truckee Meadows in 2011 is in tall cotton today. The median home price in Carson City has gone up from $161,000 in April, 2011 to $242,000 in the same month this year, according to Zillow. ‘I guess we’re seeing a resurgence in prices. The market is way, way improved and now we’re having appraisal problems, the house prices are going up faster than they’re appraising,’ said Avis Cherry, president, Sierra Nevada Association of Realtors.”

“Cherry said springtime, in particular, was active, but there has been softening in the Carson City residential home market since then. Few entry level homes are available and homes at all price points are staying on the market longer than they did earlier in the year. ‘We’re starting to see a little slowdown, a little correction because prices have gone up too quickly,’ she said.”

“According to ISG World’s Miami Report, more than 2,300 units in eight projects had once been slated for delivery in the first quarter this year. No new inventory actually arrived in the period, and during those three months, only 74 units sold. Nayla Benitez, manager of EWM Realty International’s Brickell office, pointed to market saturation as a major factor in the construction slowdown. Over the past year, she said, there’s been a 19% increase, representing about 30 months of supply. Looking at the $1 million-plus market exclusively, Ms. Benitez said, that figure jumps to about 70 months. A nine-month supply is considered a balanced market.”

“‘We still have a handful of buildings that are not finished,’ she said. ‘They will bring on nearly 3,000 units between 2016 and 2017. ‘So we are looking at a bit of saturation, but we feel the market will correct itself. Even with this level of inventory we are very optimistic that the market will not see the drops in prices we saw in the last cycle.’ For the moment, though, she said, sales are down 30% from this time last year. ‘That has everything to do with Latin America,’ Ms. Benitez said. ‘It will be interesting to see what happens in the next six months. There will be opportunities created, but as more units come in, we will see owners in older buildings trying to sell at a very competitive rate.’”

“Despite a lingering decline in the price of oil resulting in energy industry layoffs, the housing market in Sugar Land and Missouri City remains healthy, local real estate agents said. It is still a seller’s market in the area, said Susan Greer, a broker associate with Better Homes and Gardens Real Estate Gary Greene. Greer said in other areas, layoffs have inhibited home purchases. ‘What we’ve really seen—and especially in our Katy office—where two days before closing somebody loses their job and so that transaction is off,’ Greer said.”

“In recent months, real estate developers across Mumbai – home to the largest number of billionaires in India – have upped the ante to entice the wealthy, name-conscious, status-obsessed buyer. Exclusive branded interiors, in-house spas, indoor Jacuzzis, concierge services, and luxury hotel tie-ups are not the only draws. The market reality, however, belies such swagger, and the cheery catchphrases of the brochures. Desperation has led builders to sit across the negotiating table, which can bring prices down by between 10% and 20% at least.”

“Some, in fact, have even been scared away by developers’ hyper-emphasis on opulence. ‘I want a home, not five-star frills,’ says a banker who’s been scouting South Mumbai unsuccessfully for six months for a no-nonsense property. ‘For old school people like me, even though I have a budget, it is becoming increasingly difficult to find something tasteful, but low key. Something that doesn’t scream money.’”

“Then there are also considerations of the simple laws of economics. The scarcer the product, more is the demand, thereby, driving up prices. In Mumbai’s oversupplied luxury residential market, the biggest problem is that this simple equation is not adding up.”

“House hunters in East Vancouver were just greeted by a strange but highly unusual sight: six-figure price reductions on several homes. At least two older single-family homes in the Fraser corridor saw reductions of $100,000 in the past two weeks. The price of a three-story fixer-upper on East 18th Avenue near Kingsway dropped a whopping $449,000 — nearly a full quarter of the asking price — after sitting stagnant for several weeks of open houses with no offers.”

“Dan Morrison, president of the Real Estate Board of Metro Vancouver, says inventory has crept up slowly over the past four months. Since March, more homes have been listed for sale in the Vancouver area than in any other four-month period this decade. UBC economist Tom Davidoff says it’s unusual to see places taking more than one open house to sell, and that the market could be ‘finding itself’ after a rapid acceleration that saw prices spike more than 30 per cent in a single year. ‘When you start to see inventory rising and homes taking longer to sell that gives you an inkling that you’re at the top of a cycle instead of on your way up,’ he said.”

“Russian oligarchs, Middle Eastern oil tycoons, international arms dealers and jet-setting trust-fund kids just took a nasty hit thanks to Brexit. These people and their ilk have been using central London real estate for the last 20 years as their money laundromat of choice. London was considered a great place to park money. Real estate there ‘never goes down.’ Meanwhile demand just went up and up and up. After all, London was the effective capital of Europe. Everyone wanted to move there.”

“Oops. Prime central-London properties have lost more than 10% of their value in the past month when measured in U.S. dollars, the international currency for the super rich. And that means the inconceivable has happened: This part of the London real-estate market has now entered what is considered ‘bear market’ territory, following a loss of more than 20%. That is based on a key index that tracks the kinds of property coveted by the plutocracy, created by top-tier London real-estate broker Knight Frank, known as The Prime Central London property index. It has plunged 22% since the summer of 2014 when measured in dollars.”

“Interesting times. As a wise man once said, there is no such thing as a completely safe investment, merely one whose risks aren’t yet apparent.”