July 13, 2016

A Bubble In The Making

The North Bay Business Journal reports from California. “After a few years of hot sales activity, the market for multifamily properties in the North Bay appears to be slowing, not so much from lack of interest among investors but for lack of buying opportunities and pricing uncertainties, according to local experts. In Marin County, there are a number of properties with more than five units awaiting buyers, an unusual amount for the market, according to Katherine Higgins, an apartments specialists with Paragon Real Estate Group in Greenbrae. ‘I’m not sure if it’s the price point or that the prices do not make sense,’ she said. ‘Last year, almost everything that came on market was snapped up in weeks.’”

“Buyers of institutional-level properties, typically with more than 200 units, seem to be getting less aggressive in chasing prices and more cautious about overpaying, said Scott Gerber, another longtime apartment broker, now with Bradley Commercial. ‘It’s no secret rents in San Francisco — one of the major drivers for the North Bay as activity radiates this way — were down in the fourth quarter and moderating at best because of the huge supply built there in last five years,’ Gerber said.”

“There has been such a hunger for properties and competition between buyers that a number of deals have gone into contract before inspection reports were completed and at sale prices that the properties’ rents didn’t seem to justify, Higgins said. ‘It’s been an absolute feeding frenzy for the past two years,’ Higgins said. ‘It’s a bubble in the making. Then the buyers get in and realize they have put in more money to get the property to where they want it to be.’”

The Orlando Sentinel in Florida. “Even with a slight uptick in residential construction, at least a few builders have turned to incentives to lure buyers. Even as MetroStudy reported a 3 percent increase in housing starts for Central Florida in the first quarter from a year earlier, Minto Communities offered $35,000 in incentives of some of vacation homes at the Festival development south of Celebration, according to a release. In Winter Garden, salesmen for Meritage Homes wave signs offering free pools at a nearby development and the builder markets ‘free’ pools at Nova Grove near St. Cloud.”

From Crain’s Chicago Business in Illinois. “Homes in Lake Forest aren’t selling. The average time a home in the quintessential North Shore suburb spends on the market is one of the highest in its peer group: for homes that sold in May, it was 186 days. ‘It’s been slow up here,’ says Marina Carney, a Griffith, Grant & Lackie agent. ‘We’re all feeling it,’ says Sue Beanblossom, a Berkshire Hathaway Home-Services Koenig-Rubloff Realty Group agent in Lake Forest. ‘It takes a long time to get something sold in Lake Forest today.’”

“At the end of May, Lake Forest had enough homes on the market to supply 14.5 months’ sales, according to Midwest Real Estate Data. The problem lies in Lake Forest’s aged housing stock, high asking prices, unmotivated sellers and a long commute to downtown, real estate agents say. But the market may be telling those sellers to stop waiting. A mansion on Mayflower Road came on the market recently with an asking price of $4.9 million, or less than three-quarters of the nearly $6.6 million the sellers paid for it 15 years ago.”

“The owners of a 10-year-old house on Kennicott Drive listed a four-bedroom in January at just under $1.8 million, or about 85 percent of their 2007 purchase price. They closed the sale in early June at about $1.47 million. ‘That was disappointing for my sellers and for me,’ says Beanblossom, who handled the sale. ‘But they wanted to get it over with.’”

The Aspen Daily News in Colorado. “In his Aspen Snowmass Market Report real estate analysis for the first half of 2016, Sotheby’s broker associate Andrew Ernemann referred to Snowmass Village as the upper valley market’s ‘unexpected bright spot.’ However, he said Aspen’s slowdown could potentially impact its neighbor this year. It’s the tippy-top of Pitkin County’s real estate market that has taken a huge hit this year. In 2015 there were 30 residential properties sold for $10 million or more. This year that segment is off by more than 60 percent, according to Tim Estin, who published his most recent market analysis on July 8. And he said the trend is by no means unique to this market.”

“‘The luxury sales declines correspond with what one hears about other high end real estate markets around the country,’ Estin wrote. ‘Sales are either off considerably or have stopped — foreign buyers have dried up, uncertainty prevails and there is an abundance of high priced inventory.’ Ernemann concurred that, ‘Many of the world’s luxury real estate markets have experienced a drop in sales activity and/or prices in 2016.’”

The New York Times. “New York City’s ultraluxury real estate frenzy — with its sky-piercing condominium towers and $100 million price tags — has finally come to an end. Even with every conceivable amenity, the eight- and nine-digit prices attached to trophy homes with helicopter views and high-end finishes never bore much relation to actual value. Rather, a class of superrich investors primarily drove the market, choosing high-priced real estate as their asset of choice, because it was less volatile than other investments and they could use shell companies to hide their identities.”

“But today a four-year construction boom aimed at buyers willing to spend $10 million or more has flooded the top of the market just as global market turmoil has caused wealthy investors to pull back and the federal government has moved to scrutinize some all-cash transactions. In and around West 57th Street, known as Billionaires’ Row, ‘it’s not just slow — it’s come to a complete halt,’ said Dolly Lenz, a broker to the superrich. She attributed the lack of activity along the Midtown corridor to oversupply, little differentiation among glassy ultraluxury units and peak pricing. ‘That’s a death knell,’ she said.”

“New York is not alone. After the global financial crisis hit in 2008, investors turned to high-end real estate around the world as a safe place to park their millions. But since the middle of 2014, prime property values have dropped in Paris, Singapore, London, Moscow and Dubai, said Yolande Barnes, director of world research at Savills, a global real estate firm. In the Miami area, 216 homes and condos priced at $10 million were on the market at the end of June, a 43 percent jump from a year ago, according to data compiled by Esslinger-Wooten-Maxwell Realtors. ‘By anyone’s measurement, that’s more than you’d like to have,’ said Ron Shuffield, president of that firm, pointing out that only 26 houses and condos in that price range sold in the 12 months through June.”

“‘The global misperception was that the demand would be endless,’ said Jonathan J. Miller, president of Miller Samuel, a real estate appraisal firm. ‘The reality was the market was not as deep as what was thought.’”