The Housing Bubble

Local 10 News reports from Florida. “South Florida’s real estate sellers are no longer scarce. ‘Fort Lauderdale is now becoming a buyer’s market,’ Mark Sadek, chairman of the Miami Association of Realtors, said Thursday. The group’s president agreed. ‘It’s definitely becoming a buyer’s market, especially in the condo sector,’ Carlos Gutierrez, president of the Miami Association of Realtors, told Local 10 News reporter Todd Tongen.”

“In fact, there is such a glut of condos in Miami that some developers have suspended sales and halted construction. ‘I’m surprised we haven’t seen more developers put the brakes on their condo project than we’re already seeing,’ Gutierrez said.”

The Culver City Observer in California. “The City of Los Angeles has in recent years lined the edges of Culver City with large projects dwarfing over the 40 foot height limit imposed by Culver City voters decades ago. Now comes a project so massive it could easily destroy the ’small town’ feel of Culver City. Cumulus would impose nearly 1,200 luxury housing units in a fortress-like complex that includes a 30-story, 320-foot skyscraper at the foot of Baldwin Hills and adjacent to the Expo Line La Cienega station.”

“In 2014 and 2015 Carmel Partners (CP V Cumulus) of San Francisco paid $59,356 to well-connected lobbyists to influence L.A. officials, and gave a total of $4,900 to a council member’s ‘officeholder account’ and the campaign chests of City Council members who were key to backing the project. National and international developers are swarming Los Angeles to cash in on the development craze currently gripping the Los Angeles Department of Planning and elected Los Angeles politicians, creating a glut of luxury housing with a huge 12% vacancy rate, according to the city’s own data.”

The Desert Sun. “After a booming six-year apartment rental market, which hit a low vacancy rate of 4.2% in 2014 and 2015, with a peak of rental prices reaching over 5% late in 2015, the current year seems to be marking a slowdown, especially in major U.S. cities. What may face the apartment surge with greater concern going forward is the one million apartments, throughout the U.S., in various stages of construction development. This comes on top of the 900,000 already constructed during the last three years.”

“Ironically, the benefits of lower rentals will most likely impact the most expensive apartments, which make up the lion’s share of the construction now underway. These seem to be concentrated in New York, San Francisco, Denver, and Houston. With high rentals at their peak, the prospective renters or leasers of the most expensive apartments are already beginning to receive concessions, such as a month or more, rent-free, already noted in New York.”

“Like all types of building booms, the switch to apartment rentals from homeowning may have been overdone.”

The Real Deal. “Commercial real estate has been soaring since March 2009, and that bubble remains intact, though some markets are already causing fear and trembling due to office-space gluts that are now coinciding with withering demand, such as in Houston and in San Francisco. Home prices too have been soaring for years, though in some major cities, the tide has turned.”

“Rents have been rising in parallel. It’s in real estate where an asset bubble becomes a real-life issue for people who don’t even own any assets – they’re paying the price for the bubble. The market needs to have enough people who can afford to pay the mortgage or rent. So the housing bubble is subject to another force: the reality of incomes. And those incomes have been a dreary sight for the past 16 years.”

“Year-over-year rent inflation in June, nationwide, was down to 3.5 percent from over 5.2 percent in June last year, laments Axiometrics, an apartment data services provider. During the glory days of 2014 and 2015, rent inflation ran over 5 percent. ‘But the sky isn’t falling,’ it said. ‘The extremely high levels of 2014 and most of 2015 were not sustainable.’”

“Oakland, ‘which spent more than a year at No. 1 in 2014 and 2015,’ well, it ‘fell off the table.’ In San Francisco, soaring rents led to the ‘Housing Crisis,’ but a phenomenal construction boom has led to a condo and apartment glut. According to Axiometrics, ‘all three Bay Area metros’ – Oakland, San Francisco, and San Jose – ‘were among the five largest decreases.’ Mercifully, Houston is not on the list either. Rents actually fell 2.1 percent in June from a year ago, as the oil bust drags on while apartment ‘oversupply is still an issue.’”

“Booming rents and cheap money over the years triggered and then nurtured a construction boom nationwide. But incomes have stagnated. And that reality is beginning to raise its ugly head. Just when there’s a condo glut building up in the teetering housing markets of San Francisco, Manhattan, and Miami, with sales and prices already dropping, and with everyone in the industry praying for foreign investors to bail out those markets, these foreign investors are suddenly pulling back – for the first time since the Financial Crisis.”

The Aspen Daily News in Colorado. “It’s the only plausible explanation. How can something so expensive be worth it? Just because people will pay the exorbitant prices doesn’t mean there’s tangible value. The ‘market’ is after all an inanimate object. The only reason I can come up with for the glut of high priced property is that real estate in Aspen is for suckers. It’s also fair to say that in general, Aspen is a huge rip-off.”

“A local real estate agent told me that the running joke with second home owners in Aspen is that they bought a place here because they were sick of bringing all of their luggage back and forth. It makes perfect sense.”

“The biggest challenge of being a real estate agent in Aspen is probably trying to keep a straight face while telling the customer the asking price. That’s followed immediately by the ‘lifestyle’ pitch where you tell the client how lucky we are to live here. It makes me nervous when we go around telling each other how great Aspen is.”