The Housing Bubble

It’s Friday desk clearing time for this blogger. “As homes continue to claw back value lost in the real estate crash, Palm Beach County house prices last month climbed to their highest level in eight years. Values have bounced back — and Jackie Ellis, owner of Keller Williams offices in Boynton Beach and Boca Raton, said rising prices threaten to create a drag on the housing market. She predicted home sales will stall after the summer selling season. ‘We are seeing a slowdown,’ Ellis said. ‘The listings that we think should be flying off the shelf have not been flying off the shelf.’”

“Chicago-area home prices no longer are climbing at the sharp pace recorded in the spring, but both prices and sales continued modest gains in June. While there is some talk of a ’seller’s market,’ Kevin Koszola with Baird & Warner in Downers Grove struggled to sell his grandmother’s home in Saddle Brook. It was recently appraised at $588,000 but sold at $539,000 a couple of weeks ago after family members had dropped the price continually since 2010. Koszola’s grandmother purchased the home for $650,000 in 2005 and spent $150,000 on improvements.”

“‘People are ignoring appraisals and comps’ for other homes in the neighborhood, Koszola said. They continue to be very cautious, afraid ‘homes will crash again’ and even afraid of the upcoming election, he said. As a result, Koszola said, many have unreasonable expectations about the prices they will pay, and they stick to them.”

“Here’s some surprising news - San Francisco rents are dropping. And the vacancy rate is up. Those in the business tell us what we’re seeing is a correction from the super high rents. ‘Usually when a cycle like this starts, it goes out over a couple year period,’ said Janan New with the SF Apartment Association. ‘We’ve noticed the rental market over the past few months that rents have been dropping across the board. Especially in the higher end market,’ she said. ‘The larger market where apartments were going for $8,000 to $10,000 dollars, there’s a high vacancy in those.’”

“A 13 unit luxury apartment building in SoMa just opened up. A lot of new construction and high end apartments are competing for tenants. Leasing agent Andrew Bryson with Berendt Properties even sees a softening in the lower end rentals. ‘The studios below $2,500 around that price point or the one bedrooms around $3,200 we’re definitely feeling a softening,’ he said. ‘Generally around five to 10 percent or so.’”

“Housing is a commodity. The law of demand and supply applies. ‘Companies have been consolidating and moving and developing out of the city,’ said New. Bryson adds, ‘The hiring we’re seeing is very slowed down if not halted as well as there’s a lot of inventory that’s coming on the market.’”

“The number of real estate transactions in the Hamptons fell 21 percent during the second quarter, adding to evidence that the high end of the housing market is faltering. The softness in the Hamptons mirrors declines in high-end real estate across the country, from Manhattan penthouses and Miami condos to L.A. mansions. Wealthy buyers have been spooked by volatile stock markets, election uncertainty and money-laundering investigations.”

“Yet Jonathan Miller, president and CEO Miller Samuel, said the decrease is no reason for panic. Instead, the market is simply returning to normal after unusually elevated levels in 2013, 2014 and 2015, he said. ‘Those three years were an anomaly,’ Miller said. ‘Even though we are down from those levels, we are still above long-term sales norms.’ Miller said he doesn’t expect much improvement in the market the rest of this year. ‘I think we’ll continue to see more of the same,’ he said.”

“Low energy prices and high unemployment have forced people out of their homes in droves, spiking housing vacancies to levels not seen in well over a decade, census figures show. Calgary’s 2016 civic census revealed that more people moved out of the city than arrived here. More than 20,800 units were empty in April, a 67 per cent spike over last year’s levels, which brought the vacancy rate for dwellings to 4.3 per cent, according to the census. The vacancy rate hasn’t been this high since 2004.”

“Owners of higher-end rentals, ranging from $2,000 per month and over, have dropped their rents by as much as 30 per cent, said Gerry Baxter, executive director of the Calgary Residential Rental Association. ‘For a tenant, it’s a great time to shop around, find a unit of your choice,’ Baxter said. ‘For the people who own the property, it’s certainly a challenging time because costs continue to increase, but in many cases most landlords are not going to pass it on, or not all of the increases, because the markets won’t allow it.’”

“Qatar-based United Development Company has seen profits plunge in the first half of 2016 amid a softening home rental market. It comes amid an overall decline in demand for luxury apartment rentals, real estate analyst Mark Proudley told Doha News. This is in large part because thousands of white-collar expats have left Qatar this year. According to Proudley many upper-end apartment towers around the country are starting to see vacancy levels in the double digits. ‘Rentals have also softened by around 5 percent to 10 percent, though a lot of landlords are offering tenants a rent-free period as an additional incentive,’ he said.”

“Prime real estate in London continues to nose dive. Penta first reported the start of the downward price trend in November 2015, when a foolish tax increase on luxury housing by the David Cameron government prompted a year-on-year 5.5% drop in £5-million-plus prime Central London house prices, and again in January of this year. In this latest round of softness, however, it’s not just Brexit, but the continuing build up of new housing inventory that is shaking confidence. More than 35,000 luxury homes are expected to be built over the next decade. Simon Rubinsohn, chief economist at Royal Institution of Chartered Surveyors says it’s not clear as to what’s going to happen next with all of these new offerings.”

“‘My main concern is one of supply,’ says Rubinsohn. ‘I was going down a train by the river and noticing how many buildings are going up.’”

“While the hoi polloi frets over housing affordability, a privileged few are taking their pick of luxe mansions, tropical hideaways and five-star penthouses. But highest-end buyers sometimes sweat over prices, with the asking figures of a few of Australia’s most prestigious properties slashed by millions of dollars over winter’s more subdued market.”

“The former Perth home of the late business scion Alan Bond has sold in swish seaside Cottesloe, but below original price expectation of $4.75 million. Bond’s 4 Hawkstone Street traded privately on June 29 for $3.95 million according to updated advertising. It had been on the market since last July. Cottesloe attracts Perth’s nouveau rich but its market has taken a whack, with house prices down 13.5 per cent over five years according to Domain Group data. ​In Adelaide’s upmarket Glenelg, vendors of a marina-front mansion – the city’s most expensive home when measured per square metre – have adjusted their price expectations by a whopping $1.5 million.”

“In sunny Port Douglas, a spectacular mansion is yet to find a willing buyer with deep enough pockets. The Edge, a spaceship-style home overlooking turquoise breaks, is for sale for $5 million, down from $7.4 million. Agent Callum Jones, of Tony McGrath Real Estate, said vendor Claire Graham had downsized and intended to spend more time travelling between New South Wales and Port Douglas. ‘This property represents great value and cannot be replaced,’ Mr Jones said.”

“‘Pure Island is one of multiple projects, including the Olympic Park and the 8 billion reais regeneration of Rio’s port area, funded in partnership with developers but now stalling. Developers say they have sold just 240 of the 3,600 apartments that go for between 750,000 and 3 million reais ($230,000 to $925,000). Buyers are returning apartments, a sales source said, put off by Brazil’s economic crisis and the scant appeal of being lonely occupants of a space stretching more than 100 soccer pitches in a still-remote region of Rio.”

“Mauricio Cruz Lopes, director general for the project, admitted sales are well below the target of 1,000 properties by now. ‘When this project was planned there was an optimism and growth across all of Brazil,’ said Cruz Lopes. ‘Now the situation is completely different.’”

“With Brazil in its worst recession since the 1930s, demand has crashed and Rio house prices are down 20 percent in real terms over the past year. ‘They overbuilt and they misbuilt,’ said Andrew Zimbalist, an economist at Smith College in the United States and author of ‘Circus Maximus,’ a comparative study of the economics of hosting the Olympics. ‘They built high luxury condos at a time when the market was about to go bust.’”