The Housing Bubble

The Cape Breton Post reports from Canada. “Housing sales figures released for the second quarter show little good news for Cape Breton’s economy. So far in 2016, residential sales are down 14 per cent in the Cape Breton region, which covers the Cape Breton Regional Municipality and Victoria County. While sales are down overall for the year to date, the number of properties currently on the market last month was up 14 per cent with 627 active listings over figures from June 2015. Sydney realtor Mary Ann MacCormick said sellers are receiving approximately 83 per cent of the asking price for their home — down from 90 per cent at this point last year.”

“The increased inventory on the market has sellers readjusting sales prices downward, MacCormick said. ‘There are more choices for the buyer looking around,’ she said. ‘People are reducing the prices of their homes even though they’re originally priced, hopefully, at market value.’”

“There’s also been an interest in people looking to buy duplexes or triplexes as income properties, said MacCormick. However, the sluggish economy hasn’t provided the type of return on investment those property owners would have wanted, she said. ‘People who have bought investment properties (and) probably had a five-year plan in mind are not getting the increase now when they’re trying to sell them. They’re not really seeing the profit that they thought they were going to see and that’s because prices are not going up the same way they were in the past.’”

The Dawson Creek Mirror. “Lita Powell doesn’t mince words when she talks about the Fort St. John rental market in 2014. ‘The general feeling was just panic,’ said Powell, who has managed property in Northeast B.C. since the 1980s. That year, rents were among the highest in the province outside the Lower Mainland, driven by promises of a liquefied natural gas boom. Few if any units were available, while investors poured money into new apartments, duplexes and suites.”

“‘I describe the work environment and the rental environment as hysteria,’ Powell recalled. ‘Everybody was responding to the big companies: drill faster, work harder, we need more.’”

“Now, nearly 18 months after the first signs of an economic downturn in Northeast B.C., renters have more choice than ever, and landlords are feeling a sense of whiplash. ‘We went from an absolutely ludicrous landlord’s market to a really generous tenant’s market in a few months,’ said Kevin Kurjata, a Dawson Creek realtor and landlord. ‘I saw the oversupply issues coming,’ he said. ‘I did not see the demand vanishing at the same time.’”

“Powell, who worked for the CMHC before founding Li-Car Property Management Group, said official vacancy rates don’t take into account properties with fewer than three units—leaving out duplexes, homes with suites and other types of rentals. When those properties are accounted for, Fort St. John’s overall vacancy rate is now closer to 30 per cent, she said, with more rental units set to come on the market in the coming months.”

“The weak rental market has left homeowners with few ways out if they lose their jobs. Powell has heard from more than a dozen families this month who faced a stark choice: find a tenant or lose the home. ‘I ask them what their expectation for rent is and they say ‘for $1,800 I could do it.’ I have to tell them ‘I’m really sorry, but that’s not the magic number.’ You can hear the panic in their voices.’”

From The Province. “A Chinese property tycoon linked to a massive banking scandal in China’s industrial north is at the centre of more than $500 million in B.C. property deals, a joint investigation by Postmedia and global due diligence firm IPSA International shows.”

“Chinese real estate magnate Kevin Sun — also known as Hong Sun, Kevin Lin, Hong Wei Sun and Sun Hongwei — founded Sun Commercial Real Estate in 2013. In addition to buying and selling hundreds of millions in B.C. property, the B.C. company, which focuses on immigrant investors, has raised over $200 million from investors.”

“A B.C. Supreme Court civil case connected to a South Vancouver property flip provides insight. Detailed testimony from Bo Jiang, Sun’s friend and first employee in B.C., points to Sun’s fortune in China, his arrival on B.C.’s real estate scene, and complex land investment strategies that preceded Sun Commercial’s incredible growth.”

“Bo Jiang — or Bobo, as Sun affectionately called him — was Sun’s translator and jack-of-all trades in property speculation, Jiang would recall in the 2008 B.C. Supreme Court civil case. It’s not clear how much Jiang knew about his boss’s history in China. But according to Jiang’s testimony, he did know that Sun claimed to be enormously wealthy. Bobo was the worker who asked Richmond bureaucrats for land subdivisions, opened a Marine Drive Royal Bank account to manage Sun’s cash, and took care of all the little things, such as maintaining Kevin Sun’s growing roster of empty homes.”

“‘At that time he said something like, ‘Eventually I would give you more than what you want or what you ask,’ Jiang told the Supreme Court. ‘He said that, ‘Given that I’m so wealthy, I don’t give a damn about this little money.’”

“One associate said that in B.C., Sun seems to be repeating the style of business he started in Jilin. ‘He is an opportunist. You know, in Jilin he bought factories very cheap and he sells it for the real estate value and then leaves,’ the associate said in an interview. ‘Now he moves very fast from buying farmland to flipping houses to flipping commercial property. If a developer from China wants to develop in Vancouver, Sun buys the land first and sells it to them. He is very secretive and smart.’”

“An associate of Sun told Postmedia: ‘In Vancouver, it is not just Kevin, though. There is hundreds of people similar to him.’ The belief that there are hundreds of real estate investors in Vancouver who are under suspicion in China is shared by Canadian law enforcement sources. ‘Sometimes we ask ourselves if we’ve already lost the battle,’ one such source said. ‘I think this guy is just part of a large network.’”

Two reports from the Denver Post in Colorado. “High plateau — it’s a phrase starting to pop up a lot more in descriptions of metro Denver’s housing market. But the leveling off could require an adjustment in thinking and strategy in a market accustomed to sharp increases in home prices. And someone who buys in 2017 might find themselves sitting on zero appreciation come 2021. ‘If we get anything under 5 percent in appreciation, sellers will lose their mind and think the market is collapsing,’ said Anthony Rael, chairman of the Denver Real Estate Market Trends Committee at the Denver Metro Association of Realtors.”

“June saw a huge 24.4 percent jump in the inventory of homes for sale versus May, an increase about six times the historical average between the two months. And while the overall inventory was still a historically low 6,769, agents note that a change is in the air, even if it hasn’t yet shown up in rates of appreciation, which are still running in the double-digits. Redfin broker Michelle Ackerman said the big jump in inventory should have translated into more showings this month, but that isn’t happening. Sellers are getting fewer offers than just a few months ago and fewer buyers are touring homes.”

“In something she hasn’t seen in two decades, Ackerman said bank underwriters are getting much more cautious, asking for more time to review appraisals and in some cases challenging them. ‘That has triggered conservativeness on the part of buyers,’ she said. ‘Do the underwriters know something that we don’t?’”

“One group will have a disproportionate influence on the housing market in the years ahead: retirees who are rich in home equity but short on savings. If they perceive the market is about to roll over, they may put their properties up for sale sooner rather than later. ‘Sales are being fueled by ‘move-down’ buyers,’ said Mark Boud, chief economist at Real Estate Economics. ‘That is the only way they can take advantage of their equity.’”

“But the bottom won’t drop out as long as developers and builders continue to put out too little supply. With land and labor constrained, builders have focused on the highest profit margin opportunities — luxury apartments and higher-end homes. That leaves those segments of the market more vulnerable to any softening.”

“Metro Denver’s average apartment rent reached a record high of $1,371 in the second quarter, according to a quarterly survey from the University of Denver’s Daniels College of Business, Colorado Economic and Management Associates, and the Apartment Association of Metro Denver. Newer units, which demand higher rent, pulled the average above the median of $1,324 DU associate professor of real estate Ron Throupe said.”

“Vacancies rose last year as developers put a large number of apartments on the market. They continue to build, adding 2,442 new units in the second quarter, but renters absorbed 4,189 units, causing the vacancy rate to fall. As the market has tightened, prices have gone up: Throupe found rents increased by $56 in the second quarter. The first-quarter figure of $1,315 had been a high at the time.”

“Rents are also rising because developers have focused on adding ‘luxury’ apartments in places like downtown Denver and central Boulder. As those become a larger part of the mix, they push up the average rent. But landlords, in an effort to lure new tenants, are also offering more concessions. The ‘economic vacancy’ rate, which accounts for discounts like a month or two of free rent, is at 14.3 percent, up from 13 percent in the first quarter.”

The Gazette. “Colorado Springs’ resale housing market remains red hot, but not problem free. The pace of buying and selling in the just-concluded first half of 2016 signals this could be a second straight record-setting year for single-family home sales in the Pikes Peak region. Many sellers of lower-priced homes put their properties on the market and field multiple offers that exceed their asking prices - sometimes within days or even hours.”

“But bidding wars, delays in getting appraisals, a tight supply of homes in the $300,000-and-under range and an oversupply of half-million-dollar-and-up properties are among problems that have led to head-banging frustrations for buyers, sellers and even their real estate agents. Despite the demand for lower-priced homes, the higher-end market - $500,000 and up - remains slow, said Tiffany Lachnidt, a real estate agent with Re/Max Properties.”

“Sellers of those properties are increasingly frustrated because they keep reading the market is so strong, she said. ‘Not every segment of the market is flying off the shelf,’ Lachnidt said. ‘Over certain price points, we jump from having six months of inventory to 38 months of inventory…We talk sometimes to sellers in those price points that are incredibly frustrated because they can’t understand why they’re not flying off the market. It’s because nobody’s talking about it.’”

“Owners of more affordable homes sometimes can’t understand why their properties aren’t selling, Lachnidt said. In spite of the demand for lower-priced homes, properties still must be priced to reflect the market; a home that’s too high by just 3 percent to 4 percent won’t get the offers it should, she said. Homes also must be in good condition, and marketing them for online viewing and in-home walk-throughs is key, Lachnidt said.”

“‘Sellers and agents can’t get lazy,’ she said. ‘You still have to have staging, you still have to be priced right and you still have to have good marketing. Otherwise, you’re still not going to sell in any market.’”

A report from the Naples Daily News. “Florida saw strong existing home price growth in June over the year. But in Southwest Florida, which had big inventory increases, the numbers weren’t as strong, according to reports released Thursday by Florida Realtors and local Realtor boards. Median sales prices for town homes and condos slipped 2.3 percent, to $256,500 from $262,500 in the Naples-Immokalee-Marco Island metro area in June, compared with June 2015. ‘There’s been a pullback,’ said Michael Burke, president of the Bonita Springs Estero Association of Realtors. ‘I don’t think there’s a bubble bursting, but buyers are taking a look-and-see attitude.’”

“Part of the reason for the lackluster rise is Naples resale sellers are competing with new home builders, said a panel of brokers at the NABOR event. All said about a quarter of their recent sales were of new homes. Another is that some sellers are resistant to lowering their prices in a cooling market. ‘A lot of sellers are not interested in selling unless they get a large price,’ Naples broker Jeff Jones said.”

“In the Naples area, the inventory of single-family homes was up 25 percent over the year, to 2,674 from 2,133, while the supply of condos rose to 2,309 from 1,565 a year earlier, a 48 percent rise. In Collier County, closed single-family sales fell 5.6 percent, to 475 from 503, while town house and condo sales were down 8.3 percent, to 520 from 567. Lee County saw closed single-family sales fall 12.3 percent, to 1,177 from 1,342, and town house and condo sales drop 13.8 percent, to 514 from 596.”

“‘There’s nothing good to say about condos right now,’ said Naples real estate broker Bill Coffey. One driver of the regional sales slowdown seems to be that buyers are aware of the slowing market and are anticipating home prices will fall, some brokers said. ‘They’re waiting for happy hour,’ Coffey said.”

The Miami Herald. “The boom is over. The volume of existing home sales fell again in Miami-Dade County in June, reflecting a real estate market that has settled down after three years of heady, unsustainable growth. But prices are still rising as buyers and sellers take time to adjust to the new dynamic. Competition remains intense for mid-range homes. And the market in Broward County, which is less dependent on foreign buyers, continues to grow.”

“Overall, prices are still on the rise. Experts say they lag several months behind sales. There’s evidence the luxury market has already started to adjust: Realtors interviewed in recent weeks have said sellers of multi-million properties are starting to lower sky-high expectations.”

The South Florida Business Journal. “Two condos controlled by a Turkish media executive in the Setai Resort & Residences in Miami Beach were placed in Chapter 11 reorganization. Setai 3509 LLC and Setai 1908 LLC both filed Chapter 11 in U.S. Bankruptcy Court in Miami on July 21. Both companies are managed by Nafia Sevin Ergun Sefada, the chair of Satis Ofisi, a large media representation group in Turkey.”

“Setai 3509 owns a three-bedroom, 2,521-square-foot unit in the condo at 101 20th Street. It paid $10.95 million for it in 2014. Setai 1908 owns a two-bedroom, 1,279-square-foot condo that it acquired for $3.75 million in 2013. Michael S. Hoffman, who represents the debtors in Bankruptcy Court, said they hope to reorganize and come out of bankruptcy with their debt resolved. They are considering the options to either sell or retain the properties, he added.”

“The complaint claimed that the defendants defaulted on the mortgages, owing $5.35 million on unit 3509 and $1.57 million on unit 1908. Meanwhile, both condos have been listed for sale. The asking prices for units 3509 and 1908 are $10.95 million and $4.75 million, respectively. However, condo sales volume in Miami-Dade County has declined this year.”