August 31, 2016

More A Picture Of The Past Than The Future

News OK reports from Oklahoma. “Renters are feeling the heat of Oklahoma City’s hot apartment market. Vacancy is generally stable, with even temporary softness from new construction around Quail Springs Mall and in Moore being absorbed into metro-area stats about as soon as new units are being absorbed by the market, according to ARA Newmark. Midyear figures from REIS Inc. show apartment rents rising faster here than in any other market in the Southwest and at a rate that is 13th highest in the country, ARA Newmark said in its second-quarter report directed by Tim McKay, senior managing director in Oklahoma City.”

“Multifamily property has lost none of its shine as an investment, the firm said, taking a long view: ‘Strong buyer interest in multifamily product continues. An affordable market coupled with low interest rates clearly affect the demand, and more equity than ever is looking for deals.’ And a broad view: ‘Foreign capital is pushing buyers to the Midwest in search of higher yields.’”

“And, for investors especially — as well as those who can afford to see past their own bills to the general health of the economy (you know who you are) — a sanguine view: ‘In terms of sales, cap rates (returns on investment, basically) have never been lower (but that’s because the quality and price of investment are high), and prices per unit are still setting records. The diversity of the economy is evidenced by the resilience of the multifamily market.’”

The San Francisco Chronicle in California. “Two new studies confirm that Bay Area rents are softening, after years of double-digit increases. The San Francisco metro area saw average rents decline year over year for the first time in more than six years last month, according to a survey by Dallas research firm Axiometrics. ‘Things are definitely slowing down,’ said Benjamin Scott, founder of Advent Properties, which manages rentals in San Francisco and the East Bay. ‘We are seeing a lot of concessions … especially in SoMa, where there has been a glut of new apartment properties coming online at once.’ Those concessions, such as reduced deposits or a month of free rent, ‘are reverberating’ throughout the city.”

From ABC Action News in Florida. “Local landlords are increasingly being replaced by big corporations, like national real estate investment trust (REIT) Waypoint Homes, which owns 30,000 houses valued at nearly $7 Billion nationwide. But local tenants tell the I-Team that bigger isn’t always better, as they struggle to get things fixed and to keep up with rising rents. The Better Business Bureau gives waypoint an ‘F’ because it has a high number of unresolved complaints.”

“‘Anytime you have a landlord who’s not responsive, you’re gonna have a major problem,’ said attorney Kirk Eason, who has sued Waypoint on behalf of multiple clients. ‘Mom and pop, they would want to fix it, because it was their asset. But when someone just buys it from a foreclosure auction or they buy it from bankruptcy, they have very little into it. They have very little motivation to fix these things, because it’s a profit machine instead,’ Eason said.”

“Waypoint’s most recent financial report shows revenue grew 6.3 percent over the same period last year and the company had a 95 percent occupancy rate. The list of local unhappy Waypoint tenants is long. Shaun Fedoris moved out of this Palm Harbor Waypoint home, after an outdated air conditioning system cost him thousands. ‘The electric bill was through the roof. It was over $500 a month,’ Fedoris said. ‘There’s a lot of places out there that are a lot cheaper.’”

The Village Voice in New York. “Forget Biggie — the real soundtrack of Brooklyn is the din of construction, reverberating up and down Flatbush Avenue as luxury condo after luxury condo springs from the ground like brushed steel weeds. But developers are starting to realize that they may have overshot their mark. The Times reports that the incredible boom in new apartments has finally saturated the market, forcing landlords to offer rent breaks and deals as a means of luring potential tenants.”

“Jonathan Miller, the president and chief executive of real estate consulting firm Miller Samuel, says the issue isn’t too many units generally, but too many that cater to the market’s upper end, above $3,500 per month. ‘The problem is that there’s a mismatch between what we’re building and the jobs we’re creating,’ Miller said.”

From Houston Public Media in Texas. “A report by apartment search website RentCafe finds 95 apartment complexes have already opened or are slated to open this year, for a total of 26,000 new units in Greater Houston. But that may be more a picture of what happened in the past than the future. ‘A lot of these projects were on the drawing board in 2011, 2012, 2013, when the economy was still booming, when we were creating 80,000, 90,000, 100,000 jobs a year,’ said Patrick Jankowski, regional economist and vice president of research at the Greater Houston Partnership.”

“He said job growth here has slowed to a trickle – in large part due to the oil slump – and the demand just isn’t there anymore. ‘From January ’13 to July ’16, we actually added 65,000 apartment units to the market,’ Jankowski said. ‘We are already overbuilt in apartments. There is already an apartment glut, and it’s only going to get worse this year and next year.’”

August 30, 2016

Those Panicked Phone Calls From Landlords

A report from Bloomberg on Canada. “Canadians may finally be getting skittish about real estate. The share of survey respondents who expect a decline in local housing prices jumped by 8.5 percentage points, the most since weekly polling began three years ago for the Bloomberg Nanos Canadian Confidence Index. The increase to 20.5 percent from 12 percent dragged the broader sentiment index down from 2016 highs. The reading marks a change from almost unbridled consumer optimism in a housing market that has carried the Canadian economy since the 2008 global financial crisis, even as policy makers warn price gains in some cities are unsustainable.”

“‘If there was to be a bit of a slowdown I don’t think it would be surprising given the strength that we’ve seen in the market over time,’ Bank of Montreal Chief Financial Officer Tom Flynn said of the Vancouver market in an Aug. 23 phone interview. ‘We’re protecting ourselves from a risk perspective by having higher levels of equity down payments on more expensive properties, and we’ve been doing that for a period of time.’”

The Canadian Press. “Canada’s mortgage insurance agency is reporting a 52 per cent increase in the number of insured home loans in arrears in Alberta, as low oil prices weaken the provincial economy. Canada Mortgage and Housing Corporation says in its second-quarter report that payments on 1,487 mortgages in Alberta were three months or more overdue as of June 30 — up from 978 at the same time in 2015. Saskatchewan’s list of troubled mortgages is also up, to 529 from 392, in the same period.”

The Western Wheel. “A slowing real estate market is leaving an impact on the rental market in Okotoks, forcing many landlords to drop their monthly rates. Web-based rental listing site showed an average of approximately 25 to 30 rentals available in Okotoks in 2014, but as of Aug. 23, there were 52 listings in town on the site. Rent in Okotoks, according to, varies from $800 for shared accommodations to $3,000 for a single detached four-bedroom home. The average rent in town currently sits just over $1,550.”

“Prairie Management and Realty Inc. office administrator Jennifer MacTavish said slow home sales is driving many to list their homes for rent. The result is a number of large, single-detached homes being put on the rental market alongside the typical condos and suites. There has also been an increase in the number of homes being offered as rent-to-own properties, she said. ‘The sales market was low, so a lot of people weren’t selling or getting what they asked for, so in turn they decided to rent their homes,’ said MacTavish. ‘There just isn’t a market for homes over $700,000 to $800,000.’”

“With so many properties available and a slow economy, she said many landlords have been forced to reduce their rents or provide other incentives. Prairie Management acts as a liaison between homeowners and renters, often in cases where owners have moved away and can’t manage the property on their own. When tenants are difficult to find, they often make suggestions to their clients on how to attract renters, she said.”

“‘We’ll talk to them and say, ‘You’ve had it up for rent for three months now, there’s been no serious inquiries, we should maybe consider other options like a first month off or something to make it more appealing to the public,’ said MacTavish.”

“Landlord Chantel Van Buren has owned a rental property in Crystal Shores for more than 10 years and has dealt with other rental properties for more than 18 years. Initially, she and her husband purchased the home to live in while their own house was being built. Van Buren listed the home for rent at the end of June but said she was not receiving nearly as many inquiries as in past years. This month, she lowered rent on the property to match a reduction in rent across the board, and is offering the first week free to the right tenant.”

“‘We try to keep our rent at or below what the current rents are because we would rather have quality tenants that are going to look after our property and stay for a while,’ said Van Buren. ‘At the same time, we have mortgage payments to make and all the rest of our bills go up every year, so it is a balance.’”

From Global News. “Post-secondary students head back to class in September, which means time is ticking for those who have yet to find a place to live. The good news in Calgary is there are still many apartments available in prime locations — and for prices that won’t break the bank. It’s the one silver lining to Alberta’s badly bruised economy. Vacancy rates are up about eight to 10 per cent in Calgary, according to Mark Hawkins from That’s compared with three per cent last year.”

“Rent near Mount Royal University is down about 16 per cent from last year. By the University of Calgary, it’s down about 18 per cent. The number of available units is between 10 and 20 per cent higher near these schools. ‘I’m just starting to get those panicked phone calls from landlords who would usually have their apartments rented by now,’ Hawkins said. ‘There’s a glut of supply and students aren’t going to absorb that.’”

“Arthur Kupper has had his property listed since mid July, and just signed a lease with a student at the end of August. He said he had to drop the price three times before he received any real bites. It was originally listed for $1,500, and over time he was forced to lower the asking price by about $200. ‘I’d rather drop the price a little than have it sit empty for months,’ Kupper explained.”

People Don’t Like Buying Depreciating Assets

A report from CNBC. ” A decade ago, the U.S. housing market swelled to a bubble of epic proportions. When the bubble burst, millions lost their homes and their savings. Home prices dropped for six years, finally hitting bottom in 2012; today, home prices are about 1 percent shy of that 2006 bubble peak. The difference today from a decade ago is that these prices are not being driven by faulty mortgage products that people can’t afford. They are being driven by a severe lack of supply of homes for sale, as well as near record low mortgage rates. The concern, however, is if those rates start to move up. Then affordability would weaken and home prices could move lower. Also, low rates may make homes affordable, but a sizable number of potential buyers still can’t qualify for those low rates and/or cannot meet the down payment requirements. As home prices rise, so too does the down payment.”

“‘It’s the credit box. There are a lot of people that cannot qualify because they don’t have the credit or the equity,’ said Ben Graboske, senior vice president of data and analytics for Black Knight, adding, ‘A portion is not buying because housing had a reputation for depreciating for five years, and people don’t like buying depreciating assets.’”

The Redding Record Searchlight in California. “Home sales in July in Shasta County and the rest of California took a step back. There were 267 sales in Shasta County last month, a 7 percent drop from the 287 closed escrows in July 2015 and down from 306 sales in June, the Shasta Association of Realtors reported. The median sales price in Shasta Cousnty also fell in July from $243,000 in June to $229,450. Homes sold for a median price of $233,000 in July 2015, according to the California Association of Realtors.”

“Meanwhile, the Federal Housing Finance Agency House Price Index shows values in Redding have gone up 32.38 percent since the second quarter of 2011, the index said. Andrew Leventis, FHFA’s supervisory economist, said there is evidence that a slowdown is ahead. ‘The source of the slowdown is significantly diminished affordability of homes,’ Leventis said. ‘Nationwide, prices are almost 30 percent above where they were five years ago. Household incomes have not increased anything close to that pace.’”

The Post & Courier in South Carolina. ” Oceanside mansions, beach cottages and country houses encircled by creeks epitomize Lowcounty real estate, yet they’ve been hard to find for sale as owners wait for the market to fully recover from the late 2000s housing slide. Those heady days are returning, local Realtors say. ‘There’s a lot of inventory in my opinion,’ says Dawn Marquez, agent with Charleston Home Properties. She’s listing a bungalow on a wooded Isle of Palms street for $675,000. ‘There’s competition, at least in the price range in which this home is in, $500,000-$700,000,’ she says.”

“The house on 20th Avenue near Palm Boulevard ‘is a second home.’ While listings are picking up, ‘There’s not as many eyes on (vacation houses),’ she says.”

KHOU In Texas. “Tim Surratt is a real estate expert with 35 years’ experience—and in that time, he’s seen bull and bear markets. Right now, Houston Association of Realtors (HAR) says home sales are down nearly 9 percent. Katy Southwest, Memorial Park and the Energy Corridor homes are selling less homes for less money, and homes are sitting on the market longer. ‘They were building houses that were in the pipeline and they couldn’t stop building them right away, so builders are going to keep building so that puts a little pressure on the resale market,’ Surratt said.”

“People trying to buy in these areas will save thousands of dollars—turning their financial gain into a burden for sellers forced to reduce their asking price. ‘If you don’t need to sell right now, don’t put it on the market. Let’s wait and see how the spring market comes and what happens then,’ Surratt said. ‘If you’re just putting it on the market to test the waters, this probably isn’t the time to do that.’”

From Western Slope Now in Colorado. “For four years, foreclosures in Mesa County have been driving down, but 2016 has taken some by surprise. ‘I looked at it and made a guess that we’d be on the track back down but to my surprise and a few others, it’s tracking up a little bit.’ said Robert bray, CEO of Bray and Companies.”

“Just one month into the third quarter, county officials say they’ve seen enough to call how this year will end. Foreclosure filings are up 17% and sales of foreclosed home are up 20%. Officials say layoffs in industries the area rely on have slowed the recovery as well. ‘There’s some lay offs in the Fall of 2015 in the Oil and Gas Industry. Usually, a few months after a big layoff like that we’ll see a big increase in foreclosures and we did see that in early 2016,’ said Mike Moran, the Public trustee for Mesa County.”

WAMU on Washington DC. “A Virginia developer planned to turn the six properties into luxury housing and sell them for top dollar. Instead, the D.C. government has taken the six homes in some of the city’s hottest neighborhoods — and plans to use them for affordable housing. Late last month, D.C. Attorney General Karl Racine claimed eminent domain and took six rowhomes owned by Virginia developer Insun Hofgard, who earlier this summer agreed to pay $1.3 million in restitution to buyers of close to two-dozen of her renovated properties — many of which were marked by shoddy work and violations of the city’s construction code.”

“Starting around 2012, Hofgard bought up rowhouses in revitalizing neighborhoods, renovated them and sold them at a healthy profit. But what many of her buyers did not realize was that much of the work was done without permits and by unlicensed crews, leaving them with tens of thousands of dollars in repairs. The six homes DHCD is getting through eminent domain have largely been sitting unfinished and empty since last year when she was sued. At least four were popped up, with a new floor added on top of the existing house. Hofgard would often added a story to rowhouses and convert them into multi-unit condo buildings, with each individual unit often selling for more than she bought the whole house for.”

August 29, 2016

It’s Not An Unrealistic Bubble

A report from Florida Today. “The median sale price for an existing home in Brevard County hit a high point for the year in July, coming in at $196,000. That’s 22 percent higher than it was the same time a year ago and more than 3 percent jump from June’s median price of $189,925 Is there anything to be made of the escalating home prices? Should we be worried about a housing bubble? ‘It’s a small bubble, but it’s not an unrealistic bubble,’ said Cyndi Jones, a manager at National Realty of Brevard Inc. ‘With rates the way they are and the quality that you can get, we’ll still keep the prices up there.’”

The Sun Sentinel. “Palm Beach County had 1,530 existing, single-family homes trade hands last month, down 15 percent from July 2015, according to the Realtors Association of the Palm Beaches. It was the sixth month in a row that home sales fell on an annual basis. Broward had 1,499 sales, off 11 percent, the Greater Fort Lauderdale Realtors said. It was the first sales decline for Broward in the past year. Single-family sales in Miami-Dade County, meanwhile, declined for the 10th straight month, falling 16 percent to 1,128, according to the Miami Association of Realtors.”

“Although the housing market remains relatively stable, a sustained slowdown in sales is bound to affect prices eventually, said Chip Rowand, an agent for Keller Williams Legacy in Weston. He pointed out that prices have increased across the tricounty region for the past four years, while salaries have not kept pace. ‘It’s not the economy; it’s the cycle,’ Rowand said of the sluggish July sales reports. ‘Wages have not gone up to support these prices.’”

“Homes listed for $300,000 and less are still in demand, but properties in higher price ranges tend to sit on the market, agents say. Housing observers say too many homes in South Florida are overpriced. Rowand said overconfident sellers aren’t being realistic and wind up having to cut their asking prices and changing real estate agents. ‘It’s best to be the first son, the second wife and the third realtor,’ he said.”

From Mansion Global. “Figures out of Miami this week showed residential sales are down almost 21% from the same time last year. But as bad as this double-digit decline may seem, it pales in comparison to what’s happening at the high end of the market. A close look at transactions for properties of $1 million or more in July shows just 73 single-family home sales, representing an annual decline of 31.8%, according to a new report by the Miami Association of Realtors. In the case of condos in the same price range, the number of closed sales fell by an even wider margin: 44.4%, to 45 transactions.”

“The Miami housing market, and its luxury segment in particular, has been softening for the past year with high-end condos sitting on the market for twice as long as they did a year ago and sellers offering bigger discounts amid an increased supply. Additionally, sellers of high-end condos will continue to face stiff competition. Inventory is up 47.8% from last year, with 2,482 units worth $1 million or more waiting to change hands.”

“Real estate appraiser and data expert Jonathan Miller said that Miami is behaving like most of the rest of the U.S. housing market, which is in fairly good shape overall ‘but soft at the top.’ In the case of Miami, like in other coastal markets such as New York and Los Angeles, the housing boom was heavily boosted by foreign buyers, who have scaled back their purchases due to the strong dollar. ‘The international component is not as intense,’ Mr. Miller said.”

The Real Deal. “The man Forbes once listed under ‘Ten Nigerian multi-millionaires you’ve never heard of’ is grabbing a lot of international headlines lately. Olajide Omokore, a Nigerian oil magnate, was recently arrested for money laundering and corruption in his home country. And now a company linked to the high-flying energy executive has offloaded a trove of lavish Sunny Isles Beach condos.”

“County records show Energy Property Development, led by Omokore, just turned over 12 units in the St. Tropez on the Bay condominium to an affiliate of the complex’s developer, J Milton & Associates, in lieu of foreclosure. Omokore’s shell company had picked up the 12 units and five more when the St. Tropez opened in 2009.”

“To support his real estate shopping spree, Omokore took out financing from an affiliate of J Milton & Associates, Beach Developers, for as high as $1 million apiece for each condo, totaling roughly $20 million. With his new units in-hand, Omokore began renting them. Trouble began for Omokore in 2011 when the developer’s affiliate sued to foreclose on a batch of the condo loans, according to county records.”

“Robert Frankel, an attorney for the developer’s affiliate, told The Real Deal that Omokore’s company had not been making mortgage payments, but the two parties eventually reached a settlement. ‘They brought all the payments current, and they continued to make the payments,’ Frankel said. ‘The principal of Energy Property found that there was not that much equity left in the units and decided to transfer them back.’”

The PanAm Post. “Mexico’s First Lady Angélica Rivera allegedly made use of the services of two law firms to pay taxes on her apartment in Miami, Florida over the course of four years — a claim that would debunk the story that she needed the financial help of Ricardo Pierdant. According to an investigation by Univision, Rivera asked Pierdant to pay her taxes on the property as ‘a favor between friends.’”

“An information request to the Miami-Dade County Tax Office revealed the actress actually hired two law firms to cover those taxes, including during the years of 2011, 2012, 2014 and 2015. Earlier this month, The Guardian reported that Pierdant paid the taxes on the apartment with an electronic check. In addition, the investigation revealed Pierdant bought an apartment through a cash payment for more than US $2 million despite facing an embargo for more than US $1 million because of his failure to pay the mortgage of another apartment in Miami.”

August 28, 2016

The Hottest Market Ever Doesn’t Just Apply To Owning

WFAA reports from Texas. “This summer, we have been exploring the extraordinary things happening in North Texas real estate. But the ‘hottest market ever’ doesn’t just apply to owning. Rents — and new rental developments — are rising fast, too. We visited a 400+ unit project being erected in Frisco called Jefferson Stonebriar. Models feature more natural light and an unusually airy feeling for an apartment. In addition, they are increasingly using premium finishes. ‘Today, we have 10-, 12-, 14-foot ceilings,’ said Brad Taylor, the regional managing partner at JPI. And he says JPI is working on a project that includes apartments with even higher ceilings.”

“Taylor acknowledges that the new level of amenities fetches a new level of rent. Many of the apartment units under construction in DFW are considered ‘luxury’ developments. North Texas is a standout in apartment construction. ‘It is the number-one building center in the U.S.,’ said Greg Willet, chief economist for RealPage. He told us there are currently nearly 50,000 apartment units under construction here, which is a staggering figure. That’s is about one-in-ten of every apartment on the way across the country,’ Willet said.”

The Star Tribune in Minnesota. “Homebuilders are slowly gaining ground on apartment developers in the Twin Cities. So far this year, single-family permits are up 10.4 percent compared with the previous year, while multifamily units — mostly rental apartments — have increased only 4.4 percent, a new report from the Builders Association of the Twin Cities said. Those gains signal a major shift for housing development in the metro area. Rental apartments led the construction recovery and have dominated the industry for the past several years. But that’s changing, with demand for new single-family houses on the rise and concerns that some rental markets are on the verge of saturation.”

“But this month proved an exception to the trend because of permitting for two big apartment projects. In August, homebuilders in the 13-county metro were issued 465 permits to build 888 units. That represents a 1.6 percent increase in single-family permits and a 48 percent increase in multifamily units.”

The Denver Business Journal in Colorado. “Where is Denver’s most expensive neighborhood to rent? Right where it’s been for awhile: In the Golden Triangle neighborhood near downtown, where the median (half rent for more, half for less) monthly rent is $2,200 in August, according to apartment rental website Zumper. And prices are falling across Denver: The median price of one bedroom units fell 3.2 percent to a median of $1,200 in the city, while two bedroom units dropped 2.9 percent to $1,650, Zumper said this month.”

“That $2,200 monthly median rent in the Golden Triangle is actually down $100 from June, according to Zumper’s numbers.”

The Houston Chronicle in Texas. “The average rent for a Houston-area apartment fell in July as developers added units at the same time job growth has slowed, a new report shows. The average rent of $1,082 in July was 2.2 percent lower than the average of $1,107 a year earlier, according to research firm Axiometrics. Rents fell in 12 of the 25 local regions tracked by Axiometrics.”

“This year, 24,863 new units are expected to be completed across the Houston area and another 11,678 in 2017, according to Axiometrics. Annual job growth, meanwhile, slowed to 5,200 in June, down from a recent peak of 117,800 in 2014.”

From Hawaii News Now. “Hawaii’s hot housing market is only getting hotter. But there’s one group of renters who are faring quite well: College students. Jillian Glenn, a University of Hawaii at Manoa political science major, started her senior year on Monday. And after a month of searching for the perfect place, she and her roommates just signed the lease on a rental home. ‘I used to live on campus. I think it’s like $800 a month for not very good conditions,’ he said. ‘So for me, I’d rather pay the same price to pick the place I want with nicer conditions.’”

“College students are finding that their strength is in their numbers. Developer Peter Savio privately operates off-campus student apartments, and this is the first school year he’s seeing vacancies. He says the reason for the empty rooms is simple. ‘A dorm is more expensive. Students can actually rent a two-bedroom apartment for $1,500 and they can put four kids in it and they are each spending between $400-$500,’ Savio said.”

“Meanwhile, there’s no shortage of rooms on campus this year. University of Hawaii officials say the school was able to accommodate every student in need of a dorm. Looking ahead, it appears UH-Manoa could get even more housing competition. A developer has taken out permits to demolish a nearby shopping center to build another private high-rise dorm.”

Allowing Excess To Build Up

A report from the Jackson Hole News & Guide. “In an unprecedented move for the Federal Reserve Bank, a group of 10 high-ranking officials met with more than 120 activists Thursday evening at Jackson Lake Lodge, providing inspiration to local organizers. The normally tight-lipped Fed fielded questions regarding a lack of diversity among the leadership and racial disparities within the economy. Officials included Stanley Fischer, vice-chairman of the board of governors, as well as Gov. Lael Brainard and eight of the 12 district presidents.”

“The face-to-face was organized by a wing of the Center for Public Democracy, calling itself Fed Up. Though mostly comprised of community organizations from around the country, many of which deal with far worse unemployment rates than Teton County, their plight rang true in Jackson Hole, recently ranked the most unequal metropolitan area in the nation.”

“While officials from the Federal Reserve said they sympathize with those still struggling, they said raising interest rates will help stave off another recession by reducing the potential for inflation and safeguarding the long-term stability of the economy. ‘If you look at those periods [with very low unemployment rates] we have a recession shading shortly thereafter,’ said Eric Rosengren, president of the Boston Federal Reserve Bank. ‘The reason is because we were overshooting during several of those periods.’”

“‘My goal,’ he said, ‘is to actually make sure we do get maximum employment, and one of the ways you do get maximum employment is to make sure you don’t allow excess to build up to the point that you actually have another recession, which hurts everybody in the room, including the populations you’re most concerned with.’”

From CNBC. “As jittery businesses and tight-fisted governments cut spending this spring, American consumers went shopping. That helped keep the U.S. economy moving ahead, but just barely. In a closely watched speech Friday, Fed Chair Janet Yellen offered a fairly upbeat assessment of the latest data and other recent reports, pointing to the strength in consumer spending despite the overall weakness in GDP. She also noted that the job market continues to improve.”

“‘In light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months,’ Yellen said.”

“The government’s latest read on the gross domestic product pegged the second-quarter advance at just 1.1 percent, a bit slower than the original estimate reported last month. Most of the weakness is coming from big cuts in spending and investment by businesses — down 9.7 percent in the second quarter. That belt-tightening by businesses on investment in new equipment and buildings could be a sign of a deeper slowdown ahead, according to economists at Credit Suisse.”

“‘Extended periods of falling real business investment are strongly associated with U.S. recessions,’ they wrote in a note to clients. ‘That’s why the recent three consecutive quarters of contraction are concerning.’”

“The latest data also showed that after-tax corporate profits fell at a 2.4 percent rate last quarter after rising an 8.1 percent pace in the first quarter. Weaker profits could make it harder for businesses to limit an anticipated rebound in business spending. Businesses have also been slashing inventories, which dropped by $12.4 billion in the second quarter. The drop in inventories lopped 1.3 percent from GDP growth, the biggest drag in more than two years. It was the fifth straight quarter that inventories weighed on output.”

“Thanks to a rebound in the housing market, the construction industry has enjoyed strong gains, with overall output up 29 percent over the last three years, based on the latest GDP numbers. Other big gainers include hospitality and health-care companies. The biggest industry slump has come from the mining sector, where the plunge in oil prices has produced a 50 percent contraction over the last three years, forcing sharp cutbacks in hiring.”

From MarketWatch. “The U.S. economy, by some measures, has recovered from the Great Recession: The unemployment rate is only half what it was at the worst, real gross domestic product is about 10% larger than the previous peak, and personal wealth has risen by more than $20 trillion as the stock market and the housing market have bounced back. But everyone knows the recovery has been uneven.”

“Most troubling, there’s still very little investment in the buildings, equipment and intellectual property that we ought to be putting into place today as the foundation of our prosperity tomorrow. Who’s preparing the United States for the 21st century? Nobody, really. Not the 22 million private businesses, not the 118 million households, and not the 90,000 state, local or federal government agencies.”

“Since the recession, investments have fallen sharply, and they haven’t gotten back up again. It seems that everyone is still scarred by the Great Recession, and by the collapse of asset bubbles in 2000 and 2006.”

“Gross domestic investment totaled about $3.6 trillion in the second quarter of 2016, about 20% of gross domestic product. That may seem a large sum, but it’s the lowest share of GDP, except during recessions, since 1947. And, unfortunately, even that weak number grossly exaggerates the actual contribution of this investment in creating new productive capacity for the economy. Why is the figure exaggerated? Because these data are reported on a gross basis, without subtracting the depreciation of capital assets such as equipment, buildings, software and the like.”

“After you subtract the capital that’s used up, net investment totaled only about $750 billion in the second quarter, or 4% of GDP, about half of the average over the post-war period. In fact, net investment has been running at the lowest rates since the Great Depression of the 1930s, suggesting that U.S. investment itself is in a depression.”

“Business fixed investment has fallen for three quarters in a row, the first time that’s happened outside of a recession or its immediate aftermath since the mid-1980s. Investments in oil-drilling equipment and structures tanked in 2015 when the price of oil fell, and haven’t recovered. Investments in information-processing equipment (such as computers and semiconductors) have risen at the slowest pace in the post-World War II era.”

“Why aren’t businesses investing more? Because there is already too much productive capacity in the world for the level of demand. Prices are generally falling or growing only tepidly, especially for manufactured goods. Vacancy rates for stores and offices are high. There is no great need to invest in high-tech equipment such as computers or chips because there haven’t been any great leaps forward recently. The old equipment works fine. (I’m using a six-year-old computer to write this.)”

“The business investment story is well-known, but fewer people are aware that investment by households and government agencies is equally bleak, but for different reasons. What do households invest in? Mostly real estate. After the housing bubble burst about a decade ago, home buyers became more cautious. Few buyers believe today that real estate is a sure-fire way to double or triple their money. Slower population growth is also working to reduce the need for additional housing units.”

“As a result, net investment by the household sector was just 1.3% of GDP in the second quarter, about half of the post-war average. New construction will probably increase modestly in coming years, but no one expects the same level we saw in the bubble years, or in the 1950s and 1970s when millions of housing units were built each year.”

“We have an economy that’s underperforming, but no one is willing or able to invest the sums needed to build the offices, factories, mines, computers, machinery, roads and airports we’ll need in the future. Business leaders don’t see a quick payoff in long-term investments, and public officials can’t fill the gap because the public thinks austerity now is better than growth tomorrow. Somewhere, someone needs to find some courage, or we’ll be doomed to decades of disappointing growth.”

August 27, 2016

An Extreme Instance Of How Crowds Can Go Crazy

Two unrelated items for weekend reading, starting with MarketWatch. “It says a lot about human nature that the scientist responsible for the law of gravity was sucked into an investment that for a time defied gravity. Throughout history, people — especially those at the top rung of society — have been greedy and gullible participants in financial bubbles. And Sir Isaac Newton was only human, after all. But the infamous bubble that ensnared Newton, involving a newly established stock market with a company at its center that was fueled by rumors and information gleaned in coffee shops, holds investment lessons to this day.”

“Coming just a few years after the spectacular Dutch Tulip Bulb mania and crash, the South Sea Bubble of 1720 centered on a company that got its start in slave trading, and which had been promised a monopoly of trade by the British government in what is now known as South America for taking over and consolidating the national debt raised by the war against France.”

“After the South Sea Company got the green light on debt, its shares began soaring, pumped by rumor-spreading and inexperienced executives. Investors at this time had to rely on coffee-shop ‘grapevines’ and the press for share information, and the two were interdependent as Richard Dale, pointed out in his book ‘The First Crash: Lessons from the South Sea Bubble.’ The South Sea bubble eventually took down the French company, though the latter was blamed more on faulty monetary policies.”

“In many ways, Newton and other investors of the South Sea Bubble were not too dissimilar to those taken in by more modern bubbles — convincing themselves they were onto a sure thing only to have it blow up. MarketWatch spoke to him about the South Sea Bubble and what investors nowadays can learn from it: MarketWatch: How did the bubble eventually burst for the South Sea Company?”

“Richard Dale: The South Sea Company did not go bust in the sense of having negative net worth. It suffered a catastrophic liquidity crisis because it was spending so much money on supporting its share price. It had to be bailed out by a combination of debt forgiveness and injections of liquidity by the Bank of England. It survived as a financial holding company.”

“MarketWatch: How did Isaac Newton get lured into such a disastrous investment? Dale: Newton invested around £3,500 in early 1720 and sold out in late April of that year having doubled his money. However, like so many others, he was induced to get back into the market in the summer of 1720 at the height of the bubble and ended up losing £20,000, around £3 million in today’s money.”

“MarketWatch: What modern-day financial bubble is most similar to the South Sea Bubble? Dale: From the standpoint of the South Sea directors, the bubble represented a giant Ponzi scheme (e.g. Bernie Madoff) in that it proposed to pay dividends not from profits but from sales of new shares for cash. From the point of view of investment behavior, the bubble resembles the boom/bust when the valuations of companies lost any connection with underlying value or realistic profit projections. (The Bank for International Settlements pointed this out at the time).”

“Although this was far ago, the period of history the market was in was not so terribly different from today, such as options-forward markets and people buying on margin and so on. These were quite sophisticated markets. Ok, you didn’t have the framework of financial regulation and didn’t have long-term investors, it was a very short term market, allowing for those differences….I think you can draw parallels from today’s markets. I don’t think anything’s changed. I think it is a lesson to us all, a particular extreme instance of how crowds can go crazy.”

The Maryville Daily Forum by Eric Sheehan. “When we decided to move to this happy little Ville almost a decade ago we toured a bunch of houses. One in particular caught our eye. It was a turn of the century (1900) beauty with so much character only a fool could pass it up. Sure it needed a lot of cosmetic work and updates but that is part of being a homeowner, right?”

“We moved in and rolled up our sleeves. Layer upon layer of wallpaper was steamed and scraped to expose the beautiful plaster walls beneath. Sure there were cracks but that was just part of the character of a century old house. We had a check list and started to go room by room doing the what we could while the house built equity so we could afford the larger renovations like remodeling the 70’s kitchen and 80’s bath. Then the housing bubble popped. Our home’s value deflated like a helium balloon left out in the cold. Suddenly the biggest investment of our lives was becoming our biggest mistake.”

“I was bemoaning this predicament with a friend when he stopped me and said, ‘What you have there is a Money Pit.’ I paused and stared blankly at him. ‘You know, Money Pit, with Tom Hanks, came out in the 80’s,’ he clarified, ‘and Neighbors, the family that has a frat move in right next door to them….that’s you buddy.’”

“He was right, our home had become a financial vacuum and to compound things all the houses on our block had become rentals and not just family rentals, pack ‘em and stack ‘em college rentals. Our neighborhood has also become money making property for the most part. This caused a noticeable decrease in our resale value but there are also other benefits. A couple years back my son and mother got to see one of the neighbor kids streak around the house. We have had at least one young man pass out in the driveway and yet another try to come in our back door insisting that it was his house, they are so adorable at that age. Lucky for us since the central air is out it is almost impossible to hear the late night revelry over the window unit and three fans that cool our bedroom.”

“It hasn’t all been bad though. So many memories are held within the walls of that grand old house. She really has served us well, we just happened along 30 years late. Our next home will be a townhouse if I get my way and it will be rented. It’s not that home ownership is all bad, I just don’t think we’re cut out for it.”

“While I’m on the subject any one interested in one heck of an investment property? You could probably get eight kids in it, finish the attic and make that 12 and if they can swim you could fit three more in the basement … don’t worry I fixed all that stuff I mentioned.”

Supply Is Being Drained By Short-Term Scofflaws

The Gothamist reports from New York. “Activists often argue that Airbnb is driving up New York City rents by allowing fly-by-night hoteliers to illegally rent out whole apartments year-round, thus taking much-needed housing off the market. The data news site FiveThirtyEight commissioned data from the for-profit Airbnb data-scraping service Airdna to understand the prevalence of whole-apartment rentals in cities nationwide. The data for New York shows that between June 2015 and May 2016 about 8 percent, or 2,464 of the city’s 30,800 Airbnb listings offered whole apartments for more than 180 days out of the year.”

“A city housing survey in 2014 found that just 3.45 percent, or 75,900 of New York’s 2.2 million apartments were vacant at a given time. Last month, data compiled by the firm Citi Habitats showed that just 1.92 percent, or 16,500 of Manhattan’s about 854,000 apartments were available. In this context, 2,400 apartments (more or less) is kind of a big deal.”

“A recent report by MFY Legal Services and Housing Conservation Coordinators defined ‘impact listings’ as whole apartment listings that are rented for less than 30 days, booked more than once a month, and listed more than either 3 or 6 months out of the year. Their analysis found 8,058 such units in New York, and determined that if all else remained equal and those apartments were returned to the rental market, the citywide vacancy rate would rise to 4 percent.”

“Murray Cox, an activist with the group Inside Airbnb, said that the startup’s resistance to turning over even anonymized data shows that it doesn’t care about concerns that it is adding pressure to an already extremely tight housing market.”

“‘If they were really interested in accountability, they would be trying to work within the intent of [government] regulations and working with cities to protect affordable housing, and addressing what is abuse of the platform and what it is people are interested in protecting about neighborhoods,’ he said. ‘I think that Airbnb isn’t interested in doing that at all. I think they’re interested in defending anything that they see as an attack on their revenue.’”

The Tampa Bay Times in Florida. “Large parties are continuing in a Tierra Verde mansion rented through Airbnb, even as the host faces drug trafficking charges and a Pinellas County commissioner is looking at ways to eliminate abuses of the popular home-sharing site. As the Tampa Bay Times reported in June, the house has been in foreclosure for several years. The elderly widow who lived there deeded the property to Tampa real estate broker Kevin Byrne, who has been renting it for about $3,000 a month since January.”

“With a home in foreclosure, ‘who do you hold responsible in that scenario?’ said County Commissioner Janet C. Long. ‘People spend their hard-earned dollars to live in a lovely neighborhood and they have to deal with that kind of thing and there’s no law against it.’”

Fusion on California. “In the teeny-tiny village of Joshua Tree, California, population 7,000, there are more than 200 vacation rentals on Airbnb. In recent years, visitors to Joshua Tree National Park have soared, and last year the number of visitors hit a record high, surging by more than 27 percent to over 2 million. ‘The short-term rental market is out of control right now,’ said Mark Lundquist, the local field representative for the village from the San Bernardino County government.”

“Over the past year, Lundquist told me, feeding that demand has put a strain on local resources. The local home buyers’ market has all but dried up as property owners put their places on short-term rental sites instead of up for sale. Long-term rental units are scant. And in Joshua Tree, it’s not even peak tourism season—that isn’t until the fall.”

“In May, I worked with the technologist and Airbnb data guru Tom Slee to investigate Airbnb’s effect on the small Icelandic capital of Reykjavik. In Reykjavik, which has a population of 120,000, five percent of the local rental market now belongs to Airbnb. It has made finding a place to live there next to impossible. Since then, both Slee and I have heard from even smaller communities reeling from the impact of sharing economy startups.”

The Williamette Week in Oregon. “When Rebecca Rosenfelt moved to Portland from San Francisco last summer, she and her husband paid $1.6 million for two Boise neighborhood townhouses and almost immediately began renting one of them out on Airbnb for as much as $350 a night. The four-bedroom townhouse is one of six properties Rosenfelt listed on the short-term rental marketplace Airbnb—three in Portland, one in San Francisco, and two in Northern California’s Sonoma County.”

“When Portland began allowing short-term rentals in 2014, City Hall created rules to ensure that Airbnb’s clients wouldn’t add to a citywide housing crunch by taking apartments and homes off the market and renting them out to tourists. San Francisco passed similar restrictions. Among those rules: People can list only properties where they live for at least nine months a year.”

“Rosenfelt’s six properties violate the spirit of those rules—and at least two of her rentals, the San Francisco condo and Northeast Portland townhouse, flout the letter of the law by not having the required city permits and safety inspections.”

“And Rosenfelt should know the law: She’s an Airbnb manager at the tech company’s Portland headquarters.”

“Critics have long complained that Portland’s short-term rental regulations are toothless—two years after the rules were adopted, less than a quarter of Airbnb clients have bothered to get the required $178 permit and safety inspection. Now those skeptics say the rules have become such a joke that even an Airbnb employee ignores them.”

“‘It just makes it look like those rules were only ever for show,’ says Margot Black, an organizer with Portland Tenants United. ‘Even an Airbnb manager is blatantly flouting them. The fact that it’s in the midst of a housing crisis makes it all the more obscene.’”

“An analysis commissioned by WW shows that if illegal short-term rentals were removed from the Airbnb website, as many as 1,718 homes could be made available to Portland residents instead of tourists. Some leaders say the city’s housing supply is being drained by short-term rental scofflaws. ‘If you take thousands of units off the market, it’s going to have an impact,’ says Commissioner Nick Fish. ‘People now have the option of making more money renting to short-term rather than long-term tenants.’”

“About 79 percent of the 3,500 Portland listings on Airbnb don’t have city permits, according to data provided by the city and Murray Cox of the tech website Inside Airbnb. In 2015, WW reported that dozens of Airbnb clients were ignoring city rules by listing multiple short-term rentals—sometimes while living out of state (”Hotel California,” WW, Feb. 17, 2015). A recent examination by Cox shows the problem has persisted even after repeated deadlines from the city and the threat of fines to the company.”

“In one example, one woman has 22 listings all clustered near Northeast Alberta Street, none of them giving a city permit number, according to data from Inside Airbnb. Rosenfelt has worked as a product manager for Airbnb since 2012, according to her LinkedIn profile.

“Rosenfelt’s condo in San Francisco remained listed on Airbnb. She can’t get a legitimate Airbnb permit for the San Francisco address as long as she lives in Portland, because San Francisco also requires Airbnb clients to live in the units they rent out. There’s no record of a permit ever being issued to Rosenfelt, officials with San Francisco’s short-term rentals office say.”

“She’s not the first Airbnb employee to run afoul of the rules. The company’s CEO, Brian Chesky, was busted in January for failing to register his apartment in San Francisco, but he easily rectified the situation by registering his couch, for which he asks $50 a night.”

“But unlike Chesky, Rosenfelt can’t fix her mistake with paperwork—she’s breaking the rules in two cities, including residency requirements. The Boise townhouses Rosenfelt purchased were built just last year. Nearly three years ago, a developer purchased a modest house on Northeast Rodney Avenue for $259,000, demolishing it to make way for Rosenfelt’s two, 3,000-square-foot townhouses.”

“Those new units might have increased the city’s housing supply—but it appears one of them is partly being used as a bootleg hotel. (Airbnb officials say Rosenfelt is renting at least a portion of her second townhouse to a long-term tenant, as well as advertising it as a short-term rental.) Airbnb spokeswoman Alison Schumer defends the company’s record in working with Portland, blaming the city’s ‘complex’ process for getting permits.”

“Schumer declined to comment on why Rosenfelt was allowed to list six properties on Airbnb. ‘We are working with this employee to help her navigate the registration process,’ Schumer says.”

August 26, 2016

Investors Need To Batten Down The Hatches

It’s Friday desk clearing time for this blogger. “If you’ve been shopping for a home in Boston or its suburbs in the past few years, you probably know how this story ends: cars lining the block and a hundred people at the open house. A dozen offers rushed to the listing agent, many of them above asking price or in cash. And an emotionally taxing, white-knuckle bidding war. When your reasonable offer is rejected, it’s enough to make you cry. ‘It’s really almost a national phenomenon,’ Lawrence Yun, chief economist at the National Association of Realtors, said of the Boston-area market.”

“Could the second attempt be the charm for a million-dollar-plus home sale in Sylvan Park? A $1.28 million listing of a 3,477-square-foot, single-family home at 109 42nd Ave. N. provides the latest test for that neighborhood southwest of downtown Nashville. Barring a major negative global event, Christie Wilson, president of The Wilson Group Real Estate Services doesn’t believe there’s going to be a popping bubble. ‘There are definitely micro markets in Nashville that are experiencing a bubble, and if demand subsides, we will see a typical deflate, but not a pop,’ she said. ‘That is the nature of real estate. It goes up, and it goes down … and still it remains the best investment a person can make.’”

“Reality TV show host and entrepreneur Marcus Lemonis on Monday sold his five-bedroom, 8,225-square-foot mansion in Lake Forest for $2.7 million. Lemonis paid $4.936 million for the mansion in 2005. He first listed it briefly in 2008 for $6.7 million and later relisted it in 2011 for $4.995 million before several price cuts. He then relisted it in 2014 for $4.1 million before taking it off the market. He put it back on the market on May 23 for just below $3 million.”

“Armstrong Realty Management CEO Benjamin Ringel, who’s facing foreclosure on his Southampton mansion, now has another legal woe. Ladder Capital is suing the Midtown-based landlord, claiming he defaulted on a $5.9 million mezzanine loan secured against an Upper West Side retail condo.”

“Detached housing sales have plunged 84 per cent on Vancouver’s West Side and are down 88 per cent in Richmond during the first two weeks of August compared to the same period in 2015. Total detached house sales through the Real Estate Board of Greater Vancouver plunged 71 per cent in the same period. Zolo Realty BC Inc., a real estate firm that tracks average, rather than benchmark, prices in Vancouver’s housing market, reports that as of Aug. 22, the average home price in the city dropped 17.1 per cent from July 25, to $1.1 million.”

“Noted real estate investment analyst Ozzie Jurock said it is likely that there will be a sharp increase in listing inventory in the weeks ahead. ‘As investors, we need to batten down the hatches,’ Jurock told his readers this week.”

“The ‘turmoil’ of the Brexit vote has seen Cambridge house prices fall for the first time in years, prompting fears the city’s housing bubble may be about to burst. Figures released today show the city’s average house price fell from May to June. One city estate agent, who asked not to be named, warned the local market could ’spiral out of control’ if things don’t soon stabilise. He said: ‘Sellers don’t want to accept prices could be coming down, and buyers have been conditioned into thinking Brexit would lead to prices coming down. The effect is, nothing much is really selling.’”

“Rents dropped by an average of KD 60 compared to two months ago in Salmiya, according to a report. Al-Rai’s report quotes Qais Al-Ghanem, Secretary of the Real Estate Association, who previously predicted a drop in rents due to a 30 percent decrease in investment lands’ prices in many areas, in addition to the fact that supply now far exceeds demand. ‘The real estate market has been saturated following the boom in construction investment buildings, and rents will eventually go down following years of rent bubbles,’ he indicated.”

“Rents have dropped considerably in high-end apartments. For instance, in Egmore, where there has a been a huge supply of luxury apartments, rentals over the last one year have dropped from about ₹85,000 to ₹65,000 an apartment. Abdur Ravoof, a property consultant, says the situation is particularly tough in high-end apartments – houses that fetch rent of over a ₹1 lakh a month. As companies and employees cut costs and expenses, rentals are taking a beating. Also, with the continuous increase in supply of apartments, the tenants have a wider choice.”

“‘I am paying a hefty maintenance on the vacant apartment on OMR. I need a tenant now,’ says a desperate apartment owner. His tenant has recently moved out of the two-bedroom unit to a larger apartment for a nominal increase in rent within the same township project. ‘True, this is the story of Chennai’s residential rental market,’ acknowledges Jayant Hemdev, Partner, Hemdev Real Estate, a leading player in the sector.”

“In Abuja, findings show remarkable drop in rents and house prices. At the Federal Housing Estate in Lugbe, where a three-bedroom flat was going for between N700,000 and N900,000 per annum. A tenant, who introduced himself as Luke, said his annual rent was N700,000 but his landlady had asked him to start paying N450,000 in the next rent cycle. According to Lordye Agema-Hur, CEO of Sir Hur Nigeria Limited, a three-bedroom flat sold for N20 million at the Federal Housing Estate in Lugbe, but can now be bought at N17 million.”

“Unfortunately, despite this drop in prices, there is low activity in the market owing to the fact that buyers are not coming up due to lack of cash. ‘It is not a seller’s market any longer,’ Terungwa Sabe, an Abuja-based estate surveyor and valuer, said in a telephone interview.”

August 25, 2016

Realtors Say It’s Not Time To Panic

CBS 46 reports from Georgia. “Atlanta home prices are the highest in recent memory. According to the Atlanta REALTORS Association, Atlanta’s median home price jumped from $105,000 in 2012 to $250,000 today. With some properties seeing such quick gains in pricing, however, some real estate agents say Atlanta’s market can’t handle it. ‘In 12 to 18 months I think that we will see a correction in prices,’ Said Kris Kolarich of Atlanta Intown Real Estate Services. Kolarich believes Atlanta’s housing bubble is about to burst. ‘I don’t see how you can sell houses in certain zip codes for $250,000 and $275,000 without commerce still, in heavy crime areas and without good schools,’ he said.”

The Miami Herald in Florida. “Close your eyes if you don’t like bad news. The volume of existing home sales in Miami-Dade County fell 20.8 percent in July compared to July 2015, according to a monthly report released Wednesday by the Miami Association of Realtors. Three main factors are conspiring to slow down Miami’s real estate market: Not enough affordable housing for locals. A lack of foreclosure inventory available for investors to snap up. And a major drop-off in the number of foreign buyers, who’ve been burned by the strong dollar.”

“‘When you see a 20 percent drop, you start thinking not just housing recession but housing depression,’ said Jack McCabe, a South Florida real estate analyst.”

“Realtors say it’s not time to panic. The pace of sales set in 2013, 2014 and 2015 simply wasn’t sustainable, said Ron Shuffield, president and CEO of EWM Realty International. ‘A lot of the decline we’re seeing is in the million-dollar market and in foreclosures,’ Shuffield said. ‘The middle of the market is still strong.’”

“The new report shows Miami-Dade’s condo market suffering more than single-family homes. Condo resales dipped to 1,104 in July, down 24.7 percent year over year, the Realtors’ group found. Existing condos are competing with a glut of luxury offerings, making older units a tougher sell. Single-family resales fell to 1,128 in July, a 16.4 percent decline from last year.” on Texas. “This enormous hunk of partly built real estate outside of Houston, which is on the market for $3.6 million, has been called ‘haunted,’ a ‘disaster,’ and a ‘mystery.’ But here’s what this unfinished, sprawling Texas property really is: a multimillion-dollar fixer-upper.”

“The massive home, abandoned and incomplete, has attracted media attention over the years. Located in the small town of Manvel, TX, the structure started in the early 2000s as a custom build for the original owners, a doctor and his wife, recounts Jim Youngblood, the current homeowner. ‘They got 70% done, and for some reason his wife thought the house was too big.’”

“Her rationale isn’t too hard to understand. According to Youngblood, the home was planned as a 63,890-square-foot facility on 10 acres and would include living quarters, the doctor’s medical practice, and a setting for housing foster children. Youngblood, an investor, decided to go in on the place with family members in 2008. He now owns it through foreclosure. Since then, he has tried to sell it unsuccessfully.”

“‘I’ve had it under contract dozens of times. For some reason, these people can’t get financing.’ He’s not the first person to have big dreams for the half-built home. Other potential buyers have appreciated the enormous 30,000-square-foot room in the back for an event center with a bed-and-breakfast. Or as an assisted-living facility with space for 70 rooms. Despite interest regularly rolling in, no one’s closed on it yet. ‘Everybody has these grand ideas, but they don’t have any money,’ Youngblood laments.”

August 24, 2016

From A Fear Of Missing Out To Maybe I Should Wait

A report from the New Zealand Herald. “One of New Zealand’s most controversial citizens has cut a record-breaking deal over the $40 million assets seized as part of a money-laundering inquiry. The deal struck with William Yan - also known as Bill Liu, Yang Liu and Yong Ming Yan - is the final settlement in a civil case two years after the police raided his penthouse. More than $40m of dollars of assets were frozen as New Zealand detectives worked closely with Chinese authorities who claim Yan stole $129 million in a complex fraud.”

“Court documents allege Yan concealed the fortune in New Zealand through complex money laundering transactions, where property and shares in companies were held by trusts and companies in other people’s names. Those assets included a collection of luxury cars, the Metropolis apartment - five titles joined together on the 35th floor - an 18.8 per cent stake in Mega, millions in bank accounts, a troubled North Shore property development and a Waikato farm.”

From Caixin Online on China. “The ongoing anti-graft campaign has netted one in three suspects on China’s ‘100 most wanted’ list – mostly government officials hiding overseas – to stand trial in China as of July 15, the Communist Party’s corruption watchdog said. The party’s graft buster says fugitives hiding in 40 countries and regions were repatriated in the first half of 2016 and that over 1.2 billion yuan worth of stolen funds were recovered from overseas in the first half of the year. According to Interpol, 40 of China’s 100 most wanted fugitives were thought to be hiding in the United States, 26 in Canada, 11 in New Zealand and 10 in Australia. Other locations include Belize, Sri Lanka, and Grenada.”

“Over 40 percent of the 738 fugitives who returned to China in 2015 were ‘persuaded’ to come back rather than forcibly repatriated, according to the CCDI. Fugitives’ family members sometimes played a role in these ‘persuasion efforts,’ Li Gongjing, a Shanghai police officer, said in an interview with Xinmin Weekly magazine. ‘It’s very effective. A suspect is like a kite. Although he is in a foreign country, his line is in China and we can find him through his relatives,’ Li said.”

The Malaysia Kini. “The ‘Datuk Seri’ who was arrested by Malaysian Anti-Corruption Commission (MACC) to assist in a corruption investigation is believed to own 31 luxury condomimium units worth more than RM15.5 million, reported Utusan Malaysia. These units located in Kuala Lumpur were ‘purchased’ from five housing developers which had dealings with Kuala Lumpur City Hall. Quoting a source, the report said the MACC found that the suspect had purchased all the condominium units, each priced between RM200,000 and RM300,000, without paying downpayments when the sale and purchase agreements were executed.”

“The houses were bought using the suspect’s own name and those who are close to the suspect. ‘It is believed that the suspect would sell these units with an estimated price of RM500,000 each, once they are completed to gain profit,’ said the source. During the raid, MACC officers also seized huge amounts of cash hidden in the ceiling of a suspect’s house.”

From The Star in Kenya. “The National Youth Service scam suspects Josephine Kabura, Ben Gethi and six others were yesterday ordered to pay Sh300,000 bail each to secure their release, pending trial over money laundering. Chief magistrate Daniel Ogembo says the suspects allegedly knew the money they used to buy property, including high-end vehicles, land and houses, was proceeds of crime, namely Sh791,385,000 stolen from the Devolution ministry.”

“Some of the properties have already been frozen by the Assets Recovery Agency. Some suspects are battling to save their property and have filed cases at the High Court.”

The Richmond News in Canada. “Sales of detached homes for August are predicted to be down by as much as 55 per cent compared to the same time last year, thanks, in part, to the new foreign home buyers tax, according to Steveston realtor Sean Lawson. In fact, Lawson argues the tax, which tacks on another 15 per cent to the purchase price for non-residents, means Richmond has likely reached its high watermark for real estate prices, and the August slump may extend into the fall.”

“‘The market was already slowing and they (government) dropped this bomb on it without any real consultation with the industry,’ he said, adding it has dour consequences for the overall economy. ‘To kick out two of the pillars – construction and real estate – that along with tourism were doing well was ridiculous and foolhardy. It was a purely political move that is likely to backfire on the government.’”

“Vancouver realtor Steve Saretsky said he has been watching market trends closely since the foreign buyers tax was implemented and said it is impossible to know for sure how much the tax has slowed sales in the Richmond area where government tracking of real estate transactions showed about 19 per cent of homes were purchased by non-residents — the highest concentration in Metro Vancouver.”

“‘The implementation of the tax put an immediate halt on peoples’ plans,’ Saretsky said via email. ‘Everyone wants to see what’s going to happen next before making any decisions. It changed the mentality of locals from a ‘fear of missing out’ to maybe I should wait.’”

“‘Here’s what I see, things are clearly trending downwards,’ Saretsky said. ‘After basically hitting a 40 per cent increase in price at one point how much further can we really expect it to go up? Real estate is cyclical. I don’t want to make any predictions, but if you look at all the data and the trends over the last four months, it’s certainly not encouraging. I would expect things to continue cooling, however September is generally an active month.’”

“‘If September is another slow month, then the writing is on the wall,’ he added.”

At Its Peak Or Beginning A Downturn

A report from the Tennessean. “Some things are more predictable than others. The topic and timing of this week’s column is one of those. For the last several years, David and I have attended a late summer conference in steamy Austin, Texas. Keller Williams Realty International’s (KWRI) Mega Agent Camp is routinely packed full of insights. One of the most valued presentations is always the market update presented by KWRI chairman and co-founder Gary Keller. As always, Keller’s presentations take an historical look at where we have been and then challenge us to draw reasonable assumptions about the future. The starting point was a broad-based question posed to all in attendance: Where are we in the housing cycle?”

“Nationally, the current market is at its peak or beginning a downturn. The market traditionally works its way through the cycle every seven years, so this should come as no surprise. The indicators of a downturn have already begun to surface in several markets across the U.S.; fortunately Middle Tennessee is lagging behind. Increasing days on the market, flat or increasing inventory, coupled with a slowdown in sales units and drop in average price are indicators that a downturn is imminent.”

Bloomberg on California. “Stacey Smith and her husband looked at about three dozen homes in the San Francisco Bay area and lost a bidding war before finally purchasing a four-bedroom house in June for $1.5 million — 40 percent more than the asking price. Their search wasn’t in Silicon Valley or San Francisco. It was just across the bay in Oakland, which has supplanted its pricier and better-known neighbors to become the region’s most heated real estate market.”

“‘Something we had to wrap our head around really quickly was the fact that we were automatically going to bid at least 30 percent over asking,’ said Smith, a 50-year-old strategy consultant who moved from San Francisco in search of more space for her family’s three kids. ‘It’s the new normal.’”

“The median home price in Oakland has soared 178 percent since 2011, almost double the gain in San Francisco, Paragon Real Estate Group data show. ‘Most markets would be pleased if they averaged asking price, or 1 or 2 percent over asking price,’ said Patrick Carlisle, chief market analyst at Paragon. ‘To see things averaging 9 to 17 percent over asking price is virtually unheard of. It’s the highest I’ve ever seen.’”

From Community Impact on Texas. “Previously the top single-family housing market in the U.S., the Greater Houston area fell behind the Dallas-Fort Worth market early this year, according to Metrostudy. The Houston market had 27,263 new homes under construction during the first quarter of this year—down 3,089 from the same time period in 2015. Similarly, the Conroe, Montgomery and Willis area saw a decline in new home construction during the second quarter of this year.”

“‘We built a lot of new communities with the goal of capturing some of the people that would be relocating to work at the new ExxonMobil campus, but that has not materialized in the volume that we thought it would,’ said Metrostudy-Houston Regional Director Lawrence Dean. ‘While the new home market is still going strong, we probably built too many new subdivisions and too many lots at the same time. It will take a little bit longer to build and sell the homes than we thought.’”

“‘It has been a pretty significant shift in the market,’ Gracepoint Homes President Tom Cox said. ‘The buyers that are above $450,000 are very discretionary buyers, and they are in a significant holding pattern right now.’”

“Additionally, homeowners who are looking to sell their homes are having a difficult time in the current market because homebuilders offer incentives to sell their inventory, such as paying bonuses to real estate agents and covering closing costs for homebuyers, said The Woodlands Realty Realtor Marisol Luyckx. ‘Homebuilders give a significant amount of incentives to real estate agents as well as buyers, so it is difficult to compete when you have a home for resale,’ Luyckx said. ‘That is when you know that [builders] are desperate to get rid of their inventory. If [homes] were selling quickly, they wouldn’t offer those things.’”