August 4, 2016

If The Boom Does End, It Wouldn’t Be The First Time

The Los Angeles Times reports from California. “Something is happening downtown that would shock many renters living in an increasingly expensive Los Angeles: Some landlords are letting tenants live for free. At the recently opened 263-unit Hanover Olympic apartments on Olive Street, new residents can get a free month’s rent when they move in. So can new tenants at Sares-Regis Group’s new 240-unit Wakaba LA in Little Tokyo. Developer Carmel Partners is offering an even sweeter deal. ‘Summer savings for a limited time,’ says the website for its new Eighth & Grand complex, where a studio starts at $2,300 and residents can get four to five weeks of rent free and up to 12 months of free parking.”

“The downtown development boom that’s transformed the region’s civic and commercial center into a vibrant residential neighborhood has been so great that it’s raising questions about how long the heady times can last. ‘Concessions have been virtually nonexistent across L.A. for several years. Demand had been so high there just wasn’t any need for them,’ said Steve Basham, senior market analyst with CoStar Group Inc.”

“The new dynamic, Basham said, can be chalked up to simple supply and demand. In the last year and a half, more than 3,700 apartments have opened downtown and an additional 6,260 are currently under construction, according to real estate firm Transwestern. When those apartments are finished, they’ll boost the number of downtown residences — both for sale and rentals — by about 15% to more than 40,000. Thousands more apartments are planned, as well.”

“Lenders have grown more selective in the projects they fund. ‘Are there that many people that can afford the $3,000 a-month rents?’ Chris Casey, a managing director in JLL’s real estate investment banking group. ‘People are looking around and asking themselves: Are we in the seventh inning, the eighth inning’ of the development cycle?”

“If the boom does end, it wouldn’t be the first time for downtown. Amid last decade’s housing bubble, developers focused heavily on new condominiums, only to slash prices, mothball their plans or turn the buildings into rentals when the financial crisis and recession turned boom to bust. This time developers are focusing on apartments and at a much greater scale.”

The Real Deal on Florida. “For Miami-Dade County’s renters, relief may be within reach. By the end of 2016, developers are slated to deliver the largest influx of new inventory in the past 17 years, according to a new report from Marcus & Millichap. An ‘exceptional amount of new development’ in the pipeline this year will likely outpace that demand and cause vacancies to rise. Miami-Dade already saw 2,100 new apartments open their doors during the first quarter, nearly matching in three months the 2,440 units that were delivered in the entirety of 2015. And the Marcus & Millichap report said another 4,640 apartments are in the pipeline, marking the biggest inventory spike since 1999.”

“As noted in the report, a lack of land for single-family housing has brought multifamily projects into prominence over the past year. Now, a flood of new condos — 11,000 in Miami-Dade’s pipeline for the next two years — could also end up as rentals, potentially leading to an oversupply of apartments.”

“Meanwhile, the volume of investment deals has already begun slowing over the past 12 months. According to the report, multifamily sales fell 12 percent year-over-year. Low cap rates have distanced the gap between asking prices from property owners and investors’ yield expectations. Despite that, prices continued their uphill sprint in Miami-Dade. Multifamily deals averaged $195,300 per unit in the first quarter, up 12.8 percent compared to last year.”

The Star Tribune in Minnesota. “When Mary and Mitchell Roach decided this spring to sell the 4,000-square-foot house they built 15 years ago in Savage, they were emboldened by stories of home buyers lining up and sellers getting more than asking price. Four months and three price reductions after listing the house for $539,000, they’re still looking for a buyer and are baffled by the disconnection between the headlines and what’s happening on their quiet suburban street.”

“‘It’s a whole different ballgame in the $500,000 price range,’ Mary Roach said. ‘It’s been very frustrating.’”

“The scenario is particularly vexing for real estate agents who cater to upper-bracket sellers, who see the data and the headlines but feel like they’re missing out. And if an upper-bracket buyer doesn’t sense value, they’re apt to move on and build exactly what they want. ‘We’re fighting a huge battle in the upper-bracket market,’ said Meredith Howell of Coldwell Banker Burnet. ‘The market is very, very harsh, particularly when you’re competing against newer developments.’”

The Daily Times in New Mexico. “Despite a recent decrease in the number of properties in foreclosure proceedings in the city, Farmington’s foreclosure rate is higher than the national average, according to CoreLogic. The high rate of foreclosures in Farmington is something that Rita Gomez, a real estate agent at Coldwell Banker Cornerstone Realty, has noticed.”

“Gomez attributes the high local foreclosure rate to a decline in oil and gas production that has lead to layoffs. While real estate agents do not use foreclosures while doing market analysis for people interested in selling their homes, Gomez said the foreclosures could affect housing values. ‘It could be good for some people, maybe, but for the majority of the population, it’s probably bad,’ she said.”

“Gomez said the trend will likely continue until the area experiences an increase in employment. In another sign of the shaky local economy, the study shows Farmington’s mortgage delinquency rate has climbed to more than 4 percent.”

Sellers Are Adjusting To Softer Demand With Price Decreases

CBC News reports from Canada. “Edmonton renters on the move are cashing in on sweet end-of-summer deals. From hundreds of dollars in rent reductions to complimentary flat-screen TVs, a growing number of landlords are offering generous incentives to attract new tenants. A sluggish economy, combined with a glut of new properties, has forced property managers to sweeten deals, said Mark Hawkins, the owner of the apartment rental website”

“‘There is a lot of inventory that is coming, and there is not a lot of people coming into Alberta these days,’ Hawkins said. ‘And that does have the potential to push up vacancy further. That’s why some landlords are reacting now, and trying to secure tenants.’”

“Hawkins said apartment rents have dropped eight to 10 per cent since July 2014. However, high-end condos, premium apartments, and large rental buildings are being hit hardest, with rents dropping between 15 and 20 per cent during the same period. ‘A lot of people that may have bought these investment condos to rent out, and have a number in mind, will really need to adjust that number. And with condos, they all become available at once, you have a lot of competition in your building, and people who want to compete will drop the price.’”

From CTV News Calgary. “New numbers from Calgary’s real estate board show a slow in demand for housing in the city and officials say the decrease in activity is in step with a decline in net migration levels. CREB’s chief economist Ann-Marie Lurie says rising unemployment and fewer people moving into the city are contributing to the weaker market.”

“‘It comes down to the economic conditions. So what we’ve seen is, first of all we started to see employment losses, I mean, we have to keep in mind that to date, in June, we’ve had 30,000 full-time job losses, this is obviously impacting housing demand. Next, we’re seeing, that’s contributing to that, is that lack of net migration so we actually saw the civic census come out, which showed people actually leaving the city, so all of that contributes to the weak demand environment that we’re currently seeing in the housing market,’ said Lurie.”

“‘Buyers are expecting further declines in sold prices, and sellers are adjusting to softer demand with price decreases. When these expectations intersect, we’re seeing sales activity in the market, but not at the level realized over the last several years,’ said CREB president Cliff Stevenson.”

The Financial Post. “Realtors and lawyers desperate to get in under the deadline filed a record-setting 15,000 property transfer applications on Thursday and Friday, the last business days before B.C.’s punishing new 15-per-cent tax on foreign property buyers went into effect. Now, as a new dawn breaks in Metro Vancouver’s real estate market, realty companies and real estate boards are reporting the first anecdotes of deals falling through as foreign buyers forfeited deposits on binding deals rather than pay the new tax. And they report evidence of local buyers withdrawing offers in expectation that the market will soften.”

“Elton Ash, executive vice-president of Re/Max Western Region, said it is too early to accurately quantify how many deals fell apart, but he’s heard from realtors in some of the company’s 30 Metro Vancouver offices of cases where foreign buyers who couldn’t rearrange previously negotiated closing dates have already walked away. ‘Our expectation is that there will be a percentage of transactions collapse due to the buyer basically defaulting on the contract,’ Ash said.”

The Georgia Straight. “If you’re a regular reader of Vancouver newspapers, you probably believe that foreign investors, particularly those from China, are the primary force driving up housing prices in the Lower Mainland. For B.C. politicians looking toward the May 2017 provincial election, it doesn’t matter if the public’s views reflect reality or not. Elected officials aren’t going to worry if a former federal politician like Garth Turner or a former federal candidate like Victor Wong say that foreign buyers only account for 10 percent of all home sales in the region.”

“If an MLA wants to keep his or her job, the most important consideration is what the public thinks is true and then taking action to address those concerns. Meanwhile, people in the real-estate industry are expressing shock that their ‘friends’ in the B.C. Liberal government would impose a 15 percent tax on foreign buyers. They’re bringing forth examples of hard-done-by foreign buyers whose lives are being severely disrupted by the new tax.”

“They’re getting about as much sympathy as former French king Louis XVI’s courtiers received in the midst of the French Revolution. That’s because the public loves the new tax (at least according to the Angus Reid Institute poll). This shouldn’t come as a surprise. As critics of foreign buying were working nearly full-time on this issue for several years, the real-estate sector (with a few notable exceptions) ignored the rising level of alarm.”