The Housing Bubble

The American Statesman reports from Texas. “Average apartment rents in the Austin area increased in July for the seventh straight month, though the rate of increase from last year fell to a six-year low, according to Axiometrics. ‘Austin has been adding a lot of jobs, but also adding a lot of apartments,’ said Stephanie McCleskey, vice president of research for Axiometrics. ‘Though a lot of the new supply is being absorbed, the slowdown in construction we’re starting to see for 2017 would come as welcome relief.’”

“An estimated 10,173 new apartment units are expected to come to market this year — the busiest of the current apartment cycle — and another 5,906 are slated for completion next year, Axiometrics said.”

The San Francisco Examiner in California. “It wasn’t until San Francisco resident Gary McCoy stopped looking for an apartment to share with his husband that one became available in their price range. Earlier this month, after a ‘frustrating’ year and a half of searching for a home to call their own, the couple signed a lease for a rent-controlled studio with a full kitchen and bathroom in The City’s Civic Center neighborhood. The price? Less than $1,800 a month. ‘It’s still an uncomfortable amount of rent compared to what we’ve been used to … [but] to find a pretty large studio with full kitchen and full bathroom for less $1,800 blew us away,’ said McCoy.”

“Prior to finding the studio, McCoy said each apartment the couple viewed cost a minimum of $1,800 a month, ‘and that’s for the smallest studio that we actually looked at.’ ‘Rents have definitely come down,’ McCoy said.”

“Last month, friends of Planning Commission Vice President Dennis Richards sought to rent their two-bedroom top floor apartment next to Dolores Park for a year and asked $7,300 a month. There were no takers. His friends have since dropped the price twice, most recently to $6,800 a month. Richards — who conceded that price ’still seems high’ — estimated that if the home had been rented at this time last year, there would have been no need to reduce the rent.”

The Pagosa Daily Post in Colorado. “It has been an interesting summer for the real estate world in Pagosa Springs. Overall sales activity is up slightly as measured against the prior 12 months. For all property types (building lots, acreage, commercial, ranch, single family, condos, etc.) the average selling price was down 2.5% over the prior year. When you cross into the $500,000+ price ranges the level of supply significantly outpaces demand as shown below.”

“Listing Inventories: $200,000-$300,000: 67 Active Listings = 10 month supply. $300,000-$500,000: 90 Active Listings = 16 month supply. $500,000-$750,000: 53 Active Listings = 29 month supply. $750,000-$1,000,000: 35 Active Listings = 76 month supply. $1,000,000 plus: 49 Active Listings = 106 month supply.”

“The market in Southwest Colorado has been impacted energy prices. Pagosa Springs has always benefitted from our visitors and second home buyers from Texas and other nearby energy states. An increasing number of households with a significant portion of wealth and income tied to oil and gas are choosing to postpone plans for a second home or cabin in the mountains of southwest Colorado.”

From Chicago Now in Illinois. “If you read my last Chicago real estate market update you saw that July home sales came in well below last year’s numbers, which was a bit disconcerting. There is a segment of the housing market where inventory has been quietly building for more than 2 years: single family homes in higher end areas such as West Town, Lake View, North Center, Lincoln Square, and Uptown. I put together the graph below based upon an agglomeration of these community areas and the trend is rather striking. From a low of a 2.1 month supply in December 2013 home inventory has risen to a 6.5 month supply in July. Technically, realtors consider anything above a 5 month supply to be a buyer’s market.”

“What’s driving all this and why is it just happening in these areas and with just single family homes? For instance the inventory of single family homes remains very low in Logan Square at only a 2.3 month supply. Could it be all the new construction driving up inventory? Could it be upper tier homebuyers giving up on Chicago Public schools?”

From Mansion Global on New York. “The daughter of billionaire hedge funder Israel Englander has sold her Manhattan apartment at a loss — a trend that is happening more often across New York’s luxury market. Dr. Laura Englander Levin, a radiologist whose father is the founder of hedge fund Millennium Management and is reportedly worth $5 billion, has sold her condo at 960 Park Avenue, which had a $13.5 million asking price, well below the $15.5 million she paid for it in July 2014.”

“A total of 16 contracts were signed last week at $4 million and above, seven more than the previous week. The median asking price was $6.1 million, while the average discount from original ask to last asking price was 6%, and the average number of days on the market was 245.”

A report from Builder Online on Florida. “Metrostudy’s 2Q16 survey of the Tampa housing market shows that 2,034 single-family units were started in the quarter, a 1.9% increase from 2Q15. The annual rate of 8,191 starts showed a 24.2% increase compared to last year. Single-family quarterly closings totaled 1,855 units, 8.6% higher than 2Q15. The annual closings rate was 7,277 units, 21.2% above the annual closings rate for the twelve months ended 2Q15. ‘The 2Q16 quarterly starts pace of 2,034 units was the second single best quarter for starts since 1Q07, closely following the strong performance of 2,097 starts last quarter,’ said Tony Polito, Director of Metrostudy’s Tampa market. ‘Competition, especially at the low end, comes from apartments. Townhomes are an attractive alternative to renting and there was a 54.4% increase in the annual starts pace for townhomes during 2Q16 versus 2Q15, up from 890 annual units to 1,374 units.’”

“In 2Q16, total single-family inventory – units under construction, finished vacant and models – equaled 4,647 units on the ground, a 7.7-month supply. Inventories grew by 24.5% compared to 2Q15. ‘Tampa’s new housing inventory is also showing a significant trend: although the market added 111 FV units during 1Q16, FV inventory was only reduced by 24 units in 2Q16,’ said Polito. ‘The result was that Months of Supply held level at 2.2 months in June not only compared to March 2016 but also June 2015. Ideally the supply of FV units would be nearer to 1.5 months. The backlog of under construction remains strong and points to solid closing numbers in 3Q and 4Q 2016. With 2,899 units under construction, close attention should be paid to cancellation rate as this could push FV supply even higher.’”

The Miami Herald. “While the Miami condominium market can be unpredictable, it is also very cyclical. Real estate experts and insiders often can see what’s coming next. And what’s next could be bulk buys. As the market cools, investors can oftentimes buy 10 or more units — and sometimes even entire buildings — at a discount. Of seven conditions that typically lead to bulk buys, we are already seeing signs of six of them.”

“Commissions and incentives to brokers are increasing. The practice started in late 2015 and has spread. In March, one developer announced it was raising commissions to 10 percent on two Miami projects and lowering deposit requirements. Another developer upped its commission from 6 percent to 7 percent while also offering Realtors car leases or jet skis as additional incentives and other projects promptly followed suit.”

“Sales prices are flat or falling. A report released by Miami’s Downtown Development Authority at the beginning of August showed that downtown Miami condominium prices dropped for the first time in five years. The report focused on resale prices, which declined 4 percent, a phenomenon representative of the entire Miami market. Which leads to resales in new buildings. The same DDA report compared listings from May 2014 to May 2016. There were 1,900 listings then; there are 3,000 now. Over that same period, monthly sales fell 43 percent.”

“New inventory builds up. According to the Integra Realty report released by the DDA, more than 2,500 units were available in any given month over the past two years. This May, the number topped 3,000. Because of long lead times, nearly 7,500 condos were under construction in the second quarter of 2016 with another 1,550 being marketed in the pre-construction phase.”

“Developers and investors begin looking for financing against their unsold or all cash units. This is where we are right now. For example, the demand for hard money lending to foreign buyers has never been higher. All of these steps could eventually lead to…Off-market opportunities. If history repeats itself, we could start to hear developers whispering about blocks of units for sale. Although we have not seen this yet, the practice became common in the last cycle when velocity slowed and buyers stopped showing up for closings.”

“Between July 2008 and August 2009, nine bulk sales in Miami-Dade County totaling 613 units averaged $199 per square foot, according to Condo Vultures. One buyer bought 10 units at Brickell on the River South Tower at a 43 percent discount. Another buyer paid less than $200 per square foot for 21 units at Marina Blue. Over the next two years, bulk sales were recorded at a Fontainebleau project, Regent Hotel, 900 Biscayne Bay, Downtown Dadeland and others.”

“Will we get to Step 7 this time? This is not 2008-09.”

The Real Deal. “Commercial property brokerage Marcus & Millichap announced the bulk sale of 188 condominium units in Orlando for $8.084 million, or $43,000 per unit. The units are part of a 200-unit property called Los Robles Condominiums. Michael Donaldson and Nicholas Meoli in the Tampa office of Marcus & Millichap secured and represented the buyer, which plans to rent the 188 condo units acquired in the bulk sale. Meoli said in a written statement that Los Robles underwent conversion to condo units in 2007 and ‘will prove to be one of the most attractive rental communities in the sub-market.’”

From First Coast News. “A Jacksonville family says they feel trapped in their own home. The couple says there has been a rash of car break-ins at their Arlington apartment complex and they want something done about. The couple have lived at Sorrel Luxury Apartments off of Kernan Boulevard N. for a little more than a year. In that time, they said their truck has been broken into three times. The most recent time was Friday night. The couple said the thief ripped their car apart, leaving behind thousands of dollars in damages. The couple said eight other cars were also broken into and vandalized that night.”

“According to the couple crime is an on-going problem at the luxury complex and they want out but management isn’t budging. ‘They wont let us get out of our lease. They said it’s not grounds to break a lease, even with the amount of criminal activity that goes on here,’ said Sara Obadia.”