September 5, 2016

Banking On A Market That Would Never Let Up

The Abbotsford News reports from Canada. “The Abbotsford housing market continued to moderate in August, with sales of single-family houses down sharply from previous months. Just 116 houses traded hands in August, down 32.2 per cent from July and less than half the number of sales from May, according to the Fraser Valley Real Estate Board. The numbers of both single-family house sales and new listings have now fallen each month since March. Recent months, however, have seen the number of sales falling faster than the number of new listings, and the number of ‘active listings’ is now around 50 per cent higher than in February suggesting more supply for house seekers.”

“Prices also seem to be plateauing. While the price of a ‘typical’ single-family home rose another 2.1 per cent in August, to $667,800, the median price – the point at which half of all homes sold are more expensive and half are less expensive – actually declined by nearly five per cent, coming in at $621,500. Year-over-year, the price of a typical house – known as the benchmark price – has risen 39 per cent. Twelve months ago, the benchmark was at $480,800.”

“‘The numbers here aren’t alarming; they’re expected, and what we’re used to seeing around this time,’ FVREB president Charles Wiebe said. ‘Homebuyers should be encouraged that sales have slowed, giving inventory a chance to build back up and competition within the market to cool down. With sales activity moderating to more normal levels, we’re beginning to see prices follow-suit, and even drop for certain housing types in some of our communities.’”

From News 880 AM. “Is it really still a sellers’ market with a 26 per cent decline in sales this August compared to the same time period last year? The August report from the Real Estate Board of Greater Vancouver had President Dan Morrison saying sellers still have the upper hand. But Realtor Steve Saretsky disputes that. ‘For a condo and town homes it’s still a sellers’ market but for the detached market look at how many sales there are and look at how many active listings there are, you can just see that right away in the price reductions.’”

“Sarestsky looked at four markets — East and West Vancouver, Richmond and Burnaby. ‘Nobody really talks about it and nobody really knows, the Real Estate Board kind of has a way of making things look better than what they really are.’”

“He adds that data released by the board can be biased. ‘The Real Estate Board what they release every month is processed sales, which basically means that some of the deals that were done, some of them go as far back as May. What’s important to look at is the date that both parties agree to a purchase contract.’”

“He says it’s a buyers’ market — detached homes are seeing price reductions of over $100,000 and many are sitting on the market over 100 days.”

From Vice Magazine. “Imagine putting down all of your life savings into a deposit on your dream home. Everyone from the sales teams to your real estate agent assures you it’s a solid investment in a hot and getting hotter housing market. This is a smart buy and a deal too good to pass up. Now imagine a year later the home hasn’t been built, the developer behind the project has declared bankruptcy, and your life savings in the form of a deposit is gone.”

“That’s what happened to Loraine Adal-Salmon, her husband Anthony Salmon, John Thomas Stevenson and his fiancee Christina Nguyen. They spent last week huddled in a Toronto court, nervously watching their financial future being debated by a total of six lawyers.”

“Urbancorp Group, a well-established property developer that had been in the market for more than 20 years, had roughly 1,000 homes under construction in the Toronto area as of late 2015. Sure, they had been facing complaints from buyers about construction delays, and yes, they had even cancelled one of their developments in Toronto’s King West neighbourhood, but no significant red flags had been raised. Urbancorp was riding high on a hot housing market, and the credibility that came with being one of Toronto’s swankiest builders.”

“‘The delays seemed normal—our neighbour, a dear friend, had also put a deposit on a townhome, and we were told that delays were a pretty regular thing. I never for a second thought that the home would never get built,’ Loraine told VICE.”

“But that’s exactly what happened. At the end of April this year, in a move that came as a surprise to many industry watchers, Urbancorp filed a proposal under Canada’s Bankruptcy and Insolvency Act, seeking creditor protection (essentially a formal way of saying: I have no money, can you help?). Two weeks later, Urbancorp’s CEO Alan Saskin also sought creditor protection, claiming assets and liabilities that amounted to a grand total of zero. One of Toronto’s most prominent builders was effectively broke, leaving behind a trail of abandoned developments, and 188 angry home buyers who had lost a cumulative $16 million in deposits.”

“While it is still unclear as to why Urbancorp’s coffers ran dry, Howard Bogach, the CEO of Tarion Warranty told me that Urbancorp had been on his radar months before the company officially filed for bankruptcy protection. ‘Urbancorp was a builder that had been in the business for a number of years. We definitely noticed there were some performance issues with them. But they then went ahead and raised a lot of money abroad… and I thought they should be able to rectify themselves,’ he told VICE.”

“No one seems to be able to pinpoint a single driving factor behind the property boom in Canada’s biggest urban centres: Cheap credit? Foreign money? Rising demand due to urbanization? Perhaps all three. But they can all tell you what is NOT driving the property boom—increasing wages. In 1985, the average home price in Toronto (condos and houses) was approximately $110,000. Fast forward 30 years, and you’re significantly set back—the price of a Toronto home has now more than quadrupled to $570,000. By comparison, the average family income in that thirty year period has only slightly doubled—$31,000 to $72,000.”

“Why is this relevant? Urbancorp, like many property developers in Toronto appeared to be banking on a market that would never let up, and consumers who were riding on the fear of opportunity cost—if they didn’t hand out swaths of cash right at that very second to secure a property, prices would only keep climbing, while their wages remained relatively unchanged.”

The Darling Of The Investment Community

The Star Tribune reports from Minnesota. “Several years into an apartment construction boom, it’s still a landlord’s market across the Twin Cities metro. Rents are on the rise across the region despite the appearance of rental concessions in some parts of the metro that are showing signs of at least temporary saturation. Since 2010 more than 16,000 new units have come to market, and while construction activity this year has slowed, the lull isn’t expected to last — another boomlet is on its way. ‘This is a cyclical business and we tend to build until we overbuild, but it’s difficult to know when we’ll hit the end of the cycle,’ said Gina Dingman, president of NAI Everest.”

“Jennifer Gordon, senior vice president for the Excelsior Group, said that market surveys are showing that an increasing number of properties are offering concessions, but she’s still seeing healthy rent growth over one to two years ago. Dingman said right now some of the most vulnerable areas are parts of Edina, St. Louis Park and Golden Valley where several projects are expected to open at around the same time. The Uptown neighborhood in Minneapolis, which saw 1,200 units come to market in one quarter, has already experienced some weakness.”

“Despite those concerns, Dingman said the apartment market in the Twin Cities is considered far more stable than many others, including Denver, where upward of 10,000 units are being built every year. That’s why the Twin Cities continues to be the darling of the investment community. Abe Appert, senior vice president for CBRE, said the region is on track to break another apartment sales record.”

The Marin Independent Journal in California. “The red-hot rental market in Marin is cooling, influenced by a slowdown in San Francisco, according to research reports and local observers. ‘We are noticing a slowdown in the rental market here in Marin,’ said Matt Prandi Borries, vice president of San Rafael-based Prandi Property Management, a 33-year-old property management firm that handles 450 units in Marin. ‘We usually are about six months behind (San Francisco’s) trends. My colleagues in San Francisco who work closely in the rental market let me know that they noticed a slowdown in April, which we are now seeing here in Marin. There are certainly still prospective tenants actively looking for housing but the supply is starting to outweigh the demand with a lot of rental inventory still available.’”

The Pacific Business News in Hawaii. “It cost less to rent one- and two-bedroom apartments in Honolulu during August than it did in July, according to the apartment-rental website Zumper. The median rent for a one-bedroom unit during August was $1,760, down 1.7 percent from July and a 5.9 percent drop from August 2015. For a two-bedroom apartment, the median rent was $2,430 in August, down 3.6 percent from July but 1.7 percent more than in August of last year.”

The Roanoke Times in Virginia. “A long-time local builder known for student housing plans to bring a mixed apartment and commercial space development to a property near Radford University. Despite the developers’ beliefs that Radford has an untapped rental housing market, their work hasn’t been free of doubters. Before city council gave the final OK on Price Williams’ special use permit, Councilman Keith Marshall raised concerns during a meeting last month about the possibility that developers are overbuilding the student rental housing market.”

“‘My concern in this particular case are the three to four levels of what seems to be student housing built on top of the one level of business development,’ Marshall wrote in an email. ‘We are hearing of an overall drop of enrollment at Radford University and increasingly there is a concern that the student housing market has been overbuilt.’”

The Dickenson Press in North Dakota. “A four-story building meant to provide off-campus housing to Dickinson State University students is sitting empty this semester, and neighborhood residents are trying to keep it that way. Blue Hawk Square, located two blocks south of the university on West Villard Street, became another casualty of the DSU Foundation’s dissolution in June when Dacotah Bank acquired the property from a deed in lieu of foreclosure.”

“Now, the bank is working with DSU and the city to get students back in the 44-unit apartment building as early as the spring semester. However, residents of the neighborhood around Blue Hawk Square are urging city officials to deny the bank a variance that would allow students to live in the building and park on campus, thereby keeping it from obtaining a certificate of occupancy. ‘That building ruined this neighborhood,’ said Lloyd Lindbo, who lives across the street from the building.”

Houston Public Media in Texas. “A report by Dodge Data and Analytics finds construction of new homes – both apartments and single-family homes – is down by 16 percent in the first seven months of 2016 compared to last year. Nonresidential construction is also down, by 23 percent. Bill Gilmer, who directs the Institute for Regional Forecasting at the University of Houston, is not the least surprised.”

“‘It recognizes that the apartment market is seriously overbuilt,’ he said. ‘And that we really don’t need to be building any more apartments here in Houston right now.’”

“A recent report by RentCafe found Greater Houston is on track to open 26,000 new apartments this year, more than in any other region.”