The Housing Bubble

The Business News Network reports from Canada. “When Vancouver native Gabrielle Phyo and her husband searched for a home on Bowen Island, B.C. earlier this year, little did they realize that the money they set aside as a down payment would be insufficient in just a matter of months. Phyo and her husband, a British citizen, were just steps away from buying a home and relocating from the U.K. back to Canada when they found out they would have to pay a 15 per cent tax on half of the home’s price. That would have slapped on another $125,000 to the cost, Phyo said.”

“‘We just couldn’t afford it. Vancouver homes are already extremely expensive, and we had to take out a mortgage. The additional amount we have to pay on the tax is almost like having to come up with a second down payment,’ said Phyo. ‘We would not be able to take out a big enough mortgage to afford a regular three-bedroom home in Bowen Island if it was just my name and my income on the mortgage.’”

“Vancouver home sales plummeted 26 per cent in August, compared to the same month a year earlier, according to the latest figures from the Real Estate Board of Vancouver. Yet, that drop in sales activity likely was not due to the foreign buyers’ tax, according to a report by Capital Economics. ‘Home sales were down an even larger percentage in July, before the foreign buyers’ tax was instituted. These trends support the idea that it is debt, and not foreign money that is inflating a housing bubble across Canada,’ Capital Economics said.”

From 640 Toronto. “A chief North American Economist says the foreign buyer’s tax isn’t the reason for the 26 per cent decline in Metro Vancouver home sales last month. In a report by Paul Ashworth of Global Economics, it says media failed to report homes sales were down by 27 per cent in July year over year. And since February, Metro Vancouver’s market has seen a downward trend, proving the foreign levy has made no impact to drive the housing bubble.”

“UBC Economist Tom Davidoff agrees. ‘China is making it harder and harder to get money out, and of course the loonie weakened, it may well have been part of the decline in our market, he’s correct. We hit a peak in transactions prior to the summer.’”

“The report says irresponsible lending and rising domestic debt are also to blame for the steep decline in sales.”

The Globe and Mail. “When the lights go on in the City of Vancouver, it is the dark windows that tend to catch the eye. On any given night, there are a lot of condo towers in the downtown area, particularly along the waterfront in Coal Harbour, where the unlit rooms indicate nobody is at home. According to recent studies, there are an estimated 10,800 empty houses in the city – about 9,700 of which are condos. Short-term rentals, mostly through Airbnb, have taken about another 3,400 units off the housing market.”

“In a city gripped by a housing affordability crisis, with a vacancy rate near zero and rental rates soaring, the large number of dark windows has long been perplexing and troubling. The phenomenon is not unique to Vancouver. In Melbourne, Australia, water-use records have shown that some 64,000 housing units were empty, accounting for the so-called ‘ghost towers’ in the Docklands district where 17 per cent of properties weren’t being lived in. In New York, the city budget office determined last year that nearly 25 per cent of apartments were not used as primary residences.”

The Calgary Herald. “Potential buyers of apartments and attached homes continued to see lower prices and an uptick in selection through Calgary’s resale market in August. The largest savings last month came from the apartment segment, where the benchmark price was $274,900, slipping $21,000 from the same time in 2015, says the Calgary Real Estate Board. or attached homes, the benchmark in August was $331,000, down $16,300 year over year. Attached homes combine activity from the duplex and townhome segments.”

“‘When we look at the demand and supply for both of these segments of the market, it is a bit more weighted on the supply side,’ says Richard Cho, principal of market analysis for Canada Mortgage and Housing Corp. ‘So we’ve seen some steeper declines in sales and stronger increases in inventory — that’s weighing down prices in the apartment and attached segments of the market compared to the detached (single-family) segment of the market.’”

“The benchmark price on single-family homes in Calgary last month eased to $503,200 from $520,200 a year earlier. Both inventory and new listings for apartments and attached homes, respectively, picked up in August.”

From CTV News Calgary. “ConocoPhillips announced in July that it would cut 1000 staff around the world, 300 of them from Calgary, and has now followed through. Experts say even though the price of oil is starting to stabilize, the tough times for the industry are not over yet. ‘I think we’re bracing for more layoffs coming from the oil patch but more so from some of the peripheral industries, things like construction, manufacturing and professional business services,’ said Todd Hirsch, ATB Chief Economist. ‘I think we’re moving into what will be in hindsight the deepest, darkest days of the recession.’”

“As compensation packages and unemployment benefits dry up for those laid off in the first wave of cuts, Hirsch says expect even more pain across the board. ‘I think we’ll see added strain on consumer spending, things like retail, the bar and restaurant sector, possibly the housing market as some of those families really start running out of cash and resources in that way,’ he said.”

From Okotoks Online. “The housing market in Calgary has seen some slight drops in price over the last few months which has helped some benefit selling and buying homes in Okotoks. Realtor at CIR Realty Brett Murrell says the detached home market has been prospering as of late. The current average price of a single family family home in Okotoks is just over $425,000 and Murrell says that’s quite the drop from the past couple of years.”

“‘They’re down from what we were seeing in 2014 and 2015 definitely. But I think they were getting a little crazy in my understanding in the way I look at it 2014 they were definitely sky rocketing an we’re trying to get back to those values we’re definitely not there yet. We’re down between four to six percent depending on the housing,’ he said.”

“The current economic situation in Alberta doesn’t make life easy for those on the market looking to buy and looking to sell and Murrell says home values may drop a bit more in the coming months. ‘Hearing out the rumours that we haven’t seen the bottom yet only due to severance packages and stuff like that from the Oil & Gas industries, we’re starting to see possibly some foreclosures and obviously some more price correcting.’”

A report from the Real Estate Journal. “Developers are expected to add more apartment units across the United States this year than they have in the last decade, according to RENTCafe. According to the company, more than 320,000 new apartments are expected to be completed in 2016. That is a jump of 50 percent from 2015. Texas leads the way, with more than 69,000 units projected to be completed in 2016 in the metropolitan areas of Dallas-Fort Worth, Austin, Houston and San Antonio. Chicago ranks 14th on RENTCafe’s list of hot apartment markets, with developers expected to deliver 8,377 new apartment units to the metropolitan area by the time this year ends.”

“The only other Midwest market to make this list was Nashville, which is expected to add 6,536 new apartment units this year.”

WSMV on Tennessee. “Just as Metro’s new affordable housing laws go into effect, one of Nashville’s newest and most expensive apartment complexes is putting on the finishing touches. With some lofts starting at $2,725 dollars a month, many wonder who can afford it. The Cadence in Midtown will begin opening up in phases in mid-September. Urban development experts say to live there comfortably, residents would have to make upwards of $90,000 per year.”

“Bradley Crossfield moved to Nashville from Dallas three months ago. He wanted to live in Midtown because of the close proximity to bars and restaurants. But Crossfield said he was a bit shocked when he saw rent prices. ‘I was like, ‘say what?’ It did surprise me because Dallas is a big large metroplex and I didn’t really expect the cost of living to be as high in Nashville as it actually is,’ he said.”

“While it might seem these pricy apartments are filling up fast, that’s not always the case. The Element on Music Row, close to The Cadence, opened late last year. It has more than 400 apartments with prices starting at $1,600 per month. A few of them are $10,000 a month. The occupancy is only at 26 percent.”

The Philadelphia Inquirer in Pennsylvania. “Here’s a sign that Philadelphia’s apartment-building buzz may be quieting: A major out-of-town developer has bailed on a big Center City project, citing ballooning construction costs and tapering rent growth. Mack-Cali Realty Corp. said in its most recent earnings call that it had backed out of a deal to build a 300-unit apartment tower with local developer Parkway Corp.”

“The Jersey City, N.J.-based company is withdrawing from a Center City residential-development boom that’s been gaining steam since the end of the last recession, with rising rents encouraging record investment in new projects. But some think Mack-Cali’s decision could be a preview of things to come, as the market slows to absorb the flood of new apartments and allow labor demand to cool.”

“‘You’ve seen at least one project that’s put the brakes on development, and that could lead to others doing the same,’ said William Rich, a director at the Washington-based real estate tracker Delta Associates. ‘This could be the leading edge.’”

“Philadelphia is not alone among cities with resurgent downtowns that are now facing the threat of oversupply, said Hans Nordby, a managing director at real estate research firm CoStar Group. Dense urban enclaves such as downtown Los Angeles and the central parts of Houston and Nashville are seeing their markets cool, he said. As a result, asking-rent increases nationwide are forecast to decline through at least 2020, according to CoStar.”

“‘Your urban, fashionable, everybody-wants-to-live-there neighborhood was so good for so long . . . that now it’s become a little overheated,’ Nordby said. ‘In many cases, developers have gotten religion and they’re starting to shut down supply.’”

The Real Deal on New York. “Its aging office buildings are struggling with rising vacancies and competition from new developments at Hudson Yards. And even the seemingly invincible luxury market is having a hard time. Park Avenue, it seems, is at risk of losing its role as the coronary artery of wealth and power in Manhattan. In all, nearly 50 percent of Park Avenue apartments currently listed at $5 million and up have seen price chops since hitting the market, according to The Real Deal’s analysis of 37 such listings on StreetEasy.”

“Amid an overall market correction, prices and sales at some of the most exclusive co-ops in the city along Park Avenue have softened. Late Wall Street trader Karen Cook’s apartment at 775 Park is currently asking $7.495 million — less than the $7.975 sale price in 2008. Meanwhile, Andrea Jung, the former chief executive of Avon Products, listed her co-op at 1021 Park last fall for $16.2 million. After several price chops, the pad is now asking $13.5 million, according to StreetEasy.”

“‘I feel that this is one of the most price-sensitive markets in which we’ve ever worked,’ said Brown Harris Stevens’ Kathy Sloane. ‘People are looking, but they’re slower to make offers and we don’t know what is holding the buyers back.’”

“There are certainly fewer deals. During the first 35 weeks of the year, there were 33 contracts signed on Park Avenue co-ops above $4 million — a nearly 27 percent drop from the 45 signed during the same time in 2015, according to data from Olshan Realty. According to firm founder Donna Olshan, the decline mirrors the rest of the co-op market in Manhattan. ‘Many of them need a lot of work, and the younger audience has no interest in going through the co-op board process,’ she said, citing competition from amenity-laden condos in trendy neighborhoods.”

“Warburg Realty’s Frederick Peters agreed. ‘If you bought your property a year ago, chances are it is worth less today,’ he said. Sellers who listed apartments at too-high prices last year, he said, are finding that they now need to reduce prices significantly to make a deal.”