September 14, 2016

It’s Not A Strategy, It’s Just A Moment In Time

A report from Domain News on Australia. “The apartment boom of the past four years is on a precipice and approvals will drop by more than 50 per cent in the downturn, a property research house predicts. Highrise building will hit a peak in the 2017 financial year as every capital city except Sydney faces too many homes, after a ‘once in a generation apartment boom,’ BIS Shrapnel associate director Kim Hawtrey said. ‘We’re getting way ahead of ourselves [with development]. Pumped up by investors it is theme-park scary how much we are building,’ Dr Hawtrey said.”

“Domain Group chief economist Andrew Wilson agreed the building cycle would face a decline in the next few years. ‘There are no drivers to support the current record levels of apartment development,’ Dr Wilson said. ‘[Approval levels] are already falling away in all capitals other than Sydney. It’s no surprise given how lengthy the boom has been that supply has moved ahead of demand in some capital cities.’”

From SBS News. “Investors should avoid medium and high density apartments in most Australian markets, a property investment expert warns. Property Investment Professionals of Australia (PIPA) chair Ben Kingsley says one and two bedroom units are facing headwinds from potential tenant shortages and large amounts of supply coming onto the market in the next 18 to 24 months. ‘They (Brisbane apartment investors) are up for some risks - in terms of properties not valuing at purchase price if they’re bought off the plan and potentially significant fire sales on rent to attract tenants so they can get some income in from that,’ Mr Kinsgley said.”

“‘Most investors are playing the long game, 47 per cent of them are actually deriving an income from their portfolio,’ Mr Kingsley said. ‘This whole argument is around negative gearing being a strategy; it’s not a strategy, it’s just a moment in time.’”

The Daily Telegraph. “Unit prices have begun to fall in once-booming inner Sydney suburbs and the trend may spread to other areas, real estate­ analysts warn. With unit supply increasing at a faster rate than detached housing supply, the median price of apartments in Rushcutters Bay fell 24.7 per cent over the past quarter. In nearby Elizabeth Bay and the CBD, unit prices fell by more than 7 per cent, while Surry Hills and Paddington had falls of about 5 per cent, Core Logic data showed.”

“‘With so much new supply being delivered to the market in the form of units, we are already seeing (slower) growth rates for units compared to houses,’ Core Logic head of research Tim Lawless said. ‘As these unit projects come to completion and ultimately settlement, the underperformance of new unit stock could create headwinds for the market in certain geographies.’”

The Courier Mail. “Industry experts BIS Shrapnel analysis released in Brisbane yesterday warned every state except New South Wales would go into oversupply but Queensland would emerge with the worst figures in the country. Queensland was expected to be oversupplied to the tune of 11,200 dwellings by June next year, rising to a 26,400 come June 2018. Victoria was expected to be 6,900 oversupplied next year escalating to 22,200 by mid 2018.”

“BIS Shrapnel managing director Robert Mellor, said ‘this is really an unsustainable cycle driven by overbuilding of high density apartments.’”

“The downturn in investor demand was already beginning to show in Brisbane, Melbourne and other markets, he said. He said anyone who thought the housing boom could continue ‘indefinitely’ only needed to look at the collapse in the Perth market. ‘Anyone associated with the mining industry knows booms do not last forever,’ he said.”

From NT News. “It’s good news for tenants with new data showing Darwin rent prices dropped in August. According to CoreLogic, Darwin rental prices fell 9.4 per cent in the 12 months to the end of August. Nightcliff resident Caitlin Bender said the dropping rents made it possible for her to lease an apartment on her own. The 23-year-old said expensive rents were a well-known part of living in Darwin but she was hopeful prices would continue to fall. ‘It would be nice but it would be bad for investors,’ she said.”

A Pile-Up Of Houses And Prices That Are Faltering

My Valley News reports from California. “There’s a flipside to the housing affordability ‘crisis’ in communities across California: rising values in the Inland Empire are giving many homeowners a reason to tap into their equity and spend money, according to local data released by the California Credit Union League. Some Inland Empire-based credit unions are experiencing this trend firsthand as homeowners were increasingly heading into Home Equity Lines of Credit (HELOCs), home equity loans (second mortgages) and cash-out refinance mortgages in second-quarter 2016 compared to the same period a year ago (and prior years before).”

“‘The local surge in home-equity lending and cash-out refis reflects a strong national trend in homeowners increasingly remodeling their homes and enhancing their properties,’ said Dwight Johnston, chief economist for the California Credit Union League. He said many neighborhoods across the Inland Empire have enjoyed rapid price appreciation, but some areas still have a relatively large percentage of homes that are underwater or have little equity.”

“‘As more of these homeowners see the light of day with values rising, we’ll see more of this remodeling trend,’ Johnston said. ‘Pulling out home equity seems to have legs and is here to stay.’”

The Real Deal on Florida. “The market giveth, and the market taketh away. After a relatively steady August, Miami-Dade County’s condo market fell into a deep slump last week, with sales volume halved from the week before and only four condos breaking the $1 million price barrier. Miami-Dade’s sales volume took a heavy hit last week, with only 75 units trading for a total of $24.4 million. For comparison, the previous week saw 195 units sell for $55 million. Average prices were $325,362 per unit and $266 per square foot.”

KTNV on Nevada. “Struggling homeowners fighting to save their homes got ripped off by the very people who were supposed to help. So says a scathing federal audit which found widespread abuse in Nevada’s Hardest Hit housing program. Contact 13 Chief Investigator Darcy Spears tells us how many millions were squandered. It’s a big figure and a bitter pill to swallow. $8.2 million in waste and abuse while support for homeowners essentially evaporated.”

“People like Cheryl Barber. ‘I jumped through all the hoops.’ Cheryl applied for help from the Hardest Hit Fund but got nothing because they claimed they couldn’t give her enough to bring her loan current. ‘It’s my home! It’s all I have. I lost my son two and a half years ago and that’s been a battle.’ There were country club lunches, employee bonuses, meals, gift cards, entertainment and travel–even a disc jockey–all while the number of homeowners who got help plummeted.”

“‘To see the crooks behind this and taking the money for parties and bonuses and a Mercedes Benz–it’s… I’m just flat out appalled. Flabbergasted,’ said Cheryl Barber.”

Bloomberg on Connecticut. “Barry Sternlicht, chairman and chief executive officer of Greenwich, Connecticut-based Starwood Capital Group, said the town may be the worst housing market in the U.S., and that he now officially lives in Florida. ‘You can’t give away a house in Greenwich,’ Sternlicht said Tuesday.”

“The town — about 30 miles northeast of midtown Manhattan and home to some of the country’s largest hedge funds — is seeing a pile-up of houses on the market and prices that are faltering as properties linger. Home sales in the second quarter fell 18 percent from a year earlier to 169 deals, according to appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. At the same time, new listings surged 27 percent.”

“In Greenwich, the median home price fell 7.5 percent in the second quarter from a year earlier to $1.76 million, Miller Samuel and Douglas Elliman said. It remains among the costliest housing markets in the country. In June 2008, Sternlicht tried to sell his 5.8-acre Greenwich property, a gated estate with tennis and shuffleboard courts and a swimming pool. After multiple price cuts and one increase, the home was no longer listed for sale by early 2010.”