The Housing Bubble

The Age reports from Australia. “All across Melbourne, new apartments riddled with faults have been sold to investors and residents. Some of the problems are so costly to fix that it would be cheaper to build the apartments again. Often these cases play out behind closed doors or, quietly, in the courts. After all, who wants to tell the world that they’ve bought a disaster? Strata Community Australia (which represents Victoria’s body corporate managers) is aware of at least 58 apartment buildings in Melbourne with defects, valued at a total of about $49 million. ‘That’s just the tip of the iceberg,’ the group’s Victorian general manager, Rob Beck, said. ‘It is rare for buildings to be defect-free.’”

“Consider the case of Amanda Frazer, a first-home buyer who bought in Ormond off the plan in 2012. When she went to inspect her two-bedroom home, she discovered something different to what she had signed up for. The developer had squeezed another unit into the building and significantly reduced the size of her property’s balcony. She called the council. The council inspected the building and declared it illegal; because of the extra apartment jammed in, the complex no longer complied with the planning permit.”

“Ms Frazer received no compensation from the developer and there was little point pursuing him for the lost value in her home and repairs (estimated to be up to $100,000) as his businesses went into administration. This is not unusual. Ms Frazer said an inspector found further breaches in the building code: the floors weren’t level, the stairs were too steep and the ceilings too low. ‘It was a shoddy finish. You could see the lack of care,’ she said.”

From News.com.au. “It made headlines as Melbourne’s ‘tallest, skinniest skyscraper,’ but media buzz around 54 Clarke St in apartment-flooded Southbank wasn’t enough to save the developers from the rapidly turning property market. Like many others, the original private syndicate of developers behind 54 Clarke St were forced to walk away. The ‘Elysium’ site went under the hammer earlier this month. As pre-sales drop and banks tighten lending for developers, a growing number of ‘mum-and-dad’ apartment builders are being forced to abandon construction, experts have warned — sparking fears of a domino effect.”

“The trend is noteworthy because it appears to gel with a scenario floated by investment firm CLSA earlier this month of a looming apartment ‘crisis.’ The broker predicted that a wave of defaults would force smaller developers into receivership, pushing down prices and potentially causing wider contagion that could lead to a recession. Meriton founder Harry Triguboff, Australia’s richest man, has also sounded increasingly urgent warnings, telling news.com.au recently that a ‘very significant’ number of Chinese buyers were walking away from apartment purchases.”

“Last week, Mr Triguboff told The Australian he would not be able to get 50 deposits on a new project, compared with 105 in the previous month. ‘We are sinking fast,’ he said.”

“Albert Callegher from ACM Finance, a specialist ‘last-mile’ finance broker that provides top-up funding for property developers, said CLSA’s prediction was already coming true. ‘The small to medium developers doing projects between $2 million and $20 million, they’re going broke,’ he said. ‘I’ve had one client say to me he’s got one developer with over 2000 apartments that can’t settle. We’re hearing it everywhere but it’s not making the news, because you don’t want an avalanche.’”

“He warned Melbourne may be facing another 2004-style Docklands-style property bubble. ‘The developers simply sold the water view and position as the most fantastic, New York-inspired development in the universe,’ he said. ‘As a result, poor investors paid 25 per cent above market, the market corrected itself, and as a result a lot lost their homes through unscrupulous pricing structures. What’s happening now is the same as the Docklands. The last three years it’s been exuberant buying.’”

From ABC News. “Darwin locals trying to sell their properties are feeling the pinch of a depressed housing market as the volume of sales reaches an all-time low. Some have been forced to leave the market altogether. Glenn Chandler’s tropical, open-plan house in Darwin’s northern suburbs has been on the market for more than a year and has had just six enquiries. ‘When we moved in it was only a couple of years before Cyclone Carlos knocked it over entirely, so we had to build it from scratch … and that was a good four-and-a-half years ago,’ he said. ‘It’s been on the market for a good year, year-and-a-half, but not actively. I’ve been told that in a depressed market that’s what you expect.’”

“Anne Clifford has lived in Darwin for more than 40 years and has just taken her inner-city Darwin apartment, in Larrakeyah, off the market. ‘My apartment’s been on the market on and off for the last two-and-a-half years, I had it with an agent for three months and didn’t get much interest at all,’ she said. ‘Certainly didn’t get any offers that I liked so I just decided it wasn’t worth just throwing it away because the prices have dropped $50,000 to $100,000 in the last three years I think. In 2010, it was actually valued by a proper valuer for $620,000 and we had it on the market for $550,000 this time.’”

“Ms Clifford said she would wait for the market to improve. ‘I’m not going to rush into selling it because I just don’t think the market’s right, but I’ve been in Darwin 40 years and there’s a lot of ups and downs and I know Darwin will pick up and it will get better.’”

A report from the San Mateo Daily Journal in California. “Renters struggling to afford the considerable cost of living locally may see some relief on the horizon according to county real estate professionals who project the market will soften. Average rents have nearly doubled in and around San Mateo over the past five years, jumping to about $3,100 for a one-bedroom apartment, according to market data offered by RentJungle. But in the last month, average rents have been dropping incrementally, down about $100 from the heights hit over the summer, and local property managers said they expect the trend to continue. ‘We sit in these markets that are hot for so long, I think that we forget that we are starting to see the rents come down,’ said Sally Navarro, a property manager with AVR Realty in Burlingame. ‘Things are softening up.’”

“Andrew Peceimer, a representative of Westbay Real Estate Group who manages roughly 60 properties throughout San Mateo County, expressed a similar sentiment. He said the recent building boom bringing online a swath of new units particularly in Redwood City and San Mateo may begin to offer some space in a market which has been historically tight. ‘We are headed toward having an over supply on the market and rents will go down,’ he said. ‘The market will soften.’”

“Indicative of his position is data offered by real estate information company CoStar, showing average vacancy rates have jumped to 8.8 percent, up more than 5 percent from the five-year average of 3.4 percent.”

The Mercury News. “Abodo, an apartment search website, says monthly rents dropped markedly from August to September in San Jose and San Francisco. Those cities were on Abodo’s Top 10 list for the ‘Biggest Fall’ in rents for one-bedroom apartments during that period. Some observers are emphatic: ‘The prices have reached their saturation point,’ said Ron Stern, CEO of Bay Rentals, a housing relocation service. ‘Tenants cannot be soaked for one extra dollar.’”

“Particularly in Santa Clara County, he said, ‘the rental market has slowed down to almost a crawl. We do a lot of credit reports, and the number of reports we’re doing has declined. … Landlords say, ‘Is my price too high? I’m not getting any calls.’”

“From August 2015 to August 2016, said Jeffrey M. Mishkin, regional manager at the San Francisco office of Marcus & Millichap, San Francisco’s rental market ‘was flat.’ ‘One-bedrooms were down 7.7 percent year-over-year, from $3,395 to $3,150. Two-bedrooms were down from $4,500 to $4,300, a 4.7 percent drop.’ Plus, he just had received an informal report about a ‘very large owner’ of apartments on the Peninsula ‘who said that rents are down on every one of his properties.’”

“Stern advised apartment hunters to look in smaller apartment developments, rather than the larger — and often more expensive — complexes. ‘You can get a nice place for $1,600 or $1,700, maybe less,’ he said. ‘There’s a nice duplex in Campbell for $1,850 in a good neighborhood. The landlord says, ‘I don’t want to squeeze it for an extra 200 bucks. I just want to get it rented.’ ‘Landlords beware,’ he warned. ‘People are shopping price, not quality, right now.’”

The Orange County Register. “All that local construction activity is adding up to more options for Orange County house hunters. The supply of new homes for sale and being constructed was 1,093 in 2016’s second quarter, according to data from MarketPointe and the Real Estate Research Council of Southern California. That’s almost double the inventory from a year earlier and it’s local builders’ largest supply since the end of 2007.”

“So far this year, the median selling price for a new Orange County home averaged $807,000 vs. $693,000 for resales of existing, single-family homes and $444,500 for existing condominiums. The bulk of Orange County new homes for sale are priced between $700,000 and $1.5 million, so this added supply greatly aids shoppers looking in essentially the upper half of the market.”

“While it appears the overall market is not oversupplied like a decade ago, added supply will force builders to compete further. For example, Orange County’s median price for new homes this year has fallen by 4 percent.”

The Fresno Bee. “Wathen Castanos Homes is getting ready to build $800,000 houses in Marina, north of Monterey. It’s a feat the owners of the Fresno-based home-building company still can’t believe today, almost a decade after the Great Recession nearly crushed the business. ‘I don’t think any of us had the confidence that we would make it through,’ President Joshua Peterson said.”

“Now, Wathen Castanos, one of Fresno’s oldest home builders, is constructing in a dozen cities across the central San Joaquin Valley, from Tulare to Clovis, as well as the Central Coast.”

The Manteca Bulletin. “Manteca’s future health — economically and as a community — is becoming more and more reliant not on just the Bay Area/Silicon Valley but also on a larger footprint planners have dubbed the Northern California Mega Region. A recent Wall Street front page article about Silicon Valley home prices and the lack of buildable land is prompting more traditional Bay Area single family home builders to look at opportunities in Manteca and nearby. Manteca has more than 9,000 housing units in various stages of approval while next door Lathrop has 11,000 approved units as part of the River Islands project.”

“Even though City Manager Elena Reyes is upbeat about how quality housing will raise the Manteca economy, she is well aware of the downside. ‘People in Manteca can be impacted by Bay Area paychecks,’ she said.”

The Silicon Valley Business Journal. “Silicon Valley’s infamously high housing prices might be responsible for recent increases in the number of residences listed for sale. ‘We see more and more equity from price gains entice (homeowners) to sell their homes and reap those gains,’ said Ralph McLaughlin, chief economist for residential real estate site Trulia.”

“Housing inventory in Santa Clara and San Benito counties increased 8.7 percent, and in San Francisco and San Mateo counties the number increased by 19.3 percent. The third quarter was the second quarter in a row in which inventory increased in the San Jose metro area, and the third consecutive quarter for the San Francisco metro division. The largest gain in the San Jose metro inventory came from homes valued in the middle-third of the market, whose number of for-sale homes increased by 13.1 percent this quarter from 2015.”