October 17, 2016

Unsustainable Prices Prompt A Steep Decline

A report from Newjersey.com. “Gabe Pasquale’s pitch was four words long. ‘Look at that view!’ he said. Pasquale is a senior vice president for East Coast sales with the California-based real estate developer Landsea. He was giving a tour of the sales office and busy construction site for the company’s 184-unit condominium complex in Weehawken known as Avora, a rhetorical amalgam intended to convey the project’s luxurious location along River Road, the main drag along the Weehawken stretch of Hudson County’s ever-more exclusive Gold Coast. ‘Ora is gold, and avenue, so, Avora!’ Pasquale explained.”

“Avora opened its sales office three weeks ago. With square footage ranging from just over 600 to 2,700, Pasquale said prices range from $800,000-plus for a one-bedroom unit, to $4 million for each of the four penthouse duplexes on the building’s 10th and 11th floors. As of last week, he said, close to 40 units had been sold. After breaking ground in early spring, the building is still little more than concrete pilings with slab floors poured for the first and second stories. But Mayor Richard Turner was just as impressed at how fast units were selling even before the building’s exterior had taken shape. ‘That’s an amazing statement by itself,’ Turner said.”

The Los Angeles Times in California. “Could ultra-luxury home demand possibly be slowing down? We’re not reporting on one house priced at more than $100 million this week. To answer our own question: No. Hollywood stars and entertainment moguls are still very active in the real estate market. But as the often slower holiday season approaches, we are seeing some tried-and-true ‘get it sold’ strategies, such as price chops, and some more serious efforts at selling, including putting heretofore ‘whisper’ offerings into the Multiple Listing Service.”

The Tampa Bay Times in Florida. “During the boom years of the early 2000s, the dream of home ownership lured hundreds of buyers to a new community called Kings Lake. They could get mortgages with little or nothing down. No worry — prices were quickly heading up, doubling in a couple of years. Until the market crashed. On one short stretch of Kings Lake Drive, five out of six houses went back to the banks, including the place Michael Sloan bought at the peak.”

“‘My plan was, I was going to turn over the house in the first year and if the market goes the way it was supposed to go, I’d make a couple of dollars,’ he says. ‘But the bottom fell out.’”

“Now, a decade after the crash, Kings Lake remains a cautionary tale of Florida’s boom-bust economy. Prices are rising again, though they aren’t back to pre-2006 levels. Most of the houses are occupied, although dozens are now owned by giant investment firms and filled by renters. Crime is down, but security patrols still cruise the streets to keep away burglars and drug dealers.”

“And even as Kings Lake is still recovering, hundreds of new houses are going up in south Hillsborough County, some directly across Big Bend Road in the fastest growing new-home community in all of Tampa Bay. Some of the houses are being bought with little money down — one of the factors that contributed to the last housing crash.”

“Michael Sloan rented an apartment in Ruskin and declared bankruptcy. Although now 79 and living on Social Security, he has thought about buying again: ‘I can get a VA mortgage tomorrow, but I’m not sold on the way the economy is going now.’ He says he would never return to Kings Lake.”

The Wyoming Business Report. “When Landis Benson, president of the Wyoming Association of Realtors was asked if he thought there a Wyoming real estate bubble — when market prices rise rapidly due to high demand (as they did in the state during the energy boom in the early part of the decade) until they reach unsustainable levels, prompting a steep decline — Benson said that while prices have declined ‘a bit’ in the areas hardest hit by the energy bust, they have otherwise remained fairly steady.”

“But all that could change if an anticipated surge in foreclosures hits harder than expected. In general, many analysts say there is anywhere from a six- to 24-month gap between when an economic downturn occurs and when foreclosures start to go up as workers are unable to find new jobs — or settle for lesser-paying positions — and their savings and unemployment benefits run out. A wave of energy layoffs, most notably in the coalfields of the Powder River Basin, hit the state this spring — around six months ago.”

“The concern is that a wave of foreclosures will force the banks to reduce the prices on the homes they take over to the point where it pulls the entire market down, leaving many homeowners with houses worth far less than what they paid for them. ‘We are still going to have some downward pressure in areas, because we are expecting a wave of foreclosures in the hardest hit areas and that will certainly have an impact on local values,’ Benson said.”

“Earlier this year, a report by Arch Mortgage Insurance, a California-based firm specializing in mortgage credit default protection, said the national housing market was strong nationally, but was slumping in big energy-producing states like Wyoming where ‘total employment continues to weaken, even as home prices continue to rise.’ ‘The jobs are leaving, and if an area gets depopulated, they can’t take the houses with them and that’s dangerous for the housing market,’ said Ralph DeFranco, director of risk analytics at Arch. DeFranco said Wyoming is facing some of the biggest risks of falling home prices.”