The Housing Bubble

A report from The Australian. “One of Australia’s largest developers, Mirvac, revealed the number of apartments failing to settle had increased in recent months, raising fresh fears about the sustainability of the nation’s apartment market. More than 20 per cent of Mirvac’s pre-sales are to mainland Chinese. BIS Shrapnel residential property manager Angie Zigomanis said settlement risk was rising across the new apartment market as banks tightened lending standards, especially for foreign ­buyers.”

“‘The buyers who are settling now probably bought their apartments two years ago and in that time in Melbourne and Brisbane the prices have been flat or in some areas may have gone backwards,’ he said. ‘At that time, the buyers may have planned to borrow 90 per cent of the purchase price but prices could have gone down and wiped out that deposit and they’ve got to find effectively another 20 per cent.’”

From The Advisor. “Mortgage brokers are in no way shocked by tighter credit controls on certain suburbs announced by one major bank this week, which they expect will continue into 2017 and beyond. Media reports over the weekend revealed that NAB had compiled a ‘blacklist’ of more than 100 postcodes across the country where buyers will need to pay as much as a 30 per cent deposit to secure a mortgage.”

“Perth-based broker Bianca Patterson of Calculated Lending, who was crowned Broker of the Year at the 2014 Better Business Awards, told The Adviser that she is not concerned about NAB’s announcement, but feels disappointed for those who own properties in areas where the bank has capped LVRs at 70 per cent. ‘It will have a direct effect on those investors. My advice to investors buying in areas that are quite speculative is that this is one of the risks. With properties that offer greater returns there are greater risks,’ she said. ‘[NAB’s announcement] was to be expected.’”

News Corp Australia. “It’s a great time to be a tenant with vacancy rates hitting a record high in Brisbane’s middle ring. It’s the first sign that suburbia is losing the battle to keep tenants as owners of rampaging levels of new inner-city apartments up the ante. REIQ chief executive Antonia Mercorella said the middle ring was being hit by a triple whammy.”

“‘Inner-city property managers and landlords are particularly sensitive to the oversupply question at the moment and rents have become extremely competitive, luring tenants from the middle ring into the inner ring,’ she said. ‘Also, a significant level of development has come online in the middle ring and some agents have reported that without being able sell, many of those properties have been put into the rental pool.’”

The Northwest Star. “In news that will surprise few home owners in the North West, a new report says the Mount Isa property and rental market has weakened by over a third in the last three years with the likelihood it may not have bottomed out. The Herron Todd White ‘Townsville in Focus August 2016′ mainly looks at Townsville but also has a section on Mount Isa’s market and the prognosis is not good.”

“‘The Mount Isa property market has been progressively weakening over the last three years, with average sale volumes remaining low and prices tending to soften,’ the report said. ‘The median house price trend has lowered from a trend level of $383,200 in the June quarter of 2013 to $248,600 during the June quarter of 2016, an apparent reduction over the three years of 35%.’”

“‘During the June 2016 quarter the median house rent came down to $355 per week while the median unit rent reduced to $215 per week,’ it said. ‘House rents have reduced by 37%, and unit rents by 43%, over the last three years.’”

From ABC News. “Western Australia’s slide to the bottom of the economic ladder in Australia has seen the state’s property market kicked from full steam ahead into reverse. But while property professionals see the post-mining boom market to be a readjustment to more ‘normal’ price levels, a looming apartment glut has many analysts concerned about further pain in that sector of the market.”

“‘We’ve had a lot of development of apartments in the inner city ring and that’s where the developments sites have really gone from being feast to famine, they were red hot a couple of years ago, not so much in mind today,’ said Gavin Hegney, an independent property valuer. ‘People are bailing out of their investment properties, saying I’ll just quit the investment property, I don’t like this investment property anymore. So that usually spells when you’re at the bottom of the market, from here we should see some hope,’ said Mr Hegney.”

“Mr Hegney believes the price falls in Perth are a sign of things to come for the east coast capitals. ‘Off the plan sales creates demand for two properties, when the real demand is only for one. When people move into their new apartment they have to move out of their rental accommodation or sell their existing home,’ he said. ‘That’s when you get the problem and that’s what’s coming for Sydney, Brisbane and Melbourne.’”

“In those east coast capitals, a recent survey revealed there are more cranes building apartments than in major United States cities.”

“With building activity in trouble in Perth, investors are trying to offload their units. Retiree Ron Campbell is selling his investment property after 10 years. His concern is that in a falling rental market, upcoming changes to the pension asset test will mean he would be left with nothing to live on. ‘What happens there is of course the rental value drops that there’s less income coming into your wages and plus you’ve got higher water rates, shire rates, all those sort of things come into play and your income is not enough to support, especially going back to January 1, where I might not have any income at all,’ he told ABC News.”

A report from the Buffalo News in New York. “Amid record prices and crowded open houses, Western New York’s booming housing market has hit an unexpected stumbling block for many buyers: they simply can’t find homes to buy. Sales in July fell 9.1 percent from the prior year, according to the Buffalo Niagara Association of Realtors, and even pending deals dropped. Activity came back up in August, with a 5.7 percent gain in transactions. However, that was still much less than the 10 prior months, when sales grew at double-digit rates of as much as 60 percent from year to year.”

“After more than a year of go-go homebuying across the region, the region may just have become a victim of the very factors that drove months of frenetic activity in the first place. ‘Prices are increasing to the point that it is denying buyers an opportunity to buy,’ said David Weitzel, an agent at RE/Max North in Amherst.”

From Bloomberg. “Home prices in New York’s Hamptons fell the most in almost three years as buyers in the beachfront towns sought out less-expensive properties and shunned the middle of the market, priced from $1 million to $5 million. Homes in the area, a second-home mecca favored by Wall Street executives, sold for a median of $825,000 in the third quarter, down 13 percent from a year earlier, according to a report Thursday by appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. It was the biggest annual decline since the fourth quarter of 2013.”

“Buyers in the towns and hamlets on Long Island’s South Fork are setting their sights lower as yearly bonuses for New York City’s financial employees — the lifeblood of the Hamptons market — are poised to disappoint in 2016. Incentive pay at hedge funds may fall 5 percent to 15 percent this year because of lackluster returns, while bonuses for fixed-income sales and trading may fall 10 to 15 percent, according to an August report by compensation consultant Johnson Associates Inc.”

“‘Wall Street is not having a banner year and I don’t think there’s an expectation that compensation for this year will be higher than last year,’ Jonathan Miller, president of Miller Samuel, said in an interview. ‘I do think there’s just a little bit more caution.’”

The Village Voice. “On the heels of new legislation that will penalize anyone who advertises entire apartments on the home-sharing service Airbnb for less than thirty days at a time, the company valued at $30 billion summoned a few of its hosts and held a small protest outside of Governor Cuomo’s New York City office Wednesday morning, claiming that the governor and New York state legislators were helping to make the city’s affordable housing crisis even worse.”

“Michelle Yates, a Bed-Stuy resident for eighteen years, who has previously worked in the construction and real estate industries, is encouraged about the changes she’s seen in her neighborhood — which has seen its white population increase sevenfold. ‘People are losing their homes because they pulled money out of their homes thinking it was an ATM while sitting on a high-interest mortgage. It has nothing to do with Airbnb. Nothing to do with real estate prices. I don’t believe any of that,’ Yates told the Voice, in response to the counterprotesters chants that Airbnb was hurting minority communities.”

“Assemblywoman Linda Rosenthal, who championed the new legislation, was on hand to shout against Airbnb. ‘More than 50 percent of the units rented out on Airbnb are illegal — that’s why Airbnb is freaking out,’ Rosenthal told reporters. ‘Not because they care about New Yorkers, because this has been illegal since 2010. They’re freaking out because their bottom line has been challenged.’”

From DNA Info. “The management company taking over the Red Square rental building on East Houston Street slashed the salaries of doormen and maintenance workers by roughly 30 percent — and several staffers said they were given ultimatum to either accept the lower pay on the spot or not come back.”

“Residents at the 250 E. Houston St. apartment complex received letters on Oct. 20 announcing the purchase by 250 Houston Investors, LP under the management of Dermot Realty Management Co., along with a host of upgrades coming to the building, such as apartment renovations and added amenities pledging to ‘[elevate] your living experience.’”

“But the change comes at a price for longtime workers at the residence. A maintenance worker who did sign the new contract said he felt he had no choice. He accepted the impromptu demotion, from the position of super to sweeping and mopping floors as a porter, which cut his $18 hourly pay down to $11. ‘They threw us in a room and said, ‘Sign this or you’re fired,’ the employee recounted. ‘They said, ‘You don’t do maintenance no more.’ They took the keys off my key chain. They said, ‘You just sweep and mop.’”

“Two longtime doormen said they received similarly steep pay cuts — from between $17 and $19 per hour down to $12 per hour — which they accepted due to a lack of other options. One doorman said he felt ’stuck,’ explaining he and his colleagues ‘had no choice.’ ‘We have families,’ he said. ‘How can we take care of them?’”

From Bisnow. “NYC’s always been a city of cranes, but never has this been more apparent than today. Development remains strong, and construction spending and employment are hitting record levels. Can developers finance record levels of construction? Is there anything they can do to slow rising costs? GFI Development president Steven Hurwitz says he’s already seen prices begin to cool as the loss of the 421-a has slowed residential development and the frozen land market slows the pipeline.”

“‘Contractors are starting to see that and are growing hungry,’ Steven says. Unskilled labor is much easier to find, and companies have ’staffed up so much that they now have a lot of mouths to feed.’”