The Housing Bubble

A report from MarketWatch. “Fresh data may confirm that the recent heyday for apartment construction is over. Fewer newly-constructed apartments are being rented out, according to figures released early in December by the Commerce Department. The ‘absorption rate’ — whether an apartment has been rented within three months of completion — was 58% in the second quarter of this year, down from 66% in the same period in 2015 — for a smaller pool of apartments. The National Association of Home Builders, crunching Commerce Department data, found that about 92% of all multi-family units were built-for-rent in the third quarter, much higher than the 80% share in the two decades before the housing boom took off.”

The Real Deal on New York. “In 2016, one of the biggest issues facing New York City’s residential market was the weakening demand for ultra-pricey properties. Next year, according to residential listings website StreetEasy, the biggest issue will be how that slowdown will adversely impact the rest of the market. ‘There’s a market correction coming in Manhattan,’ said StreetEasy economist Krishna Rao. ‘We’ve seen a lot of softness in the luxury market, and we’re going to see that trickle down.’”

“Landlords in Brooklyn and Manhattan have been dealing with stagnant rents throughout 2016. Brokers say it’s becoming harder to rent out the city’s most expensive pads. A recent report from Douglas Elliman found that just over 25 percent of all Manhattan residential leases signed in November included some form of concession.”

KUOW in Washington. “A new report predicts that rent increases in the Seattle area should slow down next year. The report was produced by Apartment Insights, a company that surveys the rental market. It finds that vacancy rates are increasing and that rents are dropping in the fourth quarter of this year. Peter Orser is the interim director of the University of Washington’s Runstad Center For Real Estate Studies: ‘Supply got out in front of jobs and immigration and that’s the way these things tend to go. Permits come in chunks. Buildings come in big increments, 50 or 100 units. Sometimes supply gets out in front of demand a little bit.’”

From Curbed San Francisco in California. “Like its competitors, rental site Zumper reported stagnation and gradual ebbing of rents in San Francisco all year long. Overall, the site recorded a 4.9 percent 2016 decline in rent prices. The biggest loser (loser in this case being a good thing): NoPa, where Zumper rents declined nine percent. Noe Valley dropped eight percent on the site, and even Nob Hill was down six. Zumper’s end of year heat map, showing the rise and fall of prices by neighborhood (again, a least as far as Zumper listings themselves go), only indicates activity, not prices themselves.”

“That means even ritzy ZIP codes in the likes of Pac Heights, the Marina, Russian Hill, Presidio Heights, Cow Hollow, and Hayes Valley ended the year down.”

From Curbed Washington, DC. “While Washington, D.C. having the sixth most expensive rents in the nation might not seem like something to be proud of, there is a silver lining; rents for one-bedroom units have dropped 3.2 percent overall in the past year, according to Zumper. Neighborhoods that dropped in price this year included the Radnor/Fort Myer Heights area, who decreased by 13 percent from this time last year, Eckington, who dropped by 10 percent year-over-year, and the Brentwood/Langdon area, which is now down nine percent from last year.”

The Mountain Xpress in North Carolina. “Third-quarter data released by two real estate research firms show an improving environment for Asheville metro area renters. After a late 2014 report showed a rental vacancy rate of less than 1 percent in Asheville and Buncombe County, local officials and renters have frequently described the area’s shortage of affordable housing as a crisis. Any easing of the rental market is likely to be received as welcome news — except perhaps by landlords.”

“In 2016, rent-price inflation slowed, and rental vacancy rates increased, according to Reis, a New York-based company. The Reis data for 2016 show a 6.8 percent vacancy rate during the second and third quarters and 7 percent for all of this year’s quarters.”

From Houston Culturemap in Texas. “The Houston rental market has been bonkers for a while, but there’s new proof that it’s finally starting to calm down. Online real estate investment management firm HomeUnion has identified the cities where rent growth has soared and sunk, and Houston ranks No. 6 among cities where rents have declined the most. Houston rents have fallen 2.8 percent, hovering now around $1,600 a month. El Paso has seen even greater declines: a 7.1 percent decrease year-over-year.”

A report from Business in Vancouver on Canada. “The foreign buyer in B.C. was largely an unknown entity for most of 2016. Not many people were clear on where he was from, where he was headed, what he was after or what his end game was. One thing was clear, however: he had a lot of money and was not afraid to spend it. Enter the politicians and the 15% tax on foreign buyers of Metro Vancouver residential real estate. In June, when the B.C. government was opposed to a tax on foreign homebuyers, it released a forecast of what could happen if only 3% of foreigners stopped buying. The pessimistic outlook turned out to be even worse than imagined once the tax was introduced.”

“October 31 – three months after the tax came in – Metro Vancouver housing sales through the Real Estate Board of Greater Vancouver had plunged by 2,200 units compared with pre-tax July, a loss of more than $2 billion in total volume, or twice as high as the government had forecast. As of November, the typical home value in Metro Vancouver was down $181,700 compared with a year earlier. The benchmark price of a detached house – the favoured target of the foreign buyer – had dropped 23%, or $347,500, to $1.15 million.”

“‘I was so wrong,’ said Christine Duhaime of Duhaime Law in Vancouver, who is considered an expert on Asian real estate investment. Prior to the tax being implemented, Duhaime had said, ‘I do not believe it will have an impact on deterring foreign investment in the residential real estate sector’ of Metro Vancouver.”

From Canadian Business. “The cynics said this would happen. I’m talking about the prediction that politicians would absorb none of the lessons of the financial crisis. Here in Canada, amnesia is setting in. The initial sign came in the 2015 federal election campaign, when former prime minister Stephen Harper attempted to revive his popularity by promising to allow first-time homebuyers to use more of their tax-sheltered savings for down payments.”

“And now, British Columbia Premier Christy Clark has defied economic wisdom, announcing on December 15 that her government will offer first-time homebuyers concessional loans of as much as $37,500 to help them enter the country’s most expensive housing market. ‘There are people in my community today who could afford a condo or a townhouse who just don’t have the downpayment,’ Rich Coleman, the province’s housing minister, told Business News Network.”

“In some places, the inability to come up with a down payment means you can’t afford to buy a house, but never mind that. Coleman represents Fort Langley-Aldergrove, a constituency in the Greater Vancouver Area, where the average price of a home is around $1 million. ‘Owning the place where you live is part of what being a Canadian is all about,’ Clark said as she explained her new policy.”

“If all this sounds familiar, it may be because you read about how America lost its mind over real estate on the way to the Great Recession. Perversely, a shift to prudence could become the shock that bursts the bubble. In a speech on November 30 in Vancouver, Evan Siddall, the head of Canada Mortgage and Housing Corp., tutored his audience on ‘negative demand externalities.’ Siddall remarked on Canadians’ ‘notable history’ of making their mortgage payments. ‘However, this discipline of reducing spending to save a home can still harm our economy,’ he said. ‘Housing market bubbles fuelled by easy credit tend to burst first when people slow their consumption, which undermines economic growth.’”

The Langley Times. “The good news for Langley homebuyers is, price-wise, the local real estate market has stabilized over the past few months. The most recent stats released by the Fraser Valley Real Estate Board (FVREB) show that the benchmark price for a detached home in Langley was $871,600 in November. That’s down 1.4 per cent in price from three months previous. But it was still 30.9 per cent more expensive to buy a house in Langley compared to November 2015, and a whopping 72.7 per cent pricier than 10 years ago.”

Michael Thorne has worked as a real estate agent in Langley for the past 23 years and he noted that affordability pressure combined with the foreign buyer tax affecting Metro Vancouver real estate transactions has helped cool the market. Peaks and valleys in Langley’s real estate market are nothing new. ‘There was a period of time from (19)95 to ’99 when nothing happened. Prices didn’t go up, prices didn’t go down, and then the market ramps up for a short period of time and we see these jumps,’ Thorne said. ‘This last time lasted a little longer than normal.’”

From Macleans. “In recent months the Bank of Canada has ramped up its warnings about heavily indebted households and the unreasonable expectations driving the housing market, yet all indications are that Canadians have stuffed cotton in their ears. In Toronto, for instance, house prices are up nearly 15 per cent since the summer when Bank of Canada governor Stephen Poloz warned that price gains in the city were ‘difficult to match up with any definition of fundamentals that you could point to.’”

“In the more than 15 years that the Teranet-National Bank House Price Index has tracked property prices in the city, there’s never been a six-month period when prices rose that fast. Meanwhile, the latest figures released by Statistics Canada showed the household debt-to-income ratio broke yet another record in the third quarter.”

“Now Canada’s central bank is trying a different platform to get its message across: In a video posted Monday on YouTube, in conjunction with the release of the Bank’s semi-annual financial system review last Thursday, Bank of Canada senior policy adviser Joshua Slive sketches out how Canada’s dangerous brew of debt and inflated house prices could combine to devastate the economy.”

“Whatever the case, the Bank’s video should be another wake-up call for Canadians. Not that anyone’s listening. On the morning of Dec. 20, the video had little more that 600 views. (Update: A day after we published this post, the number of views had jumped to 6,700.) Here’s the video in full.”

From CBC News North. “Forget Vancouver, Toronto or Calgary. Yellowknife tenants pay the highest average rent in Canada, according to data from the Canada Mortgage and Housing Commission. ‘Living in the North is hard,’ said Timothy Gensey, an analyst with the CMHC. ‘It’s expensive. Everything has to be trucked up. To actually make money back and make apartment buildings viable, you have to charge higher rent.’”

“However, for the first time in years, prospective tenants in Yellowknife would have noticed a drop in rental prices in 2016. Prices fell by 2.2 per cent for a two-bedroom apartment this year, Gensey explained. That drop came from people leaving the territory and the recent downswing for the mining sector, he said. Adrian Bell, a Yellowknife real estate agent and city councillor, says the drop in rental prices is significant. He says he’s never seen a noticeable drop in more than 20 years in the city.”

“He attributes the drop to an increase in condo units being built and more people turning away from renting. For prospective tenants, this may mean now is a good time to find a place to rent. Gensey said long-term trends are unclear, depending on how well the diamond mines rebound and whether tourism takes off. ‘Last year, rents fell as people were leaving the territory,’ Gensey said.”