December 23, 2016

Hitting The Ceiling, Seeing Some Prices Fall

It’s Friday desk clearing time for this blogger. “Palm Beach County home prices softened in November, reflecting a shift away from the strong seller’s market of recent years. The median price of houses sold last month was just $300,000, the lowest point since March, the Realtors Association of the Palm Beaches said Wednesday. Sales totaled 1,225, the weakest showing since February. In a telltale sign of the direction of the housing market, the inventory of homes for sale is increasing. There was a 5.1-month supply of houses on the market in November, an 11 percent increase from a year ago. Mike Pappas, president of The Keyes Co., sees a shortage of homes priced at less than $300,000 but a glut of mansions listed at more than $1 million. ‘It’s a tale of two cities right now,’ Pappas said.”

“According to the report, average rents for a two-bedroom in metro Denver fell from $1,371 to $1,368 during the third quarter. When they released the report, experts attributed those dips in part to new luxury buildings keeping overall rents high. A boom in construction has also meant more inventory on the market, which has led to a vacancy rate of 5 percent, up from 3.9 percent two years ago. That figure means there were around 16,000 vacant apartments regionally. ‘We’ve seen more apartment units built in the last three years than in the 11 years prior to that combined,’ said Mark Williams, executive vice president of the apartment association ‘The long-term impact of the new supply on rents is unmistakable.’”

“Even if the dip last fall was a temporary one and rents only level off instead of dropping significantly, experts say that’s still a big moment. Teo Nicolais, a Harvard University instructor who specializes in real estate, called it ‘a milestone in Denver’s real estate cycle,’ because rents had been rising so steadily for so long. ‘In simple economic terms: demand far exceeded supply in recent years, but with all the new homes being delivered, supply is starting to catch-up,’ he said.”

“During the oil boom North Dakota had some of the highest rent prices in the country, but with the oil slowdown prices have dropped in commercial and housing rentals. ‘When we have more supply and less demand, it’s going to be cheaper,’ said Shirley Dukart, a broker with Home and Land Co. in Dickinson. ‘Whereas we had a lot of demand and less supply.’ Dukart said she would estimate that commercial rentals have dropped somewhere around 30 percent in the past year because of supply and demand.”

“Earlier this month, a report from Apartment Insights Washington showed that rents have peaked and begun to come down in some of the hottest parts of the metropolitan area. For example, rents downtown are 2.8 percent lower than the previous quarter and down 3.5 percent in the University District. Don’t expect Seattle to turn into Mesa, Arizona, anytime soon. This is a coveted superstar city and you get what you pay for. But hitting the ceiling, seeing some prices fall, and apartments offering incentives, too, are all signs that market forces can still work.”

“Vancouver’s long-awaited housing correction may be around the corner: prices are headed for a double-digit decline in 2017 as buyers drop out of the market, according to the head of Canada’s largest real estate services company. ‘Home prices had gotten so out of whack with the growth in underlying wages and salaries that there had to be a correction,’ said Phil Soper, chief executive officer of Royal LePage. ‘Thank goodness there’s going to be a measure of sanity returning to the market.’”

“The downturn in the Perth housing and construction market has claimed a high-profile victim with listed developer and builder Diploma Group collapsing owing creditors about $40 million. In November, Diploma Group reported to the market that Diploma Construction (WA) was likely to report a $32.5 million loss including $20 million of write-downs. In May, Diploma Group said it was reviewing its operations ‘in light of the current property and commercial construction markets it operates in, in Western Australia.’”

“There are two main reasons why Singaporeans buy property abroad. The first is as an escape plan. At the rate our cost of living rises, McDonald’s looks like a five-star restaurant to some retirees. The other reason is good old Asian values. We have a land ownership / property bias, and we want to own a house somewhere; anywhere. Last year, I could paint a red bullseye on a zinc shack in Syria, and a Singaporean somewhere would still give me his life savings for it. Fortunately, we may have developed more common sense of late.”

“Things came to a head last year, which was the worst year for foreign property scams and disputes. EcoHouse Brazil was not a property developer or seller per se – but they did convince Singaporeans to invest in social housing schemes to earn returns. They collected $65 million from 800 Singaporeans, between 2011 till their sudden disappearance in 2015. Then there was the shocking Kawarau Falls incident, in which some Malaysian and Singaporean investors were successfully sued for $33 million (they had previously already lost their deposit, when the developer went bankrupt).”

“This was one reason why Singaporeans began to cool off overseas property at the time – but this year, several more reasons came into play. Singapore property prices are at their lowest in years, and still falling. Iskandar is now facing an oversupply issue. No escape from loan curbs in Singapore or Australia. Weak economic conditions. Recall that one motivation to buy overseas was being priced out of the local market. That won’t be true for long.”

“Auckland’s huge $250 million St James apartment project has become the latest victim of tightening bank finance, the developer says. Steve Bielby of Relianz Holdings said the banks’ biggest concern seemed to be around ’settlement risk.’ Although the project was fully pre-sold, he said banks were aware that it was a very large development in an increasingly expensive construction market and that people only had to make a 10 per cent deposit.”

“Martin Dunn of City Sales apartment real estate agency said the Auckland apartment market was coming to the end of its current cycle next year ‘which was going to happen without [Reserve Bank governor] Graeme Wheeler’s input.’ This was despite escalating demand, given that all the CBD apartments expected to be finished next year were already sold. ‘Even good developers are struggling with funding. The big ones will get it but I think the frustrating outlook for us is we’ve got a drop in values at the moment,’ he said.”