January 31, 2017

The Thud Of Slowing Sales

A report from the Oregonian. “The Portland area’s rapidly rising home prices may have run out of steam in the second half of 2016. The sudden slowdown might be a sign the Portland metro area, walloped by escalating prices in recent years, has hit the outer limits of affordability. Aaron Terrazas, a senior economist at the real-estate website Zillow, said that recent months have brought a sea change in the Portland market. ‘Shoppers are becoming a little more price sensitive, even in the most expensive parts of the metro’ area, Terrazas said.”

From The Reflector in Washington. “The housing market looks to continue its slowdown, though there’s no need to fear a market catastrophe, according to one regional authority on the industry. Todd Britsch, MetroStudy regional director for the Seattle and Portland housing markets, explained that the housing market for the Portland metro appears to be slowing down in 2017 from the builders’ side, though he was optimistic that it would not turn in the direction the market did before the Great Recession. ‘We are just at a point where the market is leveling off,’ Britsch said. ‘It’s not doomsday, it’s not even 2006.’”

“Britsch mentioned feedback from news regarding tech companies moving into the Portland metro area and finding it more affordable than areas such as Silicon Valley. ‘Yes, it’s affordable if you are making California wages,’ Britsch said ‘We don’t provide California wages here, nor are we going to get to that place.’”

The South End Beacon in New York. “The thud of slowing sales at the ultra-high end brought down the South Fork’s real estate sales figures in the fourth quarter of 2016. Town & Country Real Estate CEO Judi Desiderio did not mince words about the state of the South Fork market. ‘The last three months of 2016 were NOT good for the Hamptons real estate markets,’ she said in her fourth quarter report. ‘Eleven of the 12 individual markets monitored by Town & Country experienced declines in the number of home sales, with the hardest hit being starlets East Hampton Village, with a 46 percent drop and Bridgehampton (which includes Water Mill and Sagaponack), with a whopping 56 percent free fall.’”

The Anchorage Daily News in Alaska. “Four consecutive years of rising home prices in Anchorage came to an end in 2016 as a weakened economy caused prices to stall out, according to year-end data from the Multiple Listing Service. Anita Bates, an associate broker at Dwell Realty, frequently works with sellers who are builders of new homes. She said these sellers tend to hold fast to listed prices, but have been more amenable of late to picking up a greater percentage of buyer closing costs than in the past.”

“‘In many instances, building companies have obtained a pre-construction approval from a bank and if they discount the price of the home, that jeopardizes their ability to go out and get another construction loan,’ Bates said.”

The Peoria Journal Star in Illinois. “A stagnation of high-end home sales in recent years may have been an early indicator of the impending loss of high-paying jobs in the Peoria area. ‘Interestingly enough, we do believe that some of the Caterpillar employees who are slated for a move to Chicago that do, in fact, live in the Peoria area, we believe that they may have even possibly had their homes listed for sale already,’ said Jana Heffron, president of the Peoria Area Association of Realtors. ‘That could explain some of the numbers we’ve been seeing in the high-end market.’”

“The higher-end market, which includes homes listed for $500,000 or more, has been declining as more luxury homes went up for sale and the number of interested buyers dwindled. From 2014 to 2016, the number of homes sold in that category declined by nearly 29 percent, while the average amount of time a luxury home stayed on the market stretched to 16.5 months, up from 10.2 months a year ago.”

From Curbed Miami in Florida. “Signs of a distressed preconstruction condo resale market in Miami are continuing, with StatFunding Founder Andrew Stearns’ January market report indicating ‘the number of condos with unsold developer units is increasing.’ Over the last three months, sales have fluttered as inventory swells and we should expect resale losses to continue with thousands of new units hitting the market in the coming quarters.”

“Stearns also took a snapshot of one specific condo in the 299-unit Icon Bay in Edgewater, which was completed in Summer 2015 and currently has 68 units for sale. All resales in that development profited from July 2015 to April 2016 but all nine of the most recent sales dating back to May 2016 have incurred losses, including one unit selling for 28 percent ($190,300) under the original sale price.”

January 30, 2017

A Pricing Bubble Where Developers Paid Top Dollar

A report from the Herald Tribune in Florida. “International buyers still love Florida real estate, but their passion is fading. Foreign buyers spent $4.3 billion less on residential real estate in the Sunshine State last year, an 18 percent plunge. With shrinking buying power, foreigners are spending less here. The average price they paid for a Florida residence dropped from $539,000 in 2015 to $412,000 last year. Agent Charryl Youman said she saw fewer Canadian buyers last year, but more sellers reacting to the unfavorable exchange rate with the loonie. Canadians like maintenance-free living at condos and villas, but both sale prices and monthly fees jumped about 30 percent.”

“‘Imagine if your condo fees were $300 per month, and now they feel closer to $400 per month,” said Youman, who is with Berkshire Hathaway HomeServices Florida Realty in Venice. ‘Condos costing $200,000 to buy now translate to almost $260,000. That’s a big difference.’”

From Mansion Global on New York. “Only 13 homes valued at $4 million and above entered into contract last week in Manhattan, the lowest number for the final week of January since 2010, according to Olshan Realty’s weekly report. ‘The market is struggling with price resistance,’ Donna Olshan, president of the eponymous brokerage Olshan Realty told Mansion Global. ‘Fundamentally, there are too many overpriced high-end products. The buyers are really looking at the prices carefully. In order for the market to move, a lot of properties have to reduce prices.’”

From Multi-Housing News. “A new survey from Capital One reveals that multifamily professionals have mixed expectations for supply and demand in their markets this year. ‘We closely watch planned and permitting numbers across the country and monitor areas with a lack of supply,’ said Jeff Lee, executive vice president of Capital One’s multifamily finance. ‘There are no doubt some cities where overbuilding is a problem, as evidenced by the 38 percent of survey respondents who said that they anticipated supply to outstrip demand to some degree.’”

“In the survey of more than 130 industry pros, only 16 percent of survey respondents expect supply and demand to be in equilibrium this year, while 46 percent anticipate demand to outstrip supply, and 38 percent predict supply will exceed demand. ‘One thing that stood out for me was that 51 percent of the respondents said that they were going to be a net buyer in 2017,’ Lee said. ‘This was surprising, given the anticipation of rising interest rates. In a broader sense, the results also made it abundantly clear that there is an expectation among professionals that the multifamily market has additional room to grow.’”

From 4 WWL in Louisiana. “After record growth in the metro area housing market post-Hurricane Katrina, 2016 saw a slow-down. Experts called it a ‘leveling’ off. Although the rent landlords will be able to get may not be as high as in years past. With more inventory and newer apartments with more amenities, rents have decreased. ‘Even uptown we are seeing apartments that were leasing for maybe $1,800 last year are now sitting on the market far longer and leasing for only around $1,600,’ said Remax agent Martha Eager-Allen. ‘So there is a correction taking place and I think owners should be aware of that.’”

The Houston Chronicle in Texas. “Greater Houston homebuilders face a slow-moving market in the year ahead, followed by increased activity in 2018. But there may be speed bumps along the way as the industry rebounds from the sluggish growth during the recent oil bust just as crude prices stabilize, a housing analyst said. Even with mortgage rates hovering around 4 percent - low by historical standards - only about 28 percent of Houston-area households can afford an average-priced new home, which is about $391,000, said Scott Davis, head of the Houston office for Meyers Research, a residential consulting practice based in southern California. ‘Given some of the more expensive inventory moving more slowly in the market, and staring at a potential increase in rates, this is an important issue for us to stay on top of,’ Davis told builders.”

“Communities that opened over the last several years when land and lot prices were high won’t fare as well as those that come online in 2017 or later, when prices are expected to moderate, Davis said. He warned of a ‘pricing bubble’ in those older projects where developers paid top dollar for the land. With high inventories in those developments, Davis said, ‘we’re going to see that slowly deflate,’ he said.”

From My Central Jersey in New Jersey. “Almost 11 months after New Brunswick passed an ordinance to combat the large number of vacant homes in the city, no part of the ordinance has been enforced. The Abandoned Properties Rehabilitation Ordinance, passed on Feb. 3, 2016, and enacted on 20 days thereafter, requires that the city designate a public officer to identify abandoned properties, draft a list of abandoned properties in need of rehabilitation, and submit a report to the city’s mayor detailing the location, status and actions taken to rehabilitate qualifying properties.”

“In a response to a request made under the Open Public Records Act for the documents, other vacant property lists and plans of rehabilitation submitted by property owners of vacant or abandoned homes, assistant city attorney Joe Catanese wrote that no such documents exist.”

“Per 2015 census estimates, there are between 1,173 and 1,663 vacant homes in the city, roughly 9 percent of the city’s total housing units. City Public Information Officer Jennifer Bradshaw confirmed that a list, as called for under the ordinance, had not been drafted and that no public officer had been named. ‘We’re still in the process of setting up a model for the ordinance to operate under as well as staff a position to oversee it,’ Bradshaw said in a statement. ‘So at this time, there isn’t a staff person to compile a list, nor one to provide updates on.’”

January 29, 2017

Mired In A Deep Foreclosure Swamp

A report from the Longview News-Journal in Texas. “A sharp increase in foreclosures is blamed for causing the housing market in the Longview area to plummet to second from the bottom among 200 markets nationwide, according to a new home-value forecast. The spike in the foreclosure rate, to 34 percent in the final three months of 2016 from 8.84 percent a year earlier, was probably an impact of the slow recovery in the energy industry, said Tom Hoff, director of marketing for Pro Teck Valuation Services. He noted the bottom 10 markets in the report included four energy-producing areas. Pro Teck’s report shows the four-county Longview market dropping from near the middle in the final quarter of 2015 to next to Las Cruces, New Mexico, at the bottom of the bottom 10 of 200 markets by late 2016.”

“Jim Gaines, the Real Estate Research Center at Texas A&M University’s chief economist said it takes a couple of years to cycle through foreclosures, which might have led Pro Teck to determine the rate to be 34 percent. Gaines acknowledged the oil industry slump has hit the Longview area hard, but perhaps not as much as Midland and Odessa. Pro Teck’s report showed Midland ranking immediately above Longview. ‘The economic impact might have happened a year and a half ago,’ he said. ‘The decline in the price of oil started in mid-2015. It is not an immediate impact.’”

From Delaware Online. “Delaware had the second highest foreclosure rate in the nation last year, a recent study reported. The study also found overall foreclosure activity in Delaware jumped 45 percent last year compared to 2015, the largest increase of any state. Local experts said Delaware’s foreclosure crisis is the result of the state’s stagnant wages making it difficult for residents to keep up with mortgage payments. ‘We need more, better-paying jobs,’ said Eric Doroshow, a Wilmington attorney who specializes in consumer bankruptcy. ‘You see these families having two jobs and still struggling to get current on a mortgage. Chapter 13 [bankruptcy filings] gives them a chance, but at the end of the day they need more income.’”

“Lawyers are not the only ones noticing the increase in business because Delawareans are struggling to make their home payments. David Sordelet, a Wilmington real estate agent, said six of his 17 active listings are short sales. Sordelet agreed flat wages are hurting Delaware’s housing market. The state’s average annual household income dropped to about $57,000 in 2014 from $67,000 in 1999. Delaware was ranked ninth among the 10 worst states for household income growth. ‘We’ve lost jobs at Chrysler, General Motors, MBNA, DuPont, AstraZeneca,’ he said. ‘That has an effect on values.’”

“Sordelet said mortgage adjustment programs can be problematic, too. He said a recent client did a mortgage modification and attempted to sell her house to get out from under the mortgage. But when she came to the table, the buyer didn’t have enough money for the mortgage and all of the unpaid fees, interests and charges tacked on the back end of her mortgage because of the modification program. The buyer walked away and his client was forced to sell her house in a short sale.”

From New Jersey Spotlight in New Jersey. “Housing markets have improved and foreclosure numbers dropped across the country since the Great Recession, but a decade on, New Jersey remains mired in a deep foreclosure swamp. Some analyses cite Atlantic City as the worst housing market in the country, with Trenton not far behind. Overall, New Jersey continues to have the highest foreclosure rate in the country, according to real-estate data firms.”

“he Federal Housing Finance Agency has offered some continuing assistance to borrowers whose mortgages are insured through Fannie Mae or Freddie Mac. The new ‘Flex Mod,’ flexible modification, program aims to provide reductions of up to 20 percent on mortgages that are 60 days’ delinquent, instead of waiting the traditional 90 days. Like previous foreclosure relief programs, though, Flex Mod may look good on paper without delivering in reality, said attorney Josh Denbeaux of Denbeaux and Denbeaux in Westwood. ‘The question about Flex Mod is not the regulations themselves, it’s whether they will be enforced,’ he said. ‘And the answer to that is no.’”

The Des Moines Register in Iowa. “In many ways, the metro Des Moines housing market has never been stronger. Home prices have reached record highs, and Polk County’s median home value has climbed to nearly $150,000. A wave of new homebuyers has prompted fast-paced sales. Bidding wars have broken out for homes in popular neighborhoods, where prices have surged more than 10 percent since the housing crash in 2008.”

“But Des Moines’ housing surge has left behind thousands of homeowners in poorer neighborhoods that have seen their home values fall as much as 13 percent — even as the economy rebounded, The Des Moines Register’s exclusive analysis of Polk County assessment data shows. In the Oak Park neighborhood on the city’s north side, Nicole Simpson and her husband have been trying to sell their house for more than five months so they can move to the Johnston school district. They like the quiet neighborhood where their children can play. And the home sits on a large, wooded lot on the east bank of the Des Moines River.”

“But the Simpsons couldn’t find a buyer and recently took the house off the market. Assessed values in the area have ticked up only 2 percent since the crash, the Register analysis shows. Several nearby homes have gone through foreclosure and were sold cheap or turned into rentals, which Simpson suspects has brought down property values. ‘It’s a nice place to raise a family,’ she said. ‘We just have the misfortune of having a few houses that are affecting it.’”

From KCWY in Wyoming. “As unemployment numbers remain high in Wyoming, many homeowners still struggle making their mortgage payments. The staff at Wyoming Housing Network has tracked a recent jump in foreclosures over the past four months. They told News 13 there are currently 134 foreclosures in progress across the state. Wyoming Housing Network Foreclosure Counselor, Beth Skidmore shared, ‘There are different things they (homeowners) can do if they can’t repay and they don’t have the ability to maintain the home, then we can help them with their credit and everything and see if we can figure out another situation for them.’”

January 28, 2017

So Many Listings-For-Losses In The Market

A report from the Miami New Times in Florida. “A study by Andrew Stearns, a real-estate analyst who runs the website StatFunding.com, paints a bleak picture for Miami’s condo market. Stears for months has warned that the massive glut of new condo buildings coming to market could hedge into anything from a brief period of ‘correction’ to a full-on real-estate crisis in the next few years. ‘Developers are getting stuck with unsold units at a time when overall condo inventories have built to over 13 months of supply at current sales rates,’ he writes.”

“In the resale market, just 13 new condos were ‘flipped’ from November through January — and all of them lost money. One home-flipper at the ultra-luxury Faena House in Miami Beach lost $4.75 million after reselling a unit built in 2015. In addition, more than 70 units are listed as ‘underwater’ — AKA their mortgages cost more than the homes are worth — and with such a glut of condos available, basically nobody is willing to lose money on an underwater investment.”

“‘Because there are so many listings-for-losses in the market, comparable sales prices are trending down, inventories are already at staggering levels, and thousands of new condo units will hit the market in 2017 and 2018, Miami condo flippers should expect losses on resale to continue,’ Stearns writes.”

The Charlotte Observer in North Carolina. “With the vast new supply of apartments hitting the market in Charlotte this year, it might seem logical that rents will come down in response. But that’s not what people watching the market are predicting. ‘Rent has been increasing pretty aggressively for the past several years,’ said Skylar Olsen, senior economist at Zillow. ‘2015 was when rents were growing the fastest across the country… It’s slowed down significantly.’”

“Erin Amon, market analyst with CoStar, said most of Charlotte’s new apartment supply will continue to be built in uptown, South End and South Charlotte. ‘Almost everything being built is high-end units,’ said Amon. ‘A lot of investors are coming in and doing ‘value add’ deals,” said Amon. ‘Basically we’re just getting rid of them (older units).’ All of that is contributing to Charlotte’s problem with affordability. Olsen said renters in the lower third of Charlotte’s income distribution pay 47 percent of their income to rent, while for those in the upper third, it’s about 13 percent. As Olsen quipped: ‘There’s not an affordability problem if you have the income to afford it.’”

The Chicago Tribune in Illinois. “‘Friends.’ ‘New Girl.’ ‘Sex and the City.’ When you watch just about any sitcom that features 20- or 30-somethings, you inevitably see them living in gigantic apartments located in spectacular areas of fun cities — no matter what the characters do for work (if they even have jobs at all). But if you’ve ever hunted for apartments in Chicago, you know that while these spaces might exist, they exist in … let’s call it a difficult-to-attain price range. ‘People can’t afford to live in these high-end, class-A luxury apartments,’ said Aaron Galvin, managing broker and owner of Luxury Living Chicago Realty.”

“For many renters, fiscal realities dictate that it’s not possible to have both the big space and the great location. So they make compromises. In many instances, this means choosing a desirable neighborhood at the expense of living space — sometimes a lot of living space. ‘We have studios that are under 200 square feet,’ said Mark Heffron, a managing partner of Cedar Street Cos. For other people, compromise means embracing a co-living model, renting out a single bedroom in a furnished apartment in which you share the common areas with a few roommates — typically strangers — who also rent single rooms.”

The Charleston Gazette Mail in West Virginia. “West Virginia University might close one of its older residence halls and force some future freshman students to pay to stay in one of the school’s public-private partnership apartment complexes. The Gazette-Mail first reported that WVU had been struggling to fill its apartments in summer 2016. Landlords from the area and WVU staff members said at the time the local housing market was oversaturated by too many recently constructed apartment complexes.”

From KFOX 14 in Texas. “It’s a good time for renters in El Paso County, according to a professor of economics at UTEP. Tom Fullerton said vacancies are on the rise in the area. The El Paso Apartment Association announced this week it’s dealing with low occupancy throughout the county. Fullerton says it’s because of overbuilt apartment developments. He says more apartment complexes have been popping up and that translates to higher vacancy rates.”

“‘This is essentially a renters’ market, and they have a better likelihood of being able to extract concessions out of the unit managers now than was the case … say, 12 or 24 months ago,’ Fullerton said.”

The Real Deal on California. “Concerns remain about how Downtown Los Angeles will absorb the thousands of luxury apartments delivering in coming years, with more than 7,000 high-end units now under construction. However, the submarket got through 2016 — a year during which 1,700 units hit the market — relatively scott free. Despite supply-driven volatility on a quarter-to-quarter basis, DTLA’s multifamily market closed out the year with an average vacancy rate 8.8 percent in 2016, a 0.3 percent decrease from 2015, a year-end report by CoStar shows.”

“‘This is the highest vacancy rate of any L.A. submarket by orders of magnitude, but the ability of the area to quickly absorb the past two years’ new supply is encouraging news for Downtown developers,’ said CoStar analyst Steve Basham, who authored the report.”

“The data was promising for projects that opened in 2016, Basham said. Blossom Plaza, a 237-unit mixed-use project in Chinatown, opened in June and was about 75 percent occupied by the end of the year, while the 320-unit Garey Building Apartments — Downtown’s largest new project in 2016 — opened in June and leased about 30 units per month, reaching 50 percent occupancy before the end of the year.”

“Carmel Partners’ Eighth & Grand complex, for example, was offering new tenants two months of free rent at one point last year. With those concessions factored in, DTLA’s effective rent growth was near zero percent, Basham said. As more units deliver, it is expected to continue to lag far behind the larger L.A. metro area. ‘It’s not really a huge cause for concern,’ Basham told The Real Deal. ‘You just have so much product the market at the same time that it was almost inevitable that rent was going to slow down. That’s just supply and demand.’”

From DnaInfo on New York. “What do Hunts Point, Mott Haven, East Flatbush and Flatbush have in common? They were among the areas in the city that saw the fastest rising rents for one-bedroom units over the past year, according to a recent heat map analysis by real estate listings site Zumper. Meanwhile, the biggest price drops were in pricey areas. In Brooklyn, Boerum Hill led the way with a 12 percent dip, followed by its neighbor Cobble Hill, down 10 percent, both to $2,750 a month. Battery Park City and Gramercy Park also saw 10 percent declines, to $3,750 and $3,600 a month, respectively.”

“Overall in Manhattan, there were four times as many neighborhoods that had recent rent drops compared to the same time last year, Zumper found. ‘Although many new, luxury buildings have been offering incentives, like 4 to 6 weeks of free rent, waived or reduced security deposits and parking fees, it seems even those options are not enough to justify the steep rents that are required to live in those buildings,’ said Crystal Chen, data analyst at Zumper.”

Bubbles Are Often A Result Of Public Policy

A weekend topic starting with The Atlantic. “One of the most useless political observations since the election is that liberal elites live in bubbles. It is useless, not because it’s wrong—they often do—but rather because it’s like saying ‘liberal elites live in the biosphere.’ Living in bubbles is the natural state of affairs for human beings. People seek out similarities in their marriages, workplaces, neighborhoods, and peer groups. The preferred sociological term is ‘homophily’—similarity breeds affection—and the implications are not all positive. White Americans have 90 times more white friends than they have black, Asian, or Hispanic friends, according to one analysis from the Public Religion Research Institute. That’s not a description of a few liberal elite cliques. It’s a statistic describing the social networks of 200 million people. America is bubbles, all the way down.”

“But American homophily is not purely driven by our individual choices. Bubbles are often a result of public policy. For decades, U.S. housing policy has subsidized large suburban homes, but restricted housing construction in rich neighborhoods and deprived minorities of mortgage support. So, poverty concentrates in one area, and the rich cluster in another.”

From The Intercept. “In 2011, unemployment was at a near crisis level. The jobless rate was stuck around 9 percent nationally, an unusually high number due to the continuing effects of the financial crash. House Democrats were aghast. Behind closed doors at the Federal Reserve however, the conversation struck a different tone. According to transcripts released this month after the traditional five-year waiting period, Federal Reserve officials in November 2011 were debating whether unemployment was caused by bad work ethics and drug use – rather than by the greatest financial crisis in 80 years. This debate then factored into the argument over setting monetary policy.”

“‘I frequently hear of jobs going unfilled because a large number of applicants have difficulty passing basic requirements like drug tests or simply demonstrating the requisite work ethic,’ said Dennis Lockhart, a former Citibank executive who ran the Atlanta Federal Reserve Bank. ‘One contact in the staffing industry told us that during their pretesting process, a majority—actually, 60 percent of applicants—failed to answer ‘0’ to the question of how many days a week it’s acceptable to miss work.’”

“The room of central bankers then broke into laughter.”

From Libcom.org. “It is hard to remember now, but Enron was once a very widely respected company. Luminaries such as Nelson Mandela, Alan Greenspan, and Colin Powell made the trip to Houston, Texas to receive the Enron Prize for Distinguished Public Service. A major Republican Party donor, Lay influenced high-level federal policy through top officials in the George W Bush administration. Affectionately known by George W. Bush as ‘Kenny Boy,’ Lay was also a close friend of the Bush family.”

“When Enron suffered a slight blow to its share price in 2001, it didn’t take long for investors to see the company for the hollow shell that it was. Despite its impressive connections, the Bush administration was not willing to defend Enron. The health of financial markets depends on investors acting on at least somewhat reliable information and fraudulent activity undermines this; not to mention the fact that Enron had defrauded the Republican Party’s primary constituency, wealthy investors. Enron was finally out of luck, and when the axe fell, it fell swiftly.”

“Managing to escape serious penalties for its involvement in the scandal was Citigroup. Citigroup helped Enron defraud its investors by designing intentionally complex structured finance transactions to help Enron keep its debts hidden from plain view. When Enron’s share price began to falter, Citigroup board member and former Bill Clinton Treasury Secretary Robert Rubin made a phone call to the Bush administration’s Treasury Undersecretary to try and forestall a credit ratings downgrade.”

“The decision not to prosecute Citi (or JP Morgan Chase which was also caught up in the WorldCom scandal) was probably due to a Bush administration reticence to go after institutions central to the neoliberal project. The Bush administration already felt that it had gone too far by pursuing charges against Arthur Anderson, and Citigroup and JP Morgan Chase in many ways represented the face of the burgeoning financial industry. For their part, far from counting their blessings, Rubin and Citigroup (and JP Morgan Chase) would end up escaping from the fallout of the first bubble only to throw themselves headfirst into more illegal activities.”

“Robert Rubin and Citigroup, indeed it is impossible to talk about one without talking about the other, are the unholy poster children of the modern Democratic Party. Originally created by the 1998 merger of the commercial bank Citicorp and the investment banking and insurance conglomerate Traveller’s Group, Citigroup was formed in defiance of the, already severely weakened, Glass-Steagall act.”

“Then Treasury Secretary Robert Rubin. Rubin, along with Democratic Party hacks like future Hillary Clinton campaign manager John Podesta, made the push within the Clinton administration to repeal the Glass-Steagall act and allow the Citigroup merger to go through without difficulty. After Glass-Steagall was effectively repealed in 1999 by the Gramm-Leach-Bliley act, Rubin left the Treasury Department to take up a position on the board at Citigroup.”

“Shortly after Rubin joined the company, Citigroup ran into trouble. By 2002, Citigroup had already been fined $215 million for its involvement in tricking low-income borrowers into taking overpriced mortgages and credit insurance. An additional fine was paid in 2004 for approving mortgages to homeowners without properly checking their credit history. The rush to approve mortgages for homeowners was tied to Citigroup’s investments in the growing housing bubble.”

“So what did Rubin and the Citi executives do when 2007 came around and homeowners actually did begin defaulting on their mortgages en masse? They did what Enron did when its assets started to be far outweighed by its liabilities, lie. When it became clear that he could no longer keep his position at Citi, Rubin retired in 2009 having pocketed a total of $126 million during his time there, much of it tax free,. Of his absurd compensation, Rubin remarked, ‘I bet there’s not a single year where I couldn’t have gone somewhere else and made more.’”

“In 2010 the FCIC recommended that the Justice Department consider bringing criminal charges against Rubin for his role in creating the crisis and for lying to investors about the status of Citigroup. Obama’s Justice Department, led by Attorney General Eric Holder, never followed up. The decision not to prosecute Rubin is not surprising when one considers that prior to running the Justice Department Holder was an attorney at the DC based corporate defense firm Covington & Burling whose clients included Citigroup, Bank of America, JP Morgan Chase, Wells Fargo, and Freddie Mac.”

“Apart from a Justice Department full of corporate defense lawyers, the other major obstacle towards preventing any criminal prosecution of Citi was that any prosecution of Citigroup executives would have probably implicated quite a few high level Obama administration officials. As Matt Taibbi explains, to a staggering degree the Obama administration was dominated by Citigroup personnel and people directly connected to Rubin himself.”

“In addition to former Citi executives, two of Rubin’s protégés held key positions in the Obama administration. Heading the Treasury Department was Timothy Geithner, who considered Rubin his mentor while he was an undersecretary to Rubin in the Clinton administration, saying, ‘while Rubin enjoys an amazing amount of public respect and credibility, people who have worked with him know that he’s substantially better than even that exalted perception.’”

“Of course it wouldn’t truly be a Democratic Party corruption story without mentioning Hillary Clinton. A somewhat credible leak showed that if elected, Hillary Clinton planned to tap Facebook COO Sheryl Sandberg for Treasury Secretary. Sandberg worked under Summers at the Treasury Department during the Clinton administration and is currently an advisor on the board of the Hamilton Project, a free market think tank co-chaired by, drumroll please, Robert Rubin. In the age of Obama, neoliberalism truly triumphed.”

January 27, 2017

The Inescapable Conclusion

It’s Friday desk clearing time for this blogger. “Uncertainty around the election spooked wealthy home buyers in the fourth quarter, continuing 2016’s slowdown in luxury real estate, according to several new reports. Sales in the Hamptons, Aspen and Los Angeles fell by double-digit percentages in the fourth quarter, as the supply of unsold homes grew and prices came under pressure, according to market reports Douglas Elliman and Miller Samuel Real Estate Appraisers & Consultants. In the Hamptons, the high end of the market was especially weak, bringing the average sale price down 30 percent, to $1.7 million. The median price fell 7 percent, to $925,000.”

“The average sale price for the Hamptons’ luxury market — the top 10 percent of sales by price — fell 43 percent to $7.06 million. Meanwhile, inventory surged 21 percent. In Aspen, the number of sales fell 25 percent, and the average sale price dropped to $3.75 million — an 11 percent decline. Like most big markets over the past year, the top of the market suffered most, with the average price for luxury homes there sliding 24 percent. The median price also tumbled, falling 29 percent.”

“With the exception of the Danbury area, southwestern Connecticut’s high-end and luxury markets did not see much activity in the fourth quarter of 2016, a trend that some real estate agents say could continue into 2017. ‘The abundance of inventory in the higher-end communities of the lower county remains a challenge,’ William Pitt Sotheby’s International Realty’s report stated. ‘Since more inventory in the luxury sector will inevitably come to the market out of many a homeowner’s need to sell, we expect the downward pressure on prices to continue well into 2017.’”

“Plagued by swelling inventory and sagging sales, Miami-Dade County’s supply of luxury condos – defined as those priced at more than $1 million – stood at 2,549 by the end of 2016, according to EWM Realty International. At today’s sales pace, it would take 57.9 months to sell them all, a 69% surge over the months of supply recorded at the end of 2015. That’s by far the highest backlog since the end of 2008, when the end of a building boom collided with the recession, briefly sending the supply in that category to a dizzying 80 months.”

“The inescapable conclusion, says Ron Shuffield, EWM’s president: Prices for luxury properties have to come down. ‘In the short term the only fix is to lower prices to be in line with their expectations, because right now there’s more supply than demand,’ he said.”

“For years, the Bay Area’s mismatch between supply and demand in housing has been an increasingly challenging problem. But as thousands of new units come online in 2017, the dynamics of the region’s housing market may be shifting slightly. Currently, San Francisco is experiencing the biggest apartment building boom in more than 75 years. Thousands of new apartments and condos are coming online in the Bay Area in 2017.”

“The increased supply is ‘definitely impacting rents,’ according to Patrick Carlisle, chief market analyst for Paragon Real Estate Group. Specifically, he’s seen a 5 to 10 percent drop since the peak of the market in 2015. ‘How much further they’ll fall, I don’t know,’ Carlisle says. ‘But I’ve heard from rental agents that in the past few years through 2015, people were lined up waving cash in the air to get apartments. But now we’re seeing some apartments stay vacant for months.’”

“The region has seen condo prices dip in 2016, in particular in areas where big projects are being built, according to Carlisle. ‘At the same time that we’re seeing greater supply, demand has started to cool down,’ he said. ‘As a result, (condo) prices have come down 2 to 5 percent since the end of 2015.’”

“More signs that Dallas-Fort Worth’s high-priced home market may be running out of steam: Homebuilders are shifting gears to build more affordable houses and holding back on pricey ones. ‘We continue to see a slowing of demand in the price ranges above $400,000,’ housing analyst Metrostudy reports in a new study. ‘With every quarter, demand for new homes above $400,000 wanes.’”

“A mismatch between what builders are offering and what customers want to pay is affecting the market, Metrostudy analysts say. Paige Shipp of Metrostudy said she recently looked at the price of new houses in the booming Collin County town of Celina. In 2013, a 3,000-square-foot house in Celina cost an average of about $251,000. ‘Today, that same house would cost you $389,000,’ she said. ‘It’s amazing how prices have gone up.’”

“A petition calling for a Calliope workers camp to be shut down was launched at the weekend. The Observer reported in July that estate agent Alicia Williams was also calling for its closure. ‘There is just no need for those camps anymore, now the construction is over and the workers are here for maintenance,’ Ms Williams said. ‘There is a complete oversupply of houses and from the community point of view they should be putting money back into our local economy. A lot of people out there are in financial stress and don’t know what to do.’”

“Housing sales volumes in Namibia have dipped considerably in a market that has enjoyed one of the world’s fastest-growing property prices for years. ‘The more affluent Angolans bought houses in the most expensive suburbs like Ludwigsdorf, Klein Windhoek and Auasblick, where house prices can reach up to N$20m (US$1.5m). We experienced instances where youngsters brought in their full inheritance from deceased parents and spent all on fancy houses.’ said Lourette Liebenberg – the principal consultant at real estate agency Rightmove Properties.”

“Dr Roman Grynberg, a professor of economics at the University of Namibia, said this fall in demand is mostly being felt in the middle to top end of the housing market. ‘Prices have now started to fall. I mean, I bought the house I’m living in almost two years ago – it would be worth at least 10% less than what I paid for it,’ he estimated.”

“In the Wall Street Journal article ‘Three Economists Walk into a Bar,’ James Mackintosh discusses the shortcomings of modern day economists. Mackintosh writes, ‘This is where the biggest difference from meteorology comes in: Weather forecasts don’t change the weather, but economic forecasts can change the economy.’ When Janet Yellen hints that the Fed is going to raise rates during the next FOMC meeting, the market reacts.”

“At this point, either the Fed cannot see the bubbles coming, or it’s allowing them to occur intentionally. The Peter Schmidt article, ‘Do Central Bankers Know a Bubble When They See One?’ discusses how the Fed misuses their capabilities and ultimately breaches its intended purpose. Schmidt writes, ‘Senior Fed officials taking positions diametrically opposed to positions Alan Greenspan claimed formed the basis for the Fed’s policy toward bubbles, namely, allowing bubbles to burst and dealing with the consequences later.’”

“This means that the Fed aims to be incredibly shortsighted. It chooses to make the economy look good at the moment and deal with the consequences after the fact. The issue is that the American people are the ones who shoulder those consequences, not the Board of Governors. The greatest piece of advice comes from within the Fed itself. The Fed needs to get their fingers out of the market.”

January 25, 2017

Getting Nervous Because They’re Losing So Much Money

A report from Curbed Chicago in Illinois. “While Chicago’s new condo market continues its slow thaw out of the deep freeze of the Great Recession, an ambitious project planned for the northwest corner of Chicago and Wells appears to have hit serious trouble. Known by its address of 808 Wells, the luxury development from Smithfield Properties and Berkelhamer Architects was set to rise 24 stories and contain just 45 well-appointed residences priced from just under $1 million up to $4.5 million. Units in the building first hit the MLS last summer as a one-story temporary sales center was erected at the site of the future residential high-rise.”

“In the months since sales reportedly began, all online listings have disappeared. The brick-and-mortar sales center has not been open during the indicated hours and a large billboard advertising 808 outside Chicago’s East Bank Club has been removed. Perhaps most indicative of trouble is a notification of an expired domain when trying to reach the project’s once functional website at 808wells.com. A call to the number listed on the sales center window was not immediately returned.”

The Business Observer in Florida. “The Naples residential real estate market, normally a high performer in the region, took a hit last year. The Naples Beach region posted the largest decrease in overall closed sales for the year among the entire market. Total sales there dropped 21%, from 1,922 in 2015 to 1,525 last year. On the flip side, inventory rose dramatically. Single-family inventory is up 24% year-over-year, while condo inventory is up 47%.”

“John R. Wood Properties Managing Broker Coco Waldenmayer cites competition from new home developments as one factor in fewer sales of existing homes in 2016 compared to 2015, which was a strong year, he adds. ‘The report showed the highest number of closed sales in 2016 occurred in the North Naples area, which is also where a rash of new home development is taking place,’ Waldenmayer says in the release.”

“‘With a surge in inventory from new construction, buyers had more options in 2016,’ adds Adam Vellano, West Coast Sales Manager for BEX Realty Florida, in the statement.”

The Silicon Beat in California. “For the fourth consecutive month, rents have fallen around the Bay Area. That’s according to a new analysis by the Axiometrics research firm, which shows rents sliding across the region, from San Jose to San Francisco and Oakland. Last year, as rents began softening elsewhere in the region, Oakland rents continued to appreciate. But over the past few months, Oakland rents have softened, too.”

“‘The rental market has pretty much stopped,’ said Ron Stern, CEO of Bay Rentals, a housing relocation service. ‘I don’t know if it’s just a rainy January. But a lot of people’ — landlords, property managers — ‘are getting nervous, because properties are sitting unfilled. They’re losing so much money, it doesn’t make sense. So they rent it out cheaper — drop it a couple of hundred bucks — and get on with it.’”

The Real Deal on New York. “There’s no place like home — a price-reduced home. Here’s a look at the biggest chops in New York City for the week. 1 West 72nd Street, Apt 77 - This three-bedroom, 4,700-square-foot co-op in the iconic Dakota first hit the market back in January last year asking $16.7 million. It was owned by the late Jacqueline Bikoff, said to be an Iranian pianist, ballerina and Studio 54 regular. Property records show she paid $13 million for it back in 2010. It was reduced to $15.9 million in August, and is now asking $12.5 million, a reduction of 22 percent.”

“In total, 14 properties priced over $10 million received reductions of more than 5 percent in the period between Jan. 17 through Jan. 23, according to data from StreetEasy. Out of that 14, five were units at Extell Development’s Carlton House.”

January 24, 2017

Either Sell Below Asking Or Wait And Wait For Better Days

A report from the New York Times. “During the past decade, many U.S. cities have been transformed by young professionals of the millennial generation, with downtowns turning into bustling neighborhoods full of new apartments and pricey coffee bars. But soon, cities may start running out of millennials. The flow of young professionals into Philadelphia has flattened, according to JLL Research, while apartment rents have started to soften in some big cities because of a glut of new construction geared toward urban newcomers who haven’t arrived. Apartment rents in San Francisco, Washington, Denver, Miami and New York are moderating or even declining from a year ago, according to Zillow.”

“‘Certainly the softening of rents is one sign that they are not coming in at the pace that people thought they would,’ said Diane Swonk, an independent economist in Chicago.”

From Bostinno in Massachusetts. “As you learned right here at the beginning of January, the median one-bedroom rent in Boston actually dropped 5.9 percent since the start of 2016 – the first time that’s happened in these parts in quite some time. Zumper has now put together some more information about the rent trends it’s seeing in Boston, complete with a handy heat map showing what neighborhoods have seen rents rise and which have seen things go the other way.”

“Area IV (-12%), Beacon Hill (-10%), and Chinatown - Leather District (-10%) saw the biggest rent declines in 2016. Area IV, I’ve learned, is the Cambridge neighborhood roughly wedged between Central Square, Inman Square and MIT – a pretty prime location geographically speaking. And as for Beacon Hill, I can only assume people just aren’t willing to pay for the relative lack of space if affords anymore? Boston is still the third most expensive rental market in the country, Zumper estimates. And yet the map, which covers 39 neighborhoods, shows a surprising amount of areas that have seen rents go down over the past year.”

The Chicago Tribune in Illinois. “Real estate agents are looking forward to a stronger spring selling season after a lackluster winter. The threat of rising interest rates could prompt potential homebuyers who have been sitting on the sidelines to finally take action, said Jonathan Smoke, economist with Realtor.com. He also said that presently, buying is often cheaper than renting because rents have become so high, but that’s likely to change as rents are cut amid oversupply of new rental housing.”

“The weak housing trends during the last six months seem entrenched and do not appear ready for a major upswing in the next few months, said Geoffrey Hewings, director of the Regional Economics Applications Laboratory at the University of Illinois. Each month he examines home sales and prices collected for Illinois Realtors. ‘I’m very pessimistic,’ he said, noting that weak job growth in the Chicago area and concerns about the state’s huge debts and unresolved budget are stifling housing sales. ‘I feel sorry for people in the realty business.’”

The Miami Herald in Florida. “As residential sales and prices flatten out overall in South Florida, the luxury real estate market is taking a beating. A strong dollar, economic instability in Latin America and overbuilding have hit luxury real estate much harder than other parts of the market. ‘We have more luxury inventory than we’ve ever had in our history,’ said Ron Shuffield, president and CEO of EWM Realty International. ‘And sales are as low as they’ve been for several years.’”

“Sellers are cutting their demands, especially for condos, industry data show. For instance, Douglas Elliman found that Miami condo prices dropped 32 percent year-over-year in the fourth quarter. It’s either sell below asking or wait …. and wait … for better days. On the Beach, the number of days luxury condos spent on the market ballooned from 62 to 171 over the last year. That’s partly because of the competition from new construction.”

From Realtor.com on New York. “The long-awaited opening of the Second Avenue Subway has not helped singer Ricky Martin sell his Yorkville condo. After failing to find a buyer, the singer has had to slash the asking price of his 3,147-square-foot condo, which has been on the market since October, from $8.4 million to $7.1 million. His pad is located at 170 East End Ave., a Peter Marino-designed luxury condominium overlooking Carl Schurz Park in the Upper East Side’s Yorkville neighborhood, close to the East River.”

From SF Weekly in California. “The New York Times found room over the weekend to do something else it also does very well: troll San Francisco. With a headline that reads like a plaintive cry à la Children of Men, the NYT ventriloquizes one facet of the housing issue: ‘San Francisco Asks: Where Have All the Children Gone?’ It’s by no means an offensive question to ask; the Chronicle basically wrote the same article last week. Both pieces reference the same Planning Department report, issued on Jan. 17, that puts S.F.’s share of families with children under 19 at the lowest of every Bay Area county as well as a sampling of large cities nationwide. But the conclusions the Times drew are, at best, facile — and also reflect their penchant for jabbing a stick at S.F.’s eccentricities for sport.”

“First — and this is a sin the Chron commits, too — just because there are 120,000 dogs and 120,000 children in S.F., values-based comparisons are silly. The Times does imply something’s not right in the housing mix, when dropping this amazing stat: ‘For every 100 apartments in the city sold at market rates, the San Francisco school district expects to enroll only one additional student.’”

“Is it possible that San Francisco has fewer children than it should because 70 percent of dwellings with three bedrooms or more are currently occupied by adult roommates, while in a more rational housing market, families would live there instead? Or maybe our obsession with building luxury housing has actually yielded many uninhabited units nominally ‘occupied’ by hyper-affluent people who actually reside elsewhere?”

Rapid Price Growth Is Unsustainable Over Time

A report from Metronews in Canada. “Despite a recent slowdown in Vancouver’s housing market, developers are maintaining their rosy view for the industry in 2017. Vancouver’s single family detached market has slowed considerably, and seen downward price adjustments, following the province’s introduction of a tax on foreign buyers last July. The policy move came after home prices in some areas rose more than 40 per cent. Brian McCauley, president of Concert Properties, pointed out that Metro Vancouver condo sales rose 52 per cent in 2016, and prices rose 22 per cent in the last quarter of 2016 compared to the same period one year earlier.”

“He did acknowledge that 13,000 condos were sold in the first half of 2016, compared to 6,000 in the second half of the year. ‘You can draw your own conclusion,’ he said.”

From Globes Israel Business News. “Prices dropped 3.8% in the third quarter of 2016 in Ra’anana, and fell further in October-November. ‘We’re already no longer in a housing market with rising prices. Prices in Ra’anana, for example, are on a downtrend,’ a developer in a National Outline Plan 38 company active in the town said several weeks ago at a real estate conference on urban renewal. ‘It is more difficult today to sell housing in Ra’anana,’ another developer active in the city said on different occasion. When contractors and developers say prices are going down, it is worth paying attention.”

“In order to understanding what is happening in Ra’anana, a city that has had the highest housing prices in the Hasharon area for many years, we examined the demand prices, the actual deals, the trends in recent months and years, and the planned future inventory. The results indicate that something is indeed happening in the pearl of the Hasharon area.”

From The Namibian. “First Capital Treasury Solutions yesterday echoed FNB Namibia’s announcement of an expected slowdown in house price growth. Milner Siboleka, First Capital assistant portfolio manager and economist, told The Namibian that over the years house prices have grown faster than the fundamental indicators of national income that support demand in the country.”

“‘This has prolonged for a long time; hence chances of slowing price growth are inevitable this time around given the present dwindling trends of factors that support demand. In any given case a rapid price growth that is faster than the growth of population incomes is unsustainable over time,’ said Siboleka.”

The Malaysia Chronicle. “The high-end residential segment, particularly strata units, is heading towards a price correction this year after a rapid rise in prices driven by the now-banned Developer Interest Bearing Scheme (DIBS). Some of the units bought with DIBS and other forms of rebates are back in the market today, at prices that are much lower than the original selling prices two years ago, and CBRE-WTW managing director Foo Gee Jen said this is particularly apparent in Johor Baru, Kuala Lumpur and Kota Kinabalu.”

“Foo observed that sellers are a lot more realistic today and the gap between asking and concluded prices is narrowing. ‘I believe strongly that the price correction has started. A lot more developers are taking note of that. A lot of them are suffering, some of the high-end products are not moving and if you go into their showroom it is very quiet.’”

The Australian Financial Review. “The large crowds of Chinese buyers prowling at auctions during the peak of the recent Sydney and Melbourne residential boom have all but disappeared, but property agents and lenders say they have not gone away. Chinese buyers featured prominently in the east coast boom of 2012 to 2016 but local banks’ clampdown on foreign lending, China’s capital transfer restrictions and the Foreign Investment Review Board’s surveillance of rule-bending Chinese buyers have pushed many out of the Australian market in the past year.”

“China’s increased control on foreign exchange at the end of 2016 did not help. Chinese property website ACProperty has experienced a 30 per cent fall in inquiries, and while Chinese interest was still high, the ‘time taken to commit’ was longer, co-founder Esther Yong said.”

“Even the luxury market – where funding is generally not needed – has been hit hard. Chinese luxury agent House18’s Michael Zhu said one of his clients, with strong credentials, took two months to clear his purchase of an $8 million home with FIRB. In the end, the vendor backed out of the sale. Mr Zhu said there had been a 20 to 30 per cent drop in clients.”

“But many potential buyers are preparing for the next round of investments in Australia, off the plan platform iBuyNew chief executive Mark Mendel said. ‘Active investors are still keen to buy and they are educating themselves on finance opportunities outside the market. For the rest if the banks start lending again, they will be back tomorrow, 100 per cent,’ he said.”

January 22, 2017

A Sense That The Sky Is Not The Limit

A report from the Boston Herald in Massachusetts. “Real estate agents working the Hub’s toniest neighborhoods and suburbs know that buyers from China are increasingly buying up pricey homes around Boston — a trend that some analysts say will decline dramatically this summer. And despite a recent surge in real estate purchases by Chinese buyers — many of whom pay cash for pricey Hub properties — industry experts expect the slowdown will be equally abrupt. ‘We are going to see more Chinese buyers in the market over the next few months, but the trend is going to slow down very fast,’ predicted Xiaowen Yang, CEO of GeoHome, a Boston-area real estate-data startup, citing stricter rules announced last month by the Chinese government that will police cash exiting the country, further tightening a $50,000 per-person, per-year cap. By June, when the rules go into effect, Yang said she is anticipating ‘a dramatic drop- off.’”

“‘No one knows exactly how it’s going to play out … but the expectation is that there will be a significant falling off of purchases for the next 16 to 18 months,’ said Arthur Margon of Rosen Consulting Group in New York. Areas in California are expected to get hit the hardest, he said.”

From The New York Times. “In the last quarter of 2016, the median resale price of homes in Manhattan saw its most precipitous drop in four years. The 6.3 percent decline, to $900,000, was recorded by Douglas Elliman in its most recent sales report. ‘High-end inventory is dropping and overpriced high-end properties are being pulled,’ said Jonathan Miller of the appraisal firm Miller Samuel. ‘People have a sense that the sky is not the limit.’”

The Naples Daily News in Florida. “According to the Bonita Springs-Estero Association of Realtors (BEAR) Media Committee, the month of December saw a continuation of closed home sales in all price points. The days on market have increased considerably year-over-year as well, further solidifying that it is still a buyer’s market and directly attributes to the overall 9 percent decrease in closed sales.

“‘Chasing down the market with price decreases is not a good sales strategy,’ states 2017 BEAR President Roger Brunswick, John R. Wood Properties. ‘A six- to eight-week price reposition can burn up two months’ time during the critical winter selling season. Cash buyers want to spend late season in their new property, so pricing accurately now is critical to meeting this need.’”

“Based on the current numbers, it will take a seller 38 percent longer to sell a property that is currently overpriced. The competition between resale and new construction homes is also heating up with builders providing many incentives, inventory and future site plans for prospective buyers. ‘It is more important now than ever to price a resale home accurately,’ stated D. Michael Burke, Team Michael Burke, Keller Williams Elite Realty. ‘Losing two months at the beginning of the selling season for price improvements will irrevocably affect showings and offers, especially when buyers can also consider new construction, forgetting the overpriced resale home they were initially interested in.’”

The Denver Post in Colorado. “Metro Denver’s housing market has run so hot for so long, it is hard to imagine another part of the state having more momentum. But demand along the southern Front Range accelerated in a big way last year, and Denver and Boulder homeowners, flush with equity, sought vacation homes in the neighboring mountain counties, supporting those markets.”

“The median price of a single-family home sold in Pitkin County dropped 37.1 percent last year, while it increased 17.6 percent in Eagle, 15.4 percent in Routt and 10.3 percent in Summit. Some of that discrepancy reflects the ultra high-priced homes that sold in Aspen back in 2015. But the number of home sales was down 18.3 percent in Pitkin County last year while it was flat or up slightly in Routt, Summit and Eagle counties. ‘A little bit of this was a pullback from buyers saying it might be overheated,’ Telluride real estate agent George Harvey said of the slump Aspen suffered.”

From My Valley News in California. “It’s been nearly a decade since local housing sales bottomed. Today our average price stands at $339,827 for the region, a 40 percent advance over 2009 but still some 24 percent below our peak. Temecula’s recovery has been the strongest bringing their current average price of $473,341 to within 13 percent of their peak with most other cities lagging by 20 percent plus or minus. Some cities in California, notably San Francisco, Santa Barbara and areas of Orange County, have already blown through their previous peak and have experience some price declines this year as affordability suffers.”

“One final word of caution – do not, DO NOT, listen to that ad currently running on the radio that advises you to treat your house like a bank! Last time that happened things didn’t turn out so good, did they? I see no reason to think they would turn out any better this time around. Your house is your home, it may even be your castle, but one thing it is not is a bank.”

From Builder Online. “The Wall Street Journal reported Thursday that Ginnie Mae, the agency that backs FHA mortgages, is worried. Turns out that there still are subprime mortgages, often originated by companies that are not banks and are not as well capitalized. Bonds backed by some of these mortgages topped $1 trillion in November, for the first time. In the event of a downturn in the housing market, this could have consequences that, as the Journal noted, could look much like the S&L crises of the late 1980s.”

“‘In the first three quarters of 2016, banks accounted for 9% of mortgage dollars originated by the FHA’s top 50 lenders, versus 62% for all of 2010, according to Inside Mortgage Finance. Nonbank lenders accounted for 80% of mortgage bonds backed by single-family FHA loans in July 2016, versus 9% the same month in 2010.’”

“‘That is worrying the Government National Mortgage Association, or Ginnie Mae, the government-owned corporation that guarantees the bonds backed by FHA loans. Ginnie Mae head Ted Tozer, who is leaving his position Friday, has said nonbank lenders may lack the financial wherewithal to withstand future stress in housing. In the worst-case scenario, problems could saddle taxpayers with losses.’”

A Shortage Of Demand Compounds The Oversupply

A report from the Charlotte Observer in North Carolina. “It’s commercial real estate forecast season in Charlotte. Experts and real estate professionals seem agreed that while Charlotte’s white-hot pace of growth in everything from rent to new construction might slow down a bit this year, there aren’t any big, flashing signs warning ‘Crash ahead!’ Put another way, most professionals don’t think we’re sitting on top of another pre-recession bubble here. Still, growth is expected to slow a bit from 2015 and 2016, with words such as ’selective,’ ‘cautious’ and ‘take a pause’ popping up frequently in real estate forecasts.”

“With nearly 24,000 apartment units in development this year throughout the Charlotte region, one of the most frequent questions I get is ‘When are we going to build too many apartments? ‘Yes, you all are building a lot, but you’re also absorbing a lot,’ said Kevin Thorpe, global chief economist for Cushman & Wakefield. But that doesn’t mean average rents are going to keep shooting up at the current burning pace of 35 percent over the past five years. With the big increase in supply, rents are likely to stop growing as fast, and perhaps even fall a bit. ‘I would be anticipating that your apartment sector is going to see a pretty significant softening of rents in the next few years,’ said Thorpe.”

The Sun Sentinel in Florida. “South Florida rents have strongly favored landlords in recent years, but the rental market appears to have peaked, said Marshall Sklar, co-founder of Florida’s Best Realty Services in Boca Raton. While rent increases continue, some tenants are starting to balk at the higher prices, forcing landlords to offer reduced rent hikes and concessions such as free rent, Sklar said. ‘The market is still strong, but it’s not what it was a year ago,’ he said.”

The Anchorage Daily News in Alaska. “Anchorage landlords appear to be seeing more effects of the slowing Alaska economy. Debenham Properties right now is offering prospective new tenants a 5 percent rent discount — more than the typical seasonal deal, Shaun Debenham said. The company is also offering a move-in special that includes $300 off the first month’s rent, something it hasn’t done in the past. ‘I think we have seen a lot of higher-end jobs leave Alaska. Like when oil companies are laying off, it affects a lot of other higher-paying jobs down the line,’ Debenham said.”

From The Gazette in Colorado. “If Colorado Springs’ real estate market and economy were social media topics, they’d be trending - and in the right direction. Single-family housing had a record year for sales in 2016, while apartments filled up and rents soared. The local apartment vacancy rate plunged to 4 percent in 2016 after having been as high as 10 percent in 2008, said Doug Carter, a local commercial broker and part of national real estate firm Sperry Van Ness.”

“But the increases followed years in which rents were stagnant, Carter said. At the same time, Springs-area rents over the last 12 years have increased only about half as much as those in Denver, he said. Denver’s apartment market is cooling, in part, because it’s being overbuilt; 25,000 units are under construction and another 27,000 are planned, Carter said.”

The Las Cruces Sun-News in New Mexico. “New Mexico State University on Friday walked away from a plan to privatize campus housing. NMSU Chancellor Garrey Carruthers said the university has too much housing stock. ‘But you have to keep in mind how we got here,’ he told the Sun-News. ‘Years ago, there were none of these apartments around here. This campus was out here by itself, so the university took it upon itself to build all of this housing. Now we’ve got private apartments all over the place, and we just don’t need it.’”

From Real Estate Weekly on New York. “Rents in Manhattan and Brooklyn continued to trend downward during December, according to the monthly rental market report from Citi Habitats. The last time this much inventory was available on the market was in April of 2009. ‘The most recent data for December shows there is considerable local demand for rental housing. However, there is still a disconnect between the rents that landlords want to achieve and the pricing tenants are willing to pay, which is why concessions remain a significant force in the marketplace,’ said Gary Malin, President of Citi Habitats.”

The Dallas Morning News in Texas. “Dallas-Fort Worth apartment rents weren’t rising as fast in December. The rate of rent increases in the Fort Worth area also declined. ‘D-FW is finally feeling some of the effects of all the new supply hitting the market,’ Axiometrics’ Jay Denton said in the report. ‘While demand has remained relatively steady as job growth has not declined significantly, supply has finally caught up with demand.’”

“Average quoted Dallas-area apartment rents were actually down in December from November — but not by much. About 50,000 apartments are under construction in North Texas, more than any other U.S. metro area.”

The Houston Chronicle in Texas. “Average apartment rents in the Houston area dropped to the lowest level in two years, a new report showed. The Montrose/River Oaks submarket, where many new units have been built in recent years, saw an annual drop of 8.4 percent in December. Houston-area apartment investors and property owners need jobs to be created so demand for their units will increase,” Jay Denton, Axiometrics senior vice president of analytics said in an announcement. ‘Even though construction of new properties is subsiding, a lot of supply is still hitting the market. With occupancy below 92 percent, many units are vacant.’”

Inforum on North Dakota. “Apartment vacancies are on the rise in Fargo-Moorhead. The latest apartment vacancy and construction report, compiled by Appraisal Services Inc. and released Jan. 12, took a snapshot of the community market as of Dec. 1. These reports are for the Fargo-Moorhead metropolitan area, including West Fargo and Dilworth. The latest survey reflects 30,155 units of the estimated 39,050 apartment units now in the metro area. While 236 new units entered the market in the last quarter, vacancies went up by 443, ‘indicating that the market may now be experiencing a shortage of demand to compound the current oversupply of units,’ according to the report.”

“The overall vacancy rate for the metro was 9.21 percent, up considerably from 6.4 percent in December 2015 and 2.9 percent in December 2013. The rate increased in all four communities in the market, with West Fargo having the highest vacancy of 12.55 percent, followed by Dilworth at 12.2 percent, Fargo at 8.85 percent and Moorhead at 7.98 percent. More than 6,000 new apartment units have been built since vacancies hit a recent low of 2.5 percent for the metro, according to the report.”

“But the latest figures are likely a conservative estimate of the reality because the survey only measures physical vacancy, or units that are not occupied, and can’t account for the ‘economic vacancy’ that’s likely more than 10 percent now because of units currently affected by rental incentives or rent delinquencies.”

January 21, 2017

Life In The Days Of The Politically Popular Bubble

A weekend topic starting with D Magazine. “Dallas certainly has its own, particular financial problems: a police and fire pension fund that is facing insolvency, the legacy of a bungled affordable housing policity that lost millions of federal dollars in the couch cushions. But the city’s huge infrastructure needs, which, as council member Lee Kleinman pointed out during a recent conversation about the upcoming bond election, are something that the city can’t cover in its general fund, aren’t unique to Dallas. Faced with having to shell out billions just to keep the streets from not deteriorating any further, Dallas can’t pay for its own maintenance and has to go into debt just keep infrastructure status quo.”

“And so does the rest of America. In a fascinating article on Strong Towns, Charles Marohn, the group’s founder and president, takes an in-depth look into the financial sustainability of Lafayette, Louisiana. What he finds is a fundamentally unsustainable financial outlook and a pattern of growth and deterioration that is repeated in almost every American town and city.”

“What they found was not encouraging. In order get tax revenues to sustain the city’s infrastructure needs, an individual property owner in Lafayette would have to pay more than double in property taxes than what they currently pay. And that’s just for infrastructure. Factor in the other things that property taxes pay for –water, sewer, public buildings, etc. — and the total infrastructure revenue gap per taxpayer for Lafayette was around $8,000 per year. That’s in Lafayette, a small city with a median household income of $41,000.”

“So what’s wrong? Well, pretty much everything about the way America has built its towns and cities since World War II: ‘All of the programs and incentives put in place by the federal and state governments to induce higher levels of growth by building more infrastructure has made the city of Lafayette functionally insolvent. Lafayette has collectively made more promises than it can keep and it’s not even close. If they operated on accrual accounting — where you account for your long-term liabilities — instead of a cash basis — where you don’t — they would have been bankrupt decades ago. This is a pattern we see in every city we’ve examined. It is a byproduct of the American pattern of development we adopted everywhere after World War II.’”

“How did this happen? Were mayors and city managers asleep at the wheel? Is there a giant corporate conspiracy to drain tax dollars and line private pockets? Not really. Marohn argues that, essentially, human nature happened. Faced with new technologies, new financial tools, and new ideas about how cities should look and function, governments have funded an urban development system that is fundamentally unsustainable because it allowed policy makers to kick the costs of their investments down the road and out of view: ‘The way this happened is pretty simple. At Strong Towns, we call it the Growth Ponzi Scheme. Through a combination of federal incentives, state programs and private capital, cities were able to rapidly grow by expanding horizontally. This provided the local government with the immediate revenues that come from new growth — permit fees, utility fees, property tax increases, sales tax — and, in exchange, the city takes on the long term responsibility of servicing and maintaining all the new infrastructure. The money comes in handy in the present while the future obligation is, well….a long time in the future.’”

“Psychologists call this temporal discounting. Humans are predisposed to highly value pleasure today and to deeply discount future pain, especially the more distant it is. It’s easy today to rationalize that future expense, especially when you feel so assured that new growth will make those future people better off. This thinking is how you end up with two dollars of public infrastructure for every one dollar of private investment. This is how you spend yourself into bankruptcy.”

The Detroit Free Press. “The very first executive action by the new Trump administration wasn’t a sweeping order on immigration, trade or health care — but rather to block an Obama administration that would have reduced the cost of mortgages for millions of home buyers. In the first hour of Trump’s presidency, the U.S. Department of Housing and Urban Development sent a letter to lenders, real estate brokers and closing agents suspending the 0.25 percentage point premium rate cut for Federal Housing Administration-backed loans.”

“The change in mortgage premiums took Democrats and consumer groups by surprise. ‘I think we were surprised by how quickly this was something that they wanted to look at,’ said Sarah Wolff of the Center for Responsible Lending. ‘I think it unfortunately signals that they don’t place as great an emphasis as we would hope on access and affordability of mortgage credit.’”

“Senate Minority Leader Charles Schumer, D-N.Y., said Friday that Trump’s words in his inaugural speech ‘ring hollow’ following the mortgage premium action. ‘In one of his first acts as president, President Trump made it harder for Americans to afford a mortgage,’ he said. ‘What a terrible thing to do to homeowners. … Actions speak louder than words.’”

From The Missoulian. “The housing bubble had fans across the political spectrum. The Great Recession, well, not so much, but the bubble that floated us into recession was another story.”

“It was, after all, a housing bubble, in which the finance industry threw mountains of money at getting houses built. So, many a news story covered the Montana construction industry’s boom while the bubble was in bloom. For many Montanans, this meant jobs, and I have little doubt that a search of news stories of the day would find politicians’ boasts of the jobs, and of course the economic growth they’d somehow made possible.”

“Some saw it coming. As early as 2001, The Economist ran an article about two biggies behind the lending boom of the day – Fannie Mae and Freddie Mac. In its 2001 article, ‘Big Scary Monsters,’ The Economist warned that, ‘Indeed, there may right now be the makings of a bubble in house prices,’ and that it just might be a dangerous enough bubble to set a basis for the world’s next financial crisis.”

“For many Montanans, life in the days of the politically popular bubble had an appearance of community stability. It was, to be sure, a jobs-machine for the closely linked logging and construction industries alike. No politician dared say a word of warning about it.”

“Then the predicted financial crises swiftly wiped out jobs that the bubble had been supporting, and, in cruel irony, the bubble that floated us into the Great Recession wasn’t kind to loggers. According a report from a team led by Charles Keegan, University of Montana Bureau of Business and Economic Research, 71,000 logging-related jobs went to the chopping block and ‘virtually every major western mill suffered curtailments and 30 large mills closed permanently.’”

“Where’s the community stability in that?”