January 14, 2017

Flippers Bought Not One, But Two Or Three

A report from CBC News in Canada. “Real estate numbers show hundreds of new condos in Calgary are sitting empty. The Canada Mortgage and Housing Corporation (CMHC) says about 1,500 newly-built housing units sat vacant across the city last month and more than 800 were apartment-style condos. Calgary hasn’t seen that kind of new-build vacancy rate in 15 years, the organization says. Many of the empty condos were planned during an earlier boom, said Matthew Boukall, a senior director with Altus Group, a real estate advisory company. ‘We saw in 2014 a huge number of condos starting construction. It takes anywhere from 18 to 36 months to build a condo … So we’re actually seeing a natural progression of the market out of a hot market in 2014 into a slower market in 2015, 2016,’ he said.”

“Doug Hayden, a real estate agent with EXP Realty, says while it may be a good time to buy, he advises people to think long-term when purchasing a property and not to consider condos as an easy property to drop. ‘I’ve had people that have bought not one, but two or three of these, hoping to flip them or to rent them out, and where they really got caught is the rental market. They were planning on having rentals cover their investment in these and it’s not working out at all.’”

“Hayden says he is surprised that there are still companies pulling permits to build more condo buildings, although they may put those projects on hold. ‘There’s more inventory that looks like it is coming down the pipe,’ he said.”

From Post Media. “Calgary had about 1,500 newly constructed housing units that were vacant in December, a stunning glut not seen since June 2001, according to the Canada Mortgage and Housing Corp. More than half of the current stockpile, about 800 units, were apartment-style condos. ‘Very pricey homes have taken a beating,’ said Brian Kernick, president of Greenview Developments, which plans to break ground in the coming weeks on a 65-unit low-rise condo building in Inglewood.”

“The City of Calgary received 27 development permit applications for condo projects worth more than $10 million in the last six months of 2016. Four of them, including an $18.7-million apartment development in Mahogany and a $15.8-million building at Legacy Park, have been approved so far. Several developers that have approached Calvin Buss, who specializes in designing and marketing large condo projects in Calgary, recently have found they couldn’t charge high enough prices for condos in the current market to build their projects economically.”

“Three out of four condo projects that have come across Buss’ desk in the past few months have converted to rental developments. The theory is that builders would have to sell condos at a loss now, or they could build rental apartments and take a loss on rents — but only until the economy recovers. ‘If you build a tower and you have to rent it out for two years at 15, 20 per cent below market value, you eat it for those two years, and in the next 20 years, you make it all up again,’ Buss said.”

From Global News. “People in Saskatoon looking at buying a condominium have a favourable market to choose from after prices dropped by 6.4 per cent at the end of 2016, compared to the same time in 2015, according to a real estate report. Real estate company Royal LePage released its fourth-quarter market update indicating that the median condominium price in Saskatoon now sits at $221,168.”

“Matt Miller, a broker with the company said current buyers have ‘fairly good negotiating power and they have a lot of product to choose from.’ ‘The market certainly favours the buyer right now, so it is a good time for a buyer to get into the market,’ Miller said in an interview. Miller said a number of large housing projects began when Saskatoon’s real estate market was expanding and continued once the struggling energy sector slowed down the city’s economy. ‘Demand tapered off a little bit, but the supply kind of kept up because these are longer term projects, they continue to come onto the market,’ Miller said.”

The Saskatoon Star Phoenix. “Saskatoon’s housing market emerged from the economic turmoil of 2016 in comparatively good shape, with a ‘manageable’ decline in sales partially offset by virtually flat prices, according to the CEO of the Saskatoon Region Association of Realtors. Royal LePage Vidorra owner and broker Norm Fisher said housing ‘isn’t strictly boom or bust,’ and that while there are fluctuations throughout the year, flat prices are likely due to sellers who would rather wait than slash their asking prices.”

“Fisher added that while townhouse sales were up and detached house sales ‘moderated’ in 2016, an ongoing oversupply problem among apartment-style condos will likely persist through 2017, leaving buyers with plenty of choice and lower prices. ‘The concerns that came up through the spring and summer, I think if you look back over the years we see those same concerns being echoed year after year after year. ‘There’s a housing bubble and it’s going to pop’ — I can’t tell you how many times I’ve heard that.’”

From CBC Edmonton. “Home values in Edmonton fell by a wider margin than in any other Canadian city in the final three months of 2016, Royal LePage reported in its latest house price survey. Edmonton house prices were down 2.1 per cent in the fourth quarter of 2016 compared to the same period of 2015, the survey found. Royal LePage said the average price of a home in Canada was $558,153 in the final quarter of 2016.”

“‘Construction of major oil and gas facilities has turned off up north and drilling is way down, which impacts our market as we’re a major service hub to those industries,’ Tom Shearer, a Royal LePage broker and owner, said in the release.”

From CBC New Brunswick. “Saint John Coun. Gerry Lowe is concerned about the number of vacant buildings in the city. The properties in east and west Saint John and on the central peninsula included multi-unit apartment houses, single family dwellings and two long-vacant restaurant/motels. He said the city is now keeping an eye on more than 90 vacant buildings. Lowe concedes the employment downturn is a factor. ‘A lot [has] got to do with the economy,’ he said. ‘People just can’t afford to keep them up. So they just walk from them and leave them.’”

“One of the calls Lowe received came from east Saint John resident, Gary MacDonald, who is concerned about a vacant home across the street from an apartment house he owns. ‘I’ve actually witnessed rats fighting on the front step of it,’ said MacDonald.”

From My Prince George Now. “A recent Stats Canada report shows the number of BC jobs went up by 1.1% in 2016, but a closer look shows a different picture in the Cariboo. Iglika Ivanova with the Canadian Centre for Policy Alternatives says jobs in our region actually dropped 0.8% from last year. Huge growth in the south offsets these smaller northern numbers, which Ivanova says is mostly due to the housing sector. ‘What we’re seeing there is jobs in construction, jobs in real estate, in finance, jobs in retail and building services, and they are concentrated where the housing market is concentrated in metro Vancouver and Greater Victoria.’”

“Ultimately, she believes the housing bubble will pop. Those who can afford to buy and build homes will continue to do so, while the average person won’t be able to pay the fees. This can lead to homelessness and a drop in housing prices.”

The Canadian Press. “The hand-painted sign on a bumpy road on the east side of Hanna speaks volumes. ‘Hanna supports coal, cows, gas and oil,’ it says bluntly. The sign includes a circle with a line through it over the words ‘carbon tax.’ The town of 2,700, 230 kilometres northeast of Calgary, like many rural Alberta communities, has largely lived off agriculture. But a large vein of thermal coal east of town led to the construction of the coal-fired Sheerness generating plant in the early 1980s and has provided welcome jobs and business in the region ever since.”

“People worry that economic boost is threatened by a new carbon levy and the provincial government’s plan to shut down coal-fired power plant by 2030 and move exclusively to natural gas, wind, solar and hydro energy instead. ‘If it’s a complete 100 per cent closure we’re going to lose 200 full-time, well-paying jobs. That’s about 7.5 per cent of our population,’ says Hanna Mayor Chris Warwick. ‘To put that into real life numbers, Edmonton losing 7.5 per cent is about 62,000 people _ Calgary’s around 90,000 _ so it’s a massive hit. These are well-paying jobs so it’s not a good situation for us.’”

“Dale Crowle, who runs Hanna Building Supplies, says his customers are concerned. ‘There’s going to be a lot of job losses. The tax base will be tough, resale on housing will be tough. There’s not a lot of new homes going up in Hanna,’” he says. ‘People are nervous. We see it every day here. It’s going to be tough.’”

The Globe and Mail. “Mortgage fraud has surged in Canada as soaring home prices in some markets have squeezed buyers and attracted attention from money launderers, data from credit reporting agency Equifax Inc. show. The number of mortgage applications flagged as potentially fraudulent has risen 52 per cent since 2013, Equifax found. The majority of mortgage-fraud applications have come from Ontario and British Columbia, where home prices have risen the most in recent years.”

“Instances of fraud ranged from prospective home buyers submitting fake or altered employment letters, bank statements or tax returns in order to qualify for a large mortgage, to money laundering and identity theft, said Tara Zecevic, Equifax vice-president of customer insight. ‘It could be investing in the market as a way to cleanse money. It could be: ‘I really want that home and I’m getting into a bidding war and even though I make $60,000, I’m going to say that I make $90, 000,’ she said. ‘What ends up happening is consumers think: ‘I’m not really doing anybody any harm.’”

“About 90 per cent of all mortgage applications flagged for potential fraud have come from banks rather than other types of mortgage lenders, largely because banks have become better at spotting fraud attempts. Instances of mortgage fraud were highest in the markets that are also the most attractive to foreign buyers.”

“That could be in part because hot markets such as Toronto and Vancouver have attracted attention from those looking to launder overseas money through Canada’s housing market, or it may be that demand from foreign investors is putting pressure on local buyers to fake their mortgage applications in order to compete for a home. ‘It may not be a direct link,’ Ms. Zecevic said. ‘It is a question mark, because we don’t necessarily know how much foreign investment is in the [housing] market.’”

A Good Market Almost Always Benefits Sellers

A report from the Mail Tribune in Oregon. “In many respects, 2016 was just the kind of year Jackson County real estate agents like. During the fourth quarter of 2016, median prices jumped 9.7 percent to $247,375 from $225,440 for the corresponding period in 2015. During the past five years, northwest Medford ($197,500) and west Medford ($161,250) have seen more than 80 percent appreciation in their median prices. ‘Every market favors buyers or sellers,’ said Colin Mullane, spokesman for the Rogue Valley Association of Realtors. ‘What we call a good market almost always benefits sellers, and we fear the buyers’ market. I’m always happy when our median prices stay close to inflation. We’re really close to getting back to where we were, and I think we’ll get there in 2017 or 2018. I think inventory combined with interest rates will keep the median growth to 2 or 3 percent versus what we’ve seen over the past three or four years.’”

“‘Looking at the statistics, there’s a stark contrast to what people really think is happening,’ said Mullane. ‘We’re not seeing rapid and soaring prices, and the market won’t tolerate it if prices pushed beyond what we saw.’”

The White Mountain Independent in Arizona. “The White Mountains housing market is different from the Valley market, but it surely is showing signs of rebounding. Cliff Pettingill, Century 21 Sunshine Realty broker, said a majority of the homes in the White Mountains belong to second-home buyers. The main reason most are second homes, he said, is because young people do not tend stay in the area after high school. ‘The majority of our young people leave town,’ Pettingill said, ‘partly because there are few well-paying entry-level jobs. Because of that, there are few affordable first-time buyer homes for sale in the area.’”

“Pat Sarcoz, of White Mountain Realty in Show Low, added that there has been a slight increase in foreclosures the last couple of years and that more buyers are using USDA and veteran entitlement loans that require zero down payment. ‘But, opportunities for veterans and people who qualify for USDA loans to get a low mortgage payment and a low interest rate could be diminishing, depending on what the feds do with interest rates,’ she said.”

“Pettingill said people who purchased a site-built home in the White Mountains in 2006 for $300,000 found out the next year it was only worth a little more than half. Pettingill said a home purchased in 2006 for $300,000 is now worth about $240,000, meaning the local housing market has recovered about 80 percent since the 2006 collapse. He said the Phoenix market is booming again, adding that, ‘We can’t expect the same level of housing recovery until we get the same kind of economic recovery as the valley is enjoying due to a growing employment base.’”

“In other words, Pettingill said the White Mountains need more better-paying jobs before it can have the same kind of recovery.”

The Washington Post. “During his final news conference of 2016, in mid-December, President Obama criticized Democratic efforts during the election. ‘Where Democrats are characterized as coastal, liberal, latte-sipping, you know, politically correct, out-of-touch folks,’ Obama said, ‘we have to be in those communities.’ In fact, he went on, being in those communities — ‘going to fish-fries and sitting in VFW halls and talking to farmers’ — is how, by his account, he became president.”

“But Obama can’t place the blame for Clinton’s poor performance purely on her campaign. On the contrary, the past eight years of policymaking have damaged Democrats at all levels. Two key elements characterized the kind of domestic political economy the administration pursued: The first was the foreclosure crisis and the subsequent bank bailouts.”

“Obama didn’t cause the financial panic, and he is only partially responsible for the bailouts, as most of them were passed before he was elected. But financial collapses, while bad for the country, are opportunities for elected leaders to reorganize our culture. In January 2009, Obama had overwhelming Democratic majorities in Congress, $350 billion of no-strings-attached bailout money and enormous legal latitude. What did he do to reshape a country on its back?”

“In this case, big banks and homeowners both experienced losses, and it was up to the Obama administration to decide who should bear those burdens. Obama prioritized creditor rights, placing most of the burden on borrowers. This kept big banks functional and ensured that financiers would maintain their positions in the recovery. At a 2010 hearing, Damon Silvers, vice chairman of the independent Congressional Oversight Panel, which was created to monitor the bailouts, told Obama’s Treasury Department: ‘We can either have a rational resolution to the foreclosure crisis, or we can preserve the capital structure of the banks. We can’t do both.’”

“Second, Obama’s administration let big-bank executives off the hook for their roles in the crisis. Sen. Carl Levin referred criminal cases to the Justice Department and was ignored. Whistleblowers from the government and from large banks noted a lack of appetite among prosecutors. In 2012, then-Attorney General Eric Holder ordered prosecutors not to go after mega-bank HSBC for money laundering. Using prosecutorial discretion to not take bank executives to task, while legal, was neither moral nor politically wise; in a 2013 poll, more than half of Americans still said they wanted the bankers behind the crisis punished.”

“Third, Obama enabled and encouraged roughly 9 million foreclosures. This was Treasury Department Tim Geithner’s explicit policy at Treasury. The Obama administration put together a foreclosure program that it marketed as a way to help homeowners, but when Elizabeth Warren, then chairman of the Congressional Oversight Panel, grilled Geithner on why the program wasn’t stopping foreclosures, he said that really wasn’t the point.”

“The program, in his view, was working. ‘We estimate that they can handle 10 million foreclosures, over time,’ Geithner said — referring to the banks. ‘This program will help foam the runway for them.’ For Geithner, the most productive economic policy was to get banks back to business as usual.”

“Many Democrats ascribe problems with Obama’s policies to Republican opposition. The president himself does not. ‘Our policies are so awesome,’ he once told staffers. ‘Why can’t you guys do a better job selling them?’”