The Housing Bubble

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 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.”