February 26, 2017

So, Subprime Is Back

A report from the Orange County Register in California. “You are on notice that there are inflection points in the housing market that may cause a downturn. The Mortgage Bankers Association recently announced for the fourth quarter of 2016 California’s mortgage delinquency rate weighed in at 3.2 percent. The national rate was worse at 4.8 percent. And, the national delinquency rate was up 28 basis points from the previous quarter. Yikes! According to the Mortgage Bankers Association, the loan origination market index (purchase and origination applications) is down 28.8 percent year over year. The refinance index is down by a staggering 45.9 percent year over year.”

“My lender friends are nervous right now with this tremendous slowdown in both purchase and refinance volume. My mortgage brokerage shop was busy for five straight years. Since the first of this year, our loan volume is down dramatically. Last Sunday, one of my neighbors stopped me to comment on my last column on the return of loans for riskier borrowers. ‘So, subprime is back,’ my neighbor said. ‘Pretty much,’ I answered.”

“I remember widely originated subprime loans being the topper inflection point of the last mortgage meltdown. Haunting.”

The Philadelphia Inquirer in Pennsylvania. “It’s a good-news-bad-news situation for local real estate markets, according to research released last week by Zillow. That is, good news for buyers and less exciting news for sellers. The determination comes from an assessment of Philly listings by price cuts and days on the market. Locally, more than 13 percent of listings. Those listings are typically on Zillow for about 101 days. Baltimore tops the same list.”

“Within the region, Zillow counts Pennsauken, Waterford, Pennsville Township, West Deptford Township and Deptford Township as the five best buyers’ markets. There, listings range from 131-173 days on the market and between 17.5 and 22 percent include price cuts.”

The News Press in Florida. “Uncertainty was the word of the day as three real estate experts, backed by facts, shared their reflections and predictions on the market at The News-Press Market Watch. ‘We can’t always see what’s going on,’ said Denny Grimes, president, Denny Grimes & Company as he took the stage. The number of homes sold in 2016 was down in Lee and Collier counties: ‘Notice the color (red). Sales are down 7 percent.’”

“Sales were down in each part of each county (other than Lehigh, up just slightly), with luxury sales and condo sales also down: ‘You getting the trend here?’ he said. ‘I’m calling 2015 a peak year, because we are seeing sales drop.’”

From Metro US on New York. “What goes up, must come down — and in New York City that has led to a decline in the luxury market and higher prices in less expensive areas. Those areas were the only ones to show ‘pockets of rent growth,’ in the January 2017 StreetEasy Market Reports. All others experienced month-over-month declines, with only Upper Manhattan, South Brooklyn and East Brooklyn median rents continuing to rise. The report also showed both Manhattan and Brooklyn starting the year off with declining monthly median rent for the first time since 2010, according to StreetEasy data.”

“‘Manhattan and Brooklyn renters could finally be catching a break in 2017,’ said StreetEasy economist Krishna Rao. ‘Over almost a decade, rents in both boroughs have had strong growth and consistently hit new highs time and time again. Over the last few months the landscape has shifted. The luxury decline seems to be affecting the market in a big way, as the most expensive areas see the greatest rent declines.’”

From Arizona Public Media. “Data from the U.S. Census Bureau show Tucson has the 10th highest year-round vacancy rate of the country’s 75 largest metropolitan areas. It estimates 12.5 percent of the homes in Tucson had no resident for the entire year. One explanation may be that the empty homes sat vacant through the worst days of the housing bubble burst, and during that time they deteriorated.”

“‘I suspect many of these are in such disrepair, it’s just not economical for an investor to take them over and put the money in it they need to make it livable and make a profit,’ said Michael Bond, who teaches real estate finance at the University of Arizona’s Eller College of Management.”

“Tucson’s vacancy rate has stayed at 12.5 percent or higher since 2009 with one exception. It dipped to 8.4 percent in 2015.”

February 25, 2017

An Analogy From The Housing Bubble

A report from Hoosier Ag Today. “Indiana farmland value decreased by an average of 7.1 percent in 2016 according to the newest report from Farm Credit Mid-America. The report also shows a slight drop in Kentucky but increases in average value for Ohio and Tennessee. Dennis Badger, Vice President Collateral Risk Management explains the fall in values comes just a few years after hitting all-time highs. ‘Actually in 2010 is when we’ve seen one of our largest spikes where Indiana showed a 27 percent increase,’ he said. ‘This past year, in 2016 the overall average for Indiana was 7.1 percent decline. The prior year, 2015 it was a 2.7 percent decline, so the rate of decline has increased for Indiana.’”

“Does the drop suggest a coming crisis? Badger says no. ‘Real estate like everything is cyclical, so when you had the highs of 2010 and the 27 percent increases, you’re also going to see a retraction where it comes back again, almost like a pendulum. So, the pendulum is heading back the other direction. It’s certainly not like a balloon that is popping I’ve heard as an analogy from the housing crisis, the housing bubble. We don’t think it’s anything near that magnitude. Certainly, some of the other factors such as commodity prices right now, the net farm income is certainly another concern. So, there are some variables that people want to be mindful of.’”

The Bakersfield Californian. “Agricultural land values in the Central Valley, and Kern County, have slipped a bit but most analysts aren’t worried about a major drop. Though water will become a larger question mark in coming years. For now, analysts are looking at the recent dip in values as more of a ‘breather’ from the meteoric rates at which ag land values shot up between 2010 and 2015. Does that mean high values are a bubble? No, said Roland Fumasi, an analyst with Rabobank’s Fresno-based RaboResearch Food & Agribusiness division. ‘Because prices are supported by economic reasons,’ he said.”

“The biggest drop in Kern will be for land planted in pistachios, Fumasi said. He’s projecting a 13 percent drop from a high of about $38,000 per acre in 2015 to about $33,000 an acre by the end of 2017. For almond lands, Fumasi is projecting a 9 percent drop in valuation from a high of $35,000 per acre in 2015 to $32,000 by the end of 2017. Almond acreage, unlike pistachio and other acreage, enjoys some beneficial factors that help buoy its value. Though the price per pound has dropped from about $5 to around $2.60, Associate Rabobank Analyst James Williamson said that is still profitable for farmers.”

The National Hog Farmer. “Don’t cut the farm bill is the message that over 500 national, state and local agricultural, conservation and nutrition groups are telling the Senate and House Budget Committees as it prepares the Fiscal Year ’18 budget. The groups say, ‘With the agriculture and rural economy struggling, households across the country struggling to meet their basic needs for nutrition, and farm income down 46% from only three years ago, it would be perilous to hinder development and passage of the 2018 farm bill with further cuts.’”

The Seymour Tribune. “Farmers should start seeing improvement in grain prices this year — a trend expected to continue through at least 2019.Chris Hurt, editor of Purdue Agricultural Economic Report delivered that message to the group of farmers and agribusiness men and women in Brownstown. ‘We’re now producing more than we can consume,’ he said. ‘There’s lots of wheat in the U.S. — the highest since 1986. The corn inventory is the highest in 11 years, and the soybean inventory is the highest in a decade. When you have inventories at decade highs, prices are probably going to be down there at decade lows.’”

From Agri-News. “Net incomes for Illinois grain farms are projected lower in 2017 than for 2016. If these projections hold, weakening of financial position will continue in 2017. Net incomes on grain farms likely will remain at low levels as long as corn prices remain below $4 per bushel. After being at higher levels from 2010 to 2012, net incomes decreased each year from 2012 to 2015. In 2015, net incomes averaged $500 per farm, the lowest level of any year between 1995 and 2015, and well below an income level needed to result in stable financial positions on grain farms.”

“As usual, farm incomes will range considerably across farms. Those farms that had average yields or below will face considerably lower incomes, as appears to be the case in southern Illinois.”

The Ag Watch Network. “Farm income continued to drop across the areas of the Midwest and the Midsouth during the fourth quarter of 2015 compared with the previous year, according to latest Agricultural Finance Monitor published by the Federal Reserve Bank of St. Louis. Meanwhile, the average value of quality farmland, as well as ranchland and pastureland, also declined.”

“During the fourth quarter, bankers reported a continued drop in farm income compared with the same period a year ago. Based on a diffusion index methodology with a base of 100 (results above 100 indicate proportionately higher income compared with the same quarter a year earlier; results lower than 100 indicate lower income), the farm income index value was 28. This was the sixth consecutive quarter that this value fell below 100, and the lowest level recorded since the survey began in 2012. Looking ahead at the first quarter of 2016, an even greater percentage of bankers indicated they expect income to continue to decline.”

“‘Crop and cattle prices are down, but input costs are rising at a slower pace, a Kentucky lender said. ‘I expect capital expenditures to decrease along with devaluation in farm real estate.’”

The Tri-State Livestock News. “Farmland values have declined, according to reports issued by the Federal Reserve banks in Chicago, Kansas City, St. Louis and Dallas. ‘Bankers across the 10th District noted that persistent weakness in farm income continued to weigh on farmland values,’ they wrote. ‘Although most farmland purchases in the quarter were financed with new debt, the portion of new loans with a cash down payment decreased. The persistent and widespread deterioration in farm income has occurred alongside increasing loan demand and lower repayment rates. These trends are expected to continue in the first quarter of 2017.’”

The Ag Professional. “The Fed reports, which contained concerning news for farmers, came on the heels of USDA’s forecast that U.S. farm incomes will drop 8.7% in 2017, and on the same day that The Wall Street Journal ran a front page story titled, ‘The Next Farm Bust is Coming.’ David Oppedahl, Senior Business Economist at the Chicago Fed pointed out that, ‘Since their 2013 peaks, Illinois, Indiana, and Michigan farmland values have experienced real declines of 11 percent, 7 percent, and 12 percent, respectively. Additionally, since their 2012 peak, Iowa farmland values have experienced a real decline of 15 percent.’”

“The volume of the farm loan portfolio deemed to have ‘major’ or ‘severe’ repayment problems grew to 5.9 percent in the fourth quarter of 2016, matching the share in 2002 and the highest such proportion in 15 years. ‘[S]urvey respondents forecasted the downward trends for farmland values and agricultural credit conditions to continue into 2017,’ the report added.”

“The Kansas City Fed added that, ‘Farm income also weakened in the fourth quarter. In fact, farm income fell for the fifteenth consecutive quarter, the longest such streak in survey history. Moreover, 70 percent of bankers expected the downward trend to continue in the first quarter of 2017.’”

A Preponderance Of New Supply

A report from Multi-Housing News. “Jeffery Hayward, head of Fannie Mae’s multifamily mortgage business, shared a few highlights from 2016, as well as initiatives that Fannie Mae is embarking on in 2017. MHN: Where are you seeing a concentration of new supply? Hayward: Dallas will have a lot of new units coming online. So will Austin and Denver. Seattle has been that way for a while, along with San Francisco, San Diego and L.A. Typically the new construction is aimed toward higher rent and income levels.”

“MHN: How will market forces impact loan quality this year? Hayward: There are some challenges in the market around new supply, meaning there are some markets with lots of new supply coming in. There will be a little bit of stress on the market because there is so much new production coming on. Particularly, there are about 12 or 13 markets in which there is a preponderance of new supply. All of that doesn’t necessarily fit what we do because some of it is very high-end product.”

From Construction Dive. “Builder and developer sentiment on the outlook for apartment and condominium construction maintained its strength in the fourth quarter of 2016, edging up two points from the prior quarter to a mark of 55 on the National Association of Home Builders’ Multifamily Production Index. Multifamily developers are bullish on the segment’s fundamentals, but a flurry of units coming online in the country’s largest metros suggest saturation ahead for some, forcing rents down.”

“Chicago, for example, is expected to see rents begin to decline by the second half of 2017 as the apartment rental market there reaches capacity. Inventory in that city is expected to be up 150% from mid-2005 by 2018, according to data from Appraisal Research Counselors. Supply in that category is also beginning to outpace demand in Washington, DC. A recent analysis of Census Bureau data by Greater Greater Washington found the District added 4,682 new units in 2016, the second-most since the government agency began tracking the figure in 1980. The growth has occurred primarily in multifamily construction, and is concentrated in three emerging neighborhoods.”

“A report by Axiometrics cited in The Wall Street Journal earlier this week noted that the number of new multifamily units is expected to hit its highest level in 30 years in 2017.”

The Business Observer in Florida. “Real estate firm Quadrum Global, which has bought and turned around hotels from Chicago to New York to Miami Beach, might be new to senior living, but its executives certainly aren’t timid. Quadrum director of U.S. investments Seth Schumer got interested in the senior-living sector in 2015 when Quadrum looked into buying a distressed senior living facility in Fort Myers. The company ultimately passed on the deal, but in the process Quadrum executives met and clicked with Colin Marshall, a 20-year executive in senior living management.”

“Marshall says the amenities at Avida will also be something special. Plans for the 488,265-square-foot campus include a bar bistro, private theater, dining hall and four open-air courtyards. Multiple other projects in the region also promise resort-living and high-quality amenities. Schumer acknowledges the word ‘overbuilt’ came up in the firm’s research for Avida, especially anecdotally. But the data he looked at doesn’t necessarily prove the specific market Avida targets is at saturation level, he adds. ‘We are really excited about this,’ Schumer says. ‘We think we can build a better mousetrap.’”

The Memphis Daily News in Tennessee. “The Memphis area is seeing a boon of mixed-use developments underway or in the works, from repurposed and renovated properties. As a second-tier metropolitan market, most of Memphis’ mixed-use projects have been spearheaded by local investors. However, more out-of-town investment is likely to follow, as many first-tier markets are saturated and more expensive from a developer or investor standpoint.”

“‘Many of Memphis’ peer markets are becoming oversaturated, and out-of-town investors have noted the dearth of new housing in many parts of the core city,’ said Josh Whitehead, planning director for the Memphis and Shelby County Office of Planning & Development.”

From Biznow on Virginia. “As it prepares its $8.4B merger with Vornado, The JBG Cos is abandoning one of the biggest placemaking projects it had planned in the region. The Chevy Chase-based developer is looking to sell its six-property, 2,664-unit apartment portfolio in Alexandria’s West End. This comes as Vornado is also halting some of the NoVa projects it had planned. The developer shelved the 933-unit addition it had planned for its RiverHouse apartments in Pentagon City. It also put on hold two of its Crystal City projects.”

From Mansion Global on New York. “In its weekly snapshot of Manhattan’s luxury housing market, real estate brokerage Olshan Realty found that 29 contracts were signed last week at $4 million and above, five more than the previous week. However, Olshan stressed that the headline-grabbing number masked underlying problems—particularly the average time a property spent on the market. ‘One is tempted to paint a rosy forecast for the spring, but let’s not overlook a cloud or two on the horizon,’ said Donna Olshan, president of Olshan. ‘Year-to-date, the average days on market is 415, a 32% increase over the same period in 2016.’”

“The moral, said Ms. Olshan, is that sellers who lower their prices to a realistic level ‘are more often than not rewarded with a sale.’”

The Houston Chronicle in Texas. “Houston-based Weingarten Realty Investors, which owns neighborhood shopping centers throughout the city, will add a 30-story residential tower to its flagship retail property next to River Oaks. Weingarten senior vice president Gerald Crump reiterated the company’s commitment to owning the property for the long term. Despite a current glut of new apartments in the urban core, Houston is a resilient market, he said. ‘We’re not merchant developers and we’re not really as concerned about timing the market as the merchant developer would be,’ Crump said.”

The Morning Call in Pennsylvania. “The Plaza at PPL Center, home to Talen Energy, could soon be headed for the commercial mortgage bond equivalent of foreclosure, a move that would open the door to new owners who could offer lower, more competitive rents. The current owner, a group called The Plaza at 835 W. Hamilton St., which purchased the property for $83.5 million in 2007, missed a $67 million balloon payment on Dec. 1, sending the loan into default.”

“The company that oversees its overdue loan reported this month that if the owner is unable to renegotiate loan terms, it plans to transfer the building’s title to a special servicer, according to Trepp LLC, a company that tracks loans included in commercial mortgage bonds. If The Plaza goes to a special servicer — a company that specializes in liquidating commercial mortgage bond real estate — it will eventually end up in the hands of a new owner whose hands won’t be tied by the need to make payments on a pricey mortgage.”

“Experts have said the building is likely worth far less than the loan’s $67.4 million balance. Located at Ninth and Hamilton streets next to PPL Tower, it cost $43.5 million to construct. It is one of downtown’s Allentown’s showcase properties, which — if Talen leaves — would be rendered mostly vacant and in search of tenants. Talen’s rent is at least 30 percent higher than what is charged for comparable downtown offices.”

February 24, 2017

Agents Are Crying That The Money Isn’t Coming

It’s Friday desk clearing time for this blogger. “The mansion on Fallen Leaf Road in the secluded Upper Rancho neighborhood of Arcadia has all the trappings a wealthy buyer from China could want. Yet two months after it was placed on the market, the house remains unsold. Not long ago, real estate like this would have been snapped up almost immediately. ‘It would have been gone in two weeks with multiple offers,’ said Dee Chou, the property’s listing agent.”

“Median home prices have dropped in Arcadia to $930,000 at the end of last year from about $1.1 million at the start of 2015. In San Marino, the median price for a home was $2.5 million as recently as the second quarter of last year before tapering to $2.2 million by the fourth quarter. Agents say the city is left with a surplus of luxury properties whose sellers could face pressure to reduce prices. One agent said her client had to drop his asking price for a property in Arcadia last summer to $8.3 million from $10 million because it drew no interest for three months. ‘All agents are crying that the money isn’t coming,’ said Sanne Lee, an agent for A + Realty & Mortgage in Rowland Heights.”

“The CEO of fashion retailer Theory finally sold his penthouse at the Setai Miami Beach for $8.5 million, at a 38 percent discount from its 2015 asking price. Andrew Rosen paid $8.6M for the unit in 2013, which means he sold it at a loss. It was recently renovated. The buyer’s agent Luciana Barreto said an identical unit on the 35th floor sold for $12 million in March 2014.”

“With rental vacancies in Gillette the highest in at least 15 years, local officials aren’t shocked that the housing and real estate markets also are down in a slumping economy. Campbell County saw a new 10-year low of homes sold in 2016. According to data compiled by Steve Laakso of ERA Priority Real Estate, there were 581 homes sold in 2016, the lowest since at least 2007. The drop comes after a 10-year high of 905 homes sold in 2015, he said.”

“Corresponding to low home sales, foreclosure numbers were up, from 71 in 2015 to 83 in 2016. Laakso said that number can be misleading and he expects it to be even higher in 2017. ‘Eighty-three isn’t a huge number by any means, but there’s a lot of lag time in foreclosures by the time someone turns their keys in, the bank gets around to doing their job and getting it back on the market and sold again,’ he said. ‘So I anticipate that number to be up this year.’”

“In 2016, for a second consecutive year, the glut of properties owned by banks after borrowers defaulted shrank in Ohio and some surrounding states, according to the Cleveland Federal Reserve. But the Mansfield metro/Richland County area was among a small number of locations in multi-state region that did not fully share in that bit of economic sunshine.”

“Mansfield also was the only metro in the Fourth District that had yet to regain its median value of purchase and refinance originations from before the housing crisis, still 3.51 percent below its 2005 level, the Fed report said. ‘The data suggest that banks have been more willing or more able to sell their properties of late,’ said Brett Barkley, senior research analyst with the Federal Reserve Bank of Cleveland. ‘Some may have held onto them, waiting for housing values to recover before selling them.’”

“Home owners selling their properties are being forced to slash their prices after slow growth in the housing market amid Brexit uncertainty. Among London’s more affluent areas, as many as 35 per cent of properties on the market have been reduced. A luxury townhouse in Highgate has come down by a whopping £2 million to £6.95million. Trevor Abrahmsohn, managing director of Glentree told The Times: ‘The original price wasn’t fanciful but the market started falling.’”

“Evidence is mounting that Tokyo’s housing boom is nearing an end. In the Kachidoki area facing Tokyo Bay, home to the city’s hottest market given its proximity to venues for the 2020 Olympic Games, real-estate broker Hayato Jo has a wall full of notices of apartments for sale, with a 20 percent increase in the number of people looking to sell in the area in the past year. Prices in the neighborhood, which surged 25 percent since Tokyo won the Games in 2013, have started to fall from their peak.”

“Elsewhere, more cracks are appearing. The number of unsold new apartments in the city reached the highest in seven years in 2016. Inquiries from Chinese investors, who helped fuel property market gains, have halved since August 2015, according to Noboru Takimoto, senior manager of overseas residential sales at Jones Lang LaSalle K.K. ‘Inventory is climbing and the property market has already started to deteriorate,’ said Deutsche Bank real-estate analyst Yoji Otani. ‘This year we will see the pace accelerate. There is no demand. No one can afford properties, only rich people. There is no way to help this market.’”

“The Costa Rican Prosecutor’s Office has opened up an investigation into real estate developer Homes Grupo Inmobiliario after complaints of consumer fraud have surfaced. Daniel Quesada, a spokesman for the Prosecutor’s Office, told The Tico Times in an email that Homes Grupo Inmobilario took deposits for the three development projects from clients looking to reserve a condo. However, after long delays and unfulfilled promises on the part of the company, clients would then make calls and send emails to numbers and addresses that didn’t exist or had been deactivated, the spokesman said.”

“Quesada added that the company was offering clients a discount of up to 20 percent of the property’s value if buyers paid the cost of the property’s premium right away. Would-be homeowners lost as much as $50,000, according to Quesada.”

“Almost as quickly as he burst onto the East Village real estate scene, notorious landlord Raphael Toledano is on his way out of the neighborhood. The 26-year-old’s lenders filed court papers to foreclose on all 15 of his properties there this week. Madison Realty Corp. is foreclosing to recoup $140 million — of which just under $125.1 million is in loans against the properties — according to the foreclosure statement.”

“The foreclosure isn’t exactly a surprise to the parties involved or anyone else familiar with New York real estate, according to a source familiar with the industry. It’s merely business as usual for Madison Capital, which often operates on a ‘loan-to-own’ philosophy, said the source, who requested anonymity. It’s a win-win for Madison — either Toledano pays back his loan at the huge interest rates he signed up for, or they walk away with more than a dozen new properties in the East Village.”

“‘They are lending money,’ the insider explained, ‘but fully anticipate that the loan may not be paid back and are happy to go through the foreclosure process to own the properties for the money they lent.’ On top of that, Toledano ‘did all the dirty work’ of clearing and renovating apartments, the source said.”

“Toledano’s exit from the Village doesn’t mean locals won’t be seeing more of him in the future, The Villager’s real estate source said. The real estate industry operates much differently than any other, he noted, and even after a colossal defeat, investors can rise from the ashes of a disaster like Toledano’s. ‘The beauty and horrors of real estate is that it’s more forgiving than Jesus,’ the insider said. ‘You can screw up or screw people any number of times and bankers will still throw money at you if they think they can make a buck.’”

February 23, 2017

A Correction Due To The Sudden Boost In Supply

A report from News.com.au in Australia. “We are going to read a lot about apartment oversupply this year. The Reserve Bank of Australia has already kicked off the discussion warning of the consequences of any flood of new apartments hitting the market. The central bank pointed out that residential approvals have been almost 50 per cent higher across Australia than their long-term average during the past two years. Oversupply of units in some Sydney inner city suburbs represented the greatest risk for investors, according to the latest update from valuation firm Herron Todd White.”

“HTW has already detected a number of valuations for new units on settlement not meeting their off the plan prices. It said this was particularly happening in suburbs with concentrated new stock along with a distinct difference in value between the new and original older style unit prices. HTW says this is more common in some second tier suburbs in Western Sydney and additionally in pockets of the northern suburbs.”

“While mostly occurring for overseas buyers, it could then trigger difficulties for locals obtaining finance. There was also concern by HTW that rentals might fall short of yielding enough to service mortgage repayments. They suggested developments that have been completed simply to cash in on demand could fall short in quality and ‘therefore won’t have appeal to either owner occupiers and potential tenants.’”

The Australian. “Bendigo and Adelaide Bank has spooked investors with an increase in soured loans, denting profits as the regional lender opened the door to offloading part of home equity release business Homesafe. Since mid-2012, Sydney house prices have increased by 70.5 per cent, according to CoreLogic, as the Reserve Bank cut interest rates to record lows, helping Homesafe while also raising concerns of a property bubble.”

“Bendigo chief Mike Hirst said the housing market was showing few cracks and employment was the critical factor for the health of its lending books, playing down concerns about growing stress in corporate lending. ‘Employment really is the key to a lot of what people are concerned about with banks going forward right now,’ he said.”

The Courier Mail. “More than 43,000 full-time employees – the equivalent of almost a capacity crowd at Suncorp Stadium – have vanished from the workforce in regional Queensland in the past year. The sharp concentration of economic pain outside Greater Brisbane is highlighted by new trend analysis of regional labour force data. And it reveals that even in areas away from the state capital where jobs are being created, full-time positions are increasingly being replaced by part-time jobs in a major switch in patterns of work.”

“Real Estate Institute of Queensland figures show that over the past five years, house prices rose 12.5 per cent across Greater Brisbane, 16.5 per cent on the Gold Coast and 17 per cent on the Sunshine Coast. But they tanked by about 20 per cent in Gladstone and Mackay, 10 per cent in Rockhampton and 8 per cent in Townsville. Anecdotal reports in Mackay suggest about 3000 houses are sitting empty.”

“‘Much of regional Queensland is struggling,’ REIQ chief executive Antonia Mercorella said. ‘The feedback from agents on the ground is some fairly tragic stories … family breakups, depression. It’s dire.’”

The Gladstone Observer. “A developer whose Telina housing estate plans were rejected the first time around is hopeful a new and downsized proposal will be more popular. Gladstone region mayor Matt Burnett still has concerns, questioning the need for more houses on the market. ‘We actually don’t need new lots on the market,’ Burnett said. ‘I would guess this developer may just be getting his ducks in a row so he is ready when the market is.’”

The Daily Mercury. “Mackay could be the town best placed for growth on the Queensland coast given its unique combination of high-capacity infrastructure and faltering population, each a relic of the last mining boom. That claim was made by Mackay Regional Council director of development services Gerard Carlyon, who went on to explain how bringing more drive in, drive out miners to Mackay could kick-start that growth potential.”

“By bringing more DIDO workers to town, Mackay could therefore work to build up its population to fit the high level infrastructure built during the mining boom. ‘We have built infrastructure for a certain population level that’s significantly higher than what’s living here. We could probably accommodate an extra 10,000 people right now,’ Mr Carlyon said.”

“Not only was there an oversupply in housing, vacancy rates sat at 7.9%, but the council had invested in sewerage, water and roads networks designed to operate at much higher capacity, leading to short-term budget deficits.”

The Australian Financial Review. “Developer Poly Australia, a subsidiary of the $125 billion state-owned conglomerate China Poly Group Corporation, is planning to expand its multi-density apartment portfolio in Melbourne and Sydney and even Queensland this year, despite fears of an apartment supply and price correction. The developer doesn’t think there will be a correction and considers some areas on the east coast undersupplied.”

“Reserve Bank of Australia assistant governor for economics Luci Ellis last week gave a sanguine assessment of the various apartment markets. Brisbane was undergoing a correction due to the sudden boost in supply. ‘In Brisbane, apartment prices are falling,’ she told the Australasian Housing Researchers Conference. ‘There was more supply coming online than there had been underlying population demand for it.’”

February 22, 2017

Oversupply Is The Big Fear

A report from the Real Deal. “Banks are shying away from financing new apartment projects as supply starts to outpace demand. This year more than 378,000 new apartments are expected to be completed nationwide, according to real estate researcher Axiometrics Inc. But only 50,000 of the 88,000 apartments completed in the fourth quarter of last year were rented out, the Wall Street Journal reported. ‘Our business has radically changed,’ Toby Bozzuto, chief executive of the Bozzuto Group, which has about eight buildings in New York City, told the newspaper. ‘I haven’t seen anything this seismically different since 2008, when credit dried up.’”

The Chicago Tribune in Illinois. “Magellan Development Corp. is planning to fill a fairly unorthodox position at its newly opened 36-story River North building: live-in musician. The new position is the latest salvo to be fired in the battle for renters in downtown Chicago, where a boom in a luxury residential construction has caused a rental housing glut, and where experts say landlords may soon have to lower monthly rates in order to fill their units.”

“‘With so much new construction everyone is looking for an edge or special identity,’ said Gail Lissner, vice president of Appraisal Research Counselors. Featuring a resident musician can do that without incurring any construction costs or making a commitment that can’t be easily changed, she said.”

The Boston Globe in Massachusetts. “Condo prices in Boston hit fresh highs last year, thanks to sales at several new high-end buildings and the continuing demand for living in the core of the city. But a wave of new units could test the strength of the city’s condo market in the next few years. To date, much of the housing built in the city during the current boom has been apartments, enough to cause rents at the high end of the market to plateau.”

“Data released in early January showed that apartment rental prices fell slightly at the end of 2016 — the first drop since 2010 — amid a surge of new buildings that have opened in Boston and neighboring cities such as Cambridge, Chelsea, and Somerville. Thousands of new condominium units are set to open this year and next, from stand-out towers such as One Dalton in the Back Bay and the Pierce in the Fenway, to more modest buildings in South Boston and the South End. Thousands more are planned or already being built.”

“LINK’s president, Debra Taylor Blair, has heard some fears that there could soon be a glut. But, she said, the steady price growth, along with a historically fast pace of sales, suggest a lot of customers are still looking to buy. ‘Oversupply is the big fear,’ she said. ‘But what these numbers say to us is that there’s a lot of pent-up demand out there to live in Boston.’”

“And Boston’s residential real estate market is often seen as one with little downside risk. Standard & Poors, for example, recently estimated that if another recession hits — even one of the magnitude of the economic downturn that began in 2007 — Boston-area home prices would dip less than 2 percent. Even under the worst-case scenario envisioned by S&P, values in Greater Boston would slip 6 percent, compared to a 27 percent plunge nationally.”

From Houston Public Media in Texas. “You may have heard of the ‘apartment glut’ that’s plagued Houston. In the past three years, developers built around 60,000 – mostly higher-end – apartment units, but because of the slow job growth after the price of oil tanked in 2014, there’s not enough demand to fill many of them. Bruce McClenny, president of Apartment Data Services, said the glut is mostly concentrated on west Houston, where a lot of the upstream oil industry is based.”

“‘And that’s the part of the industry that’s hurting the most right now, so there’s been a lot of job losses,’ he said. ‘And at the same time there’s been a lot of new apartments coming on at the same time. Those two aspects don’t fit well together.’”

“So what will 2017 be like for the apartment market? Probably not much better, McClenny said. ‘There’s another 15,000 (apartments) under construction, (of) that 12,000 will be delivered this year,’ he said. ‘We’re still draining out the supply pipeline.’”

February 21, 2017

They’re Making Lowball Offers

A report from the Real Deal on New York. “When real estate agent Geovanna Lim’s client went into contract on a $3 million new development condominium in Midtown Manhattan more than two years ago, the pad was an easy get for the Chinese national. He agreed to put $300,000 down and even decided against a mortgage contingency. But late last year, when the developer obtained a temporary certificate of occupancy and began closings, Lim’s client entered crisis mode. Faced with China’s strict new capital controls — which took effect Jan. 1 — the buyer scrambled to find a way to move $2.7 million out of mainland China and into the U.S. in order to pay for the apartment in full.”

“After successfully stalling for a few weeks, the period around Chinese New Year was spent doing everything possible to line up a hard-money loan, according to Lim, a broker and founder of Park Avenue International Partners. ‘He didn’t have time to get his money out,’ she lamented. ‘We signed a no-mortgage contingency contract. We didn’t know we’d need financing two years later.’”

“Designed to curb the massive amount of Chinese investment abroad, the Chinese government’s rule is changing the way investors are looking at New York City real estate — long seen as a safety deposit box for investors from around the world. Some investors, fearful that the Trump administration’s foreign policy could further depress their economic prospects at home, are more eager than ever to safeguard their money in U.S. real estate. ‘Their factories are going to have a slowdown because of the threat of tariffs, so they’re determined to come to the U.S. and establish [a business] here,’ Lim said.”

“Sotheby’s International Realty’s Nikki Field said she’s still seeing high-end buyers — but even ultra-wealthy Chinese clients are focused on value. ‘They identify that our market has softened and they’re looking for good value, strong opportunity and immediate returns,’ she told The Real Deal this fall. Attorney Edward Mermelstein, a partner at Rheem Bell & Mermelstein, agreed. ‘They tend to be much more value-driven and opportunistic, so if they’re not seeing a great deal, they’re heading in a different direction,’ he said. ‘They’re making lowball offers.’”

From Forbes. “When Ivanka Trump purchased her home at Trump Park Avenue in Manhattan back in 2004, the real estate market in Manhattan was soaring. Home prices were rising and demand at the top end of the market far outstripped supply. Now, as the daughter of President Trump lists that same home for sale this month for $4.1m, she is finding a Manhattan real estate landscape marked by softening sales and shrinking demand. The falloff is particularly acute at the very high end where a glut of expensive condominiums has flooded the Manhattan market hindering demand for top-tier properties.”

“The slowdown is unleashing a chorus of doomsday talk among usually bullish real estate professionals in the city and sparking discussion of a correction not seen since the property crash of 2008. Bidding wars for luxury properties are less frequent and fewer open houses have lines around the block, brokers report. Shrinking bank bonuses are further dampening demand.”

“‘No one is predicting an all-out crash,’ says Donna Olshan, president of Olshan Realty. ‘But a number of factors clearly show that the top of the market is contracting.’”

The New York Times. “In December 2016, median rents for one-bedroom apartments decreased in eight of the 10 most expensive American markets, compared with the same month a year earlier, according to Zumper. The decrease in New York City was by far the biggest, at 9.1 percent.”

From Press Connects. “Developers, faced with an undergraduate student body no longer increasing in size and a development rate that may have outpaced that growth, are now wondering what will happen to the luxury living spaces they’ve already built. With five major student housing developments in downtown Binghamton, 710 beds at U-Club, and 562 beds soon to come from the townhouse expansion there, developers worry they’ve surpassed the market’s saturation point.”

“‘At this point, we probably have overbuilt,’ said Ron Kutas, a co-developer of the Chenango Place student housing development. ‘Not probably — we have.’”

“‘At the beginning, there was absolutely higher demand than there was supply. The developers … had a lot of experience in the local market. And then came kind of the rush for everybody else,’ said Kutas, a former BU student. ‘The city and … county … need to look at the long-term vision for the city. Because overbuilding, while it could create short-term economic benefits, could have some (significant) long-term economic effects.’”

“Among the long-term effects he worries about: vacancies; developments struggling to stay open; and, if some of them close, a hit to the city and county’s tax base.”

February 20, 2017

A Form Of Denial

A report from the Dallas Morning News in Texas. “Vacancy rates for almost every North Texas real estate sector are staying near recent lows. Less than 4 percent of Dallas-Fort Worth apartments are empty, even with several years of extensive building. The shopping center market is less than 8 percent vacant. And office space in the area sits at about 15 percent vacancy — pretty good for that business. Since we are more than five years into this property cycle, you can’t blame me for being nervous and keeping an eye on those vacancy rates. Dallas isn’t the only property market where things are in good shape.”

“‘At the national level, we feel like there is good balance right now,’ said Kenneth McCarthy, principal economist with Cushman & Wakefield Inc. ‘We are starting to see the amount of construction in the pipeline pick up. But it’s not anywhere near historic highs.’”

The Detroit Free Press in Michigan. “After several years of apartment scarcity in and around downtown Detroit, supply is starting to catch up with demand, prompting some building owners to offer rent deals and to shorten waiting lists. Hundreds of new market-rate rentals have opened in the city’s downtown and Midtown since last fall with hundreds more planned to open this spring. Local development experts point to the average 98% occupancy rate last year for residential buildings in greater downtown and say the inventory deluge doesn’t mean that the housing market is getting saturated or that the surge in new construction since 2013 was all a bubble.”

“For apartment-seekers, the recent flood of new apartments means they have more choices than ever in leasing rates and locations and more buildings offering a wide array of amenities, which some say Detroit has been lacking. It also could lead to more for-sale condos, which are still in scarce supply. ‘I think Detroit has been slow to build the type of product with all of these amenities that you might see in markets like Boston,’ said Sue Mosey, executive director of Midtown Detroit Inc.”

From Bloomberg on New York. “Luxury developer Toll Brothers Inc. has a deal for those shopping for a condo in Manhattan: buy something soon, and we’ll pay the taxes on your purchase. The publicly traded homebuilder is offering to pay the city transfer tax and the New York state ‘mansion tax’ — an effective discount totaling almost 2.5 percent — on deals made at three of its developments by Feb. 20, the company said in a statement. Toll’s offer comes as Manhattan developers contend with a market brimming with costly condos and buyers tepid about committing.”

“Builders hoping to boost sales in their projects are doing what they can to attract interest without officially lowering their prices — everything from offering gift cards and upfront commission to brokers, as well as payment of transfer taxes that, in a healthier market, are passed on to buyers, said Joshua Stein, a Manhattan real estate lawyer. ‘Developers like to pretend that values haven’t gone down,’ said Stein, who’s not involved in the Toll Brothers projects. ‘Eventually you’ll see discounting off the face price. But this is a form of denial.’”

The Minot Daily News in North Dakota. “The Minot-area real estate market has settled into calmer times as it moves away from the frenzied activity spurred by a flood and energy development. It’s meant a somewhat slower pace of sales and a leveling off of property prices. The number of homes being sold is down about a third from its peak but prices have seen only a small decline. If there’s a negative, it’s the impact the current market is having on homeowners who had purchased during the peak of the boom and now are needing to sell only a few years later, said Cindy Harvey, Realtor with Elite Real Estate and past president of the North Dakota Association of Realtors.”

“‘They are having a hard time walking away with a profit. I have seen people have to bring money to the table now,’ she said.”

February 19, 2017

A Stuck-In-The-Headlights Situation

A report from Globes on Israel. “Bank of Israel figures show that the average interest rate on index-linked mortgages rose from 3.84% in January to 3.85% in February, completing a rise of almost 2% in 18 months. Causes of the increase included expectations of a rise in the Consumer Price Index; a slackening of competition between the banks; bond market fluctuations, which affect the mortgage market; expectations that the Bank of Israel will raise its interest rate; and, above all, continued demand for housing, despite reports of a slowdown. The upward trend extended to all mortgage periods. The figure published means that the effective mortgage interest rate (taking index-linkage into account) is nearing 6%: the Bank of Israel itself sets the annual inflation target at 1-3%.”

“While it is true that this target has not been achieved in recent years (the CPI has gone down in the recent years), the expectation is that inflation will resume in the near future. In such a scenario, people who take index-linked mortgages will discover that their mortgage payments are significantly increasing. If we assume that the CPI will increase by 2%, the effective interest rate will be around 6%, which is high.”

The Sunday Times on the UK. “Homeowners are waiting up to ten months to sell their properties as inflated asking prices and economic uncertainty cause the housing market to stall. The slowdown is particularly affecting areas of southern England where prices have risen rapidly in recent years, including London, Oxford, Bristol and Cambridge. This has left many sellers trapped in homes that they would rather leave, creating a block in the market.”

“Nina Harrison, of Haringtons, a property buying agency, said: ‘It is a stuck-in-the-headlights situation. Neither party [buyer or seller] dares to move.’”

The China Post on Taiwan. “Taipei’s luxury home market thawed over the past few months but prices for The Palace — one of the most coveted residential complexes — remain uncertain after two of its units failed to sell at separate auctions. The price set for the TFASC auction was still too high to attract buyers, while the unit in the court auction comes with an existing tenant, which deterred potential bidders, the agents said.”

“The TFASC set the bottom price for the unit at NT$750 million, or almost NT$2.789 million per ping (3.3 square meters). Xinyi Realty researcher Tseng Ching-der noted that at the peak of Taiwan’s property market in recent years, price-per-ping for a unit of The Palace — located at the junction of Jianguo South and Renai Roads — reached as high as NT$2.982 million, and the average stood at about NT$2.7 million, according to the Central News Agency. For the unit in the court auction, the bottom price was set at NT$265 million, or about NT$2.36 million per ping. Jessica Hsu, an executive from the HB Housing, said it was no surprise that the auctions failed because the deals did not seem profitable.”

From Bloomberg on China. “The strength or otherwise of the Chinese property market is set to have far-reaching implications for the global economy this year. Rather than relying solely on official statistics, however, those looking for an indication of the performance of the Chinese construction sector might want to direct their attention to the world’s steelmakers. Construction accounts for the biggest part of steel demand in the top consumer markets, according to Bloomberg Intelligence. China’s home prices have shown signs of slowing as local governments and banks follow Beijing’s orders to tighten the market and rein in asset bubbles.”

“Stockpiles of iron ore at China’s ports have expanded at an ‘unprecedented’ pace since the start of this year, noted Ivan Szpakowski, chief investment officer at Academia Capital LLC. Iron ore inventory at China’s ports rose to a record 127 million tonnes last week, according to Shanghai Steelhome Information Technology Co., while stockpiles of reinforcement bar used in construction surged to 8.2 million tonnes, the highest since April 2014.”

“‘We’re much more leveraged now than we’ve been in two years, in terms of inventory throughout the whole supply chain, whether it’s traders or steel mills, or whether it’s iron ore or steel,’ said Ivan Szpakowski, chief investment officer at Academia Capital LLC.”

The Courier Mail on Australia. “The building industry is getting tougher every day. ASX-listed Onterran, which owns Brisbane-based Bloomer Constructions, voluntarily suspended its shares pending an announcement about the ‘potential divestment of a subsidiary and trading update.’ It is not clear what is going on, but we hear Bloomer has been struggling in an increasingly tough property market.”

“Onterran, which acquired Bloomer in 2015, warned last year that its subsidiary had been ‘working through a difficult period’ with significant increases in contractor and raw material costs. Onterran did not return calls yesterday but we hear there are quite a few nervous subbies out there.”

“Creditors of the collapsed Cullen Group Australia have appointed a new Melbourne-based liquidator Michael Caspaney, of Menzies Advisory, to replace Brisbane’s Mark Pearce. Cullen closed its doors just before Christmas, owing creditors an estimated $18 million and capping a horror year for the building industry that faces a glut of inner city apartments and tighter bank lending.”

“Caspaney was not available yesterday to explain why he was given the job, but we hear he has his work cut out for him unravelling the financial mess. The industry regulator, the Queensland Building and Construction Commission, has come under fire for not acting sooner to shut Cullen down.”

February 18, 2017

Spawning A Cycle Of Speculation And Correction

A weekend topic starting with the Dallas Morning News. “For Valentine’s Day, Danielle DiMartino Booth sent Janet Yellen and the ruling cohort at the nation’s central bank a caustic forget-me-not. DiMartino Booth, who advised Richard Fisher about the financial markets during her nine years at the Federal Reserve Bank of Dallas, has written ‘Fed Up: An Insider’s Take on Why the Federal Reserve is Bad for America.’ The book is a scathing dissection of what she says led up to the financial crisis of 2008 and the ensuing easy money policies that she believes still threaten the country’s economic future.”

“‘This is not a wonkish Ph.D. dissertation,’ says DiMartino Booth, the 46-year-old founder and president of Money Strong LLC in Dallas. ‘The last chapter provides a blueprint of how we can go about fixing the Fed so that it’s an institution that doesn’t just benefit Wall Street but also Main Street and everybody in between.’”

“One of her main criticisms about the Fed is that it’s run by a bloated pack of 1,000 economists. A spokeswoman for the Federal Reserve Board says the actual numbers are 300 economists at the board level and 300-plus at the regional banks.”

“Shortly after 9/11, she made her way to Dallas to be with her boyfriend and now husband, John Booth. She became a daily financial columnist under her maiden name for The Dallas Morning News, where she sounded early and repeated warnings of an impending disastrous housing debt debacle. Some thought she was Chicken Little.”

“One point of departure is DiMartino Booth’s highly critical view of Yellen as a free-spending ‘Keynesian on steroids’ who lacks the experience to oversee the nation’s banking system.”

“In the last chapter of Fed Up, Danielle DiMartino Booth gives her strategy for retooling and rearming the Federal Reserve. Among her bullet points: Congress should allow the Fed to focus solely on price stability and inflation and not worry about maximizing employment. Permanent monetary policy voting rights should be given to all district bank presidents, not just the New York Fed. The Fed’s century-old map of districts should be redrawn to better reflect the economic engine of the West, including Texas.”

“Set more realistic term limits (currently at 14 years) for Fed governors. Cut the number of Ph.D’s among the leadership and staff to make way for more business people on the receiving end of Fed policy and to hire brilliant supervisors and examiners to keep Wall Street giant investment firms in check. Weak financial institutions should be allowed to naturally self-destruct.”

From MarketWatch. “Danielle DiMartino Booth, author of ‘Fed Up: An Insider’s Take on Why the Federal Reserve is Bad for America,’ attacks the culture of the Fed, starting from the bottom up. She takes on the research staffs of elite, Ph.D. economists — ‘the MIT mafia’ — who are married to their mathematical models and focused on publishing in peer-reviewed journals. She exposes the institutional groupthink — ‘groupstink,’ she calls it — and disdain for dissenting views. And she reserves her most strident criticism for those at the very top.”

“The author arrived at the Dallas Fed in 2006 after a tour on Wall Street and a stint as a financial columnist for the Dallas Morning News. In her columns, DiMartino Booth had warned about lax mortgage-lending standards, a housing bubble and escalating systemic risk. Once ensconced at the Fed, she was left to wonder why so many ‘highly educated and well-paid economists’ were ‘oblivious as the worst financial crisis since the Great Depression was about to break over their heads.’ (One of the main reasons is the Fed’s reliance on econometric models that don’t include anything related to the financial system, such as debt or credit.)”

“It wasn’t just the staff economists who were blind to what was going on in the real world. Neither former Fed chairman Alan Greenspan, who can boast of two bubbles on his watch, nor his successor Ben Bernanke saw the train wreck coming.”

“Janet Yellen, the current Fed chairwoman, is subject to withering criticism in the book. From 2004-2010, Yellen was president of the San Francisco Fed, whose district encompasses nine Western states and was ground zero for the housing bubble and subsequent bust. DiMartino Booth portrays Yellen as an uber-dove and devout Keynesian, someone who was ‘oblivious as the housing market in her region imploded on multiple fronts.’”

“The author advocates greater diversity at the Fed: specifically, more staffers with actual business experience and fewer ivory-tower types. She would like to see an increased focus on systemic risk. And she wants Congress to release the Fed from its dual mandate — stable prices and maximum employment — so it can focus solely on price stability.”

“Bernanke arrived at the Fed as an advocate of inflation targeting. He used to say that price stability was an end in itself and a means to an end (maximum employment). The Fed even adopted an explicit 2% inflation target on his watch.”

“The nation learned the hard way that price stability is a necessary but not a sufficient condition for economic and financial stability. The U.S. experienced back-to-back asset bubbles — in technology stocks and in residential real estate — during a period referred to as the ‘Great Moderation.’ So price stability alone is no guarantee of Nirvana.”

“Specific policy recommendations comprise a few pages at the end of ‘Fed Up.’ The issues themselves, such as whether the Fed is spawning a ‘never-ending, self-reinforcing cycle of speculation and correction’ with its unconventional policies, form the basis for the book. And hopefully the basis for self-reflection and change at the Fed.”

February 17, 2017

No One Seems Able To Stop This Gadarene Rush

It’s Friday desk clearing time for this blogger. “Federal Housing Administration mortgage delinquencies jumped in the fourth quarter for the first time since 2006, the Mortgage Bankers Association reported Wednesday. The FHA insures low down-payment loans and is a favorite among first-time homebuyers. The seasonally adjusted FHA delinquency rate increased to 9.02 percent in the fourth quarter from 8.3 percent in the third quarter, MBA data show. The jump, which followed the lowest delinquency rate since 1997, was driven by loans made since 2014 and early-stage delinquencies, those just 30 days past due.”

“There were, however, signs as recently as last fall that FHA loans were beginning to fail at a higher rate. In October, ATTOM Data Solutions, a foreclosure sales and analytics company, reported the biggest jump in foreclosure activity since 2007, with FHA loans behind the surge. ‘While some states are still slogging through the remnants of the last housing crisis, the foreclosure activity increases in states such as Arizona, Colorado and Georgia are more heavily tied to loans originated since 2009 — after most of the risky lending fueling the last housing boom had stopped,’ said Daren Blomquist, senior vice president at Attom Data Solutions.”

“Since the start of 2017, Bridgeport Neighborhood Trust has seen an uptick in the number of people walking through its doors looking for help. The nonprofit provides foreclosure prevention services in a city where year after year foreclosures occur in higher numbers than elsewhere in the state. In 2016, the Park City reported 261 foreclosure deed filings, which transfer the deed to a lender after a mortgage is foreclosed, slightly higher than its 2015 total of 246 filings.”

“The fact that home prices dropped post-recession has also affected homeowners, said Doris Latorre, BNT’s director of foreclosure prevention. ‘Most of the folks we see in trouble in Bridgeport, their houses are upside down — they owe more than it is worth,’ she said.”

“The good news for renters: After several years of unbridled rent spikes across the City of Atlanta, data from 2016 suggest that trend might finally be cooling off, broadly speaking. The roughly 5,000 new units that hit the market in 2016 had a softening effect. Traditionally high-priced areas of Atlanta—the Buckhead and Peachtree Hills areas—actually recorded declines of up to 2.2 percent last year. That’s not a significant downturn, especially for high-roller renters, but it’s a jolting reversal of post-recession trends.”

“If you’re looking for a deal on a brand new apartment in downtown Chicago, it’s getting easier to find one. Amid a historic building boom, the downtown apartment market is tilting in favor of tenants, who have endured big rent hikes for several years. ‘We’re looking at a lot of giveaways,’ said Ron DeVries, vice president of Appraisal Research Counselors, a Chicago-based consulting firm.”

“Houston’s low inventory of homes for sale may give the impression that the market leans in favor of sellers, but a new report shows that buyers may have the upper hand. Houston ranks as the nation’s fifth-best market for home buyers, according to Zillow. The company looked at the percentage of listings with a price cut and how long listing typically stay on the market. In the Houston region, 11 percent of listings have had price cuts. By comparison, 5.4 percent of listings in San Francisco — considered the best market for sellers — had price cuts. ‘A number of markets nationwide continue to struggle with slower job growth, weaker home value appreciation and higher rates of negative equity, giving buyers more negotiating power,’ Zillow chief economist Svenja Gudell said.”

“Online agent HouseSimple reckons a third of properties for sale in the UK have had their asking prices reduced since they were first marketed, based on listing data. The agent looked at 100 large towns and cities across the UK and found that in eight the percentage of homes reduced was in excess of 40%. Of the three largest cities in the UK, London has the highest percentage of properties currently being marketed (30%) that have had a price reduction since they were initially listed. HouseSimple says this ’suggests that estate agents in the Capital are finding it harder to secure a sale and are having to drop asking prices to attract buyers.’”

“With low demand and oversupply of residential units in the market, real estate companies would be forced to reduce the rents by up to 30 percent in the near future, say industry experts. Instead of reducing the rents, several leading real estate companies have come out with attractive packages such as free occupancy up to six months in a bid to survive in the market. ‘Supply of housing units has surpassed the demand,’ Khalifa Al Maslamani, a Qatari real estate expert said in a talk-show on Qatar TV. ‘Owners of the buildings would have to reduce the rents by 20 to 30 percent due to low demand,’ he added.”

“In the summer of 2016, outside the office of a Cairo real estate company called Mountain View, a crush of hundreds of people had gathered, and they were in a frenzy. The crowd of men and women were there to reserve spaces in a new desert compound at a bargain price, hoping to sell it on a few weeks later for a big profit. Walid Salah-Ahmed, a real estate developer himself, ended up having to pull a woman out of the crowd after she fainted. He splashed water on her face, she came to, and got up and plunged right back into the crowd in the hopes of closing on an apartment.”

“But after authorities decided to float the Egyptian pound, and let the free market dictate the exchange rate, the boom days of real estate are probably over. ‘I think there’s a tremendous slowdown in the real estate sector,’ Salah-Ahmed said. ‘If this was a normal country, they would call this a crash.’”

“Malta’s landscape is today covered by cranes and many developers have been buying up derelict properties (or in some cases perfectly good residences) and converting them to apartment blocks. But we already have a huge stick of uninhabited buildings around and this spate of construction will surely increase the stock. The stock of uninhabited buildings is already unsustainable, let alone what will there be at the end of all his construction.”

“This is the real bubble that the construction sector is experiencing - not a bubble that threatens the banking system but a bubble that threatens the social fabric both of the would-be buyers and also of the would-be developers. No one seems able to stop or at least slow this Gadarene rush, but people are warned the consequences will be very painful.”

February 15, 2017

Driven By Unpredictable Investor Mania

A report from the Business News Network in Canada. “After months, if not years of hand-wringing about Canada’s hot housing markets, BMO is calling it: Toronto’s housing market is in a bubble. ‘Let’s drop the pretence. The Toronto housing market — and the many cities surrounding it — are in a housing bubble,’ BMO Chief Economist Doug Porter wrote in a note to clients. Housing prices in Toronto and the surrounding area have become ‘dangerously detached’ from economic fundamentals and are rising simply on the belief that prices will continue to soar higher, according to Porter.”

“‘Prices in Greater Toronto are now up a fiery 22.6 per cent from a year ago, the fastest increase since the late 1980s—a period pretty much everyone can agree was a true bubble — and a cool 21 percentage points faster than inflation and/or wage growth,’ he wrote.”

“The often-cited mantra that Toronto’s real estate market is being driven largely by a lack of supply is wearing thin, he argues. Housing starts in Toronto and Vancouver recently hit an all-time high of 70,000 units per year and overall Canadian starts are above demographic demand at 200,000 units in the past year, according to BMO.”

“Meanwhile, Toronto condo prices are posting double-digit gains despite plenty of supply, according to Porter. ‘No, the massive price gains are being driven first and foremost by sizzling hot demand, whether from ultra-low interest rates (negative in real terms), robust population growth, or non-resident investor demand,’ he said.”

The Financial Post. “Those booming housing markets may make some homeowners rich and provide a short-term boost to the economy, but a Canadian economist is warning about the long-term impact on the country. David Madani, of Capital Economics, said in a report that while the housing boom supported the economy through the oil shock in 2016, a further deterioration in housing affordability will cost the economy over time.”

“‘The abrupt slowdown in Vancouver’s housing market serves as a warning shot. As things stand now, the performance of the economy this year could hinge on the direction of the much larger overheated Toronto housing market,’ Madani writes. ‘The new foreign buyer tax announced by British Columbia’s government in July doesn’t tell the full story either. We simply think the housing bubble has burst. Housing bubbles are, of course, inherently unstable because they are largely driven by unpredictable investor mania.’”

From MetroNews. “The number of empty homes in Metro Vancouver continues to rise, according to population growth data from the 2016 Census. Between 2011 and 2016, the percentage of homes left vacant or not permanently lived in in the City of Vancouver rose from 7.7 per cent to 8.2 per cent, according to an analyses of Census data by Andy Yan, an urban planner and director of Simon Fraser University’s City Program.”

“During the same period the number of such properties jumped by 15 per cent, from 22,169 to 25,502, in Vancouver. Coal Harbour continues to have a high percentage of empty units, at 22 per cent. But Joyce-Collingwood in East Vancouver has now overtaken Coal Harbour, with 24 per cent of homes unoccupied. Some of those may be land-assembled single family homes awaiting development, Yan said, or units purchased by investors in new condo developments in the neighbourhood.”

From Bloomberg. “Vancouver’s multimillion-dollar homes are increasingly out of reach for Vancouverites. And nothing speaks to the Canadian city’s affordability crisis more than its empty houses. Vacant or temporarily occupied dwellings have more than doubled since 2001 to 66,719 last year as neighborhoods are hollowing out, said Andy Yan, director of Simon Fraser University’s City Program.”

“Vancouver introduced a new tax on empty homes last month aimed at boosting the supply of rentals in a city facing a near-zero vacancy rate. The province also imposed a 15 percent tax on foreign buyers last August after discovering more than C$1 billion ($761 million) of global cash had flowed into local properties over a five-week period. ‘It’s unacceptable for so much housing to be treated as a commodity,’ Vancouver Mayor Gregor Robertson said in a statement.”

The North Shore News. “Sales of single-family homes continued to tumble throughout Metro Vancouver last month, with January sales below long-term averages, according to the Real Estate Board of Greater Vancouver. On the North Shore, those trends were even more pronounced. Only 20 detached homes sold in West Vancouver in January, bringing its sales-to-listings ratio down to 12 per cent. Sales of detached homes between November and January are down 67 per cent over the same time last year.”

“West Vancouver Realtor Allan Angell, who specializes in the high-end luxury market, calls the situation in that market ‘almost tied for the worst of all time.’ Realtor Brent Eilers of Remax Masters Realty in West Vancouver, has examined statistics dating back over the past three decades, and shares that assessment. ‘It’s one of the most significant slowdowns we’ve had,’ he said.”

“Prices are also beginning to fall. The real estate board put the ‘benchmark’ price of a West Vancouver house at $2.9 million in January – down 13 per cent from six months ago. But Eilers said median prices of homes sold are down farther than that and ‘many have had to go through multiple price reductions to get sold.’”

The CTV News. “At the peak of the last oil boom, there were so many people living in the southeastern Saskatchewan city of Estevan that there was nowhere to stay. ‘We had people sleeping in trailers — sleeping in vehicles, if you can believe that,’ recalled Estevan Mayor Roy Ludwig.”

“Then oil prices fell, drilling activity slowed to a crawl and Ludwig figures the community lost about 2,000 people, mostly transient workers. By last fall, Estevan had a vacancy rate of 27.6 per cent, according to the Canada Mortgage and Housing Corporation. It’s much the same situation in Alberta, where big-city vacancy rates were in the single digits five years ago. These days, about 37 per cent of rental houses and condominiums are sitting empty in Calgary, and the comparable rate in Edmonton is about 27 per cent, said Shamon Kureshi, CEO of Calgary-based Hope Street Real Estate Corp.”

“And what to make of those towering vacancy rates? It’s probably got more to do with all the extra housing capacity that was built when the good times were at their peak. ‘There’s been a huge building boom — particularly in Saskatchewan, but in Western Canada in general — and these builders are working on all eight cylinders or all 12 cylinders,’ said Kureshi. ‘But one of the things that’s happening and causing this sort of tidal wave of rental property, is that the new homes and the new condos and the highrises that these builders are constructing, aren’t selling because there’s just no money and no people to take them.’”