March 31, 2017

A Lot More People Said, ‘Hey, I Can’t Afford My Mortgage’

It’s Friday desk clearing time for this blogger. “Not counting carrying costs and real estate fees, Canadian-born ‘Austin Powers’ franchise star Mike Myers took a hair-raising, $675,000 blow to his bank account when he sold a four-bedroom and 4.5-bathroom condo in New York City’s TriBeCa neighborhood for $14 million just four months after he bought it for $14.675 million. The never-occupied 4,241-square-foot apartment, flipped back on the market at $15 million just a week after Mister Myers bought it.”

“A spike in delinquent mortgages last year contributed to Baton Rouge’s fall in a national ranking of the overall health of 400 housing markets across the U.S., according to a Nationwide Economics report. This time last year, around 3.5% of Baton Rouge homeowners were more than 90 days delinquent on their mortgages, says Nationwide Senior Economist Ben Ayers, one of the report’s authors. In the second half of the year, the number jumped to 5%. ‘That’s a lot more people in a short period of time that said, ‘Hey, I can’t afford my mortgage,’ Ayers says.”

“‘The general trend is still very good. We still feel like the economy is going to be growing over the next few years,’ Ayers says. ‘The main concern we have, particularly in the larger markets, is unsustainable house price gains.’”

“Is Silicon Valley’s seemingly unstoppable economic engine finally starting to slow down? Tech companies in San Francisco and San Mateo counties lost 700 jobs from January to February and tech employment has dropped by 3,200 jobs since hitting a peak last August, according to Ted Egan, San Francisco’s chief economist. Q: What are the weakest spots in tech? A: Venture capital has peaked and has been going down steadily since 2015. A lot of the employment in our tech sector is in companies that are not profitable.”

“Q: What about housing? A: What I’m hearing from people in the housing market is that the upper end, the luxury stuff, is really taking longer to sell. In terms of rents, we hit a peak a year ago and we are around 5 percent down from there.”

“Apartment landlords across the U.S. struggled through a tough first quarter as a slowdown in the rental market grew worse. Across the U.S., apartment developers delivered 100,000 more new units than were leased in the quarter. ‘We didn’t get a lot of demand and at the same time we got a lot of supply,’ said Greg Willett, chief economist at RealPage Inc. ‘To some degree it looks like operators have panicked in the Bay Area and New York.’”

“This spring it is likely to be overwhelmed by increasing supply. The average number of new apartments finished in each of the next few quarters is expected to climb to 102,000 from 82,000 in late 2016 and early 2017, according to Axiometrics. ‘Houston, you are experiencing concessions or just flat-out adjustments of the effective rent,’ said Brad Taylor, managing partner for the central region at JPI, an Irving, Texas-based real-estate developer. ‘The amount that someone has been writing their rent check for has been dropping.’”

“Still convinced that the city of Toronto needs to build more housing to bring down prices? Unfortunately there’s no data to support that. Actually, the data shows the opposite. Basic analysis shows the city might be overbuilding by over 40% for the current rate of growth. From 2012 to 2016, Toronto CMA saw 175,825 homes completed. This represents a 9.75% increase from the period prior. That’s a home for every 1.96 people that moved to the area, and 41% more than the average household size. That would have to be a pretty wide margin of error from all levels of government for there to be a ’shortage’ of homes.”

“So what’s happening with those extra units? Well let’s see. A few months ago our robo-researcher identified 1 in 3 homes listed for resale in Toronto were being sold as never having been occupied. Then there’s the 99,236 vacant homes in the city. The latter is a number so large that Paris, a city with just a few thousand more vacant units, is calling it an emergency. That considered, this sounds a lot like plain ole speculation. The fact that China’s capital outflows are reversing this year, also means it’s most likely domestic speculation.”

“Confusion reigns in one corner of Brisbane’s challenged apartment market, with a marketer offering discounts of up to 39 per cent – apparently without authorisation – in a newly completed residential development. David Carter, from Landmark Asset Services, this week emailed clients offering discounts such as two-bedroom apartments marked down from $805,000 to $490,000 and three-bedroom penthouses cut from $1.2 million to $960,000 in The Hudson development in the inner-ring suburb of Albion.”

“‘The funder has taken the project off the developer and has given us four weeks to sell the remaining 50 or so apartments,’ Mr Carter wrote in the email, which included a flyer offering ‘Sizzling Hot Deals.’ ‘I have never sent an email like this to friends and family but this is a damn good opportunity for anyone if they are looking for an investment and a fire sale price.’”

“Phnom Penh’s mushrooming property market is set for a massive crash with new apartment prices set to plummet by up to 50 per cent over the course of this year compared with March 2016 prices, says the director of EPenh, Nigel Miranda, in the Cambodian capital. According to Mr Miranda the effects of the oversupply will be felt across the entire Phnom Penh property market, with construction also tipped to be scaled down.”

“Asset valuation company VTrust Appraisal said that in 2016 there was a big increase in housing completion, with 14,539 units completed across numerous projects in the capital, a 106 per cent increase over the 7,054 units completed in 2015. Additionally 2016 saw 11,550 new units released for presale, with link type houses accounting for 89.1 per cent, or 10,290 units. However, only 51 per cent were sold. Of the 100,278 strata housing units available at the end of 2016, VTrust says only 67 per cent or some 68,190 had found buyers.”

“Signs that the Phnom Penh property market balloon is reaching bursting point first began to emerge last August. Claiming that developers and real estate agents are creating an artificial price balloon and benefiting from the absence of any property price index, Mr Miranda said. Phnom Penh condominium prices exceeded comparable properties in Thailand, Kuala Lumpur, and Jakarta. ‘I expect foreigners who have bought condominiums (foreigners can not legally own land in Cambodia) in the expectation of flipping them and making a profit in a couple of years, or even on completion, may instead see losses of between 30 and 60 per cent should they try and sell in the next couple of years,’ he said.”

March 30, 2017

People Bought Assets And Were Unable To Deliver

A report from the Mercury News in California. “Choked by traffic and overwhelmed by skyrocketing housing costs, a greater percentage of Bay Area residents than a year ago now say they yearn to flee the region. In a new Bay Area Council poll released Thursday, 40 percent of the region’s residents said they want to move away in the new few years, a marked increase from the 33 percent who said in 2016 they wanted to leave. Even worse, the new survey found that young adults are more inclined to leave: 46 percent of millennials want to lead the charge out of the Bay Area in the next few years.”

“‘It turns out that we were wrong about millennial preferences, the stories were wrong that millennials wanted to live in a hyper-urban environment and that it would be OK to raise families in a condo,’ said Micah Weinberg, president of the Bay Area Council’s Economic Institute. ‘Millennials are putting off family formation, but when they have a family, they want what their parents had: a house on a nice lot pretty close to work.’”

The Seattle Times in Washington. “After a brief winter slowdown in rising rents, tenants across the Seattle region are back dealing with the same old discouraging story: Rents are shooting right back up again. But there is some promising news: Hot neighborhoods with lots of apartment construction are finally starting to see some slight rent relief, and a lot more building is on the way. Seattle is expecting nearly 9,000 new apartments this year — thousands more than any year in the city’s history — with even busier construction forecasts set for 2018 and 2019. The region as a whole, from Tacoma to Snohomish County, is experiencing its second-biggest apartment boom ever, with more than 60,000 units in the pipeline this decade, according to Dupre + Scott.”

“Mike Seeley, a University of Washington sophomore, is moving into a house with friends near campus, and they received a 10 percent rent increase compared with the prior tenants. He said the landlord told them to expect annual rent hikes of 3 percent to 10 percent going forward. ‘These houses aren’t luxury apartments. They’re sort of rundown,’ Seeley said. ‘As a college student, it’s never something you want to hear — you have to pay more for stuff.’”

The Dallas Morning News in Texas. “Apartment renters in Dallas-Fort Worth are starting out the year with a big jump in rents. The D-FW area had one of the biggest rent increases in the country - up almost 6 percent from first quarter 2016, according to RealPage Inc. The spike in D-FW apartment costs came even though demand for rental units was basically flat. Net leasing for the first quarter was actually a decline in 129 units.”

“Currently there are 50,588 apartments under construction in the D-FW area and about 30,000 of those units will open this year. Developers completed 7,062 new apartments in North Texas during the first quarter - the largest delivery of new units in almost 17 years, according to RealPage. Dallas-Fort Worth has almost 10 percent of the 581,556 apartment units that are under construction around the country. ‘The tiny net loss of residents looks like a blip,’ said RealPage chief economist Greg Willett. ‘Demand was stronger than would be expected seasonally in fourth quarter, so maybe households just got a little off typical cycle for move dates.’”

From Biznow on Washington DC. “DC had the fifth-highest rent in the nation in March, according to Zumper’s national rent report, but the median cost of a one-bedroom in the District dropped 7% from March 2016. While some DC neighborhoods experienced rent growth, comparing the report to last year’s shows that rent prices in neighborhoods with large amounts of multifamily development, such as Capitol Riverfront and NoMa, have dropped.”

“Capitol Riverfront: The waterfront neighborhood in Southeast DC is in the midst of a massive multifamily boom. The staggering number of deliveries, including a citywide high of 1,843 rental units coming this year, is clearly having an impact on rents. The median rent in the neighborhood this March is $1,990, down from $2,220 in March 2016. One-bedroom rents in Georgetown, while tied with Shaw/Logan Circle for the highest in the city, seem to be on a downward trend. The neighborhood averaged $2,500 this month, down from $2,700 in March 2016.”

From Bloomberg on New York. “Manhattan landlords, who have seen retail occupancy plummet after boosting rents to record levels, are trying to avoid big price cuts. Instead, they’re writing checks. The concessions, which can pay for anything from lighting and displays to a complete overhaul, are becoming a key component in some new leases, particularly for large, flagship stores in high-profile areas, such as Madison Avenue and Fifth Avenue, according to Steve Soutendijk, an executive director at brokerage Cushman & Wakefield Inc. ‘We’re seeing tenant-improvement and concession packages that retail landlords never, ever contemplated before,’ he said.”

“Apartment landlords are offering concessions and paying broker’s fees — a burden typically shouldered by the tenant in New York — to better compete as a glut of new towers gives renters more choices. ‘People bought assets predicated on achieving incredible rents and were unable to deliver,’ said Alexander Goldfarb, an analyst covering real estate investment trusts at Sandler O’Neill & Partners. ‘One of the oldest tricks in real estate is to maintain high face rents by funding a lot of incentives up front.’”

The Journal Sentinel in Wisconsin. “A proposal to develop a large upscale apartment building in Milwaukee’s Walker’s Point neighborhood has been canceled, with the developer citing both an oversupply of new apartment units as well as rising construction costs. David Winograd said market conditions have changed since he began working two years ago on his proposed 234 Apartments. ‘A lot more high-end stuff is coming on line now than when we started,’ Winograd said.”

March 29, 2017

People Have Been Paying Tomorrow’s Prices

A report from Bloomberg on the UK. “The number of London properties listed on Airbnb almost doubled in a year to 50,000 at the end of 2016, according to broker Jones Lang LaSalle Inc. A record 35,000 new high-end London properties — enough to cover Hyde Park twice — are planned in the coming decade, 40 percent more than in 2014, consulting firm Arcadis NV said in April. Sales of London homes under construction in 2016 dropped to their lowest in four years, leaving developers with a record inventory of unsold properties, after tax increases dented demand for high-end homes.”

“‘Demand in the long-let market has not been very strong after the Brexit vote, but property owners need to maintain their profit,’ said Gao Xiang, president of JC International Property, a broker that specializes in Chinese and Japanese investors in London. ‘The price-to-rent ratio is far less than investors expect. The tax changes for smaller investors have had a real effect — in some cases they are looking at loss-making properties.’”

The Saudi Gazette. “Small businesses that emerged during the previous economic boom have been struggling to stay afloat, forcing many owners to make the most difficult decision any business owner has to make: Close permanently or stay open and continue to lose money. According to a report in Al-Riyadh daily, an increasing number of business owners are choosing to cut their losses and permanently close shop, a trend that has pushed commercial rent prices down by around 30 percent.”

“Real estate agent Abdullah Habib said that the closure of small business offices overshadowed the level of rents, something that indicates a remarkable drop in rent prices. ‘The real estate rental market is experiencing a severe recession since the beginning of the year in anticipation of a future that looks bleak at the moment,’ he said.”

From Arabian Business. “While rents in Dubai mostly held their ground, values came down noticeably in Abu Dhabi in February. The greatest downward movement was observed in rental rates of studio units, with average rent recorded at AED44,000, down from the January average of AED48,000. said: ‘Considering the global headwinds most economies are braving, and the effect on liquidity as a result of the ongoing oil price crunch, the performance of real estate markets in the two main cities of UAE appears satisfactory. While many regional realty markets remain in a nosedive.’”

From Japan News. “Are financial institutions trying to make an easy profit by providing loans to consumers who are easier to finance? The Financial Services Agency has launched a survey on so-called card and apartment loan services, which banks have been providing to a ballooning number of customers. Banks are apparently willing to extend loans to individual customers, from which they can expect high profits, in a bid to compensate for declines in profit under the policy of negative interest rates.”

“However, excessive financing with a focus on near-term profits could eventually have banks facing a new risk of irrecoverable loans. Under apartment loan services, borrowers are supposed to repay their loans with the rents they will receive. The scheme will work as long as borrowers can secure occupants for their apartments, but they could fall behind their repayment schedule if they face an increasing number of vacant rooms. Concerns over the risk of vacant rooms are particularly strong for apartments built in local cities, which are facing population declines faster than ever.”

“At a January meeting of branch heads, the Bank of Japan issued a warning, saying, ‘There are concerns that the vacancy rate is increasing while rents are falling in less-attracting properties, among other assets.’”

From CNBC on China. “China faces the risk of youth disenchantment as property prices rise beyond their reach, a renowned Chinese economist said. ‘In a regular country, wealth should be concentrated in the financial markets, not fixed assets,’ said Renmin University of China Vice President Wu Xiaoqiu at a media interview at the Boao Forum in the province of Hainan.”

“He highlighted the risks from the current property bubble in China, such as negative asset values if prices tank. More importantly, the social risks that come from the property bubble in the form of youth disenchantment with not being to afford a home will be damaging, he said. ‘If young people lose hope, the economy will suffer, as housing is a necessity,’ he said.”

From Domain News in Australia. “More than 50 per cent of new apartments bought and re-sold in the five years to 2016 in Melbourne sold at a loss, an analysis by BIS Oxford Economics of all apartments bought and sold since 2011 shows. In Melbourne, Carlton, West Melbourne and Docklands were the worst performing localities for off-the-plan apartments with 10 or more sales, with losses of up to 7.44 per cent.”

“It’s all down to timing and location and those approaching settlement in Sydney risked coming up short if a valuation did not stack up, said Edwin Almeida, director of Sydney-based real estate agency Just Think Real Estate. ‘For the last three years at least, people have been paying tomorrow’s prices when buying off the plan,’ Mr Almeida said.”

“He blamed the exuberance of the market, inflated commissions and poor-quality construction for the poor results. If off-the-plan properties fall in value or were bought for more than their worth, the buyer will need to find a bigger deposit to cover what the bank won’t lend to them. One seller who recently approached him was the purchaser of two off the plan apartments in Dulwich Hill. He’d bought the two-bedroom apartments for $950,000 each over a year ago and now faces the difficulty of settling. ‘He’ll end up selling at a loss if he sells,’ he said.”

March 28, 2017

The Flood Set To Hit The Market

A report from Bloomberg. “As members of Congress in Washington debate raising the minimum required to obtain a U.S. immigrant investor visa from $500,000 to $1.35 million, concern about the hike has set off a scramble among wealthy would-be participants in China. China’s wealthy, using not-always-legal means to skirt capital controls to get their money out and at the same time gain residency in the U.S., are continuing to dwarf all others as the largest participants in the EB-5 program, despite heightened measures by the Chinese government. The initiative channels money to high-profile U.S. real estate projects from New York to Miami to California.”

“New projects recently doing the rounds in China’s chat rooms, web forums and hotel-ballroom investor seminars include a 5-star hotel complex in Palm Springs, California, and what’s touted as ‘the world’s tallest residential building,’ on New York’s 57th Street, known as Billionaires’ Row. Because Chinese individuals are limited to exchanging $50,000 worth of yuan a year, a 10th of what the EB-5 program requires, some agents are advising clients who don’t already have assets offshore to use a means nicknamed ’smurfing’ to move their money.”

“‘Our suggestion to the client is to open three to four personal accounts in the U.S. or line up three to four friends’ accounts, so they can split the money and wire it to different personal accounts without being put on a blacklist by the Chinese authorities,’ said a Shanghai-based real estate agent who gave the surname Dong. ‘It may require a trip to the States to do so to facilitate the process.’”

The Sparks Tribune in Nevada. “The revitalization of the downtown Sparks area will take another step forward this week when crews break ground on another luxury apartment community on the northeast shore of the Sparks Marina. The five story, 209-unit Waterfront at the Marina surrounds and incorporates an abandoned parking structure that has been vacant since 2008. The Waterfront will have water and mountain views along with an assortment of one and two bedroom models featuring high end amenities including an art fitness center, concierge services, business center, dog wash and park, roof top deck and secure parking.”

“‘There is nothing like this project in Northern Nevada,’ said James Previti, CEO of Guardian Investment Capital. ‘Five story elevator buildings and a secured parking garage are extremely expensive to build, and impossible for others to replicate. It will be the premier, high end community in the area.’”

From Philadelphia Magazine in Pennsylvania. “Our apartment-building engine continues to chug along. Signs of activity recently sprouted on two more construction sites: Pearl Properties’ proposed 32-story apartment tower at 1910 Chestnut, and Southern Land Company’s high-rise at 1911 Walnut. The only problem? Finding enough people who want to live in them. Welcome to the world of ‘post-millennial’ real estate.”

“Real estate services firm JLL noted that the flow of young professionals to Philly has already slowed — a problem when you consider the flood of apartments set to hit the market. In fact, a recent Center City District report says 4,167 apartments are under construction — more than double the 1,833 that came on the market in 2016. What’s more, 75 percent of these units are set to come on line this year — three times as many as the annual average since 2010. There’s a hope that If you build it, they will come — but what happens if they don’t? ”

The Grand Forks herald in North Dakota. “The Greater Grand Forks Apartment Association biannual vacancy survey released last week showed vacancies in the city are at the highest level they’ve been since February 2011, at 9.38 percent. ‘The market is turning into a renter’s market as opposed to a landlord’s market,’ said John Colter, executive director of the association.”

“With a complex market such as housing, it’s difficult to boil an outcome down to any one cause. But Colter speculates the record-high vacancy rates are tied to the large number of apartment developments springing up in Grand Forks over the past few years. Terry Hanson, executive director of the Grand Forks Housing Authority, said Grand Forks is at the higher end of the healthy vacancy rate. The rates as they are now, he said, will put downward pressure on the sky-high rents in town. Hanson said the rapid building of apartment projects was ultimately leading to this point. ‘It’s time to sit back and absorb what we have,’ he said.”

The Real Deal on Florida. “In the latest barrage to sell preconstruction units in a sluggish condo market, the Related Group is offering a slew of incentives at its Paraiso complex in Miami’s Edgewater neighborhood, The Real Deal has learned. The email also offers 30 percent deposits, rather than the usual 50 percent, which has been the standard among new condo developments this cycle. Commissions at Paraiso were already raised to 8 percent to 10 percent, depending on the tower, far above the original 5 percent.”

“Greater Downtown Miami, including Edgewater, currently has 21 towers under construction with 7,077 units. An additional 3,666 condos are currently on the market, representing resales, equating to 29 months of supply, according to Peter Zalewski, principal of Cranespotters. ‘A developer does not want to cut pricing, so what a developer will do first is raise commissions for brokers; second, eliminate or offer free maintenance; third is provide an incentive or credit for buildout of units; and the final step is reduce prices,’ Zalewski said. ‘So we are about halfway through the process when you have too many units and not enough buyers.’”

From Urban CNY in New York. “All you need to do is take a ride through various sections of our city and see construction. Not the typical Family Dollar, Dunkin Donuts, or Cell phone store, which has been our primary source of growth in neighborhoods, this is a housing boom. The most dramatic change came with the completion of Syracuse University’s Connective Corridor. Buildings are being converted into high-end residential as quickly as they can be acquired.”

“Buildings many of us have known for years as locations for business or industrial occupancy are now being transformed into glistening condominiums and apartments, towering over the crumbling infrastructure below. Massive apartment complexes have sprung up seemingly overnight. Miles away from campus, there are even more apartments and condominiums newly opened or under development.”

“Once these multiple projects are fully functional there could be a housing glut in the Syracuse area. Older rental units, more costly to operate housing will start to vacate, first to empty will be the uninsulated, poorly maintained rentals. Due to competition from the various housing options now available, university area property owners will no longer get top dollar for their older dwellings.”

March 27, 2017

Worries Became Reality

A report from the Washington Examiner. “In a little-noticed statement, the Treasury bureau responsible for investigating financial crimes shared a remarkable money laundering statistic last month. Thirty percent of the cash purchases of high-end real estate by shell companies in six major cities involved a suspicious buyer, according to an investigation conducted by the Financial Crimes Enforcement Network to find out who was behind the deals.”

“In some neighborhoods, the condos may be sold out — but empty. In Manhattan, for example, the blocks between Lenox Hill and Central Park, between 63rd and 70th Streets, are nearly 40 percent unoccupied, according to the Census Bureau. On the Upper East Side’s most exclusive tract, along Fifth Avenue, more than a quarter of properties are vacant.”

“The reality is similar in other exclusive neighborhoods throughout the country. More than half of the beachfront properties in the neighborhoods at the ends of Miami Beach, Bal Harbour and the southern tip of South Beach are unoccupied. Because of unoccupied downtown condos, the South Beach neighborhood of San Francisco is one-fifth unoccupied, in the middle of one of the tightest housing markets in U.S. history.”

“In certain neighborhoods overlooking the beach in Los Angeles and San Diego, the story is the same — a third of properties in Malibu are vacant, as are half of the homes in San Diego’s Oceanside neighborhood.”

The Real Deal. “Late last year, Steven Ho saw alarm bells on social media: The Chinese government was gearing up for a major crackdown on foreign investment, and on messaging platforms such as WeChat and Line, Ho’s friends told him they were concerned that money would be tighter. In January, those worries became reality, as the government imposed exacting new capital controls that required Chinese citizens to disclose the purpose of their foreign investments.”

“In the days that followed, numerous callers told Ho, a senior loan officer at Queens-based Quontic Bank, that they were unable to get their money out of China to finance real estate investments in New York. ‘They’re saying, ‘What’s the max I can borrow?’ and they’ll figure out other means [for repayment] later,’ Ho said.”

“Since the January regulations, local banks are seeing a wave of interest from buyers who want to invest in New York real estate, but whose funds are stuck in mainland China. Cindy Morin, marketing director for Xin Development, an arm of Chinese builder Xinyuan Real Estate, said one buyer recently backed out of a deal for a $1.4 million apartment at the developer’s Oosten condominium in Williamsburg. ‘They couldn’t get the down payment out,’ she said.”

March 26, 2017

A Glittering Monument To Oversupply

A report from the Journal Sentinel in Wisconsin. “On a recent Friday, Shorewest Realtor Beth Jaworski listed a three-bedroom, 1½-bathroom Dutch colonial house with a single-car garage in a popular Wauwatosa neighborhood for $289,900. By Sunday night that same weekend, the house had five offers from buyers. It sold for $315,000. ‘I’ve never seen it quite like this,’ said Jaworski, who has been selling residential real estate for almost 25 years. ‘You can put a property on the market, and literally within hours, you’ll have 15 to 25 showings scheduled.’”

“That seller’s market deal in Wauwatosa — and many others like it — shows how hot the metro Milwaukee climate for existing home sales has become. ‘It’s definitely a starving market, meaning that there’s so little inventory,’ said Bob Larson, a broker First Weber Realtors. ‘I’ve been in the business quite some time and I’ve seen a lot of buyer’s markets and I’ve seen seller’s markets. I’ve never seen one quite like this.’”

The Herald Leader on Kentucky. “Did you hear the one about the woman selling a $140,000 home in Kenwick who was besieged with home hunters wanting to see her house? Or about home sellers who are getting offers before their house has shown up on the Multiple Listing Service of real estate for sale? These Anecdotes are not just being heard in Lexington. In Versailles, Realtor Jeri Hartley said that in a recent four-day period, she put three houses on the market, and they all sold in the first 12 hours. ‘They go extremely quickly,’ Hartley said. ‘There are a lot of buyers from last year, … waiting to pounce just as soon as one comes on the market.’”

“Susan Speckert, executive director of the Fayette Alliance, said Lexington’s low housing inventory is not unique. The alliance supports sustainable growth in Lexington through land-use advocacy. ‘Though this is a nationwide phenomenon, there are some who will try to use low inventory as an argument to expand our urban services boundary to build more houses,’ Speckert said via email. ‘This is an illogical argument that ignores the facts. There are over 5,600 acres of vacant land and thousands more acres of underutilized land available for development inside the urban service boundary. Lack of available land is not the cause of the current housing inventory.’”

The Stockton Record in California. “The cities of Manteca, Tracy, Lathrop and Mountain House are seeing revived homebuilding. Not Stockton. All those cities are closer to the Bay Area. So regional trends may explain the disparity. John Beckman, head of a developer’s group, says Stockton has an ‘acute’ shortage of 9,890 homes — his figure — and there’s no way to build subdivisions big enough without bringing more acreage into the city.”

“Eric Parfrey, the Sierra Club litigant, says there is no housing shortage. The city already approved 19,000 yet-to-be built homes, at least. Assuming a growth rate of 500 homes a year, that is enough for 38 years of growth, or 15 years beyond the General Plan’s 2040 horizon.”

“‘I think that there is a substantial amount of housing that can be built within the limits of Stockton as they exist now,’ said Tom Pace, Stockton’s Deputy Community Development director, ‘traditional infill — a vacant lot downtown — as well as large-scale master-planned communities annexed into the city not yet constructed.’”

The New Canaan Advertiser in Connecticut. “Anyone who follows New Canaan’s real estate market could tell you when it comes to single family homes, the $1-million to $3-million range is where most of the activity happens in town. But with signs of a strong 2017 spring market, observers have noted the year kicked off with strong January numbers in the below $1-million range. Mary Higgins, a realtor with Halstead Property in New Canaan who offered the latest figures, attributes the uptick to signs of a turn-around after a slow 2016.”

“‘There were a number of price corrections in 2016, said Higgins. Many sellers started to get a more realistic view of what their home would sell for and dropped their price. Those adjustments are paying off.”

“A realtor for 40 years (36 in New Canaan), Kathy Tanner is seeing buyers getting smarter and savvier. Instead of offering a lower bid and going through a lot of negotiations to get a better price on a house, they are waiting for the price to come down and jumping in. ‘I think people are more realistic,’ said Tanner of sellers. ‘Some of the houses were priced higher in the market last fall and they have reduced them.’”

The Miami New Times in Florida. “Miami real-estate analyst Andrew Stearns releases a report about the health of the city’s condominium market four times per year. In the past year, Stearns’ predictions for the city’s ‘preconstruction’ condo market have gone from bad to worse to, as of yesterday, apocalyptic. Stearns has warned for close to 12 months that Miami property brokers can’t sell all the new condos that developers are building. But in a new report issued yesterday, Stearns officially labels Miami’s units for sale that haven’t yet been built as ‘distressed.’”

“‘The preconstruction condo resale market will likely continue to weaken as more units are delivered into the distressed market,’ Stearns writes. ‘Building inventory and declining sales usually result in downside pricing pressure. Preconstruction condo developers, flippers, and existing condo resellers should expect pricing pressure to accelerate.’”

“Stearns includes a gulp-inducing chart in his report, which shows condo sales have slumped like a black-diamond ski slope, right as inventory has hit an all-time high. Now buildings are sitting on the market for months or years with empty units. The Crimson Miami in Edgewater, for example, is still 34 percent empty despite the fact that construction ended in December 2015. Rise at Brickell City Centre is still 54 percent empty. Construction was completed there in September 2016.”

“Brickell, which has been so rapidly infused with condo buildings postrecession that the towers now blot out the sun at ground level, seems to be getting hit the hardest in terms of unsold inventory. The neighborhood is a glittering monument to oversupply.”

“‘Developers may resort to mark-down liquidations or bulk sales of unsold condo units as the cycle progresses, and time will tell how doing so will affect the preconstruction or existing resale market,’ Stearns writes. ‘The built-in, developer-owned inventories, which are expected to increase as we get deeper into this cycle, come at a time with massive increase in existing condo inventories and slumping sales in the overall Miami-Dade condo market.’”

March 25, 2017

Less Than Clueless Of The Risks

A weekend topic starting with “Ever had a feeling that perhaps you missed the peak time to sell something? That by holding out for a better offer or chancing your arm a bit you ended up costing yourself money? Well if so, you can only imagine how the team at Ed’s Easy Diner feel. In 2015 the business was on the market for £90m. Just over a year later, in October 2016, after a spell in administration it was offloaded to Giraffe for just shy of £9m. Have we, after half a dozen years of solid – and occasionally frenetic – growth, reached Peak Restaurant? ‘I think so,’ says Charlie Young of the Vinoteca group of wine bars. ‘It’s not that it’s going to break – it’s actually breaking. We’re starting to see casualties.’”

The Lincoln Journal Star. “Nebraska’s land auctions still attract a crowd — farmers in co-op hats, curious neighbors, keen-eyed investors. ‘The crowds are about the same,’ said Travis Augustin, an auctioneer and managing broker with Hastings-based Ruhter Auction & Realty. But the bidders, he said, are raising their hands a little slower and less often than they did when farming was more profitable.”

“The University of Nebraska’s land-market survey, shows slower bids and land sales that have translated into a 10 percent decline in Nebraska’s average farmland value over the past year. It marks the third consecutive year Nebraska’s weighted average price for farmland has declined. The average, as of Feb. 1, was $2,805 per acre this year, which is 15 percent lower than the state’s 2014 peak of $3,315 per acre.”

From Realtytrac. “Housing prices may be appreciating at a seemingly unsustainable rate once again in some markets around the country, but Christopher Thornberg believes the nation’s economic fundamentals will continue to be much more sound in 2017 than when the market began to implode back in 2005.”

“‘There’s no housing bubble. Not even close,’ assures Thornberg, Founding Partner of Beacon Economics LLC in Los Angeles. ‘There are three basic worry indicators and all three were very scary in 2005 and all three today suggest, if anything, that the housing market is still in the process of recovery instead of being near a new bubble.’”

From USA Today. “According to Foreign Affairs magazine, Americans reject the advice of experts so as ‘to insulate their fragile egos from ever being told they’re wrong.’ That’s in support of a book by Tom Nichols called The Death of Expertise, which essentially advances that thesis. But it also seems pretty plausible that Americans might look back on the last 50 years and say, ‘What have experts done for us lately?’ Not only have the experts failed to deliver on the moon bases and flying cars they promised back in the day, but their track record in general is looking a lot spottier than it was in, say, 1965.”

“It was experts who brought us the housing bubble and the subprime crisis. It was experts who botched the Obamacare rollout. And, of course, the experts didn’t see Brexit coming, and seem to have responded mostly with injured pride and assaults on the intelligence of the electorate, rather than with constructive solutions.”

“As Nassim Taleb recently observed: ‘With psychology papers replicating less than 40%, dietary advice reversing after 30 years of fatphobia, macroeconomic analysis working worse than astrology, the appointment of Bernanke who was less than clueless of the risks, and pharmaceutical trials replicating at best only 1/3 of the time, people are perfectly entitled to rely on their own ancestral instinct and listen to their grandmothers.’”

“Then there’s the problem that, somehow, over the past half-century or so the educated classes that make up the ‘expert’ demographic seem to have been doing pretty well, even as so many ordinary folks, in America and throughout the West, have seen their fortunes decaying. Is it any surprise that claims to authority in the form of ‘expertise’ don’t carry the same weight that they once did?”

“If experts want to reclaim a position of authority, they need to make a few changes. First, they should make sure they know what they’re talking about, and they shouldn’t talk about things where their knowledge isn’t solid. Second, they should be appropriately modest in their claims of authority. And, third, they should check their egos. It doesn’t matter what your SAT scores were, voters are under no obligation to listen to you unless they find what you say persuasive.”

“And you know what makes you less persuasive? The kind of contempt displayed by Foreign Affairs. If expertise is dead, it’s because those who claimed it overplayed their hands. It’s not the death of expertise, so much as a suicide.”

March 24, 2017

Not All Houses Are Sold Immediately Regardless Of Price

It’s Friday desk clearing time for this blogger. “Mortgage giant Freddie Mac today announced a new program that will allow lenders to give mortgages to buyers without credit scores. While the program may remind some observers of housing bubble loans, Freddie Mac says the program is a ‘responsible’ way to enable unconventional buyers to purchase homes. ‘We’re committed to supporting responsible lending and improving access to credit for all borrowers, including first-time home buyers, low- and moderate-income buyers and underserved populations,’ said David Lowman, executive vice president of Freddie Mac’s Single-Family Business.”

“With the combined inventory of single-family homes and condos in Manatee and Sarasota reaching its highest point in nearly five years, it’s no surprise the two-county area bucked the national trend and saw a significant increase in sales last month. There were more than 8,500 properties on the market in February, the most in the two-county area since April 2012. ‘With more active listings on the market, buyers are able to take time to view and compare more properties, and are not under pressure to jump on the first property they see,’ RASM president Xena Vallone said. ‘We are seeing this translate into longer time on the market.’”

“The unprecedented growth in Long Island City is evident to anyone in western Queens with views of the rapidly changing skyline. A new real-estate market report released by the Long Island City Partnership shows the residential sector is exploding with nearly 9,000 new units slated to come on line in 2017, which would be the most in a single year in the neighborhood’s history and almost double the area’s existing inventory.”

“This will bring the total number of residential units built in Long Island City since 2006 to more than 20,000. The study shows 1,573 units are planned to come on line in 2018 with another 11,532 units planned for 2019 and beyond.”

“When Brandywine Realty Trust won a high-stakes bidding war in 2011 for one of the last substantial pieces of untouched land in Center City, it seemed as if the Philadelphia housing market could only work in its favor. Yet the Center City rental market is far more competitive than it was back when Brandywine set its plan in motion. When the project was announced in 2012, just 844 apartment units had been delivered in the five years prior, according to the Center City District. By the time 1919 Market opened for business, that number had nearly tripled in 2014 and 2015 alone.”

“With so much new supply and more to come in the near future, regional observers have begun to ask a big question: Can all these Philadelphia apartments actually be filled? ‘We’ve been offering concessions since we opened,’ said Lauren DeMezza, property manager at 1919 Market. ‘Of course, there will be some cooling off,’ said Paul Levy, CEO of the Center City District. ‘A lot of supply has come onto the market. … And if you are a lender of a builder coming late to the market, you may have some concerns.’”

“The Bay Area may be losing a bit of its luster. After years of being overrun by new residents drawn by a red-hot economy, the number of people moving out has begun to catch up with the number moving in, new census data show. In fact, in some parts of the Bay Area — including Santa Clara, San Mateo and Marin counties — already more people are leaving than arriving, according to the estimates. For Redwood City resident Lolly Mitchell, 29, the scales have tipped on the side of cost. ‘I moved up here because there was more work for my husband,’ said Mitchell, who came from Southern California. ‘We’ve been working hard to be financially secure here. But we don’t want to live paycheck to paycheck. We just don’t want to be at risk for the amount of money we’d have to pay’ for a new home.”

“The rapid growth of housing prices in the Norwegian capital may be about to end, Real Estate Norway Chief Executive Christian Dreyer told Reuters. ‘We have seen signs of a change in character in the housing market in Oslo, with fewer people showing up to see houses for sale, and also less people bidding,’ he said. ‘Houses are still being sold, but we are about to return to a more normal situation in which not all houses are sold immediately regardless of price.’”

“Lenders and developers are offering property investors lucrative incentives ranging from annual commission payments of $100,000, loan discounts of more than 100 basis points and cash incentives, a review of top deals reveals. Developers are also offering generous discounts and special offers.Independent research by valuation group Herron Todd White (Melbourne) has uncovered evidence of market manipulation by developers attending to maintain the market price. It typically arises where off the plan purchases cannot complete a deal and threaten to sell the apartment at a lower price, which would lower the average price for the block. In these cases, developers are known to buy back the property, which artificially inflates the price, its research involves.”

“Rcihard Houston, Fintrack’s chief executive, said demand for high rise central business district apartments had fallen by about 50 per cent in the past three months.”

“Recent government regulations have created ‘unprecedented levels of uncertainty’ for the high-end home market heading into the key spring buying season, Sotheby’s International Realty Canada said in a report. Sales of homes for over $1 million in Vancouver fell to 531 units in January and February of this year, down 45 per cent from a year ago, Sotheby’s said. The luxury segment of the Vancouver market — defined as homes worth over $4 million — was even more dramatically affected, plunging 68 per cent from a year ago to 43 units, according to the report.”

“Bounced cheques are increasing across Oman as residents facing pay freezes struggle to make ends meet. The economic downturn in Oman has led to lay-offs, delays in salary payments and a freeze on housing, flights allowances and expenses. ‘It is totally a tenants’ market now, with most buildings half empty and looking for tenants. Payments are coming late and cheques have started bouncing as people are finding it hard to sustain,’ Country Operations Manager of Eqarat, Salman Jalil said. ‘In every building there are one or two cases. Earlier there were no cases. Initially, we try to give them more time but if it happens regularly, we hand over it to our legal department,’ he said. Eqarat manages more than 1,000 units in Oman.”

“Economist Gan Li and his researchers at Chengdu’s Southwestern University of Finance and Economics are gearing up for their national survey of Chinese households. The now much anticipated project almost suffered a premature death in 2012 after it exposed how Chinese society had become one of the most unequal in the world. Gan has been on a mission to depoliticize statistics. ‘The problem is not just the gray areas,’ he says. ‘In China, lots of things are completely dark.’”

“Gan’s research on China’s housing sector has also made waves. He figures that 70 percent of total household wealth is made up of the value of apartments. About 50 million already-sold units sit empty, much more than some investment banks had estimated. (The government doesn’t release national data on empty apartments.) China has a vacancy rate of 18 percent, compared with 13 percent in the U.S., Gan says.”

“Although his data were at first contested by property developers, now they are more widely accepted. That’s one reason officials are reducing housing inventory. ‘With policymakers mainly in Beijing, a city with rising housing prices, they assumed that China needed more apartments,’ Gan says. ‘Now the policy has almost 180 degrees turned.’”

March 23, 2017

The Roll Developers Have Been On Is Starting To Change

A report from Business Den in Colorado. “A 400-unit apartment complex in the Ballpark neighborhood sold this week for $126 million. Greenwood Village-based Griffis Residential bought Skye 2905 just north of Coors Field on Monday, city records show. Monogram Residential Trust, a Texas firm, was the seller. Jim DiRienzo, Griffis Residential’s VP of investment, said the company isn’t worried about a glut of residential units flooding the Union Station/Ballpark neighborhood. Long term, he said, people and businesses will keep moving in. ‘Our view of the Union Station neighborhood is that it’s sort of at its infancy,’ he said. ‘We think we can make it through the cycles.’”

“The 7-year-old complex sold for $315,000 per residential unit. The sale also includes the storefront of a ground-floor liquor store. The property last traded in April 2008 for $21 million, according to city records. Griffis Residential is funding its purchase in part with an $81.9 million loan from Teachers Insurance and Annuity Association of America.”

The Charlotte Observer in North Carolina. “Think you’re paying too much in rent? Chances are, you’re right. The Observer found the average rent for a two-bedroom place in Mecklenburg County increased $250 since 2011, making the payments a financial burden for more than 100,000 people. In some neighborhoods, the cost is much higher, effectively eliminating the areas from thousands of would-be renters. A study released last year by Abodo, an apartment-tracking firm, found 48 percent of renters in Charlotte met the definition of ‘cost-burdened.’”

“Igor Gorlatov and his wife and son, almost 3, recently upgraded from a one to a two-bedroom apartment in the McAlpine Creek area, to get ready for a baby on the way. His current rent, $1,035, is close to what he expected. But rent eats up about 60 percent of his monthly earnings as founder of a consulting startup. That’s twice the percentage of income that housing experts say households should spend on rent. ‘It is a big chunk of our expenses, of course,’ said Gorlatov, who runs Successful Negotiators Club. ‘It was a challenge to find the right place, and find a place that would accept not a regular income that your employer would give you, but my entrepreneurial status.’”

The Philadelphia Inquirer in Pennsylvania. “Philly rent has been climbing but the latest data from two major rental firms, Abodo and Zumper, show numbers falling locally in their March reports. According to Abodo, local monthly rents fell so precipitously last month, Philadelphia is at the top of its biggest decrease list. As usual, we can all breathe a sigh of relief that we don’t live in San Francisco or New York, where rental prices – which are down about 9 and 11 percent respectively from this time last year – are still about $3,000 a month.”

“With that said, it’s still worth mentioning that local rental rates remain north of the national average this month – no matter whose report you reference.”

From SF Curbed in California. “Rental site Zumper on Wednesday ranked Bay Area cities to see where median apartment prices had dropped the most year over year. Where things got interesting was the year-over-year comparison. Earliest this month, Zumper reported that they saw a huge nine percent decline in San Francisco prices since 2016. It turns out this was a region-wide trend: Median rents on Zumper are down 15 percent in Redwood City, Burlingame, and Emeryville, 13 percent in Santa Clara, 12 percent in South San Francisco, ten percent in Fremont, and nine percent in Mountain View.”

From Tulsa World in Oklahoma. “Steve Ganzkow, co-founder of Tulsa-based American Residential Group, was among the panelists who spoke at the 2017 Greater Tulsa Commercial Market Update. Among ARG’s most recent developments is The Edge at East Village, a downtown apartment community that opened last year. ‘The important thing is that people want that 24-hour lifestyle,’ Ganzkow said. ‘When they come home, they want to be able to walk out that door and go do something, whether it’s cultural or sit at a bar. … That’s where these things and these new thoughts and new plans and new ways of doing things are being done.’”

“Such housing, however, needs to become less costly, he said. The Edge’s price point is about $1.65 per square foot, Ganzkow said. Compared with projects in south Tulsa, developments downtown typically run 25 percent more, he said. ‘We have to create a product that is more affordable,” Ganzkow said. ‘I think the answer is going to be a public-private partnership. I know that Fannie Mae and Freddie Mac — that’s one of their goals. If they are going to stay in business, they have to figure out a way to provide a more affordable product for the developers to do that. It’s not just cut back on amenities. It’s going to be a whole capital-structure approach.’”

“He said the ‘roll’ the city has been on the past five to six years, however, is starting to change. ‘We’re currently experiencing a slowdown on a combination of job losses and increases in the supply of newly constructed apartments and renovated projects,’ Ganzkow said.”

From Multi-Housing News on Texas. “Houston’s multifamily market is still reeling from the oil price collapse in 2015, which resulted in thousands of job cuts and slowing investment activity. The outlook for multifamily is not favorable, since the development pipeline includes 58,000 units and the local economy remains unstable. With very low rent growth and an occupancy rate that lags the national average, absorption of the 18,700 apartments added in 2016 will be slow.”

“Transactions remain widespread across the metro, while upcoming development is focused on the West End/Downtown submarket—with 4,800 units under construction.”

March 22, 2017

The Markets That Have Recovered Too Much

A report from the Denver Post in Colorado. “There were 25 percent more starter homes available in metro Denver at the start of 2017 than at the start of 2016, and about a fifth more trade-up homes, according to Trulia. Something may be changing in the market. The starter-home inventory has seen annual increases for four straight quarters, and with each passing quarter, the percentage change is getting larger and larger.”

“Trulia’s chief economist Ralph McLaughlin puts Denver in the category of markets that have recovered ‘too much’ — along with cities like Seattle and San Francisco. If home-price gains outstrip income gains by too wide a margin, or if the price gaps between each tier are too large, it can make it harder for a housing market to function. ‘If it is difficult to afford your next house, you may be more inclined to stay put and renovate your existing home. It won’t ever go on the market,’ he said. That depresses inventory, further driving up prices.”

“For the bottom-third of earners, adjusted to exclude renters, affording the median-priced starter home would consume 41.1 percent of income. Most lenders would reject that loan, absent a very large down payment to bring that ratio down.”

“That might offer one explanation for the rise in the starter home inventory — more would-be buyers of starter homes are now priced out of the market. Another explanation comes on the supply side. The Denver Metro Association of Realtors found a large 19.2 jump in the inventory of condos available for sale last month, which it linked to more mom-and-pop landlords, who snapped up bargain properties during the downturn, now taking advantage of higher prices to cash in.”

The Union Tribune in California. “The San Diego County median home price dropped 1 percent in February to $492,000, CoreLogic said. Typically one of the slowest months of the year, the February median price has increased on average just 1.4 percent from January since 2000. San Diego’s median hit $507,500 in October but has been under half a million dollars since. It is still below the nominal 2005 peak of $517,500 (or $644,487 in 2016 dollars). There were 2,605 home sales in February, down 405 homes from its average since 2000. Chris Thornberg, economist and founding partner of Beacon Economics, said three factors may impact buying as the year goes on — higher mortgage interest rates, economic uncertainty with Trump administration policies and a possible slowdown of American home purchases by foreigners.”

“‘Any of those could be a realistic reason for slowing activity,’ he said, ‘and any of these reasons could say to us this summer won’t be as good as last summer from a sales and price perspective.’”

“The February resale home median price in San Diego County was $535,000. The newly built home price in February, $565,000, was at one of the lowest points in the last two years, likely the result of few single-family homes being built. There were just 170 newly built homes sold in February — roughly half of what was sold in the summer.”

From Bloomberg on New York. “In Manhattan’s East Village, buying an apartment beats renting within four years. In the Soho area just a few blocks away, it would take 31 years before owning makes more financial sense. That analysis of the so-called tipping point—the amount of time it would take for the cost of renting to equal or exceed the cost of buying a comparable home—is based on Bloomberg’s new exclusive, interactive map of real estate prices by neighborhood in Manhattan and Brooklyn, using fourth-quarter data from StreetEasy.”

“In a market weighed down by a glut of new luxury developments and resale listings that continue to pile up at ambitious prices, buyers have more choices and negotiating power. The leasing market too is facing a supply surge, and as landlords offer concessions and cut prices to keep vacancies in check, renters looking to buy have added reason to delay a purchase—or bargain harder.”

“In midtown Manhattan, sales in the three months that ended Dec. 31 carried median discounts of 8.3 percent from their initial asking price—the biggest reductions in the borough. Buyers in the West Village got median reductions of 5 percent. In Chelsea, sellers whittled a median of 4.6 percent from their asking prices to strike a deal. In many of Manhattan’s established neighborhoods, more than 40 percent of sales listings in the quarter got a price cut. On the Upper West Side, 42 percent of listings were discounted, and on the Upper East Side, the portion was 45 percent. The Lenox Hill area had the highest share, with 51 percent.”

The Miami Herald in Florida. “The middle of the South Florida home sales market is hot while the rest of the market is not. this mid-market boom comes as sales of existing single-family homes and condos each decreased 10 percent year over year, from a total of 2,039 to 1,835. Inventory increased for condos and decreased in the single-family category. Single-family homes have a 5.9-month supply, which indicates the top end of a seller’s market. Condo supply grew to 13.7 months, which indicates a strong buyer’s market.”

March 21, 2017

Normalization Follows Years Of Red-Hot And Record-Breaking

A report from the American Statesman in Texas. “Home sales in Pflugerville in January and February are less than half of what were sold in the same period last year. But Brandy Guthrie, president of the Austin Board of Realtors, said that dip does not indicate a weak market. Instead, she said, it is more indicative of a market moving toward normalization. That normalization follows two years of a ‘red-hot’ and ‘record-breaking’ real estate market in Central Texas, she said, which still remains robust this year. She noted the median price of homes rising from about $240,000 in January to $250,000 in February as homes continue to sell quickly and regularly receive multiple offers.”

“Guthrie said a continuing stream of new homes in Pflugerville will continue contributing to a robust Central Texas market. But with demand still high, it will remain a seller’s market. ‘Right now we have a housing shortage,’ she said. ‘Until we can get additional supply for the region, prices will continue to increase.’”

The North Bay Business Journal in California. “2016 was a strong year for apartment sales in Marin County, with multiple offers the norm for both five-plus-unit complexes and smaller, two- to four-unit properties. Both categories saw year-over-year price increases, with some southern Marin prime apartment properties selling at over $500,000 per unit. In central and northern Marin cities, prices are now $201,000–$409,000 per unit, depending on location and amenities. The majority of central Marin prices is currently around $300,000 per unit.”

“Smaller properties also received price increases in 2016. Southern Marin fourplexes sold for as high as $3.55 million. Duplexes in both Tiburon and Sausalito are now selling for $1.8 million–$2.3 million. Just two years ago, the same-sized duplexes were selling for $1.4 million–$2.0 million. Capitalization rates for five-plus-unit properties ranged from 2.69 percent for complexes with 30 percent upside in rents to around 4 percent for apartment properties that sold with rents near or at current market rents.”

“At the same time apartment sales were strong, southern Marin apartment rental rates continued to soften as more new apartments and condos came to market in San Francisco. Southern Marin two-bedroom luxury apartments that were renting for over $4,000 per month in the past two years are now renting for around $3,400–$3,600.”

From Arlington Now in Virginia. “Question: I’ve been renting my unit at the 1800 Wilson condos in the Rosslyn/Courthouse area for the last five years and am wondering why I used to get more rent five years ago than I do today, despite keeping the unit in great condition for each renter. Any ideas? Answer: You may have heard that over the last five to six years, the rental market has hit all-time highs across the country, so it makes sense that you’d expect your rental income to increase. However, the increased rental demand and previously undersupplied luxury rental market in Rosslyn got the attention of some major developers, who recently built larger luxury rental buildings nearby.”

“Don’t expect a huge jump because rental supply is substantially higher now and Central Place, above the Rosslyn Metro station, just started leasing 377 luxury units. However, many of these apartments are in the ultra-luxury market.”

From The Real Deal. “Criminal charges are looming for scandal-plagued Malaysian businessman Jho Low, who has been accused of stealing billions of dollars from a state development fund. Prosecutors’ plans involve charges of wire fraud and money laundering against Low and others, according to the Wall Street Journal, characterizing the scheme to siphon money from the 1Malaysia Development Bhd. as one of the largest-ever cases of financial fraud.”

“In addition to criminal charges, the Department of Justice is looking to seize additional assets from Low, including his $165 million, 300-foot yacht. It is also looking to seize a luxury apartment in Paris and a penthouse in London. Separate from the criminal investigation, the DOJ filed civil lawsuits this past summer, seeking to seize more than $1 billion in assets, including art and luxury real estate in New York City.”

From Crain’s New York Business. “Brookfield Properties has seized control of the Brill Building by foreclosing on a mezzanine loan it held against the Times Square property that had slipped into default in recent months. Real estate investment firms Brickman & Associates and Allied Partners had purchased the building for $185.5 million in 2013, then sold a minority share to additional partners last summer in a deal that valued the property at $310 million but also heaped on debt, according to reports at the time.”

“The takeover took place after the building’s owners couldn’t execute on a plan to lease its roughly 40,000 square feet of retail space for sufficient rents to make their investment pay off. ‘We made an investment four years ago that was predicated on certain retail rents, and instead those rents dropped tremendously, and we couldn’t generate the cash flow we expected,’ said Steven Friedman, Brickman’s chief investment officer, who confirmed his firm and its partners turned the property over to Brookfield. ‘Across the spectrum you’re seeing retail just getting creamed for a variety of reasons, and this is an unfortunate result of those problems.’”

“When it comes to retail, Brickman is far from alone. Urban Outfitters CEO Richard Hayne recently compared the challenges facing retailers to the housing bust during the Great Recession. ‘Thousands of new doors opened, and rents soared,’ Hayne said of the rapid increases in retail capacity that marked the 1990s and early 2000s. ‘This created a bubble, and like housing, that bubble has now burst.’”

March 20, 2017

The Housing Market Is Bubbly

A report from The Age in Australia. “A senior Chinese policeman has been jailed for 17 years for embezzling money to buy two Australian homes for his two daughters. The Australian real estate purchases were among a huge property portfolio, with no obvious legitimate source of funding, Chinese prosecutors said. Wang Jun Ren, 59, was the police chief of Guta District of Jinzhou City in Liaoning province, when he began asking a local property developer for millions of Chinese yuan to pay for the Australian real estate purchases for his family.”

“Wang was convicted of corruptly taking 174million yuan by himself, and another 24,800 yuan with his wife, taking bribes of 680million yuan, and having a huge amount of property of unknown source. That trial was held in December. The jail sentence comprised of four years for corruption, 12 years for bribe taking, and four years for the unknown funding source of a huge number of properties.”

The Domain News. “Rob and Ruth Peters don’t see themselves as criminals. She is the mother of two home-schooled children and Rob is best known in his Canadian home town as the high-profile oil and gas entrepreneur. But it seemed fitting to depict the family of four as criminals wearing striped prison garb in a caricature on their recent farewell party invitation given the way they feel the government has portrayed them and other foreigners caught up in the crackdown on foreign property buyers.”

“Despite appeals by their local MP, Tony Abbott to Treasurer Scott Morrison on their behalf, the Peters family are being forced to sell their Manly home of the past 14 years because they unknowingly bought it in contravention of the rules on foreign investment.”

“‘We appreciate what the government is trying to do but they’ve missed the boat on this issue,’ Mrs Peters said. ‘They’ve made it very easy for foreigners to buy as much real estate as they want as long as they have paid for a $5 million [Significant Investment] Visa, even if the buyers are never living here and leave the house empty, but we are living here and contributing to the community we live in, and yet we are being forced out.’”

From Bloomberg. “Australia is facing a period of ‘heightened risk’ in the housing market, the nation’s top banking regulator said, amid rising speculation further lending curbs may be imposed to cool runaway housing prices. Australian Prudential Regulation Authority Chairman Wayne Byres said that while he refused to ever use the ‘B-word’ — referring to a bubble — ‘if everyone isn’t careful, the risk in the system is going to rise.’”

“APRA’s role is to ‘dampen’ lenders’ enthusiasm and ensure finance providers are exercising a ‘higher degree of caution than unusual,’ he said. Earlier, Australian Securities & Investments Commission Chairman Greg Medcraft told the conference the housing market is ‘bubbly’ and he is ‘really concerned consumers don’t put themselves in above their head.’”

The Sydney Morning Herald. “Hundreds of new home owners have been left in limbo after the collapse of a land developer in Melbourne’s outer north-west. Developer Land Source Australia was placed in administration last year leaving residents of Waterford Estate unsure if key features of the estate – parks, ovals and shopping centres promised by the developers – will be delivered.”

“Waterford is the second developer in as many months to go into administration. Home builder Watersun, a company founded by high-profile developer Benni Aroni, was placed in voluntary administration leaving a cloud over 200 home owners.”

“Adrian Swinge, who has lived on the estate with his wife and three children for four years, said he had been led to believe a school would be built by the time his four-year-old son turned five. ‘We’ve invested in this estate and we’re left with no course of action. It’s blown up in our face. This was our future, this house,’ he said.”

From ABC News. “Debts run up by collapsed Victorian construction firm Watersun Homes are likely to hit $20 million, double the original estimates, the administrators say. The hundreds of homebuyers affected by the collapse were told they should find out within a matter of weeks if other building firms are willing to complete about 300 unfinished homes. In all there are 800 creditors — including 90 employees who have lost their jobs.”

“One employee, who did not want to be named, said she knew there were problems and warned of a ‘ripple effect’ across the industry. ‘They were good at sales, but bad at management,’ she said.”

From Reuters. “Australia’s quarter-century run of uninterrupted economic growth has made its property market one of the world’s most expensive, but mortgage pain in towns hit by a commodities downturn is beginning to be felt in parts of the financial system. While most Australians are able to pay their debts, alarm bells have sounded around pockets of distress in the mining-heavy states, raising warnings from policymakers, ratings agencies and the Organisation for Economic Co-operation and Development.”

“In the remote mining town of Karratha in Western Australia, 61-year-old Peter Lynch received a letter advising him that his bank was going to repossess his house at the end of the March. Two decades ago, Lynch borrowed money to buy a five-bedroom house in the town, thinking his job as a railway maintenance worker at Rio Tinto would last until he retired. But the end of a one-in-a-century mining boom changed all that. He now owes A$222,000 ($168,764) and earns A$42,000 a year as a cleaner, or roughly half his pay at the mine.”

“‘My property in 2010 was worth A$905,000, today it’s worth A$260,000,’ Lynch said, estimating that seven out of 20 homes on his suburban street were for sale.”