April 30, 2017

Money Is Going Into Us

A report from the California Report. “‘Buy a Home, 1% Down, Free Recorded Message,’ reads a sign at the edge of a vacant lot in the scrappy working-class town of Bloomington near Riverside. It’s a tempting pitch. But it sounds a little suspicious to those who remember subprime lenders and the mortgage meltdown. I don’t leave a message. But somehow I get a call back anyway from a broker based in L.A. who says he’s authorized to sell these new 1 percent down home loans through United Wholesale Mortgage. It’s a licensed private lender in Michigan. When I tell him I’m just fishing for information and not looking for a new mortgage, he’s reluctant to say much more. So I pay a visit to the storefront mortgage company of veteran broker Theresa Tims in the leafy business district of Upland, about 30 minutes outside L.A.”

“‘I specialize in these low down loan type of programs and they fit our area perfectly,’ Tims tells me. Tims does a lot of business in the Riverside-San Bernardino area, the Inland Empire, where median home prices are still comparatively cheap: about $300,000 for a basic three- or even four-bedroom home. ‘Right now one of the only feasible programs is the 1 percent down with equity boost,’ says Tims.”

“She has been offering 1 percent down conventional loans since late last year, when they first became available through United Wholesale Mortgage and its Detroit-based rival Quicken Loans. Right around Christmas, Abraham Bustillos moved his wife and three kids into a 1,300-square-foot home in Riverside with one of these 1 percent down conventional loans. The balance on Bustillos’ loan is around $350,000 stretched over a 30-year fixed mortgage. ‘Yes, it is a little bit more than we were paying as renters,’ says Bustillos, a FedEx delivery driver. ‘But at the same time, now we’re not just throwing the money up in the air or paying the owner’s mortgage for him. You know, money is going into us.’”

From The Oklahoman. “People with student loan debt wanting to buy a house or refinance with a conventional mortgage got two legs up from Fannie Mae this week. It was enough for loan officer Scott Senner of Interlinc Mortgage LLC to advise me to ’stop the presses.’ ‘What that means from a practical standpoint is if you have a $50,000 student loan debt and your payments are only $100 per month, that’s the number we can use. Before, we would have to use at least $500 as the payment because that was 1 percent of the balance. This is a really, really big deal.’”

“Now, Senner said, ‘If someone else is actually making a payment for you, i.e., if a parent or other co-signer is making the payment on the student loans, and we can document that someone has been doing that for 12 months, we don’t have to count that payment against the borrower for qualifying purposes. So that’s also exciting. My guess is that FHA will start feeling pressure to keep up with Fannie Mae in a few months, because this change will definitely pull more business to conventional loans.’”

From CBS 6 Albany in new York. “‘We are seeing properties that sat maybe 3 or 4 months ago, now getting a lot of activity,’ said realtor Brian Sinkoff. ‘If a year ago we had 50 buyers and 50 houses, that’s going to work out. Now, if we have 100 buyers and 70 houses, we have a little bit of a problem,’ he said. Sinkoff says right now the average price of a 3 bedroom 1 bathroom home in the Capital Region is about $220,000, and the average market time is about 33 days. He says there’s no reason to fear a housing bubble burst we saw about a decade ago - as he says lending practices have become much more strict.”

From ABC 6 News in Minnesota. “Twin Cities housing experts say the housing market is hot, with homes going off the market fast and above asking prices. Buyers know in a market like this, where new listings are getting multiple offers, everything counts. ‘Sometimes I can get my clients in to look at a house even before it lists and hits the market, that way they have the opportunity to jump in before competing with everyone else,’ said Ellen Westin with Edina Realty.”

“Another tactic to get a home is writing love letters. They are letters written by the prospective buyers to the sellers.”

The Daily Herald. “Utah County’s home prices have been on a steady uptick since 2012. The average Utah County home value in 2012 was approximately $291,000. In 2016, that average value had risen to $366,000, according to data from the Utah County Assessor’s Office. ‘There are some (housing) projects that have opened up in Santaquin and sold out in a matter of days,’ said Aaron Drussel, president of the Utah Central Association of Realtors. ‘In the past, you had to do a ton of marketing to get people to even consider (Santaquin) … it’s just getting the perception of making people realize it’s not that far.’”

The Naples News in Florida. “Naples Realtors have no reason to panic. That was one of the key takeaways from the sixth annual Naples Area Board of Realtors Economic Summit. ‘Almost everywhere you look it’s a pretty good story. Great? No,’ said Elliot Eisenberg, a nationally acclaimed economist with Graphs and Laughs LLC. But ‘pretty good’ is OK, he emphasized in an impassioned talk that brought plenty of laughs from a crowd of more than 400.”

“Cindy Carroll, with Carroll & Carroll Appraisers & Consultants in Naples, said housing inventory in the Naples area climbed 23 percent from March 2016 to March 2017, but she told the Realtor-packed audience ‘not to panic about this.’ She pointed out the increase wasn’t nearly as big as the year before, when the number of homes on the market rose by 35 percent over 12 months. ‘We all felt that,’ she said. Over the past year the largest increase in listings in the single-family market has been in the $1 million to $2 million price range, which rose 18 percent, Carroll said.”

“The inventory of condominiums in the under $300,000 market has increased 25 percent in the past year after rising 33 percent the year before. Carroll said the huge increase is a ‘mystery to me.’”

From the Winston-Salem Journal in North Carolina. “Lori Gaines can’t believe her house on Hege Street has a tax value of only $81,400. It’s a brick house in good shape with 1,600 square feet and a basement. It sits on nearly an acre of land. It was valued at $92,800 in 2013, and even that was too low, she thinks. ‘I kind of freaked out and said ‘No,’ Gaines said, recalling her reaction when she got her reappraisal notice from the Forsyth County tax office in the mail. ‘I was furious. Every time they revalue it seems like the price is always much lower than what the property has been listed at, so it is really frustrating. I’m just looking for fair.’”

“Jack Messick, who has a brick house with about 1,800 square feet on Silas Ridge Road in northwest Winston-Salem, thinks his house is overvalued at $197,000. The tax value was set at $181,800 in 2013. Messick said he has looked at nearby sales and thinks $170,000 is a better number. ‘I went online and got the price of three houses close by me that had sold in the past year, and sent that in with the protest,’ Messick said.”

“Property values are reappraised here every four years. It was a huge shock to many city residents, especially people living in predominantly minority parts of town, when the 2013 reappraisal showed sharp declines in many house values. The reappraisal was the first to fully take into account the housing bust and recession. People who saw their house values drop by sometimes as much as 50 percent or more felt the value of their life’s work had gone up in smoke.”

“Brenda Diggs, who lives in eastern Winston-Salem, said she is frustrated that she has to keep going back to ask appraisers to increase the value on her home. She’s asking for a $4,000 increase on a house the county appraisers value at $220,000. She wonders if there is merit to the argument that valuations in eastern Winston-Salem are done unfairly. ‘It is a little bit ridiculous,’ Diggs said. ‘For me it is not about a principle of taxes, it is a principle of equity. It really comes down to the value of me as a taxpayer and a citizen in this community. You paint it with a broad brush to say because it is on the east side of town that we can’t do any more.’”

April 29, 2017

It Turns Out We Might Have Too Much Housing

A report from Costar.com. “Having borne the brunt of declines in U.S. apartment rents since the third quarter of last year, urban luxury apartment communities are in some cases now cutting base rents and offering multiple months of free rent and other incentives to attract a depleted pool of high-income renters, according to CoStar Portfolio Strategy. Consistent with trends it has observed for a couple of years, AvalonBay saw rent growth in its suburban submarkets outperform urban areas in its Northern California, New York/New Jersey and Boston portfolios by an average of more than 300 basis points in the first quarter of 2017, CEO Timothy J. Naughton said.”

“Most of Equity Residential’s New York City portfolio is exposed to the high-end luxury segment of the market in Manhattan and Brooklyn, Chief Operating Officer David Santee said. ‘The question that that will be answered soon is, will Long Island City become a new value destination, and will that draw folks from Manhattan or Brooklyn in search of a lower rent,’ Santee said, adding that more than 30% of EQR’s revenue is from West side properties where construction and competition is booming.”

The Jamaica Plain News in Massachusetts. “Many people believe rents are higher than ever — and they certainly are higher than five years ago. But according to a city report, rents for Jamaica Plain’s older housing stock — buildings built before 2011 — went down 5 percent in 2016 compared to 2015. With more rental units being built, are overall rental unit prices going to drop? Josh Brett, Nextdoor Realty Team at Unlimited Sotheby’s International Realty: ‘The rental market seems to have stabilized with the recent spike in new-construction luxury apartments in Jamaica Plain. Possibly as a result of the increased supply of luxury apartments and concessions being made to fill those apartments, it seems that the rental rates have moderated for units in existing buildings.”

The Post and Courier in South Carolina. “Charleston’s overwhelming popularity these days has led to nothing short of a real estate crisis. City Councilman Robert Mitchell says he’s in the same boat as a lot of locals: He could not afford to buy the house he lives in on the open market today. How many people have you heard say that in recent years? Probably quite a few. The sad truth is, more and more people have to rent to live here. And even with an apartment glut under way, that is not getting any cheaper.”

The Capital Journal in South Dakota. “Pierre’s housing problem has once again reared its ugly head. This time, though, we’re faced with an interesting wrinkle. It turns out Pierre might have too much housing, at least when it comes to high-end apartments. That, at least, was one of the arguments behind reevaluating the taxable value of two apartment complexes. Both Highlands Ridge and Country View are asking more, perhaps hundreds of dollars more per month than most folks can pay. Both complexes have found themselves short of renters, which makes paying their property taxes more difficult.”

“Now that it appears that the Pierre and Fort Pierre area has, for now, reached the cap of ‘luxury’ apartments it’s market can support, the question becomes where and how will our community expand the available housing options.”

The Denver Business Journal in Colorado. “The priciest area in Denver to rent an apartment is getting cheaper. By just a little, though. According to apartment rental site Zumper, the Golden Triangle area near downtown remains the city’s most expensive area for renters, with a median monthly rent for a one-bedroom apartment of $2,090. In August, a one-bedroom apartment in the Golden Triangle had a median rent of $2,200.”

“More apartments are planned for Denver’s Golden Triangle: In February, ground was broken on a 322-unit apartment complex, and in December, plans were announced for a 16-story, 302-unit apartment building.”

The News Tribune in Washington. “Rent bargains in Lakewood? Sure, if you can find them. According to Zumper, Lakewood posted the highest rent increase in the Puget Sound region this month. Comparatively, Seattle rents for a two-bedroom apartment dropped 6.6 percent compared with last year, to $2,400 per month — also the highest rent in the region for a two-bedroom.”

The Portland Tribune in Oregon. “Portland’s skyrocketing rent increases have slowed dramatically in recent months as more apartment buildings have been completed. A report the Zumper rental tracking firm says Portland has the 19th most expensive rents in the country. But unlike recent years, citywide median rents are no longer increasing by double digits. In fact, according to Zumper’s Spring 2017 report, the median price of a one bedroom unit decreased 1.5 percent to $1,340.”

“The increasing supply of new apartments is tempering what owners can charge for them because of increasing competition. Although down $100 from last quarter, the report says the highest median rent for a one-bedroom apartment was in the Pearl District at $2,090.”

The Berkeley Daily Planet in California. “Downtown land use activist Kelly Hammargren has written to Berkeley Mayor Arreguin, City of Berkeley planning staff and the city council to report her discovery that a very large new apartment complex on South Shattuck Avenue in downtown Berkeley is being rented as a hotel instead of as the dwelling units for which it was permitted.”

“In a letter sent to them on Saturday night, she says: ‘For all the cries for affordable housing and the posturing that Berkeley isn’t approving and building enough housing, recently opened projects in the Berkeley downtown area can’t seem to find renters. Possibly luxury priced projects in the downtown are overbuilt or possibly there is more interest by the developer in being a hotel than providing housing.’”

April 28, 2017

Not The Get-Rich-Quick Scheme That It Has Been

It’s Friday desk clearing time for this blogger. “An investor group led by real estate broker Vivian Dimond will take over the partially built H3 Hollywood development, with plans to finish construction, settle subcontractors’ liens and partially repay buyers. Hollywood Station Investments halted construction of H3 Hollywood last fall after finishing 13 floors of the planned 15-story, 247-unit building. The developer said in a letter to buyers of 150 condos — who had put down 50 percent deposits — that it was seeking financing to complete the project. ‘We are setting aside a huge sum of money, in the millions, to compensate them … [but] they will never be compensated 100 percent.’ Dimond said, calling settlements with depositors ‘the most painful step’ in reviving the H3 Hollywood development.”

“H3 Hollywood is the among the latest projects to be canceled, put on hold or delayed amid a slowdown in the condo market this cycle. Other projects that have halted sales and delayed construction include the Related Group’s Auberge Residences & Spa Miami, a planned condo project near downtown Miami.”

“Real estate developer Robert C. Kettler is one of the pre-eminent developers of residential and multi-use properties in the Washington capital region. Kettler admits that even as he continues to build, the NoVa housing market has ‘a slight oversupply.’ Nevertheless, he is confident that the situation is temporary. ‘Millennials,’ he says, ‘are not al­­ways going to spend all their money on 450-square-foot apartments and takeout. They can’t live that way forever.’”

“The softening at the high end, a feature of the market in the Hamptons and New York City, continued in the first quarter. The median price for the luxury sector — the top 10 percent of all sales — was just under $5.2 million, a 6 percent drop on the same time period of last year. Listing discount was 16 percent — nearly double what it was last year. The average days on market has increased by more than 80 percent to reach 197. ‘In the last year-and-a-half, it’s gone through a rest. Just like we’ve seen in Manhattan,’ said Jonathan Miller, CEO of appraisal firm Miller Samuel.”

“For most of the housing market, homes are selling in Pierce County faster than owners can put new ones on the market. In recent months, dozens of million-dollar abodes have sold or are in the process of closing. But unlike homes at lower price points, high-end buyers won’t get into a bidding war just yet, said Jeff Williams, a real estate broker for South Sound Property Group. That’s because it’s a buyer’s market above $1 million. Unlike the rest of Pierce County’s housing market, which has less than one month’s supply in some areas of the county, million-plus homes have a whopping 19.6 months of supply, Williams said. Most of those homes have been on the market for more than 100 days.”

“In 1999, just 34 homes in Pierce County were valued at more than $1 million, according to News Tribune archives. Last year, the county valued 715 residences at $1 million or more, according to Pierce County Assessor records. But not all homes at that price point are priced realistically, said Realtor Mark Pinto. ‘If it’s completely unrealistic, the phone doesn’t ring,’ he said.”

“RE/MAX is out with its Spring Market Trends report, and it says residential home prices in Greater Vancouver fell 11 per cent in the first quarter of this year, to an average sale price of $969,000 from $1,094,936 in 2016. It blames the decline on several factors: the introduction of the foreign buyer’s tax last August, a relatively severe winter, and the natural stabilization of prices after the market reached a high point in May 2016.”

“London house prices posted their largest annual drop in almost eight years in April as buyers shunned the capital’s central areas. ‘While the rest of the country enjoys a spring surge with most regions seeing a price boom and new price records, some parts of the London market are still re-adjusting,’ said Rightmove Director Miles Shipside. ‘The more discretionary upper end of the market is having to tempt buyers with cheaper asking prices.’”

“Good news for apartment-hunters: rents are likely to fall during 2017 as the building of new homes leads to an increase in the number of vacant apartments. ‘The fundamentals of the Swiss rental market remain solid,’ said the Wüest Partner report. However ‘construction activity remains high, which will increase the number of available apartments in the coming months. ‘Due to the increase in homes, it has become more difficult to find tenants, particularly if rents don’t match their expectations,’ it added.”

“Landlords in Harare are in a fix as the prevailing cash shortages has triggered a reduction in both residential and commercial property rentals. A survey of estate agents and landlords by Harare News revealed that rentals have tumbled by rates of 15 to 50 percent depending on the area. Landlords offering accommodation in upmarket, low density suburbs are feeling the biggest pinch, as departing tenants are increasingly difficult to replace.”

“Property businessman Stephen Margolis says the situation is frustrating. ‘Rentals are down and are still coming down because of the economic depression, cash shortages, people not paying… some are running away with your rentals,’ he said. ‘Those who are paying are paying in bits and pieces. Some spaces spend months empty, people are negotiating rent downwards and you are forced to understand them because they have to survive too. So there are many frustrations.’”

“The latest FNB Namibia Housing Index, released yesterday, shows that growth in domestic house prices has slowed to about 11 percent over the last 12 months, compared to 16 percent during the previous 12 months. The growth figure is well below the 25 percent growth experienced in 2013/14, which placed Namibia first in the world in terms of the rate of house price increases. The effect is that there are many properties now selling below valuation.”

“It is definitely turning into a buyers’ market,’ said FNB’s market research manager, Daniel Kavishe. ‘There are signs that the market is self-correcting and for the near future we are looking at growth tapering down to five or six percent,’ said Kavishe while responding to a question by New Era on the possibility of the housing bubble bursting in the near future. ‘What we have also seen is a sharp decline in the upper segment of the market,’ he confirmed.”

“He added that property can still be seen as a good investment, but cautioned that it should be seen as a long-term investment of between 10 and 20 years and not as the get-rich-quick scheme that it has been in recent years when investors recouped their investment within two to three years.”

“The owner of an insurance company in Swissvale admitted Thursday that he ripped off 80 investors of $8.2 million over some two decades in what a federal prosecutor said was one of the largest Ponzi schemes in the history of Western Pennsylvania. John Hogan, 77, who splits his time between Swissvale and Ligonier, pleaded guilty to five counts of mail fraud before U.S. District Judge Mark Hornak.”

“Agents determined that the program amounted to what Mr. Melucci said was a “classic Ponzi scheme” in which much of the money from recent investors was used to pay off earlier ones. Mr. Hogan also used investor money to pay lenders who gave him loans for his business or to maintain his real estate holdings in several states.”

“J. Alan Johnson, Mr. Hogan’s lawyer, said he had bought about 25 condos and other properties across the United States over the years, in locales ranging from Arizona to Florida and Hawaii. He sold some, and others are encumbered with heavy debt or liens; none of the properties is worth enough for prosecutors to seize. Mr. Johnson said the value of Mr. Hogan’s real estate investments declined dramatically in 2008 when the housing bubble burst.”

“‘He does not live a high life,’ he said. ‘He doesn’t seem to be wealthy at all.’”

April 27, 2017

On A Quiet Day You Can Hear The Values Falling

A report from ABC News in Australia. “It’s two weeks from the federal budget, and the Government is under pressure to come up with a strategy to put the brakes on rising house prices. The Coalition has long argued that if more housing supply comes on to the market, record prices rises could be dampened. But there are different views on whether increased supply will help make housing more affordable, or if it will instead fuel more investment into an already overheated housing market. Lindsay David, of LF Economics, argues that if there really was a housing supply shortage, rents would also be skyrocketing, like they did in mining towns during the minerals boom.”

“‘When you’re in the pit of an irrational exuberance it doesn’t matter how many new dwellings you build,’ he said.”

From The Australian. “One of the biggest bull runs the Sydney housing market has seen is drawing to an end, with house prices falling this month as the crackdown by regulators starts to bite. CoreLogic head of research Tim Lawless said that recent restrictions from the banking regulator had pushed up home lending rates, taking the heat from investor enthusiasm. Sydney, in particular, had seen a wave of investors, so the impact of the regulator’s crackdown — most recently aimed at limiting interest-only loans — was likely to be more pronounced, Mr Lawless said.”

“‘It’s too early really to tell on the basis of one month’s figures, but if we are moving through the peak, it will be a moderate slowdown,’ he said.”

From The Newspaper. “Australians are racking up extreme levels of debt to buy homes that are among the world’s most expensive, a ticking time bomb that could wreck the economy if it is hit by a sudden shock, experts warn. The nation has a household debt-to-GDP ratio of 123 per cent, largely housing debt - second only to Switzerland, according to the Bank of International Settlements. Those levels exceed the US, Spain and Ireland before their property market crashes, global ratings agency Moody’s said in a report this month, warning Australians also held limited liquid assets.”

“‘Australians have borrowed up a storm and housing prices in this nation are now dangerously dumb,’ prominent Australian economist Chris Richardson said this month.”

The Courier Mail. “Melbourne-based developers arriving in Brisbane with plenty of cash and big plans to build high rise inner-city apartments have been commonplace over the past few years. While there are plenty still building high-rises there have also been plenty of plans dashed — or delayed — as Brisbane copes with an apparent apartment over supply. This time last year Melbourne-based Hamilton Corporation was spruiking two Fortitude Valley apartment projects.”

“They announced that 80 per cent of its Elixir apartment project was pre-sold while it also launched a 111-apartment project. A quick drive around by Business Confidential found the Robertson St site remained a big hole in the ground, while there is a big ‘For Lease’ sign on the Berwick St site which last year was up for sale.”

From Ten Eyewitness News. “Even though Sydney and Melbourne’s skyrocketing house prices have shown no immediate signs of letting up, it’s a different story on the west coast, now experts fear Perth could be the ‘Canary in the Coal Mine’ warning us all of the disaster just around the corner. The Western Australian capital enjoyed a high demand in property in 2007 and 2012, largely due to the mining boom which lead to a strong price growth.”

“However, home owners are now battling to pay over inflated mortgages with house prices declining at an alarming rate. Prices have dropped by double-digit percentages in some areas, with Mandurah in south Perth seeing some residents’ property prices fall by a remarkable 40 per cent in a decade. If you’re reading this from Sydney and Melbourne, consider it a warning. ‘There’s probably a lesson for Sydney and Melbourne today of perhaps what’s coming after the market turns,’ Perth property valuer Gavin Hegney told the ABC’s 7:30 program.”

“He pointed to the fact that West Australia was once considered ‘infallible’, considered to be booming on par with the other major cities. Unfortunately, that’s no longer the case. 35-year-old property owner Daniel Johnston also appeared on the 7:30 program, and told about how he purchased an investment in Mandurah for $580,000 in 2007… which is now worth only $350,000. He spoke about fears of losing his family home, as they struggle to keep up with the mortgage repayments. ‘We thought it might slow, the property price, but never expected the drop that Mandurah has had, It’s nearly halved,’ he told 7:30.”

From News.com.au. “Families in Western Australia are at breaking point, plagued with mounting debts they can’t pay off, as they face the reality of a collapsing economy. As properties decrease significantly in value and unemployment rates rise, many are now struggling to find jobs to make ends meet.Could this be the future of Melbourne and Sydney? Western Australia was once a booming product resources hub, with thousands moving to areas around Perth from interstate and overseas to work.”

“It had one of the strongest economies in the nation with housing prices on par and even higher than Sydney and Melbourne in the early 2000s. Fastforward to 2017 and WA now has the weakest economy in the country, with a high unemployment rate and a collapsing property market. Perth property valuer Gavin Hegney told ABC’s 7.30 program homes at the top end of Perth and on the urban fringe were decreasing in value and lessons could be learned from WA’s collapse. ‘Perth was booming, booming along and the east coast was on its knees,’ he said. ‘It’s the complete reverse today.

“Brad Wright was a project engineer working around WA, earning about $250,000 a year. Now he works as a security guard part-time while he tries to dig himself out of a dire financial position. He had two investment properties and a home in a luxurious suburb of Perth during the boom. He borrowed almost $1 million and said waiting for his loan approval was ‘as easy as buying an ice cream.’ ‘People have had their incomes slashed to 10, 20 per cent of what they were normally being paid and they have to meet enormous payments,’ he told 7.30.”

“He said the stress of trying to deal with the bank and find a solution to his troubles pushed him almost to the point of suicide. He said he didn’t know what he would do if he had to resort to selling the family home. ‘We will basically be kicked out on to the street with just the clothes we’re wearing and substantial debts,’ he said.”

“Lifeline financial counsellor Jenny Cecil said they were servicing a new group of clients — those struggling as a result of the economy collapsing. Many had been high income earners. She said a lot of clients were now using credit cards to maintain mortgage payments, electricity bills and council rates, making their financial positions even harder. In Mandurah, about an hour and a half from Perth, a home five minutes from the shopping centre and three minutes from the beach can be purchased for just $399,000.”

“There has been an 18 per cent drop in the price of properties in Mandurah in the last 10 years. What used to be an issue of an undersupply of housing in WA is now an issue of oversupply and both housing prices and rental prices have dropped dramatically. ‘They say in the top end of Perth on a quiet day you can hear the property values falling,’ Mr Hegney said. ‘And property values at the top end of the market have probably dropped 30 per cent from where they were at the peak of the market in 2009.’”

April 26, 2017

The Path To Prosperity

Two reports from Bloomberg on Canada. “Canadians fretted for years that home prices in the country’s largest city are rising at an unsustainable rate. Now they’re doing something about it. Ontario, the country’s most populous province, announced on Thursday a set of measures aimed at cooling the Toronto housing market. The province’s securities regulator on Wednesday also accused an alternative mortgage lender, Home Capital Group Inc., of making misleading disclosures, sending its shares tumbling. The issues at Home Capital relate to an investigation into loans with faulty income information. The company cut ties with 45 brokers in 2015 after finding falsified borrower income information, the same flaw that sunk many subprime lenders in the U.S. during the housing crisis.”

“The Ontario Securities Commission alleged Wednesday night that the company’s former officials didn’t satisfy disclosure requirements, made ‘materially misleading statements’ and failed to comply with other securities rules. ‘I think a lot of this mortgage fraud in Canada has been covered up and you’re now starting to see tips of various icebergs hitting the boat,’ Marc Cohodes, an investor who’s betting against Home Capital’s stock, said in a telephone interview.”

“Home Capital Group Inc.’s shares plunged more than 60 percent after the mortgage lender disclosed a costly new loan to tide it over as its deposits dwindle, intensifying a spiral of bad news. The company is effectively paying 22.5 percent on the first C$1 billion it borrows, which falls to 15 percent if it uses the full C$2 billion available to it, according to Jaeme Gloyn, an analyst at National Bank of Canada.”

“‘They did what appears to be to us a very expensive deal,’ said David Baskin, president of Baskin Wealth Management in Toronto, a former investor in Home Capital stock. ‘Basically they blew up the income statement in order to save the balance sheet, which I guess if you’re facing an existential crisis is what you have to do.’”

The Hamilton Spectator. “Nearly one quarter of Hamilton area homes sold in the first three months of the year were purchased by buyers from the Greater Toronto Area, a new analysis of the local marketplace has found. Conrad Zurini, broker of record for RE/MAX Escarpment Realty said: ‘Increasingly, these are (Toronto) investors looking to purchase townhomes and small single-detached homes as rental properties (in Hamilton).’”

“He suggested a frenzy by Toronto buyers to purchase investment properties could be adding an inventory of new rental properties to the marketplace faster than demand. Central Hamilton really jumped in the numbers. The vacancy rate went to 9.9 per cent in 2016, compared to 5 per cent the previous year.”

The Windsor Star. “Windsor’s real estate market has become so hot, sales agents for the majority of listings are restricting bids to one day — a strategy reserved for the nation’s most competitive housing markets in Toronto or Vancouver.”

“‘It first started (in Windsor) about six or eight months ago,’ said Denny Laurin, a broker/manager at Re/Max Preferred Realty Ltd. ‘But now we are in a situation with ample buyers that, for a seller, the best product to serve them is the multiple-offer situation. At the very start of this (a couple years ago) the average sale price in Windsor was $140,000, now it is nearly $250,000,’ Laurin said. ‘I have seen quite a few in South Windsor being sold for $100,000 over the asking price. A property that last year was worth $250,000 is now sold for $325,000.’”

From Mississauga News. “Residential sale prices in Mississauga shot up more than 30 per cent in the first quarter of 2017, according to a RE/MAX report. Mississauga’s 2017 average residential sale price for the first quarter is $753,788, an increase of 31 per cent from the same time last year. Significant price increases and high demand in the Greater Toronto Area during the first quarter of 2017 spurred growing numbers of buyers to leave the downtown core, RE/MAX said in its Spring Market Trends report. ”

The Winnipeg Free Press. “A new Re/Max report predicts a five per cent increase this year in the average selling price of a Winnipeg home, although one local agent said developments in recent weeks suggest that number may be a bit high. Akash Bedi, owner of Winnipeg’s Re/Max Executives Realty, said selling prices have been climbing at a slightly slower pace since the first-quarter data for the Re/Max report was compiled. ‘We are down a bit so far because of an oversupply of condos and an oversupply of higher-priced homes,’ he explained.”

The Regina Leader Post. “As options for renters in Regina increase, landlords are dealing with higher property taxes but often without the ability to raise rents. Jason Hall, a landlord with multiple properties in the city, is also trying to manage increased property costs in a wide-open rental market. ‘As much as you want to increase, if the market won’t handle that, you can increase it all you want but it will be empty,’ he said.”

“Hall agreed that since the market is favouring renters, it often results in landlords unable to raise rents. ‘I think it would be crazy for a landlord to pass this on to the tenant because they can just go down the street to someone who is not going to raise the rent. It is not good news for any property owner or homeowner. If you have one house, it is probably not as bad as someone who owns 150.’”

From Macleans. “On any given day now you can expect to hear at least one economist, public official or financial commentator express grave concern about the mountain of debt Canadians now carry. As a licensed insolvency trustee firm, our practice is on the front lines of Canada’s household debt binge and the bad personal finance habits that ensnare so many people. And what we see every day is that the majority of those grappling with serious debt trouble are the most typical individuals and families you could imagine.”

“Here is just a sample of recent files that have crossed our desks: A staff accountant with multiple lines of credit, several maxed-out credit cards, a big mortgage, a significant home-equity line of credit (HELOC) and two leased luxury cars; a TTC driver with two mortgages and $100,000 in unsecured lines of credit.”

“Those disturbing financial cases are no longer the extreme end of the spectrum that they were at one time. They are the ‘new normal’ in our trustee practice. The real horror stories are far worse, albeit less frequent. Two or three decades ago, it would have been unthinkable for people to hold the equivalent of $30,000 or $40,000 (or more) in credit card debt. Yet now that has crept into the Canadian psyche as just something one does.”

“(By the way, have you noticed the ‘Estimated Time To Pay’ wording on your credit card statement? It is a calculation of how long it will take to pay off your credit card balance if only the monthly minimum payments are made. The record we’ve seen is 330 years and 10 months.”

From CBC News. “There’s a difference between housing and real estate. Housing is where we live; real estate is an investment. It’s a pedantic but critical distinction. In all the breathless debates over housing bubbles and policy options, we look primarily at the investment. Imagine for a moment those debates centred around an investment other than real estate. A mutual fund. Or gold. Or an Exchange Traded Fund. Wouldn’t there be a backlash against government intervention in those investments? Would any of the stern statements from politicians keen on cooling the market make any sense?”

“The point here is that nearly all the oxygen in any discussion around housing focuses on that investment, and on one generation being priced out while the retirement plans of another generation are based almost exclusively on the soaring value of their homes.”

“But it’s hard to change decades of thinking. Economist Armine Yalnizian says politicians need to rethink the path to prosperity. Traditionally, she says, the two paths were higher education and/or home ownership. ‘The former no longer guarantees even employability, let alone higher wages; the latter is increasingly out of reach in part because of the former,’ she says.”

But Yalnizian says breaking from that orthodoxy comes with risk. ‘Politically it is hard for politicians to get off the ‘ownership society’ narrative track, because it looks like they’re waving the white flag on the future of the middle class for younger voters,’ she says.”

Where Any Fool Who Wants To Buy Can Buy

A report from the Los Angeles Times in California. “Bidding wars are common and prices are rising during the popular spring buying season. A report out Tuesday from CoreLogic shows the Southern California median home price jumped 7.1% in March from a year earlier, hitting $480,000 in the six-county area. And despite low inventory, sales rose 7.8%. When Elizabeth Rodriguez and her husband realized that the market was white-hot in the Northeast L.A. burbs where they wanted to raise their three children, they devised a strategy. The couple began writing a ‘love letter’ to sellers describing how much they wanted the house. And then they bid over asking — way, way over asking.”

“In one case, they offered $102,000 above the $798,000 list price for a three-bedroom Spanish-style home in Mount Washington. The house sold to someone else for $985,000. ‘After that I was like, this is insane,’ said the 35-year-old mother of three. The couple bid on 11 homes, she said, before they finally purchased a three-bedroom in the hills of Glassell Park listed at $799,900. To seal the deal, they again bid about $100,000 over asking, this time before an open house was held. ‘It was a crazy process,’ Rodriguez said. ‘I’m glad we are on the other side of it.’”

The Union Tribune. “The San Diego County median home price reached $515,000 in March, its highest point in a decade and a 7.7 percent increase in a year, CoreLogic reported. The median price had been below half a million dollars since October last year, which had some analysts surmising costs had hit an affordability wall. But, the March numbers show some buyers are willing to go higher to get homes. ‘Home prices are going up faster than household incomes,’ said Mark Goldman, finance and real estate lecturer at San Diego State University.”

“Many analysts, including Goldman, say the market is not heading for a housing bubble because the last crash was built on riskier loans. ‘I don’t see any speculative value in the market. We’re seeing very cautious underwriting when it comes to appraisals,’ he said. ‘Even though people are anxious to get into the market, it’s not one of those markets where any fool who wants to buy can buy.’”

The LA Daily News. “If you want to buy a home in the San Fernando Valley, make sure you’ve got money — lots of it. The median price of a home in the area hit $671,500 — the highest ever on record for March. The last time a home’s median cost — the price at which half the homes are less and half are more – was this high in the area it was June 2007, when the housing bubble was about to burst and the median was $655,000, according to the Southland Regional Association of Realtors report.”

“The new median price number for March was up 13.3 percent from a year ago, and was a definite leap from most of 2016, when the median price was stuck in the $600,000s, according to the association. Back then, buyers resisted paying more, and the ‘pool’ of buyers who could afford such prices had constricted.”

“But the new numbers are in another galaxy compared to the low point not so long ago. Just take March 2011, after the bubble had burst in the midst of the Great Recession: The median cost of a single-family home in the San Fernando Valley was $370,000, according to the association. And if you go way back to March 1998, the median price of a single-family home in the San Fernando Valley was a whopping $180,000.”

From KRON-TV. “In San Francisco and San Mateo Counties, a family of four making $105,350 or less is now considered low income by the federal government Department of Housing and Urban Development. That means they can qualify for affordable housing. ‘They are eligible now to apply for housing through the local housing authority, be it Section 8, be it public housing, or other HUD-subsidized programs,’ HUD Regional Public Affairs Officer and Homeless Liaison Ed Cabrera told KRON-TV.”

“The income limits in the Bay Area are the highest of any area in the country, Cabrera said. In neighboring Santa Clara County, low income starts at $84,000. Contra Costa County is at about $80,000. For Napa, it is $74,000. And for Solano, it is $64,000.”

The San Francisco Chronicle. “California dreaming? Hardly. Mattresses on sidewalks, moving vans in driveways and hasty garage sales hint at a trend Bay Area residents have long suspected – exodus. Real estate brokerage site Redfin released its annual ‘migration report’ and found that those residing in San Francisco Metro are the most likely to leave. The catalyst for moving – high housing costs – should surprise no one.”

“San Francisco recorded the highest ‘net outflow’ – the number of potential homebuyers looking to move to San Francisco Metro subtracted from the number of those who want to leave. The region’s outflow was double that of New York.”

The Marin Independent Journal. “The California Association of Realtors reported Monday that pending sales in the Bay Area were down in March for the sixth straight month on a year-over-year basis. Redfin’s new report shows the San Francisco metro area has the highest ‘net outflow’ of users: 15,087. That figure is the difference between the number of potential homebuyers who want to move to the San Francisco metro area and the number who want to leave it; a lot more want to leave than come.”

“New York had the second highest ‘net outflow,’ followed by Los Angeles, Washington, D.C., and Chicago.”

The Coachella Valley Independent. “Despite a growing economy and decreasing unemployment, the homeless population in the Coachella Valley is expanding—at an alarming rate. The annual Riverside County ‘point in time’ count in January showed the homeless population had increased from 1,351 unsheltered and 814 sheltered individuals in 2016, to 1,638 unsheltered and 775 sheltered in 2017.”

“The Coachella Valley cities had 297 homeless individuals in 2016—and 425 individuals in 2017. Another alarming fact: The number of homeless individuals locally without shelter is about to rise, because Roy’s Resource Center, the only shelter for the homeless on the west end of the Coachella Valley, is slated to close at the end of June. The beleaguered facility in North Palm Springs is shutting its doors largely because some local city governments have not been paying their share to keep Roy’s financially solvent.”

“The closure will undoubtedly lead to a significant increase in the number of unsheltered homeless—at the time of year when shelter is needed most. ‘We just had a ‘point in time’ count, and it shows that if we look at the nine valley cities, the increase in homelessness in the Coachella Valley is 43 percent: We went from 297 to 425. That’s huge. If Roy’s closes down, and we have no provision for the 90 people it currently houses, the increase is even more dramatic, because we’re talking about going from 297 to 515, and that’s crazy,’ said Sabby Jonathan, the mayor pro tem of Palm Desert.”

From KQED News. “Augie Cortez and his wife, Blanca, bought a little slice of the American Dream about 17 years ago in Bloomington, a working-class community in San Bernardino about 50 miles east of Los Angeles. Their roomy four-bedroom house was the very first on the block of a brand-new subdivision not unlike scores of others that began carpeting Inland Southern California toward the end of the 1990s. The Cortezes gathered up their savings and managed to put up a healthy down payment on a 15-year mortgage. After a couple of other home purchasing efforts collapsed, they were eager to make this one stick and they wanted to pay it off fast.”

“Monthly payments would be high. But the name of the little cul-de-sac seemed like a good omen: Dream Street. And for a while, the dream was good. With so much homebuilding going on, it was easy for just about anyone to get a mortgage back then, even if you had shaky credit or no job at all. Low-income minority neighborhoods like the ones around Dream Street were ripe targets for subprime lenders.”

“Augie and his wife had a sound conventional loan, but still got dragged under in a housing crisis that would ultimately steamroll through neighborhoods across the country. In 2006, the last of the brand-new homes on Dream Street sold for about $430,000. Three years later, at the peak of the mortgage meltdown, the same home was worth barely a quarter of that.”

“It was the same story up and down the block and across the region as the bubble burst on the housing market and people couldn’t afford their mortgages. Even people like Augie Cortez, who didn’t have mortgages spring-loaded with dangerous adjustable rates and hidden fees, were dragged down. Construction work vanished and Cortez’s cement finishing jobs dried up.”

“To put food on the table Cortez sold lumber and other items online. He did odd jobs for neighbors. Mortgage payments got skipped for months. Default notices were dropping into mailboxes across the neighborhood — including his own. ‘Just walk away, that’s what people were doing, just walking away,’ he says, recalling what it was like then.”

“Local real estate experts warn that Inland Empire housing is once again way overvalued, and overdue for a ‘correction.’ Prices have surged to an unsustainable level in the last year, according to Neighborhood Housing Services of the Inland Empire, a nonprofit that helped guys like Augie hold onto their houses 10 years ago.”

“At the edge of those vacant lots, a sign lashed to a post beckons with a come-on that sounds a little suspicious, given what this neighborhood has survived over the last decade: ‘Buy a Home, 1% Down.’ There’s no name for a real estate agent or mortgage broker. But there’s a local phone number. I give it a call. ‘Hi, this is Emily your friendly real estate professional,’ chirps a pre-recorded message. ‘Buying a home has never been easier! Here’s how it works,’ continues Emily. ‘You put down 1 percent and your lender 2 percent toward your down payment, which puts you on your way to home ownership.’”

“Emily asks me to leave my number and a good time to call back. I don’t. But I do find out more about that sign, and about new trends in home loans that are stoking old fears.”

April 25, 2017

A Glut May Pressure Owners To Drop Their Prices

A report from Multi-Housing News. “W. Allen Morris, president and CEO of The Allen Morris Co., recently spoke with MHN about how he sees the multifamily landscape shaping up for 2017. MHN: With about a quarter of the year behind us, what have you seen so far in 2017 when it comes to multifamily investment opportunities? Morris: One is that there’s less pressure on land prices as many buyers have not been able to secure financing and have backed away from new projects. There is also the reality that some markets are dealing a current oversupply of product, markets such as San Francisco, New York and Miami, among others. This has and will continue to exude downward pressure on rents.”

“MHN: What do you feel is the most important thing that investors need to be aware of in today’s multifamily environment? Morris: I would say competitive products that could drive rental rates down in the project you invest in. To that end, developers need to develop or select properties that have market differentiation, a strategic advantage over competition. One example is in our St. Petersburg project where we are leasing at above our pro-forma rental rates, and we are able to do so because we are delivering a quality product that is amenity-rich—a market differentiator.”

The Washington Post. “Apartment living has changed in recent years. Gone are the days of shag carpeting and laminate countertops. Now renters demand hardwood floors and high-end finishes similar to what they would find in a single-family home. They also want a wide-range of amenities in their buildings. Amenities are a hot topic in the apartment housing industry. In some competitive markets such as the D.C. region, an arms race of sorts appears to be breaking out as buildings try to outdo each other with lavish features.”

“‘People say, ‘Do we really need a fitness center? There’s a gym right down the street,’ said Cindy Clare, president of Kettler Management in McLean. ‘But you do. I always say 100 percent of your residents think they are going to use the fitness center, only 10 percent will, but everybody thinks they are.’”

From Metro US on New York. “With a glut of rental units on the market, New Yorkers are negotiating, scoring free rent, iPads and more from their landlords. It’s a new phenomenon. Landlords are at a disadvantage because record high rents are driving people to the outer limits of the five boroughs, while new developments are flooding the market in historically popular areas, creating high vacancy rates in Manhattan and parts of Brooklyn. In March, 35 percent of leases signed at Citi Habitats included some sort of deal sweetener for the tenant, up from 20 percent in March 2016 and 12 percent in 2015, according to company figures.”

“Jonathan Katz, for example, made out pretty well. He is now moving into a one-bedroom in Park Slope, Brooklyn, which had been vacant for more than two months. To lure him in, Katz was given three months of free rent on an 18-month lease (a savings of $8,700), did not have to pay a broker’s fee and got $100 knocked off the base rent. For an apartment that would have cost him $2,900 a month, he will now pay $2,350. ‘There was a time when concessions were few and far between,’ said Joshua Juneau, a broker for Triple Mint in Manhattan. Now, he said, ‘we’re getting 700 emails showcasing what’s available and what incentives are being offered.’”

The Chicago Tribune in Illinois. “Chicago’s Trump Tower has an unusually large number of condominiums for sale and for rent, and real estate agents predict that a glut of available units in the building may pressure owners to drop their prices. Already renters in Trump Tower say they have been able to get sizable discounts. The number for sale ‘is amazing,’ said Gail Lissner, vice president of Appraisal Research Counselors. ‘I’ve never seen that number for sale since they opened, and there have been very few transactions.’”

The Real Deal on California. “The Bloc is a bellwether for the real estate market in Downtown Los Angeles, and for quite a while, it was signaling all good things to the industry, with promises of growth and prosperity for all. But with previously announced tenants now jumping ship, a revolving door of retail leasing brokers and three pushed-back openings, the industry is beginning to suspect that the development was a false prophet.”

“After hip hotels and trendy restaurants started popping up in DTLA more than five years ago, retail was expected to be the next frontier. The Ratkovich Company announced leasing news shortly after the developer snagged the property in 2013.”

“The percentage of the Bloc’s 720,000-square-foot office tower that was leased also dropped substantially in the first quarter, though sources could not say by how much. Ratkovich said 48 percent of the space is leased. Industry insiders speculate that tenants with short-term leases were booted in favor of finding tenants who could pay more. The development company has also been rocked by some internal issues, from the sudden departure of chief operating officer Clare DeBriere in January to the Bloc’s financial troubles last year.”

The Hawaii Tribune-Herald. “The University of Hawaii at Hilo wants to lower the price of its most underused residence hall by about 18 percent next fall, part of a proposal to boost the dorm’s occupancy and generate more funding to pay back bond debt. Hale Alahonua, a 300-bed, suite-style dormitory, has remained less than 60 percent full since opening in 2013. Currently it’s about 50 percent occupied. Many students have complained the dorm is too expensive — at $3,859 per semester, it’s the priciest housing option on campus.”

“As a result of low occupancy, UH-Hilo has dipped into reserve funds to pay off a 30-year, $17 million revenue bond used to help finance the $28 million dorm when it was built. This week, administrators presented a three-year rate restructuring proposal that would slash the yearly cost to live in Hale Alahonua by more than $1,400 — putting it about $300 cheaper per year than one-bedroom double rooms in Hale Ikena, a popular apartment-style dorm and the next priciest on-campus housing option.”

“‘Why are we confident about this? Well, for the past four years, as enrollment (campuswide) has continued to decrease, housing has consistently had 18 percent of the total student population,’ said Farrah-Marie Gomes, UH-Hilo’s vice chancellor for student affairs. ‘With the (price) reduction of Hale ‘Alahonua, the expectation is we will be able to bring up total occupancy and that’s how we make those payments to debt service.’”

April 24, 2017

A Baseline When Many People Overpaid Is Illogical

A report from Westworld on Colorado. “Thanks to Denver’s red-hot real estate market, more and more people trying to buy a home in the metro area are finding themselves in bidding wars, resulting in offers that frequently blow past the property’s listed price. The incredible demand, as well as the speed with which purchases are being made, explains why some real estate agents have started putting up ‘Coming Soon’ signs on houses before changing them to ‘For Sale.’ Scott Grossman, who chairs the board for the Denver Metro Association of Realtors, elaborates on this point. Local real estate agents have been seeing bids for properties from people who haven’t actually seen them ‘for a little while now — especially buyers who are coming in from out of state, who are somewhat at a disadvantage. There’s no luxury of being able to fly in and look at a house next week, because most likely it will be long gone by then. So they see a listing come on the market and put in the highest bid — but then, over the next week or two, something happens and they back out of the deal.’”

“‘Some of them have buyer’s remorse, thinking, ‘Maybe we’re paying a little too much for this. Let’s get out.’ Or maybe there’s an inspection issue that might cause them to second-guess. And there’s more risk of that happening from people who haven’t walked through it and actually seen it.’”

The Real Deal on New York. “In December 2015, with new development sales beginning to drag, Doug Yearley got poetic about condo sales – or the lack thereof. ‘There are certain units in certain locations within a building that are hot, and then there are other units that may be in a dark, cold corner that you have to incentivize a bit more,’ the CEO of national homebuilding giant Toll Brothers told investors during an earnings call at the time.”

“Since then, Toll Brothers has rolled out an aggressive array of incentives at its condo projects in New York, becoming one of the biggest players to acknowledge the slowdown and spell out its plans to tackle it. And in planning for the future, it’s shifted away from the top-tier luxury product that has saddled so many developers with unsold inventory. ‘They got a little aggressive on their pricing,’ said Stephen Kliegerman of Terra Holdings, and doesn’t work with Toll Brothers. ‘One of the negatives of doing your own in-house sales and marketing is you don’t have boots-on-the-ground brokers to say to decision-makers: ‘You’re going a little too far.’”

The New Journal in Florida. “Regina Marston slowly drove her SUV up and down the section of short, parallel roads that make up the heart of Volusia County’s northernmost beachfront community. One by one she pointed out the abandoned boats, cars, pickups and trailers improperly parked in front yards. Junked yards in plain view. Lawns not maintained. Work being done without proper permits or any concept of deadlines. Marston wearied of the exercise before she ran out of examples of the downturn her neighborhood in the older section of Ormond-by-the-Sea has taken.”

“‘It’s counter-intuitive to have mainland housing be worth more than beachfront housing,’ said Marston, 67, a former Realtor who owns two homes in the area and has pestered county officials for several years in an effort to break what she considers their ongoing indifference to the area.”

“Doug Daniels represented the area on the County Council from 2013 through 2016. He recalled knocking on doors during his campaign in 2012 and being astonished to see so many derelict homes on so many streets throughout the community. ‘You could tell that a lot of the prior owners of those properties were gone,’ he said. ‘They had been foreclosed out and someone else acquired their properties. … You look at some of those streets and it almost seems like blight by design.’”

“‘I am resentful. I admit it,’ said homeowner Janet Jester, 70. ‘I’m not going to picket in front of people’s houses or anything, but I don’t like it. It lowers the value of my property.’”

The Illinois News Network. “Illinois is one of the few states in the nation to still have home foreclosure rates higher than pre-recession levels. A real estate agent in one of the hardest-hit areas of the state says high property taxes send people away. Bob Nieman has been a Realtor in the Rockford area for decades. While the recession was years ago, he says there are still a high number of foreclosed homes there. In a city where the average home price is less than $110,000, he says people still tell him the monthly mortgage payments are too high.”

“‘On a $100,000 home, the taxes are going to be around $4,000. Normally, that’s an objection,’ he said. ‘It has a damper on whether they’re willing to buy it at all. The tax bill is high but the price per square foot, compared to other areas, is low.’”

The Greenwich Free Press in Connecticut. “Just a day after public relations firm Lou Hammond pitched its services to the First Selectman’s Economic Advisory Committee with a goal of making Greenwich more enticing to home buyers and businesses, Bloomberg published a feature reporting that the Greenwich market ‘jolted awake’ in the first quarter of 2017 in tandem with a rising stock market and house price reductions averaging 7.9 percent.”

“Commenting on the Bloomberg article, the director of the Greenwich Association of Realtors, Theresa Hatton was dismissive. ‘The contention about discounts is actually normal in any market and at any price range,’ she said. ‘Homes that are on the market longer sell for less than asking price, homes priced to sell are sold quickly and usually for at or above list price. It is universal across all real estate markets as cited by real estate author and trainer, David Knox.’”

“Some readers have been more sympathetic to the Bloomberg argument. After a March 8 GFP feature about the proposed re-branding campaign – Proposed Greenwich Re-Branding: A Pearls and Mercedes Town No More – GFP reader Marija said she was opposed to her tax money being spent on a PR campaign ‘to increase real estate prices.’ ‘Greenwich housing is already expensive – and a baseline of the height of the market in 2007 when many people overpaid is illogical,’ she argued. ‘Housing is impacted by economic cycles, and we are likely to face another downturn in the upcoming years. PR campaigns will be futile to prevent this.’”

“The reader went on to lament the tear down trend and construction of even larger ‘high end’ houses on speculation that she argued few people can afford. ‘Let those developers and agents pay for their own marketing.’”

“Commenting on GFP’s April 19 feature write-up on the Lou Hammond presentation, local journalist and author Sarah Darer Littman wrote, ‘Those of us who made prudent financial decisions when purchasing homes are being asked for our taxpayer dollars to bail out the bad decisions of people who took out too much debt to invest in McMansions in back country and now can’t unload them for what they paid for them. Never mind that these are many of the same folks who are ardent proponents of free market principles when it comes to those less well off than themselves on issues like healthcare and the carried interest loophole.’”

April 23, 2017

The Biggest Swing You Could Imagine

A weekend topic starting with Mother Jones. “Are we in a second housing bubble, as I suggested in a chart I posted a couple of days ago? Brad DeLong has an optimistic take: ‘There were three good reasons in the mid-2000s to believe that housing prices should jump substantially….How much were these worth? Not enough to boost housing prices to their 2005 values. But plausibly enough to boost housing prices to their values today. IMHO, the best way to view the graph is as a positive ‘displacement’ boom caused by true fundamentals, a bubble upward overshoot, a crash downward undershoot, and now (we hope) equilibrium.’”

From News Talk. “How do you spot an economic bubble? Generally, you only see it when it pops. Everyone who lived through Ireland’s Celtic Tiger boom and bust will know what it feels like when ‘good times’ turn sour. Ireland’s current rapid rise in property prices is being caused by a miss-match between supply and demand. Low stocks of houses available to buy make them more expensive - but that doesn’t necessarily mean there’s no ‘bubble’ element to recent price hikes. There is a saying in economics that when people start saying ‘this time is different’ it’s time to get worried.”

“FOMO - When bubbles start to form investors are afraid of being left behind when there’s money to be made - so they pile in. Euphoria - Valuations hit extreme levels (think Irish property prices in the year before the crash). Downfall - The shine wears off. Savvy investors realise a market is out of control and start to jump ship as values head south. Fallout - We all sit around asking ‘why didn’t we see this coming’ (and writing think pieces about how we’ll spot the next bubble forming).”

The Tampa Bay Times in Florida. “With the peak selling season in full swing, Tampa home sales didn’t disappoint in March — prices in all four bay area counties jumped again by double digits compared to the same time a year earlier. ‘We certainly have a great, healthy market right now,’ Charles Richardson, senior regional vice president of Coldwell Banker, said Friday. ‘I don’t see any adverse influences to cause it to slow down.’”

“March’s price increase marks the 61st consecutive month of year-over-year price gains. Despite some talk of another bubble, tighter lending standards have stopped the rampant speculation that sent prices soaring to unsustainable levels before the 2008 crash, bankers and Realtors say.”

The Tennessean. “Spurred by Nashville’s breakneck growth, Davidson County’s property values have soared by a record median 37 percent since 2013 under a reappraisal performed by the office of Davidson County Property Assessor Vivian Wilhoite. In Nashville’s most rapidly gentrifying neighborhoods — including large stretches of East Nashville, parts of North Nashville, The Nations in West Nashville, and Wedgewood-Houston near the city’s fairgrounds — values have skyrocketed the most.”

“It means these neighborhoods will be taking on a significantly larger tax burden than they’re accustomed. ‘The growing demand for real estate in the Nashville market drives up values,’ Wilhoite said.”

The Napa Valley Register in California. “The first quarter of 2017 saw continued improvement in the sale prices of American Canyon homes, where home values increased 45 percent over the previous five years. The average sale price of newer homes was $603,000, a 13.6 percent jump over 2016’s average sale price of $530,625. The newer homes sold for $216 per square foot. Older homes average sale price was $406,917, up 13.5 percent from the 2016 average of $357,947. Interest rates remain low, and American Canyon offers more value for home buyers compared to the rest of the Bay Area.”

The Green Bay Press Gazette in Wisconsin. “Difficult might be an understatement when it comes to finding a house in Brown County these days. Home sales data show 2017 is shaping up to be the busiest year for sales in a decade. ‘It has changed like night and day,’ Realtor Mark Olejniczak said. ‘The biggest swing you could imagine.’ Olejniczak said two or three offers on a property is no longer unusual. ‘I’ve seen five offers on one property,’ he said. ‘And it’s not just in certain areas. It’s the east side, the west side, Green Bay, Bellevue, De Pere, Lawrence, duplexes, rural homes, starter homes, condos. If a buyer has looked at a (starter home), they need to make up their mind pretty quickly and come pre-approved to buy.’”

The Des Moines Register in Iowa. “New data show central Iowa’s hot housing market has infiltrated every corner of Polk County. Home prices have surged around the metro in recent years thanks to a steady economy, an influx of young homebuyers and a historically low number of homes for sale, real estate professional say. With few houses on the market, some sellers have enjoyed bidding wars and above-list-price offers.”

“‘The story continues to be supply, historically low supply, lower supply than we have had for a long, long time,’ said Bob Burns, president of Coldwell Banker Mid-America Group. ‘It’s driving prices up.’”

From WFPL on Kentucky. “The supply of available homes in Jefferson County isn’t keeping up with demand. The sparse inventory is keeping home values here on the rise. Tony Lindauer, head of the Jefferson County Property Valuation Administration, held a news conference Friday morning at the PVA headquarters in downtown Louisville to brief reporters on the latest assessments. ‘We are one of the hottest markets in the country,’ he said. ‘That’s basically what’s driving the prices up.’”

“And John Nelson, an economics professor at the University of Louisville, said he’s more concerned about the longevity of market conditions and job creation than threats of a housing market bubble, despite rising home prices. ‘That’s the least of my concern,’ he said of a new bubble.”

The Colorado Springs Gazette. “Something is missing from front lawns across Colorado Springs: for sale signs. Actually, the signs are out there, but there are far fewer around these days. The result: Some sellers routinely field multiple offers, especially if their single-family homes are priced in the $200,000 to $400,000 range; buyers must act within hours - or even less - to make an offer or risk losing the home; and both sides are seeing prices soar because of the furious demand and supply problems.”

“‘We are experiencing something that I’ve never seen in this market before,’ said Joe Clement, broker-owner of Re/Max Properties and a 40-year real estate veteran. One of his agents recently listed two homes in the $250,000 to $350,000 price range. Within days, the first home had 34 showings and eight offers, while the second had 40 showings and six offers. ‘It’s like crazy,’ Clement said.”

“And while nobody wants higher mortgage rates, an uptick would eventually reduce the number of buyers in the market, Clement said. ‘The big cities and the medium-size cities like our size all have the same problem: inventory, inventory, inventory and demand, demand, demand,’ Clement said. ‘I’m not cheering for high interest rates or a bump-up, but it could help us in this case. It could put a little damper on the fire. It’s not out of control, but it’s getting there.’”

April 22, 2017

Hand-Wringing About A Housing Glut

A report from Money Watch. “If you want to rent an apartment in one of those high-rise buildings going up in major cities nationwide but can’t find one in your price range, this could be your lucky day — or even your lucky year. Rents may slowly be spiraling downward by as much as 20 percent. Jay Rollins, the head of real estate investing firm JCR Capital, is predicting that the booming urban rental market in places such as Denver, New York City and San Francisco may have finally become overbuilt and overbought. ‘A lot of new buildings have come on-line,’ said Rollins. ‘There’s too much, and prices are getting too high.’”

“Rollins’ firm provides financing for acquisitions in the rental and condo markets with both debt and equity. He describes his mini-investment bank as ‘opportunistic.’ Rollins also looks for those who want to take over buildings whose original owners end up over their heads in debt and are forced to sell to someone who would ‘buy it for a dollar in order to make two.’ Simply put: high-end ‘flippers.’”

The Oregonian. “Rent increases have slowed across the metro area and have even fallen in some areas, according to the apartment industry association Multifamily NW. The report comes as new construction has flooded the metro area, giving renters at the top end of the market plenty of options to which to choose. Newly constructed apartment buildings are offering more move-in bonuses, and their established high-end competitors are doing the same.”

“The report said rents fell 6 percent in Hillsboro and 4 percent in both Northwest Portland and Beaverton.”

From NPR Pittsburg. “The demand for new apartments in Philadelphia and Pittsburgh has grown swiftly over the last few years. Developers have met that demand with a tremendous amount of construction, said Barbara Byrne Denham, senior economist at Reis, a real estate data and analytics company based in New York. 
It might seem like both cities have more new luxury apartments than they know what to do with. But is hand-wringing about a housing glut a wise reaction? ‘Yes and no,’ said Byrne Denham.”

“The vacancy rate in Pittsburgh rose from 4.7 to 5.2 percent in the same period. ‘While that looks striking, it’s not alarming,’ said Bryne Denham, noting that new construction in Pittsburgh for 2017 is expected to drop by almost a third, to roughly 1,000 units. ‘So we do see a lot of supply, but it’s not such an alarming rate that we’re going to see empty, empty buildings.’”

The Buffalo News in New York. “Grand Island Supervisor Nathan D. McMurray wants the town to put a moratorium on the development of any new apartment complexes until it has a master plan in place. Oakwood Ridge, a $1.2 million apartment complex at 2984 Grand Island Blvd., with two buildings, each with eight apartments, a total of 16-units, raised an outcry on social media – led by McMurray, who said ‘there’s an absolute oversaturation of high-end apartments on Grand Island.’”

“Oakwood Ridge Developer David Mazur, who also built a similar development, the 32-unit Nottingham Estates two years ago, told The Buffalo News that he abided by all the rules of zoning and even designed his new complex at half the density that he was allowed. He said another apartment complex, Heron Pointe, a 230-unit project on Grand Island Boulevard that is under construction, is what started the issue with oversaturation, not his complex. ‘I do believe if that project didn’t exist they wouldn’t be worried about my 16 units,’ said Mazur.”

The Houston Chronicle in Texas. “Modern apartment buildings have to offer more than cable TV to draw the interest of prospective renters, so developers and designers are working hard to keep pace with the rapid lifestyle changes ushered in by digital technology. Tasked with identifying amenities that could differentiate apartment buildings in this age, a group of graduate students from the University of Houston’s Stanford Alexander Center for Excellence in Real Estate investigated emerging examples and drew up a list of best practices.”

“Developers were keen to pay attention. With a glut in luxury high-rise apartments, competition for residents is heating up and amenities could give innovative landlords an advantage. Workout rooms and swimming pools don’t drive as much renter excitement anymore. So what’s next? According to the students: fingerprint-scan door locks, dedicated facilities for package delivery, building-specific smartphone applications, internet-connected appliances, transportation services and facilities for pets.”

The Journal Sentinel in Wisconsin. “A high-end lakefront apartment development planned for St. Francis has received preliminary city approval after the number of units was substantially reduced. Bear Development LLC now plans to develop 11 two- to three-story buildings, totaling 221 apartments, with enclosed parking. The $30 million project would include three additional buildings with garages, as well as a clubhouse with an outdoor swimming pool.”

“Kenosha-based Bear reduced the unit count after seeing a decline in rent among similar developments in the Milwaukee area because of an oversupply of new apartments, according to city officials. Similar concerns have led to other Milwaukee-area apartment developments being downsized, delayed or canceled. Any city financing help would be provided through new property tax revenue generated by the project. The development’s monthly rents would start at $900, according to city records.”

The Capital Journal in South Dakota. “Two apartment complex owners - Mike and Donna Jean Newton, and Glennis and Mark Zarecky - asked the Hughes County consolidated equalization board for lower tax bills on large apartment buildings. Each got some relief. Mike Newton did not appear before the board, but sent a note: ‘When we built, the city was crying for places for people to live. Now not many people are moving to Pierre. It is difficult to pay these kinds of taxes when you can’t keep apartments full.’”

“Prairie Vista, near Northridge Mall, has one-bedroom and two-bedroom units, billed as luxury apartments, from $800 to $1,050 per month. He’s got the building for sale, listed at $1.8 million, but says he would take less.”

“Glennis Zarecky did appear before the equalization board on Monday. As in the Newton’s case, the owners got some tax relief. A quick influx of apartments has changed some of the dynamic, Zarecky said. ‘I think back and we built ours and opened it up in 2013 and there was an absolute demand for quality apartments. But since then, the Fosters built 24 units and Prairie Vista opened a year or so later than we did.’”

“‘Our vacancy rate in 2016 was certainly twice as high as what we had budgeted for,’ she said. Zarecky said she’s not sure what has changed, except perhaps a certain slice of the market has been met. ‘I think when it comes to that grade and budget of apartments, I think the demand has been met,’ Zarecky said. ‘What I believe is still in demand is more affordable ones. There are a lot of people who don’t want two bedrooms, or can’t spend $700, or $800, a month.’”

April 21, 2017

Responding Rationally To Loose Money

It’s Friday desk clearing time for this blogger. “The slumbering housing market in Greenwich, the Connecticut town favored by Wall Street’s financial elite, jolted awake in the first quarter as buyers emboldened by the rising stock market committed to purchases — as long as they didn’t have to pay full price. Prices remain 20 percent below the town’s peak in the second quarter of 2006, when the median was $2.33 million. ‘That kind of market no longer exists,’ said Jonathan Miller, president of Miller Samuel. ‘If it comes back, it’s not tomorrow.’”

“‘Too much luxury product’ says one broker as a glut of ultra-high-end condos sparks price cuts, including on Gwyneth Paltrow’s pad, which she sold for 30 percent below its original price. Paltrow’s pad wasn’t an outlier. In 2015 and 2016, a confluence of events, including a glut of luxury units and uncertainty surrounding the presidential election, forced many sellers to slash their prices as buyers took harder and longer looks at properties. ‘The New York market became very overpriced,’ Donna Olshan, whose eponymous brokerage specializes in properties costing more than $4 million, tells THR. ‘Buyers became very cost-conscious.’”

“Though the residential slowdown continues in South Florida, sellers may finally be adjusting to market conditions by lowering their prices. Residential properties sold for bigger discounts during the first quarter compared to the same period of last year in Miami Beach, continuing a trend from the fourth quarter of 2016, according to Douglas Elliman. Properties in Miami Beach spent 143 days on the market during the first quarter of this year, up from 97 days the previous year. Listing discounts also continued to increase, which makes sense given that ‘pricing was too high to begin with,’ said Jonathan Miller, whose firm Miller Samuel authored the reports. ‘The spread is widening. The seller is traveling farther to meet the buyer, and I don’t believe it’s the buyer coming up to meet the seller.’”

“According to the latest FipeZAP Index, residential real estate sale prices in Brazil remained relatively stable in March. Eleven of the twenty cities included in the Index showed a decline in sale prices from February to March. ‘What I tell the owners I work with is that if they want to sell they property in a short array of time they must indicate a price that is below market value. If not they must be patient,’ said Charlie Jonas from luxury real estate agency, Rio Exclusive.”

“The best rental deals on residences in Abu Dhabi could be on the new one ones as landlords ramp up on incentives. Landlords are facing a stark choice - stick to their demands and see their tenants moving out and having to keep the units unoccupied for longer. Or they can give in to market forces and sign up tenants for the best they can get under the circumstances. They have to as rents in Abu Dhabi remain under extreme duress, particularly at the top end of the residential leasing space. On many counts, the level of stress on asking rents is much higher than what landlords in Dubai’s freehold zones are facing. What is remarkable about Abu Dhabi is that it is happening within a much lower residential base.”

“Alpon Abu of Vase Solutions says rental prices in Nairobi recorded a drop in the final quarter of 2016 caused by an oversupply of apartments and falling demands, citing available reports. ‘It seems there is an oversupply of A class commercial spaces as well as expensive apartments that is causing a drop in prices, rental yields,’ he says. ‘Moreover, several banks have gone down within the last 12 months. With a weak banking system that cannot provide sufficient finance support for further growth, the future does not look bright for developers.’”

“International Real Estate Federation vice-president Michael Geh said only owners who could no longer bear the hefty mortgage repayment were willing to let go of their high-end properties at 20 to 30 per cent less. ‘If you have two to three luxury condominiums and there is no rental coming from either and people not wanting to buy, then it seems necessary for owners to give about 25 per cent off the asking price to let go of at least one property. But for the buyer, it is a good deal. So, I wouldn’t say the property market is crashing because there is still a willing buyer for a willing price tag,’ said Geh who represents the Malaysian chapter of the International Real Estate Federation.”

“Geh likened the situation to the English folklore Robin Hood, noting that the rich would not like the current situation while the ‘poor’ would be happy being at the receiving end.”

“A meeting has heard the reason Newstead-based builder CKP Constructions collapsed, leaving four projects around the city uncompleted. CKP Construction director Craig Petersen told a meeting of creditors that an unpaid debt owed by a developer called Gabba Holdings had lead to cash flow problems from which the company was unable to recover. The company’s collapse is the latest in a series of building company failures and comes as the Reserve Bank of Australia singled out the Brisbane property market as an area of concern.”

“Housing and Public Works Minister Mick De Brenni said the CKP collapse meant subcontractors had once again been left exposed. Brisbane/Gold Coast-based Cullen Group collapsed just before Christmas, owing subbies an estimated $18 million and leaving a string of uncompleted projects. ‘MEA Chief Executive Malcolm Richards said that the collapse would leave many sub-contractors out of pocket. ‘This is devastating news for the many mum and dad sub-contracting businesses who will now be left out of pocket due to the collapse of CPK Constructions,’ Mr Richards said.”

“Fresh from their triumphs on energy, health and other files, the Ontario Liberals plan to extinguish an ‘overheated’ Toronto housing market. Chesterton once said the modern world consists of formerly coherent virtues wandering about in mad isolation. Let us soften our scorn for the credulity of past ages long enough to consider that the major thrust of government policy over the past decade has been to ’stimulate’ the economy by keeping interest rates artificially low.”

“The point is, the whole idea behind cheap money, other than (a) government can alter real interest rates because the market is full of dopes who don’t know from nominal and (b) to hold down interest payments on runaway public debt, is to make citizens borrow and spend. Then when we do, responding rationally to loose money by taking out big mortgages, they say hey, we wanted you to spend like maniacs but not on significant assets. Dawk.”

“Part of the argument is that if the housing ‘bubble’ were to ‘burst’ it would hurt the economy. But that’s only true if government has foolishly socialized risk by backing unsound mortgages. So having made the whole system dangerously unstable and inflated it recklessly, they now want to do us another favour based on their superior enlightenment, capacity and compassion.”

“So why not simply mandate that no house in the Greater Golden Horseshoe can sell for more than its MPAC valuation, at least to a stinking foreigner? Because it would be central planning, which we know always causes unfair disaster. So while they devise other central planning to cause unfair disaster, please hit the roof as hard and often as possible especially if you live in Toronto. Putting holes in it with your head will reduce its value. Which your government actually wants.”

April 20, 2017

You Keep Bidding, And Then You Have Buyer’s Remorse

A report from the Citizen Times in North Carolina. “In the red hot local real estate business, it’s a little taboo to use ‘the B-word.’That’s mainly because everyone has painfully fresh memories of the last housing bubble, which burst with a near-nuclear detonation in 2008, leading to a worldwide recession with impacts that lingered for years. So pardon professionals like Mike Figura, an Asheville market analyst, who is dancing around the B-word in light of the first quarter real estate report. ‘It’s getting a little frothy out there,’ Figura said, noting that he opened his company in 2005. ‘When I started, it did feel similar to what’s going on now, in terms of bidding wars and setting new records each quarter.’”

“‘I don’t know if we’re in a situation where we’re creating bubbles, but we are seeing appreciation in selling prices of about 10-12 percent (a year), and I’m not sure if that’s sustainable,’ said Don Davies, whose firm RealSearch conducts market studies.”

From CBS Detroit in Michigan. “Home prices are on the rise for the seventh straight year with a new survey by Real Comp showing the median price of a home in metro Detroit has risen by $13,000 this year. When will it end? ‘The prices have gone straight up,’ said Jeff Glover is an agent at Keller Williams Real Estate. ‘You’ve got 2011, 12, 13, 14, 15, 16 … that’s now seven years of increases in home values. We’re at least a couple of years beyond the point where it normally starts shifting back the other way, normally every five, six years. We won’t find out how long this is going to last until six months after it’s already changed.’”

The Idaho Statesman. “Treasure Valley home values have steadily climbed since the Great Recession, and median prices have surpassed the peaks of the pre-recession housing bubble of the mid-2000s. ‘At the beginning of the year, it used to be one in a handful sold for over the asking price,’ said Mike Brown, owner of the 39-agent Mike Brown Group at Silvercreek Realty in Meridian. ‘Now, it’s three in a handful.’”

“Katrina Wehr, 2017 president for Boise Regional Realtors, said some buyers get caught up in the moment and make hasty bids they later regret, especially if they had previously lost out after offering on houses they had grown attached to. ‘You can get caught up, just like when you’re at an auction,’ Wehr said. ‘You get excited. You keep bidding, and then you have buyer’s remorse.’”

From North Fulton in Georgia. “For at least the last four years in Atlanta the job market has been on fire. People have been moving to Atlanta and homebuilders have had trouble keeping up. The story has been big, but the same – until now. Today, something very different is happening. Inventory levels started dropping again for houses priced under $400,000. And they have started rising for houses priced above $400,000. It is truly night and day.”

“Home builders may be starting to over build the luxury market. For the last several years, because of the increased number of jobs and influx of people into Atlanta, they have had no trouble building higher-end homes and selling them prior to putting a shovel in the ground. Not many builders have been building the sub-$400,000 market. A homebuilder friend of mine told me that he just finished a $450,000+ townhome community in what I consider a very desirable location. And he’s having trouble selling them.”

“If you are wondering why apartments are going up everywhere you look, go try to buy a house under $400,000 and you’ll know.”

The Lane Report in Kentucky. “The Greater Louisville Association of Realtors (GLAR) reported sales up 4.67 percent this year. ‘Our members are still working in a very strong sellers’ market for homes up to $400,000,’ said Allison Bartholomew, president of GLAR. ‘Between $400,000 to $600,000 the market becomes slightly more balanced and over $600,000 we’re in a buyers’ market in most areas due to the influx of new listings.’”

From Mansion Global on New York. “The cost of urban luxury has just gone down. A 4,254-square-foot corner duplex at the Seville has lopped about 40% off of its original asking price of $11.25 million. The six-bedroom, four-and-a-half bathroom Upper East Side apartment is now listed at $6.75 million. Listing agent Thomas Di Domenico attributes the new price to several factors, including a rise in interest rates and the shift in recent years from a seller’s market to a buyer’s market in Manhattan.”

“Mr. Di Domenico also says the property wasn’t marketed correctly when it was first listed at the much higher price in 2014. He and his team have completely restaged the space for buyers who increasingly shop online for real estate. ‘The visuals have to be strong,’ he said. ‘And the property has to match up.’”