June 26, 2017

It’s A Long Time Coming

A report from D Magazine in Texas. “‘Everyone’s talking about real estate right now,’ says Brady Moore, the founder of Laguna Residential, a realty firm that represents buyers and sellers of high-end properties in central Dallas. ‘This market has been so extraordinary that you can’t go to any kind of social event where someone isn’t asking what their neighbor’s house sold for. And everyone wants to know where prices are going to go next.’”

“But keep looking at the data, and a curious picture emerges. The number of houses changing hands is only slightly up overall from 2016. Plus, sales were actually down in the early part of this year in several previously hot places, including Southlake and East Dallas. In once-white-hot North Oak Cliff, prices declined 3 percent through April. Take homes in the 75214 ZIP code as one example. As of this spring, there were 10 percent more houses on the market in that area than there were at the same time a year ago.”

“While the increased supply is a nice change for buyers, for sellers it’s not yet working out. This spring, sales were down 27 percent on the year for the whole area, across all prices. Supply was up. Demand was down. And yet, that’s the scenario playing out in any number of neighborhoods and suburban cities across the area. ‘You can’t expect your house to sell in three days anymore,’ says agent Brady Moore. ‘That’s still happening, but we have more inventory now, and that’s not been great for my sellers, but it has been good for my buyers. And after these past few years, any sense of balance in this market is really appreciated.’”

The San Francisco Chronicle in California. “We’ve visited and revisited the De Guigne estate over the years, watching its drama unfold. Now, finally, the 16,000-square-foot mansion in Hillsborough has sold for $29.85 million, and at such a dramatic discount from its original list price of $100 million that this story’s end makes for good real-estate gossip.”

“De Guigne’s proposal ‘to subdivide the property into 25 single-family homes’ collapsed under pressure of the poor 2009 economy and vociferous opposition from neighbors and environmental groups. So, though the MLS write up for this now sold property boasts ‘potential to subdivide,’ it’s hard to know if new owners can actually do so. But then again, maybe new owners plan to keep all 47-plus acres and 16,000-square-feet of luxe to themselves.”

From Silicon Beat in California. “You’ve probably been reading about the latest round of record home prices in the Bay Area. A survey by the Pacific Union real estate company showed that all homes across the region rose in May to a median price of $860,000, up 7 percent year-over-year. What caught our eye about the Pacific Union survey was that it got down into the weeds in an unusual way. Specifically, it showed that certain ZIP codes throughout the region seemed to be defying the relentless upward rise in prices — in fact, homes in these ZIP codes had depreciated in value over the last year.”

“Selma Hepp, Pacific Union’s chief economist, had no trouble isolating 10 ZIP codes in those counties where single-family home values had actually dipped year-over-year, appreciably in some cases. Values tanked 20 percent in Santa Clara’s 95054 ZIP code, while Berkeley’s 94705 dropped 18 percent and Los Gatos’s 95030 fell 11 percent. Even in super-wealthy Atherton, values fell 2.0 percent in the exclusive 94027 ZIP.”

“But the more Hepp zoomed in with her microscope, the more it seemed as if these downward blips were anomalies, caused by month-to-month changes in the housing mix and hard-to-pin-down whims of the market. These suspicions were bolstered by conversations with several agents in the field. And underlying the overall discussion of depreciating ZIPs was this message: One month does not make a trend.”

From The Real Deal on New York. “For Hans Futterman, it was a dream defaulted. The developer assembled a vacant plot of land at Frederick Douglass Boulevard and West 122nd Street in Harlem over roughly four years, from 2011 to 2015. He then secured approvals to construct a 12-story, 127-unit residential building on the site, which offers 205,000 buildable square feet.”

“But in June of last year, Futterman, who declined to comment for this story, defaulted on a $36 million loan from RWN Real Estate Partners, and five months later his development firm filed for Chapter 11 bankruptcy protection. The bankruptcy auction is now set for June 21. A source said Futterman pumped ‘his life savings’ into the project — and that he is still holding out hope to develop it himself. ‘This is the reality of the market today,’ said Cushman & Wakefield’s Bob Knakal, who is handling the bankruptcy auction with colleague Adam Spies. ‘Transactions are not going the way owners want.’”

“Indeed, the first signs of distress have emerged in several pockets of New York City’s commercial real estate market in recent months. Retail vacancies, declining hotel revenues and foreclosures on Park Avenue are among a flurry of indications that the market is inching closer to the brink of financial trouble. ‘There’s a lot more stress in the system than most people probably realize,’ said Iron Hound Management’s Robert Verrone, who added that his mortgage brokerage is handling more workouts nationally than ever before.”

“The influx of troubled loans is a product of the 2007 lending boom, and $90 billion in commercial mortgage backed-securities backed by properties across the country are set to mature this year. Sean Barrie of Trepp, which tracks CMBS, noted that the massive batch of loans was ‘underwritten pretty liberally,’ and now, many of those sponsors may face difficulty refinancing their over-leveraged assets.”

“Attorney Ray Hannigan, of Herrick Feinstein, who specializes in foreclosures and workouts, said the tri-state area is already seeing a substantial influx of those maturity defaults. There are more telling signs of distress in multifamily than landlords caving to concessions to fight vacancies. In the CMBS space, industry players are seeing loan defaults on multifamily properties, according to Hannigan. ‘You’ll see a lot of special servicers pursuing foreclosure and workouts of apartment complexes, and other types of properties, across the board,’ he said. ‘It’s a long time coming. The market needs to work through this latest cycle and weed out the good and the bad.’”

The Mat-Su Valley Frontiersman in Alaska. “It’s been nearly two months since I quit my last job – a great deal of which entailed covering the state legislature. As divided as our politics are, as lawmakers adopt the broken down car model that is Washington D.C., they were united back then in one refrain. Members of leadership from both caucuses in both chambers would assure me: ‘I’m absolutely confident we’ll figure out the budget within the 90-day time limit.’ I always chuckled privately. Every reporter knew it was either feigned optimism or delusion. The writing was on the wall.”

“As I passed Cheney Lake in East Anchorage, I noted how it was now day 152 of the 2017 legislative session. Day 62 passed that promised ‘come to Jesus’ moment where ideology gave way to stability and, you know, responsibility. I passed a few real estate signs. Then more. Then a moving truck. Then a staggering collection of both spanning the entire Anchorage Bowl. One after another. Sometimes, clusters of ‘for sale’ signs hung together at entryways to housing divisions.”

“This wasn’t the normal summer population turnover, when people rush to sell their houses and cars and pack their bags before the termination dust begins appearing on the Chugach Mountains. The vacancy rate in Anchorage has ballooned from a low of 1.8 percent in 2010 to 5.1 percent this year. Statewide, those numbers are 3.9 percent and 7.3 percent, respectively. A big, bad change is happening.”

“In Fairview, I rolled past more homes for sale. I saw another moving truck. I grunted to myself in frustration, remembering all the assurances I had been given, and knowing that the problem remains the income tax.”

“Seeing announcements posted to Facebook by friends and acquaintances accepting new jobs out of state have become a daily exercise. As frequent as similar posts documenting concern and panic after being notified that their jobs were in jeopardy. Do they put the house on the market now? How are they going to make their mortgage payments? Meanwhile, the signs keep going up and the trucks keep getting filled. The future is not looking good.”

A Disappointing Price Might Be A Great Escape

A report from the Financial Post in Canada. “Internal mid-month statistics for June from the Toronto Real Estate Board show average prices in the Greater Toronto Area shed almost 6.4 per cent in just two weeks with sales down about 50 per cent from a year ago. The average home sold for $808,847 from June 1 to 14 — a sharp drop from the average of $863,910 for May. The peak of the market in Canada’s largest city now appears to be in April when the average price soared to $920,791, the same month that Ontario brought in its 16-point Fair Housing Plan, which included a 15 per cent non-resident speculation tax. Average prices have now declined just over 12 per cent from the peak but Craig Alexander, chief economist of the Conference Board of Canada, said it might not be the measures themselves that have cooled the market as much as the perception of their impact.”

“‘I don’t think that many buyers have been pushed out of the market,’ said the economist. ‘One of the biggest effects of tighter government regulations is that it creates a psychological response by potential sellers and potential buyers. It ends up like a wait and see approach. If everybody waits and sees what happens, you get a significant pullback.’”

From First on Ultra on India. “With IT sector witnessing subdued sentiment amidst pressure on hiring and annual pay rise for employees, the country’s software and services hubs such as Bengaluru, Hyderabad, Chennai, Pune and Noida-Gurgaon in NCR are expected to see 10-20 per cent reduction in the housing rents over the next three quarters, according to an ASSOCHAM paper. ‘The IT and other services like financials are among the sectors which pay well. Besides, the age profile of these employees is quite tempting for the marketers. They are good spenders and want good life. These factors kept the markets for rentals pushing up, especially in gated and well-equipped housing complexes and societies in Bengaluru, Gurgaon, and Hyderabad. There is certainly a pause visible,’ ASSOCHAM Secretary General Mr D S Rawat said.”

“In any case, the markets for real estate has gone down in major micro markets owing to a combination of factors. With a large inventory of even ready flats which would be available for use in the next few months, the supply for the rental markets would further improve.”

The China Economic Review. “Chinese real estate developers find themselves squeezed by government curbs on bank lending that aim to deflate the housing bubble, as well as a regulatory campaign to force the financial sector to deleverage and improve risk controls. According to Caixin, one by one, regulators have restricted the sources of funding available to builders. Now, with even the costliest and riskiest form of borrowing - via trust companies - under scrutiny, companies are running out of options.”

“The government began to restrict the flow barely a year after it opened the spigot in the second half of 2015, when it was making an effort to revive investment in property development following its collapse during the previous round of tightening. But issuances collapsed again this year - with just 152 billion yuan of bond sales as of June 15, down from 614 billion yuan over the same period last year, Wind data show.”

From Asia Times on China. “Employees in loans divisions in China’s banking industry are facing increased pressure after interest rates were raised, making it harder for them to approve loans and make commissions on already low wages. ‘Our basic salary is only 2,000 to 3,000 yuan per month, so we have to depend on commissions,’ said a client manager in a commercial bank. ‘Most client managers saw a significant drop in their volume of loan operations, so it is quite common that many of us fail to maintain our previous wage levels.’”

“Banks have cut the monthly quota on housing loans and increased interest rates amid tightening credit policies. ‘If you want to make a loan, better do it now,’ said a client manager at one of the four giant state-owned banks. ‘It’s uncertain if there will be any quotas next month and the lending rate could probably see a 10% rise from the benchmark by then.’”

“The China Securities Journal reported that China Merchants Bank, Industrial and Commercial Bank of China, China Minsheng Bank and China Guangfa Bank had all raised the interest rate above the benchmark on first home loans. While some branches of Ping An Bank and Industrial Bank have stopped issuing housing loans.”

From Your Property Investment in Australia. “Housing finance and credit data released earlier this month by the Australian Bureau of Statistics (ABS) and the Reserve Bank of Australia (RBA) make it clear that investor interest in the housing market is starting to decline. Philippe Brach, CEO at Multifocus Properties & Finance, believes it’s the current climate of uncertainty that is causing many property investors to hold back and wait for the market to stabilise.”

“‘I believe it’s the uncertainty that has been created with the banks changing their lending policies every five minutes. It’s pretty much on a daily basis,’ he said. ‘You almost need a full-time guy in your mortgage broking office to keep up with all the changes that the banks are putting together. Every day, we get three to four press releases outlining the latest changes. Banks are raising interest rates and some are changing their assessment standards. This is causing investors to hold back.’”

From Domain News in Australia. “Sydney’s housing market has reached a turning point, with buyers no longer willing to match sellers’ expectations, according to a leading sales agency. The ’seasonal impact’ of winter and higher interest rates for investors were having a ‘double whammy effect’ on auction clearance rates, said Domain Group chief economist Andrew Wilson. This was then being compounded by ‘extraordinary numbers’ of sellers going to auction. ‘We have never seen auction numbers at this height – was a record May and it will be a record June. It will have an impact,’ he said.”

“In a note to sales staff BresicWhitney director William Phillips said it was ‘clear that we have entered a new phase in the market.’ He said it was an ‘opportune time to sell.’ ‘What might seem like a disappointing price today might be market value or a great escape in three months’ time,’ Mr Phillips said.”