July 31, 2017

Bearing The ‘Lesser Of Two Evils’ Pain

A report from CBC News in Canada. “Canada’s addiction to real estate goes far beyond our obsession with talking about it. Our economy actually relies more on the fees associated with buying and selling houses than it does on agriculture, fishing, forestry and hunting combined. In Canada, upcoming data will likely show those fees have already started to fall, as the number of home sales across the country fell in June by the most in seven years. ‘This is a stunning 1.9 per cent of GDP,’ said Macquarie analyst David Doyle. Doyle says Canada’s increased reliance on real estate fees can be blamed on years of ultra-low interest rates, worsened during the oil price slump when the Bank of Canada cut rates even further. ‘I think they felt that the lesser of two evils in that situation was to cut interest rates,’ Doyle said.”

“But that fix has helped put Canada in another tricky situation, where the economy relies to an unusual extent on home transactions. That could have particularly negative consequences as the central bank begins to raise rates again. ‘The drag on the economy that’s going to flow from [higher rates], I think, will prove to be much more severe than it’s been in the past,’ he said. ‘It’s not something that, as an economy, you would look at as a position we want to be in.’”

From the Guardian on the UK. “Aroom in a friend’s rented north London houseshare came up recently. Usually, this would mean an instant queue of prospective tenants waiting for their 10-minute interview slot, followed by an unpleasant few hours of decision-making. This time, my friend reported, whole days passed without anyone getting in touch. We wondered if it might be the first hairline crack in some huge chasm about to rip through life as we know it – if, in the future, we would look back on the empty wasteland of the city and remember that day as The Day London Turned.”

“The news last week that the number of people leaving the capital has reached a five-year high will come as no surprise to anyone trying to house themselves in the capital. Whatever the political shocks of the last year, some things are unchanged: house prices continue to bear no relation to earnings, private landlords remain largely unregulated and rents continue to eat up two-thirds of the average Londoner’s wages. Plus, it’s dirty, noisy, overcrowded.”

From Reuters on China. “Luxury lakeside homes and high-rise condominiums are coming up fast in China’s sleepy inland town of Bengbu, a clear sign that a home-buying frenzy sweeping across the country’s major metropolises and provincial capitals has reached even its smaller cities. The increase in demand is welcome news for smaller cities that have a massive overhang of unsold houses left from the last real estate downturn three years ago. However, the surge in construction threatens to outpace or match the increased demand for housing, leaving housing inventories untouched.”

“The hidden danger, analysts say, is that real estate inventories are often higher than indicated by official figures. Official inventory data only counts completed homes, while private estimates include homes that are being built but not completed yet. Official data showed nationwide inventories stood at 646 million sq m as of end-June. Private estimates, which tend to lag official data, can be several times bigger than that.”

“A Bank of China estimate that includes not-yet-built projects shows China’s real estate inventories stood at 8.28 billion sq m at end-2016, most of which - 5.8 billion - in tier-three and four cities.”

From Interest.co.nz in New Zealand. “The number of homes newly listed for sale on Realestate.co.nz fell to the lowest level on record last month, and asking prices for Auckland properties continued to slide for the third consecutive month in July to $608,143. That means it has now fallen by $40,619, or 6.7%, since it peaked at $648,762 in February. The slide in average asking prices is most pronounced in Auckland, where it has fallen for the last five consecutive months and was $903,752 in July, down by $74,900 (7.7%) from its peak of $978,652 in February.”

“That suggests vendors are starting to accept that the market has weakened and are being more realistic with their asking prices. The drop in prices in Auckland may be starting to spread to other regions, with July’s average asking price being lower than June’s in 11 of Realestate.co.nz’s 18 sales districts.”

The Morning Bulletin in Australia. “In good news for rental tenants and bad news for landlords and property developers, Rockhampton has an oversupply of vacant rental properties according to the latest REIQ property data. REIQ data for the June quarter revealed that although Rockhampton rental vacancies levels had dropped, they still sat at the highest level of all of the Queensland regional centres.”

“‘Developers were coming in and building rental properties and selling them in a lot of cases to interstate buyers with guaranteed rental returns over a 12 month period,’ said REIQ zone chairman for Rockhampton Noel Livingston. ‘The demand was there for a period of time but those good times don’t last forever. To me that was never sustainable and that’s proven that it was never sustainable.’”

“Rockhampton Mayor Margaret Strelow said it was pleasing to see the rental market settling down now but the vacancy rate was still way too high. ‘As Noel Livingston has said before, we’re bearing the pain that comes from ill-informed out of state investors buying into a ‘guaranteed rental return’, she said.”

July 30, 2017

The Ongoing Positive Economic Cycle Raises The Question

A report from the New York Post. “Is the private sector allowed to do anything anymore? For nearly 80 years, Washington has subsidized homeownership — creating massive distortions both in house prices and in what neighborhoods look like. Now the feds will subsidize rental homes as well — expanding government control over even more of the economy. Freddie Mac wants to provide $1 billion to medium-size landlords for rental housing, the New York Times reports. This just a few months after Fannie issued its own $1 billion guarantee for Blackstone, a huge rental property owner. The big picture is the definition of a reasonably functioning free-market economy: If you want to buy a house, you should be able to find someone willing to lend you the money to do so, provided you have the resources to repay the loan.”

“If you want to rent an apartment, you should be able to find someone to rent you an apartment, whether you can afford modest rent or high rent. Likewise, the apartment owner should be able to find a lender, based on your rental income. The government should target subsidies only to people who can’t work because of disability or age, and give temporary help to others — not declare the entire market broken and take over.”

The American Statesman in Texas. “In a good sign for Austin apartment dwellers, the metro area’s average apartment rental rates slowed their swift rise in the first half of the year as supply began to catch up with demand, industry experts say. The overall occupancy rate dipped slightly, averaging 93.3 percent across the metro. Over the past six months, 4,136 apartment units came online, and a net of almost 2,400 units were leased, which caused the decline in occupancy, said Charles Heimsath’s Capitol Market Research, which tracks the apartment market.”

“RealPage, a rental housing technology and analytics firm based in Richardson, shows that ongoing construction has slowed to about 15,200 units, down from a recent high of 19,000 to 20,000 units. But the oncoming additions still translate to aggressive growth of 6.6 percent in Austin’s supply of new apartments, said Greg Willett, chief economist for RealPage. Sam Radbil, Abodo’s senior communications manager said that the region’s slower job growth ‘could keep rents in check, as developers and property managers attempt to keep vacancies at a minimum. No one wants an empty luxury apartment building,’ Radbil said.”

From San Francisco Curbed in California. “Rental site Zumper released some figures this week comparing Bay Area cities in terms of median rents compared to one another and to the same time last year. The results—rents are down significantly year over year almost everywhere. Redwood City is down 10.5 percent ($2,970/month). Palo Alto ($2,720/month) is down 1.8 percent year over year. Moving up the peninsula, South San Francisco and Burlingame are both down as well ($2,410/month, minus 10.7 percent and $2,350/month, minus 13.9 percent respectively).”

The Longmont Times Call in Colorado. “Construction has stopped suddenly on an apartment complex east of Longmont after a change in contractors and revisions to the foundation plans. Work on Springs at Sandstone Ranch, a 240-unit development, has ceased for the time being. A visit to the site showed three partially-constructed buildings. The walls on one were lilting precariously, and weeds had grown up around the foundation. Workers at a nearby project couldn’t recall how long the site had been dormant. A security guard at the property declined to answer questions.”

“The developer of the project is Wisconsin-based Continental Properties. Officials for the company did not respond to multiple requests for comment. It’s unusual to see projects halted for foundation issues, said Longmont developer Keith Burden. ‘I can’t recall a time I’ve ever seen that,’ he said.”

The Star Tribune in Minnesota. “A Hennepin County judge has appointed an administrator to oversee 17 apartment complexes owned by a Minneapolis landlord under fire by tenants and city regulatory authorities. The receivership covers more than a quarter of Stephen Frenz’s properties in Minneapolis and includes 436 apartment units. The order was issued by Hennepin County District Judge Mel Dickstein, after a mortgage lender initiated a rare foreclosure action, largely over allegations that Frenz failed to disclose that Spiros Zorbalas, who was banned by the city from owning apartment properties in Minneapolis, had a financial interest in Frenz’s buildings.”

“A foreclosure over misrepresentation of ownership ‘is very unusual,’ said Larry McDonough a Dorsey & Whitney attorney who wrote the law creating housing courts in Hennepin and Ramsey counties. ‘Foreclosures are almost always about nonpayments’. Frenz’s company, National Housing Fund, took out a $26.5 million loan on the properties in 2014 and did not make a March payment, putting him in default, but the lenders focused on the allegation that Frenz reneged on a pledge to not make Zorbalas an owner.”

“Nathan Morda, who rents a studio apartment from Frenz in a building facing foreclosure, said he was optimistic that a new receiver could lead to repairs. He said his apartment has mice and insect infestations, mold and plumbing problems and is not warm enough in the wintertime. ‘These buildings need a thorough upgrade,’ he said.”

The Banker and Tradesman in Massachusetts. “Rising construction costs and a slowdown in the luxury rental market may accomplish what neighborhood opposition could not: put the brakes on a 44-story apartment tower in Boston’s West End. Developer Equity Residential is taking a wait-and-see attitude on development sites in coastal markets, CEO David Neithercut said.”

“‘We’ve got some sites that we currently have in L.A. and in the Bay Area and in Boston that we could do something on but we’re not going to pursue those very aggressively at the current time,’ Neithercut told analysts this week during a conference call to discuss the company’s second-quarter quarter earnings. ‘The teams continue to work on them, but we’ll just sort of see how things play out.’”

“Equity Residential owns 23 apartment communities in Greater Boston totaling approximately 6,103 units with average rents of $2,941 and an occupancy rate of 95.7 percent as of June 30. Executives have said they are monitoring potential headwinds in the local multifamily market because of rapid development in Boston and Cambridge, with three-quarters of the new supply competing against their existing properties.”

From Bisnow on Massachusetts. “A leading Boston developer says a limited supply of high-end condos in the market is behind his firm’s push for condo conversions at its latest residential development. HYM Investment Group’s decision to convert 118 apartments into 55 condominiums at its Bulfinch Crossing residential tower comes as thousands of market rate rentals are poised to hit the market and several developers shift to offer for-sale units.”

“About 12,000 market-rate residential units are expected to hit the greater Boston market in 2017, according to the Q1 2017 NAI Hunneman Metro Boston Multifamily report. The current 2.5% vacancy rate is still below the market’s average over the last five years, and the number is only expected to moderately increase with all the new supply. The ongoing positive economic cycle still raises the question of whether the city is post-peak pricing and heading for a crash.”

“Boston’s diverse economic portfolio and attractiveness to foreign investment are constantly cited as to why the city is in a great position, but, with eight years since the last recession, it seems logical the city is overdue for a crash even if Boston’s condo market is a new revenue stream. ‘I’m a developer, so we see nothing but blue skies and sun,’ HYM Investment Group founding partner and managing director Thomas O’Brien joked. ‘There is a cycle of things, and we’re in a part of the cycle where we have to be mindful of a recession looming.’”

July 29, 2017

They Just Have Tons Of Free Capital

A report from Mansion Global. “Canadians have bought significantly more expensive homes in the United States over the past year, as they look to their southern neighbor for sunny, high-end vacation spots in places like Florida, Arizona and California, according to the National Association of Realtors. Between April 2016 and March 2017, Canadians doubled the amount spent in the U.S., a sum of $19 billion on mostly vacation homes and residential investment properties, according to a report the association released Tuesday. Canada’s burning hot housing market, particularly in Toronto and Vancouver, has fueled purchases in the U.S., as baby boomers cash out on their long-time family homes in Canada and use the spoils to pick up amenity-rich second homes in the U.S.”

“‘We’ve had such a dial up in prices,’ said Toronto-based broker Janice Fox of Hazelton Real Estate. ‘Canadians are are selling homes for prices they never could have imagined and that’s allowing them to buy vacation homes for prices they never could have imagined. They just have tons of free capital.’”

From North Shore News in Canada. “A West Vancouver woman says she was shocked and saddened to see an anti-Chinese slur spray-painted on the West Vancouver Community Centre on Monday. The graffiti included a racist epithet followed by the phrase: Deserve To Die scrawled on a wall near a playing field. ‘Since Trump came into power, it just seems people are more outspoken,’ noted Lillian Salchner, who reported the graffiti.”

“North Shore Multicultural Society community connections manager Meharoona Ghani has led conversations with North Shore residents from a variety of backgrounds and found the common theme was fear. Much of that fear is based on the housing crisis, where many speakers uttered the phrase: ‘I don’t want to sound racist, but …’ during discussions about high real estate prices and vacant homes.”

From Quartz on China. “An online essay titled ‘Beijing Has 20 Million People Pretending to Have a Life Here’ by Chinese writer and blogger Zhang Wumao became a viral hit on WeChat and Weibo after it was published on the author’s WeChat account on July 23. The essay argues that Beijing has been overrun by migrant workers or waidiren ‘people from outside the city’, and that these ‘outsiders’ have turned China’s capital into a place with staggering house prices and heavy traffic that lacks soul. The essay describes how Beijing has become so big, so full, and so expensive, that life has virtually become unsustainable. The result of Beijing’s transformation, according to the post, is that its residents, both locals and immigrants, just ‘pretend to live there,’ leading ‘fake lives.’”

“He goes on to mock the old residents of Beijing, who still have the upper hand in the real-estate market despite the flood of new immigrants, all owning ‘five-room houses.’ The old Beijingers lead very different lives from the migrant workers, who are caught in a negative spiral of hard work, no social life, and finding a place to settle down.”

“He concludes his article by highlighting the recent demolishment of old Beijing shops and restaurants, saying that the city is being renovated but is becoming less livable. ‘Those who chase their dreams of success are now escaping [Beijing]. They’re off to Australia, New Zealand, Canada, or the west coast of the United States.’”

“Zhang’s online essay about Beijing spread like wildfire on WeChat and Weibo on July 23. It was viewed over 5 million times within an evening and soon became a trending article on WeChat. It triggered wide debate across Chinese social media on the lives of people in Beijing.”

“But on July 25, the full text was removed from all social media accounts and Chinese online news sites. Its hashtag on Weibo is now no longer accessible. The article also disappeared from Zhang’s WeChat account.”

The Miami Herald in Florida. “A federal program that has help fund dozens of big new South Florida business projects over the past decade by swapping U.S. visas and green cards for foreign investment dollars is teetering on the brink of political extinction, according to its supporters. The EB-5 visa program, which by the estimate of the investment community has funneled more than $18 billion in overseas cash into U.S. business development since 2008 — including hundreds of millions of dollars in Florida — will expire on Sept. 30 unless Congress renews it.”

“‘I think Sept. 30 is the drop-dead for renewal,’ said Miami immigration attorney Tammy Fox-Issicoff, who frequently works with EB-5 investors. ‘And I mean that’s the drop-dead date for a full renewal. We’ve had a number of short extensions. That’s killing the program’s credibility with foreign investors who might like to join. Nobody wants to put half a million bucks into something that might be gone in three months.’”

“EB-5s didn’t really take off until 2009, when the Great Recession dried up commercial lending around the United States. As banks and other traditional credit sources retrenched, businesses started using EB-5 investment to patch the holes they left. Developers of the 60-story Paramount condo tower at the Miami Worldcenter mixed-use project under construction in downtown Miami say that EB-5 visas have been not a key element in their financing more than $50 million of it — but they say they have become an unexpected marketing tool for the project.”

“‘Four of the 10 units we sold in June went to someone who came to the sales center intending to buy an EB-5 and bought a condo instead,’ said Peggy Fucci, CEO of the real estate firm OneWorld Properties, the exclusive broker on the Paramount tower. Potential EB-5 investors have pockets deep enough to buy a condo at the tower, where prices start at $700,000.”

July 28, 2017

Moments Of Crisis And Euphoria

It’s Friday desk clearing time for this blogger. “Home sales are down in California for the for the sixth consecutive month, suggesting an impending slowdown even as prices are setting new records. Chris Thornberg, founding partner of Beacon Economics told the Los Angeles Times only an unlikely recession could reverse the trend. ‘Candidly, the only thing that could upset the apple cart in California is if we build a whole bunch of housing and that’s as likely as an alien attack,’ he told the newspaper.”

“Do enough wealthy people want to live in Downtown Los Angeles to fill 7,000 units? Investors are growing increasingly skeptical. Roughly 3,000 luxury apartment units are under construction in Downtown Los Angeles in 2017, and 4,000 more are slated to be built next year. Concerns that demand won’t meet this influx of supply are on the rise — along with Downtown’s residential vacancy rate, despite landlords’ attempts to ramp up concessions, according to CoStar Group.”

“At 11 percent, DTLA has the highest vacancy rate in Los Angeles County — nearly twice as high as Hollywood, which has the second highest rate, at 5.8 percent. ‘The projects that are delivering right now are doing it in an atmosphere in such an intense competition that it is going to be very difficult for landlords to push rent at all,’ CoStar’s Steve Basham told The Real Deal. ‘The pipeline is still pretty full in the next few years, and that short term pain will probably continue to be the case.’”

“The cost of building the world’s skinniest skyscraper has ballooned so enormously that the 111 W. 57th St. project is facing imminent foreclosure while it’s less than one-quarter complete. The 82-story skyscraper has risen fewer than 20 stories and is $50 million over budget — ‘apparently attributable in part to egregious oversights like neglecting to budget for construction cranes,’ according to a new lawsuit by a major investor.”

“Real estate investment corporation AmBase is suing the project sponsors Kevin Maloney and Michael Stern and lender Spruce Capital Partners to save its equity in the Steinway Tower overlooking Central Park. The owners– Maloney, Stern and AmBase– defaulted on a $25 million mezzanine loan payment to Spruce Capital Partners on June 30. ‘Over the past four years [AmBase] has invested over $70 million in the property. In two days, their investment may be wiped out,’ the Manhattan Supreme Court suit says.”

“Lower prices on condominiums and single-family homes in South Florida have given the luxury real estate market a bit of a bump, according to ONE Sotheby’s International Realty. Overall, properties valued at $1 million in Miami-Dade and Broward counties are selling for up to 20% less than their original price points, according to the mid-year report. ‘As predicted, pricing dropped from 2016,’ according to the report. That ‘offered great buying opportunities in Miami’s resale condo market. Much of this could be attributed to the launch of several pre-construction projects and a readjustment of pricing.’”

“Is there anywhere to hide in Toronto’s falling housing market? Toronto’s C09 district, home to the city’s tony Rosedale neighborhood, was the worst performer. Average detached home prices dropped 21.6 per cent during the period from $4,249,438 to $3,331,250. ‘Now that things are returning to normal the numbers look pretty bad but if you look to 2015 levels we are still doing very well,’ said Christopher Alexander, a regional director with RE/MAX INTEGRA. ‘A lot of the areas that are cooling are because prices went up so much in the first quarter they became unaffordable. If you need to sell your house, and you bought three years ago in those neighbourhoods, you have still done pretty well.’”

“Beleaguered estate agents Foxtons and Countrywide have reported big falls in profits as they continue to be dogged by the sluggish property market. London-based Foxtons posted a 64pc fall in profits, while Countrywide, the UK’s biggest estate agent, recorded a 98pc collapse in pre-tax profits in the first half of the year. Alison Platt, Countrywides chief executive, admitted: ‘We’re not optimistic about the housing market in the next half and our mantra has been one of self help. We cannot sit here and say we will wait for market to come back because our view is it won’t in the next few years.’”

“The real estate sector in Ludhiana seems to be going through a bad phase, as a recent report released by the National Housing Bank suggests a fall in prices of residential units in the January-March 2017 quarter. ‘I was planning to buy land, but after demonetization, I had to park my money in a bank. Also, since business was not doing well, I had decided to postpone my plans,’ said Hardeep Singh, a trader in Civil Lines.”

“Aussie war heros have lost hundreds of thousands of dollars after being convinced by a smooth-talking ex-military man to invest in property that flopped. Up to 200 soldiers and officers — one losing up to $160,000 — were persuaded to pour their ­danger and deployment money into under­performing property developments, mainly in Darwin. Several current and former members of the Special Air ­Service Regiment have told the Herald Sun they are deep in the red over recommendations by Mr Ochremienko.”

“Federal MP Andrew Hastie — formerly of the SASR — said some of his Diggers had invested and now felt devastated. ‘He pitched himself as a ‘wealth creator’ and did the exact opposite,’ Mr Hastie told the Herald Sun.”

“Property values have plunged, properties have gone without tenants for lengthy periods and there have been delays of up to two years in receiving government subsidies that Mr Ochremienko said would make their investments cashflow positive. Many soldiers are struggling to meet their mortgage repayments but cannot sell because property values are so low.”

“About 22 percent of Sao Paulo’s 2.6 million square meters (28 million square feet) of top-quality office space was empty in May, according to Engebanc. That compares with the record 26 percent registered in September. Vacancy for industrial and logistics space was at 30 percent in the city’s suburbs in May, up slightly from the 29 percent in the first quarter. Rio de Janeiro, struggling with a bankrupt state and a still weak oil industry, has a record vacancy rate of 48 percent for office space, compared with 44 percent in September.”

“‘Buying in bulk is not a pleasant shopping experience. People do it for the sake of saving. My level of service, my diversity of offering — people will come back when unemployment and revenue are not such big concerns,’ Lopes CEO Marcio Barros said. ‘Today the population is in panic.’”

“‘We’ve been investing in Brazil for the last 100 years, in moments of crisis and in moments of euphoria,’ said Roberto Perroni, CEO of Brookfield’s Brazil unit. ‘We did make some investments in moments of euphoria, and those were not the ones that made us money.’”

July 27, 2017

If They’re Building More, There’s A Need

A report from the Aurora Sentinel in Colorado. “Tales of distraught would-be homeowners unable to snatch a dream home in Colorado’s scorching-hot housing market are more common these days than a weed shop on Colfax. Renters in metro Denver feel that pinch just as acutely. But, experts say, there has been some relief as landlords dish out a variety of discounts aimed at blunting those ever-rising rents and luring savvy renters always looking for a deal. Teo Nicolais, a real estate instructor at the Harvard Extension School and volunteer at the apartment association, said the bulk of those concessions come in the form of a free month of rent spread over the course of a lease. And the concessions aren’t limited to a free month, Nicolais said. Some landlords have offered free parking passes or discounts on pet deposit fees.”

“Last year saw a record number of new apartments built across the metro, he said, and 2017 is on pace to smash that record by more than 25 percent. That means lots of inventory out there and landlords eager to fill brand-new buildings that are usually empty the moment construction wraps. ‘If the property down the street from you is offering one month’s free rent, you need to offer it too,’ he said.”

From Curbed San Francisco in California. “San Francisco is building more, everybody agrees on that. But how much is more—and for that matter, how much is enough? The apartment rental site RENTCafe tapped research firm Yardi Matrix to take stock of the city’s new housing stock last week. And the numbers look superficially good: The Bay Area as a whole should yield 5,415 new apartments by the end of this year, with 1,860 in San Francisco itself.”

“The catch is, Yardi Matrix says that rate of construction is down 12 percent year over year. And in San Francisco it’s down 48 percent. Last year the Bay Area-wide product came to almost 6,200, which RENTCafe credits with putting the skids on space shuttle-velocity rent increases. ‘While demand is still strong in the city, this flood of new rentals [put] a damper on incessant rent growth,’ RENTCafe’s Ama Otet writes.”

From My San Antonio in Texas. “A real estate firm from Chicago purchased the $42 million Axis at the Rim luxury apartment complex last week. Sherman Residential bought the 10.5-acre, 308-unit complex from Trinsic Residential Group of Dallas, which finished building it about six months ago, said Scott Gould, Sherman’s senior vice president. Despite the apartment complexes being built around The Rim, Gould said he thinks the area will soon be built out — in other words, there isn’t a risk that droves of new apartments will flood the market and drive rents down.”

“‘We think the long-term prognosis is very strong for the area,’ he said. Real estate investors have purchased roughly 40 apartment complexes in Bexar County since the beginning of the year, property records show.”

The Real Deal on Florida. “The Boca Raton Planning and Zoning Board approved a plan for an upscale, 193-unit assisted living facility to be developed by Penn-Florida Companies in downtown Boca Raton. Developers are increasingly turning from condo development to apartments, amid slumping condo sales, which could eventually lead to a glut of rentals, experts say.”

“Jack McCabe, CEO, McCabe Research & Consulting in Deerfield Beach, said about 10,500 apartment units have been completed in South Florida in the last 18 months, and another 18,000 apartments are scheduled to be delivered during the next two years. Early this year, a Miami Downtown Development Authority report showed that Greater Downtown Miami will see more rental apartments delivered than condominiums in 2017 for the first time ever.”

From WDAZ on North Dakota. “More apartment complexes going up in Grand Forks. While some existing buildings remain almost completely vacant. Calsey Langston, ‘A quick google search comes up with fifty apartment complexes or property management companies in Grand Forks, but check this out, apartments.com shows 590 apartments available in our city and there’s about to be even more.’ A property manager from an older company wouldn’t go on camera, but he tells me, in one of their buildings, they have six vacant units. In another complex, twenty-eight units are sitting empty.”

“According to the Grand Forks city website, vacancy in town is at more than eight percent. This spring, one-bedroom apartments had the highest vacancy rate in five years. For two-bedroom apartments it’s a six-year high. But there are five more approved apartment buildings awaiting construction. ‘There is still a need for more housing like a lot of our buildings are absolutely full so I suppose if they’re building more, there’s a need for more apartments,’ says Garett Sondrol, Oxford Realty.”

“It’s still in question whether or not the demand will keep up with the over-supply.”

From Bloomberg on New York. “A pair of high-rise apartment towers is set to replace a decrepit parking deck in New Rochelle, extending the New York suburb’s effort to draw younger residents. In the past six years, developers have built or proposed 50 Westchester County residential projects within half a mile of a Metro-North station, to add 11,231 apartments.”

“Whether there’s demand for additional workspace may be questionable in a county where the office-availability rate has hovered close to 25 percent, about twice that of Manhattan, says brokerage Newmark Knight Frank. Even in the apartment market, Westchester is edging toward being overbuilt, with more than 1,000 rentals in the county’s pipeline for this year, according to Barbara Denham, senior economist at research firm Reis Inc. Vacancies are projected to rise to 4.4 percent this year, from 2.9 percent in mid-2016, Reis data show. ‘I think the market can absorb these units, but not 100 percent,’ Denham said.”

From Bisnow on New York. “A critical mass of new apartment buildings is opening in New York City, and developers are conceding more and more to renters in an effort to lease them up. Concessions — the industry term for free rent — by building owners were the second-highest on record, and nearly triple that of a year ago. At the same time, the inventory expanded for the 22nd month in a row. Renters are aware developers are scrambling, so the number of people shopping for discounts is increasing.”

“A new Yardi Matrix report found that New York has 26,739 units under construction, 7.8% of all housing units coming in the entire U.S. But developers can’t build these apartments fast enough, at the right price points, to make them affordable for all New Yorkers. In 2018, Citi Habitats says Manhattan will gain 4,442 apartments and Brooklyn an astonishing 10,581 as developers rushed to meet the demand of 2015 and 2016. By 2019, the number of units levels off to 3,425 in Manhattan and 6,791 in Brooklyn.”

“There are also more condominiums opening, and some of those will have investor units that will also compete in the rental space. That is why the competition is fierce to get the prospects to sign those leases. Citi Habitats President Gary Malin said owners can draw the line on the rental number and get 25 apartments leased, or give up some concessions and get 50 apartments occupied in the same period to start bringing in the rent money. ‘With a new building, you want to lease up as fast as you can,’ Malin says. ‘The market changes very quickly.’”

“The problem for investors, developers and the one-off owner: There are simply too many apartments on the market to keep prices soaring, and more are coming.”

July 26, 2017

The Risk They’re Not Making Money On Their Homes

A report from the Seattle Times in Washington. “Seattle’s real-estate market, already the hottest in the country, is now seeing prices rise faster than at any point since the housing bubble last decade — and even some wealthy foreign buyers are apparently starting to get priced out. For the past few years, a small but growing portion of homebuyers had been coming from overseas, especially from China — targeting mostly upscale homes, and often paying cash, sometimes sight unseen. But now, a new annual survey from the National Association of Realtors shows foreign home sales across Washington state dropped to $1.55 billion for the year ending in March, down 24 percent, from $2.05 billion, in the previous year.”

“Foreign homebuyers have themselves contributed to rising prices in some ZIP codes here. In some parts of West Bellevue and along the Lake Washington waterfront, Realtors have reported that half or more of their business now comes from foreign homebuyers. Juwai’s data show 38 percent of Seattle buyers from China purchase the home primarily as an investment. Some of those buyers might also live in their new home or allow family members to live there, but in other cases, they sit empty.”

From WBUR in Massachusetts. “The median selling price for a single-family home in Massachusetts has crossed $400,000 for the first time, according to a new report. The state’s median price was $410,000 in June — an increase of $30,000 over June 2016, according to the Massachusetts Association of Realtors. A separate housing snapshot found a similar trend in prices, though not quite as high. The Warren Group said the median selling price for a single-family home in Massachusetts rose to $395,000 last month — 6.2 percent higher than the price of $372,000 in June 2016.”

“‘[T]he fact that the median is just a hair under $400,000 is unprecedented, and perhaps worrisome,’ Warren Group CEO Timothy Warren said in a statement. ‘The growth in the number of home sales has slowed due to the the fact that so few homes are for sale. Prices are being driven up, but are they sustainable?’”

From ABC 11 on North Carolina. “For a city known for its oak trees, Raleigh’s reputation has a solid foundation for growth. Add in an explosive real-estate market, and the Triangle seems to have strong footing in the event of an economic downturn … or does it? Overall, the numbers are staggering - at least 653 new subdivisions have been approved in the past seven years, amounting to at least 40,888 new homes built or approved for construction. In Raleigh, the county’s largest municipality, the Development Services Department approved 279 subdivisions (4,438 homes).”

“Home prices are growing even faster in Wake County, fueling worries about an out-of-control seller’s market. ‘I do think the risk on the horizon is that we see slowing home-value growth and even flat home values,’ Aaron Terrazas, a senior economist at Zillow, told ABC11. ‘People shouldn’t plan on making hundreds of thousands of dollars on their home looking five to ten years down the line. You’re seeing that already in places like San Francisco. Home values have been flat in that upper segment over the past year. The real risk there isn’t that people are losing money on their homes - they’re just not making money on their homes.’”

The Orange County Register in California. “It may be the time of year when home buying typically slows down, but it didn’t look like it a Fountain Valley open house in last weekend. As many as 150 house hunters streamed through the 53-year-old, four-bedroom house on Ash Street after a $50,000 price drop to $749,000. That’s a steal for that neighborhood, some said, even though the kitchen and bedrooms need updating, the spa doesn’t work and a two-room addition out back is unfinished. As of Monday, the home had five offers, the property’s agent said.”

“‘It’s a seller’s paradise,’ said Lynn Redwater, a house hunter who stopped by on Saturday. ‘You list your house, and you have one or two offers.’”

“Agents interviewed reported the market has cooled since April and May, with slowing most pronounced for homes priced at $1 million or higher, which make up more than a third of the Orange County market. A seller’s market, for sure, but only for the savvy sellers, said Ron Miller, a broker-associate with Star Estates in Mission Viejo. Every neighborhood has its sweet spot — the price buyers are willing to pay. Homes priced higher, Miller said, will sit and miss that golden 30-day window when buying frenzies are most likely to occur.”

“‘The buyers today do not want to overpay because they think we’re at a peak,’ Miller said. ‘They all think we’re going to have a correction in the real estate market.’”

The News Press on Florida. “Monthly foreclosures in Lee County bottomed out in October 2005, when 127 were filed. That was near the end of the boom. They reached a high of 2,665 in October 2008, when the county represented one of the nation’s ‘foreclosure capitals.’ Fast-forward to today. The numbers pale in comparison, though they may be higher than readers might expect.”

“Denny Grimes, a real estate expert and also a presenter at The News-Press Market Watch, said ‘every market should keep an eye on foreclosures,’ but ‘it is in the healthy range. It’s something to talk about, write about, however it’s nothing to worry about.’ ‘There’s a sliver of the population out there that believes there’s going to be another crash,’ he said. ‘Barring something catastrophic, I don’t see it happening.’”

“Meanwhile, Grimes sees foreclosure opportunity for investors in homes priced above the median, and in luxury properties: ‘The opportunity is in the nicer homes, 300 plus, a million plus. That is where the success stories are going to be written.’”

July 25, 2017

All The Symptoms Were There

A report from City AM on the UK. “Analysis of homes listed on Zoopla has found 35.3 per cent of all homes listed for sale in the capital have had their prices cut since they were first listed, up from 29.7 per cent in February. The study, by online estate agent HouseSimple.com, found Richmond is the borough with the highest percentage of price cuts: almost 46 per cent of homes on sale in the borough have been reduced in price. That’s followed by Kingston Upon Thames, where just over 45 per cent of homes have had their prices cut. The news came a day after analysis by Savills showed the number of people leaving the capital has shot up by 80 per cent in the past five years, as high house prices drive buyers further afield.”

“‘What’s unusual about the level of discounted properties is that it would suggest there are too many sellers and not enough buyers,’ pointed out Alex Gosling, chief executive of HouseSimple. ‘But strangely this market is still suffering from a lack of new supply. There are actually plenty of buyers looking, but they’re a different buyer from 12 months ago. They are more cautious and viewing multiple properties before making a decision. Long gone are the days when buyers were diving in to avoid missing out as the market accelerated away from them.’”

The Daily Trust on Nigeria. “Presently there is low demand for real estate in major cities like Lagos, Abuja and Port Harcourt, due to the harsh economic situation of the country. Daily Trust investigations showed that real estate developers find it difficult to sell their houses and as a result could not embark on new ones. Also, many tenants are unable to meet up with their rent payments, leading to vacant residential properties especially in some highbrow locations in Abuja and Lagos.”

“On the suggestion that the current crack down on corrupt Nigerians by the EFCC compounded the lull in property business, as looted money were hurriedly injected into the market in the past to keep their ill-gotten wealth, President of Real Estate Developers Association of Nigeria Mr Chime Ugochuwu affirmed this, but said it will only affect the high end properties.”

“‘That is true but corruption is not sustainable to national development of any nation and therefore you cannot develop your nation based on corrupt funding - those are illicit funds. It is going to affect high-end houses which people cannot afford. Now, we need to be reasonable. Some of the property that we have in highbrow areas like Maitama are not okay. One man cannot have a house of 12 rooms because he cannot have people occupying it with a family of four. It tells us to now invest money in affordable houses where the masses are.’”

The Sun Daily Malaysia. “The government may look into having a single authority to oversee the property market in the near future, said Second Finance Minister Datuk Seri Johari Abdul Ghani. ‘You talk to the the private sector, the affordable house is RM500,000 and you have an issue of oversupply of property. Today, if you look at all the high-end properties in Kuala Lumpur at night, only 10% of the total units is lighted (occupied). The rest in non-productive. You can’t even get tenants. This is unproductive investments of our money in our economy. It’s something that we need to address,’ stressed Johari.”

The Otago Daily Times on New Zealand. “Median house prices across Otago continue to show annual gains, but cracks are appearing in the previously buoyant Queenstown Lakes district where both volumes and prices are down. The number of houses throughout the country that sold for more than $1 million plunged almost 30% from 1099 in June last year to 799 last month. Against last year, sales volumes across the country continued to decline; nationally down 24.7%, Auckland down 33.2%, Otago down 17.8% and Queenstown Lakes down 34%.”

“Westpac acting chief economist Michael Gordon said the REINZ data pointed to a ’substantially softer’ housing market in June. ‘While the slowdown was originally concentrated in Auckland, it’s now spreading to a greater number of regions,’ he said.”

From Domain News on Australia. “A high concentration of inner-city apartments has caused a chain reaction in the Brisbane rental market, leading to rental yields for detached houses falling more than seven per cent in the past year. Stagnant rents and vacancy rates for the Greater Brisbane region hide a more serious problem — investors are now making less returns.”

“Haesley Cush, of Living Here and Ray White, said competition between landlords to set out flashy and new apartments from each other drove down prices of the new builds. ‘If you release 200 units at the same time with very little difference between them, the first one that’s going to rent will be the cheapest one.’”

“Buyer’s agent and property pundit Pete Wargent said the blame did not fall solely on the private or public sectors. ‘It was a confluence of factors; the city plan allowed a lot of new apartments to be built and for a certain amount of time the city council was happier to approve borderline cases but I know now it’s harder for them to get approved,’ Mr Wargent said. ‘The other thing was Chinese buyers, which was a trend that came out of nowhere. I think developers became more confident they could sell apartments to anyone.’”

“Mr Wargent said he was surprised by the lengths property managers and landlords would go to secure a lease. ‘A lot of new dwellings are offering free rent and even $1000 cash back which is extremely unusual.’”

The Globe and Mail on Canada . “House prices have been falling in Toronto. Yes, falling. To many people, that comes as a rude shock. Prices rose for so long that it seemed as if it were the natural state of affairs. The idea took hold that Toronto was somehow unique, its housing market immune to the corrections and crashes that have afflicted just about every city (Toronto itself included) at one time or another.”

“Even now, real estate hucksters and sanguine economists say the current downturn is merely a pause in an unstoppable ascent. All the factors, they insist, point up, up, up. But similar things were being said about London or Orlando before the British and U.S. housing markets hit the skids a few years ago. No commodity keeps gaining value without interruption.”

“The fundamentals are only part of the picture. Psychology plays a part, too. People have a tendency to get carried away when things are going well and panic when they threaten to turn bad. To begin with, the fever has broken. The wild run-up in prices over the past year was a sort of sickness. Seized by the belief that prices could only climb further, buyers afraid of missing the boat were paying obscene amounts for little, rundown houses. Bully bids, bidding wars, inflated over-asking prices – all the symptoms were there.”

“That has changed over the past few weeks. Sales are off and prices are down from their stupid heights of this spring, although in the first half of June the cost of a house was still above where it was a year before. A degree of sanity has returned.”

July 24, 2017

The Only Answer That Is Ever Provided

A report from the Press-Telegram in California. “Apartment buildings are a hot commodity in Southern California these days, with transactions tripling since the recession and sale prices steadily climbing. With higher prices come lower returns. To offset that, investors are looking for buildings with a significant upside — called a ‘value add’ in industry parlance. Josh Butler has been hearing from more and more renters in Long Beach in the same bind: A new owner has purchased their apartment complex with plans to renovate — and raise the rent. ‘We’ve seen advertisements that say, buy this property in Long Beach, you can raise the rent 75 to 90 percent,’ said Butler, executive director of Housing Long Beach, a tenants’ advocacy nonprofit.”

From The Coloradoan. “The wave of apartments under construction in Fort Collins belies the torrent that is about to come. Of the 5,200 units, 1,250 are student-oriented projects with bedrooms for about 5,500 students — a big number given Colorado State University is adding only a few hundred students per year. ‘There are plenty of units that are attainable to a lot of people here,’ said CSU regional economist Martin Shields. ‘If people are going to move into higher-end spots, they’ll hopefully leave places that other people can afford. More supply should lower prices.’”

“And, if it knocks down the prices of rental houses, which it should, Shields said, then that puts downward pressure on housing prices, too. Kit Brown, an associate in CBRE’s Northern Colorado office said that assumes all the projects in the pipeline get built. If they do, those with the best locations — Old Town, near campus and Harmony Road — and the best amenities will do well. ‘Those in more tertiary locations could take a hit in vacancies and that’s where discounted rents will hit,’ he said.”

The Boston Globe in Massachusetts. “The developer behind one of the biggest rental buildings under construction in Boston aims to modify its plans and put for-sale signs on about one-quarter of the units. HYM Investments recently told the Boston Planning & Development Agency that it’s decided to convert 118 apartments planned for a 45-story tower it is building atop the Government Center Garage into 55 condominiums. The shift comes amid signs of softening rents at the high end of Boston’s housing market as a string of new luxury apartment buildings compete for tenants.”

“That has some developers rethinking their apartment plans. National Development, for instance, converted a portion of its Ink Block project from rentals to condos.”

The Miami Herald in Florida. “Ron Shuffield, CEO of EWM Realty International, understands the perception of Miami Beach as being overvalued, but also thinks it’s somewhat misplaced. ‘People are thinking about expensive condos that have been recently built and are now selling for significantly less than people paid a couple of years ago,’ said Shuffield. ‘There’s an oversupply of brand new luxury condos that have dropped up to 25 percent in value. But those sales are not reflective of the overall Miami Beach market of single-family homes under the $2 million price range, which remains strong.’”

“‘Typically, if there’s less than six months of supply in the market, the seller has the advantage because there’s not that much to choose from. But Miami is definitely higher than six months. We have 34,000 condos in the pipeline in Miami-Dade County alone. There’s a ton of new condos being built at a time when the amount of existing condos on the market is already too high,’ said Peter Zalewski, a principal at the real estate consultancy Condo Vultures. ‘If you think of a teeter-totter, the buyers are up in the air on one side and sellers are weighing it down on the other side — and they’re eating Twinkies and Ho Hos, so they’re only going to get heavier.’”

The Houston Chronicle in Texas. “The explosion of multifamily construction that turned Houston into a renters’ market has fallen off dramatically and experts are predicting the generous concessions could cease in 2018 as the market methodically absorbs the tens of thousands of units developers have built in recent years. ‘Inside the Loop, you can find certain properties with three months free rent,’ Mark Taylor, senior managing director for the Houston office of CBRE said. But, he added, ‘Can you get that in a year? No way.’”

“In February, Paul Cummings moved into a one-bedroom apartment in a new complex in the Heights. ‘When I first started looking, they all offered a version of the same deal, which started at six weeks free,’ he said. ‘As they became a little more desperate, they said, ‘It’s two months now.’”

The Upstate Business Journal in North Carolina. “A survey taken in May by Real Data, a Charlotte, N.C.-based firm that tracks Southeastern apartment markets, found developers were building, or had proposed to build, another 1,373 apartments downtown, an increase of nearly 80 percent in the existing supply of 1,746. Real Data also found that an additional 168 downtown apartments were rented out between November of last year and May. At that rate, it would take four years for the downtown market to absorb all of the apartments under construction or planned.”

“Russ Davis, a Greenville apartment developer, said it’s not yet clear whether developers are building too many apartments downtown. But if they are, it wouldn’t be the first time developers had overbuilt an apartment market, he said. ‘As an industry, we don’t have the greatest discipline,’ said Davis, who developed two apartment complexes downtown and was a top executive for Trammell Crow Residential Services when it was the nation’s largest apartment developer. ‘We tend to build until the music stops and one or more people can’t find a chair.’”

“One group that apparently isn’t worried about a market collapse are the four out-of-state companies that together paid more than $155 million for four downtown Greenville apartment complexes over the past two years. The investors from Atlanta, Philadelphia, and Southern California acquired 752 units in separate deals between summer 2015 and fall 2016, according to transaction data from NAI Earle Furman, the commercial real estate brokerage.”

“Tony Bonitati, a broker in NAI Earle Furman’s multifamily division, said his firm expects more trading in apartment complexes at even higher per-unit prices, though it also anticipates a softening in rent growth as more apartments come on the market.”

From The Stranger in Washington. “Seattle Times’ breakdown of the current construction boom is depressing. We are building apartments like never before, but almost exclusively for the luxury class—9,000 apartments are set to open this year alone in Seattle, and none of them are for people who earn working-class and even middle-class wages. The average rent of an apartment is currently $2,400, and so you need ‘to make $96,000 a year’ not to be rent burdened.”

“Meaning, if you earn nearly $100,000 a year, 30 percent of your income will go to your apartment. Many who earn that kind of money are young and in the tech sector, and so also have college debt. After taxes, they are not sitting as pretty as you might think.”

“And then there are the reports and posts by market urbanists that promise we will be rewarded in the future when the weight of all of this construction finally breaks the back of high prices. These class of urbanists wittingly or unwittingly (I bet on the former) see the situation in neo-classical terms of pricing and complete markets. In this view, housing prices can be trusted. They represent the real world because ‘market prices are good indicators of rationally evaluated economic value’ (Robert Skidelsky, Keynes: The Return of the Master).”

“Market urbanists are not alone. The press is with them almost all of the time. In a recent story, ‘Downtown Seattle’s construction boom surges to new record, with no end in sight,’ Seattle Times business reporter Mike Rosenberg writes: ‘What is everybody building, and why? The short answer: [luxury] apartments, because so many people are moving here and want to live downtown.’ Prices, prices, prices. We might say it is the only answer that is ever provided. And we will keep giving this answer until it’s too late.”

July 23, 2017

Sellers Are No Longer Anchored To Irrelevant Pricing

A report from Realtor.com on California. “Stephen Curry isn’t used to losing—at least, on a basketball court. But in the realm of real estate, this Golden State Warriors point guard proved that not all he touches turns to gold when he recently sold his home in Walnut Creek, CA, at a loss. In November 2015, Curry and his wife bought the mansion for $3.2 million. Then the couple poured an additional half-million into renovations. A year later, they put it back on the market for $3.7 million. But apparently they’d set their sights too high, because it sat warming the bench with no takers. Finally in July of this year, the home sold for the lowball sum of $3,195,000—more than a half-million less than what Curry was hoping for and less than what he paid for it almost two years earlier.”

“The luxe market had begun to level off right when Curry made his purchase—and then move downward by the time he was ready to sell a year later. ‘Curry paid top-of-market prices in 2015, as that’s when the market really peaked,’ says Cara Ameer, a Realtor in Florida who often handles property for professional athletes. ‘It has taken a bit of a downward trend since then, and the luxury market has been more challenging to sell since some of the foreign money has dried up.’”

The Real Deal on Florida. “Sellers are finally getting realistic about pricing, and the result is a far more robust residential market. In Miami Beach, for example, sales were up for the second consecutive quarter after three years of declines. ‘Sellers of high-end real estate are more in sync with reality than they have been in the past,’ said Jonathan Miller, who authors the Elliman reports, either reducing their prices or letting some listings expire.”

“In Miami Beach, the median sale price fell by 5.9 percent to nearly $409,500 for all residential properties, compared to $435,000 a year ago. The median condo sale price fell by 4.9 percent to nearly $365,000, and the median sale price of a single-family home price dropped year-over-year by 12.5 percent to $1.4 million. The median price of a house dropped 7.1 percent to $405,000 in Delray. Across the board, the median price of a single-family home in Palm Beach was $4.2 million for the second quarter of this year, down 6.7 percent from the previous year.”

From Greenwich Time in Connecticut. “Greenwich home sellers are getting more realistic about their pricing, according to Jonathan Miller of Miller Samuel Real Estate Appraisers and Consultants, and that’s a big positive for the market, he said. These statistics stem partially from sellers who are no longer ‘anchored to the value of their homes from what they paid for it before the financial crisis,’ he said, adding home values from before 2008 should be considered ‘irrelevant’ to pricing now.”

“Sellers are changing their tune with pricing mostly because of time, Miller said. Many of last quarter’s luxury sales, which began at above $4 million, ‘have been on the market for a number of years,’ he said.”

From Realtor.com on New York. “A prime location overlooking Manhattan’s Central Park.A 7,000-square-foot apartment with 15 rooms, 11-foot-high ceilings, and a private elevator. A place with such features practically sells itself, right? Well, there is another not-so-small detail: the price. When it landed on the market in April 2016, the luxury apartment in the prewar building at 1060 Fifth Avenue on the Upper East Side was priced at $65 million.”

“With no buyer committing to the 10th-floor, six-bedroom, six-bathroom condo at that high price, co-listing agents Jenny Lenz and Dolly Lenz have drastically cut the price to $38 million, reigniting interest in the luxe home. Lenz explains the reasoning for the price drop with the recent sale of actress Demi Moore’s New York City penthouse after a few years on the market. ‘She started out at $75 million and ended up at $45 million,’ Lenz explains. ‘One number is a nice idea and maybe could work—and the other is the number that actually does.’”

July 22, 2017

A Glut Few Can Afford

A weekend topic starting with CNBC. “If the speculation bears out and the White House’s chief economic advisor, Gary Cohn, a Goldman Sachs alum, were to become the next Federal Reserve chairman, the Trump administration would be gaining a steady hand at the central bank, but perhaps losing support from one of Wall Street’s most influential firms, veteran banking analyst Chris Whalen told CNBC. Regardless of how Goldman would feel if Cohn were to leave the White House for the Fed, ‘I’m one of those who believes that there’s nothing wrong with having bankers, people from industry on the Fed board,’ Whalen said. ‘We have been dominated by academic economists. And you know what, they’ve gotten it wrong.’”

“Whalen said nobody should be surprised that inflation has yet to rise to the Fed’s 2 percent target level. ‘Low interest rates [and] quantitative easing are deflationary. So, of course, we haven’t hit our inflation targets. But nobody at the Fed understands that.’”

From Property Guru on China. “With luxury condos in Shanghai selling at rates comparable to London or Manhattan, it is small wonder that the Chinese residential market is a source of endless speculation. ‘It’s a high-growth market. You can see prices grow by 30 or 40 percent in a year,’ says James Macdonald, head of research for China at Savills. ‘That is the primary appeal: to be able to make quite a lot of money in a short amount of time.’”

The Weekly Times on Australia. “Homeowners in parts of Melbourne are making as much as $1200 a day just by holding on to their houses, new research shows. Figures reveal northeastern fringe suburb Kinglake West recorded massive 51.6 per cent median house price growth in the year to June 30, to $580,000. Ray White Carrum Downs’ Maggie Raad said Frankston North offered similar lures for first-home buyers and investors, including rare 600sq m blocks: ‘Eight months ago, the average house cost $400,000. Now we’re getting another $100,000 on top.’”

The Orangeville Citizen in Canada. “While a much-documented drop in the national housing market in recent months has left potential investors across the province in a frenzy, one local realtor has poured cold water on the suggestion the proverbial bubble could be set to burst in Orangeville. And while prices appear to be down pretty much across the board – the $504,458 average sale price in June is a near ten percent drop from the $559,317 average price posted in April – values appear to be going only one way in Orangeville. John Walkinshaw of Royal LePage RCR Realty did however offer some hope to those in the community looking to invest or finally purchase their first home.”

“‘I would say that the market here is stabilizing right now in the respect that the hype is no longer in the market. It’s still a very active and a very solid market, but the hype, in my opinion has gone. The days of people paying ridiculous amounts of money over value, getting into bidding wars with other interested parties, has come and gone for the most part,’ Mr. Walkinshaw said.”

From Bloomberg on the UK. “You don’t have to spend much time looking in the windows of estate agents to see Britain’s housing market has an affordability problem. Homes in England cost eight times workers’ wages; 13 times in London; and 30 times in the capital’s poshest neighborhood, according to the Office for National Statistics. Construction of new homes in London rose 42 percent in the second quarter, according to a report by Molior London. But the stock of unsold units still under construction reached the highest level since Molior started collecting data in 2009.”

“That supports estimates by Savills that although London will see a record number of new homes in 2017, more of those homes won’t have found buyers by the time they’re completed than at any point in the past decade. And luxury house prices are showing signs of suffering. Data released by Lonres on Thursday showed sales values per square foot of properties priced between 2 million pounds and 5 million pounds fell by 8.4 percent in the second quarter.”

“It appears that the real problem in the market isn’t so much a shortage of supply, but a glut of luxury homes few can afford.”

The Los Angeles Times in California. “California’s economic engine quieted in June as employers reduced their payrolls by 1,400, according to a report by the state’s Employment Development Department. It was the second month this year that the state lost jobs. ‘These numbers are problematic, I think this is a wakeup call for everybody,’ said Chris Thornberg, co-founder of consulting firm Beacon Economics.”

“On the surface, California’s economy seems healthy enough; the jobless rate is rock bottom and wages are growing much faster here than in the rest of the country. But most sectors in the state have either lost jobs in the first half of the year or are growing more slowly than they had been. Economists say that’s largely because businesses cannot find applicants to fill open jobs, because rank-and-file workers can’t afford to live in the Golden State.”

“The trouble for California is that the slowdown appears to be touching almost every corner of the economy. ‘I have to assume this is housing,’ Thornberg said. ‘Where do you put bodies? We don’t have houses. The state has run out of labor supply.’”

July 21, 2017

So How Is It A Buyers Market?

It’s Friday desk clearing time for this blogger. “Barbara L. Pearce, president of the North Haven-based real estate firm Pearce Co., said the oversupply of luxury-priced homes in Fairfield County has a negative impact on similarly priced homes in the New Haven area. ‘It’s hard to predict which homes are priced well and will go quickly and which will linger on the market,’ Pearce said. ‘There’s a lot of demand for luxury homes in East Rock (section of New Haven) but the price is pretty much capped at $850,000.’”

“Affordable luxury homes continue to dominate the market in South Florida, with less expensive areas inland and north of Miami seeing strong activity, according to Douglas Elliman. It’s a different tale on Miami Beach and barrier islands. The median price of a luxury condo on Miami Beach fell to $2.283 million, a nearly 20% drop from a year ago—though the number of luxury sales are as strong as they were then. ‘The market still remains softest at the top,’ said Jonathan Miller, chief executive of Miller Samuel.”

“Despite a steady wave of indicators that suggest Calgary’s economy is on the mend after a bruising recession, data shows the city is dealing with a glut of housing that hasn’t been so big in two decades, perhaps longer. City hall reported in its latest census that nearly 23,600 housing units are vacant, up by 2,700 over last year’s levels. ‘Every indicator is showing that things have bottomed and bounced off the bottom,’ said Bob Dhillon, chief executive of the western Canadian landlord Mainstreet Equities. ‘The challenge is, how long will it take to absorb the vacant units?’”

“A slump in super-prime home values in London is rippling down the luxury-property market. Sales values per square foot for houses priced between 2 million pounds ($2.6 million) and 5 million pounds fell by 8.4 percent in the second quarter from a year earlier as political uncertainly deterred potential buyers, according to researcher Lonres. Selling prices for super-prime properties — those over 5 million pounds — fell 3.2 percent. ‘There is a lack of urgency in the market which, combined with considerable buying costs, means many who would have transacted have stayed in their current properties instead,’ said Marcus Dixon, head of research and data analysis. While sales across the prime central London market are similar to 2016, they’re down 40 percent from three years ago, he said.”

“It’s a buyers’ market. Or so say analysts tracking the real estate market. Reams and reams have been written about how anyone planning to buy a house can pick and choose from the large stock of unsold inventory and pay lower than what was the price a few years back. But Delhi resident Simi Mohan isn’t convinced. ‘I don’t want to book a flat in any upcoming project because I don’t know when I will get it. And the prices of the already built flats are not in the affordable range for me. So how is it a buyers’ market?’ asks the 32-year-old paramedic.”

“Mohan has a point. The unsold inventory is piling up, developers are sitting on unfinished projects and the consumer is nowhere in sight.”

“At Bogyoke Market in the centre of Yangon, commerce proceeds very much as it has since the times of British colonialism. But it is a very different situation when it comes to residential developments. A glut of high-end properties now sit either unfinished or empty as the envisioned influx of wealthy foreigners expected to rent them has failed to materialise. The Colliers report notes that the total completed condominium stock is estimated to have exceeded 6,000 units at the end of 2016 with more than 10,000 units in the pipeline.”

“However, the report warns that ‘inadequate sales take-up along with the rising number of defaults from buyers could mean delays in completion or even the possibility of project cancellation.’ David Ney, managing partner at York Road Realty in Yangon says that high-end rents have fallen by around a third. ‘Properties that were renting for USD5,000 per month are now going for USD3,000 or even USD2,000.’”

“A property downturn could dent the big banks and Australia’s financial stability because home loan customers could not quickly funnel cash out of other investments, economists say. Australian Securities and Investments chairman Greg Medcraft this week described hybrid securities as ‘ridiculous’ products for retail investors. University of Melbourne ­finance professor Kevin Davis said the securities could prove problematic in the event an Australian bank was in financial difficulty.”

“While they looked on the surface ‘like a really good idea, in practice they’d be an absolute nightmare,’ he said. The complexity of hybrids was also a concern, he said. ‘With the global financial crisis 10 years ago, one of the problems was too many ­complex instruments being sold to investors. What have we got now? Really complex ­financial instruments that people can’t value being sold to ­retail investors.’”

“The downturn in the residential property market that began in Auckland late last year has now spread throughout the country, shaving $100 million from real estate agency commissions in the second quarter of this year. The Auckland market has borne the brunt of the downturn, with the number of sales in the region down by just over a third, dropping from 8731 in the second quarter of last year to 5756 in the second quarter of this year, a decline of 2975 (-34%). But the downturn has spread well beyond Auckland with sales throughout the country well down in the second quarter of this year compared to the same period of last year.”

“Average sales rates at the major Auckland auctions are still running at less than half of what they were during last year’s peak. And there are increasing signs that vendors are accepting that the market has softened and are starting to be more realistic in their price expectations, which will help expedite sales. However buyers are increasingly prepared to play hardball on price, and some investors who over-extended themselves and took on high levels of debt during the boom will be starting to feel squeezed. Others that aren’t feeling the pressure yet are likely to be getting nervous.”

July 20, 2017

Few Realized Just How Big The Gulf Is Getting

A report from the Arizona Republic. “The Valley needs a lot more apartments to keep up with its expected growth, according to a new study. Anyone who has been around downtown Phoenix, Scottsdale or Tempe, where thousands of apartments have recently gone up or are under construction, will probably find this hard to believe. I did. More than 10,000 new apartments are underway or have recently opened to renters, mainly in those areas. Rents are a great gauge to whether an area has too many apartments. After jumping nearly 15 percent since 2015, rental rates are dipping in parts of the Valley with the most new apartments. And developers at new complexes are beginning to offer deals on longer leases.”

“A little overbuilding can be good news for renters when their monthly payment dips, but too much is a bad thing for home values, the real-estate market and the economy.”

The Dallas Morning News. “The run up in Dallas-area apartment rents may be easing. During June Dallas-area rents were just 2.4 percent ahead of where they were a year ago, according to apartment researcher Axiometrics. That’s the smallest annual increase in the Dallas area in seven years and the first time in recently that the rise in Dallas rents was less than the national average. ‘The influx of Dallas supply is finally affecting market performance,’ said Jay Denton, vice president of analytics for Axiometrics. ‘Demand is still high, but it will take a while to fill all the new properties in the market.’”

“Almost 29,000 new apartments are set to open in North Texas this year. Currently there are over 50,000 apartments being built in North Texas.”

The News Tribune in Washington. “The regional apartment market might be softening just a bit, which would be welcome news for renters who have seen double-digit rent increases compared to last year. Apartment vacancy rates in Pierce and Thurston counties are climbing, according to Seattle research firm Apartment Insights. Plus, Pierce County is seeing record levels of apartment construction. Apartment vacancy rates in Pierce County in the second quarter of 2017 was 4.21 percent, up from 3.34 percent the year before, according to Apartment Insights, which studies apartment complexes with 50 or more units.”

“Apartment Insights says 4,004 apartments are under construction or have completed permitting in the three-county area, most in Pierce County. Another 4,251 are at earlier stages of permitting and review. Rents in newer buildings, which have luxury finishes and amenities, can cost north of $2,000 for a two-bedroom, two-bath unit. A family living there would need to earn $72,000 a year to even get in the door. Tacoma’s median household income is $60,000 a year, Census data show. About 40 percent of Tacoma households earn less than $50,000 a year.”

“That’s probably the fill-in from the Seattle market,’ said Raelene Rogers, a partner at McCament and Rogers LLC, a Gig Harbor consulting firm that specializes in urban development, of those who can afford that kind of apartment.”

From Multi-Housing News on California. “After several years of heightened growth, multifamily rents in San Francisco have tempered. Rents have reached a point where even highly paid workers can’t afford the premium prices. Transaction activity has slowed in 2017, with only $300 million in properties trading in the first five months of the year. This comes after last year’s cycle high, when more than $3 billion in assets changed hands, reflecting investor caution amid escalating prices and macroeconomic uncertainty. With more than 15,000 units under construction, Yardi Matrix forecasts rents will remain flat in 2017.”

From The Tennessean. “The average rent for a one-bedroom apartment in the Nashville area fell 3.1 percent a month during the first half of this year, the third biggest drop among cities nationwide. After years of growth, monthly rents are leveling off at the swanky, new apartments that dot the Nashville skyline with developers and landlords now offering concessions and other perks to lure renters. ‘The new have come online quicker than they’ve been absorbed, so there’s been a little indigestion for everything to get back in balance,’ said Woody McLaughlin, a member of the statistics committee of the Greater Nashville Apartment Association trade group.”

“Abodo’s apartment analysis of rents didn’t take concessions into account. But a separate tracking by research firm CoStar Group shows most newly delivered projects in the Nashville area offering two months free rents on 14-month terms and a month free on 13-month terms, waiver of fees and deposits and perks such as gift cards and TVs. ‘It’s only the properties that have really slowed down in leasing or are still pre-leasing while under construction that are offering these types of concessions on a 12-month lease,’ said Elinor Avant, a CoStar market analyst. ‘Discounted rent is still pretty rare, but is becoming more common as the competition rises. $500 and $1,000 upfront is really common on all lease terms.’”

“Currently, 16,000 apartment units are under construction in the Nashville area with 10,000 more units in various planning stages, according to the Greater Nashville Apartment Association. For the first quarter, Nashville’s apartment occupancy rate fell 2.76 percent to 92.69 percent, reflecting increased supply including completion of 1,786 new units during that three-month period. McLaughlin expects a more challenging environment for apartment owners/developers as inventory continues to grow. ‘The consumer can continue to expect concessions on the high-end product to compete with more renovations of older apartments that can compete price-wise,’ he added.”

From Bisnow on Pennsylvania. “Philadelphia has benefited from an increased national profile in the past few years among residents and investors alike, but those who may wish it to grow as fast as its Northeast neighbors may be playing a dangerous game. The large majority of incoming multifamily construction is in Center City, which does provide some optimism that surrounding areas could remain fertile for new apartments. But firms that count Philly among a multi-market portfolio do not see much runway in the market. ‘There looks like there could be a slight lapse and softness in 2017-18,’ LEM Capital partner David Lazarus said.”

“While it is commonly accepted that new construction needs to charge a certain rent in order to recoup high construction costs, perhaps few realized just how big the gulf is getting. Lazarus said only 178 new Class-B apartments were delivered across the country last year. ‘We’re all focused on these new Class-A units and where the tenants are coming from, but what’s really going on is that there’s an affordability crisis in this country,’ Lazarus said.”