July 12, 2017

Exuberance Infers Frivolity

A report from King 5. “San Francisco, one of the nation’s hottest real estate markets is becoming one of the coolest, and that’s concerning some experts who wonder if that trend could spread to cities like Seattle. The Bay Area is seeing many buyers no longer interested in chasing overly inflated home prices. Jon Bye, with Jon Bye & Associates, is a broker who has tailored his business to help families navigate through such a competitive housing market. He also agrees that the market still has a long runway of growth ahead, because he still sees so much demand. ‘All of the loans right now are real loans with real people and real money,’ said Bye. ‘That’s what our market is built on. But that being said, you’ve got to plateau sometime.’”

From Mansion Global on California. “San Francisco’s luxury market was burning hot during the housing market recovery between 2012 and 2015. But a confluence of global and local economic and political events—from a drop in start-up IPOs to wealth constraints in China—cooled the market for high-end homes in the Bay Area starting in 2016. Despite the record number of condo sales in the second quarter, there are pockets in the city where condo resales have plunged due to a flood of new development.”

“There’s been a dramatic drop, nearly 50% year-over-year, in luxury condo sales reported to the multiple listing service in greater South Beach, South of Market and the Yerba Buena district. ‘This is the area where large, very expensive, high-rise projects continue to come on market, and, to some degree, they may be cannibalizing MLS sales in the resale market,’ wrote Paragon’s chief market analyst Patrick Carlisle in a breakout report on the luxury market.”

From Dow Jones Newswire. “A labor shortage that has hampered the construction industry for most of the housing market’s five-year recovery is showing signs of easing. The decline in open jobs suggests employers are having a slightly easier time finding workers to hire. It could also be partly the result of a slowdown in multifamily construction activity as the apartment market becomes saturated. Developers have been pulling back on starting new projects, although there is still a fairly high volume of projects in later stages of construction.”

“Robert Dietz, chief economist at the National Association of Home Builders noted the decrease also could be a sign that some builders have put projects on hold. ‘You can have job openings fall because some employers have simply given up,’ he said.”

The Port Townsend Leader in Washington. “Where have all those housing plans gone? Earlier this year, more than 700 housing units were proposed to be moving forward in the Port Townsend area. Now, one project has been scaled back, and others are not moving as fast as some had thought they would. The largest of the proposals that city staff had been contemplating in January was a 500-unit housing development that consisted of three different properties near the intersection of Discovery Road and Rainier Street.”

“Suzanne Tyler of Chimacum, who was behind the proposal, said July 5 that the proposal had not been canceled, but had been scaled back for now. ‘After doing some research, we decided that a project of that size would have too long of an absorption time. In other words, you can only sell so many houses in Port Townsend in a year,’ Tyler said.”

The News Observer in North Carolina. “Good news for homeowners: The average sales price of Triangle homes continues to show healthy gains from a year ago. A continued shortage of inventory is helping to drive the increased sales prices. But that inventory shortage isn’t across the board. Homes priced below $400,000 are in short supply, while there’s an oversupply of houses priced above $700,000, said Stacey Anfindsen, a Cary appraiser who analyzes the MLS data.”

“When it came to pending listings during June, the average list price fell 6 percent while the average price per square foot declined 2 percent. Although that can be a leading indicator of future sales prices, Anfindsen is assuming for now that the June declines were an anomaly. ‘It’s almost economically impossible when you have an undersupply’ for sales prices to go down, Anfindsen said.”

From Miami Community Newspapers in Florida. “If you drive around Pinecrest, you’ll see lots of FOR SALE signs enticing passersby to dream of their next home purchase. The somewhat sad story of today’s market is that there are far too many signs up. In industry terms, we talk about inventory levels. This is done by looking at the number of homes currently on the market in an area and then dividing it by the number of homes that went under contract in the last 30 days. The result is a number that estimates how many months it would take for all homes currently on the market to be sold. In Pinecrest for $1M+ homes, the answer is 18 months. Not good for Sellers!”

The Washington Post. “Home flipping has slowed across the country, but it’s booming in the District and Maryland. The District had the highest number of home flips in the nation in the first quarter, according to ATTOM Data Solutions. Maryland ranked fifth. In the District they were up 10.7 percent from the previous quarter and up a whopping 32 percent year-over-year. Only Hawaii with its 36 percent jump had a bigger annual increase. Home flips in Maryland were up 8.5 percent from the previous quarter.”

“Daren Blomquist, senior vice president at ATTOM, says the uptick in foreclosure activity in both jurisdictions is leading to the increased number of home flips. ‘I believe in both areas it’s remnants of the last crisis,’ he said. ‘It’s not a new crisis. In the District, where there were all these delays, we’ve in the last year been seeing dramatic increases in foreclosure activity.’”

The Forsyth Herald in Georgia. “Since I’m a mortgage banker, people are asking me more and more if we are in a housing bubble. Values have risen sharply over the last six years, but it’s hard for me to see that we are in a bubble. The actions that led to the dramatic rise in home values leading up to the financial crisis of 2008 were born of greed and the lust for easy money. Today’s rise in home values, while dramatic, are based more on sound economic principles: high demand, low supply.”

“Exuberance infers frivolity. To buy a house under $400,000 these days requires grit determination. Inventory is as low as it has ever been in the metro area in that market. And those who want houses in that price-range are fighting off multiple bidders to win the deals. If you go over $500,000, however, you see the opposite. It’s a buyer’s market. There could be some vulnerability there should the bottom of the economy fall out.”

“If a recession came and demand for homes dried up, inventory levels would have a long way to go before we got to a place where there were too many homes on the market. That is at least true for the under-$400,000 market. The above $500,000 market is a different story. When people lose their jobs and need to sell their homes, they downsize. The over-$500,000 range already has too much inventory. If a recession arose, you might see those homeowners try to sell.”