The Housing Bubble

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.’”