Eventually, There Are No Takers
A report from Forbes. “New high-rise residential construction has been among the hottest areas for real estate investors, particularly those from abroad, with high-end products accounting for 8o% of all new construction. Yet this is not an entirely high-end country, and these products, particularly the luxury high-rises in cities, largely depend on a small segment of the population that can afford such digs. No surprise, then, that we see reports of declining prices in areas as attractive as New York, Miami and San Francisco, where a weakening tech market is beginning to erode prices, much as occurred in the 2000 tech bust, John Burns Real Estate Consulting notes. There have been big jumps in the number of expired and withdrawn condo listings, particularly at the high end; last year, San Francisco saw a 128% spike in the number of withdrawn or expired listings for condos over $1.5 million.”
“Almost without exception, the most expensive areas are precisely those that have the most high-rise buildings: New York, San Francisco, Seattle and Miami. More to the point, these buildings don’t tend to be occupied by middle-class, much less working-class, families. And in many cases, these units are not people’s actual homes; in New York, as many as 60% of new luxury units are not primary residences, leaving many unoccupied at any given time.”
“Already, harder times for some traditional investors – Russians and Brazilians, for example – have hurt the Miami market, long attractive to overseas buyers. There is now three years’ worth of inventory of luxury high-rises there, with areas such as Edgewater, Midtown and the A&E District suffering an incredibly high inventory of seven and a half years.”
“In Downtown Los Angeles, according to local brokers, many of the new high-rise towers are marketed primarily in China. (LA claims to had the second-highest number of cranes, behind only Seattle.) These expensive units are far out of reach for the younger people who tend to inhabit the neighborhood, instead serving as what one executive called ‘vertical safe deposit boxes’ for people trying to get their money out of China. If the new crackdown on such investments is strongly enforced, this could leave a lot of expensive units without buyers. Prices have already softened, and with several new luxury buildings coming up, Downtown is likely to experience a glut.”
“Even in Manhattan, another market long dependent on foreign investment, projects are now stalled, including some once-hot properties in Midtown that are delaying their sales launches.”
From Mansion Global on New York. “An oversaturation of inventory was to blame for the drop in Manhattan’s luxury sales prices, according StreetEasy Senior Economist Grant Long. ‘[It’s] the only place where it’s relatively nice to be a buyer this summer,’ he told Mansion Global in an email. ‘Buyers looking for homes at a higher price point will likely continue to experience downward price pressure and more negotiating power in the coming months, as supply continues to outpace demand.’ Beyond the luxury market, Manhattan’s sales have stagnated, the report found, except at the bottom.”
The Union Tribune in California. “New home construction in San Diego County has picked up slightly but is still substantially down from the same time last year. The only place in Southern California with a similar reduction in building is Orange County, which has seen a 26.7 percent drop in permits in the first six months. San Diego County’s slowdown is mainly the result of a drop in multifamily permits (apartments and condos), which is likely because of an anticipated slow down in rent appreciation, said Gary London, real estate consultant.”
“‘We’re entering a less aggressive phase in terms of increasing rental rates,’ he said. ‘We’re reaching an apex. The cost of construction continues to go up and we can’t squeeze more rental revenue out of the market right now.’”
“There are other factors the building industry points to as reasons for a slowdown, such as lack of buildable land, community opposition to new projects, government barriers to new entitlements for residential building and a slowing market for luxury rentals and homes. ‘We’re running out of folks that can pull the mortgage on the high-end stuff,’ said Borre Winckel, CEO of the local Building Industry Association.”
From Greenwich Time in Connecticut. “Greenwich home sales declined slightly in July, according to Scott Durkin, Douglas Elliman’s chief operating officer. Luxury real estate broker Kevin Sneddon points to the difference between the average list price versus average sale price over the last year. Between August 2016 and 2017, the average list price was nearly $3 million while homes sold on average for around $1.8 million, he said. ‘That’s very powerful,’ he said. ‘There’s a lot of overpriced inventory in Greenwich and weakening in appreciation for old-world estates.’”
“Though it’s been a decade since the high-water mark of home prices, ‘Sellers are still pointing to pre-crash prices,’ Sneddon said. ‘My point is that we’re not going back there anytime soon.’”
“The Greenwich housing market will likely follow a similar trajectory to the Hamptons, Sneddon predicted. ‘There was a lot of product built in the 1970s and ‘80s and no one wanted those anymore,’ he said. ‘So prices cascaded down to where they got to land value and now everyone is buying them and knocking them down to put up new construction.’”
“Already, Greenwich homes are frequently bought by developers, and the trend will continue to grow, he said. ‘Eventually, there are no takers and the price will cascade down until they’re at tear-down price.’”
“Greenwich continues to be a buyers’ market, according to Sneddon, and it will probably take years to turn around given the amount of inventory on the market. ‘It takes a while to turn a big ship around,” Sneddon said.”
