October 31, 2017

The Calculations Have Become Upside Down

A report from The National. “Global property has been one of the finest investments of the last decade, with the major global ’superstar cities’ spearheading the charge. New York, London, Toronto, Singapore, Hong Kong, Shanghai, Mumbai and of course Dubai are just some of the cities that have posted double-digit price rises, year after year. While the breakneck growth continues in many global favourites, fears are growing that it all could end in a housing crash. UBS Wealth Management is the latest to warn of a global city housing bubble as monetary stimulus is reversed and interest rates finally start rising. The danger is greatest in Toronto, up significantly in the last year, while Stockholm, Munich, Vancouver, Sydney, London and Hong Kong remain risky, and Amsterdam has now joined this group. Valuations are also stretched in Paris, San Francisco, Los Angeles, Zurich, Frankfurt, Munich, Tokyo and Geneva.”

“Claudio Saputelli, head of global real estate at UBS Wealth Management, says the surge in international demand, especially from China, has crowded out local buyers. ‘Average price growth of almost 20 per cent in the last three years has confirmed the expectations of even the most optimistic investors. This thesis has helped fuel overvaluation and even bubble risks.’”

From the Calgary Sun in Canada. “Calgary’s housing market is not yet in full recovery mode. That’s the conclusion of Don Campbell, senior analyst and Jennifer Hunt, vice-president, of the Real Estate Investment Network (REIN). The authors report home prices, on average, are down slightly from the same time last year. ‘However, when we look at the overall trend, we see prices took a strong move upwards in the first three quarters of 2017, indicating some confidence moving back in the housing market. This demonstrates the housing market appears to have hit a longer-term trough in real estate values. Most of these increases in prices are for detached homes, where apartments and condos seem to be doing worse compared to last year. This is no surprise, given the overbuild situation the city condo market finds itself in.’”

“To sum it up, Campbell and Hunt say ‘the economic fundamental key drivers and the market influencers indicate Calgary’s real estate market is in the middle of the slump.’”

From Al-Monitor on Turkey. “Under the Justice and Development Party’s 15-year rule, housing-dominated construction became a main pillar of the Turkish economy. The building spree is in plain sight, especially in Istanbul where countless new buildings have sprung up across the city. Like other emerging economies, Turkey enjoyed abundant flows of funds from the United States and the European Union, the result of anti-crisis liquidity expansion, which kept the dollar’s price low and encouraged borrowing. Buoyed by this climate of ‘dolce vita,’ Turkish builders — especially those active in Istanbul — rushed to grab any building plots they could find, paying little mind to the prices.”

“It is worth lending an ear to an insider, namely Ali Agaoglu, a top construction tycoon who has built a series of luxury residential complexes in Istanbul. In a newspaper interview, published Oct. 23, Agaoglu warned of impending bankruptcies in the sector. ‘The prices are falling [while] costs are on the rise,’ the outspoken tycoon said, stressing that builders who had bought overpriced plots were in deep trouble. ‘The calculations have become upside down. I personally fear that new Fi Yapi incidents could occur,’ he said, referring to the collapse of a major construction company several years ago.”

“According to Agaoglu, construction companies need to make painful sacrifices to survive. ‘To keep the wheels turning, some will have to cut off a finger; others an arm. At Cekmekoy, we cut off an arm by deducting the cost of the building land,’ he said, referring to a major price discount his company has recently made in a housing project in Istanbul.”

“In sum, Turkey’s housing sector appears headed for a harsh season. And given its central place in the country’s economy, any turmoil in the sector is likely to have a far-reaching impact on the entire economy.”

From Mmegi Online on Botswana. “The market of property, business and residential, in Francistown and surrounding villages are on a downward spiral following the closure of Tati Nickel Mine Company (TNMC) over a year ago. The residential market was affected mainly on the top end when TNMC and other related businesses handed back in excess of 100 executive and high cost houses which caused a glut in the sector with rentals falling by as much in 40% in some instances, said Asan Kunda, a property expert at WKA. ‘In general, rental and capital values across all residential sectors of the residential market have declined especially with the increase in the supply due to construction in the nearby villages of Tati Siding, Tonota and Borolong.’”

“‘The commercial property market has also been in decline with rising vacancy and default levels as most tenants struggle to meet their monthly liabilities due to reduced business as most households can only afford basics,’ he said.”

The Daily NK on North Korea. “Following an unprecedented period of growth, North Korea’s real estate market is experiencing a downturn following the adoption of international sanctions. In addition to fluctuating prices in the general markets, the value of major new apartment developments as well as smaller housing projects have seen a sizable drop in recent months. ‘The disruption in trade with China has led to market instability, which in turn has affected housing prices in the main districts of Sinuiju. While units were being sold for tens of thousands of dollars (USD) just last year, prices began to drop this past spring, and have only continued to fall since then,’ a source in North Pyongan Province informed Daily NK on October 23.”

“‘Other cities are experiencing a similar shock to their housing markets as well. The value of homes in Pyongsong and Sunchon were skyrocketing before the latest crisis, but have dropped significantly in recent months,’ a source in South Pyongan Province explained. ‘In Pyongsong, an apartment near the train station was going for $60,000 just this past January, but the value has now dropped to $50,000. Even homes outside the city that were once being sold for $5,000 are now going for around $3,200. Buyers are becoming more emboldened while sellers are losing their leverage, and prices continue to drop as a result.’”

From Fairfax Media on New Zealand. “A senior commercial property researcher is picking the looming housing slowdown to be a soft landing rather than a harsh slashing of prices, at least in Auckland. Colliers national research director Alan McMahon said slowing house sales were no indication of demand, despite pending changes to immigration policies. McMahon said his confidence was based on the large number of people who still wanted a house but couldn’t afford them at current prices. ‘People who can afford those houses will just swap them between themselves.’”

From ABC News on Australia. “Rapidly cooling house prices in Sydney and the sudden withdrawal of Chinese investors from the property market may lead the Reserve Bank to cut interest rates, according to investment bank Credit Suisse. ‘Over the past few months, the Sydney housing market has not only cooled down, but has arguably turned cold,’ Credit Suisse wrote. ‘Over the past year, Chinese capital flows have fallen considerably, in part reflecting the impact of stricter capital controls. This fall foreshadows weakness in NSW housing demand in the year ahead.’”

“Credit Suisse argued if its model was anything to go by, it is hard to see a meaningful recovery any time soon. ‘We believe that the RBA will need to cut rates further to deal with the housing market slowdown in train,’ it noted. ‘Without a healthy housing market, the economy does not have other growth drivers to lean on.’”

The Mumbai Mirror in India. “The realty sector in Mumbai is witnessing its worst slump ever, with market rates of properties in several areas, including south Mumbai, dipping below the ready reckoner rates. Prominent developers and industry watchers told Mumbai Mirror that never in the history of the city have they witnessed such a phenomenon, even as debt-laden builders, struggling with slow sales, unsold apartments, and delayed/stalled projects, are pulling out all stops to attract buyers.”

“Ready reckoner rates are values of properties, determined by the government for payment of stamp duty. These rates, published annually, impact the construction cost of projects, as several premiums and charges collected by the civic bodies and the government itself are linked to the ready reckoner values. The body blow to the realty sector has been unsold properties. According to the industry estimates, more than 2.67 lakh residential properties in the Mumbai Metropolitan Region (MMR) remain unsold, of which 1.05 lakh are in Mumbai itself.”

“One of the reasons behind this ‘lack of movement’ is the general sentiment that property prices will slump further. Some of the schemes offered by developers were unheard of in Mumbai’s real estate sector. ‘Times are such that builders have to give more than just membership of a club to flat buyers. Large-scale properties are lying unsold and unless incentives are high, people are not going to buy as everyone seems to think prices will fall further,’ a developer said.”

October 30, 2017

The Same Tides That Rise May Also Fall

A report from the Portland Tribune in Oregon. “A national expert says Portland faces many of the same problems as other cities with availability and affordability of housing. But Christopher Herbert said a couple of factors — rising prices and rents, and gentrification of neighborhoods — put Portland’s problems ‘a bit on steroids’ and make it ‘ground zero’ for a rapidly changing urban area. Herbert said it’s difficult to turn around a market with increasing costs and limited supply in an era when growth of household incomes has failed to keep pace. ‘In order to solve it, we need to work on both,’ Herbert said at the City Club of Portland. ‘We need to work on how to get incomes up — and for those who can’t get their incomes up, we need to work on subsidies — and on the price side, we need to get the cost of housing down.’”

“In Portland, Herbert said, the median home price is now five times the median household income — the point at which half are above and half below — compared with a national average of three times. That ratio is equal to Boston’s. During the housing bubble before the 2008 recession, Herbert said, Portland’s ratio was 4.5 to 1. According to the center’s 2017 report, home prices in Portland and other major West Coast cities rose 40 percent or more in inflation-adjusted dollars between 2000 and 2016 — increases comparable to parts of the Northeast.”

“Supply has not kept pace with demand — and Herbert said about 11 million people say they pay 50 percent or more of their incomes for housing, well above the 30-percent mark defined by federal guidelines as ‘affordable.’ ‘It does not leave much left over to pay for food, health care, transportation and other necessities of life,’ he said. There is construction, he added, ‘but only at the high end’ for 1.6 million renters with household incomes topping $100,000. ‘We are building for them. That market is getting saturated,’ Herbert said. ‘We haven’t been building for the rest.’”

From KJZZ in Arizona. “If you drive around the Arcadia neighborhood in east Phoenix, you’ll be hard pressed to find a house that hasn’t been renovated recently. Austin King is a local developer and lives in this neighborhood. ‘The amount of construction, the fences around houses, I mean just, it’s everywhere,’ King said.”

“According to Trulia, home prices in Maricopa County have increased by 83 percent, on average, since 2011. For perspective, King hits the rewind button. ‘It was shooting fish in a barrel. Literally, if you tried you could buy two or three homes in one day,’ he said, adding the fallout made for some crazy times in home buying if you had the money to invest. Those conditions were created, in part, because there was a giant glut of homes here in the valley. ‘By some estimates we overbuilt by 100,000 housing units,’ said Mark Stapp, the director of the Center for Real Estate Theory at Arizona State University.”

“To get a better idea of just how much things have changed across the valley KJZZ and our partners at the Arizona Center for Investigative Reporting ran the numbers. ‘We saw a couple of census tracts where the price per square foot increased sometimes two or three times,’ said Evan Wyloge, a reporter with AZCIR. He said trends like this popped up all over the valley. Take Mesa for example. Home values there are up more than 160 percent since 2011.”

The Phoenix New Times in Arizona. “Metro Phoenix is one of the lowest-ranked areas for residents spending within their means, according to a new study. The report from LendingTree combined anonymous data from the company’s users with average household income numbers from the U.S. Census Bureau. Phoenix nearly bottomed out the list of the top 50 metropolitan areas, placing 48th. The report surmised that the housing bubble of the last decade hit Phoenix especially hard, with a large number of residents whose mortgages take up a large portion of their income. Other cities in the Southwest and California are also struggling under housing debt.”

“‘Like Las Vegas, Phoenix is still recovering from the housing bust of the late 2000s, and residents are stretched,’ the report says.”

“Yet unlike cities with higher average incomes, such as San Francisco, with residents who can support such mortgages, Phoenix has a lower-than-average household income among the 50 metro areas LendingTree examined. ‘The challenge in Phoenix, I would say, is mostly on the housing side,’ report author Brian Karimzad told Phoenix New Times. ‘Phoenix residents have housing debt balances, mortgage balances, that are 23 percent higher than the national average, but their incomes are lower than the national average,’ he said.”

The Charlotte Observer in North Carolina. “Home values in Charlotte rose at the fourth-highest rate among U.S. cities last month, according to Zillow. Zillow Chief Economist Svenja Gudell said limited supply and high demand is impacting markets nationwide. Gudell said that despite the rapidly increasing prices, another housing bubble isn’t being inflated. ‘It might be easy to assume another bubble is emerging, with home values growing 10 or 12 percent per year, but don’t worry,’ Guddell said, in a statement. ‘The market is reacting to basic economic laws, and is behaving exactly the way we would expect it to given good overall growth, limited supply of homes for sale and decent housing affordability thanks to low mortgage interest rates.’”

“Only three cities saw their home values rise faster than Charlotte: Las Vegas (up 10.2 percent), San Jose, Calif. (up 10.3 percent) and Seattle, home of both Amazon and skyrocketing home prices (up 12.4 percent).”

The Los Angeles Times in California. “A trio of experts gave a largely positive outlook on the state of the economy during a Newport Beach Chamber of Commerce forum. The event at the Balboa Bay Resort featured UCLA’s Jerry Nickelsburg, an adjunct professor of economics and director of the UCLA Anderson Forecast; Christopher Schwarz, an associate professor of finance at UC Irvine and faculty director of the school’s Center for Investment and Wealth Management; and Jonathan Lansner, a business columnist with the Orange County Register.”

“Nickelsburg noted how home prices in San Diego, Los Angeles and San Francisco have not only rebounded from the recession, but have surpassed their 2007 housing bubble highs. Schwarz said most areas of the economy, such as bonds and real estate, have been faring well. He said there’s always the fear, though, that the same economic tides that rise may also fall. Lansner, who’s been covering business for the Register since 1986, said it’s practically impossible to tell if another housing bubble is en route.”

The Sacramento Bee in California. “Sacramento County’s real estate market saw its lowest September sales total in three years, the result of low inventory and relatively high prices that have priced some buyers out of the market, according to one housing analyst. As for the three-year low in September sales, CoreLogic analyst Andrew LePage said there just aren’t many homes on the market, and more buyers may be unwilling to pay high prices. The area is coming off a hot summer season, when more homes were sold across the four-county Sacramento region than in any similar period since the peak of the housing bubble in 2005.”

From Builder Online. “An infill development in Sacramento is seeking to lure first-time home buyers with offerings in the $300,000 range and mortgages requiring no down payment. The Sacramento Bee reports: ‘The Mill at Broadway, central Sacramento’s largest infill housing development, has begun offering mortgage loans with no down payments, hoping to entice more young first-time buyers who don’t want to pay high rents, but don’t have cash for upfront payments on a house, its developer said.’”

“The densely packed project is expected to eventually have 800 to 1,000 homes. Since it opened 20 months ago, The Mill has sold 175 units, mainly to young singles, said developer Kevin Smith of Ranch Capital, a Southern California-based investment company.”

From KOLO 8 in Nevada. “The luxury housing market in Northern Nevada has grown substantially over the past year. ‘What we’re seeing with affluent consumers today is that we know they’re very globally-minded, that they love real estate, and that they’re looking for a lifestyle,’ said Stephanie Anton of Luxury Portfolio International. ‘Its not just about a home and it’s not just about a shelter decision. They want to live in places where they can bring their families and have wonderful experiences, so a place like Reno, like Lake Tahoe makes a lot of sense for the affluent consumer today.’”

“‘We look at luxury as a million dollars or more; that sort of defines who that client is,’ said Nancy Fennell, President of Dickson Realty. ‘But I think luxury is a very local term; what is luxury in our market is certainly very different from what it is in San Francisco. I think that is what has doubled that market this year from last year; what people can get for their money here.’”

“And while these days it’s a little easier for buyers who can compete in the higher-end markets, times are always changing. ‘It’s the yin and yang of real estate,’ Fennell said. ‘We will have too much inventory and prices will go down and when that is absorbed, then we will have too little and we’re just in that too little in the under $500,000 range right now.’”

October 28, 2017

The Bottom Of The Hole Is A Long Way Down

A weekend topic on Canada and Australia starting with the Toronto Star. “The cost of a newly constructed detached home in the Toronto region dipped slightly in September to $1.6 million, down from about $1.8 million in August as more new low-rise housing came onto the market. Nevertheless, Building and Land Development Association says the inventory of new homes remains, ‘well below what is considered a healthy level.’”

“Its September statistics show that sales of new construction low-rise homes — a category that includes detached houses, semi-detached and town homes — fell 73 per cent, compared to the same month last year. Although they continue to dominate Toronto-area new home sales, condos — including high rises, low-rise apartments and stacked town homes — also saw a 37 per cent drop in the number of sales.”

The Saskatoon Star Phoenix in Canada. “Home sale prices per square foot in Saskatoon have nearly tripled over the last two decades, and Regina was close behind, according to a new survey. The Saskatoon Region Association of Realtors (SRAR) reported earlier this month that September sales fell 19 per cent year-over-year, while year-to-date sales were down six per cent compared to the first nine months of last year. ‘In a buyers’ market with elevated inventory levels it is critical to understand pricing and to properly prepare your home to compete against other homes in your price range,’ SRAR chief executive Jason Yochim said in a statement.”

“Century 21 said in the survey that while homes priced between $300,000 and $400,000 are selling ‘actively,’ a ‘huge supply’ of condominiums remains on the market. That echoes statements made by the Canada Mortgage and Housing Corp. earlier this year, when it reported record levels of ‘completed and unabsorbed’ condos in Saskatoon. The country’s mortgage insurer made similar comments earlier this month.”

The Fort Saskatchewan Record in Canada. “The Fort is expected to see continued realty growth because of strength of industrial jobs and its family-friendly appeal with various amenities. This gives the city an advantage over other municipalities in Alberta. ‘It’s an indication that over the next five years, Fort Saskatchewan’s real estate market is either more protected from downturn and the demand and the prices will increase more quickly then the rest of the city’s in the province,’ said REIN senior analyst Don Campbell.

“The average residential housing price to be $385,214, according to REIN. Fort Saskatchewan Re/Max owner and agent, Ken Jackson agreed with that number. He noted that a house built in 2000 or later averages $400,000 while houses built in the 1970’s average between $325,000 to $350,000. ‘Since mid-2015 until now, there’s been a drop of about 10 per cent in the market place on prices but it seems to have bottomed out and now it’s just a matter of too much inventory,’ said Jackson.”

From CBC News in Canada. “Edmonton is one of three cities in Canada where a surplus of new housing is becoming a problem, the Canada Housing and Mortgage Corporation has found. Two quarterly reports by the CMHC show more housing units have been built than are needed in Edmonton, Calgary and St. John’s, N.L. The CMHC Housing Assessment said ‘evidence of overbuilding’ went from moderate to high in the Edmonton market in the past quarter.”

“A building boom that started before the recession in 2015 is largely to blame, said Brent Weimer, CMHC’s principal in market analysis for Edmonton. A lot of construction that began two or three years ago is now approaching completion, while demand has dipped, he said. ‘Large projects, apartment buildings, have a very long lead-lag time,’ he said. ‘So the planning process, the construction process, the completion and then the occupancy takes several years sometimes.’”

“‘We have a lot of competition in the rental market,’ he said. ‘We also have a large number of condo apartments just sitting on the market, just trying to find a buyer.’”

The Port Stephens Examiner in Australia. “There are less new homes are under construction in Port Stephens than in quite some time, the latest housing approval data shows. There’s been little to grumble about since 2013 when construction approvals hit 388 for the calendar year. It slowed to 224 in 2014 but raced back to 377 in 2015 and remained strong at 342 for 2016; for a five-year average of 315.”

“The Housing Industry Association said it wasn’t overly concerned. ‘We’ve had a good few years in Port Stephens so its probably coming off the boil a bit,’ HIA Hunter director Craig Jennion said.”

“Closer analysis of the data revealed it was unit construction that had slowed the most. In the 12 months to August 2017 there was 37 multi-unit approvals compared to 71 in the same period last year. That’s a 48 per cent downturn. In the three months to August 2017, detached housing eased from 61 approvals to 45 – down 26 pc. At the same time unit approvals went from 33 back to 20. ‘We’re down a third overall in Port Stephens,’ Mr Jennion said. ‘Unfortunately it has softened a little.’”

The Queensland Country Life in Australia. “Brisbane’s rental market has performed poorly for another quarter, with rents totally stagnant for houses, falling for units and yields falling for both. Belle Property Bulimba principal Tony O’Doherty said the news was not surprising. ‘From the unit point of view there’s two obvious reasons, there’s the oversupply and there’s the competition because of the oversupply,’ he said.”

The Sunshine Coast Daily in Australia. “Banks are playing catch-up with a resurgent Mackay economy, and aspiring home owners still face excessively restrictive policies, a local real estate guru says. There were multiple signs the housing market had improved in the last year, REIC Mackay zone chair Peter McFarlane said. But the agent said head office bankers in Sydney or other state capitals were yet to acknowledge the regional resurgence.”

“Mr McFarlane said in recent years the Mackay housing market took a severe pounding. ‘Property values in 2015 were the equivalent of what they were in 2005,’ the Mackay Property and Management Services director said. For a while, banks lent ‘willy nilly’ and the market ballooned beyond reasonable levels, he said. And when the local economy hit obstacles, ‘the bottom of the hole was a long way down.’”

“So banks became less willing to lend to buyers, he said. During the downturn, Mackay became known as ‘a very high mortgage delinquency area’ and lenders viewed the entire 4740 postcode zone as somewhat taboo. Where prices plummeted and home loans exceeded a property’s value, banks sold houses at a loss. That loss for banks was generally recoverable from the mortgage insurer, he said.”

“Insurers had to go after borrowers, but to the chagrin of insurers, those borrowers frequently declared bankruptcy, he added. ‘The banks are being very very strict now in their lending and a lot of that does come from the mortgage insurers,’ Mr McFarlane added.”

“NAB said it considered multiple factors when assessing a customer’s lending application. ‘And we take into account local economic and market conditions for the security against which the customer wishes to borrow,’ an NAB spokesperson added. ‘This is the responsible and right thing to do for our customers, for our business, and for the Australian property market.’”

The Australian Financial Review. “Property industry veterans have started raising concerns about the build-up of retail and residential property construction along the east coast of Australia. Speaking at the Property Council of Australia’s annual congress in Cairns, Folkestone managing director Greg Paramor said the snapshot of new investor-style apartments was looking risky.”

“‘We look at all the major cities on the eastern seaboard and we see a genuine oversupply of investment-grade property,’ Mr Paramor said. ‘In the overbuilt areas of Melbourne and Sydney and Brisbane, there is a lot of rubbish that is coming through there.’”

The Sydney Morning Herald in Australia. “Treasury secretary John Fraser has said Australian banks could face further restrictions and warned regulators should guard against excessive debt in the financial system. He warned the Australian household sector’s assets are around five times greater than its debts, holding over $2 trillion in debt while maintaining $12 trillion in assets. ‘Asset values can always fall, and often do, while debt values generally don’t, squeezing net worth in the process and perhaps more importantly, around 75 per cent of household assets are in housing and superannuation,’ he said.”

“Treasurer Scott Morrison in March ordered the Australian Prudential Regulation Authority to slam the brakes on investor lending by restricting interest-only loans to less than 30 per cent of new home loan approvals while also tightening access to high-risk loans. ‘While banks’ progress against these measures has been positive, regulators will need to think carefully about whether future efforts to maintain financial stability should lean against cyclical excesses or address structural risks within the financial system,’ he said.”

October 27, 2017

The Desperation Of The Highly Leveraged

It’s Friday desk clearing time for this blogger. “Just outside Macomb city limits is the Georgetown subdivision with a look reminiscent of the colonial era. However, also part of the landscape — lots of ‘for sale’ signs. Real estate agent Steve Silberer said a few years ago, townhomes in the Georgetown subdivision would have gone for $90,000 on average, but today some are selling in the $50,000 range. ‘If I had a house on the market and I had to sell it, I would probably think there’s a crisis, there’s no doubt about it,’ Macomb Mayor Mike Inman said.”

“But Debbie Kendrick, president of the Mark Twain Association of Realtors, thinks the biggest issue in northeast Missouri is low inventory. She said there needs to be more available housing programs. ‘I’m not talking about apartments,’ Kendrick said. ‘We need more single-family homes.’”

“A new analysis puts Nashville as one of two cities most at risk for seeing home prices decline, elevating the threat level for Nashville’s housing market. Prices look to be softening already. In the past three months, median home prices have steadily declined from $294,000 in June to $280,000 in September.”

“Just in time for Halloween — Tampa Bay has plenty of zombies. Not the reanimated corpses of Walking Dead, but vacant houses that are in some stage of foreclosure but that have not yet been repossessed by the bank. According to ATTOM Data Solutions, the bay area is littered with 477 zombie foreclosures, ranking it fifth among the 150 largest metro regions. Only New York-Newark, Philadelphia, Chicago and Miami are more zombie-infested.”

“A prime example: a zombie in St. Petersburg’s Shore Acres neighborhood that first went into foreclosure in 2008. Several blocks way is a current zombie that has been in foreclosure since 2009 and vacant for years. Throughout the Tampa Bay area, a total of 26,132 homes were vacant as of this fall, ATTOM reported. Many of those are owned by investors who are renovating them or already have them on the market. In Hillsborough County, for example, 4,427 of the 5,974 vacant homes are investor-owned.”

“Nationally, ‘there is evidence that the ultra-tight inventory environment in some red-hot markets is beginning to ease just a bit, with vacant property rates nudging higher in markets such as San Jose, San Francisco, Los Angeles, Boston and Denver,’ said Daren Blomquist, ATTOM’s senior vice president.”

“Preconstruction sales of new low-rise homes fell 73 per cent in the Toronto area in September compared with a year earlier as the home-building sector faces major headwinds from the region’s housing-market downturn. The market for new condominiums also faced a drop across the GTA in September, with builders selling 1,749 units, down 37 per cent from 2,782 units last September. Combined sales of high-rise and low-rise homes dropped 48 per cent to 2,101 homes from 4,077 last year.”

“‘The launch frenzy that had characterized the market over the past year is over,’ said Patricia Arsenault, executive vice-president at Altus Group, which provides data on new home sales for BILD. ‘Buyers now feel that they can take a bit of time to shop around, without fear of losing out.’”

“The first signs of a potential correction in Sweden’s housing market may well appear in the country’s property-management industry. For Sweden’s biggest mortgage bank, Swedbank AB, that means its 221 billion kronor ($27 billion) in loans to property-management firms pose a risk that investors should watch closely, according to Danske Bank A/S senior analyst Matti Ahokas. These are ‘big exposures,’ he said. ‘Nobody really knows what’s happening’ with that market, he said. ‘If they end up in trouble, the banks end up in trouble as well.’”

“In Stockholm county, the average debt-to-income ratio for new mortgages is between 490 percent and 550 percent, according to figures from the regulator. But as Swedish authorities gradually introduce measures to cool the market, the risk of a correction grows if tightening is too sudden or coincides with higher mortgage rates. Ahokas says ‘it’s not easy braking,’ when the market is out of balance. ‘You can’t just tone it down a bit. Markets don’t work that way.’”

“Two-fifths of private homes coming up in Singapore, or 17,178 units, have not been sold, but the market could be flooded with close to the same number of new units soon, largely from the en-bloc fever seizing the market in the past year or so, data released by the Urban Redevelopment Authority (URA) shows. International Property Advisor chief executive Ku Swee Yong felt that there was an oversupply in the market, and this would continue to be a problem down the road. ‘If there is already oversupply, and we’re not able to bring in fresh demand, then it’s more sentiment, rather than real demand,’ he said.”

“Significant parts of the Sydney apartment market and the associated apartment land markets have cracked and are now suffering serious falls. The level of decline is much greater than most were predicting three to six months ago. The repercussions of what has happened in Sydney will quickly spread to Melbourne, although the blows may not be as severe in the southern capital because apartments are already much cheaper than Sydney. Brisbane is already in trouble so may be insulated from further big falls.”

“Apartments sold as used apartments in the big Sydney apartment estates have fallen by at least 20 per cent. The fall rate for individual sales can rise to 25 per cent. The price fall in new apartments bought either off the plan or as the developer sells a completed apartment are down in the vicinity of 12 per cent. A hypothetical apartment bought by an investor or a residential buyer for, say, $1 million in the boom (most two bedroom apartments were selling for between $1.2 million and $1.4 million) is now selling for $800,000 — a 20 per cent decline. If I want to buy that hypothetical $1 million apartment off the plan or as a completed unit it would cost about $880,000 — a 12 per cent decline.”

“The apartment land market in many areas of Sydney is in chaos. About a year ago prime apartment land in Sydney (with approvals) was selling between $350,000 and $400,000 per apartment that could be developed on the site.”

“Now anyone who bought that land would be lucky to get $280,000 and the desperation of highly leveraged selling and the lack of buyers can result in some land going for $230,000 per apartment — a fall of above 33 per cent. The losses are sickening. Again the great danger is that a vicious circle will develop, creating even bigger falls.”

“The Labour-led Government’s move to restrict foreign speculators from taking a chunk out of the property market is being questioned given a similar policy across the Tasman has done little to curb prices in Australia. Prime Minister Jacinda Ardern has said a Bill to stop overseas buyers from buying existing homes would be introduced by Christmas.”

“Auckland real estate agent Ollie Wall said if a cooler market was the idea behind the foreign buyers policy, that had already been achieved. ‘It has been achieved by the previous government through traditional ways and loan-to-value restrictions. It’s sort of flogging a dead horse.’”

October 26, 2017

Hitting The Supply Crescendo

A report from the Denver Post in Colorado. “Apartment rents slid a little and vacancy rates rose as metro Denver absorbed a historically large number of new apartments during the third quarter, according to the Apartment Association of Metro Denver. The metro area has added 9,713 new apartments in the first nine months of this year, a 35 percent increase from the same period in 2016, which was a big year. Of this year’s new supply, 4,315 units came online in July, August and September. ‘It’s equivalent to completing a new 48-unit apartment community every day for three months straight,’ said Teo Nicolais, a real estate instructor at the Harvard Extension School.”

“The metro area will easily smash through the 10,000 new units mark this year, the first time that has happened in more than three decades, said Nicolais. Denver had the highest average vacancy rate among metro counties at 6.8 percent, with vacancies downtown, ground zero for apartment construction, at 12 percent. ‘We are going to hit the supply crescendo,’ said the report’s author Ron Throupe.”

From Silicon Beat in California. “A new analysis of Bay Area rents shows the cost of newly advertised apartments rising most rapidly in Mountain View, Petaluma and Walnut Creek and dropping most dramatically in Oakland, Berkeley and South San Francisco. In the East Bay, rents dipped 12.7 percent year-over-year in Oakland, where the median rent for a one-bedroom is now $1,930, according to Zumper. The report shows rents dropping 12.3 percent next door in Berkeley (where a one-bedroom goes for $2,500) and 8.8 percent on the other side of the bay in South San Francisco ($2,070 for a one-bedroom).”

From Capital Public Radio on California. “Fewer neighborhoods have vacant homes in limbo, or properties not yet repossessed by a bank. Sometimes referred to as ‘zombies,’ these foreclosures are notorious for dragging down property values and just generally being sore thumbs on the block. Meanwhile, more California homes are being converted into rentals, and a growing number of them are empty. ‘A 5 percent increase in Sacramento in those vacant investment properties, or rental properties, from a year ago. In California it was actually a 9 percent increase,’ says Daren Blomquist, senior vice president at ATTOM Data Solutions.”

From 10 News in California. “With San Diego rents at record highs, it’s understandable to feel powerless when it comes to increases. But one North Park man just proved a little research can go a long way. Matthew Brewer was paying $1,550 a month for a two-bedroom apartment when he got slapped with a $200 a month increase. He rents the apartment month to month, which is risky when it comes to increases. And it’s something those in his complex have already seen. ‘They had already been raising the rent on my neighbors as well, so they had four units that were empty,’ he said.”

“Brewer didn’t want to move out, so he prepared his case. He searched for similar listings nearby on hotpads.com. He discovered that his rent was a little low, but in the normal range. He told his property manager that finding a new tenant at the higher price was no sure thing. ‘I made the argument logically that it’s safer to have me in the unit paying for my rent, than having me move out for them to raise the rent,’ he said.”

“And it worked. Brewer ultimately got a letter postponing that $200 a month increase until March, which means by that time he’ll have an extra $800 in his pocket.”

From Crain’s Chicago Business in Illinois. “Some of the costliest housing areas in Cook County saw the price of a single-family home decline this spring, according to a report. House prices cooled in the Lincoln Park/Lakeview submarket in the city and in the Winnetka/Northbrook submarket in the suburbs during the second quarter, according to a report from the Institute for Housing Studies at DePaul University. ‘There’s a sign of flattening demand at the upper end,’ said Geoff Smith, the institute’s executive director.”

“In Winnetka/Northbrook, it was the first decline after five straight quarters when prices were up compared to the corresponding period a year earlier. In Lincoln Park/Lakeview, the second-quarter decline followed a smaller decline in the first quarter; before that there had been increases in the previous two quarters. The Chicago area ‘has some strong head winds,’ Smith said. ‘Population remains flat and income growth is slower’ than in other parts of the country.”

The Real Deal on New York. “In real estate, you want to buy low and sell high. But the mercurial Manhattan condo market got the better of U.S. Secretary of Commerce Wilbur Ross. The billionaire cabinet head sold his 5,573-square-foot penthouse at the Briarcliff for $15.95 million, a $2 million loss on what he paid a decade ago, records filed with the city show. Ross, who made his money investing in distressed assets, bought the duplex at 171 West 57th Street for $18 million in 2007, according to records.”

“He first tried selling the four-bedroom, five-bathroom home for $21 million in 2015, but slashed the price after failing to attract a buyer.”

October 25, 2017

A Real Concern The Market Will Be Oversaturated

A report from the Austin Monitor in Texas. “Realtor Barrett Raven said he isn’t feeling the effects of a recent change playing out in the Austin area. Compared to this time last year, foreclosures in the Austin-Round Rock metro area have increased by 29 percent, according to a report out this month from the California-based research firm ATTOM Data Solutions. The group’s senior vice president, Daren Blomquist, explained. ‘This isn’t another crisis, so to speak, but we are seeing some loosening of credit that is introducing more risk, and there is this increase in the number of people falling into foreclosure,’ Blomquist said.”

“The report also notes a spike in a certain type of foreclosure – what’s known as a Federal Housing Administration loan. ATTOM says Austin is seeing an ‘11-year high’ in FHA foreclosures stemming from loans taken out in 2014. Doug Scott, a mortgage banker of over 30 years, explained that FHA loans are a government-guaranteed mortgage. The federal program was initiated in the 1930s. ‘It’s morphed over time into its present form today, where it is really designed to help first-time homebuyers get into their first home, with a relatively small amount of a down payment,’ Scott said. ‘Right now, the minimum down payment is 3.5 percent of the purchase price.’”

From the Urban Land Institute on California. “As ULI opened its 2017 Fall Meeting in Los Angeles, Robert Lowe, chairman and founder of Lowe Enterprises and the conference’s cochair, told attendees that the Los Angeles of today is much different than the L.A. that hosted ULI six years ago. Central Los Angeles is one of the hottest markets in the United States, with prices soaring, international capital flowing to projects, and more than a dozen developments under construction downtown.”

“But the panel also sounded a few cautionary notes. With so many residential towers in development, there is a real concern that the market will soon be oversaturated with luxury condominiums, panelists agreed. ‘I think there is going to be an oversupply that will take a few years to absorb at the higher end,’ Lowe said.”

“For AEG, which developed L.A. Live, the entertainment center, there is apprehension that the new projects will not generate the foot traffic necessary to support the new businesses moving into the area, said Ted Tanner, senior vice president of real estate. ‘It’s pretty scary in terms of the oversupply,’ Tanner said. ‘The big fear is that [the new condos] will sit mostly empty.’”

The Mercury News in California. “Pending home sales fell markedly across California in September, with the largest regional drop-off in the Bay Area where an ongoing housing shortage and exorbitant prices appeared to dissuade some potential buyers. That’s according to a new survey by the California Association of Realtors, which examines pending sales as a bellwether for where the housing market is headed. It didn’t provide data on closed home sales.”

“Statewide, the number of pending sales fell 6 percent on a year-over-year basis in September, while they fell 10.8 percent across the Bay Area. Locally, pending sales were down even more dramatically, falling 23.5 percent in Santa Clara County compared to September 2016 and 22.4 percent in San Mateo County.”

The Flathead Beacon in Montana. “In 2017 the overall median price of sold residential properties in Flathead County is currently $275,000. As we move up into the $1 million to $2 million dollar range, we find that this price range only accounts for 2 percent of the sales, but 14 percent of the current listings are in this price range. With only 30 sales in the last year and 147 current listings, this tells us that there is currently around 59 months of inventory of homes in the $1 million to $2 million dollar range. This segment of the market continues to be a buyer’s market.”

“For homes priced over $400,000, there is currently 18.2 months of inventory, putting these higher priced homes in a buyer’s market. The market is generally quite smart and pricing is key to getting homes sold. This is especially true in the higher price ranges because there are a lot of sellers competing for a relative few number of buyers.”

The Star Ledger in New Jersey. “It didn’t come until the 35th minute of the second gubernatorial debate, but each of the candidates finally uttered the words affordable housing and state planning. Admittedly, housing issues rarely ascend to the top of the platform for either statewide or national office, but whether you know it or not, New Jersey is in the middle of a housing crisis.”

“New Jersey is a wealthy state, ranking fourth in the nation in terms of median household income. But according to the National Low Income Housing Coalition, New Jersey ranks as the 7th most expensive state in the nation in terms of housing cost. So it’s expensive to be poor in New Jersey.”

“According to the American Community Survey, there are 3,577,942 housing units in New Jersey; 388,456 of which are recorded as vacant. That’s nearly 11 percent of the total housing stock. Adding insult to injury, New Jersey ranks second in the number of residential foreclosures in the country, with more than 72,000 housing units that are under some form of a foreclosure. Bottom line: there’s an incredible shadow inventory of homes that hangs over our state.”

October 24, 2017

A Herd Mentality Has Resulted In Absence Of Value

A report from Baystreet in Canada. “Federal officials in Ottawa have announced new regulations that would make it more difficult for Canadians to qualify for uninsured mortgages – a move that will impact consumers with down payments of 20% or more. In a report to clients, Rob Sedran, an analyst at CIBC Capital Markets, said the banks are generally supportive of an ‘engineered slowdown’ of the housing market, as opposed to a downturn triggered by an unforeseen event. ‘OSFI hasn’t just tapped the brakes, it’s jumped on the brakes with both feet,’ said Rob McLister, founder of RateSpy.”

From Business Insider Nordic. “In the past two months, the sales of new apartments in Norway have declined by 33 percent compared to the same time last year, shows statistics from Economics Norway, an independent analytical group that tracks the country’s construction sector. In the capital Oslo – which has seen a heated housing market in the past years – the decline is nothing short of astonishing: 71 percent. ‘The number of unsold apartments in the capital are piling up,’ says Andreas Benedictow, chief economist at Economics Norway, to Norwegian daily E24.”

“The news follows a period of declining apartment prices in the Norwegian capital, which has been among the fastest-growing cities in Europe in recent years. No other Norwegian cities come close to Oslo’s decline, which is now dragging down the whole of Norway’s figures. A trend of declining house sales seems to be making its way to neighboring Stockholm, where, Veckans Affärer reported, dozens of apartments in attractive districts are now going unsold – a situation that was all but unthinkable until recently.”

From Muscat Daily on Oman. “Public opinion on the streets of Muscat. Do you think rents have really gone down? Are tenants calling the shots when it comes to rent negotiations? Dr Thashli, Physician and diabetologist: Yes, rents have come down but the reductions vary from place to place. While areas like Qurm and Madinat as Sultan Qaboos have witnessed substantial reductions other popular areas like Ruwi and Al Khuwayr have seen marginal drop. Tenants can bargain in areas where the drop is more.”

“With so many ‘For rent’ signs across the city, do you think the real estate market is likely to improve in the near future? Aiman al Musallami, Bank employee: No, I don’t think so. Though, things will stabilise but one can’t expect anything big unless the population increases. The reason is there are more houses and flats than people themselves.”

From The National. “Residential rents and sales prices in Abu Dhabi declined in the third quarter of 2017 on the back of economic tightening and the release of new housing stock, according to real estate consultancy JLL. Craig Plumb, head of MENA research at JLL, said the downwards trend would continue into the fourth quarter of 2017. ‘Rents are low across the board, which is good news for tenants,’ he said. ‘We expect this trend to continue, probably at the same rates, as we see no reason to suggest price stabilisation.’”

“He added: ‘Oversupply is not the problem in Abu Dhabi – it’s lack of demand, due to job cuts, corporate restructuring and reductions to housing allowance. So affordability for tenants is crucial and they are looking at cheaper options, of which good quality ones are not widely available. There are no signs of the market bottoming out yet.’”

From The Sun Star in the Philippines. “While a bubble remains uncertain, Professor Enrique Soriano, executive director at W+B Advisory warned that the country’s property sector is already on an overextended run for almost three years now, from the usual 10-year cycle. ‘Whatever gains we are making in the extended two-year-period is already a bonus for the property sector. But, any extension will always have some dangers…at some point, it will slide,’ said Soriano, who has witnessed the ups and downs of the property sector since 1987.”

“Soriano cited a herd mentality even among inexperienced real estate players, which has resulted in tougher competition, lousy project concepts or absence of value proposition, among other factors that make condo-selling difficult these days. An oversupply is happening when sales velocity is no longer as robust as before, he explained. Second, if buyers are already coming from outside Cebu or as far as Mindanao and third, if overseas Filipino workers (OFWs), who are mostly the main target buyers, are no longer buying. ‘We now have a tougher market,’ he said.”

From AFP on New Zealand. “Overseas buyers will no longer be allowed to purchase existing homes in New Zealand, Prime Minister-elect Jacinda Ardern said Tuesday, as she unveiled a raft of policy deals made with her coalition partners. The move to tackle soaring property prices was agreed during lengthy negotiations between the Labour Party leader and populist powerbroker Winston Peters to form a new government that also includes the Green Party.”

“Ardern announced plans to slash immigration and focus on regional development and job creation. ‘We have agreed on banning the purchase of existing homes by foreign buyers,’ she said, specifying that the new rules only applied to non-residents. Anti-immigration campaigner Peters, whose support was crucial for Ardern to form a ruling coalition in the 120-seat parliament, said a message has been sent that New Zealand was ‘no longer for sale’. ‘There is going to be a change and a clear signal sent internationally that New Zealand is no longer for sale in the way it has been. We’re happy with that,’ Peters said.”

The Australian Financial Review. “Big banks are set to announce tougher measures to crack down on high rise apartment purchases including blacklisting more than 100 Brisbane suburbs, doubling the minimum apartment to qualify for funding, evidence of rental cash flows and tough new valuation criteria. Lenders such as Adelaide Bank are introducing ‘minimum funding requirements’ requiring apartments to have their own bathrooms, kitchens, laundries and windows in key rooms, such as bedrooms and lounge rooms.”

“Others, such as Suncorp Bank, the nation’s fifth largest mortgage lender, are circulating a confidential list of 39 Brisbane postcodes covering more than 100 city and metropolitan suburbs where the new lending restrictions will apply. ‘Our settings have been adjusted for postcodes based on recent weakness in the investment unit market in Brisbane, with evidence of a reduction in prices,’ a Suncorp Bank spokesman said.”

“Nervous lenders are turning the screws on apartment buyers amid growing concerns about over-supply, falling prices, restrictions on foreign buyers and potential risk from combustible cladding widely used on high rise apartment exteriors. For example, new apartment sales in the Queensland capital have reportedly collapsed by more than 70 per cent in a year, prompting desperate developers to offer lucrative incentives to attract buyers.”

The Economic Times on India. “Talking to ET Now, Shubham Jain , VP & Sector Head - Real Estate, ICRA , says while cumulative sales volumes have really grown by around 40 odd per cent, out of a sample of 11 companies, only four companies have shown positive growth in volumes whereas other seven have still shown a declining trend. ‘Every year there is all this talk of how we are going to see a recovery. We do not see that. There is so much unsold inventory and at the same time, the government is talking about affordable housing. We all know what is happening with the bank and real estate developers. Are you seeing any signs of a recovery?’”

“Q: ‘Earlier, we have seen that companies, different investors were very aggressive when it came to buying land. They were taking huge loans and buying land. They were bidding quite aggressively. Do you think that the way these companies, these investors were thinking has changed?’”

“A: ‘Definitely. The trend of various companies investing into land bank has significantly declined over the last two-three years and there are multiple reasons for that because already there is so much of inventory in the system that they are focussing on completing the inventory and clearing off that inventory first before buying your new land and launching further new projects. Also investors are not there in the market at all. Earlier real estate used to be a very strong option for investors. Even for salaried class, who were buying second or third homes. But now with falling rental yields and very low appreciation in the real estate prices, I do not think that any one is looking at real estate as an investment option anymore.’”

October 23, 2017

The Supply Surge Is Becoming The New Normal

A report from Bisnow on Virginia. “The Fairfax County submarkets of Reston and Tysons, both emerging areas boosted by the opening of Metro’s Silver Line, have pipelines full of new apartment construction. Several top developers at Bisnow’s Fairfax County State of the Market, worried they might be building too many rental units. JBG Smith Executive Vice President of Development Greg Trimmer said apartment rents in Reston are flat, and in some cases slightly negative, due to the amount of new multifamily construction. But he said the problem is worse in Tysons, where millions of square feet of development is underway around its four Silver Line stations. ‘In Reston we’re a little sick, but Tysons is in hospice in terms of the glut of apartments,’ Trimmer said. ‘They’ve way overbuilt.’”

“Also at the Wiehle-Reston East station, Bozzuto recently delivered Aperture, a 421-unit apartment building. Bozzuto Senior Vice President Mike Henehan said Reston is not alone in welcoming a glut of new apartment buildings, and said the supply surge is becoming the ‘new normal’ across the region. Still, he said Bozzuto has achieved annual rent increases of 1% to 1.5% across its Reston portfolio.”

“MRP Realty principal John Begert said he is optimistic about the area’s future, but does not expect to see notable rent growth in Tysons over the next three to four years, making it difficult to underwrite new apartment projects. ‘If you’re a family office or you have patient capital, in 10 to 12 years you’re going to love it,’ Begert said. ‘But to try to see legitimate rent growth soon, I think you’re kind of fooling yourself.’”

The Miami Herald in Florida. “According to a mid-2017 market study released by the Miami Downtown Development Authority (DDA), rent prices are stable, development is being balanced with demand and financial institutions have raised their requirements for loans — all indicators that the city’s downtown area is on stable long-term footing. Overall, the volume of condo sales was down 50 percent from the previous two years. According to Cranespotters.com, more than 3,600 existing condo units are currently on the market in the downtown area — a 26-month supply (six months is considered the ideal amount of inventory).”

“In other words, it’s a good time to buy. ‘Asking prices are steadying out, and with that kind of inventory on hand, now’s the time to look and find a motivated seller,’ said Chris Zoller, a Realtor at EWM Realty and 2017 chairman of the Miami Association of Realtors.”

From Greenwich Time in Connecticut. “On the surface, Greenwich’s high-end housing market seems to be staging a comeback. These favorable numbers portraying a market on the upswing surprised Jackie Hammock of Coldwell Banker’s Greenwich offices while completing her own third-quarter market report. ‘I started my analysis feeling like the market was terrible in the third quarter, yet when I looked at the overall numbers, everything was good,’ she said. ‘Based on my listings and meetings I’ve been in, it seemed like fewer people were walking around to showings and stuff; yet sales showed the average price was up for the quarter and up for year-to-date,’ Hammock said. ‘So I started digging to see what’s going on.’”

“Hammock said she found 11 homes in the third quarter that sold with ‘huge reductions,’ she said. ‘The more I got into it the more it screamed out to me. Some people were at the point that they had to dump the house.’ An extreme example includes a home on Upper Cross Road for which its owner paid $13.5 million in 2012, according to Greenwich property records, but it closed for just $7.5 million in September. Another property on Lake Avenue was originally listed for more than $10 million, according to Hammock, but it closed for several million less.”

“We did have big sales that pulled up our stats, but it’s when you look at what’s underneath that it’s not as fine,’ she said.”

“Sellers who unloaded their homes for less than they originally listed it, or maybe even bought it for, represent the trend that sellers are finally ‘more willing to meet at market price,’ said Peter Janis of Berkshire Hathaway N.E. Properties. From his experience, many of them ’say ‘It is what it is,’ and move forward because they’re looking at it as a business transaction. They take a loss and move to the next thing,’ he said.”

“While the number of Greenwich homes sold in the third quarter fell by almost 24 percent when compared to last year, an array of high-end sales helped raise the average sale price for the quarter by nearly 21 percent to $2.67 million, as reported by Jonathan Miller in a Douglas Elliman market analysis last week.”

“‘It’s very positive that the market is shedding its disconnect in perceived value at the high end versus what the market is willing to support,’ Miller said. ‘Part of the problem has been a lot of overpriced listings not moving. In all these luxury markets — Manhattan, Westchester, Fairfield, the North Shore and the Hamptons — it’s all the same scenario: all these listings are coming off the market because they were never in the market. The brokerage community continued to list these properties, so they became the perceived market. This is a significant improvement in conditions because what we’re having is an acknowledgment that those homes weren’t priced correctly.’”

The Real Deal on New York. “Manhattan investment-sales volumes continued to fall during the third quarter of the year, setting 2017’s total on course to be lower than it was in 2008 when Lehman Brothers collapsed. Commercial property sales across the borough clocked in at $4.36 billion over the past three months, a 45.4 percent decline from the same time last year, according to third-quarter figures from Cushman & Wakefield. That brings the total for the first three quarters of 2017 to $14.37 billion, or 54.6 percent below the $31.66 billion recorded during the first nine months of 2016.”

“That puts Manhattan on track in 2017 to finish below the $19.8 billion the investment sales market saw in 2008. Sales have slowed to a trickle after the market hit a peak of $59.9 billion in sales in 2015 and started to decline as buyers turned their noses up at paying record prices.”

The Union Tribune in California. “In Southern San Diego County, four sand-colored towers rise up above the natural landscape, a landmark of sorts in a sea of buildings that rarely rise above two stories. Newly built condos in the towers cost less than half of what something similar would cost a half mile away, and the amenities — 24-hour guards, gyms, Jacuzzis, tennis courts — match even the fanciest residential offerings in downtown San Diego. The catch is the condos are in Tijuana and living there means commuting and living in Mexico.”

“Condos start at $170,000 for a 950-square-foot unit and go up from there based on size and location in the building. There are 1,550-square-foot units for $280,000 and 2,000 square-foot units for $315,000. Homeowner association fees are around $200 to $250 a month, and yearly property taxes are about $200. NewCity might have been the first out the gate, but pent-up demand for new residential development in the city has led to a major condo vertical building boom. There are roughly 600 new condos expected to hit the market by the end of this year and most sell out before construction is completed.”

“Even with the ambitious building pace, it does not appear the market is anywhere near being overbuilt, said Gary London, a San Diego-based real estate consultant that also does work in Baja California. ‘There is no historical basis. They haven’t been building a lot of housing for years,’ he said. ‘(600 new condos) does not seem very high, relative to the size of the two metropolitan areas combined. The market is probably quite capable of absorbing more housing.’”

October 21, 2017

It Was Cheap Money That Took Prices Up

A weekend topic starting with Silicon Beat in California. “Housing economist Lawrence Yun got everyone’s attention Thursday — he talked about bubbles in his address to the 27th Annual Convention and Expo of the Santa Clara County Association of Realtors. His assessments were largely reassuring. Given the tight supply of existing homes and the failure of local governments to incite construction of new homes, he said, prices will probably remain up in the stratosphere. In other words, the bubble — if you want to call it that — will not burst. In any event, the upward trajectory of home prices is already hurting the region: ‘The smartest people in American are all here in San Jose,’ he said, warning that that may not always be the case. More and more, he said, tech companies ‘will flee’ the area and go to more affordable regions of the country.”

“Bottom line: Expanding companies here, and recruiting talent to move here, is going to be ever more of a problem given the cost of housing. ‘Unless you can convince the local officials’ to clear the way for the construction of large numbers of new homes, Yun warned, ‘people will think about working in other localities.’”

“Yun, however, did get into a few of the shadowy scenarios that could undermine his predictions. For one, if hiring were to take a dive in the Bay Area — if the gravy train were to stop at Facebook and Google — well, then those prices would tumble.”

The Mercury News in California. “For the second straight month, the Bay Area lost thousands of jobs in September, making it the worst month for employment locally since February 2010. The lack of affordable places for workers to live appears to have hobbled the region’s ability to fill jobs as briskly as in prior years. ‘Housing is the chain on the dog that is chasing a squirrel,’ said Christopher Thornberg, principal economist and founding partner with Beacon Economics. ‘Once that chain runs out, it yanks the dog back.’”

“The September losses, combined with 2,400 job losses reported by the EDD for August, paint an unsettling picture and lend credence to the assessment from a growing number of experts that the Bay Area’s job growth has begun to slow dramatically. ‘The slowdown is real,’ said Stephen Levy, director of the Palo Alto-based Center for Continuing Study of the California Economy. ‘There were times this year we thought that job losses here and there were just temporary. But the slowdown is a fact. It’s happening.’”

“Some are finding the current job market tough. Steve Satariano, a San Jose resident and experienced worker in the information technology sector, said it appears tech employers frequently inquire about an applicant, but the interest doesn’t always lead to a job interview and almost never results in a full-time job with benefits. Now, his jobs consist of contract work and temporary projects. ‘Things were a lot better in the tech industry a few years ago,’ Satariano said, ‘and a lot of the job offers are for work in Sacramento or Los Angeles, but I don’t want to relocate. I’ve lived my whole life here in the South Bay.’”

‘The vicious housing market has made it tough to find decent living circumstances, he said. Satariano is sharing housing with roommates. ‘Growing up in Silicon Valley, I never pictured this for myself,’ Satariano said. ‘I always thought that if I went into the tech industry, I could create a prosperous future for myself. But who wants to commute six hours a day? You should be able to afford a place to live near where you have to work.’”

From Seattle Magazine in Washington. “As a branch manager for Caliber Home Loans, Trevor Bennett, who ranks in the top 1% of mortgage originators in the US, says success in Seattle requires products that cater to the local real estate microclimate. ‘Not all mortgages are created equal, so a nationalized policy will overlook opportunities in the local market. As a non-bank, portfolio lender, we underwrite our own loans and are able to serve a wider range of needs.’”

“Bennett points to several innovative approaches to serving the Seattle-area borrower which are unique to Caliber Home Loans. Underwriting with Restricted Stock Unit (RSU) Income: ‘Stock rewards paid by employers like Microsoft and Amazon have had a major impact of the income and wealth in our city and is a significant factor in our housing market. Caliber Home Loans have re-written the rules for how we underwrite loans in order to account for RSU income for loan qualification in these markets.’”

“So, if it’s quicker and easier to qualify for a mortgage today, and the local housing market is rising faster than any other city in the US – does this mean we’re headed back to a bubble like we had a decade ago?”

“Market pundits don’t think so. Seattle Times reporter Mike Rosenberg admits he is most frequently asked about the stability of the market in Seattle, and says the 13-percent growth rate we’ve seen in the last year has ‘to moderate at some point,’ but that it’s key to recognize that the factors present during the recession simply don’t exist in Seattle: ‘people are paying mortgages on time’ and ‘putting down big down payments,’ not to mention the impact the ever-growing tech industry is having on the region’s economy. ‘Amazon alone is enough to make the city’s economy among the strongest in the country,’ he added.”

From the St Catherines Standard in Canada. “Government initiatives to cool the housing market are starting to have an impact, but Niagara Association of Realtors president Randy Mulder fears any more interference will go too far. ‘A slowdown in Toronto has a residual effect in Niagara, for sure,’ Mulder said.”

“It’s reflected in real estate sales published for September, when house sales dropped across Niagara by nearly 36 per cent compared to a year earlier. He said both the federal and provincial governments have introduced initiatives to reduce escalating housing prices, including a new federal government plan announced earlier this week to add ‘a stress test to’ new mortgage applications.”

“Realtors across the country are concerned that the federal government might extend that same stress test to people who have down payments of 20 per cent or more. ‘That will have an even more adverse effect on the strength of the market,’ Mulder said.”

“The government, he added, needs to give the initiatives already in place the opportunity to have their intended effect before adding new ones. ‘Let’s let them have the effect and see if they’re doing what you hoped they would do before we throw another layer of baggage on it,’ he said. As an alternative, Mulder suggested increasing the number of houses being built to also drive up housing inventory as an alternative way of reducing the costs of housing.”

“‘Supply and demand is the key to the market,’ he said. ‘We need more supply, that’s all there is to it. Across Niagara, we need more supply.’ It seems as though upper-tier governments ‘don’t want to have a slowdown, they want to kill the market.’”

“Despite significant increases in real estate prices during the past few years, Mulder said there’s still “a bit of a shock from people who come from the GTA and say, ‘Really, I can get that big house for $450,000 or $500,000?’”

From CBC News in Canada. “New guidelines were introduced for mortgage lenders this week, and among the rules, a stress test for uninsured borrowers was introduced. David Gray of the Calgary Eyeopener spoke to Garth Turner, a former Conservative MP who writes about finance and real estate on the blog greaterfool.ca. Q: Now there’s a stress test. What’s this all about?”

“A: It’s pretty simple. What the regulator is trying to do is protect the banks, not really do anything for real estate buyers. The trouble really emerged last year when they brought in a stress test for first-time buyers to make sure they could afford higher interest rates. Well it was a pretty serious stress test — and a lot of people didn’t want to take it. So instead of getting insured mortgages, which meant they had to have the test, they found a 20 per cent deposit [downpayment], which meant they could avoid it.”

“A lot of people got the deposits from the Bank of Mom, or a sub prime lender — so it didn’t really mean they had the financial means. So they got around the test! All of a sudden, the banks realized, oh my god, we’ve got all these mortgage borrowers now who aren’t that great financial risks, and we don’t have their mortgages insured.”

“Q: What did they do? A: The bank regulator took action, in saying, you know what? The way around this is, everybody is going to have to take this [financial stress] test. And David, it’s a pretty serious one. It means mortgages are basically going to five per cent, effective January 1, and never going below that. The irony is we’re going from 2 per cent mortgages last April to five per cent in January, and we’ve never seen an increase like that. Ever. So it’s going to have an impact.”

“Q: What’s the downside? A: The trouble on the buyer’s side is that it’s going to mean less credit, because when people have to qualify at a much higher rate, well, people now don’t qualify for as much borrowing. So it’s estimated a family with 20 per cent to put down, that [once] might have been able to buy a home for $725,000, now will only be qualified to buy one at $570,000 — so that’s a serious, serious drop.”

“Now the laws of supply and demand being what they are, if that’s where people qualify, then the price of homes is probably going to drift down to that new level. After all, it was cheap money that took those prices up. So when money gets more expensive, prices come down.”

“Q: The message to them [uninsured homebuyers] is your money’s not good enough for us? From the banks? Is that really what they’re saying? A: Sort of. We care more about your ability to carry this home, not the fact that you plunked a bunch of money down. It really doesn’t matter how big a downpayment anyone has now. It’s all about the ability to carry.”

October 20, 2017

Shackled Purchasers Are Second-Guessing Their Rabid Decisions

It’s Friday desk clearing time for this blogger. “Sergio Pino is going ’super micro’ at Midtown Doral. In a bid to attract local buyers, the Miami developer is including smaller units in phase two of his mixed-use Doral development. At Midtown Doral, more than 90 percent of buyers so far have been Venezuelan. Now, due to political and economic instability, the developer is modifying his plans. In addition to no longer buying new units, Venezuelans are also having trouble closing the units that they bought. ‘That market is dead,’ Pino said.”

“Dalian Wanda Group Co. plans to proceed with a $1.2 billion luxury condominium and hotel complex in Beverly Hills, California, after its development partner, Athens Group, said it exited the project early. Questions about investments by Beijing-based Wanda have arisen as China has cracked down on overseas acquisitions. The company, which was among the most aggressive buyers of foreign assets until recently, has sold real estate and entertainment assets in China amid government concerns about excess debt.”

“Houses and condos for sale in the District sold quickly in September, but the number of sales fell sharply, and prices also retreated from levels from a year ago. Monthly data from Long & Foster Real Estate Inc. shows overall closed sales in the District were down 16 percent from September 2016. The median price of what sold was $504,000, down 6 percent from a year ago. ‘Buyers today, of whom millennials make up the largest generational group, lack the appetite for home remodeling that previous generations showed,’ Long & Foster said. ‘Even at a discount, a fixer upper will likely take longer to sell.’”

“It hasn’t escaped San Angelo residents’ attention that the city’s housing market has been ailing the past couple of years. They just might not have known how weak it was. During the boom earlier this decade, the price of housing climbed precipitously in the area, but since the industry’s downturn San Angelo has experienced job losses and little growth in income, said Ben Ayers, a senior economist for Nationwide. Several other Texas cities with a significant number of jobs wrapped up in the oil and gas industry also ranked in the bottom 10 MSAs for housing health: Dallas, Fort Worth, Waco and Victoria.”

“San Angelo Association of Realtors President Tom Maurer said right before the boom took off, there were over 500 houses for sale in the area each month. That is ideal for a market, he said, because it gives buyers plenty of choices. Quickly, that number fell to 100-150 houses for sale. Sellers ‘could name their prices and people would buy them because they needed them,’ he said. Sometimes that meant houses sold for more than asking price. The number of houses on the market is back up to about 413, and they are staying on the market for an average of 70 days. He said he now considers it a ‘buyer’s market.’”

“The owner of the burnt-out building on Culvert Street has submitted plans to demolish the building, hopefully by the end of the month, a Glens Falls city official said. Owner Mike Stevens said previously he plans to build six two-bedroom townhouses at the property, which he bought in February for $1. Heather Whalen, who is listed as one of the property’s owners, appeared before the council to say she was fine with the building being razed. ‘It’s been in foreclosure for seven years. Demolish it. I want nothing with it,’ she said.”

“Dear Urban Diplomat: We recently sold our 100-year-old house for nearly triple what we paid eight years ago. The buyers visited twice and waived the home inspection, but two weeks after closing, they complained about ‘major issues,’ including a dirty oven and washing machine. They sent us an invoice for some cleaning work, saying we should be able to pay up given we got such a windfall from the sale. Should we tell them to get lost? —Sell It Like It Is, Upper Beaches.”

“A: What you have here is the world’s pettiest case of buyers’ remorse. It’s not surprising that, in such an overheated market, mortgage-shackled purchasers are second-guessing their rabid real estate decisions. Lucky for you, their ‘major issues’ are not your problem: unless the sale contract explicitly ­stipulated that every inch of the place had to be squeaky clean when they moved in, you have no legal obligation to cover this kind of work. Feel free to tell them—in language either polite or profane, depending on your disposition—that you won’t be honouring their ­unsolicited invoices.”

“At least once a week, Geoff Barnett from Century 21 real estate hears the same story. A home-buyer with pre-approved finance and an accepted bid fails to secure the house because their bank won’t sign off on the money. Mr Barnett reckons there’s a pretty simple explanation: amid stagnating or even falling prices in part of Auckland, banks are tightening up their lending.”

“‘Somebody that’s got a $120,000 deposit gets pre-approved for a $500,000 mortage; they go out and find a property to buy around the $600,000 mark; they go back to their lender, who’s pre-approved them, and then they get turned down. They get told, ‘well, actually we don’t value it to where you do. We think that we’ll loan you $480,000′.”

“Some Australian home owners looking to refinance their mortgage to reduce debt have discovered they are ’stuck’ with their current loan due to stricter rules enforced by the banking regulator. Tic:Toc Homeloans chief executive Anthony Baum said there was a ‘reasonable chunk’ of borrowers not meeting new serviceability standards when they apply to refinance their mortgage. The one-year-old fintech, which offers online loan approval for its customers in 22 minutes and provides finance through second-tier partner Bendigo and Adelaide Bank, write 55 per cent of its business in refinanced mortgages.”

“‘We see a lot of customers that don’t understand why they don’t pass serviceability tests when things are unchanged from when they were granted the loan previously,’ Mr Baum said. Either they weren’t assessed properly in the first place or serviceability-related macro measures have meant they are not able to benefit from competition in the marketplace. They’re disadvantaged customers.’”

“Cooling in Sydney’s housing market has sparked desperate discounts across the city with some frustrated homeowners knocking as much as $550,000 off their asking prices in a bid to get the properties sold. In the southern suburbs, across to the inner west and Western Sydney and even in the exclusive Harbour-side enclaves of the east, owner expectations are tumbling. Panic purchasing is at last grinding to a halt which means vendors are being forced to dial down expectations.”

“The deepest cuts are being felt in up-market areas where optimism has been pushed to unrealistic levels by the unprecedented boom in prices that occurred over 2013 to 2016. Listings data revealed the biggest bargains to be had are in Vaucluse where on average, prices are being slashed by 27 per cent. Real Estate Institute of NSW president John Cunningham said optimistic vendors had simply failed to read the changes in the market. ‘There’s no more boom but some agents are telling sellers they can still expect boom prices so they’re waiting for miraculous buyers to appear and pay premium prices when they aren’t there anymore,’ Mr Cunningham said.”

“House prices are lower in real terms than they were in 2007 in more than half of England and Wales, according to analysis for BBC News. Those who wish to sell can find themselves with a home worth less than they paid for it, particularly in northern England. Lee Percival paid £112,995 for his home on a newly built estate in 2007. The estate has never been finished due to the financial crash and his home has dropped in value by about £30,000. ‘I regret buying it at the time we did, my wife loves it here, but I just feel - well we have made a loss haven’t we? Yes, I feel trapped.’”

“In parts of Bradford values have crashed by up to 50% in real terms and one of those who have found themselves with a house worth less than it cost is Isaac Stott. The charity worker bought his home in 2007 and paid £86,500 for it. ‘Everything was going really well it looked like a good investment but within nine months the property value dropped to around £35 to 40,000.’ He said the market has improved but his three-bedroom home is on the market for £76,500 - £10,000 less than he paid. ‘It is frustrating to see how much it has dropped and how much it is worth.’”

“For Neil Potter it is a different problem. He rents a three-bedroom house in Halberton in Devon because he says it is still far too expensive for him to buy. Values have fallen in Halberton, by more than 40% in a decade, the largest drop in the South West; but that brings little comfort for Mr Potter. ‘We’ve been here 12 months - we rented in Tiverton before. That was a four-bed and to buy that, it was about £260,000. The three-bed we’re renting in Halberton is worth around £330,000 - silly money.’”

October 19, 2017

Growing Inventory And Declining Prices

A report from the Credit Union Journal. “With the housing crisis and the recession firmly in the rear-view mirror, more and more credit unions are looking for ways to help consumers qualify for home loans — even if that means accepting a significantly lower down payment than might ordinarily be required. One example is Orange County’s Credit Union, a $1.5 billion institution based in Santa Ana, Calif., which has unveiled two new products designed to help consumers purchase a new home in a very tough housing market. The products — a conventional loan with zero down payment and a loan with 3 percent down — allow borrowers to qualify for a home for basically little or no down payment. ‘While members wait to save for these large down payments, the price of homes continues to rise,’ said Carlos Miramontez, vice president of mortgage lending at OCCU. ‘We refer to this as the ‘cost of waiting.’”

“The zero-down and 3 percent down home loans help eliminate this barrier, he added. Moreover, the 3 percent down mortgage can be used for a loan amount up to $850,000. On the other side of the country, the biggest credit union of them all, the $82 billion Navy Federal Credit Union of Vienna, Va., has offered a similar product at Orange County’s Credit Union.”

“Kevin Parker, assistant vice president of field mortgage at Navy FCU, noted that VA loans have provided veterans and active duty members with a ‘zero-down’ mortgage option for many years. Navy Federal itself has also offered a ‘HomeBuyer’s Choice’ mortgage product with zero down and has even offered ‘jumbo mortgages’ with a zero-down option for at least a decade.”

From Fox 17 in Tennessee. “Real estate experts called Nashville’s housing market pace unprecedented, after data shows mid-state homes are selling nearly 50 percent faster than last year. Managing broker/owner Debra Beagle said competition is stiff at all price points with low inventory. Many millennials are keeping up with parents putting down their refinanced homes. ‘Pulling equity from their homes and giving their kids cash to even be competitive in the multiple offer situations,’ Beagle said.”

From Bloomberg on Connecticut. “Luxury-home listings in the Connecticut town plunged 31 percent from a year earlier, according to a report by appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. That’s largely because sellers who failed to get their hoped-for price quit trying to find buyers and took their properties off the market to wait for a better day.”

“‘When there’s too much to choose from it takes off the intensity of the buying process,’ said Scott Durkin, chief operating officer of Douglas Elliman. ‘It doesn’t give you any sense of urgency and it doesn’t get you off the fence.’”

From Free Malaysia Today. “A property named by the United States Department of Justice (DoJ) in its civil forfeiture suit last year to seize assets purchased with funds allegedly embezzled from 1MDB, is now up for sale, the Wall Street Journal reported. A luxury penthouse in New York City, which was sold for a record price of US$51 million (RM215 million) in 2014, is about to be listed again but with a much lower price of US$45 million, the report said, citing people with knowledge on the plans.”

“Quoting an employee with the company listing the property, the WSJ reported that the unit is now priced to move. The owner had reportedly tried to sell the unit for US$70 million in 2015, and had even dropped the price to US$55 million at a later date, before the US DoJ civil suits in July 2016. ‘It’s a pedigree apartment, one of the best in the city, but the market is arguably a bit weaker on the luxury end,’ the employee said, adding that he did not know why the owner wants to sell.”

From The Real Deal on Florida. “Greater Downtown Miami’s preconstruction condo market has surpassed the halfway point, with over half of the more than 10,000 units in the pipeline now completed. And due to the growing inventory of new condos, resale pricing continues to fall in the urban core, according to a new report. Resale prices, which rose in 2012, 2013, 2014 and 2015, fell beginning in 2016 and continued dropping through the second quarter of this year. Existing inventory sold for about $400 per square foot mid-year 2017, compared to the peak of $457 per square foot in 2015, according to the report.”

“The Downtown Development Authority’s Mid-Year Residential Real Estate Market Study shows 5,180 units have been delivered since 2012 and 5,078 units are under construction. May was the best month for closed sales in two years as sellers adjusted to the market. More than 140 existing units sold in May and 160 were pending, the report shows. Growing inventory and declining prices have led rents to drop, as well.”

From the Kenbridge Victoria Dispatch. “Lunenburg Realtor Sidney Smyth Sr. said it’s still a buyers market. ‘Stuff is selling, but it’s gotta be priced right,’ Smyth said. ‘Price is still everything. If you price it right, you can get some activity, if it’s not priced right it just sits there, which is indicative of all the real estate signs that are starting to rust in the county.’”

From Chicago Magazine in Illinois. “Twenty years ago, Hinsdale was the poster child for the teardown trend, garnering national attention as monstrous McMansions stomped out sweet 19th-century homes by the dozens. More than half of the housing stock in Hinsdale has been replaced since the late ’90s, estimates Jean Follett, a historic preservation consultant and former Hinsdale trustee. Residents who lamented the lost charm, though, are having the last laugh. The housing market in the tony western suburb is stagnating. One theory: Some of those now-dated homes aren’t budging.”

“It’s a rough combo if you’re trying to unload a house, says real estate broker Alex Haried, who lives in Hinsdale. Because the prices are high, he explains, developers and flippers can’t come in and make updates —the way they do in nearby Western Springs and Elmhurst—which would make a house sell quickly. The ennui in the market shows in sale prices: While the median list price in September was $1.14 million, the average sale was a precipitously lower $750,000 (which leaves room in high-roller budgets for new quartz countertops).”

The Record Searchlight in California. “What some say are the last remnants of the decade’s-long foreclosure mess is still funneling through the local housing market. While foreclosure activity is a whisper of what it was at the peak of the crisis six years ago, a national database reported Wednesday that Shasta County had the third-highest foreclosure rate in California in the third quarter of 2017.”

“One in every 439 homes was in some stage of foreclosure, ATTOM Data Solutions, formerly Realty Trac, said. Only Kern County (1 in every 334 homes) and Riverside County (1 in every 431) had higher foreclosure rates in the third quarter, which covers July through September.”

“‘When people are wondering why are foreclosures still taking place, they have to understand this is one of the last bad loan products now cycling through the market,’ said Josh Barker of ReMax Town & Country in Redding. ‘The majority of these loans are interest-only that are now resetting . . . and people can’t afford the higher payment.’”

“And unlike many other areas of California, home values in Shasta County have not rebounded from their bubble peak, so these underwater families can’t afford to sell.”

From Bridge Michigan. “Sifting through a stack of letters on her kitchen table from a reverse mortgage company, Linda Pryczynski recalled how the nightmare began. In 2007, her husband Warren took out a reverse mortgage on their modest duplex to pay off the remainder of an old debt of $100,000, a loan for a truck and for household expenses. ‘My husband saw it on one of those TV commercials that’s on all the time,’ the Muskegon resident said. ‘He thought it would be a good idea.’”

“Her husband died in 2016 at age 94, leaving behind tax and mortgage debt Pryczynski said she couldn’t possibly pay off. Facing foreclosure, Pryczynski filed for bankruptcy earlier this year and fears the prospect she could lose her home. That’s because she was not named in the reverse mortgage – a home loan available, and marketed to, older Americans – leaving her no protection at the time of his death.”

“Karen Tjapkes, her attorney, said the original loan on their duplex has ballooned with interest and other fees, from $148,000 to $216,000. Pryczynski also owes roughly $11,000 in back taxes, much of which were paid by the lender. ‘I can’t possibly pay $216,000,’ Pryczynski said. ‘I supposed I could move to my daughter’s place in West Virginia. But that’s not my home. This is my home. It would tear me apart if I had to leave.’”

“She’s hardly alone. Advocates for Michigan seniors like Pryczynski say that reverse mortgage foreclosures are on the rise – even as traditional mortgage foreclosures are falling – reflecting a disturbing national trend. ‘I’ve been seeing a surge in these cases,’ said Joe McGuire, a lawyer for Michigan Legal Services, a Detroit-based nonprofit that fights to keep seniors threatened by foreclosure in their homes. ‘A lot of times seniors don’t understand what they are getting into.’”

“Federal analysis shows these foreclosures are on the rise. The U.S. Department of Housing and Urban Development – which insures reverse mortgages through the Federal Housing Administration – says nearly 90,000 reverse mortgages in the U.S. were at least 12 months behind in paying taxes and insurance last year and could be expected to result in ‘involuntary termination.’ That is twice the number of the previous year.”

“According to the report, nearly 1-in-5 reverse mortgage loans taken out in the U.S. from 2009 to June 2016 are expected to go into default because of unpaid taxes or insurance.”

October 18, 2017

Even These Darlings Have Recorded A Drop In Prices

A report from the Financial Post in Canada. “Renters will tell you they can’t afford the escalating prices to lease out a unit in the Greater Toronto Area’s ridiculously tight condominium apartment market. Yet, as the average rental rate in the city for a 734-square-foot condo increased to $2.99 per square foot or $2,219 in the third quarter of 2017 (an increase of $232 during the past 12 months) those units being bought by investors are actually producing no income and costing landlords money. ‘Investors don’t typically buy a completed unit, they buy new construction,’ said Shaun Hildebrand, senior vice-president with Urbanation Inc, noting the units being leased out today were bought at much lower prices four years ago. ‘That’s the only reason they are cash flow positive or cash flow neutral. To buy a condo today at today’s average price and rent it out you are cash flow negative. Some people are doing that betting on appreciation.’”

“‘My concern is not so much the units being rented out now as the ones being bought now that will have to be rented out later,’ said Hildebrand. ‘They are being sold in pre-construction for prices 30 or 40 per cent more than a year ago. What happens when rents don’t cover their investment today?’”

From Radio New Zealand. “The latest Massey University Home Affordability Report shows housing affordability has slightly improved nationwide, largely driven by falling prices in Northland, Wellington and Central Otago Lakes. In Northland median house prices dropped $30,000, in Wellington by $28,000, and Central Otago Lakes by $35,000. ‘We’ve seen some significant falls in house prices in some regions this quarter, so it will be interesting to see if this spreads to other regions in the coming quarter,’ said Associate Professor Graham Squires from the School of Economics and Finance.”

From Domain News in Australia. “Sydney hasn’t been the only city to experience falling property prices in the past few months – nine regional towns in New South Wales also saw a pull back over the September quarter. As investors and young buyers have been priced out of the harbour city, they’ve increasingly headed to Wollongong and Newcastle – the nearest regional hubs. And prices have soared. But now even these real estate darlings have recorded a drop in prices, Domain Group’s State of the Market report found.”

“And in Newcastle the selling environment was much the same, with less competition in recent months, Newcastle Buyer’s Agent principal Tiron Manning said. ‘I’m seeing more property price reductions, and more emails every day about price reductions, especially at the higher end of the market from about $800,000 to $1 million. I’m getting feedback from agents that buyers at that price point are more guarded, they’re not as ready to pounce.’”

From The Australian. “More than 100 apartments in a high-profile inner-city Brisbane development are yet to settle amid warnings it is ‘crunch time’ for ­developers in the Queensland capital. Some 20 per cent of the first tower of property developer Gurner’s 520-unit FV development are yet to settle, although the company maintains sales-to-date have allowed the $180 million in debt linked the project to be repaid in full. The planned $600m twin tower development in the Brisbane apartment hotspot of Fortitude Valley is being closely watched as an indication of health for the local market, considered by many — including the Reserve Bank — to be oversupplied.”

“Sunland Group executive chairman, Soheil Abedian, said four foreign buyers recently failed to settle their apartment purchases in the 150-unit Abian complex, arguably one of Brisbane’s most luxurious apartment towers. All local buyers settled, but three offshore Chinese buyers and one Pacific Island buyer did not. Mr Abedian said he resold the four apartments at a premium to the initial purchase price of 10 per cent or more. ‘What we are seeing is the Chinese coming from overseas are having difficulty because of the restriction of transfer of funds by the Chinese government,’ Mr Abedian told The Australian.”

“Ferrier Hodgson Queensland property director Campbell Gordon said the weeks leading up to Christmas would be the potential settlement crunch for developers, which could add to their lending costs. ‘That’s where the big exposure is,’ he said. ‘That’s when there is more collateral damage — that’s when a lender steps in. If there is any pain it will be somewhat short and sharp. Leading up to Christmas certainly will be crunch time.’”

From The National on Dubai. “Residential property transactions in Dubai are rising, but the price trajectory remains unclear as developers selling off-plan units drive down prices in the affordable housing sector and create a stock of low-quality residential units in the emirate, brokers said. Core Savills cautioned that the quality of off-plan products will not meet the demands of the end-users.”

“‘Although we anticipate the number of proposed units and actual hand-overs to vary notably, we expect developers to continue building in the run up to 2020 creating a significant surplus in the lower end of the market that does not adequately address the needs of target end-users,’ said Core Savills. ‘Despite stronger regulations being in place, we continue to view increasing off-plan activity with caution, particularly given its detrimental effect on ready sales that fuels further systemic market risk.’”

From Bloomberg on the UK. “Home price declines for the most expensive homes are rippling out to the rest of the city as tax increases for landlords, fears about the economy after the Brexit vote and high values damp demand. Home values fell 2.7 percent in the year through September, the most since 2009, according to Acadata and LSL Property Services. The top end of the market has been falling further for longer — values are down 15 percent from the peak in September 2014, according to data compiled by Savills Plc.”

“Buyers seeking mortgages for home purchases in some parts of London are being told by valuers that properties are worth less than they’ve offered, according to Ray Boulger, senior mortgage technical manager at mortgage broker John Charcol. That leaves them with the option of dropping the sale, using more cash or bargaining for a lower price, he said.”

“It’s not just sales that are falling. Rents fell 1 percent in Greater London in September from August, according to rental index HomeLet. The cost of leasing a home in the best districts is down 3 percent in the past year, according to broker Knight Frank. The rental ‘market is continuing on a downward trajectory,’ Mark Wilson, the founder of broker Global Apartments, said. ‘We will know when it hits the floor, or that there is an equilibrium, when the phones start ringing like they used to. Landlords continue to be fantasists.’”

“‘We are approaching a tipping point,’ Lawrence Bowles, a residential research analyst at broker Savills Plc said. ‘We have seen transactions in London fall, particularly for home movers since the great financial crisis. Eventually you get to a point where people are fed up waiting and accept a price cut to get a sale.’”