October 2, 2017

The Investment Thesis Has Been Diminishing Fast

A report from the Times-News in North Carolina. “The Alamance County residential real estate market is more than just red hot. The average asking price of a single-family home in Alamance County has soared in the past year. From September 2015 to September 2016, the average active asking price was $174,351. From September 2016 to September 2017, the asking price stands at $229,127, an increase of 30 percent. For sales that closed, the average asking price was $167,804 from September 2015 to September 2016, while the actual average sales price was $161,196. Those numbers have risen to $182,310 and $177,983, respectively, from September 2016 to September 2017. ‘It’s on fire, actually,’ said Donna Parker, president of the Burlington-Alamance Association of Realtors.”

“Low inventory and high demand often result in bidding wars. ‘Several homes that I’ve shown recently have had multiple agents showing buyers the same property at the same time,’ said broker Sandy Ellington-Graves of Allen Tate Realtors. ‘I constantly find myself reminding buyers of the old saying, ‘You snooze, you lose!’”

The Topeka Capital-Journal in Ohio. “Are you a fan of one of the television shows featuring house flips? Maybe you’ve heard or seen the infomercials touting a path to wealth through buying cheap real estate, fixing it up and selling it for big profits. House flipping is a hot trend right now. ‘The attraction to flipping houses is the possible $10,000 or more you can get in the turnaround,’ said rookie house flipper Carrie Thompson. ‘It’s risky, because you don’t know how long it will take to redo the house and sell it. The project I’m working on now, I thought it would take three or four months, but now I’m five months into it and not finished yet.’”

The Colorado Real Estate Journal. “I first started talking to New York City-based developer Mike Ursini last March about his plans to build the tallest building in Colorado. Our agreement was that by sitting on his blockbuster $400 million development at 650 17th St., he would give the story to me first. Six months later, it didn’t work out that way, as word leaked out and the proposed iconic tower made headlines and fueled speculation whether it would ever get off the ground.”

“He had nothing good to say about the media coverage to date. ‘The blood-sucking media was irresponsible in its reporting, didn’t do its due diligence and got things wrong. I want to clear the record by saying that while we have met and worked with (the city), we never filed a formal application. The media confused us with another project that is upside-down,’ he said.”

“Although last week’s press release said the tower would have luxury condo units, he is studying whether apartment units would make more sense. He also is analyzing whether it will include a hotel, given how many hotel rooms have recently flooded the market.”

“Another prominent developer, who talked to me on the condition that I did not use his name, was more skeptical. ‘I see this in the category of I will believe it when I see it,’ the developer said, adding that he thinks that would be the consensus of most developers with track records in Denver. ‘But what worries me, even more, is that I see this symbolic of the end of this boom cycle,’ he added. ‘I’m very dubious that we will see a big project like this built this late in the cycle.’”

The Houston Chronicle in Texas. “Homeowners and real estate agents throughout Montgomery County and across Texas had been enjoying a long run of hot home sales and climbing real estate values — until Hurricane Harvey hit in late August. Although the local housing market was showing signs of losing some of its steam during the summer, Harvey’s arrival and its torrential rains poured cold water on the real estate market, hitting it with what the Houston Association of Realtors terms a ‘heavy blow.’”

“Numbers from the Houston Association of Realtors show sales of single-family home sales plunged 25.4 percent in August compared with August 2016. The late summer swoon was the first year-over-year monthly decline in almost a year, hitting all segments of the housing market. ‘Home sales were humming throughout the first three weeks of August, but the moment Harvey struck the region, everything came to a screeching halt,’ said HAR Chairwoman Cindy Hamann.”

From The Real Deal on Florida. “Developers have sold nearly 800 units or 57 percent of the inventory of new development condos in Fort Lauderdale so far this cycle, according to RelatedISG’s Fall 2017 Miami Report | Fort Lauderdale Edition. The company surveys the sales centers and sales teams of each project in east Fort Lauderdale. Of 1,410 units in Fort Lauderdale, 611 remain on the market. The inventory has nearly doubled since ISG released its last report a year ago.”

“Fort Lauderdale is faring slightly better than Miami, according to ISG principal Craig Studnicky. Projects that are under construction, like Jade Signature, Muse Residences and Residences by Armani/Casa in Sunny Isles Beach, are discounting their remaining inventory, he said. In Sunny Isles, developers have sold 1,720 units in the Sunny Isles market since the beginning of the cycle. Discounts range from 10 percent to a whopping 30 percent to attract Latin Americans who have stayed away from South Florida because of the dollar’s strength.”

From Bloomberg on New York. “Manhattan condo buyers who rent out their apartments are getting little more yield than they would with government debt. Newly purchased condos that were listed for lease in the second quarter brought their owners a median return of 2.5 percent, according to StreetEasy. It’s been stuck at that level since the end of last year, the lowest in data going back to 2010. The median yield on relatively risk-free 10-year Treasury notes was 2.25 percent in the second quarter. ‘This is the lowest point we’ve seen in history,’ Grant Long, a senior economist at StreetEasy, said in an interview. ‘It’s a steady downward trend.’”

“The investment thesis had promise in 2011, when rental yields peaked at 3.9 percent in the third quarter. But as developers added ever-pricier units to the skyline and the supply of rentals swelled, income prospects for those who buy and lease out condos have been diminishing fast. In 2011, the median purchase price of condo units that became rentals during the third quarter was $899,000, StreetEasy said. In the second quarter of this year, investors who bought condos to lease out paid almost double that amount — a median of $1.7 million.”

“‘With a glut of supply at the top of the market, the outlook for price appreciation on a Manhattan luxury condo these days is dim, particularly for investors interested in a quick profit,’ Long said.”

A press release from California. “The CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) last week issued the following statement in response to Republican leaders’ tax reform plan: ‘The tax reform proposed by the Republican leadership will eliminate the incentive for people to buy homes, shrink the middle class, and raise taxes on hundreds of thousands of California homeowners,’ said C.A.R. President Geoff McIntosh. ‘The doubling of the standard deduction, coupled with the elimination of state and local tax deductions, such as property taxes, will adversely impact California and its housing market. The average California homebuyer could end up paying $3,000 more a year in taxes under today’s proposal.’”

“‘Homeownership has and continues to be the best way for families to grow wealth and increase the middle class. Congress should look at ways to incentivize and increase homeownership rates, not increase taxes on families wanting to buy a home.’”