December 30, 2017

Housing Bubble Predictions For 2018

What’s your housing bubble prediction for 2018? From ten years ago. “I predict that 2008 is when the housing bubble outside the US starts to deflate. This includes Canada, Mexico, UK, Spain, and others. The rest of the world is still in ‘it’s different here’ denial, but in the end, economic principals suggest that while everywhere is ‘different,’ nowhere is really that different when it comes to over-valued and over-build housing markets. This will cause the world-wide credit crunch to be more severe, as borrowers in other parts of the world start defaulting like their US cousins.”

From five years ago. “Due to the detrimental economic impact of an omnipresent and increasing shortage of cash, the Fed will feel compelled to alleviate the problem through invoking QE3. The stock market will rally as a consequence.”

From one year ago. “Predictions for 2017:

1-Someone comes along and finally recognizes that successful Communist/Marxists are Capitalists.
2- We raise interest rates three times and the Market cracks.
3- Nike starts a line of rubber boots that become a fashion item in coastal areas.
4- Real estate muddles along until the fourth quarter of 2017.
5- Miami announces another wave of condo construction funded by the laundering of money which is now acceptable in municipal Miami political circles.
6- I am appointed in Trump’s administration to the newly formed cabinet post, Secretary of Asphalt, fulfilling a personal life-long dream.
7- Oklahoma appoints a legislative team to study how they can market earthquakes.
8- Water rights become a jurisdiction issue for fifty States.
9- Goldman Sachs announces that it knew nothing about anything that people claimed Goldman Sachs knew about.
10- “Over-capacity” comes back into the lexicon of speech.
11- Bed, Bath and Beyond announce store closings arising from AMZ encroachments.
12- Greece announces that it’s still here and it requests to be put back into the weekly news on Wednesdays.
13 - A spelling team at the Federal reserve publishes a paper explaining why the “n” in Wednesday comes after the letter “d”.
14- Janet Yellin explains “backwardation” and “contango” at a Senate hearing and three distinguished Senators fall asleep during her testimony.
15- CALPERS announce that their projected ROI for their pensions will no longer be published until new studies are completed in the fourth quarter of 2020.
16- The rent for coastal apartments rise 7-10%.

A healthy New Year to one and All !!!”

December 29, 2017

Fear Of A Correction Is On The Minds Of Speculators

It’s Friday desk clearing time for this blogger. “The U.S. housing market is buzzing, pushed by a slim supply of homes for sale. And few metros have had the frantic energy of Portland. But the latter half of 2017 brought an unexpectedly cooler market than 2016. Now, bidding wars are no longer the rule. And sellers who have tracked the years-long upswing might now be overreaching. Brokers are reporting more listings that have had to drop prices after failing to attract a buyer. ‘Because houses have been just selling without much effort at all, and at crazy prices, there have been homes that have had to correct,’ said Kimberly Ainge Payne, a broker with Windermere Realty Trust.”

“Rick Kane, president of Westhills Ltd. Realtors in Fishersville, said he is optimistic about the new year. Unfortunately, Kane said, higher home prices means fewer sales. ‘Over $300,000, the sales are not where you would like them to be,’ said Kane, who added that once you exceed $500,000, sales in the Waynesboro, Augusta County and Staunton area are nearly non-existent.”

“Inventory levels for some markets in Atlanta are near two months. That is an all-time low. Most of the metro Atlanta area’s houses are priced below $400,000 so you can see why inventory in that market is at historic lows. But if you go over that price-point in most markets, the inventories are actually getting too high. Where buyers are fighting with each other for houses under $400,000 in most markets, they have the pick of the litter in housing priced higher than $500,000 in most markets.”

“The past year in the greater East Side Los Angeles market saw steady price appreciation. Prices today are about 20% higher than the 2007 peak and more than double what they were at the bottom of the Great Recession (2009-2012). The over $1 million market continued to cool locally in 2017. Only the most attractive and compellingly priced luxury properties sold in this more-discretionary market segment. Local real estate investment by ‘flippers’ has been on the wane for more than a year. I suspect fear of a correction—there will be one upcoming to be sure—and the cooling of the high-end market are on the minds of speculators.”

“The median Manhattan apartment price of $1.08 million in the fourth quarter fell 9.8% compared with the record it hit in the second quarter of 2017, according to an analysis of city property records by The Wall Street Journal. Brokers and analysts attributed the slide to an oversupply of expensive apartments in Manhattan, and uncertainty over a major overhaul of the tax code.”

“Foreign home buyers spent an average of almost 50 per cent more per real estate transaction in the Toronto region than Canadians in recent months, according to previously unreleased government data. The data, obtained by The Globe and Mail through a Freedom of Information request, bolster concerns that international investors drive up housing prices. Many housing analysts argue foreign investors, especially from China, have been a major factor in price escalation. ‘This is the dominant dynamic at play,’ said Josh Gordon, a professor at Simon Fraser University who researches Toronto and Vancouver’s housing markets.”

“After a public outcry about the role of international speculators in the Toronto area’s skyrocketing real estate prices – which were up by a dizzying 33 per cent in March compared with a year earlier – Premier Kathleen Wynne’s government implemented a foreign-buyers tax as part of a package of measures designed to cool the market. The province also began tracking international property investment. Prices in the GTA have fallen 17 per cent on average from the market’s peak in April, according to the Toronto Real Estate Board.”

“A Chinese court is auctioning a skyscraper on the country’s largest e-commerce website – with a sky-high starting price of 553 million yuan ($84.2 million). Photos of a dimly-lit underground parking lot and unfinished building interior with dusty floors piled with construction materials were posted by the court on the auction page. Apartment buildings, cars, confiscated jewelry and mobile phones are all being auctioned by authorities on the e-commerce platform. In November, a 28-floor building was put up for auction at a starting price of 219 million yuan by a local court in northeastern Zhejiang province. But the auction was not successful as no one bid for the item.”

“The property sector ended 2017 on a subdued note. ‘The market is so quiet. We have only had enquiries from a few interested people who want to buy land or homes to live in this year,’ said U Pyuu Gyi, a property agent from Pyigyitagun township, Mandalay. The way he tells it, investor interest in the local property market has trickled dry over the past five years. ‘This year, only those looking for new homes to live in have been active in the market,’ he said.”

“With the market weakening each year and demand at a six-year low, many existing investors are now desperate to sell. ‘Sellers know it’s a buyers’ market now so they have been more willing to negotiate and settle at reduced prices. So, there are a few sales transactions taking place, albeit it at much lower prices,’ said U Wanna Soe, a property agent from Phoe Lamin Real Estate.”

“Stakeholders in the real estate sector have taken a look into their crystal ball and submitted that the outgoing year for operators in the sector has been fair and not particularly fulfilling. Kayode Oyedele, an estate manager, recalled that his first shock in the year came from the position of his tenants who told him in clear terms to either reduce the rent or they vacate his house. He had no option than to take a 30 per cent cut in rent to avoid a situation where he would have a lot of vacancy in his property.”

“Experts like the Head, Property Management, SFS Capital Limited, Victoria Island, Lagos, Mr. Bolarinwa Odeyingbo, explained that the glut in the market did not really clear out in the year, making several properties across the country to remain unsold, abandoned and uncompleted.”

“Nordea Bank AB’s Swedish mortgage loan book continued to shrink in November after the biggest Nordic lender saw the first decline in at least 15 years the previous month. Following the publication of the October numbers in late November, Nordea said it had ‘chosen to be somewhat more cautious in the mortgage lending market during the year’ and that it has ‘not actively tried to gain market share.’ Sweden’s housing market is cooling after years of surging prices, raising concerns over a hard landing. Apartment prices in Stockholm slid a monthly 4.2 percent in November, the steepest decline since 2008.”

“Tenants are saving up to $120 a week in rent in some parts of Brisbane, where prices have fallen by as much as 25 per cent in the past year. The good news for renters comes as the inner-city market continues to suffer from an apartment glut, providing more options to choose from and an influx of landlords offering discounts and incentives as they compete for tenants. REA Group chief economist Nerida Conisbee said investor activity in Brisbane’s inner apartment sector had increased the supply of rental housing.”

“‘There are just so many more option for renters,’ Ms Conisbee said. ‘The majority of apartments are owned by investors and they are all competing for tenants.’”

December 28, 2017

The Lack Of Capital To Absorb A Big Loss

A report from Mortgage News Daily. “The Wall Street Journal reports that the Republican tax plan could trigger a roughly $14 billion accounting loss at Fannie Mae and Freddie Mac, leading to the first taxpayer-funded infusion since they became profitable firms in 2012. ‘At issue is an accounting change tied to lower corporate tax rates in the legislation, which requires the companies to recognize losses on around $45 billion in tax-deferred assets they hold. The decline in the tax rate to 21% from 35% will require the companies to write down the value of those assets, resulting in losses to the companies. Since they have little capital and must sweep their profits to the Treasury, they will likely need a new, one-time infusion from government coffers.’”

“Analysts estimate Fannie could require about $10 billion from Treasury and Freddie $4 billion. It is also possible Freddie, the smaller of the two companies, will have enough cash on hand to meet the added liability without a cash infusion. Company officials have said such a Treasury infusion wouldn’t reflect the quality of their business, but rather the lack of capital to absorb a big loss.”

From National Mortgage Professional. “Mortgage lenders are forecasting a negative profit margin outlook for the next three months, according to Fannie Mae’s Fourth Quarter Mortgage Lender Sentiment Survey. On net, more lenders reported declining demand over the prior three months, continuing the trend that started in the first quarter of this year. For the next three months, the net share of lenders expecting growth in demand for refinance mortgages dropped from the third quarter across all loan types, which Fannie Mae dubbed the worst outlook in a year.”

“Furthermore, Fannie Mae stated that the net share of lenders reporting easing of credit standards over the prior three months has continued its upward trend since the fourth quarter of last year, reaching new survey highs for the second consecutive quarter. ‘Key trends have persisted throughout this year,’ said Doug Duncan, chief economist at Fannie Mae. ‘Lenders who see declining profits outweighed those noting improvements in the bottom line for the fifth consecutive quarter. Three-fourths of those seeing deteriorating profits cite competition as the most important reason—a survey high—compared with only about one-third two years ago. This is not surprising given that refinance volume continues to shrink.’”

The Hartford Courant. “A Boston-based community development lender focused on low-income neighborhoods is now aiming to help struggling Connecticut borrowers who are in danger of losing their homes to foreclosure. Boston Community Capital has already started working with its first dozen homeowners in Connecticut and touts its track record of keeping nearly 900 families in their homes in Illinois, Maryland, Massachusetts, New Jersey and Rhode Island since 2009.”

“Boston Community’s ‘Stabilizing Urban Neighborhoods,’ or SUN, program typically works with borrowers whose homes are ‘underwater’ where more is owed than the property is worth. SUN negotiates to purchase occupied homes from lenders at what they are now worth and then sells them back to the original homeowners on the same day on terms the borrower can afford, said Elyse Cherry, Boston Community’s chief executive.”

“The option can be more attractive to a lender than say, a loan modification where the principal is reduced, or the expense of taking over a property and then trying to sell it, Cherry said. ‘There are still a lot of people who were able to survive the last few years but are teetering on the edge, a bad event away from a foreclosure,’ said Jeff Gentes, a staff attorney who manages foreclosure prevention at the Connecticut Fair Housing Center.”

From The Acorn in California. “Home foreclosures aren’t as common as they were at the height of the banking crisis in 2010, but they haven’t gone away entirely. Zillow shows eight foreclosed homes in Agoura Hills, Westlake Village, Calabasas and Oak Park. In the same four cities, however, there are 75 homes in pre-foreclosure, meaning notices have been issued to the owners that if payments are not made the lender will foreclose on the property.”

“The process can be drawn out, with families still living in homes they don’t own while legal notices shuffle between banks and courts. In the meantime, homes and properties can fall into disrepair. And with no clear owner to keep up on maintenance, some homes become neighborhood eyesores. One foreclosed home in Agoura Hills remains a problem child. Ken Handler, who lives on Vista del Arroyo, has spent two years trying to get city and county officials to do something about the deteriorating condition of a single-family home three doors down from him.”

“Handler said the house was occupied by a family that didn’t pay its mortgage and was eventually evicted by the sheriff. ‘I was inside the house a few months ago, just to see what was going on. It was just horrible. You have a terribly rotting house, inside and out. It’s weed-infested,’ Handler said. ‘The trees are overgrown, but the main problem as I see it is we’re in the middle of a huge fire hazard area. We’re in kind of a high-end area; the homes are $2 (million) to $3 million, so there’s a lot at stake, that’s why I’m upset.’”

December 27, 2017

Turning The Tide Of Soaring Property Prices

A report from Toronto Storeys on Canada. “Premier Kathleen Wynne says she had serious concerns about the government sticking its nose in the red-hot, runaway housing market in Toronto, despite being urged to weigh in. Wynne said it became clear to her that market behaviour was ‘irrational.’ ‘It (housing prices) seemed irrational to me. It didn’t seem to be based on anything … I was concerned that there was no downward pressure on the market,’ she said. ‘It just got to the point where it just felt irresponsible not to do something.’”

The South China Morning Post on Hong Kong. “Hong Kong’s leader says she has never pledged to turn the tide on surging property prices in the city, which has remained the world’s priciest home market for the seventh year. Instead, Chief Executive Carrie Lam Cheng Yuet-ngor claimed what she hoped to reverse was the housing shortage. Lam’s latest remarks appeared to deviate subtly from her policy address, which stated that both ‘the current shortage in housing supply and surging property prices have resulted from both external and internal factors’ and that her administration was determined to rectify the situation with the greatest effort.”

“Critics have slammed plans she introduced in her maiden policy address in October, saying they have failed to stop home prices from skyrocketing. ‘I have never said [I would] turn the tide of the soaring property prices as [they] could be triggered by a lot of factors,’ she said, adding the government cannot suppress the home price hike.”

“Sammy Po Siu-ming, chief executive of Midland Realty’s residential division, said Lam’s policy to focus on boosting supply was ‘going in the right direction.’ ‘It is very difficult to try to curb property prices when housing demand and investment demand are both so strong. Trying to control demand is not the way to go,’ Po said.”

The Korea Times. “A supply surge of apartments across the country in 2018 is expected to help stabilize housing prices. The surplus number of apartments will reach 440,000, up 14.5 percent from this year. The figure is also the most since 1988, the Ministry of Land, Infrastructure and Transport and market research firms said. The incumbent administration is expected to welcome the increase of apartments as it has tried to curb rising real estate prices. For President Moon Jae-in, it has been one of his top economic priorities.”

“Under the initiative, the government plans to start large-scale construction projects aimed at supplying 2 million residential apartments in Seoul alone. Koreans have poured their money into apartments as prices have steadily increased over the past few decades. There were a few exceptions to the rising prices such as the Asian financial crisis in the late 1990s and the global financial crisis in the late 2000s, though.”

“In particular, the previous Park Geun-hye administration tried to boost housing prices to invigorate the economy, which led to abrupt appreciation of real estate values. One of its negative side effects is the snowballing household debt, which has topped 1,400 trillion won. Left-leaning President Moon promised to stop the trend. The oversupply of apartments is expected to help him achieve the initiative.”

The Japan Times. “Once a phenomenon primarily associated with rural communities, abandoned homes are permeating suburbs and worming into crowded cities at an alarming rate. Over 8 million properties across Japan are unoccupied, according to a 2013 government report. Nearly a fourth have been deserted indefinitely, neither for sale nor rent. In Tokyo — where 70 percent of the people live in apartments — more than 1 in 10 homes are empty.”

“Nomura Research Institute projects the number of abandoned dwellings to grow to 21.7 million by 2033, or roughly one-third of all homes in Japan. Meanwhile the population, which peaked nearly a decade ago, is forecast to fall 30 percent by 2065, creating an ever-increasing pool of uninhabited houses. ‘There is no single answer to the problem,’ said Wataru Sakakibara, a senior consultant at NRI who led the think tank’s study. ‘If this continues, at some point it may be necessary to consider limiting new construction. But that would have a substantial impact on the economy.’”

From Reuters on Norway. “Norway’s tightened mortgage regulations, in place since the start of the year, are working as planned and do not need to be repealed, Prime Minister Erna Solberg told Reuters. ‘What we’re seeing now is a normal adjustment of the housing market after years of rising prices,’ Solberg said. ‘I see no need to alter the regulations. What we have in place is working pretty well at the moment and has helped put breaks on prices,’ she added.”

From The Times of Israel. “Last month, during a session of the Knesset State Control Committee devoted to Israel’s ‘ghost’ apartments,” a representative from the Central Bureau of Statistics dropped a bombshell. Merav Pasternak, the deputy director of statistics for the government body, told the panel that the number of Israeli ghost apartments — apartments that sit empty most of the year — is not 40,000 as previously estimated, but 159,700.”

“If accurate, the figure would make Israel one of the leading countries worldwide in ghost apartments per capita. The adjusted number is significant because apartments left empty by wealthy investors from abroad are a hot-button issue in many Western cities, including New York, Miami, London, Melbourne and Vancouver. In these cities, real estate prices have risen astronomically over the last decade.”

“As a 2017 UN Report explained, in cities that are ‘prime destinations for global capital seeking safe havens for investments, housing prices have increased to levels that most residents cannot afford. The UN report decries the ‘financialization of housing’ whereby hundreds of billions of dollars of global wealth are being invested in real estate and transforming real estate markets. ‘Massive investment of capital into housing markets and rising prices should not be confused with the production of housing and the benefits that accrue from it,’ reads the report. ‘The bulk of real estate transactions of that sort do not create needed housing or long-term secure employment.’”

“But it is not just legitimate global capital that critics of the ghost apartment phenomenon decry. In many cases, these apartments are a vehicle for money laundering, they say. While the UN report does not cite money laundering as a key cause of this phenomenon, many mainstream news reports have done. ‘Why New York real estate is the new Swiss bank account,’ read a 2014 New York Magazine headline on the topic. An article entitled ‘The Kleptocrat in apartment B’ appeared in The New Yorker in 2016, while The New York Times titled a July 2017 report on the issue ‘When the empty apartment next door is owned by an oligarch.’”

From in Australia. “Property prices have been swinging wildly across Sydney regions in the aftermath of the recent boom due to the once soaring market hitting unexpected turbulence in 2017. A review of real estate data for the year showed prices finally peaked in July after nearly five years of runaway growth. North Ryde in Sydney’s northwest had the biggest fall in prices, with the median unit price tanking 16.8 per cent. A few kilometres to the west, median unit values fell 8.6 per cent in Rydalmere and 6.8 per cent in Ermington.”

“Numerous units were being constructed in these suburbs and in surrounding areas such as Macquarie Park and Epping. There was also the added impact from rampant home building in areas further afield such as Sydney Olympic Park and Parramatta, which gave home seekers a greater selection of properties. The improved choice removed much of the pressure on buyers to offer higher prices to secure the properties they liked — a phenomenon that drove much of the price increases during the housing boom of 2013-16.”

“Suburbs Annandale and Forest Lodge recorded the biggest price falls across the inner west, with median unit values decreasing 13-15 per cent. CoreLogic analyst Cameron Kusher said unit construction had such a marked impact on prices because it coincided with weakening investor demand brought about by bank restrictions on interest-only loans. ‘It was probably the biggest change (this year),’ Mr Kusher said. ‘If banks clamp down further on loans, which they may do in 2018, there could be further acceleration in the current downturn in prices.’”

December 26, 2017

Is The Much-Touted Frenzy Just A Bubble?

A report from the Waco Herald Tribune in Texas. “On a recent Thursday afternoon at Magnolia Market at the Silos, tourists line up for $3.50 ’shiplap cupcakes.’ In the shadow of the rusted silos, children toss beanbags on a village green of artificial turf. Parents slouch in striped beanbag chairs. Food trucks dispense wood-fired pizza, crepes and pineapple-kale smoothies. A journalism teacher from Chino, California, carries a wreath of artificial magnolia leaves, as seen on ‘Fixer Upper,’ the wildly popular home improvement TV show that has started its fifth and final season. This year, with an average of more than 30,000 visitors a week, Magnolia Market should draw about 1.6 million people, according to the Waco Convention and Visitors bureau. Those include four chartered buses that have carried tourists from New York to Waco over the past year.”

“‘I don’t think I’ve ever felt this way about any show before,’ said Annette Deming, the California journalism teacher, who made a three-hour round trip to Waco while attending a convention in Dallas.”

“Are Chip and Joanna a fad that will fade as the fickle American public moves on to other charismatic personalities? Is the much-touted ‘Magnolia effect’ — the force that has filled hotels, roiled the local housing market and fueled a downtown development frenzy — just a bubble? Some blame it for skyrocketing downtown property tax values, which increased 20 percent this year and 31 percent the year before. Some say it has caused a housing speculation bubble in Waco.”

From the Columbian in Washington. “As a renter, Will Mantz, a 44-year-old software sales representative, said he’s ready to put down roots. He wants to build equity and be able to mold a house to his liking. But finding such a place in Clark County’s housing market lately has been a footrace that he and his family refuse to run. He and his wife, Jannae, got pre-approved for a loan last spring and went house shopping — only to find ‘a complete mess,’ he said.”

“‘Rather than paying it away to somebody else for their equity and their home, I’d rather do it for my own,’ he said. ‘One of the places we went to, that we liked, in the span of a week it had 30 offers on it. Even in places where we were high bidders, people would come in with $10,000 to $15,000 (on top of that).’”

“This is the fourth year in a row for double-digit increase in local home prices. In 2016, prices rose 10.7 percent between January and November, on top of 14.2 percent in 2015 and 15.9 percent in 2014.”

“Terry Wollam, managing broker for ReMax Equity Group in Vancouver, said it seems would-be buyers such as the Mantzes are finally starting to pull back. ‘It’s a reflection of a price increase we’ve seen and buyer sentiment growing with wages not following suit,’ he said. ‘I think it just shows that there’s not going to be buyer support for 10 percent appreciation year-over-year that we’ve had in years past.’”

The Hartford Courant in Connecticut. “Home sales in greater Hartford got a welcome bump in November compared with a year ago, but buyers did not pay up for their purchases, a new report shows. The median sale price of a single-family house in the greater Hartford area was $215,000 in November, down 1.8 percent from $219,000 for the same month ago, according to the Greater Hartford Association of Realtors. The industry group tracks a 57-town area from Enfield south to Middletown.”

“In October, inventory dropped nearly 17 percent compared with a year ago, the latest in a string of monthly declines, according to the report. While a tightening inventory can generally push up prices, too few houses — especially ones in attractive locations or with updated kitchens and baths — can hold back the housing market. Without enough fresh properties coming on the market, buyers can lose interest and retreat to the sidelines.”

“Low prices certainly are a boon to buyers but the failure of the median price to move up significantly signals a weakness in the housing market still struggling to recover from the last downturn a decade ago. Economists blame the state’s weak employment growth and a tenuous fiscal situation in state government that are combining to create uncertainty among potential house buyers.”

From Queens Courier in New York. “A new report released by members of the state Senate found that bank-owned, foreclosed homes in Queens have caused property values to drop $17.9 million because financial companies failed to properly maintain the properties they acquired.”

“‘Nightmare Neighbors: How Badly Maintained Homes Damage Neighborhoods’ was released by the Independent Democratic Cause (IDC), an eight-member group in the state Senate. The report identified hundreds of bank-owned properties in Queens, Brooklyn the Bronx and Staten Island to analyze how these foreclosed homes affected surrounding neighborhoods. After the housing market crash in the mid-2000s, Queens saw an increase in ‘zombie properties.’ In 2009, then-Governor David Paterson signed a law that made financial institutions responsible for maintaining a property until it was transferred to another owner.”

“According to the report, however, banks circumvented this law by declining to accept ownership of the properties after the foreclosure process, leaving it up to home owners to maintain them. In 2016, the state passed a law to give municipalities and the Department of Financial Services (DFS) power to enforce the 2009 law and created a registry for these zombie properties.”

“‘Queens is unfortunately all too familiar with the damage done to communities by poorly maintained bank-owned houses,’ said state Senator Tony Avella, who represents Flushing, Whitestone, Bayside and College Point. ‘Residents are growing tired of these bank-owned properties that lower the quality of life in our communities. Shame on these financial institutions for allowing this to happen to our New York communities.’”

December 24, 2017

A Repeat Of An Earlier Situation

A weekend topic starting with the Japan News. “The global economic recovery continues to gather steam. Why has strong global economic growth continued since last year even as political turmoil has emerged in the United States and Europe? Despite stormy seas since last year, with Britain leaving the European Union and U.S. President Donald Trump emerging as a vocal advocate of protectionism, the U.S. economic recovery has entered its ninth year. Meanwhile, Japan’s recovery period is thought to be the second longest since World War II, topping the Izanagi economic boom of 1965-70. What is happening in the global economy?”

“Periods of high stock prices are thought to produce an ‘asset effect,’ in which increases in the value of asset holdings push up consumption and other areas. Improvements in corporate earnings due to trade expansion and the brisk semiconductor market are driving up stock prices, and it is possible that Japan is in a virtuous cycle that positively affects the mind-sets of consumers and companies.”

“Semiconductors are going through a so-called ’silicon cycle’, and there is fear that oversupply will cause prices to collapse. An IT bubble occurred around the early 2000s, in which stock prices surged based on high hopes over the sudden expansion of IT-related businesses. According to the Mizuho Research Institute, the market capitalization of stock prices, seen through global GDP ratios, is approaching levels seen in previous bubbles.”

“Monetary easing has caused surplus funds, and the system of pouring money into assets such as stocks and real estate is the same as in past bubbles. As interest rates begin to rise in the United States, and European countries start to scale back monetary easing, stock prices could slump at any moment. The cycle of boom and bust in the semiconductor market that repeats every three to four years. Thought to occur due to factors such as generational turnover in memory caused by technological innovation. Besides the high growth of semiconductors, the balance of supply and demand is considered fragile due to such factors as enormous amounts of capital investment.”

From the Guardian. “Walk down almost any major New York street, and some of the most expensive retail areas in the world are blitzed with vacant storefronts. Over the past several years, thousands of small retailers have closed, replaced by national chains. When they, too, fail, the stores lie vacant, and landlords, often institutional investors, are unwilling to drop rents.”

“The common refrain is that the devastation is the product of a profound shift in consumption to online, with Amazon frequently identified as the leading culprit. But this is maybe an over-simplification. ‘It’s not Amazon, it’s rent,’ says Jeremiah Moss, author of the website and book Vanishing New York. ‘Over the decades, small businesses weathered the New York of the 70s with it near-bankruptcy and high crime. Businesses could survive the internet, but they need a reasonable rent to do that.’”

“Part of the problem is the changing make-up of New York landlords. Many are no longer mom-and-pop operations, but institutional investors and hedge funds that are unwilling to drop rents to match retail conditions. ‘They are running small businesses out of the city and replacing them with chain stores and temporary luxury businesses,’ says Moss.”

“In addition, he says, banks will devalue a property if it’s occupied by a small business, and increase it for a chain store. ‘There’s benefit to waiting for chain stores. If you are a hedge fund manager running a portfolio you leave it empty and take a write-off.’”

“Like Moss, New York retail property agent Robin Zendell believes it’s too simplistic to blame Amazon. The same signals of over-pricing are seen in every area of real estate, including housing. ‘When you see [that] every corner has a bank or a pharmacy, and there is a gym on the second floor, there’s a simple reason for that: people can’t afford the rent. Why did restaurants go to Brooklyn? Because it’s cool? No, because it was cheap, and [because] restaurateurs were sick of giving investors’ money away so they could pay their rent.’”

“In some areas, notably Bleecker Street, once lined with fashion boutiques including Ralph Lauren and Marc Jacobs, too many vacancies create their own problems. ‘Rents have fallen but now there are so many empty stores there, nobody wants to be alone. So they’ve created more of a crisis.’”

From Desmond Lachman. “Back in 1933, renowned investor Sir John Templeton famously said that the investor who says that ‘this time is different,’ when in fact it is virtually a repeat of an earlier situation, has uttered among the four most costly words in the annals of investing. He might very well have been speaking about economic policymakers and investors today who try to convince themselves that the bubbles in today’s global economy will have a happier ending than previous bubbles because ‘this time is different.’”

“They do so despite the fact that there are a number of good reasons to fear that if today’s global bubble situation is indeed different from 2008, it might be because it is more dangerous. The most obvious way in which today’s global economic situation would appear to be more worrying than that in 2008 is the increased pervasiveness of bubbles today than before. In the run-up to the 2008 Lehman crisis, the bubbles were contained to the U.S. housing and credit markets; today, they appear to be found in almost every corner of the world economy.”

“It is not simply that we are witnessing egregious bubbles of historic proportions in exotic markets like the Bitcoin market or the Leonardo da Vinci art market. Rather, it is as the former Federal Reserve Chairman Alan Greenspan recently warned, years of highly unorthodox monetary policy by the world’s major central banks has created an unprecedented global government bond bubble, with long-term interest rates plumbing historically low levels.”

“Indeed, global equity valuations are at lofty levels that have only been experienced three times in the last century. At the same time, housing-price bubbles are all too evident in key countries like Australia, Canada, China and Britain, while interest rates have been driven down to unusually low levels for the high-yield debt and emerging-market corporate debt markets.”

“If one had any doubt that global credit markets have lost touch with reality, all one needs to do is to consider a number of recent international bond issues. How is it that a country like Argentina, which has distinguished itself by defaulting no less than five times in the last hundred years, has managed to place a 100-year bond on good terms in the market? Or how is it that war-torn Iraq or little-known Mongolia not only can place bonds in the market but can have these bonds several times oversubscribed?”

“It also does not help matters that the bursting of bubbles today would be taking place in the context of a world more indebted than it was on the eve of the Lehman crisis.”

December 23, 2017

The Rapid Boom Has Begun To Create A Housing Glut

A report from Real Estate Weekly on New York. “A glut of rentals has New York’s landlords offering deep discounts this holiday season. And although landlords’ use of incentives skyrocketed, they could not hold down the Manhattan vacancy rate where inventory rose to the highest level in over eights years. ‘While historically concessions increase as we enter winter, we haven’t seen them this prevalent since the depths of the Great Recession,’ said Gary Malin, president of Citi Habitats. ‘While there is still demand, the market remains price-sensitive. Even with these incentives, Manhattan’s vacancy rate is the highest it’s been in over eight years.’”

From Bisnow on Pennsylvania. “The panelists looking ahead at Bisnow’s 2018 Philadelphia Forecast event covered a diverse range of topics…though some are resistant to using the term ‘oversupply’ to describe the ongoing influx of apartments in Philadelphia. A common refrain among the capital markets crowd is that a deep pool of investors sits ready to deploy capital, but there are not enough deals to be done. That has contributed to the debt market seeing a host of new entrants.”

“According to RAIT Financial Trust Senior Managing Director Gregory Marks, that should be cause for concern. ‘There are way too many capital sources in the market,’ Marks said. ‘As the most cynical lender up here, I liken this to the end of 2006 where a lot of groups saw the returns being realized by debt funds and the CMBS market. There were a lot of new entries, and many of those aren’t around today.’”

“Some of that concern is due to the increase in debt funds over the last few years from players that wish to capitalize on the hot market. Life companies with similarly deep pockets are also putting pressure on banks and other established debt sources. ‘We’re competing against players that we have no business competing against, like life companies blowing us out of the water with rates we can’t match,’ Marks said.”

From the Daily Reflector in North Carolina. “The Greenville housing market is over-saturated with student housing and lacking a healthy supply of market-rate housing, according to a consultant hired by the city, who said the situation is projected to continue getting worse. According to the presentation, Greenville has just over 11,000 units (bedrooms) targeted for student in the housing market. The aggregate vacancy rate at these student-targeted communities is 11.6 percent. Communities located further than three miles from East Carolina University or Pitt Community College campuses — about one-third of the units — had a vacancy rate of 18.7 percent.”

“Jessica Rossi, a planner with Kimberly-Horne, said the rates of vacancy are expected to increase as new apartment properties open their doors. According to her report, there are an additional 1,930 bedrooms under construction in Greenville, and another 656 have been proposed. ‘The question that will be interesting to see after the lease-up for the start of the 2018 school year, when three of the four under construction communities will come online, is how many people gravitate to those communities leaving some of the more distant communities at even higher vacancy rates,’ she said.”

From Multi-Housing News on Texas. “Austin’s multifamily market shifted down a gear in 2017, due to 2016’s strong wave of supply. As a result, rents contracted. Continued construction pushed the occupancy rate to 94.6 percent as of September, down 70 basis points in 12 months. This figure is likely to keep falling in the short term, while the metro absorbs the new stock.”

“Transaction activity continued to decelerate in the second half of 2017, with $961 million in apartments trading in the first 10 months of the year, half of last 2016’s volume. Nearly 3,700 units were delivered this year through October, a third of last year’s new stock, but almost 17,000 units were still under construction as of October.”

Northern Nevada Business Weekly. “Reno ranked 8th in the nation for apartment concession-related deals, according to Zumper. In cities across the country, the rapid new apartment construction boom of the past five years has begun to create a housing glut. Landlords, faced with higher vacancy rates, are now looking to attract new tenants any way they can – many times through flexible lease terms, offers of free rent, and other concessions.”

“Listings and buildings offering deals such as free rent, reduced security deposits, gift cards, Netflix/cable subscriptions, and even Uber credit were considered. That was weighed next to the total percentage of ‘concession listings’ relative to the total amount of inventory in each city. Reno had a percentage of 3.08 of concession-related deals. By comparison, Winston-Salem, N.C. topped the list at 6.81 percent.”

From Inforum on North Dakota. “There is an epidemic in Fargo, especially in south Fargo, called ‘apartments.’ A lot of people I talk to agree we have too many. There are very few city blocks in the the south Fargo area that don’t have an apartment on them, and I bet that there is a plethora of vacancies. The last I checked, the vacancy rate was at 11 percent, but if you drive around town it appears that it is considerably higher. Well, it would make perfect sense that when a census of the developers is taken asking about vacancy rate that they are lying just to be able to build more empty buildings.”

“In addition, they are also granting these ridiculous tax breaks to developers to redevelop areas.”

From Bisnow on Illinois. “Last year was one for the record books in Chicago multifamily real estate. Apartment sales downtown and in the suburbs set records for volume. This year, downtown multifamily struggled with new inventory resulting in flat rent growth, declining lease retention rates and developers of newer assets struggling to find buyers. KIG managing partner Todd Stofflet said the plateauing of downtown multifamily is related to the flood of new deliveries this year. KIG estimates over 2,800 downtown apartments brought to market in 2017 have not been able to go under contract.”

“KIG Senior Director Jason Stevens said institutional money is chasing opportunities near highly rated schools, lifestyle centers and grocers. Foxford Communities Managing Director John McFarland said Foxford Station was originally intended to be a 52-unit apartment project during the entitlement process, but the company decided to build larger condos after seeing the flood of new apartments being built.”

December 22, 2017

The Decisions Made Sense At The Time

It’s Friday desk clearing time for this blogger. “It was what one expert called ‘the mother of all booms.’ Just over a decade ago, Arizona’s construction industry was leading the country in residential and commercial building. People were waiting up to a year for a house, even as builders were throwing new homes up on spec for the residents who were flocking to the state. And then it was over. The industry is not yet back to where it was, but it’s better off. Now experts wonder where the ceiling will be this time. ‘The new normal is the big question,’ said Greg Burger, president of RL Brown Housing Reports, which specializes in residential market research.”

“Elliott Pollack, an economist and real estate consultant, said the decisions builders were making before the recession hit made sense at the time. ‘If you just looked at the numbers and you didn’t anticipate the type of recession that occurred – and very few people did – you were able to justify the new construction,’ Pollack said. ‘People were building in anticipation of rooftops that never got built. The problem was that nobody anticipated the depth of the recession. Therefore, you had all this stuff that was in the building stages when the recession hit, and it took a while to turn that off. And then, of course, you can’t close down a half-done building. You have to finish it.’”

“Welcome to Palm Beach County’s newest city: Westlake (pop. 5). Only a handful of people live in this hamle. But when developer John Carter surveys the still mostly barren landscape, he sees South Florida’s next bustling and vibrant community. The population will start climbing by the end of the year and could eventually reach 15,000 as the development’s 4,500 homes are built over the next decade. Homes start at $276,000, but that’s lower than the county’s median sales price of $325,000. Top-end homes will approach $500,000.”

“Developers are offering down-payment assistance — up to 3 percent of the purchase price in the form of an interest-free loan — along with discounts for government and civil service employees.”

“Though job growth is slowing in the Bay Area, giving rise to worries about a downturn in home values, experts are predicting a slowdown at worst for the real estate market — and no changes at best. Christopher Thornberg of Beacon Economics maintained, ‘Profits for tech are still good. Exports are picking up, venture capital has just started to pick up in the Bay Area and there are no underlying issues to suggest that the tech industry is heading for some dramatic drop or pullback. Rather, it has reached a sustainable plane.’”

“Robert Edelstein, co-director of the Fisher Center for Real Estate at UC Berkeley’s Haas School of Business, isn’t quite as positive. ‘A slowing of employment here can be enough to make the housing market not so robust,’ Edelstein said. While Facebook is on top now, it could go the way of similar platforms such as Friendster and LiveJournal, he said. ‘If the U.S. economy and the world economy slow down, people aren’t going to be buying the $1,000 Apple X. If they don’t do so, Apple may need to slow their growth, and the Bay Area will suffer and so will the real estate market,’ Edelstein said.”

“The days when multimillion dollar teardowns in Metro Vancouver triggered bidding wars pushing the offers above the asking price seem to be over. Three in four detached houses in Canada’s once hottest housing market sold below asking in November, according to home sales data sent to ThinkPol by a real estate industry whistleblower. The industry insider claimed that they’re releasing the data told address what they see as unethical and deceptive practices of the industry. The asking prices ThinkPol looked at were the final list price, which were often much lower than the original list price. ThinkPol also found that many properties had been delisted and relisted at a lower price, thereby hiding the price drop and days on the market.”

“‘Just the other day, my colleague bragged about how she got her client to come ten percent over asking by blatantly lying to them ‘you have to make that offer or you’ll regret it if you get outbid’ knowing that property had just been delisted and relisted to reset the days on the market,’ the insider told ThinkPol. ‘This is the way the industry has been, bending and twisting the numbers, trying to show that there is no slowdown in the market whatsoever, and real estate prices will continue to grow as before, and toying with people’s emotions to get them to overleverage themselves.’”

“Singapore’s authorities are concerned the island-state’s property market could be setting itself up for a fall. There should be vigilance about risks ‘including the impact of rising interest rates, geopolitical developments, and excessive exuberance in the property market,’ said Ong Chong Tee, a deputy managing director of the central bank, the Monetary Authority of Singapore.”

“Persuading people to be more cautious could be a tough sell. Others, like IT sector employee Bernard Ng, are being driven into the market because of the fear of missing out on a good deal. ‘If you don’t buy now, it will be even more expensive next time,’ said Ng.”

“A widening chasm between housing prices and rental cost could be a sign that a correction is right around the corner. The biggest chasm can now be found in Norway. That’s the finding of a study of 20 advanced economies by Moody’s Investors Service. And now the market is showing signs of cooling, sparking concern of a possible economic downturn. Rapidly falling prices this year have wiped out annual price gains amid a surge in housing supply and as buyers have rushed to sell.”

“The central bank is playing cool for now. Norwegian central bank Governor Oystein Olsen, who last week signaled he’s preparing to raise interest rates as soon as next year, says he expects a ’soft landing.’”

“Buying off-the-plan has long been a popular option for Aussie homebuyers — but what happens when things don’t go to plan? Telopea neighbour Carmel Bennett is dissatisfied with her kitchen, and was told that the floorplans she’d seen before buying were actually only for marketing purposes and not a true reflection of the new home. ‘There’s nothing I can do about it now, I’m stuck with it — unless I want to rip the kitchen out and put a whole new kitchen in,’ she said.”

“‘Most investors buy-off-the plan because they’re convinced they will save on stamp duty and tax relief, but a poor performing property with a tax benefit or stamp duty savings is still ultimately a poor performing property, and you’ll lose money in the long run,’ said Property Mavens founder Miriam Sandkuhler.”

“Ten years ago this month was the start of a vicious recession, and some scars remain even if the economy has healed. The Great Recession destroyed more than 248,000 jobs in metro Atlanta – about one of every 10 – and led to a quarter-million foreclosures. To Annie Manning, that past is not so past. She had lived in her Stone Mountain home for 15 years when a ‘friend’ persuaded her to refinance, getting her a low mortgage rate and soft-pedaling the extent that her rates would rise two years down the line.”

“When the rate reset in 2007, her monthly payments went from $572 to $874. As a healthcare worker making less than $25,000 a year, she knew she was in trouble. Manning says she would have liked to have stayed in that Stone Mountain home a few more years. But she is not complaining. She lives now in a federally subsidized apartment complex in Atlanta. She thinks the house was worth about $120,000 when she left. If she had stayed and sold it, she would have walked away with some cash.”

“She tries to look back with a sense of peace, she said. ‘It was a blessing. I couldn’t see it in the beginning. At the time, I was depressed. I felt embarrassed…’ Recalling, she tears up and has to stop for a moment. ‘It has been so long,’ she said. ‘My God, I thought I was over it.’”

December 21, 2017

The Spiraling Price Of Buying Turns Expectations Upside Down

A report from Mansion Global. “The real estate market will be among the sectors most impacted by the $1.5 trillion tax bill passed in the U.S. Wednesday. Many real estate experts have been up in arms about the changes, with the National Association of Realtors (NAR) initially warning that it could lower home prices by up to 10% in every state. An oversupply in luxury housing, plus a limited pool of buyers, has already slowed sales in that sector. And tax woes have only increased hesitation from buyers.”

“‘People are going to be trying to figure out what it means for them,’ said Donna Olshan, president of New York City-based Olshan Realty. ‘It’s certainly not a positive for New York. Almost all my clients pay six figures in New York state and New York City taxes,’ said Ms. Olshan, who has clients in both Manhattan and suburban Westchester, New York. ‘What does that mean for them?’”

The Los Angeles Times in California. “The Republican tax bill reduces the ability of home buyers to deduct mortgage interest, which will be a hit to home shoppers in Southern California and the Bay Area, where housing costs are sky-high. Fadel Lawandy, a director at Chapman University’s Hoag Center for Real Estate and Finance, pointed out that the bill also caps property and state income tax deductions at a combined $10,000 — about $8,500 less than the average deduction taken by Californians in 2015. Combined with the new cap on mortgage interest deductions, that could mean some households will have less to spend on housing, leading to price declines in some wealthy areas, Lawandy said. ‘It will impact the high luxury-end market for sure,’ he said.”

From San Francisco Curbed in California. “It is one more case where the spiraling price of buying in the Bay Area turns values and expectations upside down. Docking the mortgage cap is supposed to be a hit at luxury real estate. However, as Jordan Weissman wrote for Slate, buyers ’stuck house-hunting in San Francisco or New York’ end up swept up by default. Because any new rule aimed at high-end luxury homes is going to hit most of San Francisco—even the teardowns.”

The Houston Chronicle in Texas. “Patrick O’Connor, a Houston-based property tax consultant, said prices in the luxury market could slide by 5 to 10 percent as a result of the smaller mortgage interest deduction. A homeowner with a home assessed at $1 million is expected to pay $3,700 more in federal taxes next year, he said. ‘It makes a difference,’ O’Connor said.”

“The bigger impact in Houston would be the $10,000 cap on property tax deductions, said Jim Gaines, an economist with the Texas A&M real estate center. Texas, which has no state income tax, has some of the highest property taxes in the nation. As many as a quarter of houses in Houston could have property taxes above the $10,000 threshold, Gaines said. ‘Quite frankly, that will be the biggest impact that affects Texas,’ he said.”

The Asbury Park Press in New Jersey. “Congress neared approval of a sweeping tax bill on Wednesday that analysts said could give the economy a short-term jolt, but in New Jersey and other high-tax states could slow down the housing industry. It sparked fears that the bill could cause home values in some markets to take a 10 percent hit, according to a report by Moody’s Analytics. For some consumers trying to decide whether it makes sense to buy a home, or even move, ‘this kind of rejiggers that whole equation,’ said Robert Oppenheimer, the past-president of the New Jersey Association of Realtors.”

“What becomes of New Jersey’s housing market would be a wild card. One grim scenario: It would accelerate the migration of high-income New Jerseyans to other states, which have lower taxes and aren’t fretting over the change. The impact wouldn’t stop there. The slowdown in home sales would ripple through the economy, hurting contractors and home furnishing stores that get a jolt every time a home is sold.”

“‘Maybe New Jersey ought to take a fresh look at our overall tax structure and find ways to reduce the local property tax reliance and shift to broader-based (system) like sales taxes or corporate taxes so you get more people able to take advantage of that $10,000 cap,’ said Peter Reinhart, director of the Kislak Real Estate Institute at Monmouth University in West Long Branch. ‘The deep concern is that New Jersey, already a high-taxed state, will have even higher taxes and will that accelerate people leaving the state?’”

From North Jersey. “The alarm bells are sounding in New Jersey. They have been set off by the new tax reform law Congress approved this week. But it can be a good thing. The new tax bill will have almost zero impact on ‘the working poor.’ Only 40 percent of taxpayers in the state claim the state and local deduction so they are unaffected by the law. The real impact will hurt the suburban middle class – which have been the target of local, county and state politicians for decades.”

“We did this to ourselves – so if state politicians want to be mad at anyone, they should be angry at themselves. Year after year, New Jersey’s property tax burden on homeowners has risen and has been crushing middle-class families and harming business owners for years. Nevertheless, Trenton legislators, school boards and mayors have ignored the taxpayers’ cries for help. Perhaps now – thanks to federal tax reform – we have the impetus we need for a tax revolt in New Jersey unlike anything this state has seen since Jim Florio was dumped out of statehouse.”

December 20, 2017

Investor Owned, Empty And In Need Of Work

A report from Reuters. “Janet Yellen used her last press conference as Fed Chair to muse that a flat yield curve should not be interpreted as a sign that the economy is heading for a slowdown. In other words, ‘This time it’s different.’ Seasoned Fed-watchers will be forgiven for feeling a sense of deja vu: Her predecessors Alan Greenspan and Ben Bernanke spun exactly the same line before the last U.S. recession began. In July 2005, then Fed chairman Alan Greenspan told the Senate Banking Committee there was a ‘misconception’ of the importance of the yield curve. The supposedly unusual behaviour of long-term yields, where they fell even though interest rates were rising - a phenomenon Greenspan dubbed a ‘conundrum’ - first became apparent in 2004.”

“The Fed started a tightening cycle in May that year with the fed funds rate at a half-century low of 1 percent which would end two years later with borrowing costs at 5.25 percent. In March 2006, barely a month after succeeding ‘the Maestro’ as Fed chair, Ben Bernanke echoed Greenspan’s skepticism that the yield curve was a harbinger of darker economic times ahead. ‘I would not interpret the currently very flat yield curve as indicating a significant economic slowdown to come, for several reasons,’ he told the Economic Club of New York on March 20.”

From the Preston Citizen in Idaho. “The Daytona Dairy in Dayton has passed into the history books as load after load of semi-haulers moved 2,900 cows to their new homes last week. The decision to sell was a difficult one for owner John Gomez, said his manager, Miguel Serna. But a lack of demand for the milk and falling milk prices is behind the move he said. ‘There are 20,000 too many cows in Idaho, Mexico has increased its dairies by 120 percent, and Canada is no longer taking our milk,’ he said.”

“The number of cows in the state have increased annually by about 20,000 animals to it current level of 600,000, said Idaho extension agent Ben Eborn. ‘That’s unreal,’ he said. Idaho is currently the fourth highest dairy producing state in the nation. Locally, before the sale of Daytona’s dairy cattle, Franklin County dairy cattle numbered 14,500. Ten years ago, it was 11,500, according to the USDA.”

“But at the same time, Canada raised is own quota and Europe has lifted its quotas, making it possible for their own dairymen to produce more of their own needs, and lessening their need for U.S. dairy products, said Serna. ‘It’s true, there is a glut of dairy products around the world,’ said Eborn.”

From Quartz Media. “The stress had been building on American retailers for some time, but in 2017, it simply became too much to bear. Before the year was half finished, it was on track for more store closures in the US than the great recession in 2008. Richard Hayne, CEO of Urban Outfitters, went so far as to liken the situation to the pop of the housing bubble that started the recession. The research firm Fung Global Retail & Technology predicts there will be more than 9,400 stores shuttered by the time this year is done.”

“Main streets and all but the high-end malls are looking dismal in what many have dubbed the ‘retail apocalypse.’ Undeniably there was a culling among long-withering department stores, and any number of struggling brands with bloated store spaces and store counts across the country.”

The Grand Forks Herald in North Dakota. “Some say Grand Forks has a healthy vacancy rate for rental units. But others believe the city may have too many apartments. ‘We’re overbuilt, absolutely overbuilt,’ said Kevin Ritterman, owner of real estate developer Dakota Commercial. ‘North Dakota as a whole is overbuilt.’”

“Demand and easier access to capital may have caused overbuilding, Ritterman said.”

The Orlando Sentinel in Florida. “Economists predicted slower price growth in Orlando, about 3 percent — down from double-digit increases in recent years. Getting back to 2006 price levels is key for homeowners who purchased at that time and also for those trying to gain a bigger ownership stake in their homes. One concern: Price increases could stall if investors dump the distress sales they purchased and transformed into rentals. Orlando is seeing near-record levels of single-family homes used as rentals, according to Zillow.”

“Seminole County schoolteacher Catherine Jollie, 26, said she looked at more than 20 houses when she was shopping earlier this year. Most of the houses were investor owned, empty and in need of work. Even though prices seemed high for the fixer uppers, they sold fast. Houses went under contract so quickly that her uncle, Winter Park real estate agent David Welch, quickly crossed them off the list because they were snapped up. ‘It was so frustrating to go in and know I couldn’t beat the offers from other investors,’ she said.”

“Welch said a wave of investment groups selling off properties could swell supply and depress listings. ‘I have definitely run into investors starting to divest themselves and I’m wondering what impact that will have,’ he said, adding that investor sales of starter homes fail to deliver the move-up buyers that benefit a market. ‘The investors are starting to say: ‘This may have played itself out.’”

The Philadelphia Inquirer in Pennsylvania. “If you’re tired of paying increasing rents, the good news is that it’s a buyer’s market in Philadelphia. The bad news, of course, is that if you’re trying to sell a home, it might take awhile. A new report by brokerage firm lists Philadelphia as the third-best buyers’ market in the nation. The buyer’s markets in the top 10 — New York, Chicago and Boston among them — had an average listing price of $297,794. The report says that is $35,330 below the national average. In the end, homes in those markets sold for an average of $16,375 less than their listing prices, researchers found. The homes tended to be active for two weeks longer than properties elsewhere.”

“Number-crunchers also identified markets they called ‘overheated.’ They include locations where residents are spending more than 33 percent of their household income toward their mortgages. Almost all of them are in California, but Oregon and Hawaii squeak in there, too.”

December 19, 2017

A Xanadu For Tech Capitalists And Developers

A report from CBS San Francisco in California. “Bay Area residents are used to hearing about how red hot the housing market is, but home sales on the Peninsula are taking that trend to a wild new level. Consider a home on Colorado Avenue in Palo Alto. It listed for $2.9 million, but sold for $3.9 million, $1 million over asking price. Another home on Anacapa Drive in the Los Altos hills listed for $2.8 million, but sold for $4.5 million. That is $1.67 million over asking. Finally, there is this home on University Avenue in Los Altos that listed at $7.9 million, but sold for $1.8 million over asking.”

“‘The market has been crazy,’ admitted Deleon Realty CEO Mike Repka. He says it’s a common tactic known as auctioning. ‘Spending three to four million dollars on a 1,800 square-foot house seems crazy. But when you know you’re one of 12 that are bidding on it, you don’t feel isolated,’ explained Repka.”

The Santa Monica Mirror. “It’s already well established that the tax ‘reforms’ now being hashed out in secret by a joint committee of Republicans from the Senate and the House of Representatives will likely cost Californians a net sum of well over $110 billion, an average of more than $2,000 a year for every man, woman and child in the state. The tax change figures to drive prices down by anywhere from 8 percent to 12 percent, says one estimate from the National Association of Realtors, which strongly opposes the bill.”

“But the biggest effect – estimated at about $90 billion by the Budget Committee – will come from eliminating deductions for state and local taxes. ‘The tax incentives to own a home are baked into overall values,’ said Elizabeth Mendenhall, president of the national Realtors’ group. ‘When those incentives are nullified in the way this bill will likely provide, our estimates show home values stand to fall by more than 10 percent, even more in high-cost areas.’”

From “Under Ed Lee, San Francisco was remade into a playground for tech capitalists and real estate developers. Ed Lee died suddenly while still in office. As San Francisco mayor for nearly eight years, Lee presided over the city’s tech boom, doing more than perhaps any other individual to transform it into a Xanadu for tech capitalists and the real estate developers who followed on their heels. Worse yet, many of the condos developed on Ed Lee’s watch remain vacant while people sleep in tents on the city sidewalks. There are more than 30,000 vacant units in the city — most of them luxury condos owned by speculators, second or third homes owned by affluent jet-setters, or short-term rentals in partial use. Meanwhile, it’s estimated that nearly 8,000 people in San Francisco are without homes.”

“‘The perception was that Ron Conway had too much of a say on Ed Lee,’ says former city supervisor and state assemblyman Tom Ammiano. Conway is an angel investor who has backed Airbnb, Square, Twitter, Zynga, and sixty-five other San Francisco-based tech companies. He was the single largest donor to Ed Lee’s campaigns; news reports called the two a power couple.”

From the OB Rag. “The following is a composite from what several observers sent us and from media reports about the long, long hearing Dec. 12th before the City Council on short term vacation rentals – one of the most controversial and divisive issues in present-day San Diego. During the lunch-time recess, pro-vacation rentals folks were treated to a free box lunch, provided by something called ‘Share.’ One report said the lunches each cost $8 and were being provided by a company that services the Convention Center.”

“At the beginning of the hearing, organizers of ‘We Support Short Term Rentals’ handed out green shirts and signs for their people. One OB observer sat next to a man in a green shirt who fell asleep and spilled his coffee; the guy turned to our contact and told him he was being paid for being there but how boring it all was.”

The Los Angeles Times. “She doesn’t need an alarm clock, Carolyn Cherry says. Her brain is programmed, by years of routine, to sound an internal alarm just before 3 a.m. One hour after rising, she leaves her house in Hemet and drives in darkness to the South Perris Metrolink station, the first leg of her daily journey to work. Cherry then hustles to the Red Line, pops out of the ground at the Civic Center station, crosses Hill Street and reports for duty as a clerical worker at the L.A. County auditor controller’s office by 7:30. 9 hours of work, 6 hours of commuting a day”

“Her rent is just $800 a month. In L.A., a home like hers would be twice, three times or four times as much. ‘It’s usually 8:15 or 8:20 when I get home at night,’ says Cherry, who has been doing this merciless long-distance commute for 16 years, getting by on just 4½ hours of sleep each night. ‘Nine hours of work and six hours of commuting. That’s my story.’”

The Sacramento Bee. “The weekday commute to the Bay Area from the Sacramento region isn’t easy. It can range from a 90-minute train ride to Richmond to a multi-hour slog to Silicon Valley. More than 17,000 Sacramento-area residents make the commute anyway, according to a Bee review of the latest census data. It’s not just IT workers making the commute. In fact, most of the workers who commute from Sacramento to the Bay Area are in the construction industry, census figures show.”

The San Francisco Chronicle. “The law of gravity dictates that what goes up, must come down—but the vagaries of celebrity real estate don’t always adhere to the letter of the law. There’s ‘poor’ 50 Cent, who’s in a class of his own. The longtime housing has-been is still looking for a buyer for his wayward Connecticut mansion. We’re looking forward to a time when the gods of real estate finally smile upon him, which didn’t happen in 2017.”

“Join us as we look back at 2017’s biggest booms and busts in the high-stakes world of celebrity real estate. Beyonce and Jay Z finally found a place to call their own in Los Angeles. Not only did they purchase a 30,000-square-foot estate with eight bedrooms, four pools, a 15-car garage, recording studio, basketball court, and views of the downtown skyline, they also snagged the Bel Air mansion at a $47 million discount. The asking price for the off-market property was rumored to be $135 million, but Bey and Jay offered only $88 million, and a deal was struck.”

“Rapper Eminem, aka Marshall Mathers, is making a triumphant comeback on the music scene, but he can’t claim the same victory when it comes to his real estate investments. He recently sold his 17,500-square-foot mansion in Rochester Hills, MI, for $1.9 million, which seems to be a fair price, considering that it was assessed at $1,763,160 in 2016. However, that sales price is less than half the $4.75 million he paid in 2003 for the five-bedroom, 10-bath property outside Detroit. That’s quite a loss!’

“Retired NBA great Scottie Pippen has had not one, but two luxurious spreads on and off the market for years now, and he hasn’t been able to close a deal on either one. The ex-Chicago Bulls superstar’s Highland Park property is a five-bedroom spread on 2.5 acres. It has an infinity pool, home theater, wine cellar, eight-car garage, and an indoor half-court featuring a rendering of Pippen’s No. 33 jersey. The mansion, which was listed for $3.1 million in June 2016, is currently available for $2,795,000.”

“Then there’s Pippen’s Italian-style waterfront mansion in Fort Lauderdale, FL. The six-time NBA champ has been trying to sell the megamansion, known as ‘Villa del Lago,’ since 2009. Priced at $16 million nearly a decade ago, it was recently languishing on the market for $10.9 million.”

“Country crooner and TV star Reba McEntire is singing the blues. She took a loss on the Nashville-area Starstruck Farm, which she put on the market in 2016 after splitting from her husband and manager, Narvel Blackstock. It turns out, the developer who bought the property is going to subdivide it and likely make a killing. Although McEntire originally listed the 83-acre farm for $7.9 million, the developer wound up paying only $5 million.”

“It took two years, but hip-hop star Lil Wayne finally unloaded his 15,000-square-foot waterfront mansion in Miami Beach, FL, for $10 million—which is $1.6 million less than what he paid for it, and a full $8 million less than the price he listed it for in 2015.”

“Year-end breaking news: 50 Cent has cut the price of his mansion—again! Relisted just this week for $5 million, the albatross on the rapper’s real estate portfolio won’t let go. The mansion with 21 bedrooms, 25 bathrooms, and one stripper pole has spent the past decade on and off the market. He’s now lowered the asking price from $14.5 million to a paltry $5 million.”

December 18, 2017

Prices Are Just Falling, Falling And Falling

A report from Mansion Global on Canada. “Vancouver’s luxury markets may further cool in 2018 if the city’s proposed measures to quell its housing affordability crisis take effect. Among the measures in the new strategy are: Increasing the tax rate on luxury homes. Imposing a speculation and flipping tax. Closing capital gains tax loopholes. Restricting foreign buyers and investors. To Anne McMullin, president of Urban Development Institute, blaming foreign buyers for Vancouver’s housing crisis ‘is not productive,’ as they account for less than 5% of total residential real estate purchases in British Columbia. ‘Telling them they are banned from buying a home and can only rent in a city that has had a chronic less-than-1% vacancy rate for some years seems discriminatory,’ she added.”

“In terms of luxury properties, during the first seven months of 2017, sales of C$1 million-plus (US$780,000-plus) homes declined 22.5% in Vancouver year-over-year, according to a RE/MAX report in September. For homes over C$3 million (US$2.33 million), the number of sales from January to July dropped 40% compared to the same period last year, the firm’s latest data show.”

From Reuters on Sweden. “Swedish home prices fell for the third month in a row in November, the Nasdaq OMX Valueguard-KTH Housing Index index showed. Worries about sky-high prices, a barrage of media reports about the risk of a crash and a realization that ultra-low borrowing costs will not last for ever have spooked buyers in recent months. A glut of new-built apartments - particularly in the major cities - has also helped to push down prices and draw a line under a culture where it was not uncommon for buyers to purchase apartments without even having seen them in person.”

“‘In the past, people … took a longer time buying a pair of shoes than a home,’ Hans Flink Head of Sales at Svensk Maklarstatistik, an association of Swedish real estate agents, said.”

“Worried that prices would fall further before his family could sell their apartment in town, Carl Arnesson, a 37 year-old economist, recently backed out from buying a house in the up-market Stockholm suburb of Bromma. Prices are just ‘falling, falling and falling,’ he said. ‘Our main worry was - what will we get for our present home?’”

From Bloomberg on Sweden. “Stockholm’s property market is falling. Home prices in the capital have already slumped about 9 percent over the past three months, but probably have further to drop, according to the state-owned mortgage bank, SBAB. ‘The aggregated price data for Sweden as a whole may not look so dramatic, but there are things happening in central Stockholm and in cities such as Uppsala and Orebro where there is an extra large supply of newly built apartments,’ SBAB Chief Executive Officer Klas Danielsson said. ‘Prices in Stockholm city are now down about 10-15 percent, and may well drop another 10 to 15 percent.’”

From the Independent on the UK. “UK homeowners desperate to sell their property in a slowing market have slashed their offer price by an average of £25,562, according to property website Zoopla. An analysis of house price data across its website for November reveals that 35 per cent of properties on the market had been marked down, with average prices in London being cut by more than £50,000. Kensington and Chelsea was the most discounted borough in value terms, with prices knocked down by £129,559 on average – representing 7.9 per cent of the total property price.”

From in Australia. “Sydney tenants can look forward to a discounted lease on life with rents tumbling across the city’s east, west and north and remaining static everywhere else. For the first time since the Global Financial Crisis of a decade ago, increased supply and changing regulation have given tenants the advantage in what was a tight and highly competitive market. Economists expect the falls to continue as the stream of newly built homes that have been sold to investors off the plan hit the market next year, giving tenants a greater choice of homes.”

“Falls in advertised rents were most pronounced in Harbourside suburb Darling Point, where the median rental price fell 22.7 per cent over the past year, the research showed. The median weekly rent in the suburb had been $2200 at this time last year but has since dropped $500 to $1700. Landlords have also been slashing rents by about 21 per cent in Penrith enclave Llandilo, as well as in Box Hill further north.”

“SQM Research director Louis Christopher said landlords were under increased pressure to offer more attractive rents because the risk of their homes becoming vacant had risen following rampant levels of investor buying over the past four years. ‘It’s a good time to be a tenant right now,’ he said. ‘It’s likely there will be further adjustments in prices in certain pockets, especially where there has been a high concentration of new home building like in the Hills (District),’ he added.”

The West Australian. “Civil and mining contractor Brierty counted on sales of Darwin residential lots to keep trading before a property market slump helped trigger its financial collapse, according to administrators. Brierty owed land development subsidiary Bellamack about $14 million when it went under in September, according to a report by its directors. The drying up of lot sales at the Bellamack development was among reasons cited for the contractor no longer being able to meet its financial obligations.”

“In discussing the outcome for the insolvency process, Administrator Matthew Woods of KPMG said, under a liquidation scenario, it was unlikely there would be a payment for unsecured creditors, with the potential exception of any litigation proceedings. Directors have reported the Dalton Gooding-chaired Brierty owed unsecured creditors about $27 million. Former employees were owed about $7 million in unpaid entitlements.”