January 31, 2018

When Supply Outstrips Demand

A report from Bloomberg on Canada. “The only thing that might be colder than Toronto in January is the city’s housing market. While the bleak mid-winter is never the best time to sell a home in Canada, a string of open houses in the country’s largest city were chillingly empty on a recent Saturday afternoon. Tougher mortgage rules went into effect on Jan. 1 just as higher interest rates began to bite, and the market’s on edge, waiting to see if a downturn that began last year will accelerate under the added pressure. Double-digit price growth was volatile and dangerous, said Simeon Papailias, co-founder of the Real Estate Center, real-estate management company. The new stress test will help make sure “that we don’t have unqualified people creating bidding wars,” he said. ‘Sellers are looking for the money they were getting in May, and that’s not a reality, it’s not going to happen,’ said Papailias.”

From Better Dwelling. “Canadian real estate prices were the fastest rising in the world, just a few months ago. Now we’re claiming the opposite title, as the market explores where prices should be. Newly released Federal Reserve Bank of Dallas numbers, show a decline in home prices for the third quarter of 2017. This is the first time in over five years, that Canadian real estate prices have declined for a quarter.”

“Canadian real estate prices dropped the most since the early 1990s, according to the the Dallas Fed. Real home prices, a.k.a. home prices adjusted for inflation, fell 3.82% in the third quarter of 2017. The single quarter decline is the first decline since 2012, and the largest since the first quarter of 1991. This is the largest single quarter decline in the world according to the Dallas Fed’s global index.”

From the Saskatoon Star Phoenix. “The head of the association representing Saskatoon’s real estate agents says while the city’s real estate market is correcting itself, he expects buyer’s market conditions to persist for at least a year, and perhaps as long as 18 months. A buyer’s market exists when a city’s housing supply outstrips demand, leaving potential buyers spoiled for choice while sellers are forced to slash prices or remove their homes from the market altogether. Saskatoon Region Association of Realtors (SRAR) chief executive Jason Yochim said while any ‘appropriately-priced’ home will sell, falling prices suggest the city’s residential real estate market is returning to balanced conditions.”

“Yochim, however, was quick to point out that declining prices — which may yet be influenced by stricter mortgage rules that came into effect at the beginning of 2018 — should not be cause for alarm. ‘Because the decline in prices and activity has been so slow, it wouldn’t appear to me to be a bubble. A bubble would be a more drastic short-term drop similar to what Calgary experienced a couple of years ago.’”

From CBC News. “Prospective home sellers in Saskatoon may be doing the city a favour by lowering their asking prices. While it may be a buyer’s market, this may actually not be the best time to buy a home, according to Josh Buchanan, a Saskatoon real estate analyst. ‘Buying now means you are buying an asset with a depreciating market value, which means it’s not a good time to buy, especially for those people who aren’t certain that they’ll be staying put long-term,’ Buchanan said, adding increasing interest rates and changing government regulations negatively impact the market.”

“Tuesday’s report showed evidence that overbuilding remains high, with numerous new condos and townhouses sitting on the market unsold following their completion. Buchanan said developers were slow to respond to overbuilding in the market and new construction continued, despite demand being satisfied. ‘The quickest and easiest way to sell off this excess supply is just to cut prices significantly to attract more buyers, just like we would see in any other type of market. Unfortunately, sellers are not eager to cut prices, which is preventing the excess supply from being sold off and the market from returning to balance,’ he said.”

From CTV News. “Some foreign investors, particularly those from China, are taking advantage of Canadian loopholes to become ghost immigrants, according to David Lesperance, a tax and immigration consultant with Lesperance & Associates. Lesperance cites one recent judge’s decision from a lawsuit in which the judge said Chinese millionaire Guoqing Fu bought multiple multi-million-dollar homes in Canada while claiming just $97 in worldwide income on his taxes.”

“‘That was really pushing the edge,’ Lesperance told CTV’s Your Morning on Monday. He says the situation would have gone unnoticed if Fu’s family and his partners, the Xia family, had not turned on each other and exposed their activities in court.”

“The judge’s ruling from the case indicates Fu ‘had a large and successful business in China,’ yet he only claimed ‘a miniscule worldwide income of $97.11′ on his Canadian income tax return, despite spending millions on three different homes. ‘This was an incredible assertion given the fact he owns one of the top 10 textile manufacturing and distribution companies, based in one of the biggest textile manufacturing centres of China,’ the judge’s decision said.”

“Lesperance suggests foreign buyers are pulling off these schemes in Toronto, Vancouver and Montreal, where their homes are sitting empty despite high demand for housing in the area. ‘While they are getting the benefits of Canadian permanent residence and citizenship, they are, like this gentleman, not contributing to the tax base,’ Lesperance said. ‘They’re driving up house prices, they are denuding neighbourhoods of vibrancy and customers for local restaurants and businesses, and they’re not contributing to the tax base.’”

“Lesperance says the tactic is not isolated to one particular group. ‘It’s not endemic to one particular group of immigrants,’ Lesperance said. ‘It’s just endemic to immigrants who look at the situation and say, ‘It’s easy to cheat, I get all the benefits, the costs are low and they’re not chasing me.’ And at the end of the day, you get citizenship.’”

From the CBC News. “If all goes well, the arc of early adulthood is supposed to go: graduate, get a job, buy a house. We’re told this is the formula for success. With each milestone you reach, friends and family pat you on the back. And by the time you reach the final step, you know you’ve really made it. You’re a homeowner now. Congratulations. Welcome to the club.”

“But wait. Some smart young people in Calgary with more than enough money to buy are opting to rent. Yep. Rent. Or, as your uncle might say, ‘paying someone else’s mortgage.’ Are they crazy? Or do they know something the rest of us don’t?”

“Taking out a mortgage might make your mom happy, but a lot of things will have to go right for you to make a fraction of what she made on her first home. And if just one or two go wrong, you might find yourself trapped. Past returns are no guarantee of future returns. A cold, hard look at the numbers reveals how the scales of risk and reward can tilt in a different direction. It may run counter to conventional wisdom — the orthodoxy of ownership promulgated by governments, banks and realtors. It may prompt disapproving sighs from family members. It may even bring Tinder dates to an abrupt end.”

“It all comes down to math. Prices for a typical, detached house in our city have hovered around the $510,000 mark for the past few years, says the Calgary Real Estate Board. To buy that house today would likely cost you about $3,000 per month. That would cover the mortgage, property taxes, insurance and maintenance costs. If you wanted to rent a similar home, meanwhile, you can likely find something for $1,700 a month in the current market, which has seen vacancy rates increase fourfold during the downturn.”

“Right there, that’s $1,300 you’d save by renting — each and every month. Add that to the tens of thousands of dollars that you don’t have tied up in a down payment, and now you have some serious capital to feed into in any number of other investments.”

“Home ownership rates have been on the decline for the past decade among people under the age of 35. In the 2016 census, it was down to just 50.6 per cent. Among the baby boomer and older generations, by contrast, the rate has increased slightly to 83.1 per cent. Clearly, there’s little debate in that crowd about the wisdom of home ownership. And understandably so. ‘They kind of have a backwards-looking perspective on it,’ said Max Fawcett, a former Calgary resident who has written extensively on what he’s described as the religion of real estate.”

“The problem, he says, is prospective buyers are presented with an ‘imbalance’ of information. It comes from realtors and bankers with an incentive to sell homes. It comes from well-meaning parents who want their kids to benefit from the same returns they’ve enjoyed. It comes from governments who entice first-time buyers with the ability to borrow down payments from their RRSPs and claim tax credits for home renovations. ‘It makes it difficult for people to accurately assess the information that’s in front of them,’ Fawcett said.”

“‘I do think smart young people value keeping their options open,’ said Fawcett. ‘They know that they can buy whenever they want. That’s the great thing about being a renter … you can buy next week if the numbers change and the math starts to work in your favour or your life situation changes.’”

“In the meantime, they’re resisting the pressure to purchase. They’re more than happy to put away the money they save by renting, while enjoying the freedom and flexibility that brings. Some day, they may choose to buy a home. But for now, they won’t be swayed by their folks, their first dates or the fear of missing out.”

January 30, 2018

Weep Not For Them

A report from the Daily Evergreen in Washington. “I’ll admit I’m extremely skeptical when it comes to housing prices in Washington. There are a few apartments I saw while browsing Craigslist that blew my mind. $1,365 for a top floor unit at the Armory Apartments? DABCO’s downtown luxury lofts? To be fair, the pictures showed some dang nice apartments. My confusion was … why here? Who is their target audience? I mean, this is Pullman, not Chicago or Manhattan.”

“The Armory Apartments, owned by Kolde Properties, share similar amenities to the DABCO lofts and therefore a similar audience. CEO Judy Kolde explained she bought the old National Guard building primarily for her hot yoga studio, but saw potential in the unused space.” ‘Let’s just say you come here as a faculty member moving from Brooklyn,’ Kolde said. ‘They’ll look for something like they’re used to. We want to attract good professors and coaches. If you build it, they will come.’”

From the Tennessee Ledger. “Once the city thawed, out-of-town buyers from all directions awakened and descended upon Nashville’s scant inventory. Houses were swarmed with buyers. With the Airbnb craze, money was falling like manna from the sky into investors’ pockets. Much of the city’s prosperity was due to the sudden proliferation of apartment buildings, with cranes crowding the skyline. Most banks and other lenders had decided that there would be no more loans for condominiums, but it seemed any developer that could fog a mirror could revive funding for apartments.”

“Now in the eighth year of the post-recession economy, things are changing. Apartments are beginning to have vacancies with many offering two months free rent to new residents or two months free rent to residents that refer new residents. And don’t forget the free Apple television. With non-owner occupant Airbnbs in peril, there are investors who will not realize the return they need on their properties.”

“Weep not for them. They had their fun while it lasted. Investors with older homes that are long-term rentals are finding the competing apartment incentives are causing their rents to decrease, often to the point that it is not feasible to retain the properties. Look for these properties to begin to flow into the marketplace. As these homes that were former rentals drop in, buyers should beware. The owner investors have never inhabited the houses and have no idea of the shortcomings that the dwellings may have.”

From Bisnow on California. “Experts say the next recession is not a matter of if, but when. Eight years since the last recession and with no end of a healthy economy in sight, those in the industry continue to be cautiously optimistic and bullish in the local Orange County and national economy in the short term. There is one caveat — millennials will be the key to keeping the economy going and growing, commercial real estate experts said at Bisnow’s Orange County State of the Market event.”

“‘I think the traditional definition of a recession is antiquated — two years of negative [gross domestic product] growth and high unemployment rates,’ Steadfast Cos. President Ella Shaw Neyland said, adding that there have been smaller unnoticeable recessions in different sectors of the commercial real estate landscape. ‘I think there’s a new norm as far as what growth will be because I think consumer spending will be less. The millennials don’t tend to have a high income so they don’t tend to buy as much stuff. I think we’re entering a period of new normalcy but not the kind of growth we are expecting.’”

“Meyers Research principal Mollie Carmichael said it is not that millennials do not want to own homes but lack of affordability is a big factor preventing them from doing so. Orange County has to focus on housing that matches their price points, she said. ‘We need to see innovative production solutions, and if we don’t, I think we’re doomed,’ Carmichael said.”

From the Real Deal on New York. “Another slow week in the luxury residential market left January with the lowest number of contracts in six years, according to Olshan Realty’s weekly market report. There were 15 contracts signed at $4 million and above last week, ending the month’s total at 68. That represents a 29 percent decline from a year ago, and the lowest total since January 2012, a month that saw just 40 luxury deals inked.”

“Actor Bruce Willis’ home topped the list with the No. 1 contract for his duplex apartment at 271 Central Park West, which had an asking price of $17.75 million. That’s $1 million less than what he and his wife paid for it back in 2015.”

From Mansion Global on Florida. “Miami-Dade County’s luxury real estate market had a good end of 2017, as sales of property priced above $1 million surged in December, according to a report by the Miami Association of Realtors and the Multiple Listing Service. ‘Strong pent-up demand for Miami luxury single-family and condominiums fueled December’s strong home sales,’ George Jalil, chairman of the board of the Miami Association of Realtors, said in the report. ‘Luxury sellers are becoming more realistic with their asking prices, and buyers are coming off the sidelines.’”

“Luxury condos spent a median of 184 days on the market in December, 10.2% fewer than they did the same time in 2016. Luxury single-family homes, though, spent a median of 225 days on the market, an increase of 106.4% compared to the year prior.”

From WFTV in Florida. “Plans to build luxury apartments in one of Daytona Beach’s poorest neighborhoods are on hold for now. The property is less than half a mile away from Bethune Cookman University. The only sign there are any plans to build something here is a chain link fence around the property—and because of the lack of progress, some doubt the apartments will ever come.”

“Heron Development LLC published renderings of a six-story luxury apartment complex on the two-acre plot of land and presented them to the City Commission last March. Ten months later, the lot remains untouched, with no construction equipment or activity in sight. ‘It is an eyesore compared to what it was,’ said Scott Summers, who lives nearby. ‘At least it had some life. Now it’s dead.’”

January 29, 2018

Sellers Had To Wrestle With What Value Actually Is

A report from Gatehouse News in Massachusetts. “The low inventory of homes for sale across the Cape and Islands that has pervaded the market in the last 12 months continues to baffle even the most experienced real estate agents, who’ve seen their share of unusual cycles over the decades. ‘There’s something more than [a typical market cycle] going on and I can’t figure it out,’ said real estate agent Bob Wilkinson, an associate of Wilkinson & Associates Real Estate, in Orleans. ‘The market is not nearly as strong as it should be with such limited inventory. You’d think it would be marching off the shelves but it’s not,’ said Wilkinson, who’s been selling in the area for 40 years.”

“With inventory so low, is it a seller’s market? One might think so, but Wilkinson said there’s a dearth of buyers, too. ‘If it was a seller’s market you’d be seeing a lot more action. There are a lot of properties that have been on the market for a long time, and they are not over-priced,’ he added. ‘Other agents might say ‘no, there are a lot of buyers.’ But if that was the case we’d be getting a lot more calls to see the houses that are for sale.’”

A report from Reuters. “Sales of new U.S. single-family homes fell more than expected in December, recording their biggest drop in nearly 1-1/2 years. The Commerce Department said new home sales declined 9.3 percent to a seasonally adjusted annual rate of 625,000 units last month. The percentage decrease was the largest since August 2016. In December, there were 295,000 new homes on the market, an increase of 3.9 percent and the highest level since April 2009. The stock of new home sales still remains well below its peak during the housing market bubble. At December’s sales pace it would take 5.7 months to clear the supply of houses on the market, up from 4.9 months in November.”

A report from Curbed. “Both new and existing monthly home sales fell in December, with new home sales falling dramatically by 9.3 percent to 625,000, while existing home sales fell by 3.6 percent, to 5.57 units. Both numbers are seasonally adjusted. For new home sales, the precipitous drop was accompanies by downward revisions of the numbers from October and November as well. However, the December numbers were 14.1 percent higher compared to December of 2016.”

“According to Zillow, 2017, as a whole, saw the lowest number of new homes sold since 1992, not counting the housing bust and subsequent recovery. ‘[The new home-sales] numbers are not the way we would have liked to see 2017 end for the new home sales market,’ Zillow’s Aaron Terrazas said. ‘[2017] has proven to be a two-step-forward, one-step-back process in getting building activity to where it really needs to be. Big gains in one month are often revised down in the next.’”

“Half of the nationwide decline in existing home sales can be attributed to a whopping 22.2 percent decline in condo and co-op sales in the West, which also saw a 32.1 percent drop in homes priced at less than $100,000 and a 21.5 percent drop in homes priced from $100,000 to $250,000. The drop in sales over those price ranges extended across every region in the United States, although it was most pronounced in the West.”

The Modesto Bee in California. “It’s not just your imagination. They really are building new homes again. But it’s not like before, meaning a decade and more ago, when model homes were a common sight throughout Stanislaus County. These days, new-home construction sites are struggling to make a comeback. Most builders remain cautious, said John Beckman, CEO for the Building Industry Association of the Greater Valley. ‘It’s definitely about time,’ Beckman said of home construction picking up in spots, including Patterson, Ripon, Riverbank, Oakdale, Denair and Keyes. ‘But it’s a very risky business.’”

“John Anderson of Ripon-based J.B. Anderson Land Use Planning does work for several cities, including Riverbank, Waterford and Lathrop. He said, ‘It’s honestly nice to see some finishing lots sitting out there in Village I. But anybody who lived through this economic depression will tell you, ‘Man oh man, we’re gun shy’, Anderson added. ‘They should be. If not, they’re crazy.’”

From Greenwich Time in Connecticut. “Greenwich totaled 570 home sales worth nearly $1.5 billion in 2017. Though the number of sales in 2017 was similar to 2016, they amounted to about $204 million more, according to an analysis by Mark Pruner of Berkshire Hathaway N.E. Properties. An increase in the number of luxury sales and a strong fourth quarter contributed to that uptick, Pruner said.”

“Jonathan Miller, a real estate appraiser and consultant who produces market analysis for Douglas Elliman, referenced two key statistics in his fourth-quarter report: how long homes sat on the market before closing, and the size of listing discounts — the discrepancy between homes’ sale and most recent list prices. Miller defines the luxury market as homes with prices ranking in the top 10 percent. For Greenwich’s luxury market, it took, on average, 310 days for homes to sell, almost double from the year before, he said. The listing discount also doubled.”

“In 2016, the luxury market was ‘dormant,’ Miller said. ‘The market was devoid of significant high-end activity. Come forward a full year, sales aren’t up because the town or schools are any better. The sellers had a couple of years to wrestle with what value actually is,’ he said.”

January 28, 2018

In The Air, There Is Barely Contained Mania

A weekend topic on Canada and Australia starting with ThinkPol. “British Columbians want the government to go after money launderers, tax evaders, speculators and other fraudsters operating in the province’s real estate market, public responses to the governing NDP’s 2018 budget consultation show. Premier John Horgan’s government is scheduled to deliver its first full budget on February 20, and the NDP sought public input to on what to include in it. Many citizens publicly shared their responses to the NDP’s request for consultation, and corruption, speculation and impact of foreign buyers on the housing market seemed to concern many.”

“‘Pass a law no one can buy land or houses unless they are Canadians and jumped up prices will fall,’ Dave Devitt of Chilliwack, BC, wrote. ‘When our kids can’t buy million dollar houses somethings wrong!’ ‘Healthcare, education and mental health and addictions funding,’ Wendy Kathleen said. ‘Go after the money launderers, illegal real estate flippers, scammers, tax evaders and use the money towards all the above!’”

“‘I’d like to see some real disruption of the corruption in BC – money laundering, organized crime, the debacle that is our housing market, etc,’ Bex Tress wrote. ‘This requires manpower and money to oversee/enforce legislation. Be merciless.’”

“But not everyone was on board with deflating the housing bubble. ‘After I read post after post about crashing the housing market, I truly believe that people don’t understand the negative impact that would be for BC,’ KrystalDawn Cooke of Victoria, BC said. ‘Unemployed people can’t afford houses either even when they are $300k. Think of all the trades, realtors, lawyers, restaurant workers and etc that have jobs because the housing market is doing so well.’”

From the Regina Leader Post. “Saskatchewan homebuilders had a rough fall season, with the province posting the biggest year-on-year drop in new housing construction nationwide. Newfoundland and Labrador saw the biggest per-cent drop, but Saskatchewan experienced the biggest loss in terms of dollars. John Lax, spokesperson for the Saskatchewan Construction Association, the same issue has been plaguing homebuilders: low demand in a resource-price-driven downturn.”

“‘Homebuilders build homes when people want to buy them,’ he said. ‘There was a lot of inventory in the multi-dwelling sector that has to be absorbed. We should be looking at a much-improved 2018,’ he said. ‘But until we start seeing the money flow from those improved feelings and intentions, I don’t think we should be throwing any parades yet.’”

The Sydney Morning Herald. “It’s Friday night at Chadstone shopping centre in south-east Melbourne, and a queue has formed outside the Chanel boutique. A sign at the store’s entrance says it’s full: ‘Due to safety reasons, we are unable to let any more clients in at this time.’ A dark-suited staff member stands near the sign, as if to deter anyone so desperate to spend $7000 on a handbag that they are thinking of forcing their way inside.”

“In the air, there is barely contained retail mania. And the sound of people speaking Mandarin. From Hermès scarves and Cartier watches to top-of-the-range BMWs, products with pedigree – and preposterously high price tags – have never been more popular in this country. It’s the tennis courts that worry David Morrell. An agent for buyers at the top end of the Melbourne property market, Morrell says there are 120 courts in Toorak, the city’s richest suburb, and close to one-fifth of them are now Chinese-owned. Judging by the make-up of crowds at real estate auctions in the suburb, he expects that to rise.”

“At one auction, he says, ‘we counted 118 people, and 92 were Chinese.’ At another Toorak sale, Morrell watched three Chinese people bid against one another. ‘I said to the auctioneer, ‘This is like taking candy from babies.’ They just kept their hands in the air. They didn’t understand what the process was, and they didn’t care. It went a couple of million dollars over the reserve.’”

“Morrell is convinced that the flood of Chinese money has distorted the Australian real estate market. He cites Chinese buyer Qi Yang’s payment last August of almost $40 million for a large but slightly rundown Toorak house. That was about $14 million higher than the previous Victorian residential real estate record, Morrell says. And in his opinion, it bore little relation to what the place was actually worth. That willingness to pay over the odds has consequences for other buyers: ‘This time last year, I was paying $6500 to $7000 a square metre. Now I’m paying nearly $10,000 a square metre. That’s the difference in 12 months, and it’s directly related to Chinese investment.’”

From Domain News. “Sydney’s property market summer hangover isn’t showing signs of abating, with weaker than usual auction numbers kick-starting the year. The number of homes that will go under the hammer this weekend is down by more than 60 per cent compared to the same time in the past two years. The clearance rate is down to 50 per cent after only half of the 26 homes listed for auction last weekend sold.”

“‘Prices have gone down but the two auctions that I’ve sold [in the last three months] I didn’t think I’d get above $800,000,’ real estate agent Chadia El-Hage. ‘A lot of people are too scared to put their house up for sale because of how many people are saying the market is going to crash.’”

“It will take a large shift in Brisbane’s housing market if investors are to see any increase in rents in the near future, experts say. Domain data scientist Nicola Powell said stagnated rent had been the norm in Brisbane for five years or more. Dr Powell didn’t expect that to change any time soon. ‘I think it will take a large shift in the market. These tighter lending conditions will make it harder for investors to get finance,’ she said. ‘In the unit market they’re still impacted by oversupply.’”

“Partner at Living Here property management Haesley Cush said the news came as little surprise. ‘The last 12 months has seen a number of new accommodation precincts come out of the ground. What that does is drag down the median price,’ he said. ‘They’ve offered huge incentives and it’s left mum and dad investors unable to compete.’”

From the Gladstone Observer. “It is cheaper to buy a home in New York than it is in Brisbane, according to a new global study that ranks every one of Australia’s major housing markets as ’severely unaffordable’. International housing affordability think tank Demographia has released its 14th survey on house prices, revealing Sydney has the second most expensive housing market in the world after Hong Kong.”

“In Sydney, a home costs on average 12.9 times the median income. Melbourne, Sunshine Coast, Gold Coast, Geelong, Adelaide, Brisbane, Hobart, Perth, Cairns and Canberra are all near the top of the list. Brisbane is ranked the 18th least affordable major city, with homes there costing 6.3 times the median income. In comparison, homes in New York cost 5.7 times the median annual household income.”

“‘Australia is perhaps the least densely populated major country in the world, but state governments there have contrived to drive land prices in major urban areas to very high levels, with the result that in that country housing in major state capitals has become severely unaffordable,’ the report stated.”

January 27, 2018

We Definitely Have An Oversupply

A report from the Seattle Times in Washington. “Seattle’s sky-high crane count has dropped significantly for the first time in years, suggesting the ongoing construction boom could be starting to lose some steam — even as the city continues to lead the country in total cranes. Most of the new buildings under construction are apartments. A flood of new rental high-rises hitting the market late last year led to the first significant rent drop in Seattle this decade, with 6 percent declines downtown, where the bulk of the new towers are.”

“The apartment frenzy could be slowing, though. Developers have noted that banks have started to pull back on funding new apartment towers as rents have begun to lag behind rising construction costs. Seattle still has more cranes than New York and San Francisco combined. But it remains well behind Toronto, which has 88, for the most in North America. Several other international cities from Australia to the Middle East have more than Seattle, as well.”

From the Portland Tribune in Oregon. “Although Portland rents dipped slightly last year, they were still the 20th highest in the country in January, according to Zumper. On a year over year basis, two bedroom rent is down nearly 5 percent. The Reed and Brooklyn Action Corps neighborhoods saw some of the biggest rent dips, down over 15 percent.”

The Dallas Morning News in Texas. “If North Texas lands Amazon’s HQ2, housing those thousands of new workers won’t be a problem. Last year D-FW builders constructed more than 30,000 single-family homes. And developers completed about 35,000 apartments in North Texas. More new housing was built in the area in 2017 than any other U.S. metro area. ‘Product availability in metro Dallas totals about 57,000 apartments - roughly 33,000 vacant units in existing properties and another 24,000 or so units in projects that are under construction,’ RealPage chief economist Greg Willett said.”

From Crain’s Chicago Business in Illinois. “The developers of the Marquee at Block 37 wanted a big price—about $370 million—when they put the new Loop apartment tower up for sale last year. But they found another way to score a hefty payday. They refinanced the 690-unit high-rise last month with a $225 million loan from New York-based Blackstone Mortgage Trust, allowing them to pull tens of millions of dollars out of the property and still retain ownership.”

“It’s one consequence of an overbuilt downtown apartment market. With developers completing as many as 8,500 units in downtown Chicago over the next two years, investors have grown wary of paying up for shiny new buildings. Unable to get their price, developers are refinancing instead, capitalizing on low interest rates and a positive lending climate.”

“By refinancing, many ​ developers can score a loan that’s large enough to pay off all their construction debt and return all their equity and then some. By borrowing $225 million, the Marquee’s developers, CIM Group of Los Angeles and Toronto-based Morguard, could pay off a $110 million construction loan and pocket much of the $115 million in proceeds.”

“Cash-out financing is nothing new in real estate. When prices are rising, homeowners can borrow more against their residences, allowing them to keep the difference between old and new loan amounts. Refinancing in commercial real estate works in much the same way, though developers can often boost their debt significantly. Lenders are willing to provide a much larger loan against a building that’s completed and leased up than one that only exists on a piece of paper. Developers also don’t have to pay capital gains taxes like they would in a sale, or take on the challenge of redeploying their capital in a new project.”

“Many investors that buy high-end buildings are just waiting to see how the downtown market shakes out over the next 18 to 24 months. Prices for luxury downtown properties have plateaued, or even started to fall, as the swelling supply of new apartments has forced many landlords to offer generous concessions like free rent. As a result, the average net rent, which includes concessions, at top-tier, or Class A downtown buildings, fell to $2.83 per square foot in the third quarter. Apartment sales also have dropped.”

“Though CEO of Fifield Cos., Steve Fifield still speaks with a developer’s optimism, he has no illusions about the near future of the downtown apartment market: ‘We definitely have an oversupply in Chicago. ‘18 and ‘19 are going to be very competitive.’”

From Curbed New York. “NYC renters had more leverage with landlords in the fourth quarter of 2017 than they’ve had in a long while, StreetEasy claims. In Manhattan a little over a third of the rentals had their prices cut, which was the highest percentage since StreetEasy started tracking these records in 2010. Queens and Brooklyn both had 28 percent of its rentals offered up with price cuts, which was the highest in Queens since 2012, and the second highest in Brooklyn.”

“In Manhattan, neighborhoods like Morningside Heights, Stuyvesant Town, and Lincoln Square were all ideal if renters were looking for big discounts; in Brooklyn the same could be said about some areas around Prospect Park; and parts of Northwest Queens. ‘While a flood of new construction has been the main driver of the rental market slowdown we’ve witnessed over the last year, the fourth quarter’s rent cuts are more far-reaching than in years past,’ said StreetEasy Senior Economist Grant Long.”

January 26, 2018

The Belief That Was A Collective Hallucination

It’s Friday desk clearing time for this blogger. “This week, 10 years ago, Americans learned that the U.S. had its largest single-year drop in home prices in a quarter century. It began, in many ways, in people’s heads. That is, after all, where hopes ultimately reside. The belief that housing prices could only, permanently, inexorably, go up was a collective hallucination, but it felt very real. ‘Oh, it was so hot!’ said Heidi Kasama, president of the Nevada Association of Realtors. ‘Literally, I remember one time I was entering a listing into the computer and the phone rang — I’m not kidding — less than a minute after I hit enter, and somebody asked me, ‘Is it still available?’ That’s how frantic people were.’”

“The Bay Area’s red-hot housing market is showing no signs of cooling. Ken Robertson of San Jose found this out recently. He and his wife listed their three bedroom, two and a half bath house in San Jose’s Willow Glen neighborhood last Thursday. Asking price: One-point-five million. hundreds of people came over the weekend, and as recently as Monday night, to see and wish upon a star. Five days later, he’s accepting one-of-seven offers, according to Intero realtor Alicia Duarte.”

“In some cases, realtors say properties are selling even sooner, when the sign goes up announcing an impending sale. For buyers, the future holds higher prices pushing the dash for new digs to new heights.”

“The median sales price for a single-family home in Brevard County rose more than 19 percent in December 2017, to $227,789 from the same point a year earlier. But what were once whispers of an overheated housing market are turning into more of an open debate between the ‘yes, we are’ vs. the ‘no, we’re not even close’ camp of a housing bubble.”

“There’s no question of a similar over-exuberance when it comes to real estate, said Scott Ellis, the Brevard County Clerk of Courts. Ellis goes back to headlines between 2005-2008 that dismiss any talk of a significant bubble, or a correction, and they’re eerily similar to what he’s hearing today. ‘The problem is the underlying sound pricing economics have fallen prey to the intense belief prices will relentlessly surge,’ Ellis wrote.”

“Michael Slotkin, associate professor of economics at Florida Institute of Technology, doesn’t think Brevard is in a housing bubble. ‘We still haven’t seen anything like the manic production of housing units that occurred in 2004-06, where we saw phantom demand with no population increase to support it,’ Slotkin said.”

“‘Over the last few years residential and commercial construction has nearly tripled in the Edwardsville area,’ stated Mike Rathgeb, owner of Spencer Homes, one of the metro east’s premier builders. Spencer Homes is filling a void in the housing market at a more affordable price with their latest home development, @Cloverdale. The high quality, low maintenance homes now start at $289,000, a more than 20 percent price reduction from 2017.”

“The hot market for mega mansions in Los Angeles has cooled. Fewer blockbuster sales caused the median price to dip while inventory shrunk as owners pulled stale, overpriced listings from the market. ‘One of the things we’re seeing in high-end markets across the country, the inventory is dropping … because the overpriced inventory that’s been sitting for a couple of years are being left to expire,’ said Jonathan Miller, president of appraisal firm Miller Samuel.”

“The sale is most certainly on. J. Crew chairman Mickey Drexler has cut the price of the Manhattan loft he has been trying to sell for around two and a half years almost in half. The TriBeCa apartment has been put back on the market this week with a new price of $18.5 million, close to half the original asking price of $35 million when it was first listed for sale in April 2015. Drexler is just one of the many high-end sellers who are struggling against a backdrop of Manhattan’s weakening luxury property sector, where a flood of high-end condos coming to market has meant that buyers have a slew of options to choose from.”

“The 2018 Toronto housing market is off to a slow start, and buyers’ market conditions prevail. According to mid-month data collected from the Toronto Real Estate Board (TREB), numbers indicate sales are down annually across every housing type — with the exception of semi-detached homes. A number of factors could be influencing January real estate, which, so far, is in sharp contrast to the frantic activity witnessed in early 2017 when Toronto real estate ramped up towards the March peak. This year, buyers and sellers prove trepidatious as new mortgage rules — which have slashed affordability for the average buyer by 20 per cent — are absorbed.”

“There is little sign the cuts to stamp duty announced in the 2017 Budget are stimulating demand among first time buyers. Shore Capital analyst Robin Hardy says: ‘The market net balance has fallen again with demand (new buyer enquiries) slipping faster than supply (new vendor instructions) once again pushing us more towards a deflationary buyers’ market.’”

“Housing prices were on the decline in Sweden at the end of 2017. The fall in prices has been most dramatic in major cities like Stockholm where the prices in January 2018 were down 12% from the peak in August 2017. According to a report from Swedbank published Wednesday the market will fall still further. The combination of a large supply of new built housing in 2018 and the stricter amortization rules mean that the market has not stabilized yet.”

“Property owners in Dubai better be willing to cut their asking prices if they want to sell. If not, they are staring at future disappointments. With off-plan sales from developers overwhelming demand in the secondary market, individual owners have limited options on pricing their properties. ‘We are seeing declines in secondary market listings, especially in the price ranges where new supply has been added in 2017,’ said Lynnette Abad, Partner at Cavendish Maxwell. ‘In 2017, sellers held firm to their pricing in the secondary market … while their units sat empty. We are starting to see units priced a little closer to realistic selling levels. However, the asking prices are still far higher than the achieved.’”

“An Auckland property developer has admitted to his part in a $50 million mortgage fraud case. Kang Huang pleaded guilty to 10 criminal charges in the High Court at Auckland before Christmas, the Herald can reveal. He was one of a quartet charged by the Serious Fraud Office in a case involving more than 70 Auckland and Hamilton properties - and mortgages of about $50m. The SFO alleges the accused provided false information or documents, or withheld information from either the BNZ or ANZ to obtain loans to purchase properties between December 2011 and October 2015.”

“The SFO alleges, according to court documents, that false salary payments were made as part of the applications for some of the loans. Banks were also allegedly provided with false income and employment information. Those defending the case include Huang’s wife, Yan (Jenny) Zhang. Zhang, who is also known as Kang Xu, is facing charges for obtaining by deception. Lawyer Gang (Richard) Chen is also facing charges for obtaining by deception. The third defendant heading to trial is former bank worker Zongliang (Charly) Jiang. Jiang is facing a Secret Commissions Act charge of accepting gifts and charges for obtaining by deception.”

“‘From our point of view, they [foreign buyers] are disappearing severely. The banking policies, stamp duty surcharge and Chinese government control have created the perfect storm,’ Country Garden Australia managing director Guotao Hu said. The comments echo those of Meriton’s Harry Triguboff who told the Financial Review last week that the sharp drop in foreign buyers was not just bad but ‘very bad.’”

“Chinese developer Starryland’s managing director Hao Liu who sold out his Parramatta Promenade apartments in 2014 said it was not only counter-intuitive but unfair to introduce stamp duty surcharges and lending cuts so late in the cycle.”

“‘The foreign buyer correction has come during the downturn in the market. When it was hot in 2014, the government happily allowed foreigners to buy but only when people complained they increased taxes,’ he said. ‘Many developers entered the market excitedly only to be trapped further down the development cycle.’”

January 25, 2018

The Potential For A Glut Of Properties

A report from MarketWatch. “‘It is 2005 all over again in terms of the valuation extreme, the psychological excess and the denial.’ That’s what James Stack, who accurately predicted the last housing crash, told Bloomberg about what he’s seeing with home prices these days. Stack explained that his ‘Housing Bubble Bellwether Barometer’ of home builder and mortgage company stocks, which enjoyed an 80% rally in the past year, is once again sounding the alarm for overconfident real-estate investors. ‘People don’t believe housing is in a bubble and don’t want to hear talk about prices being a little bit bubblish,’ Stack, who manages more than $1 billion for high net worth clients, told Bloomberg.”

From the Press Herald in Maine. “For the third consecutive year, Maine set a statewide record for home sales volume in 2017, according to Maine Listings data. The evidence that limited inventory in southern Maine curtailed what could have been an even bigger sales year can be found in the data for York and Cumberland counties, said Michael Sosnowski, owner of the Portland real estate brokerage Maine Home Connection. ‘Nearly every community in the Greater Portland area experienced sales declines in 2017 – some in double digits,’ Sosnowski said. ‘For example, Portland, which eclipsed 600 annual single-family homes sales for the first time in history in 2016, recorded a decline of 15 percent in 2017.’”

“Portland homebuyers Charlotte Harrison and Sam Tracy said they experienced firsthand the effects of a housing market in which demand far outstripped supply. Harrison and Tracy, both 26, visited about a dozen homes before placing the winning bid of $425,000 on a four-bedroom, 1,960-square-foot home on Noyes Street in Portland’s Oakdale neighborhood. ‘It ended up being pretty much our dream house,’ Tracy said. ‘It’s big and yellow and has a turret.’”

From the Los Angeles Daily News in California. “Housing prices in the San Fernando Valley ended the year at a median price of $643,783, the highest ever recorded in the area, according to the Southland Regional Association of Realtors. ‘Today’s resale activity is a shadow of what the local housing market once was,’ said Gary Washburn, president of the association in a statement. ‘Even with record prices, people clamor for housing more than ever, yet there simply are not enough homes listed for sale.’”

“A report from the California Association of Realtors said all major regions posted year-over-year sales declines, with sales in the Los Angeles metro region dropping 7.1 percent, the Inland Empire decreasing 3.5 percent.”

The News Press in Florida. “Fort Myers, Naples and other parts of Florida do not have enough workers. The shrinking labor force is a big issue that a nationally acclaimed economist said he could not stress enough ‘You’re out of people,’ said Elliot Eisenberg. ‘This is a real problem. You will have problems in ’19 or ’20 because there will be no one to hire.’”

“Quickly: there’s no housing bubble, student loans have gotten ‘really big,’ but millennials will be fine, and consumer confidence is good. Taking everything into consideration, ‘it’s virtually impossible for us to have a recession this year,’ Eisenberg said, adding the only way he sees that happen is if the stock market crashes.”

“A weaker dollar is a concern. Gross domestic product was 2.5 percent this past year, but it’s unlikely to increase much due to productivity issues and labor force growth. ‘It’s just not that good,’ he said. ‘We can’t do much better. It’s not possible. Economically we’re running out of workers. It’s going to slow us down.’ Changing that reality will not be easy, with workers on the sidelines unlikely to jump in. ‘We’re just out of workers, and the workers that are available, they can’t pass a drug test,’ he said.”

The New Haven Register in Connecticut. “Single-family home sales in Connecticut last month fell dramatically compared to December 2016, according to a state real estate trade group. ‘You have to look at the prospect of rising interest rates,’ said Donald Klepper-Smith, chief economist for New Haven-based DataCore Partners. ‘I would not use the word ‘robust’ to describe this housing market.’”

“Add to the mix the problem that more people are leaving Connecticut than are moving in and you have the potential for a glut of properties on the market.”

The Real Deal on New York. “The number of luxury contracts signed in the residential market last week looked a lot like this time last year. But prices were pushed way down due to big reductions on the week’s priciest deals, according to Olshan Realty’s luxury market report. The week of the Martin Luther King holiday saw 18 contracts signed at $4 million and above, the same number from a year ago. But luxury units saw a 20 percent discount from their original to final ask, a result of developers who spent years marketing their units at what Olshan called ‘fantasy prices.’”

“The priciest contract signed was on the penthouse at DHA Capital’s 12 East 13th Street in Greenwich Village, which took a haircut of nearly 60 percent from its original ask. The 5,704-square-foot triplex went into contract with an asking price of $12.95 million, down from the $30.5 million it was asking when it first hit the market in December 2013.”

From Champagne and Shade. “Margaret Josephs isn’t the first person on Real Housewives of New Jersey to have money problems. She is the latest! New reports claim that the ‘powerhouse in pigtails’ is facing the foreclosure of not one, but two properties due to failure to pay. According to Page Six, Margaret Josephs and her husband, Joe Benigno, were sent a foreclosure notice by Unity Bank on December 15. More recently, information from the paperwork was entered in as a public record in Bergen County.”

“The bank notice seeks to recover a $1.2 million mansion owned by Josephs and Benigno as well as the property right next door. Now, this is where it gets weird. According to the report, Margaret and her husband took out two mortgages on the two separate properties in late 2016. That would have been around the same time that Margaret should have started filming Real Housewives of New Jersey with her new group of friends.”

“It was pointed out that Margaret hosted her 50th birthday party in the home despite having an empty living room and making excuses about how she wasn’t done renovating yet. Did she run out of money in the middle a la Sheree Whitfield from RHOA? Or did the RHONJ couple just bite off way more than they could pay for?”

January 24, 2018

Frustrated Sellers Who Just Want To Move

A report from CBC News in Canada. “Planned homes in a new Whitby subdivision are on sale for up to $90,000 less than similar homes in the same development were a year ago. Good news if you’re house hunting now. Bad news if you bought into the development a year ago. Last January, Astrid Poei and her husband Sheldon Fisher purchased one of more than 100 lots in Phase 1 of the new Queens Common community. Phase 2 of the Mattamy Homes project re-launched this month with the same sized lots and floor plans offered at lower prices. Poei and Fisher say they were ’shocked’ to find out that homes and lots very similar to the one they purchased are now on sale for $75,000 less than what they paid. ‘It’s painful,’ Poei said in an interview. ‘There are no building materials on site, there is no foundation poured, so I don’t understand how we are paying more than someone who bought a couple of weeks ago.’”

“The answer, according to Mattamy Homes Canada president Brad Carr, lies in what was an unprecedented year of change in the GTA real estate market. ‘Recently prices in the GTA have drifted downwards,’ Carr said in an interview. ‘Obviously we need to respond to be able to sell at prices purchasers are willing to pay.’”

“Despite ’short term ups and downs,’ Carr is confident the homes will appreciate in value over time, as has been the case historically in the GTA, and says buyers who are in it for the long run have nothing to worry about. ‘Just like the buyers are extremely happy in a rising market, they have to appreciate that the same decision could go the other way,’ he said. ‘To come back a year later and see the same house that we bought is now $90,000 cheaper, that’s not cool,’ said Dionne Thompson, who also bought in Phase 1.”

From The Guardian in the UK. “Owners of luxury London properties are having to knock more than £1m off their house prices to sell them. Mayfair-based property buying agent Garrington said homes in the capital’s most exclusive neighbourhoods have been reduced in price by an average of 9%. In Knightsbridge, the most expensive area, prices have been cut by an average of 12% – £927,000.”

“Jonathan Hopper, managing director of Garrington, said sellers are having to take drastic action to realise the value of their homes. ‘There is huge discounting of super prime properties above £5m at the moment,’ he said. ‘A lot are being discounted by 10 or 20%.’ Hopper said that in one example a Knightsbridge home first listed on the market for £20m in the summer of 2016 was in the process of being sold ‘very quietly’ for £15m. ‘They are frustrated sellers who just want to move,’ he said. ‘But this is not happening on the open market, it is all happening behind closed doors.’”

“Henry Pryor, an independent luxury property buying agent, said sales of high-end properties had all but dried up and he expected sales to slow further as the date for Brexit approaches. ‘It’s a Siberian winter out there.’”

The Asia Times on Thailand. “In a report published in December, the Agency for Real Estate Affairs estimated that 397 new housing and condominium projects were launched in Bangkok last year, putting 117,112 new units to the market, up 8% year-on-year. ‘In Thailand, there is no shortage of housing at all,’ says Sopon Pornchokchai, president of the Agency. ‘If this trend goes on in 2018, a bubble burst can be witnessed in 2019 or 2020.’”

“Colliers International Thailand, a property consultant, estimates that some 36,000 condominium units remained unsold in the capital at year end, or about 23% of the new supply. For other realtors, the unsold estimates are even higher. The glut is particularly noticeable in the lower-priced, single unit condominiums that have proliferated along Bangkok’s new mass transit lines, attracting mostly Thai investors buying for their own use or as speculators aiming at the rental market.”

From the Malaysian Insight. “A call has been made for the government to address a potential glut in affordable housing that arose from ever increasing government and private sector schemes, The Edge Markets reported. ‘We don’t want an oversupply of affordable homes like what we had with the PPR (People’s Housing Project) where there was an oversupply years ago,’ said CBRE WTW Kuala Lumpur director Ungku Mohd Iskandar Ungku Ismail.”

“There are 21 non-landed home developments which were completed in the Klang Valley in 2017, supplying an additional 8,300 high-rise homes into the region, bringing the cumulative supply to 46,400 high-rise homes. There will be an incoming supply of about 14,000 high-rise homes entering the Klang Valley property market, Iskandar said. Bank Negara Malaysia, in its latest quarterly bulletin published in November, said the number of unsold residential properties is at a decade-high, with a majority of units being in the RM250,000 and above price category, beyond the income of most Malaysians.”

“The central bank said the oversupply of office space and shopping complexes in the major states is expected to be exacerbated by incoming supply, potentially becoming more severe than during the Asian financial crisis.”

From the BBC on China. “Employees at a brick factory in southeast China who were collectively owed some 90,000 yuan (US $14,050; £10,080) had their unpaid wages topped up in bricks, it’s reported. According to the Xinhua News Agency, some 30 factory workers in Nanchang, Jiangxi province, agreed to receive 290,000 bricks in exchange for 80,000 yuan of their owed earnings. Xinhua says that their employer, who has not been named by local media, is still trying to figure out a way to repay staff the remaining 10,000 yuan that they are owed.”

“The story has ignited lively debate on Chinese social media, with many users of the Sina Weibo microblog expressing concern. ‘Why is it always rural migrant workers that are paid in arrears?’ asks one. Others make jokes at the expense of China’s housing bubble, saying that the situation has become so bad that bricks constitute a decent substitute for finances.”

From Fairfax Media on New Zealand. “There has been a sharp increase in owners selling houses and apartments for less than they paid. One in 10 apartments sold in the third quarter of 2017 went for less than their owners paid for them, according to CoreLogic’s Pain and Gain Report. CoreLogic head of research Nick Goodall said Christchurch saw the highest level of loss-making resales of residential properties. More than 11 per cent of Christchurch homes sold in the third quarter changed hands at a loss.”

“The median length of time loss-making sellers had owned their property was just 4.5 years, indicating some recent buyers of houses and apartments had ditched their investments when the capital gains they had expected did not materialise, Goodall said. ‘This may be a sign of market fatigue with buyers choosing to cash out of the market rather than risk holding the property and potentially experiencing further loss,’ he said.”

Investors bore the brunt of loss-making sales, CoreLogic found. The median loss for Christchurch home-owners who sold for less than they paid was $39,000. The median loss-making seller in Auckland was left $34,000 out of pocket, before selling costs are taken into account.”

From News.com.au on Australia. “It could be a bad year for housing prices if building approvals are anything to go by. With the housing market teetering on the edge of a serious downturn, apartment developers seem to be having a ‘last blast.’ Building approvals data released last week shows a serious uptick in the number of homes that were approved. The timing of this big push is fascinating because November is exactly when Australian capital city housing prices started falling. The developers didn’t know in advance that was going to happen, but they might have sensed it. After all, what could drive such a big uptick in building approvals is the sense that it is now or never.”

“It’s curious there’s still many apartments being approved in Victoria, after real estate agent Mariecris Tagala last year claimed more than half of new apartments in Melbourne’s CBD, Docklands, and Southbank have sold at a loss since 2011.”

“Markets are supposed to co-ordinate supply and demand. But that’s a hard job when supply takes a long time to come online. If you’re halfway through building a big development when the market falls by 10 per cent, you’re in a bind. The losses involved in finishing the properties and selling them for less than they cost to build will almost certainly be smaller than the losses involved in abandoning the project, so you have to push on to get at least some money back. This is the essence of the boom and bust cycle that characterises property.”

January 23, 2018

The Glut Of Supply Is Showing Up

A report from Bloomberg on California. “Landlords counting on downtown Los Angeles as a cash machine may be in for the same bout of pain as their counterparts in Manhattan, where a flood of supply has started to drive down rents. More than 4,000 new apartments are forecast to hit the Los Angeles market this quarter, according to CoStar Group Inc., as the first wave of as many as 30,000 in the next three years. Much of the construction is concentrated downtown, where it’s easier to build than in other parts of L.A., and almost all the new apartments will be at the higher end of the market. The glut of supply is showing up in flattening growth and concessions, such as six weeks of free rent, said CoStar analyst Steve Basham. These economics are similar to those of the Manhattan real estate market, where last month the median rent declined 2.7 percent from a year earlier as demand fell short of supply.”

From Patch Brooklyn on New York. “The average Brooklyn apartment got cheaper for buyers and renters alike at the end of 2017. The borough’s average home sale price for the last three months of 2017 dipped about 4 percent from 2016 to $853,000, according to a Corcoran report. A slowdown at the most expensive end of the Brooklyn market drove the price drops, the reports suggest. The trends in Brooklyn mirror a similar drop in Manhattan housing prices at the end of last year.”

“Brooklyn rents ‘had become so overpriced in terms of rent, that they were due for a correction,’ RentCafe’s report says.”

From the Denver Post in Colorado. “Thousands of new apartments continued to pour onto the market in metro Denver last year, pushing down rents and pushing up vacancy rates to their highest level in seven years, according to the Denver Metro Apartment Vacancy and Rent report for the fourth quarter. Metro Denver absorbed 11,821 new apartments last year, up from 11,056 in 2016. That represents the most in records going back to 1981, although the 1970s had years with more robust construction.”

“‘These are the largest years on record in the survey, and I am told we would need to go back to the 1970s to find numbers of this monster magnitude,’ Ron Throupe, associate professor of real estate and construction management at the University of Denver’s Daniels College of Business, said in his report.”

“Denver had an estimated 21,541 vacant units at the end of last year, the most since 2009, when the recession was weighing on the economy. Vacancy rates haven’t been this high in about seven years and in markets with heavy new construction, the rate is much higher. Castle Rock reported a vacancy rate above 25 percent and in northwest Denver it was above 30 percent in the fourth quarter. With so much new supply coming, apartment developers need net migration to hold up. There are signs, however, that higher housing costs and congestion are motivating more people to leave the region.”

The Pittsburgh Post Gazette in Pennsylvania. “Apartment rents have soared so high in some of the hottest Pittsburgh communities that it has become cheaper in many cases to buy a home rather than rent. That’s especially true in the East End, where luxury apartments in Bakery Square, Lawrenceville and East Liberty have multiplied in recent years. Ben Atwood, an analyst for Costar Market Analytics, told members of the Apartment Association of Metropolitan Pittsburgh last week buildings that opened up in 2017 have a cumulative vacancy rate of about 40 percent. The majority of new buildings were high-end apartments where the cost of a two-bedroom unit could run more than $4,000 a month.”

“‘The problem that you are about to have is the Downtown area is about to add about 1,000 more new units over the course of 2018,’ Mr. Atwood said. ‘That is going to expand the inventory pool by close to 14 percent in one year alone. I don’t think there is much of a way to sugarcoat this,’ he said. ‘I don’t think that vacancies are going to stay close to what they are now, and I don’t think rents can grow in an environment like that. Vacancies for new units are three times higher than for older buildings, which suggests that the Pittsburgh multifamily market is overbuilt.’”

From The Oklahoman. “Last year was a pleasant surprise repeat for metro-area apartment investing, a longtime multifamily broker said. Again. Interest rates fell and capitalization rates stayed low, keeping demand high and prices up in 2017, said Mike Buhl, owner of Commercial Realty Resources Co. in Norman. A capitalization rate — or cap rate — is a percent measurement used to gauge investment risk and value by dividing a property’s purchase price by its net operating income.”

“The higher the cap rate, the lower the risk and the lower the property value; the lower the cap rate, the higher the risk and the higher the property value. So, the lower cap rates are, the better for sellers. ‘You look at the employment rate for Oklahoma City. The economy is doing very well here when you compare it to other parts of the country,’ he said. ‘On cap rates, although they’ve been trending downward, they’re still very reasonable — and the market offers a lot for investors here.’”

“Most of the sales increase was for older apartments, those built before 1980; Buhl counted 5,500 units sold. Fewer than 1,900 units of 1980-present apartments sold, he said. ‘What that means is that investors are less choosy about the properties they buy and the prices they are willing to pay,’ the report said.”

“The other main attraction of older, stable apartments has to do with financing, Buhl said. ‘If a property has a good historical occupancy over 90 percent,’ he said in his report, ‘then it will qualify for (government) agency financing, which offers the best combination of maximum loan proceeds and attractive interest rates.’ Some of the sales in 2017 were financed with loans as low as 4 percent with 30-year amortization, 10-year maturity dates, and interest-only payments in the beginning year(s). Freddie Mac continues to be the leader, making more permanent loans on apartment properties than any other type of lender.’”

From The Daily News in Washington. “In 2008, real estate developer Larry Wood had just started a townhouse development in West Longview when the recession hit and the housing market tanked. He was forced to declare bankruptcy and abandon the project. As the market recovered, Wood got back on his feet and bought back the project two years ago. ‘Banks are willing to work with people (again). It’s easy to be successful because it’s an easy market,’ Wood said. ‘But it makes me sad. I can do well just targeting the higher end, and I see a need for the higher end. But I also really see a need for these affordable townhomes and (other projects).’”

“Nearly a decade after the market crash, Longview developer Chuck Bond’s new 20-unit Copperwood Apartments, is the only apartment complex built in Longview since 2006, according to the city. Bond’s Copperwood project opened in October. To recoup his investment, Bond said, he would have to charge $1,295 a month for the new, 960 square-foot apartments. However, after a slow start to leasing out the units, Bond said he had to drop rents by $200 a month. The complex filled up in a month. Yet Bond said rents will probably have to creep back up to $1,295 for him to profit off the $2 million investment.”

From the Villages News on Florida. “Construction of a large mixed-use project on farmland across from Pinellas Plaza along County Road 466A could begin this summer. Wildwood commissioners voted Monday night to extend the project’s planned development ordinance for a year upon the request of a Sarasota engineering firm. The ordinance, which required that construction begin within two years, expired Jan. 11.”

“Last March, Wellstone Living applied for a permit to grade the property and complete a drainage plan so utility construction could begin. The former owner, WholeLife Properties, announced in December 2015 that the planned development on 154 acres would include more than 700 homes and apartments. The first phase, scheduled to begin nearly two years ago, included 400 luxury bungalows expected to rent to adults age 55 and older on three-year leases for $3,000 to $4,000 a month. An apartment building of up to six stories also was planned.”

“The project was delayed when WholeLIfe Properties filed for Chapter 11 bankruptcy protection in June 2016 after a lender’s letter threatened foreclosure on property the company owns in McKinney, Texas.”

January 22, 2018

Perfunctory Valuations Abound

A report from CNBC. “December’s steep drop in single-family housing starts is not indicative of what is really going on at construction sites across the nation. There is optimism among homebuilders and a sharp rise in demand from homebuyers. Builders are now starting to build more speculative homes — that is, homes that don’t have a buyer yet, because demand is so strong. ‘The builders are shifting to the lower price points and entry-level, but their entry-level buyer is a more affluent entry-level buyer, somebody who went to college, got married in their 30s, buying in communities that are $800,000 instead of a million 2,’ said John Burns, CEO of John Burns Real Estate Consulting.”

From the Arizona Republic. “Rising metro Phoenix home prices are making it harder for many buyers. But this month, government mortgage backers began offering a little extra help. The Federal Housing Administration, Fannie Mae and Freddie Mac have raised the loan limits for mortgages. Almost 64 percent of all Phoenix-area homebuyers used one of those loans to buy in 2017, so the higher limits are bound to give the market a boost.”

“Homebuyers can now borrow up to $453,100 using Fannie and Freddie mortgages. That’s up $29,000 from last year. The loan limits on Federal Housing Administration loans climbed to $294,515 from $279,450 at the beginning of the year. ‘I’ve been surprised by how many new loans we have seen since the limits were increased this month,’ said Dean Wegner of the Scottsdale office of HomeStreet Bank. ‘I think the higher limits helped with some pent-up demand from buyers.’”

“Since the too-easy-to-get subprime mortgages that spurred the housing crash, any changes to make getting a mortgage easier raises alarm bells with some real estate market watchers — including me. I’m watching closely for any signs that could spark another housing crash. But this is only the second time since the crash in 2008 that federal loan limits have been increased. The first was in 2016. And metro Phoenix home prices have nearly doubled since the crash.”

From Mother Jones. “The Wall Street Journal reports that banks are getting tired of performing actual appraisals for high-volume home loans—the kind that get packaged into mortgage-based securities—and are turning instead to less rigorous broker price opinions: ‘Now these perfunctory valuations abound, underpinning tens of billions of dollars of home deals. Sometimes the process is outsourced to India, where companies charge real-estate agents a few dollars to come up with U.S. home values by consulting Google Earth and real-estate websites. BPOs have been used to value collateral in the more than $20 billion of bonds sold by institutional landlords, such as Blackstone’s Invitation Homes Inc., and in the fast-growing business of lending to individual house flippers.’”

“‘Their popularity,’ says the Journal, ’shows how Wall Street is finding ways to adapt to government efforts to crack down on some of the excesses that contributed to the housing crisis.’”

The Argus Leader in South Dakota. “Rising home prices in Sioux Falls last year are likely unsustainable and could create problems for families trying to afford a house this year, according to economists for a national provider of homeowner’s insurance. The same goes for South Dakota’s second biggest city. Both Sioux Falls and Rapid City ranked near the bottom of Nationwide’s housing affordability index, which rates hundreds of metro areas across the United States.”

“The resulting score allows for short-term predictions about housing trends in each market, said Ben Ayers, senior economist for Nationwide. ‘If you’re a homeowner right now, you’re going to have a little more trouble selling a home,’ Ayers said. ‘You may not get as much money for a home.’”

“It’s not that individual homes are increasing in price, it’s that there’s been more new construction of high-end homes that sell close to the million-dollar mark, said Harlan Ten Napel, an agent for Ameri-Star Real Estate. ‘The reality is, from my perspective, there’s homes that have not appreciated or have not gone up that much in value,’ Ten Napel said.”

“Still, Sioux Falls’ home price increases simply aren’t sustainable, Ayers said. As much as median income has soared in the Sioux Falls metro since 2010, it’s been outpaced by median home prices, which ticked up to $190,000 last month. That’s roughly $55,000 more than the median price of a home in January of 2011. Sioux Falls’ market gives off ‘mixed signals,’ Ayers said. ‘That’s when we have some concern that something’s out of balance,’ he said.”

From New Jersey 101.5. “Nationwide, the seven counties with the worst foreclosure rates are right here in the Garden State. According to ATTOM Data Solutions, New Jersey had the highest rate of foreclosure activity among the 50 states and D.C. in 2017 — 1.61 percent of all housing units. The report pointed to 57,559 New Jersey properties with a foreclosure filing — default notices, scheduled auctions or bank repossessions — in 2017. While the nation hit an 11-year-low for the number of homes repossessed by lenders, New Jersey reached an 11-year-high in the same category, experiencing a 19 percent increase from 2016.”

“‘That’s where homeowners are actually losing their homes,’ said Daren Blomquist, ATTOM senior vice president. ‘Those properties then hit the market, which in many cases can be a drag on the market because they’re often distressed properties that sell at a discount.’”

The Naples Daily News in Florida. “Hurricane Irma made a dent on home sales in the Naples area in the final months of 2017. Cindy Carroll, a partner in Naples-based Carroll & Carroll Appraisers and Consultants LLC, said there’s a 7-1/2-month supply of single-family homes on the market. She described the market as both solid and logical.”

“At the end of last year the $300,000 and under segment had the largest number of homes on the market — at 1,554. That was followed closely by the $300,000 to $500,000 category with 1,511. The oversupply of homes in some areas could be corrected by the end of season, bringing them back into balance, she said.”

“Changing architectural trends could hurt some sellers. Preferences are moving away from Tuscan to a more West Indies/modern style, which could impact the demand and prices paid for more elaborate luxury homes in the $1 million and up segments, where there is already an oversupply of inventory, Carroll said. ‘De-Tuscanization is possible in some cases, but in other cases, it’s not possible,’ she said.”

From the Omaha World-Herald. “Gil Lundstrom, once head of the second-largest bank based in Nebraska, has lost the appeal of his 11-year prison sentence levied after a jury trial in 2015. Lundstrom, 74 years old at the time of the sentencing in 2016, was the chief executive of Lincoln-based TierOne Bank when it cratered in 2010. U.S. prosecutors attributed the bank’s demise to Lundstrom’s hiding of massive losses in real-estate loans during the 2008 financial crisis.”

“He appealed the sentence, restitution and other aspects of his conviction after the three-week trial in U.S. District Court in Lincoln. On Friday, the Eighth U.S. Circuit Court of Appeals in St. Louis affirmed the sentence and all other aspects of the conviction.”

“TierOne started out as a local bank, but under Lundstrom, a Lincoln attorney who represented the bank and was upped to head man, it began betting on the great U.S. housing bubble of the past decade. It lent to dodgy housing developments nationwide and lost millions of dollars when the developers defaulted. The jury found that Lundstrom hid those losses in company financial statements as share prices plummeted from a high of about $35 to zero at the end. Lundstrom, a native of Gothenburg, Nebraska, is incarcerated in the U.S. Penitentiary at Leavenworth, Kansas.”

January 21, 2018

Greed Is An Intoxicating Flaw

A weekend topic starting with the Khaleej Times. “There is a litany of research surrounding the formation of an asset bubble on how and if even possible to identify them. In the real estate market, the largest crash in recent times was during the World Financial Crisis (WFC) of 2008. A closer look into Dubai and California reveals that both cities rallied 50 per cent and 30 per cent respectively (24 months before their peak). During the WFC, the housing market in California crashed by 32 per cent whereas Dubai real estate assets declined by 29 per cent.”

“A look into the second run-up (2012-2014) of real estate prices in Dubai reveals that assets on a city-wide basis appreciated close to 50 per cent. However, unlike the WFC, markets have had a soft landing falling only 13 per cent in 24 months. We opine that this time around, there has been lower amount of speculator activity as long-term investors enter the market, along with stricter government regulations.”

From Bloomberg on Hong Kong. “Why are official warnings of the threat that rising interest rates pose to Hong Kong’s red-hot housing market falling on deaf ears? The Hong Kong Monetary Authority and the International Monetary Fund have both highlighted the risks. But three Federal Reserve rate increases forecast for this year won’t stop prices from climbing, according to analysts at firms including JPMorgan Chase & Co and Union Bancaire Privee. Prices already jumped 22 percent as the Fed raised rates five times from December 2015.”

“Household debt-to-gross domestic product is higher now than in 1997, just before a housing crash that lasted six years. As HKMA chief Norman Chan points out, not only is the ratio elevated, it’s recently rallied from its historical trend. Mortgage payments amounted to 68 per cent of median monthly income in the third quarter, compared with an average of 45 percent between 1997 and 2016. Yesterday, Chan recalled the ‘very painful and unforgettable experience’ of the property bubble bursting and cited the role of loose credit in creating bubbles, without commenting on the current market.”

”At the peak of a bubble, people always find many reasons to prove ‘this time is different!’ Look at history, we’ve now realised how naïve and ridiculous is this,’ Chan told a conference.”

From the Grand Rapids Business Journal. “If you’re like me, over the past few months you’ve probably been inundated with emails, texts, news reports and speculation about bitcoin. I am not a trained psychologist, but I am a trained professional in finance where I used human behavior to trade various asset classes for over 20 years. This is what frightens me the most about cryptocurrencies: Humans have an incredibly short memory, and greed is an intoxicating flaw in our decision-making process.”

“Bubbles are formed by manic hysteria with the belief asset prices will never go down. But why do prices rise to the point that if you look at a chart of any ‘bubbly’ asset class it becomes asymptotic (prices relative to time rise so quickly that on a chart the prices explode higher almost forming a straight line up)? To be clear, this is incredibly unhealthy because when buyers of any ‘bubbly’ asset stop buying, it becomes a game of musical chairs with the last one standing getting burned the most.”

From Pymnts.com. “Did you know that mania is considered a mental illness? Google Dictionary defines it as a ‘mental illness marked by periods of great excitement, euphoria, delusions and overactivity.’ Among its synonyms are ‘madness,’ ‘insanity’ and ‘lunacy.’”

“We’ll let you decide how you come down on that as an appropriate description of the cryptomania that has seized not just the payments community, but the public at large. Regardless of whether one feels it’s ‘lunacy’ to invest in cryptos, everyone can agree that this trend has generated ‘great excitement,’ ‘euphoria’ and ‘overactivity.’ And possibly also ‘delusions.’”

“At the very least, it’s safe to say that many speculators have visions of wealth and grandeur, as some even go so far as to pour their savings into bitcoin, Ethereum and other cryptocurrencies — while at the same time understanding very little about how these currencies actually work, where their value is stored or, indeed, whether they have any value at all.”

“As the great prophet Yogi Berra once said, a nickel ain’t worth a dime anymore. He also said, it’s like déjà vu all over again. Both aphorisms seem rather fitting for where we are right now in the midst of the cryptomania that’s taken hold of not only the trade press, but the mainstream press too. Crypto and its regulatory implications have even made the agenda at the upcoming G20 Summit. Imagine that.”

“What’s certain is that fads come to an end, and bubbles eventually burst — and the life span of either is anyone’s guess. The one question today that no one can answer is when that will happen. To that question, there is one certainty: For many, it will come to an end far too late for them to recover. You only know that the bubble has burst when, in fact, it has.”

From News.com.au. “As Bitcoin on Wednesday dipped below $US10,000 for the first time since late November, extending a plunge that has wiped roughly half the value off the digital currency in the past month, there was only one question on investors’ minds. Has the ‘bubble’ finally burst, or was this just another wild fluctuation as bitcoin marches towards its ‘true value’ of $US100,000 or even higher?”

“With Bloomberg mulling whether Wednesday’s plunge marked the beginning of the end, and the top post on Reddit’s 500,000-strong cryptocurrency forum linking to the Suicide Prevention Hotline, one Twitter user made a dry observation. ‘It has to bounce because 1) the coinfreude is way too high 2) there is no f***ing way the market gods will let the chart look EXACTLY like the archetype bubble chart,’ wrote user Modest Proposal.”

“The two charts attached by the user — named after Jonathan Swift’s satirical 1729 essay advocating child cannibalism — do bear a striking similarity, and would place the current point in the cycle midway through the blow-off phase, somewhere between ‘fear’ and ‘capitulation.’”

“‘The big move from $US4000 to $US19,000 was driven purely by speculative flows and a mania, and that’s over now,’ said IG Markets chief strategist Chris Weston. ‘It was FOMO and greed which drove it up to such extreme levels through September and December. It was not about the usage of bitcoin, it was just the idea that it was front page news, it was going up by a lot every day, and people were watching other people they knew making money. [Now it’s], ‘How much am I going to lose?’ That’s a negative.’”

“Amid the regulatory uncertainty, Mr Weston said the thing that would drive bitcoin higher again was the price itself. ‘It sounds bizarre, but if it starts moving higher, if it gets to $US17,000, people [will] say, ‘It’s back on again’,’ he said. ‘Until that situation, it’s lacking a catalyst. My advice to anyone who is genuinely worried is always take some off the table. You should never be genuinely worried about an investment. You should never have gone out and mortgaged your house to get a loan to buy bitcoin, that’s just stupid — and that’s what people have done.’”

January 20, 2018

Hangovers From The Massive Stimulus

A weekend topic starting with Pork Business. “The coming year is pivotal for agriculture because we will find out if we have entered a stabilization zone or if we begin another leg down, says Terry Barr, senior director, CoBank. Barr, along with fellow ag economist David Kohl, highlighted key differences in the current setback in farmland values and the 1980s collapse at the American Society of Farm Managers and Rural Appraisers annual conference. ‘World economies are still in transition after what their central banks and governments did to stimulate their economies out of the financial crisis,’ Barr notes. ‘This means we will have sustainable, moderate growth in demand for commodities but not what’s needed for another explosive burst.’”

“Central banks have added $14 trillion to their balance sheets. The U.S. Federal Reserve added $3.5 trillion alone. Overall, the next three to five years will still be challenging for agriculture as the world works through the hangovers from the massive stimulus injected into world economies to ward off the financial crisis.”

“‘The 1980s was a credit bubble, now we’re in an asset bubble,’ notes Kohl, professor emeritus, Virginia Tech. ‘This recent run-up in farmland values has much more equity and working capital behind it. Marginal land is the first to correct, and we’re seeing those values down as much as 25% in some areas.’”

“With a glut of grains, oilseeds and commodities, Kohl says it will take a surprising change in production to lift commodity prices. ‘The good news is global economic growth is synchronized. The emerging market economies are moving higher together, but they need to grow at a 7% to 9% annual pace to lift U.S. commodity prices.’ Fortunately, the exposure of U.S. agriculture to energy prices has decreased as the U.S. has become a major oil producer. ‘About $8 to $10 spent on ag inputs is spent on something related to oil,’ Kohl notes. ‘But the U.S. is no longer dependent on crude oil imports and has become a major producer. It use to be $60 to pump U.S. crude oil. Now it is closer to $40 a barrel and will soon be $20 a barrel.’”

From Agrimoney. “US farmland prices have continued their downward trend to start 2018, but the pace of decline has slowed, a university study showed, in the latest of a series of reports hinting that the market downturn may be passed its worst. A farmland index compiled by Creighton University came in at 42.2 for January, remaining below the 50.0 level indicating a neutral market, but up 2.4 points month on month. Indeed, the figure was the highest for any month since July 2014, in the early stages of the farmland price slide which, on Creighton figures, has continued unbroken for a little over four years.”

“January was the ‘50th straight month the index has fallen below growth neutral,’ said the university, which draws its report from a survey of lenders in major agricultural states, from North Dakota to Colorado.”

“‘We think this is just kind of a stabilising time,’ Randy Dickhut, senior vice president of real estate operations for Farmers National, told the Omaha World Herald. However, the underlying momentum remained downward he adding, saying that ‘I’d still say there’s a trend that it will soften more. We don’t think we’re done going down.’”

The Omaha World-Herald. “The rural Midwest remains in an economic slump, and worries about the future of the North American Free Trade Agreement are adding pessimism to the outlook for 2018, a Creighton University survey of rural bankers showed. About four out of 10 said loan defaults would be their greatest economic challenge in 2018, said Creighton economist Ernie Goss. The bankers, from Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota and Wyoming, have indicated economic growth in three months out of the past three years. Slumps continued in farmland prices for the 50th straight month and in farm equipment sales for the 53rd straight month.”

“But bankers in some areas said land values were holding steady, and so far few farm owners have reduced rents that farm operators are paying.”

From Agweek. “As we begin 2018, it’s interesting to look back on where farming has been recently and where farming is going. As we go to press, the price of the three big commodities at the local elevator is as follows: Wheat is $5.80 per bushel, soybeans are $8.65 per bushel, and corn is $2.89 per bushel. Using benchmark yields for farmers in my neck of the woods, that means a farmer with 50 bushel wheat would gross just shy of $300 per acre in revenue. Thirty bushel soybeans would gross just shy of $260 per acre in revenue. And 125 bushel corn would gross a little more than $350 in revenue.”

“Look back to 2011, the base price for hard red spring wheat was $8.38 per bushel, soybeans were at $12.50 per bushel and corn was just north of $6 per bushel. So, the same farmer with 50 bushel wheat was grossing roughly $420 per acre, $375 per acre for soybeans, or a whopping $750 per acre for corn.”

“Here’s my question: Why haven’t land values come back to earth more pronouncedly when revenue per acre off that land has decreased between 30 and 50 percent? Why aren’t land rents coming down more than they have? Why isn’t land selling for far less per acre than it is?”

“In terms of distribution of farmland and the economics of raising certain commodities on this farmland, one must assume that even at today’s commodity prices, there must be some higher value to farmland than that according to ‘just the numbers.’ One factor propping up the farmland prices and rental rates is the presence of out-of-state bidders on in-state farmland. I have seen several sales where investors from outside the state — California, as one example — have ‘like-kind exchange’ money that they need to spend within an IRS-prescribed timeframe, so they are willing to pay more for farmland than local farmers who actually know the true value of the farmland.”

“I think the most interesting part of farm economics in the next two to three years is going to be watching commodity prices and seeing where farmland and rental values track vis-à-vis these prices. I don’t know which “incentives” will drive the discussion, but it appears to be something different than just a simple supply and demand relationship.”

From Net Nebraska. “In winter, farmers across the U.S. visit their banks to learn whether they have credit for the next growing season, relying on that borrowed money to buy seed, fertilizer and chemicals. But prices for corn, soybeans and wheat are low enough that some producers have had a hard time turning a profit, and financial analysts expect some farmers will hear bad news: Their credit has run out.”

“That’s what happened to the Delaneys, a family now trying to save their farm near Fremont, in eastern Nebraska. Several years ago, when crop prices surged, the family gathered in this office and planned to grow the farm. ‘More acres, more income. That’s the old philosophy,’ said Tom Delaney, who runs the farm with his son, Tim, and daughter-in-law, Jody. They built it up to 2,500 acres — more land than most farms in the area — but when grain prices fell it was more than they could afford.”

“Nearly two years ago, Delaney says two lenders from their bank, Farm Credit Services, told them their farm was in a financial tailspin. The lenders ‘basically said we’re not going to back you up anymore and you need to sell out,’ Delaney said. The family couldn’t cut costs enough to convince the bank that they could pay back their $1.8 million debt.”

“The U.S. Department of Agriculture estimates about 12 percent of crop farms are highly leveraged — including new farms that haven’t built up assets or farms that grew too fast, like the Delaneys. That level of debt makes farms vulnerable as banks tighten producers’ credit.”

“The Delaneys have downsized to about 500 acres, switched to growing non-GMO crops (which bring in more money than traditional crops) and revamped their farm since losing their loan. There’s now a hog pen, where pink and red Berkshire hogs root around the dirt and make a clatter as they lift and drop the flaps on their feeder bins. These animals are another part of the Delaneys’ rebuild, with a plan to raise about 2,000 hogs a year for Heritage Foods, which supplies upscale grocer Whole Foods.”

“Tom Delaney shrugs and reaches into the pen to pat a pig on the back. ‘If that’s what it takes to pay the bills it’s what we’re gonna do,’ he says. The farm is still in debt and the bank could foreclose on it, but it is earning a profit again. The Delaneys say this is their chance to save the family farm — if they can find a bank that feels the same way.”

From Farms.com. “A mega-home being constructed on protected farmland in British Columbia has driven the price of the property up by an astronomical amount. The seven-bedroom nine-bathroom mansion on No. 2 Rd. in Richmond, B.C. is worth $765,000, according to BC Assessment, a Crown corporation that classifies and values property in the province. Last year, the 26.6 acres of land was valued at $88,336. With the addition of the home, the value of the land jumped by 9,245 per cent to $8,255,000.”

“The home will fall within the boundaries of the Agricultural Land Reserve (ALR), which contains 4.6 million acres of provincially owned farmland. Residents like Laura Gillanders are concerned that not only will the property value continue to rise after the home is complete but also that the land prices will disable farmers from being able to produce crops.”

“‘By next July that home could be worth millions more,’ Gillanders told Farms.com. ‘But the real story here is that the land went from being farmed to not being farmed. And the value shows that this is a non-farm house. If it was a farmhouse being built to maintain the farm, they would still be farming. The income is clearly not generated from agriculture.’”

“Large developments on ALR land in the Richmond area are becoming common. In February, a speculator purchased a four-acre blueberry farm with about $80,000 in annual crop revenue and with farm status (meaning the owner only pays municipal taxes), for $2 million. The individual received a permit to build a 12,000 square-foot home. From there, the value of land kept rising.”

“‘They re-listed it for $2.77 million with an advertisement saying the owner could have a huge backyard, private driving range, a 24-seat theatre and that it was all permitted on ALR land,’ Gillanders said. ‘The land was relisted in the fall for $4.5 million. Now a foreign investor is flipping the land for $7.7 million and the house isn’t even built yet.’”