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.’”




January 19, 2018

The Issue That Sellers Don’t Feel Great About

It’s Friday desk clearing time for this blogger. “Realtor.com named Las Vegas the number one real estate market in the country for 2018. Home prices are rising, but does that mean we’re heading toward another housing bubble? Realtors like Tim Kelly Kiernan believe the market tends to go up and down they’re optimistic we’ve already seen the worst of it. ‘I don’t think what happened in 2008 will ever happen again a lot of that had to do with the mortgages and poorly written mortgages. I don’t think the bubble will happen ever again in our lifetime I don’t see it happening,’ he said.”

“Home buyers are finding new opportunities in neighborhoods across the Nashville region. ‘There’s a wave of home building and another wave coming in mid- to late summer,’ said Todd Reynolds, vice president for Goodall Homes, which is developing more than a half-dozen new neighborhoods. ‘There’s still so much demand,’ said Reynolds.”

“In suburban Hermitage, Ole South is launching the new Heritage Hills subdivision. Prices range from the low $200,000s to the $300,000s, well below the average price of new homes in Davidson County, said Ole South Vice President Trey Lewis. Qualified buyers can participate in the Tennessee Housing Development Agency’s Great Choice program, which provides down payment and closing cost assistance. Buyers can also qualify for down payments of only $1,000 with certain lenders, said Lewis.”

“Although home prices in the area have been going up for quite some time, Brian Talley, owner of Regent Property Group in Westlake, said that the recent peak is more a reflection of growth for the entire Austin metropolitan area rather than something unique to Lake Travis-Westlake. Talley said he had seen some softening on the higher end of the market over the past two years but did not expect the area trend to reverse any time soon. The number of homes sold has decreased each month since June. The median price of homes sold has also decreased since June, and the number of days homes spent on the market increased in the past six months.”

“Talley said he is bullish on the area being able to at least maintain the status quo. ‘As long as we avoid a national or global [economic]catastrophe,’ he said.”

“The fourth quarter was the best time for luxury-home sales in Greenwich last year. It also had the biggest discounts in almost a decade for the tony Connecticut town. High-end homes that changed hands in the quarter had their prices cut by an average of 13.5 percent, the most since the last three months of 2008, when the housing market all but froze in the months after Lehman Brothers Holdings Inc. filed the largest bankruptcy in U.S. history, according to Miller Samuel Inc. and brokerage Douglas Elliman Real Estate.”

“The discounts, in a market that’s still bloated with lavish homes, helped clear some of the backlog. ‘Sellers were unrealistic in their pricing and were chasing the market,’ said Scott Durkin, president of Douglas Elliman ‘The real sellers, who wanted to sell, have negotiated down from their asking price.’”

“A lender has filed foreclosure proceedings on two rental properties owned by a Vancouver family renowned as problem landlords. The buildings are owned by companies controlled by members of the Sahota family. The foreclosures also indicate potential financial strain in the Sahota family’s property empire, which was built over the past four decades by family members and includes apartments as well as single-room occupancy hotels in the city’s Downtown Eastside. ‘The mortgage is in default and a foreclosure proceeding has been commenced,’ the notice to tenants for the East 5th Ave. property says.”

“The UK’s biggest estate agent blamed ‘jittery buyers and unhappy sellers’ for a pre-Christmas slump in the property market which triggered a shock profit warning today. Countrywide saw its shares tumble as the City stampeded out of the stock. Chief executive Alison Platt said: ‘The ability to get sellers over the line continues to be a real challenge. We would see deals that collapse at the last minute. You have always got the fundamental issue that sellers don’t feel great about accepting price reductions.’”

“Housing prices in Sweden dropped by 7 percent in the past three months compared to the same period last year, with the capital city, Stockholm, experiencing the sharpest drop, according to new figures from Svensk Maklarstatistik. ‘In the Stockholm region, the decline in apartment prices has been going on for a few months and now Malmo and Gothenburg have followed. In the villa market, too, prices are dropping,’ Per-Arne Sandgren of Svensk Maklarstatistik told Swedish Television.”

“Existing as well as new tenants are successfully negotiating hefty discounts from landlords as house rents rates continue to drop sharply in Dubai and Sharjah, real estate agents and residents told Gulf News. ‘It’s a customer’s market now. The rents have gone down between 20 to 30 per cent in some areas and that has given people an opportunity to either negotiate with their landlords or look for other options,’ said Imran Khateeb, sales manager at Mak Homes Real Estate.”

“The growth of real estate has been fuelled by infrastructural developments that have opened up new areas, especially around Nairobi. This has led to a glut of both commercial and residential space, leaving investors stuck with projects. Yet despite this glut, more residential and commercial buildings keep coming up all around the country. Developers in the major urban areas, and especially in Nairobi, are at a loss as to what to do with property for which there are no takers.”

“Apartment prices have been falling so rapidly across Sydney’s residential construction hot spots that units are losing more in value each week than their owners earn in wages. Exclusive data obtained by the Daily Telegraph revealed the biggest falls were recorded in the Sydney Olympic Park precinct and parts of the inner west and Parramatta. Median unit values in these regions dropped by up to $145,000 over the past year, a rate of $2788 for each week and the equivalent of the average lawyer’s base income.”

“Realestate.com.au chief economist Nerida Conisbee said the price falls were inevitable. ‘Parramatta in particular has been getting a lot of new units, but there is only so much you can keep building until there’s an oversupply and prices start decreasing,’ Ms Conisbee said.”

“A while back when I read our esteemed editor complaining about getting a $4,800 property tax bill to go with his downtown Boonville commercial acre assessed at $431,000. I remember when $431,000 was a mighty impressive sum of money in little old Anderson Valley. The editor also mentions how, back in 1970, a fella could’ve bought all of downtown Boonville for less than 400 grand and I believe he got that right, too.”

“Since Anderson Valley exists inside an upper-tier real estate bubble fueled by enormous amounts of in-coming, long-term speculator money riding long lines of credit, new buyers get to buy all of the property’s appreciation. The longer the seller has owned his piece of the bubble, the more generous the gift from the taxpayers, and the more the new owners, and taxpayers, and tenants, get swindled. Since today zero-sum money-love is being proclaimed as not just the American Way but God’s Way, too, it’s as if Jesus sold Real Estate parcels up where the streets are paved with gold.”

“Market Values ain’t human values, and you can’t eat paper money, drink pennies or squeeze yourself down inside a safe deposit box. Being ‘land rich’ or a ‘property owner’ doesn’t mean you’re making money. It means you’ve got a roof, a yard out back and you’re hoping to have some liquidity left when you sell it to go someplace else, including the hereafter if you’ve got kids and/or grandkids. If ‘home ownership’ really equaled democracy, commonwealth and prosperity, there wouldn’t be any poverty in this country, much less millions of idle or misused workers and their ill-fed, ill-served children sharing the good life in the slums.”




January 18, 2018

We’ve Already Reached A Turning Point

A report from The Daily News in Washington. “In a rental climate favorable for landlords, out-of-town investors have been flocking to Cowlitz County. They are having a major impact on the housing market. Mike Rodley, a California investor who owns 65 rental units in Kelso and Longview, said he rehabilitates his apartments every time a tenant moves out. In the 13 years that he has owned the two-bedroom apartments, Rodley said he has increased rents from about $400 to about $600. ‘Rising property values is something happening throughout the world,’ he said. ‘It’s not like there’s anything malevolent going on here. It’s just the price of doing business. … (Investors) are having to raise their rent to guarantee a return on investment.’”

From the Illinois Times. “Ghosts of pratfalls past haunted Springfield council chambers this week as the city approved public funding for a rogue developer with an unproven business plan who vows to take downtown where it never has gone before. With projected rents for yet-to-be-built units topping out at $2,500, the troubled rehab project at the intersection of South Sixth and Monroe streets would have some of the most expensive apartments in downtown, if not the entire city.”

“The city council on Tuesday voted 5-5 to commit $1.8 million more in public tax increment financing money to the project than had already been approved. The city previously had approved nearly $2 million, but money was cut off in 2016 after developer Rick Lawrence changed plans and started spending money on things that hadn’t been contemplated, most notably an elevator that would access adjoining buildings where apartments are planned. Lawrence, who told the council he’s out of cash, owes more than $1 million to vendors and in unpaid benefits for workers.”

“‘I lost focus,’ Lawrence told the council on Tuesday. ‘I knew where I was going, but I wasn’t sharing it (with bankers or the city). That’s where I got out of step with the construction loan.’”

From Sparefoot on Nebraska. “There is a storage boom happening in Omaha, but it might be more than the biggest city in Nebraska can handle. An unprecedented building spree in Omaha may lead to a glut of new storage supply that could soon depress prices in that state’s largest city, according to a report penned by Alex Burnam, senior acquisitions analyst at StorageMart. Bill Lange, president of the Nebraska Self Storage Owners Association said he’s seeing more developers of multifamily housing in Nebraska and elsewhere jumping into the self-storage sector, figuring that many of their housing tenants will correspondingly need more storage space for their belongings.”

“Lange said the self-storage sector in Omaha and Lincoln, Nebraska’s second largest city, have become attractive for the same reasons experienced in other cities across the country: Low interest rates, solid returns, and growing interest in the industry on the part of larger investors. ‘It’s not to say (Omaha) doesn’t need more space,’ Burnam told Sparefoot. It’s just that a lot of (space) is coming online soon – and that’s going to cause some pain. Price pressures are coming.’”

The Durango Herald in Colorado. “The median price of a home in Durango fell $15,250 in 2017 compared with 2016, a 3.28 percent drop one real estate broker attributed to increasing supply of homes in Three Springs and increased sales of townhomes. Max Hutcheson, an agent with the Wells Group in Durango, attributes the 2017 median home price drop in Durango to a wider availability of attainably priced homes in Three Springs and the sale of more townhomes.”

“Hutcheson said an increasing amount of apartments for rent are coming online this year in Durango, including in Three Springs and the old Rocket Drive-in, and the expected increase in supply should provide more affordable rentals for Durango workers. Also, more apartments available to rent in Durango might increase the number of homes for sale in the Durango market, said Gina Piccoli, broker-owner of Coldwell House Heritage House in Durango. ‘Completion of apartments alleviates pressure on rental supplies, and that puts pressure on rents. People holding homes as rental properties may be more inclined to sell the home rather than hold it as a rental,’ she said.”

The Real Deal on California. “As Los Angeles grapples with a severe affordable housing crisis, a new study shows condo and loft sales remain strong. There were roughly 353 condo and loft sales in the region in 2017, up 40 percent from 2016, according to the most recent report from Loftway, a brokerage specializing in loft sales and leases. That’s due in part to the opening of the much-awaited Metropolis Tower 1 and 1050 Grand, which sold 13 and 39 units, respectively.”

“Despite somewhat discounted prices, Luma South and Market Lofts also added to the tally, selling upwards of 25 units each last year. But a majority of the buildings saw their rents drop, with the Biscuit Lofts, Alta Lofts and Beacon experiencing the greatest dips, according to the report. At the Biscuit Lofts, rents dropped from $4.63 per square foot to $3.49 per square foot.”

“DTLA, which has been home to a flurry of new construction, has been the topic of much concern as industry leaders fear supply is outstripping demand. The deliveries of such luxury projects, like Metropolis, have increased competition in the area, likely causing a downturn effect on prices, the report showed.”

The Herald Tribune in Florida. “Home sales began accelerating nationally last year after growing at a sluggish pace from 2010 to 2016. On the flip side, occupancy in apartments, which showed a steady increase over those same six years, slowed in 2017, Reis Inc. reported. ‘Bear in mind that the occupancy numbers … do not reflect the high levels of new construction that have in fact lowered the overall occupancy rate to 95.4 percent from a high of 95.9 percent in 2016,’ Barbara Byrne Denham and Victor Calanog wrote in the white paper titled ‘Should We be Worried about the Slowdown in Renter Occupancy in Favor of Owner Occupancy?’”

“A different study, this one from Yardi Matrix, also asks a question in the title: ‘Apartment Rent Gains Slow in 2017. What’s in Store for 2018?’ ‘The question for 2018,’ the report states, ‘is how much more steam is left in the market, whether the deceleration will continue or it if will level off or turn negative.’ Downtown Sarasota alone is poised to add 1,721 rental apartments in various projects. Will these developments be a bust?”

From D Magazine in Texas. “Developers have delivered over 100,000 multifamily units In Dallas-Fort Worth since 2010—more than any other metro in the country—and they’re getting built everywhere from Uptown to Frisco to Las Colinas. Rents are rising quickly, and home values continue to skyrocket, too. So is another housing bubble building? Not so fast! Explosive single-family price growth and strong multifamily rent growth are more about an underreported market factor—too little housing—and less the result of rampant speculation or the lax lending environment seen in last cycle’s single-family housing bubble.”

“With rent growth slowing, vacancies rising, and even more supply on the way it’s likely that we’ve already reached a turning point in the multifamily market. However, if the metroplex continues to add jobs at a roughly 100,000 per year pace and single-family construction remains below previous highs, expect a soft landing for the sector as Dallas-Fort Worth continues to extend one of the longest business cycle expansions on record.”

From Mansion Global on New York. “New York City’s luxury rental market is more likely to suffer in 2018 due to a glut of available units rather than the new tax law, according to Donna Olshan, president of Olshan Realty. New York buyers who had in past years snatched up new condos off floor plans, expecting to flip them by 2018, are finding they can’t get quite the sale price they need to break even, Ms. Olshan said. They’re putting those units out to rent and flooding an already soft market, she said, a trend that started before any tax bill was seriously discussed. That trend also explains why many landlords in high-end buildings have to offer concessions in the form of several months’ free rent or gratis gym memberships.”

“Throughout 2017, landlords offered near-record concessions to attract new tenants, according to a November survey of Manhattan, Brooklyn and Queens prepared by Miller Samuel. More of those are likely in 2018, too. ‘What you’ve got going now is a confluence of factors that are all going to depress the luxury rental market,’ Ms. Olshan said. ‘You have too much luxury rental inventory, and at the same time, the [potential] consequences of the tax bill.’”




January 17, 2018

Does The Hype Match What’s Really Happening?

A report from Las Vegas Now on Nevada. “Experts in real estate describe the downtown Las Vegas housing market in these words: The demand is high, and the inventory is low. The Fremont 9 is a major new housing complex that is expected to open later this year. The complex will add several hundred homes to a part of the city that’s waited a long time for more housing. But realtors say the demand still outweighs the supply. ‘If you see residential, the price on it is sky high,’ said Robin Camacho, a broker. Camacho says it’s the land that’s worth so much, which is a sign of the demand. ‘Downtown is hot right now. It’s the heartbeat of Las Vegas. Everybody wants to be downtown,’ Camacho said.”

“But does the hype match what’s really happening? Vacant hotels nearby remain relatively untouched, years after being bought by downtown developers. Ashley Ayala’s Sisterhouse Collective is starting its 4th year on Fremont East. But, the lack of homes is a major reason the business isn’t sustainable. Ayala says she’s closing her business at the end of the month. ‘I wish we could stay,’ Ayala said.”

The Omaha World-Herald in Nebraska. “Jerry Cunningham knows he got a steal on the four-bedroom, three-bathroom home he bought last year in Sidney, Nebraska. The 62-year-old retired California Highway Patrol trooper moved to Nebraska to be closer to his family. He purchased his house, a 2,200-square-foot home with a newly remodeled kitchen, for $180,000. Cunningham said he would have spent $500,000 on a similar home in Nevada, where he moved from.”

“He bought it from a former Cabela’s employee, who bought the house in 2012 for $189,000. Unbeknownst to him, Cunningham benefited from a recent upheaval that has flooded Sidney’s housing market with properties. Uncertainty has been high ever since Bass Pro Shops announced plans to buy Cabela’s, the Panhandle town’s top employer. Home prices in the town are falling fast as former neighbors, colleagues and friends put their homes on the market and leave town for new jobs. Among the homes for sale are high-end ones owned by former Cabela’s executives who also have moved on.”

“Residents say some houses are selling — just not for nearly what they would have three or four years ago. In October 2014, 10 homes on the market had reduced prices. In October of last year, 20 had. In December, 32 homes for sale had reduced prices from their original listing amounts. ‘There’s just going to be fewer people than houses, and some of them are going to be empty,’ said Charles Nathanson, a professor at Northwestern University’s Kellogg School of Management who focuses on real estate.”

The Braintree Forum in Massachusetts. “A concerning recent trend in the local housing market is beginning to impact some in Braintree, according to new numbers released by Norfolk County Register of Deeds William P. O’Donnell. It was last month that The Forum first reported about O’Donnell’s concerns regarding notices to foreclose being issued across Norfolk County. While the total number of notices to foreclose actually dropped over 15 percent from 2016 to 2017, O’Donnell pointed to a disturbing trend at the end of 2017.”

“‘The numbers of Notice to Foreclose Mortgage recordings actually increased a sobering 57 percent in the fourth quarter of 2017 compared to the fourth quarter of 2016,’ O’Donnell said. ‘We will need to closely watch this number to see if a trend develops.’”

“It now appears that trend is showing up in Braintree. There were 12 Notice to Foreclose Mortgages filed in December, which is the first step in the foreclosure process,” O’Donnell said. That number represents a sharp uptick in notices to foreclose. Only four notices to foreclose mortgages were filed in Braintree between August and November, according to O’Donnell.”

From Richmond Confidential in California. “Residents on this stretch of Fourth Street say the fire on September 28 was not a surprise: It was inevitable. Squatters lived in the vacant home next door, at 662 Fourth St., for years. Records show that the tax assessor’s office informed a code enforcement officer of plans to auction off the lot in 2014. The house was never sold and, in late 2016, the city began to discuss demolishing it. Code enforcement case details show that a warrant was received on the house in 2016 and a notice was sent to the owner. According to Tim Higares, director of infrastructure and maintenance operations for the city, demolition was again discussed this year, but the process never began. A list of calls for service obtained from the Richmond Police Department for the three homes involved in the September fire shows at least seven calls regarding the vacant home since 2010.”

“The problems with 662 Fourth St., like so many other blighted homes in the Bay Area and around the country, started during the subprime mortgage crisis. A search of the address brings up a picture of the house from 2007. In this image, the home has a clean coat of light blue paint and a front lawn filled with thick, green grass and shrubs. At this time, the home was owned by an individual who had purchased it in 2005 for $360,000. In 2008, the title to the property was transferred to Deutsche Bank National Trust Company in a trustee’s deed after the individual defaulted on his mortgage. The individual had also accrued more than $30,000 in unpaid property taxes, according to tax assessor records.”

“The home was subsequently transferred between two obscure Wall Street companies, before Aafiyah Muhammad bought it at auction in July 2010. By October 2010, Muhammad and his associates had sold 662 Fourth St. and two other Richmond properties to Texas-based Brother’s Realty. However, that company quickly discovered that Muhammad didn’t actually own the two additional homes, and 662 Fourth St. had already been boarded up by the city and declared uninhabitable.”

“Federal court documents indicate that Muhammad was ordered to pay a $200,000 settlement in January 2013, after being sued by Brother’s Realty. The documents also reveal that Muhammad was in fact an alias of a man named Jamall Joseph Robinson, a former associate of Your Black Muslim Bakery, the group that orchestrated the 2007 murder of Oakland Post editor Chauncey Bailey. According to Higares, his staff doesn’t have the time to determine if a home owner listed by the tax assessor is in fact fake. ‘It’s a very long process, and in the meantime what you have is a piece of property that’s continually being breached,’ he said, ‘that’s catching on fire.’”

From Reason Magazine. “The rent is too damn high—so each year Congress appropriates billions of dollars to address the nation’s collective housing needs. The programs vary from loans to tax credits to straight-up subsidies, but a common feature is that federal taxpayers pony up the dough and then a motley collection of state-level politicians, financing agencies, and housing authorities decide how it’s spent. Can you guess where things go wrong?”

“In theory, oversight is provided by bureaucrats in Washington tracking every dollar and by local leaders increasing their re-election prospects by providing housing assistance to their constituents as effectively as possible. In practice, the feds turn a blind eye to inefficient uses of the funds while local officials gleefully engage in politically advantageous graft.”

“Take California Treasurer John Chiang. By virtue of his position on the three-member California Tax Credit Allocation Committee, Chiang exercises enormous influence over who gets $94.9 million each year in federal tax credits intended for developers of low-income housing. He has used this position to great effect, steering millions to major campaign donors.”

“If California-style corruption isn’t your bag, perhaps you’ll appreciate the sheer incompetence of the Atlanta Housing Authority (AHA), which is currently struggling to get out of an expensive subsidy deal it literally forgot it made with local developer Integral. Over the past two decades, the AHA has awarded $114 million in federally funded loans to the company, which has yet to pay them back, and which now owes about $29 million in interest to the agency.”

“That did not stop former AHA chief Renee Glover from unilaterally agreeing to sell Integral $137 million worth of AHA-owned land for the bargain price of $20 million. Glover resigned in 2013, and the current leadership can’t recall this deal ever being made. They’re now suing to stop it from happening.”

“In Michigan, the state’s housing finance agency was given $761 million in Troubled Asset Relief Program funds to protect distressed homeowners from foreclosure during the Great Recession. Instead of using the money as intended, officials sat on it while thousands in Detroit had their homes seized for failure to pay property taxes. When the state did start spending its bailout funds, half the total went toward demolishing the homes left vacant by those tax foreclosures.”

“But all of this pales in comparison to the misdeeds of the Navajo Housing Authority (NHA), which is supposed to provide housing on the Navajo Indian reservation. In the past decade, the NHA has received some $803 million in federal funding while building slightly over 1,000 homes. That works out to $723,000 per home, or about 10 times the median home price in the Navajo community of Kayenta, Arizona. Much of the money was spent on structures that were either never finished or never occupied, including a women’s shelter that stood completed but empty for nearly 18 years while homeless people slept outside it.”




January 16, 2018

Talk Of Substantial Price Cuts

A report from Dow Jones Newswire on China. “China’s housing market has defied gravity and government restraints for two years, floating on a tide of bank loans and speculation. Until now. In Beijing and Shanghai — two of the country’s largest markets — and other megacities, sales have stalled and prices have dropped, falling slightly in some pockets and dramatically in others. Luo Chuanyun, a 29-year-old liquor distributor, bought his first apartment on Beijing’s northern edge for $150,000 in late 2016, when prices were climbing by more than 20% a year.”

“The purchase put Mr. Luo up to his neck in debt, with mortgage payments of about $15,000 a year on an annual income of a little over $18,000. Mr. Luo said his real-estate agent told him that to find a buyer for his apartment now he would need to sell for half of what he paid. ‘I’d be short too much money,’ Mr. Luo said.”

“Some developers that a year ago put up special crowd barriers when apartments went on sale are now biding their time. In early December, a group of homeowners stormed the sales office of their Shanghai complex, Central Washington, whose developer, Shanghai Zhaoping Real Estate Development Co., was advertising new apartments at prices about 7% less than ones sold earlier in the year. One apartment owner said the new prices suggested the value of the apartment she bought from the developer in March had dropped by about 17.5%.”

“The developer couldn’t be reached to comment. It said on the project’s social-media account that price fluctuations are normal and that talk of substantial price cuts was ‘purely a misunderstanding.’”

“In some neighborhoods on Beijing’s outskirts, prices have fallen by double-digit percentages. In March, main street in the town of Yanjiao was lined with busy property agencies. Buyers who couldn’t pass Beijing residence requirements or afford its prices flocked there, pushing up prices in a sleepy exurb without much of its own economy. Since then, homebuying limits helped push prices down more than 30%. ‘For Rent’ signs now adorn the windows of abandoned brokerages.”

“‘There are people who bought multiple homes who are now trying to sell one to pay off the mortgage on another,’ said Ran Yunjie, a property agent. One of his clients bought an apartment last year for about $230,000. To find a buyer now, the client would have to drop the price by 60%, according to Mr. Ran.”




January 15, 2018

A Bout Of Realism Rather Than The Usual Optimism

A report from Global News in Canada. “It was tough at the top for people who sold their luxury homes in Vancouver last yea, according to Sotheby’s International Realty Canada’s 2017 Year-End Top-Tier Real Estate Report. When you break those sales down into three price segments, the most expensive of them saw the biggest drop in any major Canadian city that the report covered. Out of all three, sales of Vancouver homes that cost $4 million or more fell by 33 per cent, steeper than either of the other two price segments in Vancouver, and more sharply than homes worth $4 million or more in Calgary, Toronto and Montreal. The total number of sales in this category — including condos and townhouses — fell from 573 in 2016 to 382 in 2017, marking their lowest level in three years.”

“Brad Henderson, president of Sotheby’s International Realty Canada, said there’s a ’stalemate’ going on, ‘particularly in the higher end of the market.’ ‘I think there’s a fear of heights, and that the Vancouver prices have gotten to a point where many in the market are concerned that there isn’t necessarily the bandwidth for it to be able to continue going higher,’ Henderson said.”

From City AM on the UK. “The price of London homes coming to market fell sharply over the last year, as properties in Zones 2 and 3 slumped. Homes brought to market in the capital are now an average of £21,000 cheaper, a 3.5 per cent fall over the last year, according to Rightmove. The £8,800 fall in the asking prices of sellers new to the market in the last month comes as a ’bout of realism rather than the usual New Year optimism,’ according to Miles Shipside, Rightmove director and housing market analyst.”

From Bloomberg. “Sweden is in the worst housing-market downturn since the global financial crisis. But with bigger bank buffers and an economy that’s growing much faster than the rest of Europe, analysts, regulators and politicians all say everything will be just fine. First, there’s the reason behind the price correction. It’s not caused by economic or financial distress, but by a surge in construction (initially to meet excess demand). Sweden is now a buyers’ market, with construction at its highest since the 1990s.”

“Data showed that home prices continued to slide in December, dropping 2 percent in the month, according to the Nasdaq OMX Valueguard-KTH Housing Index, HOX Sweden. The three-month drop was 7.8 percent, the steepest decline since late 2008. Prices were down 2.5 percent from a year earlier, the biggest drop since March 2012.”

From Arab News on Dubai. “Higher interest rates and falling property prices could hit Dubai developers’ transaction volumes linked to the purchase of properties off-plan, warn experts. Jesse Downs, managing director of Phidar Advisory, a real estate consultancy in the UAE, said developers have been offering generous off-plan purchase deals. These often involved offers to pay between 40 percent and 60 percent of the sale price two years or more after completion, she said.”

“Such deals have grown more popular since the introduction of a mortgage cap that has depressed the secondary sales market — with buyers spotting an easier way to get on the property ladder, said Downs. But if the market falls too sharply and sentiment turns, there may be danger ahead. ‘Potentially, there would be a bigger impact when less of a percentage has been paid down on the product,’ said Downs. That’s because with less to lose, some buyers may be tempted to cut their losses and run, if they think prices won’t recover.”

“Downs said: ‘These … deals are artificially driving supply up … encouraging overbuilding which drives up market risks.’”

From Quartz on India. “Even plummeting prices haven’t been able to entice India’s home-buyers. Home purchases in the country fell to a seven-year low in 2017 despite sliding prices, according to real estate consultancy firm Knight Frank. A new tax regime and a regulation introduced last year have pummelled a sector already reeling under the aftermath of demonetisation in late 2016.”

“While other parts of India suffered, even Mumbai, India’s most expensive housing market, bled as property prices fell in 2017—the first time in nearly a decade. Yet, the price-to-buyer’s income ratio (the average number of annual incomes required to own a house) in Mumbai remains at a prohibitive 7.8—much higher than in other major Indian cities—even though it is off its peak of 11 in 2010.”

To counter the slump, developers have been offering discounts, and waiving stamp duty, and floor-rise and other charges. ‘At the end of 2017, India’s residential sector appears to have shrunk to a fraction of the size it was less than a decade ago,’ said Shishir Baijal, chairman of Knight Frank.”

From the Singapore Business Review. “Singapore’s construction sector could still be in the red for at least one to two years, because of excess stocks in the residential and non-residential market, BMI Research said. The vacancy rate for private residential units in Singapore stood at 8.4% at the end of September 2017, compared to the 5.5% average between 2010 and 2013, prior to the recent boom in housing construction. The group also suggested that because sales remained relatively weak, there is an ongoing oversupply despite the pick-up in demand.”

The Sydney Morning Herald in Australia. “Is it a bird? Is it a plane? No, the crane invasion of Sydney’s skyline has been visible for several years – a 65 per cent increase in just the last two years. But experts warn Sydney’s pattern of development is failing to deliver the relief first home buyers need. Amid a record apartment building boom, a suburb by suburb breakdown of the Rider Levett Bucknall Crane Index reveals Sydney’s emerging crane hotspots, spreading wings across the northern, western and southern corridors of the city.”

“‘Residential cranes soared to 298 around Sydney, which amount to 43 per cent of total cranes erected within Australia and 54 per cent of all cranes supporting the residential sector in Australia,’ said director of research at Rider Levett Bucknall, Stephen Ballesty. Building work began on a record number of new apartments in NSW last year, figures from the Australian Bureau of Statistics show.”

“Work began on 74,000 new homes last year, including 29,000 free standing homes and a record 44,000 apartments. But experts warn that the state’s record apartment boom is not delivering the price relief that first time buyers need. The head of Urban and Regional Planning and Policy at the University of Sydney, Peter Phibbs, said high land prices meant developers were building apartments in the million dollar mark range, out of reach of typical first time buyers.”

“Overall, Professor Phibbs said the Sydney experience showed the error of simply focusing on supply to improve housing affordability. ‘We have run an international experiment about the inability of supply really to moderate housing price increases in a context of declining interest rates and a very tax friendly environment for investors. We will probably never see that supply response in Sydney again.’”

From Smart Property in Australia. “House values saw declines in Australia’s major property markets as well as Perth and Darwin, according to CoreLogic’s latest Hedonic Home Value Index. CoreLogic head of research, Tim Lawless, said the transition towards weaker housing market conditions has been gradual, but clear. He also said these conditions are likely to continue throughout 2018.”

“He said the biggest drags are in Sydney and Darwin. ‘From a macro perspective, late 2016 marked a peak in the pace of capital gains across Australia. In 2017 we saw growth rates and transactional activity gradually lose steam, with national month-on-month capital gains slowing in October and November before turning negative in December,’ Mr Lawless said.”




January 14, 2018

The Cure Is What Caused The Next Crisis

A weekend topic starting with the Citizen Times in North Carolina. “When discussing the West Asheville real estate market, one highly technical term surfaces repeatedly. ‘Oh yeah, it’s insane — it is,’ Delias Thompson said with a laugh, standing in front of the home she recently built with her partner. Thompson noted that several nearby homes, which are about the same size as their 1,100-square-foot home, old for prices much higher. ‘We’re lucky, because when we bought, I think we probably totaled $225,000 (for the land and house).’”

“Kyle Henry, Aaron Palmer and Tyler San Souci have a duplex nearly finished on State Street, on a small lot that cost $80,000, with each 1,100-square-foot unit selling for $279,000. If they hadn’t divided the lot for two homes, they would’ve had to build a house at least in the $450,000 range to recoup the land investment, Palmer said. Even though the land market is extremely tight in West Asheville, he thinks some buildable lots remain, as well as opportunities to rehab and sell existing older homes.”

“That all adds up to prices continuing to rise. ‘People always talk about a bubble and how everything is going to get softer, but I’m under the belief that as long as you have supply and demand, as long as there’s less inventory and there’s more people who want to be in this area, there’s always going to be that demand that’s pushing and driving the market up,’ Palmer said. ‘So I don’t see it slowing down over the next year or two.’”

“A bidding war would be just fine by another State Street resident, Johnny Harrin. Harrin grew up in the house his father built in the early 1960s, moved away when he got married and then moved back in 2002. Now it’s got a for sale sign out front. He bought the two adjacent lots after moving back, and they’re included, although he’s having problems with the city wanting him to not build within 30 feet of a creek on the empty lots. He’s torn about selling, in part because the house, now three bedrooms and two baths on two levels, was paid for more than 30 years ago. His dad paid about $3,500 for it when it was built as a two-bedroom, one-bath.”

“‘We’re going to see what we can get out of it,’ Harrin said, adding that a real estate agent told him to put it on the market at $499,000.”

The Coeur d’Alene Press in Idaho. “Matthew Gardner popped the thought that we’re in a housing bubble. ‘Just because some markets are overvalued there doesn’t have to be a bubble,’ Gardner, Windermere Real Estate’s chief economist, told nearly 200 Windermere Coeur d’Alene Realty employees.”

“Gardner cited multiple current market conditions, including high credit quality, borrowers not defaulting, good debt-to-equity ratios and slight mortgage rate increases to perhaps 4.4 percent, to dispel the thought that the economy has entered a housing bubble. Gardner predicts the economy will expand 2.5 percent in 2018, but foresees a slowdown in 2020.”

“Gardner said skyrocketing home prices in other areas such as California — the median sales price in San Francisco is $1.18 million — will continue to drive people to North Idaho. ‘We are cheap,’ he said.”

From Florida Today. “As we go through our second ‘housing bubble’ in this century, many are throwing the 2006-2011 crash histories down the memory hole. Let us hope local government does not follow suit. For example, in 2005 the Brevard County School Board, stung by the failure of their 2003 sales tax efforts, went all in on a plan to borrow over $800 million for capital improvements. The source of funds was to be the grossly inflating value of housing and real estate.”

“The school board’s taxable value estimates in April 2005 — just four months shy of our August 2005 peak median house value of $248,000 — had taxable values increasing by 10 percent annually for the next five years. Despite arguments in 2005 school population would flounder if median house price hit over $350,000, and in 2006 in the face of obvious falling values, the school board borrowed hundreds of millions of dollars.”

“This extravaganza led to the crash and burn spectacle a few years later. Windfall bubble revenues had not been put into reserves or capital but had either been leveraged for debt or used to increase operating expenses. Where the local governments had been given reports and charts of the market as it was collapsing, all was ignored. By the fall of 2007 foreclosure filings were exceeding sales, and did so for many more years.”

“The manipulator of the artificial market creating multiple asset bubbles in stocks, housing, and crypto-currencies is the Federal Reserve, with more than eight years of zero-interest policy. We’re on the cusp of 2005 prices, and the rental market has followed suit. I believe in 2005 landlords were shocked at the rapidly accelerating prices and failed to raise rents accordingly. This time they are raising rates rapidly and many landlords, determined not to miss their second shot at bubble prices, are selling their rentals.”

“I would never claim pricing in any economic bubble is not reflective of market values. Indeed it is. The problem is the underlying sound pricing economics have fallen prey to the intense belief prices will relentlessly surge. Prices do not just double in a few years due to demand unless demand skyrockets and supply is constricted. There are roughly 250,000 housing units and 580,000 people in Brevard. Housing is being built, not destroyed, and the population is not growing rapidly.”

“There is the oft-repeated phrase of ‘It’s different this time,’ but the only difference is in length and magnitude, not final resting point. There is no such thing as a perpetual bubble.”

From Bloomberg. “Back in November, former Fed chief Janet Yellen described the current low level of inflation as a ‘mystery.’ With QE having multiplied the amount of fiat money issued by central banks in just a few years, it’s fair to wonder: How come it didn’t trigger much higher levels of inflation than what we now see? The more fundamental answer is that QE resulted in a wealth increase for the richest, who consume relatively little of their revenue, while the middle class and the neediest largely failed to reap any benefit.”

“There are many problems with this, from growing inequality to pressures on social cohesion. But one that has received too little attention up to now is the prospect that we are heading toward a growing asset bubble that will result in a pronounced crash.”

“In the U.S., the top 10 percent of households hold over 70 percent of net wealth; the same is true, to a lesser extent, in the rest of the Western world. The wealthiest consume the lowest portion of their income, especially when the gains are exceptional rather than recurring, as with QE. As for the middle class, its income has been capped for decades by cheap foreign imports and an automation wave, none of which were changed by a monetary phenomenon like QE. As a result, only a small fraction of the newly created wealth found its way into consumption, and when it did, it was limited to luxury goods and real estate through higher rent.”

“Meanwhile, central bankers are still using inflation as a measure to gauge how much more QE they should proceed with. Journalist Ambrose Evans-Pritchard put the challenge now in the starkest possible terms, as a threat not simply to the recovery but to democracy: ‘The central banks themselves entered into a Faustian Pact from the mid-Nineties onwards, falsely thinking it safe to drive real interest rates ever lower with each cycle, until they became ensnared in what the Bank for International Settlements calls a policy ‘debt trap’. This has gone on so long, and pushed debt ratios so high, that the system is now inherently fragile. The incentive to let bubbles run their course has become ever greater.’”

From News.com.au. “They are calling it the ‘everything bubble’. All around the world assets have been rising with a beautiful synchronicity. Australia has seen east coast house prices go crazy. We are not alone. A simple home can cost well over a million dollars now in cities across New Zealand, Canada, Sweden and San Francisco.”

“The everything bubble goes beyond share markets and homes. The global bond market is worth around $80 trillion, 10 times more than all the land and buildings in Australia put together. It has soared to record highs over the past two decades before showing curious signs of weakness in the last year or so, that have been intensifying over the last week.”

“The Australian stock market may look like it’s not part of the everything bubble — after all, it is still below its 2007 peak. But when you delve into technology stocks you can find valuations that seem blown out of all proportion. For example Getswift, a company with revenue in the last 12 months of $600,000 — comparable to your local pizza shop — but valued at $585 million. (Getswift claims it has a deal with Amazon.)”

“This everything bubble is so strong it even conjured into existence a whole new class of assets and made them worth billions — cryptocurrencies. Bitcoin is up 226 per cent per cent in the past two months alone. That looks puny compared to ethereum, which is up 397 per cent.”

“But if you have an everything bubble, you need to look at the trend behind the trend. Cast your mind back a few years and you may recall the expression ‘quantitative easing’. This is where central banks pumped money into the economy to try to help us recover from the global financial crisis. It happened in the US, Japan and Europe. The problem with loose monetary policy is that while it is supposed to make people do productive things like start a new company, it has a side effect of making them buy assets at crazy prices. If the everything bubble pops, it may turn out that the cure for the global financial crisis is what caused the next crisis.”




January 13, 2018

More Of A Supply Problem Than A Demand Problem

A report from the Seattle Times in Washington. “Rents are dropping significantly across the Seattle area for the first time this decade, as a flood of new construction has left apartments sitting empty in Seattle’s hottest neighborhoods. The biggest rent decreases were mostly in the popular Seattle neighborhoods that are getting the most new apartments. Rents dipped more than 6 percent compared with the prior quarter in First Hill, downtown Seattle, Belltown, South Lake Union and Ballard, along with Redmond and the Sammamish/Issaquah area.”

“More apartments are sitting empty — particularly throughout downtown Seattle — giving renters more negotiating power over landlords. And even more new apartments are set to open in 2018, leading analysts to suggest the rental market will keep cooling. Among the brand-new buildings in South Lake Union, about one-third of apartments are sitting empty. And in the core of downtown, about two-thirds of newly opened apartments are vacant. Overall, there are 24,500 apartments under construction now across King and Snohomish counties. There are an additional 35,000 units in the pipeline.”

“The city of Seattle is getting more apartments this decade than in the prior 50 years combined.”

The Journal Sentinel in Wisconsin. “By June, Milwaukee’s first new apartment high-rise in six years will open — with another under construction. But three other upscale apartment towers in the downtown and east side area remain on hold, as the developers continue to assess the market and seek financing. There have been concerns about the number of new higher-end apartments being developed throughout the greater downtown area outstripping demand.”

“The Milwaukee area’s apartment vacancy rate of 7% will likely rise to around 7.5% to 8% by the end of 2018, said Richard Aaronson, CEO of Atlanta-based Atlantic Realty Partners, which last year opened two large mid-rise apartment developments in Milwaukee and Wauwatosa. ‘Absorption is going to need to catch up,’ said Aaronson.”

From Bisnow Washington, DC. “D.C.’s apartment market finished 2017 with rents falling for the third consecutive quarter as the ongoing supply boom has created heated competition among landlords. Rents for Class-A multifamily properties across the District fell 3.9% from the end of 2016 to the end of 2017, according to Delta Associates, bringing the average Class-A rent to $2,491 per month. This stretch represents the first time since 2009-10 that D.C. rents have declined for three straight quarters.”

“The drop in rents coincided with the delivery of 4,789 Class-A apartment units across the District in 2017, a 45% increase from 2016. The rapid pace of supply growth is expected to increase even more this year, with Delta projecting the completion of 5,972 units in 2018. ‘The issue in the District is more of a supply problem than a demand problem,’ said Delta Associates President Will Rich.”

“The rent drop was most pronounced in the Northeast D.C. submarket, which experienced a 7.9% decline in rents year over year. The submarket includes Ivy City, Edgewood, Brentwood and Brookland but not NoMa or H Street, neighborhoods Delta separates into their own category. Concessions such as free months of rent, which are factored into the effective rent numbers Delta reports, have become common in the Northeast D.C. submarket as vacancy rises, Rich said. ‘Vacancy is the highest in that submarket of all the ones we track. It’s about 10%, which is fairly unusual.’”

The Real Deal on New York. “The rental market was facing all kinds of headwinds as the year came to an end. The share of rentals offering concessions set records in Manhattan, Brooklyn and Queens, according to a report from Douglas Elliman, even accounting for seasonality. In Manhattan, the share of apartments with concessions offered was at 36.2 percent, 37 percent higher than last December, and in Brooklyn, it more than tripled since last year to 46.1 percent of the market. Concessions were offered at 48 percent of new development rentals.”

“‘This is still an important tool to protect face rents, to put on the best face so to speak,’ said Jonathan Miller of appraisal firm Miller Samuel and author of the report. ‘They’re fighting a battle against the oversupply, so they’re putting out all the stops.’”

“Queens saw the biggest slides in rents, with a 3.5 percent year-over-year drop to $2,750, and a 5.6 percent drop in net effective rents, settling at $2,649. Both Brooklyn and Queens showed declines in luxury rents and number of leases. ‘This is a precursor for what we’re going to see for most of 2018, largely because all markets have a lot of rental units coming in to them,’ said Miller, who expects concessions to remain elevated.”

From Bloomberg. “TruAmerica Multifamily is teaming with Blackstone Group LP to acquire apartment buildings in Denver and Seattle for $126.5 million. The deal, which marks the Los Angeles-based real estate investor’s first transaction with the private equity giant, encompasses 635 units at two communities, one in each city, TruAmerica said in a statement. The buildings, while about 94 percent occupied, have barely been renovated since being constructed about 30 years ago, giving the new owners an opportunity to improve the properties and collect the upside.”

“‘The value-add opportunities available at each property are highly attractive,’ Zach Rivas, director of acquisitions at TruAmerica, said in the statement.”

“Apartment values soared to records during the past decade as U.S. households turned to renting in the wake of the financial crisis. More recently, gains in coastal cities like New York and San Francisco have slowed amid a glut of construction of high-end rentals. Smaller cities such as Denver are still poised for growth, according to data provider Axiometrics.”

The Real Deal on Colorado. “Since 2015, 12,000 new apartments have been built in Denver and another 22,000 are under construction, according to CoStar Group. Of those apartments, 90 percent are considered luxury units. Denver is trying out a pay-what-you-can program for some tenants. Under the program, the city will pay the difference between what lower income tenants — like teachers, hotel workers, medical technicians and food service workers — can afford to pay and the market-rate rent, the Wall Street Journal reported.”

“A housing expert told the Journal that there are risks in not allowing the market to take shape naturally. ‘What you would hope is that excess supply leads to lower rents. If the city is pumping subsidies in, aren’t they going to be propping up the upper end of the market?’ said Chris Herbert, managing director of Harvard University’s Joint Center for Housing Studies.”

The Dallas Morning News in Texas. “After years of booming construction, America’s apartment-building binge is cooling. Dallas-Fort Worth has already seen a dip in the number of apartments in the development pipeline. At the end of the year, about 30,000 apartments were being built in North Texas. That’s down from over 38,000 in third-quarter 2016, according to RealPage. Even with the decline, D-FW is still the country’s second-busiest apartment building market behind only New York.”

“‘There are a half-dozen spots where we’re concerned that starts could prove a little too aggressive simply because demand has been so strong over the past few years,’ said Robert Dietz, chief economist with the National Association of Home Builders. ‘Dallas tops that list, while other locations we’ll be monitoring closely are Seattle, Denver, Charlotte, Nashville and Boston.’”

“The flood of apartments coming on the market in North Texas is already impacting developers and landlords. Apartment rent increases in North Texas declined from as much as 6 percent in recent years to only 2.9 percent in 2017.”

From KCWY 13 in Wyoming. “Rent, rent, rent can be seen all over Casper Classifieds on Facebook and leasing managers and real estate agents say Casper’s renting market is finally stabilizing. Broker One Rentals Agent, Gary Bryan shared, ‘We’ve seen prices come down over the past, say 2015, 20-16 you saw prices come down in rentals and you’ve seen them pretty stable over the last year.’ Luxury apartments were the hardest hit a few years ago. ‘When the oil down-turn came, a lot of the higher-end apartments definitely took a hit. They were renting to a lot of oil company employees. So they saw a mass exodus and their apartments were pretty empty.’”




January 12, 2018

What We Are Experiencing Is A Return To Sanity

It’s Friday desk clearing time for this blogger. “ESG Kullen just closed on a bulk condo deal in Delray Beach, and plans to immediately renovate and sell them off individually. The real estate firm paid $7.5 million for 93 units at the 275-unit Murano at Delray Beach, according to Mark Meland, an attorney who represented the firm. The seller was USO Norge Murano LLC, an affiliate of Norwegian investment firm Obligo. The deal at 15005 Michelangelo Boulevard comes out to about $81,000 a unit. Records show the Obligo affiliate sold the units at a loss. It paid $8.8 million for the units in 2009.”

“There is a rule of thumb among real estate agents that if a property is priced fairly, it should sell in about a month and within 5% of the asking price. A median-priced home in Los Angeles County does indeed sell at or above the asking price within an average of 30 days. Luxury homes, on the other hand, usually go through a multitude of price drops, lingering on the market for months, sometimes even years.”

“One Pacific Palisades home that closed in October originally hit the market in March. The initial price is now scrubbed from MLS records, but after a recorded price change to $7.49 million in April, and a subsequent drop to $6.99 million in July, the home eventually sold for $4.2 million. So unlike the middle of the market, where it behooves buyers to act as quickly as possible, luxury buyers are better served by waiting to see just how low the price will go.”

“Everything about the house looked appealing on the outside. It’s in north Dallas, its mid-century modern and recently renovated. It was perfect for first-time homeowners Mari Caroline and Scott Beckwith, or so they thought when they purchased it in February 2017. Just before Christmas, the Beckwith’s sued Ebby Halliday and Jan and Roger McElroy. Mrs. McElroy is a realtor for Ebby and also co-owns the contracting company that flipped the house with her husband, Roger.”

“The Beckwiths claim the McElroys and Ebby lied in the Seller’s Disclosure when, among other things, they promised new plastic pipes. The lawsuit also states that there is no evidence the city permitted any of the work. ‘We feel lied to, we feel cheated,’ said Scott, 25. The Beckwiths are now expecting their first born in April in their first house which requires repairs that might exceed the home’s value.”

“Toronto’s luxury-home sector was hit hard by the market downturn in the second half of 2017 as sales of high-end detached houses slumped and the condominium sector slowed its torrid pace of growth. A new Sotheby’s report on the luxury market shows sales of homes worth more than $1-million in the Greater Toronto Area fell by 56 per cent in the second half of 2017 compared with the booming first half of the year and by 33 per cent compared to the second half of 2016.”

“Vancouver’s market was most volatile for homes priced at more than $4-million, where sales fell 33 per cent in 2017, which Sotheby’s Canada CEO Brad Henderson said was in part owing to an unwillingness on the part of sellers to lower their prices to make a sale. ‘In Vancouver, what we have seen is that there’s a fairly strong disconnect between what buyers are willing to pay and what sellers are willing to offer,’ he said. ‘That’s creating a little more gridlock because the sellers are not in a position where they have to sell, so if they’re not able to get the price they think their home is worth they retreat from the market.’”

“In London there remains a real concern that the super-rich are taking their money out of London property, but the prices remain too high for many to pick them up. So could the bubble soon burst in London? Richard Werth, CEO, Troy Homes told Express that London has enjoyed far greater price increases than the rest of the country, it now needs to ‘adjust from this euphoria.’”

“The biggest mistake real estate investors often make is ignoring the supply side. That’s the view of Harvard Professor Edward Glaeser, who’s touring Scandinavia as a speaker. Glaeser’s visit to the region comes as both Norway and Sweden are seeing steep declines in housing prices after record low interest rates and surging prices sparked a building boom. ‘By far the largest mistake that at least American real estate investors have made over the last 230 years is to pay too much attention to demand relative to supply,’ Glaeser said in an interview in Oslo. ‘Over and over again they ignore the ability of unfettered supply to set prices.’”

“Amid plots of unsold, multi-million dollar reclaimed land, on what was 30 years ago an uncontrolled garbage mountain rising from the sea, Downtown Beirut now features more completed buildings than cranes. Amid seemingly insatiable demand, a profusion of amateur developers entered the market, inflating the availability of housing in Lebanon. The legacy of the boom years today is an overabundance of luxury residences in the downtown area, often with a price tag over a million dollars. Ramco Real Estate Advisors estimates that there are now 3,600 unsold apartments in the BCD alone. The excess supply has forced property owners to reduce their margins and offer discounts of 20 to 40 percent in order to move their inventory.”

“Israel’s finance minister, waging a fierce battle against apartment speculators, in an attempt to bring down housing prices, sought to impose a tax on those who own three or more apartments. The law crashed before it even took off. How, then, is it that the law’s objective was achieved? It now appears that the party is coming to an end. The numbers coming in from the field show that apartment prices all over the country — and even in Yerushalayim, where prices had skyrocketed — are dropping considerably, or at least leveling off. On the other hand, the supply of new unsold apartments is increasing, and the builders’ sales offices are no longer crowded with eager young couples or other would-be buyers.”

“With upwards of 20,000 new residential apartment units expected to arrive on the Dubai skyline in the new year, supply and demand pressures will push rents even lower, suggests statistical analysis by seasoned property consultancy firms. ‘I think rates are going to keep declining over the next year at least. What we are experiencing is a return to sanity,’ said Jesse Downs, managing director of Phidar Advisory.”

“Knight Frank India, said for the first time in this decade, Mumbai witnessed a decline in quoted prices. ‘The weighted average prices were down 5% YoY in 2017,’ it said. ‘For the first time in this decade, the Mumbai market has experienced a drop in residential prices. Unlike the conventional narrative, developers cut down prices to offload their unsold inventory,’ said Dr. Samantak Das, chief economist.”

“House prices dropped on Auckland’s Waiheke Island last year for the first time in six years, says Waiheke Real Estate manager and salesperson Paul Brisbane. In November, the median house price on Waiheke was $885,000, while in Auckland the median was $880,000, he said. Waiheke’s median house price peaked at $1,037,500 in June 2017 and has been falling every month since, Brisbane said. ‘A lot of investors have been pulling out of the market,’ Brisbane said.”

“Homebuyers have been scoring some killers deals as Sydney’s cooling housing market encourages struggling sellers to accept low ball price offers. CoreLogic data showed vendors have been selling their homes for nearly a third below their original listed prices in pockets of Sydney’s south and inner west over the past year. House hunters got the biggest discounts in the suburb of Sutherland, where sellers dropped their original listed prices by an average of 30.1 per cent before selling. The typical price adjustment was roughly $350,000.”

“Realestate.com.au chief economist Nerida Conisbee said sellers were also under pressure because investors, who made up nearly half the pool of Sydney buyers last year, were struggling to get mortgages. ‘Investors are really struggling,’ she said. ‘That means there are a lot less buyers around.’”




January 11, 2018

People Got Houses They Just Couldn’t Afford

A report from Kings County Politics in New York. “With Canarsie and East New York leading the way, foreclosures in Brooklyn doubled last year and were at their highest levels in over a decade, according to PropertyShark. The reports found that 827 homes were scheduled to be auctioned in Brooklyn during 2017, while there were 410 first time foreclosures in 2016. The previous record dates from 2008 when foreclosure cases peaked across the city and Brooklyn had 460 homes scheduled. The highest concentration of foreclosed homes is located in the eastern part of the borough, with zip code 11236 in Canarsie logging 113 new cases. Neighboring zip codes 11208 (East New York) and 11234 (Canarsie) follow with 94 and 86 cases, respectively.”

“‘A lot of people bought without a lot of resources and then something happens that collapses their plans. For certain there are a lot of real estate brokers that arranged for people to get houses that they just couldn’t afford,’ said City Councilman Alan Maisel (D-Canarsie, Flatlands, Bergen Beach).”

“There are a lot of people who come into the office that make around $50,000 and are paying on a $500,000 mortgage making them house poor and yet they don’t want to sell their house because they see it as their investment and retirement, said Maisel. Maisel said while he is not surprised that foreclosures are up in the neighborhood, there could be more coming as last year there were between 800-900 homeowners that were earmarked for liens against their property for failing to pay water and property taxes.”

From The Observer. “The Plaza Hotel remains one of New York City’s ultimate trophy properties. But as a real estate investment, The Plaza may be losing its luster. With its quirky prewar layouts and competition from a glut of glittering super luxury towers like One57, 220 CPS and 225 West 57th, sales of the hotel’s residences have been somewhat challenging, according to even the most optimistic brokers. And sellers are certainly not seeing the massive flip profits that can be seen at similar luxury buildings.”

“‘A lot of these apartments are overpriced,’ Chris Fry of Elegran, who is listing an 4,665-square-foot, four-bedroom unit in the building for $18.9 million. He says, however, that his listing is priced to sell. ‘But if you are Tommy Hilfiger you can basically let it sit there,’ at whatever price, he adds.”

“Hilfiger isn’t the only victim of what industry insiders refer to as ‘aspirational pricing.’ Although it’s not currently on the market, developer Harry Macklowe, of 432 Park fame, recently claimed in court that his seventh-floor Plaza residence is worth $107 million, which is $7 million above the price of the most expensive condo ever sold in New York, according to the Real Deal. Real estate appraiser Jonathan Miller of the firm Miller Samuel puts the value of the unit closer to $55 million, which is $5 million less than the Macklowes paid for the apartment in the heydays of 2007.”

“It’s certainly not a problem that’s unique to The Plaza. Sellers across the city, unwilling to face the realities of the current marketplace, brought the top end of the market to a virtual standstill in 2017. It is, however, an issue that is acute within the Plaza. Of the 11 apartments listed at the Plaza that are asking over $10 million, more than half of them have recently slashed prices—perhaps an indication that sellers are getting realistic.”

From The Real Deal. “Extell Development quieted naysayers betting against Central Park Tower by closing $1.14 billion in financing for its planned supertall. But now the clock is ticking for Gary Barnett’s firm — thanks to a loan clause that requires the developer to sell $500 million worth of apartments by 2020. Despite that three-year runway, luxury pads are taking longer to sell compared to years past: Properties asking $4 million or more spent an average of 433 days on the market in 2017, compared to 318 days in 2016, according to Olshan Realty, which tracks luxury units placed under contract.”

“Miller Samuel data show that discounts got steeper for more expensive properties: The average discount was 5.8 percent for pads priced between $10 and $20 million; 12.5 percent for $20 to $30 million; 14.9 percent for $30 to $40 million; and 26.2 percent for properties priced at $40 million or more.”

“‘There’s this false idea that nothing is selling; the issue is that most of the stuff in the $10 to $20 million segment is overpriced,’ said Brown Harris Stevens’ Lisa Lippman. She said one of her clients was recently bidding on a condo whose owners upped the price from $18 million to $19.3 million. ‘My client was willing to bid in the high $18’s,’ she said. But the higher price was simply ‘not going to happen.’”

“She said sellers (and developers) — got overly ambitious with prices in 2015 and 2016. ‘There gets to be a point where even the very wealthy push back,’ said Lippman. ‘If you price at 2013, 2014 levels, units will sell. There’s just not this 20 percent of fat on top.’”

“That’s especially true in new development, where supply far exceeds demand. The ratio of inventory to sales for properties above $30 million was six-to-one last year, according to data from StreetEasy. There were just 24 deals in that price category, but 145 for-sale properties on the market. (For the $10 to $20 million segment, the ratio was three-to-six; and for properties asking $20 to $30 million, it was five-to-eight.)”

“Grant Long, a senior economist at StreetEasy, said the pipeline of projects still being built gives him reason to believe the luxury market will remain soft this year. ‘Each new building is trying to outdo the next,’ he said.”

From The Cooperator. “There was a drop in average price for Manhattan co-op resales from $815,000 to $785,000, representing a 4 percent decline from third quarter 2017 to fourth quarter 2017, for reasons similar as condominium sales. Perhaps the most significant changes in the market are in inventory and months-of-supply. Market wide, the overall number of units available increased by 9 percent since fourth quarter 2016, jumping more steeply from the third to fourth quarters in 2017. ‘This represented the highest fourth quarter total since 2011,’ said Corcoran. ‘This inventory increase was fueled by increases in new development inventory at recently launched developments Downtown.’”

“Overall, closed sales remained virtually unchanged over fourth quarter 2016, though they declined 15 percent over third quarter 2016, a possible ‘canary in the mine shaft’ for 2018. This decline may be related to uncertainty over the new tax bill passed by Congress and signed into law before Christmas. The law severely restricts the deductibility of state and local real estate and income taxes from federal tax calculations going forward. That provision is seen by many as a possible ‘dampener’ on prices in tax heavy states and cities, such as New York.”

“‘The new tax law applies strongly to the New York City market,’ says Simon Seaton, an agent also with Halstead, ‘and will play a larger role in buyer decisions. Its ultimate affect still remains to be seen.’”

From Bloomberg. “Apartment rents in Manhattan fell the most in almost four years as landlords made deeper price cuts to lure tenants in a market brimming with choices. Landlords agreed to accept a median rent of $3,295 last month, or 2.7 percent less than the previous December, appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate said in a report. It was the biggest annual decline since February 2014. After concessions such as free months and the payment of broker’s fees are factored in, tenants paid a median of $3,208, down 2.5 percent from a year earlier. That decline was also the biggest since February 2014.”

“After two years of propping up apartment prices with behind-the-scenes offers of free months and gift cards, owners contending with a flood of supply could no longer hold up the dam. They still offered sweeteners — last month, in 36 percent of all new leases, a record share — but they also agreed to whittle what they charged in rents.”

“‘The concessions were working for a while, but the consumer is now really pushing more on the negotiating side of the rents,’ said Hal Gavzie, who oversees leasing for Douglas Elliman. ‘The price points needed somewhat of a correction.’”