February 23, 2018

When You Tell Them The Price, They Don’t Come Back

It’s Friday desk clearing time for this blogger. “An investment company could score a major victory this week in its alleged hostile takeover of a 1990s Miami Beach condo-hotel. Miami-Dade Circuit Judge Beatrice Butchko has set a three-day trial beginning Tuesday to decide the outcome of foreclosure lawsuits the Schecher Group has brought against 35 unit owners at the Sixty Sixty Resort. The trial is moving forward despite a pending chapter 11 filing by the Sixty Sixty Condominium Association aimed at preventing the owners from losing their units for next to nothing, said association president Maria T. Velez. ‘Schecher has already taken 10 units for free from people who couldn’t handle the stress and gave up in lieu of foreclosure,’ Velez said.”

“Singer-songwriter Mary J. Blige is in contract to sell her gated estate in the affluent New York City suburb of Saddle River, NJ, for a big loss, Gimme Shelter can reveal. Blige bought the chateau-style mansion for $12.3 million in 2008; it was last listed for $6.98 million. The buyer, we hear, is paying less than $6 million — less than half of what she originally paid for it. ‘Someone is getting an incredible deal,’ says a real estate source.”

“The mystery buyer of Manhattan’s most expensive apartment has been revealed: the Wall Street Journal says it’s Dell Technologies founder Michael Dell, who purchased the property for its $100-million asking price. One57 made headlines in 2017 for being home to New York’s largest apartment foreclosure—the original owner was Nigerian oil tycoon Kolawole Akanni Aluko, who was implicated in a money-laundering scheme that included the unit for which he had paid $50.9 million. It was eventually unloaded by its mortgage holder at an auction for $36 million.”

“Then there’s One57’s Unit 83, a 6,240 sq ft spot sold at a $13 million discount in 2016: Bought for $58.5 million in 2015, it ultimately changed hands for $45.8 million. The spectacular price cuts at One57 reflect drops in the super-luxury market over the past few years in New York and across the US. Recent resales have been trading at 25% less than their peak in 2014, according to appraisal firm Miller Samuel. A similar problem was faced by London’s Shard building, the apartment tower built around the same time as One57, which has been trying to sell its ultra-modern, £50-million flats for five years to no avail.”

“Silicon Valley remains far ahead of other regions according to a new study. But high housing prices contributed to a loss of residents in 2016, something the Bay Area has not seen since last decade’s recession. Brian Brennan, vice president of the Silicon Valley Leadership Group, said that it’s a ‘dramatic shift’ from a year earlier. ‘What it does suggest is that we really need to take seriously the things that are causing people to leave, housing prices again being a big driver.’”

“British Columbians who bought homes last year in an attempt to borrow before a federal tightening of mortgage rules could be most at risk if the NDP government’s new housing taxes leads to a drop in prices. ‘The most worrisome is the people who bought in the last year, said University of B.C. professor and economist, Tom Davidoff. ‘Where it matters is when people can’t make payments … and then people start walking away. When people start walking away from their properties, that’s where you get the vicious cycle.’”

“Capital & Counties scrubbed £131 million off the value of its Earls Court development on Wednesday as it paid the price for a still-sluggish London property market. The latest hit, cutting the value of the regeneration scheme to £1 billion, means Capco has written down the scheme by 29% since 2015. Capco has sold half of the 186 flats in the second phase of its Lillie Square scheme. Of these 34 changed hands last year but just seven in the second half of 2017.”

“The number of housing starts in Sweden rose 8 percent to 64,000 in 2017 from 59,518 units the year before, the Statistics Office said. Sweden has seen a construction boom in the last couple of years as builders try to catch up with a rise in the population and cash-in on surging house prices. However, home prices have fallen during the last months, mainly due to a surge in building and new, tougher mortgage rules. In January, prices fell for the fourth month in a row.”

“A mini-survey has revealed a rise in advertisements of real estate worth billions of shillings due for distress sales. At least 50 properties are going under the hammer each week. Dr Adam Mugume, the executive director of research at Bank of Uganda, noted that the real estate sector has been thriving in some sort of a growth bubble.”

“He told The Observer how property prices grew by leaps and bounds up to around 2010. The promise of the country’s oil sector was still alive and demand for prime buildings was thought to continue pushing up. ‘There are those people who borrowed assuming property prices would continue rising and, therefore, sell their properties [at profit]. Those are the people we are talking about whose properties are being sold,’ said Mugume.”

“But even after they have taken on the properties, according to court bailiffs and several commercial banks’ officials we spoke to, there are no buyers. Naboth Apamba, an official at Excel court bailiffs and auctioneers, told The Observer: ‘The market has not been well. People are not buying. People don’t have the money. When you advertise the property, people come, make some inquiries and when you tell them the price, they don’t come back.’”

“He said if they had their way, they would cut the price of properties but by law, a foreclosed property is supposed to be sold at the market value. Another court bailiff said: ‘We have so many properties we haven’t sold that we may stop to take them on.’ Stephen Kaboyo, director at Alpha Capital, echoes similar views noting that people running the economy need to realise that something is not right somewhere. ‘I was reading one of the papers and found a property of someone working in one of the banks being taken over. That should worry us,’ Kaboyo said.”

“Sydney’s property market is set to face its first big test of the year on Saturday, with almost 1000 homes scheduled to go under the hammer. There are 942 properties scheduled for the bumper auction day, an 85 per cent increase on the 510 homes up for grabs last Saturday. Much of the action will take place in the city’s eastern suburbs, where a whopping 186 auctions are scheduled, but buyers will also be spoilt for choice in the inner west where there are 143 homes for sale.”

“Over the year to December the median house price in the inner west fell 2 per cent to $1.61 million, according to Domain Group data. On the lower north shore prices also dropped, falling 2.3 per cent. ‘If vendors’ expectations align with market, the new market, they’ll sell … if they’re trying to grab prices from 12 or 18 months ago, that’s not going to happen,’ said selling agent Brad Gillespie.”




February 22, 2018

They List To Sell, But Are Unable To Sell

A report from the Toronto Star in Canada. “The dip in Toronto’s housing market means there’s a different dynamic at play between sellers and buyers this year. An analysis by Zoocasa shows more neighbourhoods have become buyer’s markets — areas where there is enough competition among sellers that buyers have more choice and more room for negotiation — conditions that simply weren’t on the table in heated January 2017. Sales and prices have softened somewhat for detached and semi-detached houses and there’s slightly less demand for some of the hot east-end neighbourhoods. Penelope Graham, managing editor with Zoocasa, said the new mortgage stress test rules that took effect Jan. 1 and the lingering chill of the Ontario government’s Fair Housing Plan in April have reduced the pool of house buyers.”

“‘The areas where we’re really seeing an increase in balanced conditions were ones that were really dependent on detached sales — detached and single-family homes make up the majority of housing types in these areas that have seen the greatest change,’ she said.”

From Mortgage Broker News. “Calgary’s real estate market is flat with an overabundance of condos still listed and buyers having trouble securing mortgages. Croft Axsen, owner of DLC Jencor Mortgage Corporation, says refinances, in particular, have become difficult to obtain. ‘Refinances are not insurable, so all of the monolines are out of that market and there’s less competition because of government interference in the marketplace,’ said Axsen. ‘It’s a significantly smaller market than it used to be, which I assume is the government’s purpose, but I’m not sure restricting liquidity in Calgary is necessary at this time, but I understand their concerns about Vancouver and Toronto. Unfortunately, they want to use a sledgehammer instead of a needlepoint to fix what they’re concerned about.’”

“He has noticed an uptick in people forced to sell their homes because of an inability to get refinanced, as well as ‘move-up’ buyers with children on the way being stuck in their insufficiently-sized condos. ‘For many of them they don’t understand, because they’ve been able to get mortgages their entire lives, but now they’re being told they can’t.’”

“Gone are the days when seemingly everybody bought a new home every three to five years. Now move-up buyers are stuck in their condos, and with condos planned before the economy crashed coming to market, there’s too much supply. Julie Jeffery, a broker with DLC Elevation Mortgage, says realtor and consumer confidence is low. ‘They’re really, really nervous,’ she said. ‘They list to sell, but are unable to sell,’ said Jeffery.”

From the Calgary Herald. “In Canada Mortgage and Housing Corp.’s Housing Market Assessment for the first quarter of 2018, the Calgary census metropolitan area was one of four markets to earn a moderate degree of vulnerability. The other three were Edmonton, Saskatoon, and Regina. When it comes to rating overbuilding, two factors CMHC looks at include apartment rental vacancy rates and inventory.”

“‘Although it has come down over the previous year, it’s still fairly elevated, well above historical averages,’ says Richard Cho, principal of market analysis for CMHC in the prairie region, on vacancy rates in the Calgary area. For inventory, CMHC reviews numbers on both the single-family and multi-family ends of the market, but Cho adds ‘really, it’s the multi-family segment where we’re seeing high inventory levels, which is contributing to the evaluation around overbuilding.’”

From Metro News. “Alberta’s economic downturn has spurred thousands of workers to leave the oil patch. For the second year in a row, the Wood Buffalo-Cold Lake economic region posted the largest decrease in population in the country, according to Statistics Canada. For years, Fort McMurray saw skyrocketing home prices because the growth was unsustainable. ‘We are seeing more houses moved in the market, more homes are selling,’ said Fort McMurray Chamber of Commerce Executive Director Alexis Foster. ‘But the sale prices are going down … it’s sort of a double-edged sword.’”

“The situation is similar in Cold Lake, which is also heavily dependent on the oil patch, said Mayor Craig Copeland. Housing starts have ‘flattened’ since 2014, down 30 per cent for the third year in a row, he said. Hotels have been quiet, charities have been affected and housing prices are dropping rapidly. ‘In some cases houses have dropped over $100,000 in their value,’ Copeland said.”

From Reuters. “British Columbia moved on Tuesday to crack down on real estate speculators, expanding its foreign buyer tax and introducing a new speculation tax, as part of a wide-ranging strategy to cool housing prices in Canada’s most expensive real estate market. The left-leaning New Democratic (NDP) government, under pressure to address skyrocketing home prices and soaring rents, particularly in the Vancouver area, unveiled a 30-point housing plan as part of its first full budget.”

“The province also moved to clamp down on condo presale flipping - where units are bought and sold many times before construction completes - and to close loopholes allowing foreign buyers to invest through numbered companies and local proxies. In measures sure to appeal to frustrated voters, the province pledged to end tax breaks for mansions on protected farmland.”

From Bloomberg. “‘B.C.’s real estate market should not be used as a stock market. It should be used to provide safe and secure homes,’ said British Columbia Finance Minister Carole James. ‘That’s why we’re cracking down on speculators who distort our market.’ The levy, she said, will also capture ’satellite families’ — a term with Chinese origins to describe those families where the breadwinner remains in the home country while the children and spouse reside abroad to take advantage of educational and employment opportunities.”

“The foreign buyers’ tax will also be extended beyond the Vancouver region to properties in Victoria and other parts of the province. Taxes on the province’s most expensive properties will also rise — homes worth more than $3 million will pay a 5 per cent property transfer tax when sold, up from 3 per cent.”

From Casino Reports. “Casinos are often used by criminals as a front for money laundering crime. Money laundering and other corrupt activities have been the scourge that needs to be tackled by governments. Last year, a suppressed casino report unveiled suspicious cash transactions washing through casinos in the lower mainland in Canada. An RCMP investigation into underground banking and alleged laundering of drug cash in B.C. casinos unveiled an intricate terrorist financing system.”

“A Globe and Mail investigation has found out that 17 local residents are investing millions of dollars in Vancouver-area real estate in private lending and mortgages. The money is allegedly obtained illegally. The lenders, then, are repaid with wads of clean cash. In 2016, three of the lenders were caught red-handed, carrying fentanyl worth C$600,000 in cash.”

“The three lenders alone registered more than $20-million in mortgages and other debts against multimillion-dollar homes in recent years. The Globe and Mail found out that a total of 17 such lenders are involved in the scheme. They claimed a stake worth C$47 million. In addition to that, the lenders were found to have interest in 45 Vancouver-area properties in recent years.”

From Toronto Metro. “B.C.’s Attorney-General has pledged to crack down after an explosive investigation in the Globe and Mail uncovered what Vancouver journalist Kathy Tomlinson called Vancouver real estate’s ‘latest dirty little secret’: ’shady money’ from B.C. drug traffickers — funneled through property transaction loans and repaid to fentanyl suppliers in China. The exposé by Tomlinson and Xiao Xu showed that some profits of the deadly fentanyl epidemic — which killed a record 1,422 British Columbians last year, 43 per cent above 2016 — are being laundered through the province’s skyrocketing real estate market.”

“Over roughly the same period, as opioid deaths began to jump in late 2014, property values also soared, pricing many locals out of the housing market. University of Windsor law professor Bill Bogart refered to the realty-drug connections as an example of ‘narconomics and its tentacles.’”

“Richmond city coun. Harold Steves said he’s not at all surprised by the disturbing revelations about money laundering in the real estate market in his city. ‘We heard rumours for years that drug money was involved in some of Richmond’s big houses, and of other unsavory uses in the (Agricultural Land Reserve),’ he tweeted Friday night. ‘Now we know it is true.’”

From Macleans. “It’s a start, at least. And on the surface, it looks surprisingly bold. But it remains to be seen whether the 30-point housing plan British Columbia Premier John Horgan’s government unveiled Tuesday will begin to expunge the pathologies that have turned Metro Vancouver’s real estate market into an international housing affordability basket case and a global playground for white-collar criminals and fentanyl tycoons.”

“What is certain—and it has come as a delight to many West coast housing activists—is that after more than a decade of willful neglect by provincial and municipal politicians, and out of a political culture of persistent denial, indifference, self-dealing and outright corruption, there appears to be a government in Victoria that is giving the province’s distorted, overheated and out-of-control real estate business some long overdue attention.”

“‘I’m not happy, but I’m not sad, either,’ said Andy Yan, the director of Simon Fraser University’s City Program whose data analysis and public advocacy helped to shame Victoria into acting. ‘This will not make Vancouver affordable. But this is a nightmare we’re coming out of. It’s going to take more than one provincial budget to unwind the machine.’”

“Vancouver’s rental vacancy rate has fallen below one per cent. At least 20,000 Vancouver homes are vacant, and nearly 25,000 Vancouver households are declaring a taxable household income that is less than their outlay in property taxes, utilities and mortgage payments. Transparency International estimates that perhaps half of Vancouver’s high-end residences are now owned by shell companies or trusts.”

From Vice Money. “British Columbia’s move to increase the tax levied on foreign buyers of Vancouver property has been cast as ‘political’ by some housing experts, who argue that the new NDP government simply succumbed to pressure from a population that to a large extent, is blaming sky-high home prices on the influx of foreign money. ‘It was obviously a political move,’ Vancouver realtor Steve Saretsky told VICE Money. ‘They picked up a hot potato from the B.C. Liberal government that had done nothing about house prices for so long so they were under immense pressure to get real estate in order.’”

“‘I think the government was responding to the sentiment that foreign buyers are making money off the gain in real estate prices, and they aren’t paying any taxes on those gains,’ Hilliard MacBeth, author of When the Bubble Bursts: Surviving the Canadian Real Estate Crash told VICE Money. ‘I think the speculation days are now over in Vancouver. The whole climate is going to change.’”

“Regardless of the extent to which foreign money is driving Canadian real estate, housing experts like Saretsky warn that none of this might end well. ‘I don’t see a happy ending here. Somebody’s going to get hurt and it’s most likely the hardworking family that made enough money to afford property.’”




February 21, 2018

Banking On A Huge And Quick Increase In Equity

A report from the Star Telegram in Texas. “Patti Sue Kirkey makes decent money with periodic raises, as a project manager for a mortgage company. Kirkey’s experience illustrates an unfortunate reality in North Texas. By and large, wages are not increasing fast enough for residents to keep pace with the cost of housing. Her experience in Fairmount didn’t end well. She had hoped to buy the home she rented for two years. But during that time her landlord, who was apparently eager to capitalize on fast-rising home prices in much of Fort Worth, raised the asking price beyond Kirkey’s budget.”

“‘The last house I was in for two years, I wanted to buy it, but the price went up $75,000 for no reason,’ Kirkey said. ‘There were no improvements.’”

“Thao Truong said her family is interested in selling their six-bedroom home In North Richland Hills and downsizing. Truong said one of her neighbors bought a home for $215,000 about four years ago and recently sold it for more than $300,000, and her family wishes to make a similar sale and use the proceeds for a smaller, higher-quality home. ‘The prices are going to keep going up, so my advice is to buy now. Buy while you can,’ she said.”

“The situation is probably temporary, said Lawrence Yun, chief economist for the National Association of Realtors. Builders are moving quickly to build new homes to meet that demand. ‘I don’t anticipate such a misalignment trend can continue for the next five years. It’s just not possible,’ Yun said. ‘There needs to be … a situation of home prices tamping to let wages have a chance to catch up.’”

From KTVZ in Oregon. “It’s not cheap to buy a home in Bend, and those high home prices are continuing to rise. In January, the median price for a single-family home in Bend was $410,000. That’s up $15,000 from December. The cost of homes in housing developments is typically determined by the builders, and a big part of that comes from the cost of land, Bend Premier Real Estate Principal Broker Lynnea Miller explained.”

“‘I’ve lived in Bend since 1985, and I can recall, you could pick up a lot a really nice lot for $5,000 back in those days,’ Miller said. ‘Now that same lot, shrink it down to make it about 4,000 square feet, and the going rate for that is $85,000 to $95,000 for a developed lot. When you have to spend that kind of money for land, the home you build on it has to be at least $400,000.’”

“Miller also said most buyers are coming from out of town. ‘Bend has been found by an awful lot of West Coast people relocating from the Bay Area or Seattle, and compared to those markets, Bend is still very cheap,’ she said. ‘The thing I’m concerned about: We don’t want to become an Aspen, where the only people who can live here are the wealthy. Where do people with regular jobs live?’”

From The Stranger in Washington. “The owner of several Seattle condos appears to be learning for the first time that she owns the condos but not the air outside them. Londi Lindell owns several units in a five-unit, three-story condo building in Westlake with views of Lake Union. Now, a developer wants to build a six-story building nearby. Lindell appealed, asking the city council to consider additional evidence: a Redfin ad from when she bought the building advertising ‘THE VIEWS ARE INSANE.’”

“In her appeal, Lindell wrote that she ‘purchased the Marcus Condominimums in September 2017 principally due to the spectacular views of Lake Union from each of the condominium units.’ (The council declined to consider the Redfin ad.) Emily Badger wrote about this phenomenon in the New York Times last month. When homes are just another commodity, those who own them (whether a single family house or a building of condos) naturally see an investment to protect. ‘Zoning effectively invited homeowners to look beyond their properties in ways they hadn’t,’ Bagdger wrote. ‘And it helped create the expectation that communities would change little over time — or that homeowners would have a say if they did.’”

From The Real Deal on New York. “Manhattan’s luxury market had its most-active week in nine months, with 37 contracts signed at $4 million and above, according to Olshan Realty’s weekly market report. The week’s No. 1 contract went to late philanthropist David Rockefeller’s Upper East Side townhouse, which had an asking price of $27 million. That’s a 17 percent reduction from the $32.5 million it had been asking when it hit the market in June.”

“The 40-foot-wide home at 146 East 65th Street spans nearly 10,000 square feet and has eight bedrooms, eight full bathrooms, a library and 8 fireplaces. It needs a gut renovation.”

“The week’s asking price sales volume totaled $296.25 million, with a median asking price of $6.1 million. Luxury homes spent an average of 477 days on the market, and had an average discount of 8 percent from the original asking price to the final one.”

From MyPanhandle in Florida. “Bay County is in the midst of another construction boom. However, it’s not as big as the one back in the early 2000’s. In fact, you don’t have to look very far to find remnants of some of the projects developers started, but never completed when the bubble burst in 2008. The 60-acre Morningside housing development off U.S. Highway 231 long ago became a pipe farm.”

“‘There are subdivisions all over this county. Which most of them now are called pipe farms because they hadn’t been developed. There’s pipes out of the ground,’ said President/CEO, ERA Neubauer Real Estate, Inc., Tom Neubauer. Neubauer says the project was one of many that began in the early 2000’s, and ended shortly after the market crash in 2008.”

“‘It was really just a product of the recession,’ said Callaway Mayor, Pamn Henderson. Callaway has it’s share of disappointment with abandoned developments. The city actually extended water and sewer lines to accommodate several hundred houses planned in the Eastbay development. Then the housing market took a nose-dive. Without the new houses, there wasn’t enough sewage to pump through the lift station near Callaway City Hall. That was partially responsible for a potentially deadly methane gas dispute between that county and the city, that is just now being resolved.”

“City officials may have a reason as to why someone isn’t fishing for those projects with sewage and roads already in place. ‘It may be a funding issue. In some cases I think they just felt like the market’s not there anymore. So, why put anymore money into it to have units that are going to sit vacant,’ said Henderson.”

The Union Leader in New Hampshire. “Before Bear Stearns and Lehman Brothers, before Countrywide, before Fannie and Freddie, some in New Hampshire were seeing troubling signs. The real estate market here and nationwide was hot and credit was easy. Nobody wanted to miss out on home ownership - and lenders were all too happy to help, writing mortgage loans with no down payments, adjustable interest rates and no income verification. But what if the bubble burst?”

“It’s been 10 years since the 2008 crash. Unemployment is near record lows and the stock market is at an all-time high. Home prices in New Hampshire are back to where they were before the recession. We asked folks who weathered the crisis here to look back - and whether they thought it could happen again.”

“Consumers, with lenders’ encouragement, were buying bigger and better homes than they could afford, said Barbara Cunningham was the mortgage origination manager at St. Mary’s Bank in Manchester. ‘The consumers that got into these loans, for the most part, I think were banking on a huge and quick increase in equity.’ The housing market was so hot that everyone assumed they could sell their homes at a profit if something went wrong. And go wrong it did: house values started dropping, and once they started they didn’t stop. ‘That’s when the whole thing started to unravel,’ Cunningham said. ‘All it takes is a couple decades go by and people forget. Regulations get changed, get removed. And anything that’s happened once can happen again.’”

“Shannon Miller says she’s the first to admit she was naive 10 years ago when she took a home loan with a local mortgage company. ‘I trusted them,’ she said. She lost her house and her inheritance, and filed for personal bankruptcy. A decade later, she said, ‘I’m still angry.’”

“‘A substantial percentage involved people who had been in a home and were basically taking equity out, and frankly, the market was encouraging people to do that,’ said Dean Christon, CEO of New Hampshire Housing Finance Authority, And Christon said, ‘The reality is a lot of that could happen again.’ He agreed there are new regulations put in place to ensure that lenders verify that borrowers can afford their loans. But, he said, ‘As prices go up and as inventory tightens, there is always pressure from lots of actors to loosen up those kinds of rules,’ he said.”




February 20, 2018

Trouble Cooking In Paradise

A report from the Globe and Mail in Canada. “The Toronto housing market’s rotten January has thrown a scare into veteran mortgage broker John Cocomile. A lot of Mr. Cocomile’s business in recent years has been mortgage refinancings. What worries Mr. Cocomile is that the latest developments in housing make it much harder to refinance. This could be the year debt gets messy. A big reason why Toronto home sales fell 22 per cent compared with January, 2017, was the introduction of new mortgage regulations designed to make the housing market more stable going forward. The rules include a stress test that applies to anyone with a mortgage that isn’t insured against default.”

“At Mr. Cocomile’s office, a lot of people are flunking the test. He’s had 10 people contact him about refinancing this year who did not end up qualifying. ‘All 10 would have qualified a year ago,’ he says. Meanwhile, debt loads are getting heavier to carry. The Bank of Canada has increased its trend-setting overnight rate three times since last summer.”

“‘People could refinance because the value was there,’ Mr. Cocomile said. ‘They call me and say, ‘My neighbour’s house just sold for $1.7-million, can I pull some equity out? I want to do a refi.’ Toronto real estate’s rotten January suggest people may be a bit disappointed in what their homes are worth now. The price of detached homes in the city fell 9 per cent on a year-over-year basis, even as condo prices rose 14.6 per cent. Mr. Cocomile finds that home appraisers are reacting to the current environment by getting more conservative with their assessments of how much homes are worth.”

From the Daily Mail on the UK. “The asking price on one the country’s most expensive houses will be slashed after it was put into receivership. Cresswell House in Chelsea, West London, will have its price almost halved as the high-end property market continues to suffer. The home - which sits in the the exclusive Boltons enclave - will be put up for £20.1million after it was originally priced at £37.5million.”

From Bloomberg on the UK. “London’s property market has moved out of its boom phase and home sellers need to be more realistic about their price demands, according to Rightmove. ‘End-of-the-boom prices normally readjust more quickly if there is an over supply,’ Miles Shipside, Rightmove director, said in the report. However, ’some would-be sellers are holding back, preventing a glut of competition from forcing prices downward,’ he said. For those who need a fast sale, Shipside’s advice is to ’sacrifice some of the substantial price gains of the last few years.’”

From Haaretz on Israel. “Finance Minister Moshe Kahlon finally got his wish in the last quarter of 2017 as home prices fell, but he was soon under attack for risking a real estate slump and endangering government tax revenues. The Central Bureau of Statistics reported that home prices fell 1.2% in the fourth quarter. In the first regional breakdown of price trends, the CBS said Jerusalem led the quarterly decline, with prices slumping 5.1% from the third quarter.”

“Isaac Herzog, the Zionist Union MK and opposition leader, warned that slumping prices could undermine economic growth and dent tax revenues. ‘From the figures we have today, 50,000 unsold homes are sitting on the shelf,’ he said. ‘Contractors aren’t selling houses because they don’t want to lower their prices.”

“But Kahlon was he was sanguine. ‘Nothing will happen if there’s a big drop in home prices,’ he said. ‘We are seeing declines in the real estate market, which could bring a slowdown, but contractors’ profit margins are so large that they can afford to cede a little income.’”

“Builders are struggling to sell higher-end homes because buyers are now focused on cheaper properties, a phenomenon evidenced in figures released by the CBS: The average price of a home fell to 1.44 million shekels ($407,000 at current exchange rates) in the fourth quarter from 1.46 million in the third and the lowest level since the end of 2015. In Tel Aviv, the average price was 2.7 million shekels in the quarter, a 2.5% decline and the lowest since the second quarter of 2016.”

From Standard Digital in Kenya. “The artistic impressions and marketing lingo used on websites and brochures of Kenya’s surging gated communities can easily be confused with what paradise is supposed to look like. But hidden behind the high walls and big gates is trouble cooking in paradise, and signs are starting to appear. On Friday, 119 houses at Kitisuru Gardens in Kiambu went under the hammer after their developer, Homex Housing, faced difficulties in completing the project. An unspecified amount of money which prospective home buyers had paid through off-plan purchase went up in smoke.”

“At Kitusuru Gardens, the houses were valued at Sh10 million when the project began in 2012. Buyers paid Sh2 million to book the units courtesy of the plans they were shown. ‘They changed the designs of the houses mid-way and moved some units from where they were originally located. Then the dates of handing over the houses kept on changing,’ one buyer told Weekend Business. ‘Furthermore, some amenities in the brochure including a swimming pool, a club house and convenience shop suddenly disappeared,’ said the buyer.”

“Those in the know say Homex Housing had over-stretched itself by doing several projects at the same time, which caused cash flow issues. But the problem is not unique to Homex. Around Nairobi, a number of developers are struggling to finish their gated community projects on time as they battle problems ranging from inadequate finances, undelivered promises and unavailable buyers. Meanwhile, completed projects are taking longer to fill, throwing developers into a public relations and credit repayment nightmare. As international magazine Quartz recently put it, ‘Nairobi built shiny new business districts but not enough tenants have shown up.’”

From ABC News in Australia. “The Reserve Bank has warned that a wave of interest-only mortgages sold when standards were more lax and due to expire in the next four years may put borrowers into financial stress. RBA assistant governor Michele Bullock said the investor loans, made before a tougher regulatory approach was imposed in the recent years, were being monitored closely to ensure they don’t impact overall financial stability.”

“‘There is still a large stock of housing debt out there, some of which probably would not meet the more conservative lending standards currently being imposed,’ Ms Bullock said. Ms Bullock said the large proportion of interest-only loans set to expire between 2018 and 2022 was of particular concern. ‘There may, however, be some borrowers that do not meet current lending standards for extending their interest-only repayments but would find the step-up to principal and interest repayments difficult to manage,’ Ms Bullock said.”

“On APRA and RBA figures, by the end of 2017 roughly 40 per cent of outstanding mortgages did not require principal repayments, while the mortgage-to-debt ratio had risen to 140 per cent from 120 per cent five years earlier. ‘If housing prices were to fall substantially, therefore, such borrowers [with high LVRs] might find themselves in a position of negative equity more quickly than borrowers with an equivalent starting LVR that had paid down some principal,’ Ms Bullock noted.”

“Given investors were more likely to sell their rental properties in times of falling prices to minimise the their capital losses, Ms Bullock said this could quickly flow into the broader economy. ‘This might exacerbate the fall in prices, impacting the housing wealth of all home owners,’ she said. ‘As investors purchase more new dwellings than owner-occupiers, they might also exacerbate the housing construction cycle, making it prone to periods of oversupply and having a knock on effect to developers.’”




February 19, 2018

Rents Fall In The Face Of An Inventory Glut

A report from CNBC. “Scan the downtowns of the nation’s largest cities, and you are likely to see a staggering array of cranes. Most of them are helping to build luxury apartment buildings. In fact, multifamily construction is now at a 40-year high; the trouble is, developers are putting up the wrong kinds of buildings. The luxury market is largely overbuilt, while there is a shortage of affordable rental housing, and developers are hamstrung by the now record-high cost of construction.”

“Developers say they simply can’t afford to add anything but luxury. ‘The two-by-four doesn’t care whether it’s in a luxury building or in an affordable building. It costs the same,’ said Toby Bozzuto, CEO of The Bozzuto Group, a multifamily management and development company operating in the Northeast and Mid-Atlantic. ‘The differential of course, is the rent and there’s a huge disparity in high-end rent versus low-end rent. So the issue is for us to develop an economically viable, feasible project, it has to be, by its very nature, high end. The rents have to be high to support the cost.’”

The Longview News-Journal in Texas. “A shortage of affordable housing rentals in Longview is prompting developers to propose projects to address the need and seek federal tax credits to make them work economically. Others agree a demand exists for apartments for renters with moderate incomes — and that the market is saturated with higher-end apartments. Karen Holt, housing navigator with the East Texas Aging & Disability Resource Center, said in a recent statement that data show a majority of families in the area are paying ‘well over’ the customary 30 percent of their income toward rent or mortgages. The median household income in Longview is $49,013 a year, according to data from Longview Economic Development Corp.”

“Holt also said the supply of conventional or high-end properties is far greater than current demand. Teri Elliott, manager at Saddle Brook Apartments on H.G. Mosley Parkway, concurred. ‘We are so overbuilt right now,’ she said. ‘Because of it, the average occupancy in Longview is 85 percent.’”

The Colorado Real Estate Journal. “While outsized rent hikes and affordability concerns have dominated the headlines in Denver’s apartment market in recent years, our robust apartment data set reveals that the environment has become materially more favorable to renters in several respects over the last few years. Concessions and discounts have become far more prevalent in Denver over the last few years. Concessions were almost nonexistent in Denver a few years ago, but have normalized alongside substantial levels of new development.”

“Also pictured in the chart is Nashville, Tennessee, which saw concessions rise from almost nonexistent levels a few years ago to one of the higher rates in the country today. The uptick in concessions in Nashville promotes the case that the metro may have been overbuilt. Lofty discounts also are common in Cherry Creek, Glendale and Denver’s pricy southeast suburbs (such as Lone Tree), all of which have experienced substantial levels of development in recent years.”

“Concessions are likely to further escalate in 2018. In January, 27 percent of all rents were tied to a rent concession, up from a peak of 23 percent during the prior winter leasing season. That uptick coincides with Denver’s next supply wave, which kicked off in earnest during the second half of 2017. This supply wave will continue for another two years, as nearly 10,000 new apartments are expected to deliver in each 2018 and 2019.”

From the Arizona Republic. “Valley apartment rents have climbed about 20 percent since 2014, while wages in the Phoenix area are up by less than half that much. Longtime Arizona economist and real estate analyst Elliott Pollack recently told a group of builders what the Valley needs to continue to grow is more ‘worker apartments’ that people can afford. It’s not that there a lack of apartments in the Phoenix area, particularly new ones. Almost 17,000 were recently built, are underway or planned.”

“But most of the new ones are upscale apartments with rents above what the typical Valley worker can afford, even with more than two weeks of their earnings. Also, some affordable apartments were torn down to make way for new pricey ones. There is some hope for struggling renters. If too many new Valley apartments go up and don’t fill up, rents could fall.”

From Inman News on New York. “Average rental prices in Manhattan and Queens fell in January, and prices in Brooklyn rose modestly, as New York City landlords aggressively pushed a record number of concessions in the face of a citywide inventory glut, according to a new report. In Manhattan, where average rent for a two-bedroom apartment fell 5.3 percent—from $5,040 in December to $4,771 in January—as many as 49.3 percent of all new leases signed included hefty owner-paid concessions, up from 36.2 percent a month earlier, according to the report by Douglas Elliman.”

From the Alaska Star. “Anchorage zoning officials listened and changed course after hearing from Eagle River residents opposed to a plan that would have opened the door to a heavy-density housing development near downtown. Eagle River resident Darryl Parks, who has worked in concert with Quimby and others, said they want to make sure future development is in keeping with plans agreed to in the 2010 Eagle River Land Use Plan.”

“Eagle River already has seen a glut in the apartment-condo-townhouse style housing market, he added. Relatively recent developments are all the same type of units proposed for Carol Creek, Parks said. ‘Both are on the market and are in the process of being developed for the last 3-5 years. And they have not sold out. Here we are and yet the market isn’t there for it,’ Parks said.”




February 18, 2018

Chosen Option: A Generational Reckoning

A weekend topic starting with Western Farm Press. “Aggressively accommodative global governments and central banks have an agenda to extend the business cycle and to maintain global economic momentum at all costs. These actions likely will create market bubbles or excessive movements in financial asset classes like equities or stocks, fixed income or bonds, cash equivalents or money market instruments, real estate, commodities, and fine arts. Also likely are currency market distortions, expanding debt burdens and deficits through borrowing or simply money printing.”

“Globally, governments and central banks in 2017 found their fiscal, monetary, trade and regulatory policies at a crossroads, simplistically stated as: Option Not Chosen: They could allow markets globally to correct with hopes of managing a U.S. and global recession. Managing a U.S. and global recession even today would likely have a low probability of success for an array of social, economic and political reasons. So not choosing this option, as far as the near term is concerned, is very appropriate, but longer term, that is another issue.”

“Chosen Option: They could globally financially engineer an extended country-by- country growth cycle through accommodative government and central bank intervention policy activities.”

From the Progressive Farmer. “Craig Dobbins, an ag economist at Purdue, can show the trend line of land values in Indiana from 1910 through 2015. If the natural trend line were followed through 2020, the average per-acre price would be $5,396. Instead, the actual average Indiana land price now is $7,150. The implication is that land values could fall back another 24% if the trend line were to hold.”

“In the Purdue survey, 39% of respondents said they believed farmland values would rise during the next five years — but only by a total of 7%. What optimism there is for farmland values within the ag sector doesn’t spill over into the financial sector. Numerous commentators have suggested that the farmland ‘bubble’ is bursting. They cite weakening commodity and land values, as well as upticks in farm debt levels.”

“In the Federal Reserve Bank’s 10th District, including Kansas, Missouri, Nebraska and Oklahoma, 15% of bankers reported they denied more than 10% of applications for operating loans in 2016. The year before, only 5% of bankers reported they denied operating loan applications at that rate. In Indiana, farmland values were down about 9% from 2015 to 2016.”

From the New Food Economy. “America’s dairy farmers are getting a refund. So hopes Senator Kirsten Gillibrand of New York, who introduced a Senate bill to return millions of dollars from a disappointing federal insurance program. Known as the Dairy Premium Reform Act of 2018, her bill would refund leftover premiums to farmers who’d paid to cover their losses under a federal margin protection program. Currently, those leftover premiums go to the Treasury. But under Gillibrand’s plan, they would be mailed back to farmers in the form of a one-time check.”

“But Gillibrand’s bill is really a response to a larger issue. When the last farm bill was first passed, dairy prices, which are set by the federal government, were sky-high. New York was on its way to becoming the ‘yogurt capital of the world.’ The price bubble burst, however, and now milk is as cheap as it’s been in decades.”

“So while her constituents could certainly use some money back, Gillibrand’s bill is not a long-term solution to what’s emerging as a national problem, or generational reckoning, for dairy farmers. What Gillibrand’s pushing for is something like a stopgap or band-aid, until a more robust dairy ’safety net’ can be implemented, as part of the next farm bill later this year. So far, that’s looking like a billion-dollar cash infusion to dairy farmers, even though, in the midst of an oversupply, Americans don’t need any more milk.”

From Undercurrent News. “Chinese shrimp importers are sitting on product they cannot sell, according to an importer source based in the country. The source, who buys shrimp and then imports it to China through Vietnam, said this has led importers to renege on ‘many orders,’ forfeiting deposits. ‘Current prices are very low. It’s not possible to sell before Chinese New Year,’ he told Undercurrent News. ‘Though they’ve paid a deposit for the order, say for example 10%, due to the falling price they don’t want any container or their money back,’ he said. He added that after Chinese New Year, prices ‘will definitely crash.’”

“The comments correspond with a shrimp panel discussion in at the Global Seafood Market Conference held in Miami in January. At the show the panel said China ‘has high-priced stocked inventory for Chinese New Year. The market is in chaos [in China] because everybody wants shrimp but fear they are paying too much.’”

“China, from being one of the world’s largest exporters, is now a net importer of shrimp, industry sources say. Chinese consumers are willing to pay a premium for live shrimp, a second source with a Chinese processor based in Zhanjiang, Guangdong told Undercurrent. He said he expects prices to continue to rise at least until Chinese New Year and potentially thereafter. ‘Supply does not meet demand,’ he said.”

“Prices are being driven by the seasonal drop in production; the holiday season; a poor harvest; and Chinese inflation, according to Landy Chow, general manager of Siam Canadian China. ‘Last year in my city [Zhanjiang], an apartment cost CNY 8,000 [per square meter]. This year CNY 12,000 per square meter. That means [a] 40-50% [increase] in one year. I think such drastic increases will soon cause wider inflation especially food price inflation,’ he told Undercurrent.”

From the Tribune Star. “While farmland values are projected to decline this year, Indiana remains in the top five states in per acre value, according to a national agricultural landowner services company. Vigo County farmer Brad Burbrink said he’s not surprised land values are forecast to drop again this year. ‘I think farmland values will continue to go down,’ Burbink said, ‘but in no way shape or form compared to the 1980s,’ when thousands of farmers filed for bankruptcy after falling behind on high-interest land and equipment loans.”

“‘I think land values will have to come down some more because the farm economy is kinda stagnant right now, but there is not the fear that the bottom of the market will fall out,’ Burbink said. ‘From a grain farmer standpoint, we have a lot of inventory, not only in the United States, but worldwide, which is causing commodity markets to be depressed.’”

“High-quality Indiana farmland peaked at $9,765 per acre in 2014, according to the Purdue Agricultural Economics Report — 2018 Agricultural Outlook, while average farmland peaked at $7,976 per acre in 2014. The Purdue report lists 2017 high-quality land values at $8,529 and average land value at $6,928 per acre last year.”

The Marshall Independent. “While farmers struggle with dropping commodity prices, they are also facing agriculture land rent rates that are not coming down as quite as quickly. Paul Lanoue, dean of agriculture and business at Minnesota West Community and Technical College: ‘In recent years, there has been a major change in land ownership with a transition to the next generation who view the land and rent obtained for it more as an investment opportunity along with a belief that the renter got a good deal in 2010-2012,’ he said. ‘The current reality is that with crop prices drastically reduced from prior levels, profitability is near non-existent for many farms.’”

From the Farm Journal. “The cash rent line on your budget likely has been a point of relief for the past few years. As margins tightened, many landowners agreed to lower cash rents. For 2018, that trend is expected to continue—but don’t expect a big drop. Landowners are still willing to negotiate their rental agreements, but the focus on dropping prices might ease, according to Pro Farmer’s 2017 LandOwner Cash Rent and Land Values Survey.”

“These drops are helpful, but they likely won’t be enough for farmers to be in the black on cash-rented ground, says Gary Schnitkey, ag economist at the University of Illinois. In Illinois, state-average cash rents peaked in 2014 at $234, according to USDA. In 2017, the average was $218, a drop of nearly 7%. Statewide average cash rents will likely drop $5 to $10 per acre in 2018, Schnitkey says. This is because Illinois farmers face reduced net farm incomes and continued negative returns on cash-rented farmland.”

“‘Reductions of this size are not large enough to cause cash-rented farmland to be profitable,’ he says. ‘However, declines in cash rents resulting in profitability are projected to be long and protracted. As long as corn prices remain below $4 per bushel, there will be downward pressures on cash rents.’”

“‘Farmers buy 70% to 80% of all farmland,’ says Steve Bruere, president of Peoples Company in Clive, Iowa. ‘But when margins are tighter, bankers get nervous. If farmers’ margins get tighter, they will become less dominant buyers, and other buyers won’t pay as high of prices.’”

“For the next few months, Jim Farrell, president of Farmers National Company in Omaha, Neb., expects land values to remain stable. ‘But longer term, I feel that land values have not hit the bottom yet. We will still see more down movement in certain markets.’ Increasing interest rates and an uptick in farmland for sale could send land values lower. ‘The slow farm economy could push more land on the market,’ Farrell says. ‘Any increase in land on the market will likely pressure values at this point.’”




February 17, 2018

Regulators Are Again Asleep At The Wheel

A weekend topic starting with Fox 17 in Michigan. “There’s no doubt about it, Grand Rapids is a seller’s market. If you’re selling a home, people are virtually lining up with offers. ‘I never thought it was going to be like this. It’s like war,’ says Tanesha Gadlen. ‘We looked at eight houses this weekend. We looked at 10 last weekend. We bid on all of them over the asking price and didn’t get any of them.’”

From GoSkagit in Washington. “The median price for homes in Skagit County rose 10.75 percent in 2017, according to a report from Northwest Multiple Listing Service. With an average of 2.14 months on the market, 1,122 homes sold in the county last year for a median price of $313,000, according to the report. The double-digit appreciation rates have buyers and sellers wondering if the rapid increase could foreshadow a housing crash similar to the 2000s, said Realtor Jamie Yantis.”

”A lot of people are concerned about this being a bubble,’ Yantis said. ‘But if you look at the trend of appreciation historically, yes in 2008, 2009, 2010 we had a dump, but now we are just back on track to where the normal trajectory should have been.’”

From the News Press in Florida. “It was a cycle that repeated often — default, foreclosure, repossession, and eviction. All too familiar to thousands in Lee County beginning in 2008. Jobs were lost, incomes were reduced, homes became unaffordable. More than 40,000 foreclosures were filed in 2008 on homes in Lee County. More than 9,000 were filed in Collier County. The market glut led to lower prices at auction, and ultimately to the ghost of the Great Recession haunting people who thought the crisis was behind them.”

“Randy Johns, owner of Phoenix & Associates, a construction company in North Naples, said the impact fell on a company he worked more than 20 years to build. ‘We all extended ourselves too much,’ Johns said. ‘Investors were buying from other investors and not end users. It all came to a crash so fast we couldn’t liquidate. We lost all our cash.’”

“Since the deluge of foreclosures, housing markets have rebounded. The Florida Realtors’ association says demand once again is outstripping supply. The median price for a Lee house was $243,500 in 2017, up 7.1 percent. In Collier it was $434,900, up 3.5 percent.”

“Lisa Davidson, living and working in Southwest Florida, looks ahead to finishing paying off the deficiency judgment left from her foreclosed house. The payments have been on time, month after month, but for a while it was no help. ‘I’m optimistic,’ she sad. ‘I have two more years of paying these bloodsuckers, I just want it over with.’”

From Malaysia Kini. “Macroeconomic management is about anticipating and managing imbalances as they arise. It is certainly not just confined to describing and telling us the problems after they have become acute. This is my take on the story by Bank Negara Malaysia, on its recent narrative on affordable housing in Malaysia.”

“Why tell us now there is a mismatch of demand and supply of affordable housing? Why tell us now household income growth has not been able to keep pace with escalation in prices of houses? Why tell us now that developers have been focusing too much on high-end houses? And why tell us now that efforts by agencies set up to provide affordable housing have been too disorganised and dissipating?”

“May I ask for how long the imbalances mentioned above have been perpetuating? As far as I know, some of these problems have been in existence for decades. What were we doing during those years? What the authorities did in the past was not to correct the imbalances. Instead, they have often taken measures to make the situation worse.”

“Whenever the housing market experienced some slowdown, interest rates were lowered and loan eligibilities were relaxed to encourage more imbalances. After many years, of course the problems have become acute, as manifested today.”

“The preoccupation of our macroeconomic management is growth and political expediency, nothing else. We do not care about is the quality of growth or its sustainability. We do not care about the imbalances that will eventually sink us.”

From the Daily Sabah. “I have a Bear Stearns shirt that I purchased 10 years ago, following the collapse of the investment bank. I bought it as a novelty item as its collapse would be a once in a lifetime event I thought to myself. Little did I know many firms would suffer similar fates. Bear Stearns’ bailout by the Federal Reserve (Fed) in March 2008 was the canary in the coal mine that warned financial markets of the imminent collapse of all other holders of toxic mortgaged back securities.”

“What’s interesting then and what is still interesting to this day is that many of the same policies that allowed Madoff to run his Ponzi scheme and Bear Stearns to enjoy high credit ratings before its collapse are still in place today.”

“Ten years later, what has changed? What if any regulations and oversight do governments have to regulate credit rating agencies? Are their assessments based on quantitative rules that are free from the biases of employees of these agencies? Do business relationships with companies being rated by these agencies get in the way of their credit ratings? Ratings agencies are allowed to make whatever ratings decisions they want without fear of impeachment. No quantitative formulas have been offered to the investor public to satisfy its need for transparency.”

“As for Ponzi scheme-like acts of fraud, we are in the midst of one that may someday rival that of Madoff’s, the cryptocurrency bubble. While I have no evidence of a Ponzi scheme in the initial coin offerings of these ‘currencies,’ what’s clear is that regulators are again asleep at the wheel. Ignorant investors have been taken advantage of and are plowing their hard-earned money into ’securities’ they do not understand with the promise of quick riskless returns.”

“While many of these currencies have already gone completely bust or are down over 50 percent from their highs, bitcoin among them, the SEC and other government agencies have done nothing. By the time these regulatory bodies take any action it will be too late to reign in the ridiculous valuations that are certain to hurt thousands of investors. While nothing close to the housing bubble of the Great Recession or the losses of Madoff’s Ponzi scheme, this bubble will burst and with it, the hopes and dreams of thousands of investors.”

“It has been 10 years this month since the Great Recession’s first major event but we have yet to learn any meaningful lessons it appears.”




February 16, 2018

The Drum Is Starting To Beat For Investors In Denial

It’s Friday desk clearing time for this blogger. “There are signs that the long slide in North Texas home mortgage defaults may be over. ‘Dallas was one of the markets where we saw an uptick in foreclosure starts in late 2017,’ said Daren Blomquist, chief economist for Attom Data Solutions. ‘This surprised us. We saw it in Dallas, Denver, Nashville and Austin — great markets that are on fire.’”

“Blomquist said most of the home loan default increases he’s seen in the Dallas area came from low-down-payment mortgages made in 2014 — about the same time lenders started to ease some of their underwriting standards. ‘We have in the last few years seen a gradual loosening of credit,’ Blomquist said. ‘Some of those loans originated a few years ago are failing at a slightly higher rate than we had previously seen.’”

“Lee County’s housing market experienced a mixed year in 2017. Brett Ellis of Keller Williams Realty Fort Myers & The Islands, who has worked in residential real estate locally for 30 years, said it’s important to remember that the stats cover the entire year, so they’re not necessarily reflective of what’s happening now. ‘One thing that’s not in those numbers is that listing inventory is up 25 percent since October,’ he said. ‘That puts pressure on pricing, so I think you’ll notice in 2017 we had some upward pricing, but that started to fall off at the end of the year.’”

“‘The market got a little ahead of itself and people forward priced ahead of the market and the market said, ‘We’re not doing that right now,’ he said. ‘Interest rates are rising and wages have not gone up that much. The sellers have outpaced the buyers.’”

“Baton Rouge real estate has been in a yearslong seller’s market streak, which was thrust into overdrive after the August 2016 flood. Real estate agents say activity began slowing by the end of 2017, signaling a cooling off period, and this year inventory is expected to rise. Jerry Del Rio, a veteran agent of high-end homes says her phone has been ringing a lot less in early 2018 because the market for upscale homes has been inactive. ‘Right now the market is so dead that I’m concerned,’ Del Rio said. ‘I don’t know if it’s the holidays or the cold weather. In the past few years, we had such a good market that we saw no slowdown.’”

“After an almost Wild West-like atmosphere in the housing market last year, Dennis Roberts believes things are beginning to get back to normal. The Durham Region Association of Realtors reported the average selling price in January was $578,645, down $30,000, or roughly four per cent, from the previous year. According to Roberts, president of the DRAR, there is currently a much larger inventory of homes available for potential buyers. On Jan. 1, new mortgage eligibility laws, referred to as ‘stress test’ rules by Roberts, came into effect in Ontario. ‘There will be a number of buyers getting out of the pool, although in Durham Region it’s more of an ocean,’ he quipped.”

“Fresh data showed annual UK house prices fell for the first time in six years at the start of 2018 amid a slump in demand. The study revealed London suffered a sharp 4.3% fall in the fourth quarter of 2017, its worst performance since the depths of the financial crisis in 2009. Mortgage approvals dived to the lowest in three years in December despite efforts by the government to help first-time buyers. Acadata chairman Peter Williams said: ‘This is the eighth consecutive month in which the annual rate of increase has been declining, and now the dial is in the red zone.’”

“Property prices have plummeted in Sweden in the past year, according to fresh figures. The downturn began in earnest in August, after years of climbing house and apartment prices, according to Svensk Mäklarstatistik. In central Stockholm the price for an apartment (bostadsrätt) fell by 8 percent this winter compared to the same period last year. The average price in January was 86,553 kronor ($10,800) per square metre. ‘The general trend continues downwards,’ Per-Arne Sandegren, analyst at Svensk Mäklarstatistik, told the TT news agency.”

“Despite the prevailing oversupply of certain properties, real estate developers are unable to reduce home prices in Malaysia due to high construction and development costs, according to Rahim & Co International. ‘One of the ways to solve this problem is to reduce the cost of development. This will simultaneously reduce the overall asking and selling house prices,’ said the property consultancy’s director for its Petaling Jaya office, Choy Yue Kwong.”

“He said this amidst complaints that home prices have become so unaffordable for many Malaysians. Choy thinks that the authorities can further bring down development cost if they release more land for affordable homes and slash building-related expenses like legal and compliance fees. ‘If all of these measures are granted by the government, I am sure developers would be more inclined to push their products at a lower selling price.’”

“Regarding the faster growth of home prices compared to income, he reckons that it will be hard to substantially increase the take home pay of Malaysians as this requires boosting productivity and this could take a long time to accomplish. Rahim & Co’s Research Director Sulaiman Akhmady Mohd Saheh noted that housing affordability improved thanks to higher household income from 2014 and 2017. ‘“But ever since, income levels are growing at a slower pace compared to the growth in house prices.’”

“Meanwhile, its Executive Chairman Tan Sri Abdul Rahim Abdul Rahman highlighted that luxury home prices in Kuala Lumpur’s heart have declined significantly. ‘These units have seen prices dropping from RM2,000 psf to between RM1,500 psf and RM1,700 psf. I do not think pricing points of RM2,000 to RM2,500 psf bracket, which took centre stage three years ago would happen again, especially in the current climate.’”

“The distressed sale of a $2.5 million luxury townhouse with sweeping views of Melbourne’s bay and skyline should be a wake-up call for financially-stressed property buyers, say estate agents. Realtor Andrew Fawell has valued four distressed – or mortgagee – sales in the past two weeks for houses and apartments valued between $1 million and $2.5 million located around Melbourne’s coveted, prestigious and expensive inner south-east fringe.”

“‘The drum is starting to beat,’ says Fawell about home buyers and investors who might be feeling pressure from rising repayments, static incomes and stagnant rents. ‘I expect to be doing it a lot more often over coming months,’ he says. ‘But lots of property buyers and investors are in denial about their precarious situation.’”

“For the first time since 2012 when the global financial crisis hit local property markets, valuers are being routinely asked by lenders to do kerbside assessments of what properties might sell for at a mortgagee’s auction. ‘This is not happening on ‘Struggle Street’,’ says Fawell, whose Beller Real Estate buys and sell properties in many of Melbourne’s most coveted suburbs within a 10 kilometre radius of the central business district. ‘These are expensive properties in top suburbs that are being put under the liquidator’s hammer.’”

“Lenders liquidating a property typically avoid the term ‘mortgagee sale’ because they fear it will attract sassy bargain hunters looking to lowball their bids because they know the property has to be sold. Houses and apartments purchased for millions of dollars are being put under the hammer because owners can no longer afford their mortgage payments. Analysts warn some property owners and investors are under growing pressure because of static (or falling) prices and higher costs.”




February 15, 2018

That Kind Of Supply Is A Little Too Much

A report from KRON 4 in California. “San Francisco is at the heart of the Bay Area housing crises. You see construction everywhere, but most of us are priced out of being able to afford to live in a luxury high-rise. ‘We have 1,000 apartments that are in, what we call, the pipeline,’ said Karoleen Feng, who is with the Mission Economic Development Agency. ‘Some of them are built out, and some of them–we have about 500 that are waiting to be kicked off.’”

“MEDA uses city subsidies to buy old buildings where tenants are on the brink of eviction and keep their rents at affordable levels–which for most families is under $1,000 a month. In the last four years, MEDA has purchased 19 buildings through ’small sites.’ By 2020, MEDA says it hopes to own at least 2,000 apartments in the Mission District. ‘Having affordable housing is the first step to rebuilding this as a Latino hub,’ Feng said.”

The Toledo Blade in Ohio. “On Tremainsville Road south of Alexis, there’s a six-building, 72-unit apartment complex that motorists often scoot past without so much as a passing glance. But It was visible enough last May when word leaked out the 45-year-old complex soon might be available for sale. A buyer from Ypsilanti, Mich., immediately submitted an offer of $2.2 million, which the owners accepted before Hidden Village could even be listed. The sale price might seem surprising, given how the complex last sold nine years ago for $1.65 million and had not received much updating.”

“But such occurrences are common now as demand for properties in Toledo’s apartment market has become red hot. The result has been a sizable amount of complex ‘flipping,’ though not in the traditional sense. ‘It’s not like house flipping. That’s not what’s going on. It’s not like someone put some lipstick on a property and flipped it,’ said Harlan Reichle, managing partner of the Reichle Klein Group, a Toledo commercial real estate firm.”

“Tony Plath, a Reichle Klein real estate agent who handled the Hidden Valley Square transaction, said Toledo used to be a market that was overlooked but is now attracting buyers from all over the Midwest, the East Coast and the West Coast. After spending a minimum amount to spruce up property, they can bump the rent by $10 or $20, Mr. Plath said. ‘What a $10 per unit value will mean to the value of the property is astonishing,’ he said. ‘A $10 bump in rent on a 100-unit complex is $12,000. What does that mean to the value? At an 8 percent cap rate that equates to $150,000 more in value to the property. A $20 bump in rent increases the value by $300,000.’”

“The quest for Toledo apartment complexes has led to bidding wars on properties, with six to 10 offers arriving for some complexes, Reichle Klein said. ‘These owners of properties are ready to move on and they know the market is hot. They’re seeing a price per square foot that they’ve not seen before, so they’re anxious to get out,’ Mr. Plath said. ‘And now there’s a larger pool of buyers. We’ve had people from Mexico, from Canada looking to spend their money here.’”

The Charlotte Observer in North Carolina. “When Richard Simmons moved into his one-bedroom apartment in Matthews, the widower assumed he’d be able to afford it for years to come. Simmons started off paying $650 a month rent to live in Paces Pointe. But that was 2012. Now, the base rent is up to $867, and a raft of new mandatory fees – for cable, package delivery and ‘valet trash’ service – mean Simmons pays $946 a month, or nearly a 50 percent increase over the past few years.”

“Simmons is one of thousands of tenants in Charlotte whose rent is rising in part because of a ‘value add’ deal. It’s a term developers use for buying older apartments, spending several thousand dollars to renovate units with improvements such as new floors, granite counters and updated appliances, then raising the rent. ‘We’ve been fairly alarmed at the rate which apartments are flipping,’ said Julie Porter, president of the Charlotte Mecklenburg Housing Partnership. ‘All of a sudden you’ve got an apartment that used to be $700 (for rent) that’s more than $1,000. We’re losing units faster than we can build them.’”

From Fox 13 Memphis in Tennessee. “The owner of Kimball Cabana Apartments said he is out of money, and a new investor plans to buy the property after the apartments undergo foreclosure. Judge Larry Potter had choice words for the apartment owner, calling the 2015 purchase of the property a ‘bad business decision.’ Allen Walsh is the owner of the property, which is managed by Mississippi Apartments, LLC. ‘All of our money just got eaten up in trying to rehab the units,’ Walsh told FOX13. ‘We have finally run out of money. It just took more than we figured on.’”

From Crain’s Cleveland Business on Ohio. “The owner of the 950-suite North Pointe Apartments in Euclid has tossed in the towel and had its request granted that the lender assign its $38 million loan to a firm specializing in handling distressed loans. The loan behind the troubled four-building complex of apartment towers, two as tall as 20 stories, on Feb. 5 was assigned to the Miami office of Rialto Capital Management, according to Cuyahoga County land records.”

“Woes at North Pointe Apartments have included a sidewalk protest of conditions at the property by tenants last summer that was covered by WEWS-TV, Channel 5. Trepp reports show tenants also are voting with their feet, as its occupancy fell to 67% last September from 86% at the end of 2016. The loan was 60 days delinquent at the end of 2017, Trepp reported.”

“The property gained a dubious marquee presence in the national commercial real estate world when Trepp reported it was the largest distressed loan in the U.S. in January, as loan payments had not been made for 60 days. The notice was part of a report on the state of the U.S. multifamily property business undertaken because of long-running growth in the nation’s apartment market. While focus was on glitzy and elegant new apartment properties, the distress poster child came from the dated precast concrete towers astride Lake Erie.”

From Community Impact in Texas. “Northwest Austin’s apartment rental market might be finally showing signs of stabilization as occupancy rates and rental rates have begun trending downward. For the last two years, the city of Austin has seen an increase in the number of new apartment units coming online, totaling about 11,000 per year in 2016 and 2017, but construction is showing no signs of slowing down, said Bruce McClenny, president of Houston-based ApartmentData, a site that tracks occupancy and rates of apartments in major Texas and U.S. cities.”

“‘That kind of supply, even in the face of very good job growth and a very good economy, is a little too much,’ he said. ‘It all of a sudden becomes more of a renters market.’”

“Occupancy has been trending downward since peaking in June 2013.”

From The Jewish Voice on New York. “The Manhattan rental market is overflowing, causing landlords to offer rental concessions and price reductions in price in order to entice new renters, Bloomberg reported. Concessions jumped to yet another record in January, with 49 percent of newly signed leases coming with some sort of special offer, appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate concluded in a report. Concessions in January, reached the highest level seen since appraisal firm Miller Samuel started tracking them back in October 2010.”

“Concessions include, rent-free months, gift cards, then topping off those enticements with reductions in price. Hal Gavzie, who oversees leasing for Douglas Elliman was reported as saying: ‘Landlords have finally realized, ‘OK, we have to adjust these prices because the concessions aren’t doing as much… Customers are looking past the concessions being offered and just looking for the best deals they can find.’”

“Rents fell last month in almost every Manhattan neighborhood, including some of the borough’s priciest, according to data compiled by brokerage Citi Habitats. On the UWS, the median was $3,450, down 2.8% from a year earlier, while on the UES, they declined 5.3% to $3,185, the brokerage said, Bloomberg reported. The average rental price in Manhattan several years ago was $3,800 (2013).”

“For some fun and interesting perspective, the average price for a rental in all of New York City in the 1960’s was $200 a month, the 70’s $335 a month, the 80’s average was $1700, and the 90’s average for the 5 boroughs was around the same as last month’s average of around $3,295 for Manhattan apartments.”




February 14, 2018

Benefiting From Oversupply And Negotiability

A report from Mansion Global. “U.S. luxury markets have entered a ‘new normal’ of subdued price growth after eight years of frenzied appreciation post-recession, according to Coldwell Banker Global Luxury. The report underscores high-end price stabilization that Mansion Global has previously reported in markets including New York and Los Angeles. In cities such as Miami and Park City, Utah, wealthy buyers are benefiting from oversupply and negotiability. Despite strong activity in South Florida, well-heeled buyers are likely to have an edge in Boca Raton and Delray Beach, Florida, as well as in Miami proper.”

“Park City is one of the nation’s top luxury buyer markets. And sun worshippers have the upper hand in the Santa Barbara, California, and Scottsdale, Arizona, markets, according to the report.”

From Realtor.com. “While the idea that “Your home is your castle” has been around, presumably, since medieval times, it took on a whole new meaning in the 1980s and ’90s, when ‘McMansions’ started sprouting across the United States like upscale real estate kudzu. More than 70% of the housing markets we looked at saw an uptick in the share of listed homes larger than 3,000 square feet since January 2016. There are more large homes being built now than there were at the height of the housing market, over a decade ago. But that doesn’t mean they’re easy to sell.”

“In Denver, 61% of homes listed on realtor.com are above the 3,000-square-foot mark. There are about 3,115 of these residences in the metro area listed on realtor.com. But that’s nothing compared to Provo, UT, where 71% of listed homes boast 3,000 square feet or more. The smaller city boasts about 971 of this size, up from 66% in 2016. Desire for conspicuous consumption has attracted McMansions to the Bridgeport, CT, metro. More than half of the homes in this metro, 53%, have more than 3,000 square feet of space. (There are more than 2,416 abodes of this size listed on realtor.com.)”

“But they come at a steep price. The median home listing here is $735,000. However, all that McMansion building has left a little bit of an oversupply, says Douglas Cutler, a modular home architect and owner of Douglas Cutler Architects in Fairfield County. ‘I had a client trying to sell a super[large] McMansion,’ he says. Part of the reason it made a tough sell is that a lot of high-paying finance jobs on Wall Street were lost during the recession and still haven’t come back. ‘He’s had to cut the price down a lot.’”

“About 34% of home listings, about 1,018 abodes, in the Seattle metro are for more than 3,000 square feet. But there are also a lot of those homes lagging on the market.”

From Summit Daily in Colorado. “It’s no secret Summit County is in the midst of a record-breaking building boom with the county recently announcing it issued more building permits last year than any other year prior to the recession. The permits cover everything from spec homes to the luxury housing market and commercial builds. Despite all of that, though, the average sale price of vacant land in Summit County was actually down 8 percent last year compared to 2016.”

“Many factors are pushing on the market, according to local experts, but one likely reason for the price drop of vacant land is the limited number of local contractors to build on it. ‘There is much greater demand than we have people to do the work,’ said Chris Renner, owner of Pinnacle Mountain Homes, a Breckenridge-based builder that accounts for roughly a third to a fourth of Summit County’s luxury home builds.”

The Los Angeles Times in California. “Despite the constant refrain from economists that an increase in supply is key to solving the region’s woes, anti-growth advocates have countered that the bulk of new projects charge rents that are unaffordable to the average Angeleno, and therefore can’t help end our problems. Nowhere has this debate played out more contentiously than downtown Los Angeles. Bolstering the anti-development argument, the real estate data firm CoStar revealed in September 2017 that the apartment vacancy rate downtown had reached 12.4%, three times higher than the citywide average.”

“Per CoStar, more than 1,600 apartments became available downtown in the first half of 2017, and approximately 7,000 additional units are scheduled for completion through late 2020. Nevertheless, the Downtown Center Business Improvement District estimates that the neighborhood’s population is just 67,000. As a result, the opening of a single 500-unit rental development is, by itself, capable of spiking the vacancy rate.”

The Dallas Morning News in Texas. “Along with pulling down the securities market, higher interest rates are likely to slow the rate of home price appreciation in markets across the U.S., said Daren Blomquist, economist with Attom Data Solutions. ‘Especially in light of what we’ve seen in the stock market in the last few days, I think there is going to be a lot more pressure on interest rates to go higher,’ said Blomquist, who was in North Texas this week for a mortgage industry conference. ‘What people have predicted in the last few years is actually going to happen.’”

“‘The housing market has become somewhat dependent on low interest rates,’ Blomquist said. ‘It’s going to be an adjustment for the industry to deal with even marginally higher interest rates. In markets that have gone hog wild in terms of home prices, they are going to be in for a rude awaking as interest rates rise.’”

“Dallas-Fort Worth is one of those ‘hog wild’ home price markets. Median North Texas housing costs have shot up by more than 40 percent in the last four years to an all-time high.”

From National Mortgage News. “Hurricanes continue to have a notable impact on mortgage delinquencies, clearly evident by CoreLogic’s Loan Performance Insight report. Serious delinquency rates were up sharply in both Texas and Florida in November, compared to a year ago according to CoreLogic Chief Economist Frank Nothaft. The serious delinquency rate in Texas grew to 2.5% from 1.9% from the previous year, and rose in Florida to 3.9% from 3.2%. The serious delinquency rate in the Houston metropolitan area more than doubled to 4.6%, and grew more than one-third in the Miami area to 5.1%.”

“In Florida, the share of mortgages that were 30 or more days delinquent grew to 9.9% from 6.3% year-over-year in November, and in Texas, they rose to 6.7% from 5.6%.”




February 13, 2018

Now Buyers Are Allowed To Be Cheeky

A report from ABC News in Australia. “If you needed a sign Brisbane has an apartment oversupply, a two-bedroom unit with city views in one of the most trendy suburbs has just gone for $50,000 less than it was bought for two years ago. The Paddington unit, which sold for $440,000 after it was renovated, is just one of hundreds of units that have crashed in value since an apartment construction boom created an oversupply, with no end in sight.”

“It is not just small units affected, either. A big three-bedroom pad in South Brisbane is now on the market for $799,000, which is what it was sold for brand new 10 years ago. A luxury three-bedroom unit at Toowong that would have snared up to $950,000 at sale two years ago has lost about $100,000 in value because of the soft market, according to its seller. Units in Kelvin Grove’s Urban Village that were valued at $450,000 two years ago are now going for $399,000. Agents in those areas are ’submitting all offers’ and taking buyers’ low bids very seriously.”

“National Property Research Company director Matthew Gross said buyers had done their sums in this oversupplied market, and they were being cheeky. ‘I think buyers have always been cheeky but now they are allowed to be cheeky,’ he said. Coronis Agent Gerard Hawes said the investor market dried up in 2017 due to the crackdown on foreign investors. ‘For those people looking for decent market value, our foreign investors did tend to push the values up on that property,’ Mr Hawes said. ‘So we have seen a bit of kickback of around 10 per cent across the board.’”

The Courier Mail. “Forget apartments, Brisbane is about to be swamped with a different type of attached dwelling — prompting fresh oversupply fears. As the inner-city unit sector flounders, industry experts say developers are turning their attention to townhouses, with a new wave of residential projects set to saturate the market in 2018. New research by PRDNationwide reveals the number of townhouses in greater Brisbane is set to surge by nearly 250 per cent this year, with construction scheduled to start on more than 5400 new townhouses. In comparison, there is set to be a 170 per cent increase in the number of new apartments predicted to hit the market this year.”

“Real Estate Buyers Association of Australia Queensland representative Zoran Solano predicts Brisbane is facing a townhouse glut over the next two to three years. Mr Solano, who is a buyer’s agent with Hot Property Buyers Agency, said he had been dealing first-hand with many developers who had been snapping up sites around the city for townhouse developments. ‘We’ve seen an unprecedented amount of apartment settlements in recent years, so it’s getting harder and harder for developers to sell that product,’ he said.”

“Mr Solano said townhouse investors should be cautious in the current market, with some of his clients having to pay the difference between the purchase price and the valuation of their townhouse. ‘These properties are being sold at overinflated prices and then not valuing up to contract price,’ he said.”

From the Daily Telegraph. “Four Sydney suburbs have topped a list of the most risky areas for home seekers to purchase new properties off the plan. The research examined areas under a number of criteria including where housing supply was tracking well above demand and pushing down prices. This, in turn, was putting recent buyers at risk of paying down mortgages worth more than the value of their homes, the RiskWise Top 100 Most Risky Suburb report said.”

“Inner Sydney suburb Zetland was ranked the riskiest suburb in Sydney to buy a unit off the plan, according to the report. The suburb and neighbouring Waterloo have 5000-plus new units in the pipeline. With banks releasing their own blacklists of oversupplied markets, many lenders would require higher deposits as security for off the plan buyers who purchased in higher risk suburbs, the group added.”

“‘Lenders understand that oversupplied suburbs carry a greater degree of risk,’ RiskWise said. ‘Unlike a straightforward property handover, off the plan investors must be able to attain finance approval after construction is complete, and if the market has sunk during the build period, they are fronting the mortgage on an overvalued property. Additionally, off the plan dwellings are typically marketed to investors, and when many — sometimes hundreds — of identical dwellings come online simultaneously, it can be a race to the bottom as investors drop rents to lure in a tenant.’”

From the Australian Financial Review. “Sellers are lowering prices on high rise inner-city apartments by up to 10 per cent, advisers are being offered $10,000 commissions to recommend apartment sales, builders are adding ‘free’ luxury fixtures and lenders are including new incentives – on top of record low rates – in a bid to revive flagging residential property markets, analysis of market offers reveals. Some off-the-plan apartments are being revalued by lenders before final settlement by up to 15 per cent lower than their original purchase price, causing credit problems for buyers before they finalise their deals, according to mortgage brokers.”

“Property groups, such as Kokoda Property, are offering mortgage brokers, financial advisers and accountants $10,000 bonus for every sale plus generous rebates on stamp duty and other incentives. For example, $1.5 million apartments in Ashwood, which is about 14 kilometres south-east of Melbourne, are being offered 3 per cent stamp duty and free blinds.”

“Steve Lusi, a director of Direct Property Group, said a lender crackdown on small apartments under 50 square meters is also slowing demand and reducing prices for developers and sellers. He said the asking price for an apartment in Melbourne’s inner-city South Bank is being reduced by 10 per cent from $315,000 to $285,000.”

From News.com.au. “Six years ago, Mark was talked into using his mum’s home as equity to buy his first house. Now, in the midst of a messy divorce, he’s going to have to sell his mum’s flat to give half the proceeds to his ex-wife. The Sydney father, who asked not to use his real name, said he felt ‘conned’ by the Aussie Home Loans broker into the highly convoluted process, which all these years later looks set to leave his mum homeless. The upshot of all this was the couple wound up with two mortgages totalling $880,000. “Ever since then I have been shaking my head thinking, ‘Why did we allow this to happen?’ We should be in debt for a family home [for] $650,000, not in debt $880,000.’”

“Mark said he just wanted ‘one house for me and my wife to build a family in,’ but now owned ‘two homes, owe a lot of money, and now I have to try and figure out what to do’”

“There was some good news, however. In 2014, the couple sold their Kogarah home to an apartment developer for $1.6 million. They used the money to buy a large home in Bundeena and pay off the Kogarah loan. Mark said when the Aussie Home Loans broker heard about the couple’s developer windfall, he began trying to ‘push me towards buying more homes so I could have a property portfolio.’”

“Housing market analyst Lindsay David from LF Economics said people needed to be aware of the risks when involving a parent’s home in the purchase of a property. ‘Marital issues, the loss of a job, more often than not it’s at those times, the worst possible time, when people have to start to consider how to unlock themselves out of the financial risks they’ve acquired,’ he said. ‘The majority of people just don’t have the cash to come up with a 20 per cent deposit, so we use unrealised capital gains that exist within a house like it’s a bank account. But you can’t just take a tile out of the land bank and pay it back to the bank.’”




February 12, 2018

The Boccee Ball Is In Their Court

A report from Bisnow in Washington DC. “D.C.’s investment sales market started off hot in 2018, but amid an environment with falling multifamily rents and tepid office leasing, some investors think deals are being overpriced and are shying away from buying in the District. Crowdfunding platform Fundrise in August 2016 had announced plans to invest $200M annually in D.C. multifamily properties, as part of a JV with Insight Property Group, but Fundrise CEO Ben Miller said he has since become less bullish on D.C. ‘The market has gotten very pricey, and there is a lot of new supply of multifamily,’ Miller said.”

“The District’s Class-A apartment rents fell 3.9% in 2017, according to Delta Associates, coinciding with the delivery of 4,789 units, 45% more than hit the market the prior year. That supply growth is expected to increase even more this year. Given these fundamentals, Miller said it does not make sense for investors and developers to keep putting money into new projects. ‘Every cycle you build an industry; this cycle they built an industry around multifamily. A lot of multifamily real estate companies have to stay active, so they’re going to continue to do deals even when they shouldn’t,’ Miller said. ‘If you look at the supply of multifamily coming in this year and next year, and Class-A multifamily rents went down last year and probably will this year and the following year, why do they keep building? Why are they still supplying the market?’”

The American Statesman in Texas. “Ever since 2010, Austin-area renters could count on one thing: Renting an apartment was going to get more expensive every year. But real estate consultant Charles Heimsath’s latest report shows that – at least for now – the market has become more forgiving to renters. Experts say the shift was brought on by several factors: a surge of new apartment construction, more renters jumping to home ownership and a slight slowdown in the region’s job growth.”

“Last year, developers added 10,727 new apartments to the market, nearly equaling the record of 10,780 in 2016, Heimsath said. However, only 55 percent of the new supply was leased last year, in contrast to 81 percent in 2016, he said. On the occupancy side, the rate fell to 91.3 percent — a level unseen since 2010 — and down from 95 percent five years ago, said Robin Davis, manager of Austin Investor Interests. The decline was due in part to an ‘over-saturation’ of new apartment construction, Davis said, along with other factors, including job relocations and losing tenants to home purchases or home rentals.”

The Chicago Sun Times in Illinois. “Apartment hunters have the proverbial ball in their courts, particularly in new luxury buildings near public transportation, where some developers are offering free rent and other incentives to fill up their buildings. ‘There is no question it is a great time to be a renter in Chicago right now; there’s a lot of options,’ said broker Aaron Galvin, CEO of Luxury Living Chicago.”

“Galvin’s firm helps people to find apartments in the ‘Luxury Class A’ market made up of newer buildings constructed since 2000. He predicts March will hit ‘peak vacancy’ with roughly 5,000 new luxury apartment units up for rent in Downtown and surrounding neighborhoods. According to Galvin, buildings that stand out from the pack offer free ride-sharing pools, third-party services (organized dog walking, food delivery, on-site dry cleaning) and shared amenities such as study rooms, where residents work in open co-working type spaces. Social hangouts like bocce ball courts and demonstration kitchens are also draws.”

“Spoke, a 363-unit apartment community, was opened in December by Bond Cos. on the grounds of the demolished Gonnella Bread Co. Rents start at $1,795 for a studio, while a two-bedroom unit goes for $3,880. There’s also a two-bedroom, 15th-floor penthouse with a terrace for $6,345. New Spoke residents get a welcome gift that includes a package of Gonnella breadcrumbs as a nod to the site’s past. Through the end of February, Spoke is offering two months of free rent on 18-month leases. Damon Dance, vice president of Bond Cos., said the free rent concession ‘equalizes Spoke’s pricing in a competitive market.’”

From The Real Deal on New York. “Leasing at the Eugene, the first completed ground-up tower at Brookfield Property Partners and Qatar Investment Authority’s Manhattan West megaproject, launched to great fanfare in March. But almost a year later, the $800 million, 844-unit building’s revenues are off to a slow start.”

“The rental tower at 435 West 31st Street contributed just $1 million in funds from operations — a common measure of real estate investment trust earnings — in the fourth quarter, Brookfield’s real estate CFO Brian Davis said during an earnings call. That’s a far cry from the $10 million Brookfield expects the tower to make annually once stabilized.”

“According to StreetEasy, units at the Eugene are no-fee and come with two months free rent on a 14-month lease and three months free rent on a 27-month lease. A surge of new supply over the past two years has pushed rents down and concessions up across the city. Landlord concessions, which often come in the form of free rent, reached a new record for the fourth consecutive month in January, according to a new report by appraisal firm Miller Samuel.”

From Curbed New York. “The January market reports are out, and it looks like the New York City rental market is kicking off the new year much like it spent the last one. ‘The prevailing theme across the board was the record number of market-share concessions set,’ says Jonathan Miller, author of Douglas Elliman’s report.”

“Rental concessions from landlords are at an all-time high in Manhattan, Brooklyn and Queens. In Manhattan, the share of new leases signed with some kind of concession was a whopping 49.3 percent, up from 30.9 percent. In Brooklyn that share was 47.5 percent, up from 18.1 percent. And in Queens, the share came in at a whopping 50.8 percent, up from 38.5 percent.”

“In Manhattan, the median rental price fell 2.8 percent to $3,275 and the net effective rent—which takes into account concessions—declined 3.6 percent to $3,141. (That drop in the net effective rent is the largest annual decline in more than six years.) The size of concession was 1.4 months of free rent or equivalent, up from 1.3 months the prior month. In Queens, January marked the fourth time the concession market share reached a new record high. The median rental price was $2,650, down 1.9 percent, and the net effective rent declined 4.7 percent to $2,507. (That’s the fifth year-over-year decline in net effective rent in six months.) The size of concession was 1.8 months, up from 1.1 months.”

“More than 40 percent of rental transactions brokered by Citi Habitats offered a free month’s rent and/or payment of the broker fee to entice new tenants in January, up from 41 percent in December. ‘These incentives remain remarkably high,’ the firm notes, and they’re being offered on both new construction units and re-rentals.”