March 31, 2018

If Prices Become Unaffordable, They’ll Come Down

A weekend topic starting with MarketWatch. “As interest rates rise, fewer households refinance their mortgages. And the refinances that do get done are often very different than those initiated during low-rate periods. ‘When rates are low, the primary goal of refinancing is to reduce the monthly payment,’ wrote researchers for the Urban Institute. ‘But when rates are high, borrowers have no incentive to refinance for rate reasons. Those who still refinance tend to be driven more by their desire to cash out.’”

“As of the fourth quarter of last year, the share of all refinances that were cash-outs rose to the highest since 2008, according to Freddie Mac data. The Urban Institute and others have shown that refinancing activity, not home buying, was responsible for inflating the housing bubble.”

From US News & World Report. “While interest-only loans disappeared from the mortgage marketplace for a few years, they’ve recently had a minor comeback. Interest-only loans offer flexibility for people who want to use their cash for other investments throughout the year, says Jennifer Beeston, branch manager of mortgage lending for Guaranteed Rate in Santa Rosa, California. For example, you can trade stocks with the cash you would have paid toward the principal on a conventional mortgage and then use the profits to pay some of the principal in a lump sum.”

“‘Another profile of a good candidate for an interest-only loan is someone who moves around and relocates a lot but wants to get into the housing market in a location where values are rising,’ says Beeston. ‘It could be better than renting, as long as values are rising.’”

From Eurasian Review. “The mortgage market again faces the risk of a meltdown that could endanger the U.S. economy, warn two Berkeley Haas professors in a paper co-authored by Federal Reserve economists. The threat reflects a boom in nonbank mortgage companies, a category of independent lenders that are more lightly regulated and more financially fragile than banks–and which now originate half of all US home mortgages.”

“‘If these firms go out of business, the mortgage market shuts down, and that has dire implications for the overall health of the economy,’ said Richard Stanton, professor of finance and Kingsford Capital Management Chair in Business at Haas. Stanton authored the Brookings paper, ‘Liquidity Crises in the Mortgage Market,’ with Nancy Wallace, chair of the Haas Real Estate Group. You Suk Kim, Steven M. Laufer, and Karen Pence of the Federal Reserve Board were coauthors.”

“Independent mortgage companies have little capital of their own and scant access to cash in an emergency. They have come to rely on a type of short-term funding known as warehouse lines of credit, usually provided by larger commercial and investments banks. It’s a murky area since most nonbank lenders are private companies which are not required to disclose their financial structures, so Stanton and Wallace’s paper provides the first public tabulation of the scale of this warehouse lending. They calculated that there was a $34 billion commitment on warehouse loans at the end of 2016, up from $17 billion at the end of 2013. That translates to about $1 trillion in short-term ‘warehouse loans’ funded over the course of a year.”

“If rising interest rates were to choke off the mortgage refinance market, if an economic slowdown prompted more homeowners to default, or if the banks that extend credit to mortgage lenders cut them off, many of these companies would find themselves in trouble with no way out. ‘There is great fragility. These lenders could disappear from the map,’ Stanton noted.”

From Inman News. “January’s S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index shows that home price growth is unlikely to slow down anytime soon — January 2018’s national index comes in at 196.31, a 6.2 percent year-over-year. Chairman of the index committee David M. Blitzer noted there are no ‘weak spots’ when it comes to individual markets, and the home price index continues to outpace the national GDP.”

From AZ Family in Arizona. “Do you remember the housing bubble? It pretty much crippled our economy and forced countless families out of their home. Well, fast-forward 10 years and the real estate market is back in full force and thriving. The Phoenix real estate market has officially taken off. ‘In the last five years in Arizona alone, we’ve had a 39 percent increase in value in property,’ said Nate Martinez, who is a Valley real estate agent for more than 30 years.”

“It’s a sellers’ market. It also means if you’re a buyer, you’ll have to be prepared before someone else gets the house you want. ‘They need to have their loan done. They need to know exactly what they’re looking for in a house. They need to be prepared that in a multiple offer, they may have to pay above full price to get the house,’ he said.”

From the Wilsonville Spokesman in Oregon. “Shortly before the housing bubble burst, the stock market crashed and the worldwide economy went into a deep recession, the median home price in Wilsonville was $406,300, according to Zillow. That number cratered to $379,300 by 2008 and $295,500 by 2010. But housing prices have slowly trended upward since 2012. And in 2017, Wilsonville’s average home sales price surpassed the 2007 mark for the first time, according to Zillow — reaching $434,850 in 2017 while calculated the figure at $433,483.”

“Real estate broker Debi Laue says low interest rates have facilitated the rise in prices. ‘There was a lot of dead years where people wanted to buy and couldn’t, but with low interest rates and affordability, the market has cut loose,’ she said.”

“But the uptick in real estate prices won’t last forever. And Andy Green of Green Group Real Estate has been waiting for an eventual downturn. ‘We’re long overdue for a market correction,’ Green said. Laue agrees. ‘I think the market will correct. It always does. If interest rates go up and prices go up and become unaffordable, they’ll come down and be affordable,’ she said.”

The Lewiston Tribune in Idaho. “In Canyon County, where population and economic growth ordinarily is not just approved of but eagerly sought, organizations such as the Canyon County Agricultural Planning Area Committee usually start with an easily accepted point of view: Mo’ growth, mo’ better. But not so much at their last meeting in Caldwell. A report in the Idaho Press-Tribune said that ‘Some attendees expressed concern about Meridian development spilling over into the farmland in North Nampa. One Nampa farmer told staff that development was happening in his area quicker than he had ever seen.’”

“One spoke of a ‘wall of houses’ encroaching from Ada County into Canyon. Another farmer replied, ‘It’s not a wall of houses. It’s a tidal wave.’”

“Also last week, a group of mostly Canyon Countians spoke similarly at the new, small city of Star, where a local comprehensive plan change might lead to turning 5,000 rural acres into medium- or low-density housing.”

“A day after touring some of the huge fields of new houses in western Ada County - the big new crop in that area - I had coffee with an old friend who lived for many years on the East Coast, a former Idahoan moving back to his old home area. But not exactly in his old town of Boise; he had to settle for several miles away from it. He intended moving back there. But it didn’t work out because he could find no houses (at least, suitable) in Boise for near what he could pay - and that’s after selling his comparable place in an eastern state metro area.”

“Houses with a price tag less than $200,000 are rare birds now in Boise, and hard to find nearby. If you’re an average income homebuyer, and your income is below the executive level, you’re going to have a hard time finding a place there.”

“What we’re seeing now may be another housing bubble; in fact, probably it is. But for now, housing is in too limited supply in the Boise region, and in other regions around Idaho - in Kootenai County, in Twin Falls and elsewhere. If you can afford high-end digs, you have ample choices.”

March 30, 2018

A Cooling Is Turning Into An Ever More Widespread Frost

It’s Friday desk clearing time for this blogger. “By nearly every metric, Miami-Dade County is one of the most difficult places to live if you don’t make a ton of money. The county’s median income is a staggeringly low $44,000. What have Miami-area officials done to help the working poor? They’ve encouraged developers to overbuild so many luxury condos for millionaires that it will now take years to sell them all, according to local real-estate analyst Peter Zalewski. Zalewski’s reported at the end of February that it will take 49 months (just over four years) to sell all the luxury condos developers have built across town. ‘It is worth noting this report only tracks those South Florida condos that are formally listed for sale,’ Zalewski wrote. ‘The report does not factor in the nearly 47,450 new condo units currently in the development pipeline east of Interstate 95 in the tri-county South Florida region.’”

“The numbers look worse when broken down by city. In Miami Beach, it will likely take 41 months to sell the 742 luxury units for sale. In Bal Harbour, the 281 million-dollar units will also likely take 45 months to offload. And in crane-saturated downtown Miami, the 505 luxury units available make up a 78-month supply.”

“Sales of Manhattan apartments slowed during the first quarter to the slowest pace in five years, according to The Wall Street Journal. Brokers said sales were dampened by a slowdown in closings in new luxury buildings, as well as a rebellion by condo buyers against high asking prices. As sales slowed, the number of available listings rose, compared with the same period last year. The Journal’s analysis put the median price of a Manhattan apartment at $1.095 million, about 8% below the all-time peak price recorded in the second quarter last year.”

“Gregory Heym, the chief economist at brokerages Brown Harris Stevens and Halstead Property, said some sellers already have made cuts in asking prices that won’t be reflected until sales in future quarters. ‘You are seeing a continuation in price reductions,’ said Leonard Steinberg, the president of brokerage Compass. He said when property isn’t moving, ’sellers will want to acknowledge that, if they want to sell in less than 500 days.’”

“The London housing market is being blighted by ‘an ever more widespread frost,’ as the city’s previously buoyant property prices continue to stutter, the latest data from Nationwide showed. ‘London’s property market shows no sign of giving up its wooden spoon, as the slowdown in the capital worsens,’ Jonathan Hopper, managing director of Garrington Property Finders said. ‘What began as a cooling of prices in the capital’s prime and super-prime postcodes is turning into an ever more widespread frost.’”

“Property agents Savills reported earlier in the year that it is seeing price declines of as much as 4% in residential areas of South West London such as Battersea, Clapham, Wandsworth, Fulham, and Richmond.”

“The era of overall shortage has ended in China’s property market, but new issues of unbalanced allocation and undeveloped services have emerged, said China Vanke Co’s Chairman Yu Liang. Yu said ‘the time of unilateral rapid increases in home prices has ended. If developers still buy land, no matter what the price is, it will be a payback time.’”

“Bubble, bubble’, toil and trouble? Bubble can be a scary word for property investors because it means that real estate prices are inflating rapidly over a short period without the support of underlying fundamentals or demand. For CBRE|WTW Malaysia managing director Foo Gee Jen, asset bubbles are often sentiment-driven, hence they do not provide any standard characteristics for early detection. A bubble will also form when there is excessive liquidity, leading to ‘too much money chasing too few assets,’ especially when the investment market narrows with limited buying options. ‘People should be wary when the value of an asset bloats to a level where the expectation on the economic returns is unjustifiable or has an unfounded basis,’ he tells”

“Universiti Tunku Abdul Rahman’s Faculty of Business and Finance, Department of Economics assistant professor Dr Yip Chee Yin — who specialises in the housing market — opines that the property market, which is currently experiencing a slowdown, has yet to see the worst of it. ‘Housing prices are already coming down [indirectly] at a steady rate because developers are offering rebates, free furnishing and more. All these amount to a price decrease. The sad news is that overhang and unsold properties are at an all-time high in a decade. This may cause developers to default bridging loan payments, thereby resulting in a domino effect on loan defaults and this could cause a financial crisis, signalling the housing market is about to burst.’”

“There has been a 22 per cent bump in the number of homes advertised for sale across Sydney compared to a year ago, coupled with a similar drop in buyer demand — mostly driven by tighter lending restrictions on investors. It has meant sellers are increasingly competing with each other to attract buyer interest, giving home seekers room to negotiate prices down. James Sarzano, of Ray White North Ryde/Macquarie Park, said in some instances sellers were having to adjust their expectations.”

“‘Vendors are getting more realistic about the changed market,’ he said. ‘They had to come back to reality late last year when they were asking $2.1 million for their property but now they have had to adjust their expectations to $1.5 million.’”

“Australia, you are getting complacent. Over the ditch, the big lesson of the last few generations is that house prices always go up. That lesson has been learned, passed on, reinforced by experience and passed on again. Generations of Australians have grown rich and comfortable by sinking their earnings into real estate. Across Australia, house prices are up over sevenfold since 1986. In Sydney, it’s nearly ten fold.”

“If I lived in Sydney I’d be downright frightened. It’s only a rule of thumb, but when graphs go vertical like the Sydney one has, it can be a sign things aren’t too sustainable. Check out the peak house prices hit in 1890 in Sydney and Melbourne. They went up to almost $100,000 (in inflation adjusted terms). It took another sixty years for prices to rise above this level again.”

“In the same way you can have a once in 100-year flood, or a once in 100-year fire, we can have a once in 100-year house price crash. What makes rare events so debilitating is that we’ve forgotten how to prepare for them. We hold the record — 50 years — for the longest house price rise in history. On average, house prices in advanced economies go down after 12 years of going up. And when they fall they do so for an average of five years, but the record is 18 years of falling house prices (in Japan).”

“Australia hasn’t had a five-year period where national house prices go backwards for a couple of generations. The memory of it is almost forgotten and Australians have started to believe it won’t happen there. And that just makes us all the more vulnerable.”

March 29, 2018

The Fire Sale Showed It Was Hard To Move Investor Stock

A report from Global Times on China. “The era of ’strong demand’ in China’s housing market is over, with ‘imbalanced and inadequate’ development becoming the industry’s top problem, said Yu Liang, chairman of property developer Vanke Group. Yu made the remarks in Shenzhen, South China’s Guangdong Province to explain Vanke’s 2017 performance. ‘In the past 20 years, the unprecedented wave of urbanization in China generated strong demand for commercial residential houses. So we built a lot in a bid to meet that demand,’ Yu said. ‘But things have changed. Many urban housing units have been sold but lie vacant; meanwhile, young newcomers may lack decent housing.’”

From Bloomberg on Canada. “It’s a tale of two housing markets in the Toronto area as Canada’s biggest city gears up for the crucial spring selling season: sales of big detached homes are slow, while condo deals are booming. On one side are people like Karen Berends, who put her C$1.5 million ($1.2 million) house back on the market in nearby Oakville this month after two failed attempts to sell in the past year. She reduced her asking price by about C$51,000, but still there are no takers, and she’s kicking herself for not cashing out last spring when the market was in a frenzy.”

“‘We could’ve walked away with a really good amount of money in our bank account if we had taken the money last year, but our head wasn’t in it at that point,’ Berends said. ‘It’s been a complete 360 this time around — it’s absolutely dead.’”

“Berends has placed ads in several Chinese media outlets in hopes of attracting foreign shoppers. ‘Apparently there are still buyers in mainland China, but they’re not really jumping,’ she said. She’s hoping to retire to a home she’s building north of the city in a few years, but she’s waiting for the right price for her existing house. ‘I’m thinking we might have to take it off and wait till next year,’ she said. ‘It’s just so difficult to know.’”

From Mansion Global on New York. “Despite the biggest Wall Street bonuses since the Great Recession, Manhattan recorded a 15% drop in luxury home buying in the first quarter of 2018, according to data on luxury contracts. Sudden volatility in the stock market beginning in February may also have securities industry employees feeling a little tight-fisted, said Frances Katzen lead agent of Douglas Elliman’s Katzen Team. Her finance industry clients are also turned off by softened luxury prices, preferring not to upgrade if it means selling their current home for less than they think it’s worth, she said. ‘It’s not a seller’s market,’ she said.”

From Domain News in Australia. “A Brisbane unit development has resorted to huge price cuts to move the last of its units, after years of unconventional sales tactics. Prices for Belise apartments in Fortitude Valley were slashed nearly 25 per cent, in what the executive director of the project marketing firm called a ‘dramatic’ price drop. The final few apartments weren’t sold in a 20-unit sale, with the sales team appealing for offers in a close-out sale.”

“The largest price reduction was for the last two-bedroom, two-bathroom unit, down from $632,000 to $475,000. Buyer’s agent Pete Wargent said the fire sale showed how hard it was to move investor stock in Brisbane. ‘People read a lot into it but it’s a bit indicative of the wider market. It’s the end of cycle stuff for new apartments,’ he said. ‘It’s been quite common. If you look around, even the smaller developments are finding the final apartment or two quite difficult to sell.’”

“Mr Wargent said looming settlement risk for off-the-plan buyers meant developers had to be more aggressive to sell their units. ‘I think that’s because the risk of the buyer having the valuation come in at lower than the sale price and then you have to fight to settle.’”

“Since the project was first launched more than five years ago, the developer of Belise offered a five-year settlement deferment plan, with a minimum deposit of $60,000. ‘It might appeal to someone who has no way of getting a mortgage in the next year or two,’ Mr Wargent said. ‘In five years’ time if the market hasn’t improved you can walk away and lose your 60 grand but… I wouldn’t be jumping at it.’”

“From what he could tell, Mr Wargent said the building was struggling to secure tenants, too. ‘I think it’d be fair to say they’re getting tenants but it’s not easy in the current market.’”

“Brisbane-based economist Kerrianne Meulman said the market was still soft in Brisbane, with an oversupply of low-end one- and two-bedroom apartments. ‘There’ll be still more apartment stock to come,’ she said.”

March 28, 2018

An Overbuilt Market Casts A Shadow

A report from WHO TV in Iowa. “There is no question that downtown Des Moines is growing, you can see apartment complexes popping up all over the city. Many people see how much building is going on downtown, they see the cranes, and they hear about vacancies. It leads many to ask if downtown is overbuilt, a question developers hear constantly. ‘The reason people are asking the question is for the last couple of years it just seems like there’s been building and building and building and I guess at some point I guess it needs to and should slow down a little bit and I think we are seeing that,’ Premier Companies Partner Troy Strawhecker said.”

“The market survey says nearly 3,000 units were built downtown last year and almost 3,000 units are under construction in 2018. The number of apartment units downtown has doubled since last year and still the vacancy rate in 2018 is only around 9.7 percent. Many apartments downtown are offering incentives to fill their vacancies quickly. ‘You want to fill it quickly without reducing your rents because once you reduce your rents, especially with the supply we have to drive those rents back up, so the concessions are an easy way to fill the physical occupancy and then after the concessions wear off maintain where the rents need to be,’ Senior VP CBRE, Hubbell Commercial Ryan Jensen said.”

From Mansion Global on California. “The Los Angeles real estate market is relatively strong and stable. ‘We have not seen enough new construction or an increase in housing stock of any kind,’ said UCLA Ziman Center for Real Estate Professor Paul Habibi. Mr. Habibi, who is also a builder, landlord and developer, remains optimistic about the overall market. ‘There have been fewer sales, but the deals are happening at a higher price point,’ he said.”

“‘Downtown has really been a hotbed of development, with domestic developers as well as developers from China and Canada,’ he said. ‘Just look at all of the cranes downtown. Downtown, no doubt, is being saturated by high-end rental and for-sale units. Most of the concentration of high-end housing is happening there—the Arts District is still on fire. The big question is whether downtown can absorb all of this inventory.’”

From the Press Herald in Maine. “The ambitious Midtown project – once seen as a transformational development for Portland’s struggling Bayside neighborhood – appears to be dead after missing a key deadline Saturday and losing city approvals. It failed to secure the permit before Saturday, triggering the expiration of city approvals for the entire project, including 445 apartments in three buildings with retail storefronts on the ground floor.”

“Portland has taken ‘numerous steps to impede the progress of the project,’ said Patrick Venne, who represents the Florida-based developer in Portland. ‘We are very disappointed with how this process has concluded, and are left with no option but to commence litigation against the City to enforce our rights and protect the significant expenditures associated with our commitment to this project.’ On Monday, Venne said that Federated will not appeal the denial.”

“City Manager Jon Jennings and other city staff pushed back Monday against the accusation that they are to blame for the expiration of the approvals. As Midtown has languished over the last seven years, millions of square feet of new development have been built in the city, Jennings said.”

The Herald Tribune in Florida. “An overbuilt market casts a shadow on the industry, at least in the short term. Steve and Maureen Wilson took a leap of faith in 1977 when they opened a self-storage business along a now-bustling stretch of Cortez Road. Back then, mom-and-pop operations dominated the industry. The tide changed in the wake of the Great Recession when many storage companies went bankrupt. Today, real estate investment trusts, or REITs, are scooping up independent owners with big money from Wall Street investors.”

“Now, unease about oversupply and rising vacancy rates looms over the self-storage market as expansion continues here and elsewhere across the country. REITs began invading the industry about five years ago, Wilson said. ‘Supply is catching up and overtaking demand, and vacancy is going up and rents are going down,’ Steve Wilson said. ‘The Sarasota self-storage market is saturated,’ said Barbara Denham, one of the senior economists at Reis Inc.”

“Nationally, the industry appears tense over its future. ‘The self-storage industry has been worrying about potential oversupply for at least the past 12 to 18 months — and fundamentals are starting to reflect that concern,’ Reis Inc. reported recently. ‘There is still demand but the market is oversaturated,’ Denham said. ‘There’s been too much construction.’”

“‘You can’t just go put a storage facility up, and say ‘if you build it, they will come,’ Wilson said. Denham agreed the haphazard approach is a loser. ‘Some self-storage markets have done very well and have exceeded the apartment market returns, but many of these now have significant construction underway. You have to do your due diligence, look at the data — especially on expected construction and vacancy, rent growth — and research the market.’”

From Curbed New York. “A planned luxury residential tower that would bring six ’sky gardens’ to Midtown is getting the kibosh, at least until the luxury market rebounds. ODA New York’s 41-story project planned for 303-305 East 44th Street has been indefinitely put on hold by developer Triangle Assets. ‘The condo market has been softening. We’ve decided to ride it out,’ Ben Stavrach, director of leasing and property management at Triangle Assets, told The Real Deal. ‘[The pricing] is going to be pretty high up there, and that market is not as strong.’”

March 27, 2018

You Can’t Build Affordable Until The Next Downturn

A report from Community Impact in Texas. “Under the pressures of the city’s affordability crisis, Austin’s working families are moving out to suburbs such as Pflugerville, Round Rock and Manor, where housing prices are cheaper but work commutes are longer. The market challenges are acutely felt in Central Austin, where neighborhoods once characterized by single-story bungalow starter homes now boast median home prices near $1 million, according to recent housing data. Rising property values place financial burden on existing homeowners who have watched their home values—and property taxes—double in the last decade.”

“The average two-person Austin household, earning the area’s median income of $65,100, falls well short of what is needed to afford the median home price in Central Austin, according to mortgage calculations. David Whitworth, owner of Whitworth Homes said he prefers to build smaller, less expensive homes as they sell quickly, while $1 million homes often sit on the market for a year.”

“Jeff Jack, president of the Austin Neighborhoods Council, a group that strongly opposes added density in Central Austin neighborhoods, said allowing more housing types in the neighborhoods would only create more housing opportunities for the wealthy and continue to push existing homeowners out. Jack said because Central Austin real estate is so desirable, market demand and competition between buyers will continue to bid up the prices, especially as Austin continues to attract a wealthy economy. ‘[Dense housing] will still be unaffordable for moderate- or low-income people,’ Jack said. ‘You can’t build an affordable home in the Zilker Neighborhood … not until we have the next economic downturn.’”

From the Merced Sun Star in California. “All-cash buyers have grabbed up a higher percentage of homes in the past 12 years in Merced County than in much of the rest of the state. More than 40 percent of the homes sold in Merced from 2005 to 2017 were purchased by all-cash buyers, according to ATTOM Data Solutions. The numbers are higher in Planada (42 percent) and Le Grand (44 percent). The California Association of Realtors estimates international buyers are more than twice as likely to pay in cash as domestic buyers.”

“The California Association of Realtors estimates that 3 percent of last year’s purchases went to international buyers. Their data relies on a survey of realtors, and could be inaccurate. ‘For one thing, the survey is conducted in English,’ said Oscar Wei, senior economist for the California Association of Realtors. ‘So if you have Chinese buyers and Chinese agents, they may not necessarily want to participate in a survey written in English.’”

From Bloomberg. “CEFC China Energy Co., the sprawling conglomerate that’s come under increasing government scrutiny, plans to sell its entire global property portfolio with a book value of more than 20 billion yuan ($3.2 billion), according to people with knowledge of the matter. Almost 100 properties are up for sale, including its headquarters in an upscale Shanghai neighborhood, four floors of the Hong Kong Convention & Exhibition Centre and a condominium at the Trump World Tower in Manhattan, as well as hotels, residential apartments and industrial facilities, said the people, asking not to be identified because the deliberations haven’t been publicly disclosed.”

“Signs have emerged recently that it’s unable to repay some debts and is seeking to sell at least one unit. The company’s creditors, led by China Development Bank, have formed a committee to review asset disposals, people familiar with the matter said this week, adding that the Shanghai government has taken control of the firm. Chairman Ye Jianming, who started the company in 2002, was said earlier this month to have been investigated by authorities and will step down from management.”

From the Palm Beach Daily News in Florida. “An investment group that includes an owner of the still-unfinished Palm House hotel-condominium on Royal Palm Way is preparing to make an offer soon to buy the beleaguered development, an attorney has told the Daily News. Word about the impending offer came as the project’s primary developer, Robert V. Matthews, 60, of Palm Beach sat in federal custody after being arrested on money-laundering and fraud charges. One of Matthews’ attorneys, Palm Beach real estate lawyer Leslie R. Evans, 70, was arrested the same day, after a grand jury in Connecticut issued a multi-count indictment against the two men for financial improprieties related to the Palm House.”

“On Thursday, a circuit court judge in West Palm Beach agreed to delay for 90 days a foreclosure trial involving the Palm House property. The renovation project at the Palm House stopped abruptly in October 2014, and the doors have remained padlocked since. The property has racked up about $2.5 million in town fines, the majority related to construction delays.”

“Matthews and Evans, along with ‘their co-conspirators, agents and others,’ illegally used money from foreign investors, administered through the federal EB-5 program, ‘for the personal gain’ of Matthews and others, according to the indictment. A group of more than 50 EB-5 investors, mostly from China and Iran, filed in 2016 a lawsuit in federal court in West Palm Beach against Palm House developers, alleging they were defrauded out of more than $50 million.”

From Nebraska TV. “Cabela’s shareholders approved the company’s sale to Bass Pro last July. Since then, they have laid–off groups of workers by the dozens, leaving many in Sidney in search of a new job. Some found work in nearby towns while others uprooted their lives to move as far as Pennsylvania for work. Brian Fort worked with Cabela’s for 10 years before he was laid off just over a year ago. He says he was lucky enough to find a job just days after being let go. Fort’s wife, however, also worked for Cabela’s. She was laid off just a few weeks ago.”

“Fort said their goal is to stay in Sidney, even though, he says over 100 homes are being foreclosed on as we speak. ‘It’s gonna take a while to off–set the number of people leaving and the amount of homes empty. So it’s a great buyers’ market, so people from Denver, people from other areas looking to retire, play some golf, you can get an awesome price on a home here,’ said Fort.”

From The Real Deal on New York. “Manhattan’s luxury residential market recorded 24 contracts at $4 million and above last week, according to Olshan Realty’s weekly market report. The first quarter of 2018 notched only 282 contracts, a 15 percent decline from the same time last year. What’s more, luxury homes spent an average of 469 days on the market, a 20 percent increase over the average of 390 days in 2017. That’s the longest it’s taken to sell a home since Olshan began tracking the statistic in 2011. And pricey homes had an average discount of 10 percent from the original ask to when properties went into contract.”

“‘Actor Mike Myers’ penthouse at 72 Mercer Street in Soho took the week’s No. 1 spot, going into contract with an asking price of $13.95 million. The actor originally listed the duplex condo in 2015 and then took it off the market with an asking price of $16.95 million. He put it back on the market in November with a price chop of $3 million. Myers last year sold his 443 Greenwich condo last year for $14 million – $675,000 less than he paid for the apartment just months earlier.”

March 26, 2018

Uncertainty Over How ‘Bad’ This Could Become

A report from the Corridor News. “Federal Reserve officials came and left on Wednesday. They came with an interest rate increase. They increased the range on the federal funds rate 25 basis points. The toastier the market, the more abrupt the cooling, so dictate the laws of financial physics. We refer to a recent update from Grant’s Interest Rate Observer that featured the Toronto housing market (which regular viewers of HGTV’s Love It or List It are likely familiar). Grant’s tells us that Toronto home prices – once white-lava hot – have dropped 12.4$ year over year; active listings have nearly tripled. We’re not saying similar toasty burgs in the States are in imminent danger of an abrupt cooling. We are saying to at least be alert to the possibility.”

From the Vancouver Sun in Canada. “Throughout history, politicians and the public have hated speculators on the grounds that they create scarcities, raise prices and cause hardships for consumers. This view is behind the recent decision by the B.C. government to impose a tax on unoccupied housing presumed to be owned by speculators and which is expected to lower the cost of housing.”

“The implementation of this policy has run into a number of problems that can be solved by some tweaking of the law, but it will do nothing to reduce prices in the long-run. Speculators raise house prices when they buy and keep them empty or rent them out. The speculators realize profits only when they sell them later, at which time they lower prices. In effect, speculators do not add to the demand for and cost of housing, but only smooth it through time. The real cause of the high and rising cost of housing is a continuous excess of demand over supply.”

From the Daily Herald Tribune in Canada. “Grande Prairie’s new home starts were down year-over-year as of February, as the city gradually recovers from the economic turndown and an oversupply of homes. Year-over-year declines were also seen in the Lethbridge census metropolitan area (CMA), Red Deer, Wood Buffalo, and the Edmonton CMA. Housing prices are a bit lower than last year, but that’s to be expected, given the oversupply. ‘With prices, we’re not expecting a lot of growth … What we’re expecting is the price not to move a lot as the oversupply situation resolves itself,’ said Timothy Gensey, CMHC analyst for the Grande Prairie region.”

From CBC News in Canada. “A well-known Saint John developer is being sued by 40 out-of-province investors over real estate deals in Saint John and Fredericton. John Rocca, the estate of his brother, the late Pat Rocca, several family companies, and a Montreal-area real estate investment promoter are named in the suit. The investors allege they purchased condominiums at artificially inflated prices after the units and a number of promised extras were misrepresented by the sellers.”

“Most of the buyers live in Ontario but others are from British Columbia, Alberta and Quebec. The 40 owners purchased a total of 57 units. Their statement of claim describes a rental agreement that was purchased on top of the price paid for the unit itself. ‘Due to the various misrepresentations made by the defendants, the Plaintiffs now own units which are actually valued far below the mortgages being carried on those units,’ said the claim. ‘Some of the Plaintiffs have been forced to sell their units at significant losses and are still carrying mortgages as a result of the Defendants’ blatant overvaluation of their units.’”

“The allegations have not been proven in court and are described as ‘false and outrageous’ by John Rocca, who promised an aggressive defence.Rocca said the claimants in the suit are suffering from ‘buyers remorse.’ ‘The vast majority of the individuals who purchased a condo had their condos appraised before the closing date by an appraiser picked by their bank,’ said Rocca. Rocca describes the group as ‘experienced investors’ who want to be reimbursed because the units are worth less today than when they were purchased.”

From ABC News in Australia. “It has been going just two weeks but the royal commission into the banks has had a vastly more material impact than most observers expected. Banks have been absolutely crunched as evidence of all manner of dodginess and outright fraud mounted up. The big investment bank UBS has marshalled its banking and economic analysts to look at the impact on future credit conditions that will inevitably tighten as banks are forced to become more responsible with the loans they have been selling.”

“UBS’s George Tharenou said the ‘credit crunch’ scenario could not be ruled out, even though it would clearly be unintended by regulators and policy makers — and banks for that matter. Under this scenario, house prices would likely fall over a prolonged period across a few years, according to UBS. ‘There is a great deal of uncertainty over how ‘bad’ this could become, simply because Australia has never had a fall in house prices of 10 per cent or more. Even during the GFC prices ‘only’ fell to 8 per cent over the year, but the RBA slashed rates by 4.25 percentage points and reflated the housing market, and neither have we had a domestic recession in almost three decades,’ he said.”

The Herald Sun in Australia. “Home seekers have been gifted a once in a decade opportunity to nab properties for less as Sydney’s slowing housing market puts pressure on sellers to set more realistic price expectations. With the city having largely shifted to a buyers’ market, industry figures revealed home sellers in some parts of the city have been dropping their asking prices by 10 to 30 per cent, a major departure from a year ago when vendor discounting was rare.”

“In Eastlakes, the sellers of a four-bedroom duplex on Universal St have cut $100,000 off their original price and are now expecting $1.725 million to $1.775 million. In Chifley, the sellers of a four-bedroom house in Melba Ave dropped their expectations by $500,000, while the price for a four-bedroom duplex in Caley St has dropped $75,000.”

“Greg Gladstone of South East Realty said the vendors were simply adjusting to the current market. ‘The days on the market are stretching out and buyers are not making the offers so vendors are putting in lower offers,’ Mr Gladstone said. ‘In Botany, there are lots of units going up and developers are reducing their pricing. Pagewood prices are also adjusting to the market because of developments like Pagewood Green.’”

The Daily Mail in Australia. “Australian homeowners could lose up to $100,000 from the value of their home over the next 12 to 18 months, as the nation’s housing market bubble finally bursts. With house prices falling and indications that interest rates will rise, homeowners are in for a rocky ride - particularly those who stretched their budgets to join the ‘boom’. Former federal treasurer Peter Costello recently claimed the outlook is ‘painful’, with millions of homeowners to be put under financial stress by any interest rate rise.”

“‘The problem is now that you’ve borrowed so much, how do you normalise?’ Costello told a recent Urban Development Institute of Australia conference. ‘It’s going to be slow and it could be painful - the question is will it be a hard landing or a soft landing but it’s going to be a landing.’”

“Someone who has seen the market drop firsthand is Robert Klaric, a Sydney property expert who was among the first to predict that 2017 would be the end of the boom. ‘We had a young client of ours who bought a one-bedroom apartment off the plan in Meadowbank, in Sydney’s inner-west in 2016,’ Mr Klaric said. ‘So he bought that apartment for $550,000 and was told at the time he’d get a guaranteed rental return of $450-a-week. But there’s so many units he struggled to rent it for that price and so couldn’t pay the mortgage. He’s just had to sell it for $505,000, which is a 10 per cent adjustment and a perfect example of what’s occurred in the market. By the time you add in stamp duty he’s lost close enough to $100,000 and that’s tough for a 25-year-old.’”

From in Australia. “Though it’s not a mining town, Miles was part of southwest Queensland’s coal seam gas construction boom. Developers and investors flooded in from all over Australia, and there was a surge in new housing with 1500 new homes approved. ‘It was like being caught in a gold rush,’ said local Rachel Kerwick, president of the Miles & Districts Chamber of Commerce. ‘There were investors from Melbourne and Sydney, well-educated people who did their homework and believed the literature the government and the CSIRO all put out.’”

“At the peak of the boom, even a space at one of the local caravan parks crept up to nearly $1000 per week. Long-term residents who could no longer afford the rent moved out. But when the construction phase of all major coal seam gas projects progressed to the export phase, many mining contractors and employees were laid off. And once the Condabri workers camp that many of them were living in was emptied, the overflow of those renting in Miles were shifted to fill the camp’s 400 beds.”

“After the last of the mining workers were shifted out to Condabri, the vacancy rate in Miles rose to 45 per cent, where it stayed at for several years. ‘Rents were down to $150 a week for those fortunate to have it,’ said David Sweetapple, a real estate agent and land developer in Miles. ‘That was furnished apartments, furnished houses.’”

“According to Ms Kerwick, some people just walked out, and those who stayed all suffered financially. ‘We’re left with people whose businesses went bankrupt and who lost their homes because they took the punt and invested in building another one. Mortgages and repossessions are happening at least once a week,’ she said. ‘We have even less people than we did before [the boom]. The Miles community itself was almost decimated. Brand new homes that cost the investor $700,000 to build are being sold for $200,000.’”

March 25, 2018

A Supply-Side Fantasy

A weekend topic starting with Better Dwelling. “The value of Canadian real estate has been debated for some time. Those that benefit from ownership, often say ‘fundamental value’ is sending prices higher. Further adding that the increase of home prices, results in an increase of wealth for the country. Housing activists say that real estate has become highly commoditized. They argue, escalating home prices result in decreasing wealth for the public. These two opinions are very different from each other, but are both correct. At least according to a 200 year old puzzle, known as the Lauderdale Paradox.”

“James Maitland, a.k.a. the 8th Earl of Lauderdale (1759-1839), was a Scottish nobleman. He spent a great deal of his personal time, observing money and wealth. Maitland speculated there is an inverse correlation between public wealth, and private wealth. He defines public wealth as ‘all that man desires that is useful or delightful to him.’ You know, things like air, water. Private wealth is pretty much the things you classify as public wealth, but ‘which exists in a degree of scarcity.’ Scarcity is the keyword here. In order to for something to have value, people have to believe there is only a limited quantity.”

“Finding things to monopolize is hard, good thing you can create artificial scarcity.”

“Looking at the numbers from 2011 to 2016, 146,200 homes formed. CMHC data shows 175,825 new completions occurred during that period. Almost 30,000 more homes were created than homes formed, adding to the housing supply. Despite this, pricing pressure actually increased, and inventory available became more scarce. The construction of extra supply had almost no impact on easing prices, and it wasn’t even sold for predatory increases. It just wasn’t available for some reason.”

“Two interesting trends occurred right around this period – the rise of foreign buyers, and vacant homes. According to the CMHC, non-residents owned 2.7% of all homes in 2017, a 35% jump in ratio from 2014. From 2011 to 2015, the CMHC estimates 8.48% of new condos were sold to non-residents. From 2016 to 2017, that increased to 11.65% of new Toronto condos. Developers increased their offerings overseas, despite significant domestic demand. This is a process known as massification, and it’s a method employed by luxury brands to create artificial scarcity.”

“Vacancy also appears to be a problem in Toronto, with non-regular occupancy growing with the ‘lack of inventory.’ By 2016, this number grew to 99,236 homes, or 4.43% of all dwellings. The rate actually scaled up, and grew larger than it was in 2011. This is despite the fact that the city reached record low inventory available for sale. Yes, homes are being kept empty, creating even more inventory pressure.”

From ABC 30 in California. “Seasoned realtor Don Scordino says the market is holding steady, but buyers are dealing with low inventory. Right now in Fresno County, about 1,300 homes are for sale. Experts say home prices are steadily increasing. Salazar says that’s positive news for those who are already homeowners, ‘If you are a current homeowner right now, congratulations because your equity is growing. Just stay tight.’”

From Palo Alto Online in California. “Fran Wagstaff doesn’t have to look far to see the transformation of Palo Alto’s housing market. Over the past decade, her Midtown neighborhood has gentrified, with property values going through the roof and out-of-town buyers gobbling up properties as investments, she told the Weekly. The house across the street is only occupied by its owners for one or two weeks per year, she said.”

“‘Every scrap of land is being redeveloped,’ Wagstaff said.”

From Orlando Weekly in Florida. “Back in December, Florida Gov. Rick Scott touted that Orlando leads the state in job growth, which is certainly something to be proud of. But Orlando doesn’t have a job shortage – it has a shortage of well-paying jobs and places for these people to live. According to the National Low Income Housing Coalition’s annual report, the Orlando-Kissimmee-Sanford area currently ties for second worst in the country for available affordable housing, offering only 17 available and affordable units per 100 renters.”

“While the Orlando area tied with Los Angeles, the only other major metropolitan area with a worse affordable housing rate is Las Vegas. The bottom line is Orlando is building plenty of new units, just not any its citizens can afford. From 2005 to 2015, the number of homes renting for $2,000 or more per month increased by 97 percent, while the number renting for less than $800 declined by 2 percent, according a 2017 report from the Joint Center for Housing Studies.”

From the New York Daily News. “There’s a hidden city in the five boroughs. Though its permanent population is zero, it is growing faster than any other neighborhood. Early numbers from the Census Bureau’s Housing and Vacancy Survey show the unoccupied city has ballooned by 65,406 apartments since 2014, an astonishing 35% jump in size in the three years since the last survey.”

“Today, 247,977 units — more than 11% of all rental apartments in New York City — sit either empty or scarcely occupied, even as many New Yorkers struggle to find an apartment they can afford. The Vacant City has tripled in 30 years. A generation ago, there were just 72,051 apartments in the Vacant City. Back in 1987, when rents were cheap by today’s standards at a median $395 a month, the Vacant City made up less than 4% of rental apartments. Today, the median rent is $1,450, having risen twice as fast as inflation, even while the Vacant City tripled in size.”

“For years, development officials, the real estate industry and think tanks have told us that artificially low rents are holding the city back. Higher rents, the argument went, would free landlords to make a reasonable amount of money and serve as an incentive to increase the housing supply. The new Census gleanings finally put the lie to that reasoning. We have higher prices for sure — but the only part of the city’s residential real estate that has grown is the Vacant City. More apartments are being held off the market than ever.”

“Some remain vacant for legitimate reasons. Almost 28,000 of those unused units have been rented or sold but not yet occupied, or are awaiting a sale. Almost 80,000 are getting renovated, 9,600 tied up in court, and 12,700 vacant because the owner is ill or elderly or simply can’t be bothered. But that still leaves more than 100,000 units — 74,945 occupied temporarily or seasonally, and 27,009 held off the market for unexplained reasons.”

“Oksana Mironova, a housing analyst with the Community Service Society, says that the growth of the Vacant City tends to confirm charges made by the organizing group Picture the Homeless and others that landlords are deliberately holding apartments off the market, perhaps in order to rent them out on services like Airbnb. Additionally, many of the 75,000 temporary apartments are pied-à-terres, weekend or vacation crash pads for the rich, up from just 9,282 in 1987.”

“Given the apparent benefits of bringing busted-up apartments back into use, it was possible to argue that encouraging more renovation and construction would be good for the city. In 2017, the Census Bureau couldn’t even locate enough dilapidated apartments to count — but did find a median asking rent of $1,875, 30% higher than what a typical existing tenant pays. What’s more, the vacancy rate for those expensive units is huge. Almost half the apartments available for rent in New York cost more than $2,000 a month — and the vacancy rate for them is above 7%.”

“More than 63,000 New Yorkers are living in homeless shelters (almost three times more than in 1987), and 30% of city households are shelling out more than half their income in rent.”

“We’ve largely conquered dilapidation and abandonment. Statistically, there are no more slums in New York City. But we’ve achieved this through a supply-side fantasy that created an unaffordable and increasingly vacant city.”

March 24, 2018

Investors Are Talking About Unloading Their Properties

A weekend topic starting with Bisnow. “Investor confidence in the stability of the multifamily sector this year remains strong, despite robust new supply levels and concerns regarding rising inflation and aggressive interest rate hikes. As the cycle continues to mature, investors are shifting their investment strategies to focus less on appreciation to generate crazy returns, and more on stability and betting on assets that will generate steady cash flow. Marcus & Millichap anticipates 335,000 units will come online this year — down from 2017’s 380,000 completions. New deliveries will be largely concentrated in Dallas, New York City, Washington, D.C., and Atlanta.”

“‘Last year we saw a very significant wave of construction … the most completions on record and likely the most we’ve seen since the ’80s,’ said Marcus & Millichap First VP of Research Services John Chang. ‘[We] do anticipate it tapering a bit in 2018, coming down to 335,000 units, which is still a lot. We’re still looking at a very deep pipeline of construction that should continue to come to market.’”

The San Francisco Chronicle in California. “Is the long run up of San Francisco rental prices finally coming to an end? In certain neighborhoods at least, the signs seem to be pointing to a resounding yes, according to Zumper. The apartment listing site says that the median asking prices for one-bedrooms in Cole Valley are down 14 percent to $2,950, while the Inner Richmond is down 11 percent to $2,550 and Mission Dolores is down 9 percent to $3,350 since the same time last year.”

“‘Last year, in the Inner Richmond and Cole Valley, rents were spiking due to a lot of demand present, since these areas are safe/low on crime and tend to be less expensive than living in the surrounding neighborhoods like Hayes Valley or NOPA,’ explained Zumper’s Crystal Chen. ‘While the demand will always be there for these neighborhoods, the price has come down from last year since less people are looking to move right now and it seems a ceiling has been hit.’”

The Herald Net in Washington. “In December the average rental price fell 2.9 percent across Snohomish and King counties, according to a widely heralded landlord survey by Apartment Insights/Real Data. Was the decrease — the largest this decade — an anomaly, or the start of a downward trend? A little of both, analysts say. Dylan Simon, an executive vice president and head of the Multifamily Team at Collier’s International in Seattle, ridiculed news stories that suggested rents are ‘dropping significantly’ in the Puget Sound area.”

“Sean Martin isn’t so certain. He is the interim director of the Rental Housing Association of Washington, a consortium of more than 5,000 independent rental owners and managers. ‘This is a little bit more than the natural slow-down at this time of year,’ Martin said. ‘A lot of our members are saying rents are pretty stagnant.’”

“A rash of recent apartment construction across the region is stabilizing the market, he said. More than 2,000 rental units are being built in Snohomish County, with some 5,000 more in the planning stages.”

The Miami Herald in Florida. “The federal government says its hunt for dirty money in luxury real estate in South Florida and other high-priced housing markets is working — and the temporary initiative is being extended yet again. Since 2016, the U.S. Treasury Department has mandated that secretive shell companies buying luxury homes with cash in certain areas disclose their true owners to the government. The anti-money-laundering initiative began in Manhattan and Miami-Dade County — to the protests of South Florida politicians — and has gradually been expanded to other areas in Florida, New York, California, Texas and Hawaii.”

“Drug dealers, corrupt officials, money launderers and other criminals often buy expensive real estate to legitimize dirty cash. They use shell companies — which don’t have to disclose their owners — in order to keep their identities hidden, frustrating law enforcement agents and sometimes stopping investigations dead in their tracks. Anti-corruption advocates have called for the disclosure rules to be made permanent. The flood of foreign money — most of it clean — pouring into markets like South Florida is partially blamed for rising home prices.”

“The temporary orders, issued by a Treasury agency called the U.S. Financial Crimes Enforcement Network (FinCEN), are known as geographic targeting orders, or GTOs. Last year, FinCEN reported that 30 percent of home deals reported under the GTOs were linked to people who had been the subject of ’suspicious activity reports’ filed by banks.”

From The Oregonian. “Residents of downtown Portland’s Ladd Tower last year started noticing a growing number of strangers in their building’s lobby and elevators, often with luggage in tow. They arrived at a time when residents were already on edge over a series of break-ins, and crime prevention officials had warned them to watch out for unfamiliar people. It wasn’t clear where they were coming from — until residents found the building listed on the website Stay Alfred, which rents out vacant apartments to travelers.”

“‘I signed up to live in a home, not a hotel,’ said Lisa Cox, a resident of the building. ‘Holland Residential has turned this into a hotel without me even knowing.’”

“Ladd Tower, owned by Holland, isn’t alone. The owners of a handful of high-end apartment buildings are now offering rooms to rent by the night through Stay Alfred and a Portland-based competitor, Vacasa. It’s part of a small but growing industry that allows building owners to make money off of empty units.”

The New York Times. “As South Lake Tahoe struggles with a proliferation of vacation-home rentals in its residential neighborhoods, the El Dorado County town has enacted tough new rules, slapping $1,000 fines on both vacation-rental guests and owners for infractions related to noise, parking, trash, too many visitors, too many cars or hot-tubbing after 10 p.m. Homeowners say the influx of weekend visitors, some of whom they describe as drunken revelers, destroys their tranquillity and neighborhood character. They point to new McMansions with eight or more bedrooms being built specifically to house tourists. They’d like to ban vacation rentals altogether in residential areas.”

“Already some real estate investors are talking about unloading their properties. ‘Sooner or later we will sell our house,’ said one vacation-rental owner who has already received two $1,000 citations for guests who briefly had an extra car. If she gets another one, she can no longer rent to tourists. If scores follow her example, the inventory flood could exert downward pressure on home prices.”

The Missoula Current on Montana. “Sterling CRE adviser Matt Mellott offered his company’s top investment opportunities – and risks – for investors looking at commercial real estate property in Missoula. Mellott said investors building spec homes in Missoula priced over $350,000 are fine for now, though that could change if the market corrects itself. ‘If there’s a market correction, you can still sell a $250,000 house, but you’ll have a very difficult time selling a $350,000 or $450,000 house.’”

“Stabilized multi-family properties you don’t plan to keep through an entire cycle: ‘If you buy a property that has a net operating income, right now, of $100,000, and you buy at a 5.5 percent cap rate, which is typical for this area, you’re going to pay $1.82 million,’ Mellott said.”

“But if that same investor assumes his or her rent will grow 3 percent each year, pushing his or her net operating income to $109,000 three years from now, a life-changing event that requires the investor to sell could spell disaster in an environment with rising interest rates. ‘A 6.5 cap rate on a $109,000 net operating income means you’ll sell for $1.86 million, which means a net loss of $140,000 three years from now. Rising interest rates are not your friend when you talk about buying low cap-rate products.’”

March 23, 2018

Boom-Glut Dynamics And The Absence Of Money Bags

It’s Friday desk clearing time for this blogger. “It’s been the most consistent trend the city has seen over the last three years: Chicagoans leaving Chicago to move elsewhere. Yet the building boom that has curiously grown in reflection of the downward population doesn’t appear to be letting up. If anything, it’s kicked into another gear as more cranes have been raised skyward with the slowly thawing temperatures. When looking at the point of intersection for the rising rents and skyscrapers against the dwindling local population, one has to wonder; when exactly will this bubble burst?”

“Luxury homes in Manhattan are selling at the biggest discounts on record as owners grow tired of waiting for buyers to match their price. Homes priced at $4 million or more that went into contract in the first 12 weeks of the year had their asking prices cut by an average of 10 percent, the most in data going back to 2012, according to Olshan Realty Inc. Final sale prices, which won’t be known until the deals close, will probably reflect even greater reductions, said Donna Olshan, president of the brokerage that compiled the report. ‘Most things at $4 million and above are selling 15 to 20 percent below the original ask,’ Olshan said. ‘It’s a data point that screams: The market is overpriced! People are still being delusional about their real estate.’”

“We’re continuing to take a look at the impact of failing schools in the city of Birmingham and now looking into how it’s playing a role on the housing market. Tracy Wright, a local realtor with Barnes and Associates, showed us a home zoned for Wenonah High School that’s been on the market for about a year. Wright says the seller may end up dropping the price or it could go into a short sale meaning selling a home for less than the existing mortgage on it. ‘We have to drop our values below market which then causes house prices to decline which then turns into foreclosure which then turns into short sale. So it’s kind of like a cycle that keeps going and going,’ Wright said.”

“Back in September 2007 at absolute peak frenzy of the Housing Bubble in San Francisco, the co-founder of YouTube, Steve Chen, purchased a two-level 3,030 square foot condo at the high-rise Ritz-Carlton Residences for $4.85 million. At the time, it was an unfinished empty shell. He then built it out with a budget ‘estimated to have been nearly as much as the shell.’ At this point, not counting HOA fees, property taxes, insurance, mortgage interest, and other expenses, he has plowed $8.85 million in it.”

“But then, without ever having lived in his trophy condo, he got married, had kids, and moved down the Peninsula. A few days ago, according to and Zillow, the still unlived-in condo came back on the market but at a big discount from what the aspirational price had been in 2012. Now the asking price has been cut to $5.95 million. This loss would be almost equal the original purchase price of $4.85 million. Let that sink in for a moment: to lose $4.53 million on real estate that had original been acquired for $4.85 million! This assumes that he didn’t insure it and that he didn’t finance any part of it, and that he can sell it at the current asking price.”

“Buying a first home together is a milestone for many young couples. Like so many other buyers looking to purchase property in the Lower Mainland, Ines Min and her husband faced the challenge of buying a home in a red-hot market in which prices for even a modest apartment-style condominium exceed $680,000. Despite the cost, the couple were undaunted, figuring it was now or never. ‘The condo market was on fire last year when we bought, but we were reassured by the fact that our investment was only going to appreciate over time,’ says Min, 30, who works in public relations.”

“Now this new supply could hit the market just as these dampening measures take effect, says Cameron Muir, chief economist with the British Columbia Real Estate Association. ‘It’ll mean we probably bought at the worst possible time,’ Min says.”

“Rental prices in Rio have recorded a drop of over seven percent in the last twelve months. Charlie Jonas of Rio Exclusive, a luxury real estate firm in Rio de Janeiro confirms, ‘Nowadays for R$5,000 you can get a decent three-bedroom in Copacabana or a two-bedroom in Ipanema and maybe even in Leblon.’”

“The rate of construction of new homes in Sweden is expected to fall significantly in the coming years, dropping from 55,000 new buildings in 2018 to 46,000 in 2019, according to the Swedish Construction Federation’s economic forecasts, which suggest a decline of just over 30 percent from the peak in 2017. In its report, the federation warned that credit restrictions like tightened amortization requirements could accelerate a downturn. ‘It’s starting to reduce very drastically now,’ Swedish Construction Federation CEO Catharina Emlsäter-Svärd said.”

“Last week’s figures showing a fourth consecutive month of declining housing prices did not surprise Meitav Dash Investments Ltd. chief economist Alex Zabezhinsky. Q: So real estate will drag down the entire Israeli economy? A: ‘Accumulated experience from around the world shows that a halt in the real estate market following a rapid and prolonged boom has almost always led to slower growth. Real estate is a very large section of the economy, and when it cools off, it has a collateral effect.’”

“Osaz Enobakhare, an award winning structural engineer and CEO of Heavens Contractors Limited, said the lull in the market that may not likely bounce back soon is due to the recession in the economy, which is yet to be fully exited. ‘Most properties above N100m are difficult to sell because of the absence of money bags who usually buy them. Most corporate bodies are not doing well either, hence they cannot buy properties as they used to do. Their patronage for high rental properties has also stopped; therefore, you see so many blocks of flats in Ikoyi and Victoria Island remaining vacant for long,’ he said.”

“In the weaving alleys of Shanghai’s Laoximen district, swathes of residential buildings sit empty. The historic area in the heart of the city is being slowly demolished, and many residents have already abandoned it, leaving behind rows of traditional terraced houses with boarded-up windows and demolition signs on the doors. The redevelopments are a reaction to the city’s runaway growth, and key contributors to the first population falls in Shanghai and Beijing for decades.”

“‘What used to hold four families is now the luxury ground floor on a building for one rich person,’ says Saskia Sassen, professor of sociology at Columbia University and author of the book Expulsions. ‘China’s government is moving people out of its top cities to its underused cities – not the likes of Shanghai or Guangzhou, but really overbuilt half-empty cities that were just projects for the construction companies to make money.’”

“Paul Ellender, Property Consultant at Freer Properties, said rental prices (at least in Daun Penh) are stagnating, if not dropping. He noted that prospective tenants are negotiating quite ruthlessly. Mr Ellender explained that the glut of condos on the market is contributing to this as tenants can get a brand new space, with gym, pool, city views and roof terrace for $50/week more than an older colonial building with street views. Just like in other countries, oversupply in the market is often the cause of rental price stagnation in Cambodia, particularly in Phnom Penh.”

“For condominiums alone, the supply for 2018 is expected to increase by 87 percent, from 16,300 to 30,500 units, in addition to another 1,200 serviced apartments.”

“Khor Yu Leng from Segi Enam Advisors Pte Ltd said Johor had seen a property boom with per square foot prices in some enclaves reaching Kuala Lumpur city centre levels. Yet, it had also witnessed a major slowdown with a marked drop in transaction volume and property value since 2017. The Penang Institute concluded that ‘Chinese investments in southern Johor have split the property development into a high-end market with excess supply targeted at foreigners as buyers, and a lower-tier market driven by local developers targeting mostly local buyers.’”

“Khor said Johor residents were reasonably insulated from the property enclave ‘boom-glut dynamics targeted at foreigners.’ However, he warned that they were not immune to domestic-driven affordability problems.”

“If you were at a party with 20 or 30-something Sydneysiders four years ago, the dominant conversational topic was getting into the property market. Now things have changed. People aren’t trading tips on how to buy in Sydney. They’re comparing notes on how to leave. When my wife and I started telling our friends about our plans to move our family out of Sydney and head for the wider spaces and less aggressive rents of Adelaide, something unexpected happened. Around three quarters of the people confessed that they too had an exit strategy planned.”

“The people who were determined to stay in Sydney weren’t sure how they could manage long term. Even those who weren’t fearing a budget-busting rent increase spoke darkly of rumoured developments or shared stories of compulsory acquisitions that didn’t come close to paying for an equivalent property. Everyone seemed to feel like they were one unexpected redundancy or medical crisis away from their entire economic system collapsing.”

March 22, 2018

Creating A New Definition Of Affordable

A report from AZ Big Media in Arizona. “Last year was good for Arizona’s residential real estate market with boosted home sales, prices, and agents making deals. One noticeable shift in 2017 was that Millennials are now reaching a point of financial well-being. According to Homeowners Financial Group, a local mortgage banker specializing in the residential market, this transition is made easier by recent changes to conventional loan limits, which are allowing more first-time homebuyers into the market. Joe Conner, branch manager and licensed mortgage professional for HFG says, ‘The loan limit has been raised from $424,100 to $453,100, meaning that home buyers can purchase a more expensive home at a higher price point and still qualify for a loan.’”

“Another subgroup showing signs of growth is in the older population that lost their homes during the financial crisis or sold out of necessity and began renting instead. ‘Recently, credit agencies have changed their policies, choosing not to report certain judgments and liens on credit,’ Conner says. ‘This can improve people’s credit scores, enabling buyers to get better interest rates and qualify when they may not have been eligible previously.’”

“For the first 10 months of 2017, 12 percent more construction permits were issued than in 2016, with a projected yearly total of 21,200. By 2018, that number is expected to be 23,500, and it could be 25,400 by 2019. Fulton Homes is outwardly optimistic for 2018, according to CEO Doug Fulton. ‘We see 2018 as a year we’ll be able to hang our hats on. All leading economic indicators look great and the trends in sales are surprisingly solid even in our typically slow months of November and December,’ says Fulton. ‘It’s time again to bet on housing.’”

The Sacramento Bee in California. “It’s tough to be a first-time homebuyer in the Sacramento region these days. One area that’s changed, however, is the availability — and acceptability — of low down payment mortgages for those who can’t pony up the traditional 20 percent or even 10 percent. The government-backed programs mainly are offered through private lenders. They include old standbys such as Federal Housing Administration mortgages that require 3. 5 percent down and newer zero-interest loans and grant programs that can greatly increase a buyer’s down payment – in one case tripling it for free.”

“National lender Guild Mortgage’s Monty Maxwell, one of the state agency’s ‘preferred loan officers,’ met Michelle Schroeder, an art teacher, at a high school in Natomas where they were both mentoring students. Maxwell and his team members helped Schroeder buy her first house. After examining Schroeder’s options, including a CalHFA program that assists teachers and school employees, they ended up going with one of Guild’s own down-payment assistance programs, the Guild 1% Down Loan. It gives buyers who qualify an extra 2 percent grant that doesn’t need to be repaid. That means for example, that a couple buying a $300,000 house who put $3,000 down would actually have $9,000, or 3 percent, to put down.”

“She offered the asking price of $325,000, which was near the top end of her budget. The seller accepted, and the deal closed in January. Schroeder said her 30-year mortgage rate is 4.25 percent. ‘The payment’s a little high … but it’s doable,’ Schroeder said. Like many people her age, she’s still paying down her student loans from college, which limits her housing budget.”

The Daily Free Press in Masschusetts. “First-time home buyers may face some financial relief thanks to a new program from MassHousing. The program will benefit these buyers by financing a down payment of 3 percent of the price they purchased the house for, or $12,000, whichever is less. Borrowers will later have to pay back the cost of the down payment with a low-cost secondary mortgage requiring no cash up front. Kevin Kielt, 34, of South Boston, said he would appreciate financial support to fund a down payment because he has struggled with finding an affordable home.”

“‘Speaking for myself, it’s been hard for my girlfriend and I to get the money to make a down payment on a house because we both have student loans to pay off still,’ Kielt said. ‘We’re both in fairly good positions … It’s just that we have a lot of other things to worry about and care about in terms of money.’”

From Colorado Hometown Weekly. “How expensive has housing gotten in Boulder County? So pricey that creating a new definition of affordable wasn’t enough to move the needle in an annual affordability study. The Longmont Housing Affordability Review has been produced since 2013 by Kyle Snyder, with First American Title, and Amy Aschenbrenner, CEO of the Longmont Association of Realtors. The 2017 report was the first in the study’s history in which the definition of affordable homes was revised upward, to $350,000 for single-family and $270,000 for a condo or townhome.”

“The change was necessary because of the dearth of houses selling under the old thresholds of $150,000 for a condo/townhome and $250,000 for a single-family, as Snyder noted in last year’s report. But even with the new goal posts in place, there was little affordability to be found in Boulder County’s housing market.”

“Even still, homes are more affordable than they have been since the dawning of the new millennium, argues Mark Fleming, chief economist at First American Financial Corporation, whose voice is another addition to report. When accounting for rising incomes and historically low interest rates, Americans have more purchasing power than in the booms of 2000 and 2006, Fleming said. Real estate site Trulia also found that homes were more affordable to more Americans than any time in the past 40 years.”

“‘In 2016, the median household could afford a home 1.5 times more expensive than the median home price,’ the report read. ‘In 1980, the median household could only afford about 3/4 of the median home price.’”

“The report’s metrics will continue to evolve along with the market. Instead of a set figure for affordability, the annual review will calculate area median income and then reverse engineer what a buyer would likely be able to afford at current interest rates,assuming a 5 percent down payment. (So chosen because of Colorado Housing and Finance Authority’s down payment assistance program for lower-income buyers.) ‘The measuring stick will be slightly different every year but will still measure the same ability to buy in the market,’ Snyder said. ‘We’re really happy about that because we’ll never outgrow our measuring stick again.’”

“Still, he acknowledges that the change in parameters isn’t good news for everybody. Many residents haven’t experienced an increase in buying power: stagnating wages and rocketing prices put homes well beyond their reach, even at rock-bottom prices. To that group, the report’s changes may come as a bit of a shock. Last year’s study boldly claimed ‘there are no entry level housing options,’ while Snyder said this year he ‘really tried to make sure we didn’t have a tone’ and present the numbers as neutrally as possible.”

“This year’s report is ‘less dire because our perspective has changed. That’s the risk you take in changing the measuring stick.’”

From WBFO in New York. “So far this year, nearly 500 foreclosure applications have been filed in Erie County. That is why County Clerk Mickey Kearns has been pushing so hard for his program to tell people they do not have to move out and to help local governments deal with the notoriously complicated foreclosure process. An unclear number of people unnecessarily leave when the foreclosure starts, leaving the home empty and vulnerable. Kearns said there are foreclosures pending in Erie County for 12 years and some are never perfected, leaving ownership foggy and the building deteriorating into a zombie home.”

“He said the house needs to be handled quickly to preserve its value. ‘That’s the best time to come up with a strategy and a game plan to help those people, so we’re helping the homeowner to stay within the home, to come up with a strategy, whether it’s a short sale or selling the property or coming up with a game plan,’ Kearns said. ‘We’re helping the neighbors, since now their property values are not going into decline.’”

March 21, 2018

There Were Some Unrealistic Expectations

A report from Radio Australia. “Less than a decade ago this coastal Queensland town was on property investors’ wish lists, but today 80 per cent of homes are selling at a loss. Young couple Philip and Aleisha bought their first home in Gladstone in 2012, when their central Queensland town was still high on an unprecedented LNG construction boom. Philip and Aleisha had some reservations about buying during the boom — but Philip was earning good money as a tradie and they wanted to start a family. Their four-bedroom home in one of Gladstone’s newly built housing estates cost them $650,000. ‘We wanted to bring our children up somewhere we owned. A place where we could do up their bedrooms, paint rooms, and make it nice for the kids,’ Philip said.”

“Six years later, Gladstone’s mining boom is over, the work’s dried up, the property market is oversaturated with brand new homes, and rental prices have plummeted. Philip and Aleisha’s home is worth less than $450,000. ‘We were expecting to take a bit of a hit but we didn’t expect that,’ Philip said. ‘I guess I blame myself to an extent.’”

“The property market has also sent Philip’s mother into the red. Jenny White bought an older-style house for $310,000 in 2015 with her then-partner, but had to put it back on the market less than a year later when the marriage broke up. She was only working a casual retail job and didn’t know how to make ends meet. ‘In the end the bank said to me, you’ve got two options: you pay it or you give us the keys. And I couldn’t pay it, so I just had to give them the keys,’ Ms White said.”

“It got worse when the repossessed house only sold for $170,000, meaning that Ms White still owed the bank a big chunk of money. Last year, after staving off debtors and living on credit cards, she declared bankruptcy. ‘It still makes me emotional now to think at 53 years old and I don’t have a car and I don’t have a house. I have a lounge suite, two display cupboards, and a coffee table and that’s all I own now at 53,’ she said. ‘I’m mad with the banks that they just seem to lend to so many people, and allow so many houses to be built, and the developers were joining in with so much money in town.’”

“Melbourne-based property investor David spent $1.2 million on two Gladstone homes in 2012. His father also bought two, and so did his uncle. They were getting rents over $1,000 per house during the boom, but now they would be lucky to get a few hundred. The dud Gladstone investment has seen David sell off the rest of his property portfolio, move into a sharehouse, and his relationship has broken down under the stress.”

“‘We just got caught up in the hype of it all,’ David said. ‘I don’t expect much sympathy. I took a risk and it didn’t pay off. The reason I’m sharing my story is in the hope somebody can learn from my experience if they’re over-extending their investments,’ he said.”

From ABC News. “Investors in Perth property are faring the worst in the nation, making more losses on resale than buyers in any other capital city. A report from CoreLogic shows one-third of investors in Perth property lost money on resale in the December quarter. The figure of 33.6 per cent was equal with Darwin as the highest proportion of loss-making resales nationally. In regional WA, the situation was even worse — 47.5 per cent of resales by investors made a loss in the quarter.”

“Owner-occupiers also made greater losses in regional WA than anywhere else, with those in Perth second only to Darwin in loss-making sales. ‘Investors generally are more prepared to take on a loss on their property ownership, probably because of some of the tax implications,’ said CoreLogic head of research Tim Lawless. ‘For owner-occupiers, you generally find about 52 per cent of household wealth is held in housing. Transacting at a loss is a much harder decision [for owner-occupiers].’”

From Mirage News. “While the Sydney and Melbourne market go flat, all eyes are turned towards Perth which many are tipping as the ‘next big thing’ in the investment property market. But are all the promises of potential property profits to be believed? RiskWise Property Research CEO Doron Peleg thinks not. ‘It is the risk associated with units in Perth that is of the greatest concern as this is very high due not only to current oversupply, but also the number of units in the development pipeline. The Perth unit market is facing severe ongoing oversupply. For example, in central Perth there are 1151 new units in the pipeline representing a 13.7 per cent increase to the existing supply,’ he said.”

From Domain News. “Melbourne homeowners selling at auction need to be more realistic about their price expectations, experts say, as auction clearance rates drop below 70 per cent. Since early February this year, clearance rates for houses in Victoria had fluctuated between 59 and 67 per cent, compared with 72 and 83 per cent at the same time last year, according to Domain Group data. Among the worst performing areas were the inner south, where clearance rates dropped to 43 per cent in mid-March, down from 93 per cent in the same week last year, and the south east which dropped to 47 per cent in late-February – down from 83 per cent.”

“Crackdowns on investor lending, slow wage growth and high household debt contributed to the softening of the auction market, Bank of Melbourne senior economist Janu Chan said. ‘It’s no surprise that Melbourne’s been one of the capital cities affected because investors were quite active in the Melbourne housing market,’ Ms Chan said. ‘When the housing market was running really hot, there perhaps were some unrealistic expectations there.’”

“Real Estate Institute of Victoria president Richard Simpson said once the clearance rate dropped below 70 per cent, it was more a buyers’ market than a sellers’ market. ‘What we’ll have to see is vendors change their expectations in relation to price,’ Mr Simpson said. ‘They’re still thinking about the prices that were achieved in the past six months and they’re not going to be achieved in this current six month period.’”

From the Australian Financial Review. “Australian credit curbs and tighter controls on getting funds out of China are forcing apartment developers to work closely with their buyers to help them settle. Developer Poly Australia classes 7 per cent of the apartments sold to China-based buyers in its 501-unit Poly Horizon project in Sydney’s Epping as ‘high risk’ and has had 50 buyers resell apartments they had bought prior to settlement.”

“While it was easy to sell and settle units in a boom time, a slowdown in the market and difficulties faced by some buyers meant developers had to work with them, said Poly Australia sales director Jay Carter. Settlement in Poly Horizon is due in June and the company started contacting buyers from June last year, Mr Carter said. ”

“‘We’re shaking the tree and saying to people ‘Get ready for settlement, don’t forget you’ve got an obligation here,’ Mr Carter told The Australian Financial Review. ‘This isn’t a panic situation. All the developers are going down this path of trying to make sure their settlements are on track. Settlement risks are a concern for every developer and we all need to proactively manage it.’”

“The changed financial environment for buyers – about 20 per cent of Poly Horizon units were sold to overseas China-based purchasers – coincides with the peak of completions in Australia’s biggest-ever housing construction boom. Poly Australia was also working with substitute buyers of the 50 apartments that buyers had already onsold, he said. Of those resales, between 10 and 15 were caused by personal circumstances, while the remainder were buyers who had been caught out by either APRA-inspired restrictions on finance to overseas buyers or by Chinese changes hindering people from getting funds out of the country, Mr Carter said. ”

“Most of the original buyers who had onsold their units had not suffered losses because the apartments had gained in value, he said. ‘They’ve been able to do that without too much of an issue because there’s been a capital growth in them,’ he said. ‘It might be an issue if they’d entered into a contract at the beginning of 2017.’”

March 20, 2018

Prices Can Easily Be Reduced

A report from Bisnow on California. “Indicative of the city’s booming landscape, the Los Angeles Planning Commission is considering two high-rise mixed-use developments in downtown LA. There are 25 residential developments under construction and more than 75 mixed-use and/or residential projects are being proposed. ‘The Downtown LA renaissance reached new heights in 2017, showing continued strength across all sectors,’ a recent study by the Downtown Center Business Improvement District. ‘Residential development led the way with a record-breaking 2,831 units coming to market this year at 11 projects. With almost 10,000 more units under construction and almost 30,000 units proposed, more records are likely to fall in the coming years.’”

“How much is too much? How dense can downtown LA get? Kate Bartolo & Associates principal Kate Bartolo, who is assisting with both projects, does not think downtown is being overbuilt. ‘I don’t view it as a market capable of oversaturation,’ she said.”

From the Union Tribune in California. “Q: Is the San Diego County market saturated with luxury new apartment projects? Norm Miller, University of San Diego - NO: Since when have we ever been concerned about excessive supply of any residential product?”

“Austin Neudecker, Rev - NO: Saturation of the luxury apartment market matters little because there is a shortage of housing in general (I acknowledge that the problem is primarily affordable housing) and prices can easily be reduced. Developers may not like it, but they must simply lower prices to sell the units.”

“Lynn Reaser, Point Loma Nazarene University - YES: San Diego appears to be facing an overbuilding of luxury apartments similar to that along much of the West Coast. The more than 2,000 new apartments opening this year will be more than double the number added in each of the prior two years. Downtown luxury properties could see a softening in rents to attract high-income millennials.”

The Dallas Morning News in Texas. “With the future of Frisco’s $2 billion Wade Park up in the air, everyone wants to know: What happens now? Not with just the mixed-use project, but with that huge hole in the ground they’ve dug along Dallas North Tollway. Excavation stopped almost a year ago on the site of what was supposed to be a row of high-rise buildings along the east side of the tollway. With the developer defaulting on more than $130 million in debts, lenders for the 175-acre project are threatening to foreclose. If that happens, what will be done with that football field-sized hole?”

“With Wade Park’s unpaid debts, but you can bet that big hole is going to be there for a while. And it won’t be the first time. When the 1980s real estate boom went bust, the Dallas area was left with a lot of holes to fill.”

From Michigan Live. “Packard Square has rebranded as the much-delayed multi-use development in Ann Arbor approaches competition. Renamed The George Ann Arbor, the apartment and retail complex is nearing completion with many of the 1 to 3-bedroom units now being marketed online, with luxury apartments with prices ranging from around $1,600 to $3,500. The project at 2052 Packard St., first proposed to city officials in January 2011, did not get underway until 2014 on Ann Arbor’s south side.”

“Problems quickly began piling up at the project site about two miles from downtown Ann Arbor, as electrical workers went on strike and the general contractor was fired around the same time the developer first said Packard Square would be complete. Ann Arbor-based real estate management company McKinley, Inc. was placed in control of the property in October 2016 through a court-ordered receivership, prompting further court dates as the original developer Craig Schubiner fought for control of the project and contractors sought payment for services rendered.”

“Tours of the completed apartments can be scheduled through The George’s website. It was unclear whether some or all of the apartment units were complete, and if McKinley will continue to market and lease the apartments as part of its court-ordered receivership.”

From Bisnow on Florida. “Miami’s luxury condo market has been a much larger target of foreign buyers for decades, but Ron Shuffield, CEO of Miami-based EWM Realty International said that has recently begun to decline. Three years ago, he said 42% of $1M-plus Miami condo sales went to international buyers, but this year he said that was down to 32%. He said that drop has pulled down overall demand in the market, and prices have begun to dip sharply.”

“Shuffield attributes the drop in Miami’s international demand in part to federal regulations put in place by the Financial Crimes Enforcement Network that force buyers paying more than $1M in cash, a common practice in Miami, to identify the owner of the LLC making the deal. ‘That makes people who are even legitimate buyers a little bit anxious because they may not want their country to know that they’ve moved $5M out of the country to buy a condo,’ Shuffield said. ‘That has hurt our business in the international sector.’”

From The Real Deal on New York. “Manhattan’s luxury market recorded 26 contracts at $4 million and above last week, according to Olshan Realty’s weekly market report. The six-story townhouse at 46 East 65th Street went into contract with an asking price of $14 million, according to Olshan. That’s roughly 38 percent below the $22.5 million the property had been asking when it first went on the market in February 2016.”

“Extell Development’s Carlton House condop conversion took the No. 2 spot, with apartment 6B going into contract with an asking price of $11.5 million, down from $14 million when it hit the market in April 2013. The week’s luxury contract asking-price volume totaled $184.28 million, with a median asking price of $6.32 million, according to Olshan. Luxury homes spent an average of 409 days on the market with an average discount of 14 percent from the original asking price to the final asking price.”