April 30, 2018

Everywhere You Look, It’s Vacant Houses

A report from Newsday on New York. “The waterfront Hamptons estate known as Villa Maria boasts 11 bedrooms, Carrara-marbled baths, arched windows overlooking formal gardens, a heated pool, tennis court, guesthouse — and a $51 million discount off its original price. The 15-acre former convent in Water Mill, previously owned by the late shoe designer Vince Camuto, was listed in 2008 for $100 million. It sold last month for $49 million to two separate buyers; one paid $36 million for 11 acres, including the 20,000-square-foot main house on Mecox Bay, and the remaining land traded for $13 million, said a spokesman for Sotheby’s International Realty.”

“Other luxury properties also have gotten steep price cuts this year. On Monday, a 10,000-square-foot oceanfront home on 6 acres in East Hampton fetched a closed-sale price of $40 million, according to Sotheby’s, which represented the seller. It was a markdown of $29 million from the 2016 asking price. Lasata, the onetime childhood summer home of Jacqueline Kennedy Onassis, sold in January; a 7-acre piece of the East Hampton estate, including the 10-bedroom home, closed for $24 million, down about $15 million from its 2016 listing price, public records show.”

“‘All the whiplash we’ve been going through . . . makes the high-end buyer pull back,’ said Judi Desiderio, chief executive of Town & Country Real Estate in East Hampton. ‘We’re a luxury item. They don’t need to spend $20 million on a high-end home when they can rent it for $1 million.’”

“It’s a change from the heady days of 2014, when an East Hampton estate sold for $137 million, breaking national home price records. At that time, the median Hamptons home price was posting annual gains of as much as 26.5 percent, rising to $975,000 in the last three months of 2014, a report by Manhattan-based appraisal company Miller Samuel and brokerage Douglas Elliman shows.”

“With such dramatic gains not so long ago, ‘the market got away from some of the sellers in terms of their expectations about what their homes were worth,’ said Martha Gundersen, an associate broker with Brown Harris Stevens in East Hampton.”

From The Real Deal on Florida. “Continuum investor Stuart Eichner just sold his Continuum South Beach unit for $9.3 million, a 28 percent discount off the original ask. Eichner, who invested in the Continuum project, is the brother of developer Ian Bruce Eichner, whose Continuum Company built the $440 million, two-tower condominium in 2002 and 2008. The Eichners first listed the three-bedroom, 3,000-square-foot unit condo in 2016 for $12.9 million, or $4,300 per square foot, the took it off the market for a few months and relisted it the following year for $11.5 million, or $3,800 per square foot. It just sold for about $3,070 a foot.”

“In 2015, his brother, Ian Bruce Eichner, listed his four-story penthouse at the Continuum for $50 million, or $4,519 per square foot. It is no longer on the market.”

The Houston Chronicle in Texas. “Harvey forever changed Houston’s real estate market. It clobbered property values, and it raised them. In February, Sam Scott said goodbye to the Memorial Bend home he and his wife raised three children in and painstakingly renovated over two decades. After Harvey flooded his neighborhood and a nearby wastewater treatment plant overflowed, filthy sludge sat in the house for days. The Scotts felt they had no choice but to tear it down.”

“They put their nearly 10,000-square-foot property up for sale for $550,000, a discount from what lots were selling for pre-Harvey. After dropping the price by $25,000, they accepted a builder’s offer for $500,000. Bernie Otten was able to return to his flooded home in The Woodlands in less than four months, but some of his neighbors still aren’t back. About 100 homes in Otten’s Timarron Lakes neighborhood flooded during Harvey. Some owners sold right away to investors, for a fraction of their homes’ pre-storm value.”

“‘I think there will be more people moving and more people who lease their houses,’ Otten said. ‘The market’s going to be soft.’”

“In Meyerland, one of the neighborhoods hit by flooding three years in a row, 163 homes are for sale or rent, more than 7 percent of the properties there. But still-unoccupied homes make up what’s being called a ’shadow inventory.’ These properties are not being actively marketed, but their owners would sell for the right price.”

The Baltimore Sun in Maryland. “Barbara Stokes stood on the stoop of her home at the edge of the Druid Heights neighborhood of West Baltimore and surveyed the line of row houses across the street. Every one of them was vacant. But that’s not the worst of it. In January, police found the body of a 41-year-old man in one of the houses, dead from an overdose. A week earlier, a 30-year-old man was found dead outside another.”

“Stokes, who grew up in the neighborhood and has lived in her current home for four decades, said the houses are open for people to come and go. ‘They need to do something, because these vacants are creating a lot of problems,’ the 79-year-old retiree said. ‘Everywhere you go, everywhere you look, it’s vacant houses,’ she said. ‘It looks like it’s more vacant houses in the city than occupied houses. It seems like it never changes.’”

“On that last count, Stokes is basically right. In 2010, in the wake of the global financial crisis that wrecked the local housing market, officials counted 16,800 vacant buildings in Baltimore. They decided to take action. Then-Mayor Stephanie Rawlings-Blake launched the much-lauded Vacants to Value program, and the city put millions of dollars from a legal settlement with the banks behind the crisis toward demolishing entire blocks at a time. The state added millions more to bring down more blocks. Pugh, who took office at the end of 2016, has sought to expand that effort.”

“The result? Eight years and tens of millions of dollars later, officials count 16,500 vacant buildings in the city.”

From Maui Now in Hawaii. “Over the last few years, Maui’s housing inventory has dropped to record lows and prices have reached near-record highs, for buyers and renters. A recent report by the Hawai‘i Appleseed Center for Law and Economic Justice states that vacation rental units put pressure on Hawaiʻi’s already-stressed housing market by reducing homes for Hawai‘i residents and driving up rents. The report adds that 1 in 7 housing units on Maui is a vacation rental unit. In Lahaina, it is 1 in 3.”

“Hawaiʻi’s housing costs are among the highest in the nation with workers earning the lowest wages in the country after accounting for cost of living. The Appleseed report adds that the proliferation of short term VRUs—the majority of which are operated by nonresidents—has added another pressure point by further limiting the availability of housing for local families.”

“‘Given the enormous economic incentives, it is inevitable that opportunists will use VRUs to commercialize Hawai‘i’s neighborhoods. Hosts are overwhelmingly speculators and investors who benefit from the escalating price of housing in Hawaiʻi, and our property tax rate, which is the lowest in the nation,’ the report states.”

From CBS SF Bay Area in California. “The Lake Tahoe you see in the vacation ads usually features the famous, pristine lake, snow-capped Sierra Nevada mountains, luxury beachfront residences and nearby ski resorts. The Tahoe you don’t see has blocks of rundown, cheap motels that have become the last resort for the everyday workers who support the local economy. About 75 percent of the homes in the Tahoe Basin are second — vacation homes. In the affluent Tahoe Keys neighborhood, for example, it’s not uncommon to see empty houses. A 4,500 square foot lakefront property on Beach Drive is listed at $6.5 million.”

“Nearly everything South Lake Tahoe resident Christine Grissom, her 11-year-old daughter and her husband own fits into one suitcase. They have been living this way for the past nine months. ‘You know what’s scary is I am the normal and that’s the hard part. You’ve seen what I’ve seen in the Bay Area, I lived in the Bay Area, the majority of us are a half a paycheck away from being on the street,’ she said.”

“She came to Lake Tahoe in search of affordable housing and found work as a Safeway cashier and a bus dispatcher. Today she makes $32,000 a year as a clerk at the El Dorado County recorder’s office. ‘You work and you’re homeless. That’s ironic to me, I just never thought it was going to be this way — especially being an American,’ she said. ‘In all honesty, all I want to do is work 40 hours a week, have four walls and a pizza. I just don’t want to see the carnage of our economy anymore.’”

April 29, 2018

Sounds Familiar Moments

A weekend topic starting with Housing Wire. “It’s been more than three years since Freddie Mac rolled out a conventional mortgage that only required a 3% down payment for certain borrowers. The program, which is designed for qualified low-and moderate-income borrowers, saw reasonable progress over the last few years, with Federal Housing Finance Agency Director Mel Watt telling Congress last year that Freddie’s 3% down program (along with a similar one from Fannie Mae) was continuing to grow. But now, Freddie Mac is about to supercharge its 3% down program and launch a widespread expansion of the offering.”

“Freddie Mac announced Thursday that it is rolling out a new conventional 3% down payment option for qualified first-time homebuyers. What makes this program different is that there are no geographic or income restrictions. The new program, which is called HomeOne, puts Freddie Mac in direct competition for mortgage business with the Federal Housing Administration, which also only requires 3% down on some mortgages.”

From the Mercury News in California. “Bay Area home sales go only one direction — up. Forget crypto-currency, AI or blockchain companies in your investment portfolio. Homes are still the hottest commodity in the Bay Area. Median home prices in the region continued an unprecedented six-year run, with resale homes gaining double-digit value in the last year. Prices in the nine-county region bolted up 14 percent from March 2017, led by soaring deals in Santa Clara and San Mateo counties, according to CoreLogic.”

“The median resale price for a Bay Area home last month was a record $850,000. ‘It’s a feeding frenzy fueled by a factor of fear,’ said Kevin Cole, Alain Pinel president of the Santa Clara County Association of Realtors. Buyers are motivated after bidding high and still failing to close a deal, he said. ‘They’re not just disappointed once,’ Cole said. ‘They’re disappointed two, three, four or five times.’”

“The data shows that buyers are still stretching to become homeowners. Jumbo mortgages — loans generally over $680,000 in most of the Bay Area — financed 4 in 10 sales, up from previous months. Higher prices have even led investors to cool on the area. Absentee buyers purchased about 19 percent of homes, down from a peak of 28 percent in February 2013, according to CoreLogic.”

From the Spokesman Review in Washington. “The Spokane-area market is in its seventh year of recovery since the national housing market crash, which sent sales and prices plunging. In 2008, local home sales went into a sharp decline. By the time the market bottomed out in 2011, the number of sales had dropped by more than half from their 2005 peak. ‘It was unprecedented, what happened,’ said Rob Higgins, executive vice president of the Spokane Association of Realtors. But now, ‘we’ve basically gained everything back. Prices are accelerating.’”

“Rising prices are stretching first-time buyers. But sellers are benefiting from the rapid appreciation, and so are homeowners who plan to keep their property for a while. ‘For most middle-income Americans, real estate is where their wealth is generated,’ Higgins said. ‘When you sit back in your rocking chair someday, you can say, ‘Yeah, I’m glad I bought this house.’”

From CBC News in Canada. “Houses in Ottawa’s hottest neighbourhoods are selling at record prices as buyers compete in a market plagued by a shortage of resale homes. That shortage, combined with growing demand and a shift among realtors toward a more aggressive sales strategy, is creating ideal conditions for bidding wars the likes of which the capital has never seen. Realtors who specialize in urban neighbourhoods such as Westboro say they’ve seen sale prices skyrocket by more than 50 per cent.”

“Three families made offers to Joan Anne Thraves, the owner who has lived in the home for 35 years. Two local buyers appealed to the 75-year old owner’s emotions by sending her personal letters and their wedding photos. In the end, Thraves went with the highest bid, which was $35,000 over her asking price. The winning bid was submitted by a Toronto couple with young children, and came with no conditions. They purchased the home without even setting foot in it.”

From Brinkwire on Australia. “Lending institutions have been using a tool to measure expenditure which some lenders say is underestimating their monthly outgoings. It has led to a culture where borrowers were being given loans they never had a hope of repaying. ASHLYNNE MCGHEE, REPORTER: This is Jason Hannagan’s life, running his own delivery business. But despite his long hours, he is stuck in a financial nightmare. His troubles began back in 2012, when the Hannagans took out a $600,000 loan from a lender called Pepper Money. He estimates their monthly income was about $9,500. Their mortgage broker recorded their expenses at just $1,300 a month.”

“JASON HANNAGAN: That’s for five people. It’s an imaginary figure. Our living expenses were, like, $4,000 and then our mortgage was, like, $3,000. So that’s $7,000. The broker just told us to sign the page. And we faxed it back to her and she said she’ll fill out the rest.”

“ASHLYNNE MCGHEE: Jason Hannagan regrets it now. He says they could never afford the loan. Months later, they had to offload their investment property in Sydney and, three years on, they were forced to sell their family home in Brisbane.”

From Toronto Storeys in Canada. “While writing a script for CTV a few years ago, I spent a lot of time reading the numerous newspapers and writings of late 1890s Toronto. The folks of that day seemed very much aware and concerned with the issues we worry about today — jobs, crime, taxes, politics, having a good time … and, yes, even real estate. ‘When the real estate boom was in its zenith, property changed hands at prices that were an unmitigated gratification to those who sold them,’ writes C.S. Clark in his 1898 social study ‘Toronto The Good.’”

“‘Living in the city is very expensive, the poor are obliged to live in the shaky, tumble-down houses of Centre, Elizabeth, South Jarvis and Lombard and Bathurst … while the middle classes and those of only modest means live in the suburbs.’ Ring a few bells? Clark’s very detailed book — which has been reprinted many times over the years — is full of ’sounds familiar’ moments like that.”

“Author Clark at times sounds a lot like a bitter would-be home buyer of 2017, unable to cope with out-of-control housing prices. At one point he suffers Victorian sticker shock while checking out a house on Charles Street. ‘Price $3,000. By the fairest calculation in mathematics, it will be seen that to pay 6%, $180 are required, taxes $48 at least, and then your chances at profit are only contained in the remote contingency of the property increasing in value.’”

“Much like today, turn-of-the-19th-century Toronto was going through some difficult growing pains. A land boom had recently doubled the size of Toronto, but also added to the city’s debts and left many new landowners bankrupt when the real estate bubble burst. ‘A considerable number of people own their own houses, though this circumstance may be of questionable advantage.’”

April 28, 2018

An Expectation That Prices Would Go Up And Up And Up

A report from the Mercury News in California. “The soaring cost of construction could hobble efforts in San Jose and other Bay Area cities to speed development of high-density housing such as apartment towers, according to a foreboding assessment being circulated in the South Bay. Even worse, while ordinary individuals already face dire financial obstacles when they buy or lease housing, residential rents likely would have to spiral even higher to render the vast majority of Bay Area apartment towers economically viable for developers, experts warned. ‘This is a housing crisis and a housing catastrophe, but if I’m going to kick off a new project, rents have to go higher,’ said Drew Hudacek, chief investment officer for development firm Sares Regis.”

“Renters would be forced to endure an eye-popping 25 percent increase in rents before most new residential towers could be built. ‘We have more than 6,000 units that are fully entitled and ready to be built,’ San Jose Mayor Sam Liccardo told this news organization. ‘But developers can’t get shovels in the ground because the development costs are scaring away the financing.’”

From National Real Estate Investor. “Local and regional banks are making more loans on apartment properties, in some cases significantly more. In one surprising example, the busiest construction lender in the U.S. in 2017 was Bank of the Ozarks. Banks are continuing to pour money into apartment projects, keeping the total number of units under construction high. The new developments will continue to stress the supply/demand balance in a growing number of apartment markets where vacancy rates are beginning to creep up and rent growth is slowing down.”

“‘Regional banks are still searching for yield in this flat yield curve environment… commercial real estate lending is an attractive alternative,’ says Justin Bakst, director of capital markets with research firm the CoStar Group. Banks are also highly conscious that developers are building more new apartments in some cities than the local markets can absorb. ‘Urban infill markets have seen a lot of supply,’ says Mitchell Kiffe, co-head of national production for the debt and structured finance group at CBRE Capital Markets.. That’s beginning to push the vacancy rates higher in some places. ‘Net effective rents probably have not achieved the pro forma estimates set for many projects,’ Kiffe notes.”

The Downtown Devil on Arizona. “A surge of multi-family construction is reshaping the housing market and approximately 2,000 units are set to be added to the skyline by 2020. It is no secret that downtown Phoenix is growing, and rapidly too. Founder of We Heart Houses and real estate investor Michael Del Prete is not surprised by the spur of new residential developments. ‘Money is cheap right now,’ said Del Prete. ‘It is easier for developers to get access to cash to build these buildings.’”

“When the Federal Reserve gives the gift of low-interest rates, investors take advantage. But as they are on the rise, their generosity is fleeting. These apartments, however, do come with a pretty price tag. Because there is a constrained supply of units and demand for housing is so high, according to Elliott Pollack, CEO of Elliott D. Pollack & Co., it is almost statistically impossible to overbuild the apartment market at this time. The market is saturated with one product—housing—but the number is not at all high enough to cause a problem.”

“‘If indeed, there are not enough people that will satisfy rent costs, concessions like six or eight weeks free of rent will be offered to lower the total leasing price. Regardless, at some price the units will be rented—the demand is here. ‘Am I shocked? Am I scared? No,’ Pollack said, trusting that an overbuild situation in downtown will generally be a good thing. ‘Somebody’s going to live in those units at some price and that means that there’s going to be more vibrancy to downtown because there’s going to be more people,’ Pollack said, ‘you can’t focus on what’s there now, you have to focus on what’s going to be there.’”

From Bisnow on Texas. “The Q1 numbers are in and it appears DFW is finally cooling off after years of manic growth. Office vacancy in the metro is up to 20.5%, multifamily is up to 5.6% vacancy. Demand fell short of the deliveries in the multifamily market, resulting in a rise to 5.6% vacancy. Class-A product in Frisco, Allen and McKinney is taking it especially hard as the delivery of thousands of luxury units caused up to 7.5% vacancy in these areas, some of the highest in the metro, according to Marcus & Millichap’s Q1 multifamily report. Much like the office market, job growth should bail DFW multifamily out of its slightly overbuilt pockets.”

From the Baton Rouge Business Report in Louisiana. “‘Where can I build some more apartments? Is there demand anywhere?’ I get asked these questions a lot. Apartments are usually popular developments because financing is easy to come by and developers can always hire ‘experts’ to tell them what they want to hear. The problem, however, is that very few ‘experts’ do the necessary analysis to determine if demand really exists. They use bad data from national sources that may overstate average rents and understate vacancy rates.”

“For example, I recently had the occasion to review one such report that said there was additional demand for student housing in Baton Rouge. Well, anyone who has driven down Burbank or Nicholson drives can tell you that conclusion may be suspect. Apartments identified as Class A, or those considered to be upscale properties, saw average rents decrease by 5.2%, while Class B, C and D properties all posted increases in average rental rates. Vacancy for all units averaged nearly 8%, which is up slightly from a year ago. And over 40% of the properties surveyed were offering some sort of concessions, such as free rent and reduced deposits, in an attempt to lure in tenants.”

“None of these facts, in and of themselves, are cause for concern—until you look at the construction taking place in our market. There were 7,774 units constructed or under construction from 2015 to 2018. That’s an average of 1,944 units per year. For historical comparison, consider that between 2006 and 2013 there were 6,937 units constructed, which is just 867 per year. To add insult to injury, another 2,290 units are proposed for 2019 and 2020, according to the survey.”

“I look at all the upscale student apartment complexes being built along Burbank and Nicholson drives and I think back to when Tigerland was the place to be—until a great new area was developed off Gardere Lane with lots of new ‘upscale units’ (or so they were considered back then) and students flocked to rent there. That didn’t end well. Just saying.”

From The Hook on North Carolina. “The oversaturation of student housing around Greenville, driven by the growth of East Carolina University and Pitt Community College, has led to a split on the city council of how to address the problem. The analysis said the next 10 years the city’s supply of student housing will increase to 2,586, with 1,930 bedrooms currently under construction and expected to be on the market in the next two years. The 2,586 bedrooms will be added on top of the 720 vacant bedrooms which apartment complexes around Greenville currently have, according to the report.”

“In a recent analysis performed by Jessica Rossi, a planner at Kimley Horn, a planning and design consulting group, revealed the city’s supply of student housing is double of what the demand for housing is. ‘Ultimately what the analysis came down to was we found there to be an excess supply of student housing,’ said Rossi.”

From Bisnow on New York. “For the past five years, Douglaston Development Chairman Jeff Levine hasn’t made a single acquisition in New York City. Buying simply hasn’t made sense. ‘The reason being is that in the post-rate-recession environment banks stopped financing. Condos stopped selling,’ he said. ‘Land has not come back to earth far enough … [421a replacement] Affordable New York is not worth the paper it’s printed on.’”

“Levine, who is developing the 554-unit rental building in Williamsburg, Brooklyn, said rentals are a safer bet than condominiums right now. ‘I’ve done condos … couldn’t give them way… I struggled to pay back my debt,’ he said. ‘In a rental, I have more than one bite of the apple.’”

“Increasingly, developers are looking for ways to provide a cheaper product to buyers as they are still working to chew through the oversupply of luxury product on the market. Naftali Group has been inactive for a number of years, but it has recently began acquiring development sites once more, and founder Miki Naftali told the audience he believes $3K per SF is what he would consider the high end of the market. ‘The $5K or $6K a foot is just a dream that happened a few years ago, or at places like 220 Central Park South,’ he said. ‘In 2015, we started to see the market is getting to the point that it is just too expensive.’”

“Alchemy Properties founder Kenneth Horn said there is an oversupply of units in the $5K per SF price point, which he said is not a market he has ever wanted to be in, adding his company prefers to be selling apartments priced from $2,500 to $3K per SF. Alchemy is redeveloping the historic Woolworth Building in Lower Manhattan into luxury condominiums, with a penthouse priced at $100M. If it were to sell at that price, it would smash all Downtown residential records. ‘Two or three years ago, there was certain expectation that prices would go up and up and up,’ he said.”

April 27, 2018

An Insane Number And Other Fables Or Myths

It’s Friday desk clearing time for this blogger. “For Melissa Anderson cruising real estate web sites has become an obsession. Newly married and a native of the Pacific Northwest, the 28-year-old who works in medical sales said she and her husband are ready to grow their family, or at least add another dog, and they need more space. ‘Owning a house is a dream for me,’ Anderson said. But on Thursday, Zillow said more than 41 percent of homes for sale in Seattle are priced higher than $870,000. ‘For Seattle you’re seeing the higher end of the market and the lower end of the market are appreciating right around 15 percent annually, which that in itself is crazy,’ said Svenja Gudell, Zillow Chief Economist.”

“The San Diego County median home price soared to its highest point ever, $550,000, in March, said real estate tracker CoreLogic. San Diego County’s median home price is technically still down from the height of the housing boom. In November 2005, the median hit $517,500, which is more than $650,000 when adjusted for inflation. Are we in a housing bubble? No. Economists say today’s upswing is more sustainable, driven not by risky lending but by an improving economy, low mortgage rates and a shortage of homes for sale. Chris Thornberg, economist and founding partner of Beacon Economics said March’s peak should not be viewed as the start of a bubble, which assumes housing prices are very overvalued.”

“‘The value of real estate was never worth that value,’ he said of housing boom prices reached in the mid-2000s. ‘That was an insane number driven by crazy credit and should be viewed the same as gods of ancient Greece and other fables or myths.’”

“A wave of frenzied home buying has washed over Malibu, where sales on the beach quadrupled in the first three months of the year, according to Douglas Elliman. Los Angeles, where the main luxury product are single-family mansions, has not suffered from the overdevelopment of speculative luxury condo projects in the same way as Miami or Dubai. La La Land’s luxury market, however, still suffers from the same unrealistic overpricing as other high-end locales. The average discount off the price of luxury single family homes in the first quarter hit 10%. In Malibu Beach, despite some record deals, the average home still took a whopping 17.5% price cut.”

“How about an opportunity to own a nearly-new oceanfront estate in south La Jolla for less than half the original asking price? The home at 5490 Calumet Avenue sits just two doors north of Calumet Park in Bird Rock. The Calumet property has been plagued with problems since the original house, a 1952 ranch-style, was purchased by investors for $3,250,000 and razed in 2002. Plans were drawn for the current residence and the vacant lot was sold twice in quick succession in 2007, first for $4,950,000 and again for $5,475,000 later in the year.”

“Construction began and in February 2009 the finished, state-of-the-art Calumet mansion was listed for $24,500,000. It sat on the market for nearly a year before the listing was canceled. Immediately re-listed with a drastically reduced price tag of $16-18 million, the home still drew no buyers despite spending an additional 560 days on the market. By 2012 the price had dropped to as low as $13.5 million, but there were still no takers. Two investor-owners finally offloaded the property in 2014 for just $13 million.”

“Last year, investment executive Peter Cash Doye and local real estate broker Raquel Reid were accused of perpetuating a multimillion-dollar mortgage fraud involving several properties in La Jolla and Del Mar. Doye’s business partner Courtland Gettel, who has already pleaded guilty, signed the trust deed securing at least one of the loans that resulted in the group pulling nearly $19 million out of the house they’d paid just $13 million for. In June 2017 the primary lender, who had originally funded $13.5 million to the group and was by then owed over $18 million including unpaid interest and legal fees, acquired title to the property through a trustee’s sale. After completing updates to make the brand-new (yet 10-year-old) home appealing to luxury buyers, the property was re-listed in early April for just $11,998,000, a price that remains unchanged to date.”

“The number of homes sold to foreign buyers in Toronto has dropped steadily over the year since the province introduced a 15-per-cent tax on such purchases, falling from 7.2 per cent of sales in May, 2017, to 2.5 per cent over a three-month period ending in February. The average price of a home in the Greater Toronto Area was just more than $920,000 last April, but by March of this year had fallen to around $785,000, a decline of more than 14 per cent driven by plummeting sales.”

“The drop in sales to foreign buyers in Toronto is mirrored by a similar slump in a vast area around Toronto known as the Greater Golden Horseshoe. The Bank of Canada also hiked its benchmark interest rate twice last summer and again in January, which has led to an increase in the cost of a mortgage. ‘This isn’t a solution by any means to Toronto’s affordability issues, but it certainly helps it,’ said John Pasalis, president of Realosophy Realty Inc.”

“With all of the talk of the housing shortage in the UK, it seems incredible to talk of ghost towns springing up, filled with empty properties. Yet that appears to be what is happening, and in some of the nicest areas of the capital. Developers producing luxury high-end apartments in London appear to be having a particularly difficult time of things. Data from Molior London last month suggested that, of the 1,900 such apartments built in the capital last year, only half have actually been sold. As a result, there are now around 3,000 unsold luxury apartments in London.”

“Molior reckons that, at the current sales rate, even if no further high-end apartments are produced, it will take at least three years for all these units to sell.”

“With the exodus of expat families because of dependent’s fee, many buildings have flats lying vacant which is obvious from the ‘ijaar’ (to-let) signs put up outside most of the buildings. Abdulrahman Humeidan, a real estate investor, said that housing units which cost SR30,000 a year earlier are being offered at SR26,000 a year. But still there are no takers. He said annual profits for building owners have dropped by up to 25 percent. ‘An option is to allow tenants to pay house rent every month or every three months without an increase in the rent. Earlier, tenants requesting monthly or tri-monthly payment of rent were asked to pay a higher amount,’ said Humeidan.”

“There’s good news for homebuyers. Property prices witnessed a significant drop in the first quarter of the calendar year 2018 in nine cities: Gurgaon, Noida, Mumbai, Kolkata, Pune, Hyderabad, Bengaluru, Thane and Chennai. ‘There is a visible price correction of up to 3-5% in base price across the country. In addition, developers are offering club membership, car parking, modular kitchen and other amenities at no additional cost. So, the net price correction is about 10-15%,’ said Samantak Das, chief economist and national director-research, Knight Frank India.”

“Xi Jinping insists that the world look at him and the PRC on his terms: as a force to be reckoned with, a growing economic power not to be ignored. And yet . . . China remains a country riven by fault lines that make all of this impossible. Another reality obscured by the illusion of urban development and modernity is China’s massive rural poverty. The World Bank estimates that more than 70 million Chinese live on a dollar a day. China’s debt as a percentage of GDP has nearly doubled in ten years. The central government, local governments, companies, and households are dangerously over-leveraged. There is no obvious way to stop it.”

“This has led to over-borrowing, over-lending, and over-capacity. It is well understood, but no one really knows how to stop the cycle without creating a crash: a crash for the individual investors, for the creditors, and for the end users of the financing. Many of the same investors buying the financial products to seek higher returns are the ones borrowing the money to buy second apartments or to invest in side businesses. Local governments rely on the shadow sector to extend financing to real-estate developers and other companies, contributing to the by-now familiar story of so-called ghost cities, where empty malls and condo developments are a hallmark.”

“House prices across the country have fallen by 1.2 per cent over the March quarter, according to the Domain Group. Darwin led the charge with a 7.5 per cent drop in the quarter, followed by Sydney, where prices fell by 2.6 per cent. The downwards trajectory of Perth prices continued from its peak in December 2014, when the median price was $616,229. A house in Perth now costs $553,486. In Darwin, apartment prices also plummeted, with a 15.9 per cent drop over the quarter and 26.9 per cent over the year.”

“Mr Daley said that in Brisbane’s case, the fall in apartment prices wasn’t necessarily the result of too many apartments being built. ‘People say its over-supplied, but there’s not a lot of empty apartments in Brisbane,’ he explained. ‘Just people selling them for less than they want to.’”

April 26, 2018

An Acknowledgment That Time Is Of The Essence

A report from KY 3 in Missouri. “If you’re a seller, you can feel pretty good about the market right now. Tyler and Samantha Richardson own Richardson Real Estate, but they double-up as house flippers like the ones so popular on TV these days, gutting and renovating homes. As to the reason more people are looking to buy homes now? ‘Interest rates are hanging around 4.5%,’ Tyler said. ‘But the feds have announced they’re going to make a couple more hikes this year so they’re gonna keep pushing. Next year you could see ‘em at 6%. Not to be a cheesy sales guy but now’s the time to buy if you want to capitalize and have more buying power.’”

“So if you’re on the look for a new home, their advise is to be aggressive. If you snooze, you lose. ‘One client wrote a personal letter about how their family moved here and tried to get that sentimental edge,’ Tyler recalled. ‘We’ve had clients just knock on the door and ask if they were interested in selling their home. It takes a foot-on-the-pavement approach. You have to go find that right home.’”

The Kitsap Sun in Washington. “Michael Bowes and Bea Schuster, the brother-sister real estate agent team, are part of a growing group of real estate agents, mortgage lenders and house flippers that, in an airtight market, find properties off-the-radar. In this, the ultimate seller’s market, even the most distressed of properties raise an agent’s eyebrow. It’s a ‘pressure cooker’ housing market, said Christin Webb, a broker with John L. Scott.”

“A $160,000 home in West Bremerton, for example, required 15 truckloads to remove all the trash from the squatters that inhabited it. ‘We could tell this home had good bones,’ said Schuster, who took a chance on it. The home’s now filled with all new counter-tops, flooring, fixtures and appliances. It could be easily sectioned off into a duplex, making it more attractive given the demand for area housing. And it’s now back on the market at $329,950.”

“They work quickly. The market could change. There’s an acknowledgment that time is of the essence. ‘The market’s very hot,’ said Mark Goodwin, a contractor that often works on homes whose sales are handled by Schuster and Bowes. ‘Quick flips are very important. You make checklists and punch them out. You don’t want to be caught holding the ball.’”

From Bloomberg on Florida. “A Jean Nouvel-designed condo project in Miami Beach, Florida, just got the area’s biggest residential construction loan in almost a year, putting the luxury tower on a path to completion in a market that’s saturated with others. New York developer Michael Stern closed last week on $137 million in financing from Madison Realty Capital to build Monad Terrace, Stern said in an interview. It was the largest loan for housing construction in Miami-Dade County since June, according to Real Capital Analytics Inc.”

“Cranes are crowding the skyline in Miami Beach as builders add more condos in a city that’s already working through a glut of them. There are 2,963 condos currently listed for sale in Miami Beach, and they have spent an average of 199 days on the market, according to CraneSpotters.com. In the South Beach enclave, where Stern is building Monad Terrace, condo sales fell 11 percent in the first quarter from a year earlier to 242, according to appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. Buyers got discounts of 10.4 percent on average, the firms said.

“‘It’s a good bellwether for the market,’ Stern, who’s also building a condo tower on Manhattan’s Billionaires’ Row, said of the financing. ‘We expect it to have a huge impact on sales.’”

From WWD on New York. “Carmen Marc Valvo is struggling to sell his Hamptons hideaway. The high-end evening wear designer has had to lower the price of his Bridgehampton house by more than $1 million to $6.95 million after failing to find a buyer since it hit the market last June. Valvo appears to be the latest victim of the slowdown in the Hamptons’ luxe housing market. The glitzy summer hot spot’s high-end property market isn’t as strong as it once was on the back of political and economic uncertainty and Valvo is one of the many homeowners who are having to become more realistic on pricing in order to secure a sale.”

The Financial Times on Connecticut. “Local lawmakers need to find new sources of income to alleviate the state’s budget crisis created by years of overspending and an over reliance on tax dollars from the finance sector. Connecticut has raised income tax three times in the past decade, but now, struggling to meet its pension and healthcare obligations to state workers and facing a projected deficit of $240m for this financial year alone, it is under pressure to find a solution.”

“Marquee companies, most recently General Electric, have shifted their headquarters away from the state, denting tax revenue and hitting property prices. Barry Sternlicht, CEO of Starwood Capital, left the state for Florida in 2016 while declaring Greenwich the worst housing market in the US. ‘You can’t give away a house in Greenwich,’ he said at the time.”

“According to data from Miller Samuel, a real estate appraisal firm, and Douglas Elliman, a real estate brokerage, sales of single family homes in the town in the first quarter of 2018 were down 22.2 per cent from the previous year. One of the town’s zip codes, 06831, ranked the 65th-wealthiest district in the country in 2010, had slipped 300 places by last year with the median sales price dropping from $1.1m to $895,000 over the same period, according to PropertyShark. ‘I would short Greenwich real estate if I could,’ says one fund manager who lives in the town and asked not to be named.”

“Thomas Peterffy, the billionaire founder of Interactive Brokers, also left for Florida. His 80-acre estate in Greenwich, the largest in the town, sat on the market for more than two years. With an initial price tag of $65m, the home eventually sold for $21m.”

April 25, 2018

The Boom Phase Is Fading

A report from CBC News in Canada. “A real estate agent from West Vancouver has brought housing market uncertainty into his divorce proceedings, arguing a slowdown caused by government policies has made his family’s jet-setting lifestyle unsustainable. Jason Soprovich’s realty company, of which he is the sole shareholder, has raked in more than $13 million in the last seven years, according to a B.C. Supreme Court judgment posted online last week. But as he hashes out a divorce agreement with his ex, his legal team is arguing that the future of the real estate market is so hazy, the firm’s past performance isn’t a great indicator of what he can afford to pay in spousal and child support.”

“Soprovich argued ‘that it would be devastating to him if his income for support purposes is based on an average of the realty company’s past three years’ net income,’ Master Leslie Muir wrote in the judgment. ‘He says that the real estate market slowed down from 2016 to 2017 and is likely to slow further down in 2018.’ Jason Soprovich Realty Inc. brought in $2.95 million in pre-tax net income in 2016, according to the judgment. Last year, the firm made about a third of that amount, or $1 million.”

“Soprovich was married to Monica Thiessen for 17 years before they separated in the fall, and they lived a luxurious life during those years, according to the judgment. The couple were members of the ritzy Hollyburn Club and the Capilano Golf and Country Club, and their children have always gone to private school. The family made annual visits to Hawaii, Las Vegas and L.A. But the family’s extravagant way of life will have to change, Soprovich argued.”

“‘His view is that the standard of living that the parties have enjoyed in the past was and is unsustainable,’ Muir wrote. The court agreed that the skyward trajectory that has marked the local real estate market for years appears to have ended. ‘I accept that the respondent has reason to be pessimistic about the real estate market and hence his income,’ Muir said.”

From Bloomberg on Canada. “Alternative lenders are playing a growing role in Canada’s real estate market as the industry searches for new sources of financing, risk-averse banks become more picky and investors look for yield. The march to the private market has been driven in part by a desire to reduce taxpayer exposure to housing, which has until recently, been on steroids. Federal and provincial governments have gradually been tightening the screws.”

“The moves have begun to bite. About 49 per cent of all outstanding mortgages were uninsured at the end of last year, up from 36 per cent five years ago. And the housing market in Toronto, Canada’s biggest city, has abruptly slowed, with average prices plunging 14 per cent in March from a year earlier, the biggest drop since 1991.”

“Firm Capital’s specialty is lending for terms up to 24 months, after which the borrower will ideally refinance the loan at one of the country’s big banks, or if things aren’t going well, head to another private mortgage investment corporation. Its public mortgage portfolio has an average interest rate of 8.3 per cent, compared with about 3 per cent for home loans at the big banks. ‘In this liquid market, whenever there’s a problem, somebody refinances us,’ said Eli Dadouch, chief executive officer of Toronto-based Firm Capital. ‘You never want to be the last guy on the stick. Leave enough room to get taken out.’”

“There’s no question Firm Capital would be considered a lender of last resort for a home buyer given the punitive fees that mortgage investment corporations can levy, sometimes around 20 per cent all-in, including other professional fees, said Shawn Stillman, a broker at Mortgage Outlet. Nevertheless, he’s seeing greater demand for mortgage investment corporations from his clients that have been shut out of the housing market due to the new regulation, he said. ‘Would they be the first lender I would go with? Absolutely not,’ Stillman said by phone from Toronto. ‘But if there wasn’t this demand for the money, they wouldn’t be in business.’”

From Bloomberg on China. “The next front in China’s crackdown on debt is the one closest to home. On the back of a boom in property prices, household borrowing has been climbing for ten years straight, at a pace that rivals any such run-up in major economies. At US$6.7 trillion, and a record 50% of gross domestic product, China’s private debt is now approaching developed-world levels and crimping the power of the consumer to spend.”

“Take Huang Panpan, a 33-year-old public-relations executive from Beijing. Last year, he took the plunge on a 2.9-million-yuan (US$460,000) mortgage on a 385-square-foot home and now faces monthly loan payments of about half of his take-home salary. Since then, he’s been in austerity mode: cutting travel, selling stocks, putting off a car purchase as well as a plan to start his own business. ‘I was someone who never paid much attention to the price tags when buying things or booking trips,’ Huang said. ‘I feel more pressured financially with all that debt.’”

“Much of households’ surging debt level is linked to China’s housing bubble, which has seen new home prices in Beijing and Shanghai jump more than 25% over the last two years. ‘This could undermine the authorities’ efforts to re-balance the economy towards consumption,’ wrote Fitch Ratings analysts Jack Yuan and Andrew Fennell.”

“The situation leaves borrowers exposed to the chances of a broader increase in interest rates if faster inflation materializes. That will only make Beijing resident Huang’s life harder. ‘I need to reduce consumption more, if an interest-rate hike leads to a significant increase in the mortgage that I have to repay,’ said Huang. ‘Goodbye to membership cards at restaurants and my investments in small businesses. I won’t buy things that aren’t absolutely necessary.’”

From Global Times on China. “A housing frenzy in South China’s Hainan Province ended on Sunday night not with a bang but a whimper, as tough new island-wide curbs on home purchases left property agents and developers reeling. ‘I will lose more than 80 percent of my clients… more than 80 percent of the home buyers in Hainan are from other parts of the country. That will have an unbearable impact on the company’s business,’ Chen Gaige, a senior manager of a Hainan-based property developer, told the Global Times.”

“Another property agent in Sanya who would only give his surname as Wang told the Global Times that Sunday was ‘a sleepless’ night for all 30,000 real estate industry practitioners in Hainan. ‘From now on, the only business left will be commercial properties like shopping malls and office buildings,’ Wang said. ‘Can someone please find me another job?’”

From Domain News in Australia. “Sydney house prices have taken their biggest hit since 2015, recording a 2.6 per cent drop in prices over the March quarter. The median house price in Sydney is now $1,150,357, which is $30,000 cheaper than in December, according to Domain Group’s March Quarter 2018 House Price Report. House prices peaked in June 2017 with the median at $1,198,550.”

“‘Sydney has been overexposed to investors for some years,’ Domain Group data scientist Nicola Powell said. ‘Even though investors are active in the Sydney market they are at much lower levels than they were at that peak. The boom phase of the market is fading.’”

“Several experts said the cocktail of tightened lending restrictions, first-home buyer incentives and a deluge of new apartments was to blame for the drop in house prices. In Sydney’s upper north shore, house prices dropped 2 per cent, which has been felt by Mount Colah resident Ken Donohue. Mr Donohue’s four-bedroom house has been on the market since Australia Day and, despite strong interest, he hasn’t had any offers on the property.”

“‘We have had to keep the house tidy and ready for inspection every weekend for three months. It’s very exhausting,’ said Mr Donohue. The buyer’s guide was initially set at ‘the sweet spot’ of $1.25 million, but has since been revised down to $1.1 million. His neighbour’s property has also languished on the market for a similar amount of time. ‘It’s been disheartening,’ he said.”

“Selling agent Steve Noakes, of Ray White Hornsby, said the number of days a house was typically on the market was growing. ‘There’s no urgency from buyers, investors have definitely pulled back a bit and there’s a bit of oversupply on the market,’ said Mr Noakes. The biggest fall in house prices over the quarter was in Sydney’s south, which recorded a 4 per cent drop.”

From the New Daily in Australia. “The New South Wales Labor opposition has warned that flammable cladding could slash apartment prices by a ‘whopping’ 90 per cent. Cladding was blamed for the ferociousness of a deadly fire at London’s Grenfell Tower public housing block in June last year, which killed 71 residents. A British property owner who lived in a housing complex with the same cladding last week said the asking price of her £475,000 ($871,650) flat had collapsed to just £50,000, The Guardian reported. If a similar crash was repeated in Sydney, Shadow Minister for Better Regulation Yasmin Catley said apartment prices could drop by an average of almost $700,000, based on the median price.”

“‘Losing up to 90 per cent of the value of a property would spell financial doom for home owners and investors alike,’ Ms Catley said in a statement.”

April 24, 2018

It May Be A Problem Tomorrow

A report from National Mortgage Professional. “A combination of low inventory and a greater interest in homeownership is fueling a wave of residential property bidding wars among buyers across the country. According to Realtor.com, the capital of the ongoing housing bidding wars is Akron, Ohio. With a relatively modest median home list price of $150,000, Akron has seen a 20.6 percent share homes selling above their list price. In a year-over-year measurement, however, the city has experienced an astonishing 91.7 percent increase in the share of homes selling above their original list price.”

“Other cities recording larger-than-normal year-over-year spikes in above-list price sales are Worcester, Mass. (88.1 percent), Lexington, Ky. (86.4 percent), Irvine, Calif. (85.5 percent) and Greensboro, N.C. (81 percent). ‘Multiple-offer scenarios are no longer reserved to the usual big, fast-moving markets,’ says Javier Vivas, Director of Economic Research for Realtor.com. ‘Demand for homes has spilled outward into secondary, smaller markets, and more buyers are gearing up to face fierce competition in more places around the country.’”

From Valley News. “Real estate agent Carol Robert has a new way to sell homes to out-of-town house hunters. Via FaceTime. The Lebanon real estate broker walks around the house using the FaceTime app on her iPhone to give clients a live video tour while she narrates the home’s features. ‘They don’t have time to wait until the weekend to get here,’ Robert said. ‘They have 24 hours before the seller gets two to three offers. It’s a stampede getting into a house. I’ve never seen this.’”

The Capital Times in Wisconsin. “Pat Whyte has been selling homes in Madison for 35 years, and last year’s seller’s market was unprecedented for her. Homes sometimes received up to 20 offers, and unsuccessful offers at $25,000 above asking price were not uncommon. ‘It’s a crazy market,’ she said last May. ‘(Houses are) flying off the market faster than I’ve ever seen.’”

“Last year, Madison realtors described the frantic real estate market, and when the Cap Times checked back in with them last week, many said it’s shaping up to be just as hot, if not hotter. At this point, offering the listed price is not really an option for buyers. ‘We have a little joke in our office that the asking price has become the suggested retail price — (it’s) not exactly the price you’re going to pay,’ said Liz Lauer, a real estate broker with 20 years of experience in Madison. Lauer said it’s the strongest seller’s market she’s ever seen, including the pre-recession housing boom. ‘In 2004, 2005, I never had 18 offers on one house,’ she said.”

“Most realtors prefer a more balanced market, said Matt Winzenried, a local broker associate who’s been working in the Madison area for 12 years. As it is now, ‘buyers go to a open house on Sunday, have 20 minutes to see the house and (then) make a decision to spend $300,000.’”

From Real Daily. “According to CoreLogic, one in five home borrowers use more than 45% of their monthly income to pay off a mortgage. These levels of mortgage debt haven’t been seen by financial experts since the housing crisis of the mid-2000s.Government-backed lenders Fannie Mae and Freddie Mac sold over 73% of loan packages in the back half of 2017, and more than in the first six months. In terms of mortgage lending, Fannie Mae and Freddie Mac saw a 15% rise in new mortgages throughout 2017.”

“Lending to applicants with extremely high debt-to-income ratios was a factor in the increase. Fannie Mae and Freddie Mac are increasingly approving loans for applicants with debt-to-income ratios of up to 50%. The lending corporations also have been guaranteeing with loans with low down payments. Applicants can pay down as little as 3% for mortgage loans down payments with the lending corporations.”

“Stan Middleman, chief executive of Freedom Mortgage, a home lender, says the current mortgage loan crisis isn’t critical yet. ‘It’s not a problem today, but it may be a problem tomorrow,’ said Middleman.”

From the New Haven Independent in Connecticut. “Two lenders quietly became the owners of two properties on the same residential block in Morris Cove during separate, simultaneous foreclosure auctions. One lender, the federal U.S. Bank National Association, purchased a home that has been vacant and left largely untouched since the owner-occupant died nearly seven ago. The other lender, the Idaho Housing and Finance Association (IHFA), purchased a home that is still occupied by a married couple who have been living on Morris Avenue for just over a year, and who said they love their home and hope to stay.”

“No bidders showed up to either public auction, so the banks that own the delinquent mortgages on the respective properties submitted uncontested, successful bids for the two homes.”

“Meta M. Delillo, the owner of a single-story ranch home at 69 Morris Ave., died on Nov. 23, 2011. She had lived in the home since 1992. After her death, her $337,500 mortgage from Financial Freedom Senior Funding was assigned to MERS, then to the federal department of Housing and Urban Development (HUD), and then to the U.S. Bank National Association in May 2017.”

“Before the auction, an independent appraiser valued the home at $135,000. According to a lawsuit filed by the U.S. Bank National Association against the heirs, beneficiaries, and/or devisees of the estate of Meta Delillo in New Haven Superior Court on Elm Street on Aug. 22, 2017, Delillo owed over $316,000 plus interest on her mortgage.”

The News-Journal in Florida. “Daytona Beach Mayor Derrick Henry filed for bankruptcy in 2017 two days before a home he owned in the Derbyshire neighborhood was to be auctioned on the courthouse steps as part of a foreclosure sale. Henry’s Chapter 13 bankruptcy filing on Aug. 9 in federal court in Orlando stopped the foreclosure case, and with it the Aug. 11 sale of the house at 1034 Thunderbird Drive, a non-homesteaded property in the neighborhood where Henry grew up. Henry now lives on Birkdale Drive in Daytona Beach.”

“In a phone call, Henry told The News-Journal that the bankruptcy was dismissed and he declined further comment. Specialized Loan Servicing had filed to foreclose on the Thunderbird Drive home on Jan. 26, 2016, claiming that Henry had not paid a $455.66 monthly payment since Feb. 1, 2012. The loan servicer said Henry owed $66,251.93 plus interest and other expenses.”

“A document filed Aug. 9, 2017 in the foreclosure case in circuit court stated that Henry had filed for relief under the bankruptcy code and the foreclosure was ’stayed.’ The issue was subsequently worked out with Henry keeping the house. Specialized Loan Servicing asked the court on Feb. 23, 2018, to dismiss the foreclosure action, saying that the payment dispute was resolved and Henry successfully completed a loan modification. Circuit Judge Chris France dismissed it on March 7, 2018.”

“It is the second time a lender has filed for foreclosure on the Thunderbird Drive home against the mayor. SunTrust Mortgage filed for foreclosure on March 27, 2013. That foreclosure was filed a few months after Henry and his wife obtained a 30-year, $256,400 loan from Wells Fargo Bank for the home on Birkdale Drive, records show.”

“SunTrust’s complaint said Henry owed $66,498.88 on the principal plus interest and late charges on the $76,000 originally borrowed for the Thunderbird Drive home. the complaint added that Henry had not paid the $455.66 monthly payment since Jan. 1, 2012. SunTrust Mortgage voluntary dismissed the foreclosure action on Dec. 23, 2013, due to ‘loss mitigation,’ according to court records.”

The Post-Journal in New York. “Jamestown officials understand the importance of trying to eliminate zombie houses in city neighborhoods. Zombie houses, which are houses that are vacant and abandoned that are not maintained during a prolonged foreclosure proceeding, can cause decreases in assessed value for neighboring properties. Along with decreasing property values, zombie houses also lead to serious crimes like arson.”

“In October 2016, city officials were approved for the Zombie Remediation and Prevention Initiative program and received $149,970 in funding. City officials have been able to hire a part-time attorney to represent the city in housing court. ‘We’ve been able to contact banks and tell them there are code violations and safety violations that need to be addressed,’ said Vince DeJoy, city development director. ‘We can also subpoena banks and fine them and pursue them vigorously. We have been somewhat successful. It is a house-by-house process. We’ve had some success in some cases, but it can be overwhelming because there are so many houses going through the foreclosure process.’”

April 23, 2018

These Shiny New Buildings Have Everything But Tenants

A report from the Beacon Hill Times in Massachusetts. “Plaguing the commercial and residential districts throughout the city, empty storefronts and vacant apartments are making it seem that Boston is experiencing market failure, despite the strong economy, real estate values and low unemployment rate. In an effort to reverse the trend, Councilor Matt O’Malley of Jamaica Plain and West Roxbury wants to start looking at ways to prod landlords and building owners to rent the spaces out, with one solution being a vacancy fee. Often times luxury buildings over 50,000 square feet are purchased for investment and left empty or are only occasionally inhabited, challenging the city’s effort to create housing for a growing population.”

“‘You see the trickle down affect this has in increasing rents and increasing prices in our neighborhoods,’ said O’Malley. ‘When buildings stay vacant, small businesses can’t find places to rent for home or business and our communities remain less active and less vibrant. It is about affordability as much as it is activating our streets. As more people come to our city we should make sure we are using every tool and every empty property to keep the city affordable.’”

From Northern Public Radio on Pennsylvania. “There’s plenty to see in Pittsburgh’s East End. Another thing you can find: plenty of construction, mostly apartment buildings with signs touting amenities – pools, gyms, rooftop decks. A lot of these shiny new buildings have everything but tenants to fill them. ‘I have passed by apartments where the doors are open and like it’s empty. So I don’t think they’re full,’ said Yazmin Dalsimer.”

“After decades of population decline and stalled development, developers were eager to nab all these well-paid renters. And so began the amenities arms race. The vacancy rates for luxury apartments is around 11 percent. And there are thousands more units being built — many of them in neighborhoods where low-income residents are being pushed out. Those apartments could go empty because of another economic reality of the New Pittsburgh. It has a tech workforce without a tech real-estate market.”

“‘I think all of a sudden, the markets realize that the current housing stock wasn’t meeting what they were looking for,’ said Christopher Briem, a regional economist at the University of Pittsburgh.”

From the Grand Forks Herald in North Dakota. “Vacancy rates, after a years long rise, were at about 8 percent for Grand Forks’ private apartments during the first quarter — and at almost 13 percent across all apartments. John Colter, executive officer with the Greater Grand Forks Apartment Association, said that means landlords have to roll with some economic punches. ‘When you have a vacancy, you have to absorb it and try your best to fill it. (When) 10 percent of your business is lying vacant … it makes it tough to pay the bill on that. You can’t sustain that forever,’ Colter said.”

“The city is coming off the tail end of an apartment boom that saw a building surge, with more than 1,500 apartment units granted building permits in 2013 and 2014, according to city records. Mark Schill, an analyst with Praxis Strategy Group, said the answer to that question — does Grand Forks have ‘enough’ apartments — depends on who you ask. Where a landlord might see too many apartments, tenants might see lower rent, and others might see more disposable income spent in the community. ‘Vacancy has come up, to be sure, and we’re seeing more aggressive marketing of apartments,’ he said. ‘Does that mean with have ‘enough’? Well, that’s a different question.’”

From the Tennessean. “Opry Mills, the land and shopping center by the Cumberland River, was one of about 1,000 high-value commercial properties whose owners successfully appealed the 2017 Nashville reassessment. Those commercial properties accounted for more than 80 percent of the county’s total reduction in assessed value, according to a Tennessean analysis of assessment data. On average, commercial properties valued at more than $1 million, that won appeals, received a 20 percent reduction in assessed value, the analysis showed. These include some of the city’s biggest apartment complexes, hospitals, parking garages and shopping centers”

“The board gave a 22 percent reduction to the owners of Element Music Row, the luxury apartment complex at 1515 Demonbreun St. Element’s owners, a Charlotte, N.C.-based development company called Childress Klein, brought their own appraisal to the board, showing the property’s expected rental income. The board agreed to lower the county’s appraisal from $160.9 million to $125 million.”

From Multi-Housing News on Texas. “Sterling Real Estate Partners has acquired Spring Valley Apartments in Austin. The property, an 11-building, 230-unit apartment community, is the largest asset yet acquired by the partnership. According to RealPage, among the 50 largest U.S. apartment markets, Austin was the only one last year to see a drop in rents, which fell 0.7 percent compared with 2016. RealPage said that new supply in Austin was a factor, with developers completing more than 10,400 units last year, and adding 18 percent to the market’s apartment inventory over the last four years.”

“But the company posited that a stronger factor in pushing rents down might be that Class B and C rents have already gone up as much as the market can bear, climbing roughly 40 percent since 2010.”

From Fox 5 New York. “If you rent a home in New York City, you already know we have some of the highest rents in the country. Now, finally, some promising news: rents are starting to come down a little, according to a report by appraiser Miller Samuel Inc. and brokerage firm Douglas Elliman Real Estate. Manhattan rents dropped 3.8 percent. Brooklyn did even better—rents fell 6.3 percent. And Queens renters got the best deal—rents dropped 6.4 percent.”

“‘Right now is a great opportunity to find a good apartment at a reasonable price,’ said Janna Raskopf, a broker with Douglas Elliman. ‘Landlords are very open to conversations in a way that they hadn’t been historically. The prices are coming down a little bit but the incentives that are being given are what’s doing that and that’s what we call the ‘net effective number. You’re having a lot of owners who are deciding to give—whether it’s their existing tenant or prospective new tenants when the apartments are vacant—opportunities to get some sort of concession.’”

From The Real Deal on Florida. “Responding to the luxury market slowdown, Masoud Shojaee’s Shoma Group is scrapping plans for the multimillion-dollar townhome project Eleven on Lenox in South Beach, The Real Deal has learned. The developer will instead build lower-priced condominiums. He said it was brought on by a tough market, and by buyers demanding discounts on the luxury townhomes, whose prices he had raised from the original preconstruction level.”

“‘The market overall is not ready for $3 or $4 million — it doesn’t matter where it is,’ Shojaee said. ‘You will get a sale here or there on the water for $7 million or $8 million, but it’s very rare at this moment.’ He added that ‘everybody is looking for a bargain. If it’s $4 million, they want to pay $3 million. If it’s $3 million, they want to pay $2 million.’”

“Construction is expected to begin in January 2019 with completion expected by the end of the year. Eleven on Lenox, by contrast, was planned as 11 three-story townhomes, each with four bedrooms, a family room, two-car garage and rooftop deck with a pool and summer kitchen. Shojaee said he had tried raising prices on units from $2.9 million to $3.3 million, and from $3.5 million to $4 million. ‘The problem was they wanted to pay the original prices and we refused to do that,’ he said. He added, ‘I don’t want to give it away.’”

“The project is the latest in a series of South Florida developments to be changed, placed on hold, canceled or delayed amid the slowdown in the condo market.”

From WOSU Radio on Ohio. “Tyvek homewrap flaps over the unfinished wooden beams of the Luxe Belle, as a sign proclaims ‘Now Leasing.’” Another sign entices the first 20 renters with free Taco Bell for a year, a tie-in with the fast-food chain that will occupy the mixed-use development’s first floor. Right now, though, that first floor is just a large concrete atrium. Like four other luxury apartment complexes near The Ohio State University, this six-story development at North High and 8th Avenue is set to open next fall.”

“Local developers are building it–will students actually come? For junior Kiersten Ahrens, who’s still searching for housing for next year, the answer is a definitive ‘no.’ ‘I would love to live them. They’re in great locations,’ Ahrens says. ‘But it’s just so expensive, it’s not even worth it.’”

“Indeed, rents for the swanky complexes can top $1,500 for a one-bedroom. Managers like Tom Heilman, with Hometeam properties, still think the market is there. ‘Let’s just say they’re $1,000 beds when the market’s used to $500 a bed, but you’re getting High Street locations and views, you’re getting amenities, you’re getting granite countertops, flat screen TVs, low utilities, safety, workout areas, and all the other amenities,’ he says. ‘And it’s just a fun experience for students that may are gonna experience this for a year or two and the parents are more than happy to do that.’”

“Occupancy rates for Hometeam’s two new properties on Lane Avenue - Wilson Place and The Point - are just now reaching 50 percent for next year. Another developer, Edwards Communities Development Co., reports similar numbers for a tower under construction at 15th and High.”

“Student Kiersten Ahrens’ current place falls under the $600 cap she and her parents agreed on. ‘This place has everything I need,’ Ahrens says. ‘And yeah, it’d be nice to have a fitness center and a pool and stuff, but they literally say all the time, like, ‘You’re in college, you need the college experience, you don’t need to be living like that when you’re in college, you need to save up and do that later on.’”

April 22, 2018

The Result Of Excessive Exuberance And Relaxed Lending

A report from Drumheller Online in Canada. “With mixed national and provincial headines stating that the buyers market is not a place for new home owners, Don Rosgen with Century 21 in Drumheller said the local market is, in fact, a buyers market. ‘Right now, we’re in the buyers market. Normally we have(an amount of listings) in the 110 to 120 range. Total now, we have over 150,’ he continued. ‘It’s a supply and demand situation. The supply exceeds the demand right now. I think that’s where we are in Drumheller. ‘When you have excess market product. you’re then going to have to reduce your price if you want to get ahead in the market.’”

From the St. Albert Gazette in Canada. “Sales decreased overall across the entire Edmonton region. Year over year there was an 11.73 per cent decrease in sales across single family, condo and duplex/rowhouse housing sales. Darcy Torhjelm, chair of the Realtors Association of Edmonton, said he was surprised to see sales slump. ‘My assumption would be just that buyers are taking their time. I think there’s activity out there where people are looking at properties, but buyers are just not pulling the trigger on purchasing as quickly as they have in the past,’ he said.”

From Globes in Israel. “After a decade during which housing prices more than doubled, prices have finally halted their upward march, and have even changed direction. Anyone in Israel who has to sell a housing unit - a contractor who can get no more credit in money or time from a bank, or a family that has already bought its next housing unit and has to sell its old home, has to compromise on the price. It can be stated with certainty that the supply of housing for sale currently outstrips the demand - a situation that has not occurred in the Israeli market for many years.”

“Minister of Finance Moshe Kahlon, who ran in the elections on a single crucial promise - to lower the price of housing - can finally talk about a downtrend in prices, and no longer has to fear elections in this coming summer or winter. A cumulative 2.4% drop in prices in the past six months must, however, be assessed in the light of the 127% increase during the decade ending last August. The decline quite marginal - a further drop of 55% is needed merely to reach the level of prices in 2008.”

From The National on Dubai. “Keren Bobker advises a reader who wants to negotiate a lower interest rate on his mortgage for a Jumeirah Lake Towers property. Q: I bought a one-bedroom apartment in Jumeirah Lake Towers for Dh1.2 million in September 2008. The payments were initially Dh9,200 per month. Since the rental income was low, I asked the bank to give me a reduced mortgage payment of Dh5,000 per month. This continued for a period of two years and then I went back to the full mortgage payments. By this time I had accumulated Dh200,000 because of the reduced payments with interest.”

“I am now paying the mortgage in full, at a rate of Dh11,200 per month, with 60 per cent of that covered by the rent, and 40 per cent from my own pocket. I also pay the annual maintenance costs of Dh13,000 to Dh15,000 to the developer. What is the way forward with negative equity? I have approached the bank two times to refinance, but have been told the property to loan value needs to be 70 per cent, but it is currently around 100 per cent. If I sold the property, I would not make enough money, and would need to put in another Dh200,000 to fully repay. I cannot change banks, as no other bank is willing to take this on. Current mortgages are around 3 to 4 per cent, while I am paying 9 per cent. Is there anything I can do to get out of this situation legally? Can I just hand the property over to the bank? RM, Dubai.”

“A: It sounds as though the bank has previously been amenable as they have permitted RM to make reduced interest payments. The bank is not permitted to refinance the mortgage as under Central Bank of the UAE rules the maximum loan to value for any property with a value of up to Dh5m is 75 per cent and clearly no other bank can assist either. Banks do not permit borrowers to just hand over a property when monies are outstanding and RM is legally liable for all costs even if he sells the property. If the sale price is lower than the total outstanding then he must repay the bank in full before he is released from his liability.”

From the Korea Times. “Construction firms are increasingly concerned about the increasing number of unoccupied apartments in recent months as buyers face greater difficulties getting mortgages or finding tenants. With more owners delaying their payments to builders, this has begun adversely affecting the profitability of Samsung, GS, Hyundai, Daewoo, Daelim and other apartment builders. This phenomenon is particularly apparent in provincial areas in line with the increasingly unfavorable housing market amid interest rate hikes and the oversupply of new apartments.”

“GS and Daewoo each have nearly 20,000 apartments scheduled to receive residents in those areas this year. Their volume is almost twice that of Hyundai E&C with 10,000 apartments. Adding more concern, the outlook for the occupancy rate remains grim for this month too. The housing institution’s Housing Occupancy Survey Index for April stood at 70.4 points, down 3.4 points from a month earlier. A higher reading means builders are positive about occupancy. ‘The increase in the number of unlived-in apartments leads to builders’ financial difficulties,’ the construction firm official said. ‘And that can also deflate the entire housing market.’”

From Jing Travel on China. “China’s sharing economy is on the rise in a big way. However, arguably just as important is the growth of the real estate industry in China. Yang Changle, COO of China’s largest home-sharing company Tujia, noted that his company provides services for 130,000 landlords and operators. However, of that figure, 80,000 operate more than one shared home. Real estate prices in China have been soaring in recent years, although there is some speculation that the market is slowly ‘cooling.’”

“This has led to millions of vacant homes across the country and a seemingly endless rise in the price of homes, despite the fact that housing supply is largely on the rise. There is substantial debate over the exact number of ‘vacant’ homes and what constitutes such a property, although some estimates put this figure at well over 50 million. This, of course, has serious implications for the Chinese economy as a whole and arguably places an unfair burden on consumers, both renters and home buyers who are looking for affordable housing, while others are simply buying as much property as possible and inflating prices.”

From Edge Prop Malaysia. “The volume and value of small size, non-landed residential properties have escalated last year as oversupply looms. Data from AuctionGuru.com.my showed that there were 1,023 units of serviced apartments and serviced suites worth RM493 million put up for auction in 2017. The record-high figures were about two times the volume and value of the figures recorded in 2016 which saw 342 auction cases of such units worth RM146 million.”

“‘Unfortunately, there is an oversupply of this type of serviced apartments and serviced suites in the market which has pushed down rentals as their owners are rushing to rent them out. But some were forced to abandon their mortgage commitments when they failed to offload them on the market,’ says AuctionGuru executive director Gary Chia.”

“Chia says there is no quick solution to the rising number of foreclosure properties which was the result of the excessive exuberance in the property market and the more relaxed lending policy in the past. ‘We do not foresee any change to market conditions in the short term. Nonetheless, we view this trend positively as this is part of market adjustment which will put the property market in a better footing after this,’ he concludes.”

From News.com.au on Australia. “Straight-talking judge on The Block Neale Whitaker is set to make a loss on his luxury inner-Sydney pad. The interiors guru and his partner David Novak-Piper have listed their warehouse apartment in Alexandria for $1.6 million — $105,000 less than what they paid for it in 2016. The couple paid $55,000 over the asking price when they bought the apartment for $1,705,000 just over 18 months ago.”

From Your Mortgage on Australia. “There’s an oversupply of apartments in Melbourne, and this is creating plenty of opportunities for savvy buyers, according to numerous analysts. Buyers will soon be in a position to purchase units in medium and high-density buildings for below their replacement cost, according to Brian Capp, a professional buyer with Statewide Property Advocacy. He added that hundreds of apartments are listed for sale in Southbank, Docklands, Richmond, and other areas in inner Melbourne.”

“‘There will be some bargains to be found in the next six to 12 months in the high-rise buildings in the inner suburbs,’ Capp told the Domain Group. ‘Some of the second-hand two-bedroom apartments in the already established buildings, even though they are very small, are going to become an attractive buy because the replacement cost is greater than the price the owners are asking.’”

April 21, 2018

We’re Taking A Risk, But We’re Really Buying An Asset

A report from The Spectrum in Utah. “St. George-area housing prices keep climbing, interest rates are expected to jump again, and first-time homebuyers Giovanni and Jennifer Trumbo are feeling the pressure to buy while they can still afford it. The Trumbos, who are in their early 30s, are approaching their 10th wedding anniversary. Their second child just turned 7 months old. They’re currently renting a house where the rent has gone up $300 a month since they moved in. They’ve been dipping their toes in the murky real-estate market waters for months, but the longer they’ve waited, the more interest rates have ticked up and the more buying power they’ve lost, Giovanni Trumbo said. The couple recently decided to start putting in offers and jump into a mortgage.”

“‘We’re taking a risk, we know that. But we’re really buying a house,’ he said. ‘It’s ours. It’s an asset.’”

“The house they’re buying is a Bloomington Hills two-story with spectacular views of the city and its rugged desert surroundings. It was priced at $349,000. The mortgage payments will likely be higher than what they’ve been paying to rent their current home, but not by much, Giovanni Trumbo said. A midlevel manager at Wilson Electronics in St. George, Trumbo said he subsidizes his salary by operating his own business online. Jennifer Trumbo works from home as well. Combine those incomes, and it’s enough for the house, although Giovanni Trumbo said he didn’t think it would be possible on his regular salary alone.”

“Through the end of March, the median sale price for a single-family home was $296,520, up more than 16 percent from last year, according to multiple listing service data kept by the Washington County Board of Realtors. That’s an increase of more than $110,000 since March 2013. The average price tag for homes currently on the market is $512,629. In a county where the average weekly wage is less than $700, according to the Bureau of Labor Statistics, the problem is clear, say those in the industry.”

“It’s a trend that has been going for years, but it has escalated quickly over the past 12 months, said John Hook, an agent with Red Rock Real Estate who was helping the Trumbos with their housing search. A native Californian, he said he sees some similarities between the St. George region and famously high-priced real estate markets like San Diego and San Francisco, where the area’s attractiveness creates a demand for housing that prices out the typical working person.”

“‘I’ve seen it happen,’ he said. ‘If you look out there right now, it seems obvious.’”

From the Associated Press. “Higher mortgage rates are making the already challenging task of buying an affordable home even tougher for many Americans this spring. In metro areas, such as Denver, buyers are rushing to close a deal before mortgage rates get too high. In Dallas, some are embracing longer commutes to find homes they can afford. And in places such as Los Angeles, where the number of homes for sale is down sharply from a year ago, sellers routinely receive multiple offers.”

“A mere extra half percentage point or so can boost monthly payments and add tens of thousands of dollars extra in interest over the life of the typical 30-year loan. At a time when home prices are rising faster than incomes in many parts of the country, that could be enough to shut out some would-be buyers who make the median income in cities such as Seattle and Los Angeles.”

“Chad Zolman got a taste of that while looking for a home in Denver. The account manager made 11 offers since his search began in September, but lost out to rivals offering more money. As mortgage rates started rising, so did Zolman’s anxiety about being able to afford to buy. ‘The rates kept going up, and the more the rates kept going up, the less house you can buy,’ said Zolman, 41. ‘And the less house you can buy in this market, that’s not good. You have to be able to pony up the cash.’”

“Zolman eventually bought a newly built, three-bedroom townhome for $370,000. He got approved for a 30-year fixed-rate loan just under 4.7 percent. He’s not in the clear yet, however. He can’t lock in his rate until mid-May, within the 120-day window before construction on the house is completed. And if rates go higher by then? ‘It is what it is,’ Zolman said. ‘You just have to pay it.’”

From the Idaho Statesman. “So you think you want to buy a house in Boise? Where the region’s median home prices are at record highs, construction is still below precrash levels and West Coast ex-pats are flocking in, flush with cash and amazed at all the real estate ‘bargains’? Buckle your seat belt. And take a little hard-earned advice from Mike Daniels. He is 47, a blue-collar worker and Chicago native who fell in love with Boise, wanted to buy a house on a tree-lined street in the City of Trees and grow old here with his wife, Dee.”

“In June 2017, the middle of the Daniels’ home search, 35 percent of the houses sold in Ada County went for more than their list price. One in five was sold for cash. Houses were spending less time on the market than they had since 2006, the climax of the last housing boom. In Ada County, the median home price in March was $308,950, up more than $11,000 since February and 24 percent higher than the previous March. Only four houses countywide, all used, sold for less than $160,000 that month.”

“Daniels’ hard won advice for buying that dream house: ‘If you know that it’s in a neighborhood where there’s going to be full-price offers and it’s going to go to bidding, you’ve got to come in strong right off the bat. In today’s market, if you’re confident, and it’s what you want, spend the extra 10 percent.’”

“About six weeks after the Danielses lost out, they got a text and an email from their real estate agent. Another agent in her office was listing a house later that afternoon for $264,888, she told them at 10:02 a.m. on July 18. But they were back home in Chicago and couldn’t check it out. So she went on their behalf. At 12:47 p.m. she arrived at the modest bungalow. ‘There’s a line of people out here,’ she texted. ‘If you think it’s worth it, let’s offer an even 300k and we won’t ask for them to pay closing costs,’ Daniels responded. ‘That is a 13.25% offer over asking price.’”

“By 3:03 p.m., Daniels had sent earnest money to the agent. His wife had not yet seen the video. After two days of gyrations, Daniels received a congratulatory text. ‘Schedule the moving truck!’ the agent wrote. ‘You just bought a house :) congrats!!’”

“Realtor Tamara Rowe has more than a few million-dollar stories. There’s the 50-something client who sold her Colorado home for slightly over a seven figures, bought a brand new house in North Boise for $325,000 and plans to live comfortably on what’s left. ‘I just closed on a home Friday, all cash,’ said Rowe, an agent with Silvercreek Realty Group in Boise. ‘The couple is going to buy another house here for their son with the proceeds from their California sale. They’ll be able to purchase two homes for what they had in California.’”

From the Real Deal on California. “When Compass broker Stephen Kaseno was listing a home in Chatsworth a year ago, he got an enticing offer from a prospective buyer. The proposal was for an all-cash purchase on the $2 million property. But tempting as it was, something ‘didn’t feel right,’ Kaseno said. While examining the ‘Proof of Funds’ document from the buyer, he noticed the margins weren’t aligned and although it was typed, something was off. The document had been forged by the buyer to make it seem his funds were available and ready to go, when in fact, he did not. Instead, the buyer was hoping to secure a loan on the property once the home was already in escrow and the seller was at ease.”

“In an effort to compete in Los Angeles’ hot seller’s market, buyers are dangling all-cash offers before pulling back once the sale closes. While not illegal — excluding the forgery — industry pros say the practice could complicate the transaction should the loan get delayed or denied.”

“The phenomenon of the all-cash offer is a cyclical one, Hilton & Hyland’s Zach Goldsmith said. The most recent incarnation involves homes selling for under $3 million, where supply continues to outpace demand. But even as the all-cash deal helps some lucky homebuyers land their dream home, it could be contributing to a ‘false bottom of the market,’ Goldsmith said. ‘It’s over-inflating the market right now,’ he added. ‘If this trend continues, people are not going to be able to keep up so the market will fall a little bit.’”

From the Orange County Register in California. “Californians could be spending at least $50 billion more than they do dining out, going to the movies or shopping. But high housing costs are ‘crowding out’ personal consumption, with more cash going to landlords and lenders instead. If their housing costs weren’t so high, Californians would have enough dollars to buy 15 billion more Happy Meals than it does. They would have enough cash to buy 1.5 billion more Major League Baseball game tickets or 455 million tickets to Universal Studios Hollywood. And every man, woman and child in the state could buy tickets to see ‘Hamilton’ — six times.”

“That’s just one finding presented at a conference at Chapman University in Orange on how to fix California’s housing crisis. More than a dozen speakers from state and local government, think tanks, academia and housing advocacy groups examined the cause of the crisis and possible solutions. Their conclusions? Home building hasn’t been able to keep up with growth, and that’s costing us — big time.”

“‘We have just been fundamentally under-producing housing in California,’ said Mark Stivers, a state affordable housing official. ‘It’s gotten so bad that people making … (up to) $80,000 a year are having a hard time finding housing that they can afford.’”

April 20, 2018

To Question Whether Prices Can Go Up Forever

It’s Friday desk clearing time for this blogger. “The Reno-Sparks Association of Realtors says a rise in cost of 2 ½ to 5 percent would be comfortable for the market. From last year to now, the median home price is up four times that, rising 20 percent. Median home prices have hit the $400,000 mark in Reno for the first time ever. That’s up $70,000 from this time a year ago Which begs the question, are signs pointing to a housing bubble? These experts say it’s not a concern, as long as our job market stays strong. Some people are settling on location. ‘How far do I have to drive to get a house that I can afford, as an example, Fernley is still $100,000 less expensive for a home,’ said John Graham, former president with the Reno/Sparks Association of REALTORS.”

“A major Petaluma housing project is in limbo after a developer decided to sell the venture. It is the largest housing project in Petaluma currently under development. But construction of the first phase is on hold as builder Comstock Homes and its investment partner, Real Capital Solutions, are seeking to sell the project to ‘a national home builder,’ according to Troy Busse, director of purchasing for El Segundo-based Comstock Homes. ‘It’s not good news. The investment group decided to sell,’ he said. ‘They didn’t think it would bring in the returns they were hoping.’”

“A discussion originally scheduled for development standards turned into another debate about a controversial property when the Encinitas City Council voted April 18 in favor of removing the site from a housing proposal already sent to the Department of Housing and Community Development. Richard Boger, who is spearheading the neighborhood petition, said residents are concerned because of an oversaturation of affordable housing in the Quail Gardens Drive neighborhood. ‘We’re not trying to defeat the affordable housing,’ Boger said. ‘We’re just trying to have fairness. … It’s just way too much.’”

“‘Removing the property keeps the faith with the community character,’ said Council member Tony Kranz. ‘The idea that this property that we own has to be in the mix is just crazy.’”

“More than half of Dallas-area neighborhoods saw a decline in home purchases in early 2018 after years of rising sales. The largest decreases in sales came in high-priced neighborhoods in Colleyville (-30 percent), the Park Cities (-28 percent), Fairview (-26 percent) and Northeast Dallas including Lake Highlands (-20 percent). ‘We are definitely seeing a slowdown in appreciation at the higher end,’ said housing analyst Paige Shipp with Metrostudy Inc. “As mortgage rates are increasing they can’t buy quite as much home as they could before.’”

“In March there were about 1,400 more preowned houses on the market in North Texas than a year before. Some of the biggest year-over-year increases in the number of homes listed for sale in the first quarter were in Richardson (up 60 percent), McKinney (up 35 percent) and Wylie (up 28 percent). Jim Fite, president of Dallas’ Century 21 Judge Fite Co. Realtors, said competition from home investors is keeping the supply of affordable houses tight in many Dallas-area neighborhoods. ‘I get probably three to five calls or letters from investors every day,’ he said. ‘I think they are paying stupid prices that drives up the market.’”

“Developer CMC Group reports that 75% of Brickell Flatiron’s 549 units have been sold or are currently under hard contract. But for every story there is about a Brickell Flatiron there is also one about about a Boulevard 57—the canceled condo project in Miami’s MiMo/Upper East Side neighborhood that was eventually sold to 13th Floor Investments and Tricera Capital. This February the partners received permission from the city of Miami to develop a mixed-use, 448,000-square foot apartment building with retail.”

“‘There are buildings full of empty condos in Miami,’ Aaron Singer, CEO of Bulldog Adjusters, tells GlobeSt.com. ‘Contractors see the opportunity to build buildings, but the influx of new buildings is creating a surplus.’”

“The financial travails of the giant Chinese conglomerate HNA Group Co., which is currently trying to unload its overseas holdings, are casting a spotlight on a vast portfolio of luxury homes owned by executives of HNA and a U.S. company run by the brother of its chairman. HNA has racked up significant debt from a long international acquisition spree. While the company has been moving to sell a large chunk of commercial assets, executives at HNA and the U.S. company are sitting on nearly $200 million in luxury homes throughout the New York metro area, according to a review of property records by The Wall Street Journal.”

“Now isn’t the best time to be listing luxury real estate in Manhattan, New York-based agents say. If Chen Guoqing, Pacific American or Mr. Tan were to list their residential units, particularly at One57, they might have to be willing to sell at a loss. Units at the building have been trading at a significant discount to their original sales prices in recent months, according to property records, due in part to a glut of luxury inventory on the market in Manhattan. ‘If they’re priced right they’ll go, but it’s always better if you’re the only person swimming in the pool,’ said Donna Olshan, a luxury Manhattan broker. ‘It’s certainly not a scenario for pushing the prices up.’”

“A homeowner in a housing complex in London with Grenfell-type cladding has been told the value of her £475,000 home has collapsed and is now just £50,000. Galliard Homes, the developer of the 11-block complex in New Capital Quay in south-east London, is facing a £30m-£40m bill to replace the cladding and is locked in a legal dispute over who should pay. The dispute, which could take years to resolve, has left Cecile Langevin, 32, and potentially thousands of others up and down the country, with an unsellable flat.”

“‘It is like someone has taken away our life choices, our freedom,’ she said. ‘And nobody is doing anything about it,’ she added, in tears.”

“Apartments prices in Sweden dropped by 7% in the January-March period compared to the same period of the previous year, according to data from the Association of Swedish Real Estate Agents. In March, Swedish home prices fell by 4.5% on an annual basis. The apartment prices fell by 8.% year-on year, while single-family home prices were down 1.8%. Property prices have risen much more than wages over the last couple of decades and Swedish households are among the most indebted in Europe.”

“Sweden’s financial regulator has introduced a number of measures in recent years to cool the lean housing market, including mortgage-backed rules for large borrowers.”

“Throughout 2017, many Dubai tenants had been looking for cheaper places, and several were getting them at a high discount. This is a fact that applies to Abu Dhabi as well. The reason is that ‘There’s a lot of empty properties, in the UAE capital,’ said John Stevens, Managing Director of Asteco’s Abu Dhabi first quarter Real Estate Report 2018.”

“Cape Town’s Atlantic Seaboard is now in a buyers’ market phase, according to Seeff’s agents in the area. The latest Propstats data shows that the sectional title sector of the market is down year-on-year by about 34% in value, and 41% in volume terms up to April. A quick glance at Private Property shows that there are well over 1,200 sectional title property listings on the Atlantic seaboard while only 88 sales were recorded on Propstats for this year to early April. According to luxury sectional title specialists at Seeff, stock has increased notably, but sellers are still not motivated enough to drop their prices sufficiently to encourage buyers to put pen to paper.”

“The massive supply of new apartments in and around Seoul is pulling down ‘jeonse’ prices, adding to the concerns of housing investors who use deposits from tenants as leverage. Market watchers warn such leveraged investments will inevitably lead to financial losses for owners. According to real estate agents in Songpa-gu in southern Seoul, jeonse prices of Jamsil LLLs and Jamsil Recenz, which are among the most popular apartment complexes in the district, are falling steeply.”

“‘If the housing prices begin to fall, investors who leveraged on jeonse will face losses. They may put their homes up for sale at cheaper prices, further pulling down housing prices,” said Lee Mi-yun, an analyst at Real Estate 114. ‘Investors should be cautious about leveraged investments since there are negative factors such as the increasing supply of new housing, stricter regulation on mortgages and a property tax hike, which may snowball their losses.’”

“According to the Korea Housing Institute, 24.4 percent of new apartments recently built around the country are vacant. Forty-two percent of the owners of these vacant apartments said they failed to find tenants, while 23.2 percent said they can’t move into new housing as their old homes are not selling.”

“The area of new homes sold, excluding government-subsidized affordable housing, jumped 24.2 percent to about 84,000 square meters during the seven-day period ending on Sunday, Shanghai Centaline Property Consultants Co said in a report. But the average price of the new homes fell 6.3 percent week on week to 47,255 yuan (US$7,512) per square meter.”

“Lakeville, a development of Shui On Land, released 118 apartments last week at an average price of between 120,000 yuan and 190,000 yuan per square meter, according to Centaline data. The price range is almost equivalent to that of an earlier batch released in November 2015. The total new supply released to the market surged 50.7 percent week on week to 98,000 square meters last week. For the second half of this month, at least 11 projects with around 4,900 units will be launched for sale citywide, a separate report by Shanghai Homelink Real Estate Co said. These units will lift April’s total new home supply to over 6,500 units — the highest since 2017.”

“The most expensive homes in the country are becoming harder to sell as deep-pocketed buyers shy away from buying blue-chip properties in Australia. Sydney’s high-end property market bore the worst of the damage, with the value of blue-chip properties falling an eye-raising 5.7 percent over the last 12 months. To give that context, if Sydney’s most expensive home – the $70 million Point Piper Elaine Estate once owned by the Fairfax family – were to drop 5.7 percent, it would record a fall of almost $4 million.”

“It’s been one year since the Ontario Fair Housing Plan changed the rules of the real estate game in the Toronto region, and it’s a dramatically different market 12 months later. Some 40 per cent fewer homes are changing hands year-over-year, according to the Toronto Real Estate Board. And the average Greater Toronto Area home price has slumped 15 per cent from frenzied peak of April 2017. While the year-over-year figure is alarming, the price correction was actually quite swift. Average prices plunged 20 per cent from April to August of last year, from roughly $920,791 to $732,292.”

“LOSERS: ‘The roughly 37 per cent of people who already own a single-family home are watching their equity vaporize. That loss is particularly insidious for fixed-income retirees who depend on their equity for survival,’ said Rob McLister, founder, RateSpy.com. ‘The nearly 1,000 people (and possibly more) who had to back out of their transactions last year because of the rapid 20 per cent decline in house prices in just four months. Many of these buyers who bought at the peak and backed out of their purchases are getting sued by sellers for the decline in the sale price of their home,’ said John Pasalis, president of Realosphy.”

“Was Ontario’s Fair Housing Plan a case of too much government meddling in the housing market? ‘Definitely not… Buyers and sellers overreacted to the provincial foreign buyer tax. The biggest effect the Fair Housing Plan had over the past year was psychological. It caused sellers and buyers to question whether prices can go up forever,’ said Pasalis.”

April 19, 2018

The Glut Has Indeed Come To Pass

A report from the Charlotte Agenda in North Carolina. “For nearly a decade, Charlotte’s high-end apartment market has boomed. Developers bought up land in the city’s hottest neighborhoods and built luxury communities, each one fancier than the last. Rent continued to climb, and each new building filled up with the crush of young professionals moving to town. Could all that be nearing an end? Industry insiders have been watching for the peak of the market for several years now. There are signs that the peak is finally here — at least in some parts of the market. The latest development: New luxury apartments are increasingly turning to special offers, discounts and incentives to get people in the door.”

“Novel NoDa is offering $2,000 off rent, plus a smart home device. SkyHouse and Novel Stonewall Station are offering two free months rent on some of its units. The Abbey in Montford Park is giving new tenants a $1,000 gift card. And at least a half-dozen other apartments are offering a month of free rent. The apartment communities offering discounts tend to have a few things in common. They were built in the past year. They’re in markets with a lot of construction activity. They charge high prices — generally about $1,200 a month for a studio and $2,000 for a two-bedroom unit.”

“It’s just simply harder to find people who can afford to live there. To make any money on an apartment building in Uptown or South End or NoDa, developers must charge a luxury-priced rent. As we’re finding out, the demand for apartments in that price range has diminished. Fannie Mae recently estimated that the number of new apartment completions would hit a record high in another year or two.”

From Philly Mag in Pennsylvania. “Are you still stunned over Monday evening’s announcement that Dranoff Properties will sell all of its apartment buildings in the Philadelphia area to the Apartment Management and Investment Company of Denver for $445 million? Deep down inside, Carl Dranoff himself might be too, for he wasn’t looking to sell the properties even though the glut of apartments both he and your section editor saw coming last year has indeed come to pass.”

“‘I’m an outlier,’ Dranoff said. ‘I’m not like most developers who build a building, then turn it over to someone else to run. I’m a long-term steward of my properties, and I had no intent of selling them.’ But AIMCO was intent on expanding its presence in the Philadelphia market.”

From Urban Milwaukee in Wisconsin. “It’s obvious that downtown Milwaukee has grown in recent years, but by how much? By quite a bit, it turns out. Department of City Development Commissioner Rocky Marcoux told members of the Common Council that since Mayor Tom Barrett took office in 2004, 11,450 housing units have been constructed in what he calls the greater downtown area. Marcoux, who was presenting a status update on a number of downtown projects, told the committee that 1,487 additional units are ‘in the queue and we believe will be in the ground this year.’”

“Alderwoman Milele A. Coggs asked Marcoux if the housing market is overbuilt. Marcoux responded that he has seen some signs the market is softening, citing deals where tenants can get a month of free rent with a year lease. But overall, the commissioner said the city has a minimal risk even if the market is overbuilt. ‘We have not subsidized the downtown market. The market is acting as the market is going to act,’ Marcoux said.”

“The city will have to increase the supply of homes to increase the population. A recent U.S. Census Bureau report found that Milwaukee County’s population fell for the third straight year, falling to 952,085 residents. The population of the region as a whole has been stagnant in the same time period.”

From RE Business Online. “Developers of student housing properties have been holding steady volumes of new product on their books. According to CoStar Group, developers have added about 22,000 new units each year since 2010. Secondary markets are gradually beginning to see heavier waves of student housing development. In Texas, this trend appears to still be in its infancy. Lubbock and College Station have experienced huge building surges over the past few years, with the former in particular being a hotbed for development. The largest student housing property in the country, the 3,406-bed Park West, opened in College Station this past fall. Irving-based student housing firm Servitas developed that project.”

“‘College Station is moving toward being overbuilt,’ says Matt Myllykangas, senior vice president of development and construction for Servitas. ‘And housing projects seem to be moving further away from campus.’ Brent Little, CEO of student housing development firm Fountain Residential Partners, concurred with those notions, noting that occupancy is down and rents have backtracked in College Station. His firm sees similar levels of activity and competition in Waco, home of Baylor University.”

“‘We looked at Waco recently and there were already five or six student housing deals under construction or in the pipeline,’ he says. ‘And that’s for a school with just 10,000 students.’”

From Seven Days Vermont. “The granite countertops, sparkling appliances and panoramic lake views look like they belong in a posh condo development. Instead these amenities enhance a new six-story, off-campus apartment building that Champlain College is leasing to undergraduates in Burlington. The newly constructed units are helping to finally cool the long-overheated student rental market. More than 2,000 units are in the pipeline. In response, some landlords are cutting rents. Others are waiving deposits and aggressively marketing by doling out free pizza and Red Bull to student renters who aren’t used to being wooed.”

“‘The competition among landlords is markedly increased,’ said Rick Sharp, a longtime Burlington investment-property owner. This spring, for the first time in roughly 20 years, he reduced rents in an effort to find tenants for a pair of four-bedroom apartments. This year, Sharp got no takers from ads on Craigslist. He dropped the rent from $2,800 to $2,700 a month, but still has not found tenants. ‘We may have to go to $2,600,’ he said.”

“Mayor Miro Weinberger, who has pushed for new housing downtown, hails the construction. Weinberger finds the increasing vacancy rate and anecdotes of discounted rents encouraging. ‘That sounds to me like the early stages of a market reconciling, kind of recalibrating to deal with the fact that there’s substantial amounts of new supply,’ Weinberger said.”

The Real Deal on Illinois. “The long-awaited plans from Golub & Company and CIM Group for the Tribune Tower property call for a massive mixed-use development that would transform the area where the Magnificent Mile meets the Chicago River. In addition to all the new retail, luxury hotel rooms and condos, the $1 billion project would include 439 new rental units in the proposed 96-story skyscraper that would go up east of the landmarked tower starting in 2020.’

“But with Chicago’s Downtown rental market already showing some signs of oversupply, will the area be able to handle all the new inventory? Last year, more rental units were delivered Downtown than in any year on record — 4,348 — according to figures from Integra Realty Resources, an appraisal and consulting firm. While the firm expects the pace to slow this year, with a total of about 3,000 units to deliver, it’s projected to rebound in 2019, with about 4,200 new units. The annual average over the past 25 years has been 3,200 new units, according to Integra.”

“And deconversions, like the $60 million, 292-unit deal Golub and USAA Real Estate recently closed at Century Tower, are tipping the inventory balance even more toward rentals in many parts of the city, including Downtown. Kyle Stengle of Marcus & Millichap’s investment, national multifamily and mixed-use group, said the rental boom Downtown is unlikely to last much longer. ‘At some point there’s just going to be too many units and we may already be there. The overall feeling is that the market’s getting over-saturated.’”

From Bisnow on Florida. “‘Palm Beach is completely on fire,’ said Todd Michael Glaser, a high-end homebuilder who made his name in Miami but has lately been concentrating on Palm Beach County. ‘I’ve never seen the amount of $8M to $70M homes as in the last three and a half, four months. It’s staggering.’ It’s not just single-family homes that are hot, but a new wave of high-end condos and mutifamily apartments, especially in downtown West Palm Beach.”

“Kolter Urban President Bob Vail, who is developing the Alexander, said that there is something of an arms race for amenities in the new supply of high-end homes. ‘You see that across the U.S. There are [apartment] buildings in Atlanta, Denver and Dallas that are nicer and more fully amenitized than condominium units, because that’s what it’s going to take to get people to choose that building,’ Vail said. ‘It’s just sort of a differential advantage. It’s really become a race in those more in-demand markets.’”

“Though the market is healthy now, the developers agreed a slowdown is possible as new supply takes time to be absorbed, construction costs rise and actionable sites get harder to find. Low salaries in Palm Beach County mean that not many workers can afford high rents. When an audience member asked whether they were concerned with an economic downturn, Vail responded half-jokingly, ‘Condo developers, we don’t forecast those kind of things, you know what I mean? We’re just go, go go,’ he said. ‘And the faster we go, the faster we get to the closing, and then, I’m not going to say we don’t care, but … ‘ The audience chuckled as he trailed off.”