May 31, 2018

Buyers Were Investing At An Almost Irrational Pace

A report from the Courier Mail in Australia. “Approvals for foreign investment in Australia’s housing market have collapsed, amid waning investor appetite, higher charges and tighter lending standards. The Foreign Investment Review Board’s annual report reveals a 67 per cent fall in residential real estate approvals last financial year — down from 40,149 approvals to 13,198. The value of FIRB approvals also plunged, from $72.4 billion to $25.2 billion in fiscal 2017. Investment in new apartments from mainland Chinese investors dropped significantly in 2016-17. AllenWargent Property Buyers chief executive Pete Wargent said the figures would have some significant impacts on the new apartment sector, construction trends, and the broader economy — especially in Sydney.”

“Mr Wargent said he expected Sydney to experience the greatest number of failed apartment projects, with increasing signs of discounting on new apartments. ‘Perhaps this was an inevitable end-game for this cycle, where development has been too much skewed towards apartments for investors, and too little towards the types of medium-density dwellings that people want to reside in,’ he wrote.”

“But Chinese international real estate website chief executive Carrie Law played down the reported decline in Chinese demand. Ms Law said that in the second half of 2016, Chinese buyers were investing in Australian real estate at an almost irrational pace. ‘It was like money falling from heaven for vendors and developers,’ Ms Law said.”

From in Australia. “Average wages grew at a faster rate than home prices for the first time in nearly six years over the past 12 months, new research shows. Other driving factors behind the improved affordability included low interest rates and falling property prices — particularly in the apartment market. The biggest improvements in housing affordability occurred in the Parramatta area, the northwest and Sutherland Shire. Median apartment prices in Parramatta enclaves Rydalmere, Telopea and Dundas were all above $700,000 at the start of 2017.”

“Since then, average prices in these areas have dropped significantly which, coupled with lower interest rates, made the suburbs affordable for middle-income buyers again. A similar trend occurred in Sutherland Shire suburb Jannali, where the median price of units dropped by 17 per cent to hit $615,000. Median unit price falls of up to 16 per cent in Pennant Hills, West Ryde and Asquith also meant these suburbs were affordable for average households again, after being inaccessible last year.”

“SQM Research director Louis Christopher said home buyers were getting better deals because more properties were available for sale. There was also less competition for properties from cashed-up investors, who until recently had accounted for nearly 60 per cent of Sydney property purchases. ‘Sellers have to be more realistic with their prices in this market,’ Mr Christopher said. ‘Buyers can negotiate more.’”

From Your Mortgage in Australia. “Land prices in Brisbane have fallen by roughly a quarter in just a year, the biggest decline seen in South East Queensland council regions. Citing a recent research from Oliver Hume, reported that while Brisbane’s land price per square metre has fallen to $821, it is still the second most expensive of the six SEQ council regions.”

From the Rocky View Weekly in Canada. “I woke up earlier this week to a report on CBC describing how a landlord in Calgary had refused to renew the lease of a main-floor suite to a family with a toddler, due to complaints from the basement renter about the child’s crying. According to the minister of Service Alberta, ‘discrimination’ affects people in many areas, ‘and tenancy is no different.’ Last November, the provincial government introduced amendments to the Human Rights Act that essentially bans adult-only rental housing in Alberta, effective Jan. 1, 2018. Seniors-only buildings are still permitted, though – I guess discrimination against people is fine if they’re between the ages of 18 to 55?”

“‘It’s going to have a negative impact on tens of thousands of people who are looking for a lifestyle choice of peace and quiet,’ said Gerry Baxter, executive director of the Calgary Residential Rental Association, in an interview with the Calgary Herald. ‘A lot of people have had their rights taken away from them to accommodate the few.’”

“And that’s exactly what it feels like. There’s no shortage of housing in this area – according to the Calgary Herald, data released last summer showed ‘the city is dealing with a glut of housing that hasn’t been so big in three decades, perhaps longer.’ That census indicated there were 10,600 vacant apartments, along with 5,000 vacant single-family homes, at that time.”

From Better Dwelling on Canada. “A routine audit is leading a Canadian bank to repurchase their ‘ineligible’ mortgages. Montreal-based Laurentian Bank is agreeing to buy back over $125 million in mortgages. The agreement is the result of a routine audit from the Canada Mortgage & Housing Corporation (CMHC). This comes while the bank is trying to improve borrowing standards, after a different third-party audit revealed similar issues.”

“Laurentian Bank announced an audit of mortgages sold to a TPP revealed ‘documentation issues and client misrepresentations’ in December. Most of it is due to failure to obtain or properly store documents on the borrower. The bank also found ‘client misrepresentation’ to a ‘lesser extent.’ The audit resulted in Laurentian announcing they would need to buy back a few … hundred million in mortgages. In December they had announced it would be up to $304 million. The company noted in their 2017 annual report that, ‘no employees were implicated in any misrepresentations and the documentation issues appear to have been unintentional.’ Not sure if screwing up $304 million in loan documentation by accident makes this better or worse.”

“Nope, that wasn’t all. Yesterday the bank announced a routine audit from another party found ’similar issues.’ CMHC, the government Crown corp in charge of mortgage liquidity, found mortgages that were ‘inadvertently portfolio insured.’ The problem is a significant number of people contributed to the Canadian real estate market, by slipping through the cracks. They drove prices higher, while many technically should not have been able to do so.”

“As mortgage lending standards improve, the market weeds these buyers out. When this segment is removed, dollar volume drops significantly. Banks have already been forced to remove people buying ‘too much home’ through B-20 Guidelines. Now they’re tackling those that may have needed to fudge documentation to get those loans. The buyer pool is shrinking, and with it goes liquidity at higher prices.”

From Toronto Life in Canada. “Peizheng Qiu thought he could make his fortune flipping houses in Toronto. Instead he ended up strangling his business partner in the basement of a Markham mansion. Xiao Xuan Long Yu, who went by the English name Bertram, was also seeking his fortune. A year younger than Qiu, Bertram was the son of a wealthy and prominent lawyer in Shenzhen. His parents had financed his immigration to Canada, putting him up in a luxury unit at the C Condos tower at Yonge and Finch. He liked to splurge on fancy cars: he drove a Ferrari 458, which sells for around $250,000, and previously owned a Maserati and BMW. Like Qiu, he was hoping to free himself from his parents’ support and make it on his own in Canada.”

“Qiu and Bertram believed that flipping houses would be a low-risk way to make serious money. More than six per cent of Toronto properties for sale in 2017 had been purchased less than 18 months earlier; that’s almost twice the percentage of properties that were bought by foreign investors. Flipping is particularly popular in the Chinese-Canadian community.”

“They were eager to make money as quickly as possible, and relied solely on mutual trust and friendship to make it happen. ‘The Chinese like to do things different,’ Qiu later told police. ‘Millions can be loaned or borrowed based on a slip of paper.’”

“By early 2014, Elson and Bertram were scouting Toronto’s real estate listings, and over the next few months, they went on an investing spree, impulsively buying several large homes in North York for a some $3 million. Cracks in the partnership began to show as soon as the properties were purchased. Qiu was still juggling his flooring business and the flipping enterprise, and he seemed overwhelmed. Progress on the houses was excruciatingly slow. By the beginning of 2015, he’d barely done any work on the Laureleaf property.”

“Qiu was desperate for money. In March 2015, he went behind his partners’ backs and sold the property at 262 Senlac for $666,000, almost $100,000 less than Elson and Bertram had originally paid for it. The tension was mounting between Qiu and his partners. In total, Qiu owed $1.6 million. Qiu missed his first payment to Bertram for the amount of $100,000. Desperation had set in. At around 8 a.m. on Sunday, March 20, he bought gloves, masks, coveralls, a DeWalt reciprocating saw and metal saw blades. He packed the items into his girlfriend’s BMW and drove to 2 Laureleaf.”

“About half an hour later, he called Bertram and asked him to come to the property for a meeting. He said he wanted to discuss borrowing money to pay for more renovations. As soon as Bertram arrived, the two started arguing about money. Qiu claims Bertram threatened to use his connections in China to hurt Qiu’s family back home, to kill them or have their limbs hacked off. In Qiu’s version of events, he was a victim forced to defend himself and his family against a rich bully.”

“Qiu snapped. He noticed a hammer, grabbed it and began swinging (he later claimed that he’d seen Bertram reach for the weapon first). He says he wrestled Bertram to the floor and whacked him on the back of his head when he tried to get up. Then he began strangling him. ‘I just wanted to shut him up and let him die,’ he later said. He kept his hands gripped tightly around Bertram’s neck for two minutes, Qiu said, until he stopped breathing. His former friend was dead.”

“At his sentencing hearing last October, Qiu presented his own statement in Mandarin, which was translated for the court. ‘The bad things have been tormenting my mind like a movie looping and repeating itself,’ he said. He listed off the things he’d lost: his job, his fiancée, his family, his dignity, and his opportunity to make a life in Canada. That one seemed to sting the most.”

May 30, 2018

There Is An Air Of Doom And Gloom

A report from National Real Estate Investor. “While apartment rents are still growing nationally, in a few cities and submarkets rents are growing more slowly or even beginning to shrink. The number of new apartments scheduled to open in the U.S. totals 274,700 units, up from 235,300 units added in 2017 and 220,800 units added in 2016, according to Reis Inc. Rent growth is seriously slowing down in a handful of markets. ‘We expect total completions by year-end to reach a new cyclical high. Markets such as Nashville and Charlotte, leaders in new apartment construction, will face more pressure at the top end of the market,’ notes an analysis by CoStar Portfolio Strategies.”

“Flooding damaged many houses in Baton Rouge, La. in 2017. For a time, that helped fill many rental apartments in this small city. But now many of the houses are repaired and are attracting apartment renters, pushing average rents lower over the 12 months that ended in the first quarter. ‘San Antonio is another market where supply is the main culprit,’ according to the research firm. Developers opened 11,000 new apartments over the past two years, a 6.8 percent increase in inventory, which is 24 percent above the historical average for 2002-2016.”

“‘Landlords are offering generous concessions,’ says Barbara Denham, senior economist for Reis. ‘There is significant new construction throughout New York City, including the Upper Manhattan submarket. Secondary core submarkets like Long Island City in Queens are also already showing negative rent growth, and led the nation in the amount of new apartments under construction today, according to CoStar.”

From “College Station is best known as the home of Texas A&M University and more than 68,000 students. But these Aggie football fans got a little carried away on their latest housing boom, putting up too many new residences. As a result there are more homes for sale than buyers to scoop them up. Hence, the discounts. ‘To be blunt, the housing market is crashing right now,’ says Jeff Leatherwood, a broker at Aggieland Properties. ‘Properties built for the purposes of student housing are just overbuilt. We are a huge college town, and most of our market is rental properties.’”

“This overabundance of housing, particularly homes aimed at students, could get worse before it gets better, local professionals fear. ‘There is an air of doom and gloom,’ Leatherwood says. ‘When the school year starts again in September, homes [that didn't get student renters] will flood the market.’”

From the Seattle Times in Washington. “The shift has been sudden: Last year, rents rose about 4 percent. Just two years ago, rents were soaring as much as 9 percent annually. ‘One, two, three years ago, we would literally have people move out and we’d be there to do a quick cleaning, and change the locks, and have someone literally move in a couple hours later. We didn’t lose a day of rent,’ said Chris Benis, who rents out a dozen houses on the Eastside. Some tenants would even rent houses sight unseen.”

“But in the last couple months, two of his houses became vacant and drew just one tenant application each, and it took about a month to rent out each house. ‘We didn’t have people banging down the door to rent’ them, Benis said.”

“Rents at Seattle-area apartment buildings have also cooled way down recently, and are actually below their highs reached last summer. But dig deeper and it’s a bit confusing: Experts have pinned the apartment-rent slowdown on the record number of new apartments flooding the market. Julie Purchase, principal of Avenue One, which manages about 600 single-family home rentals in Greater Seattle, said the huge jump in new apartments has had a chilling effect on the home rental market, too.”

“Purchase said in the last few years her firm could automatically raise rents about 10 percent when a new tenant came in — now they’re cutting rents 5 to 10 percent just to get enough applicants, and even still, it’s taking about two weeks longer to rent the typical house than it used to. ‘I expect it to be tough (to raise rents) as long as they continue to build 11,000 (apartment) units a year here,’ Purchase said.”

“One wild card to watch out for is whether landlords cash out and sell their houses now to take advantage of the for-sale market, which continues to be as hot as ever — particularly now that home rentals aren’t offering the same returns. Purchase said last spring about 5 to 10 of her clients sold their rental houses, while this spring it’s tripled to about 25 to 30. About 30,000 single-family homes across the region were converted from for-sale to rentals during the housing bust. In all, about 145,000 houses in the Seattle metro area are now rented out. There are only about 4,300 houses on the market right now in the metro area, so even if a fraction of those rentals went up for sale now, it could make a difference.”

From the Daily Camera in Colorado. “A group of Boulder renters are facing rent increases as high as $500 a month after their landlord reneged on lower rates. The complex’s owner says the situation was a result of a mistake made by a previous property management company. Caught in the middle are the tenants of Wonderland Creek Townhomes, who have until June 8 to make a decision: either pay up or move out.”

“The former property management group, Brinkman Construction, of Fort Collins, sent out letters March 28 to residents notifying them of the hikes, and a Saturday deadline to announce their intention to stay or vacate. Four Star took over May 1. On May 16, the company sent out a notice that Brinkman had acted ‘without the owners (sic) consent or approval’ and gave the renters one week to decide whether to renew under increases that were $700 to $800 higher than the rates Brinkman offered. ‘Unfortunately, the renewal rates that were offered by Brinkman cannot be honored by the owner as this would significantly impact the community and interfere with the overall well-being of the asset,’ read the letter, copies of which were obtained by the Camera.”

“As a nod to the about-face, the new, higher rents were presented as discounts from market rates that Four Star could charge; about $200 less, on average. ‘The owner has consciously and generously agreed to a concession,’ the letter read. Scott Woodard, a representative for the group that owns Wonderland Creek Townhomes, said substantial increases were needed because the current lease rates were special, move-in deals offered in the complex’s first year to prop up vacancy.”

“‘We couldn’t continue to honor any more of those rates at that point when we discovered that error’ on May 15, Woodard said. ‘We were back on our heels as far as these letters of intent, and it’s going to cost us a lot of money.’”

“Shelly Darnutzer has already made up her mind. ‘If this is the final offer,’ she said, ‘then I will be moving out.’”

The Democrat and Chronicle in New York. “Kevin Morgan, a nephew of Robert ‘Bob’ Morgan, pleaded not guilty Tuesday morning for his role in a years-old fraud scheme. Kevin Morgan, 42, is accused of fraud in a 62-count indictment that includes Robert Morgan’s son Todd Morgan, 29, and two others — Frank Giacobbe, 43, of East Amherst, Erie County, and Patrick Ogiony, 34, of Buffalo. He was arraigned midmorning in federal court in Buffalo and is being held in lieu of $100,000 unsecured bond.”

“The four men are charged with wire fraud, bank fraud and conspiracy to commit wire fraud and bank fraud. They are accused of obtaining over $167.5 million worth of loans connected to seven properties, including apartment complexes in Buffalo, Syracuse and Avon, Livingston County. Kevin Morgan is the last of the four to be arraigned on the charges in federal court in Buffalo. He is vice president of Perinton-based Morgan Communities, while Todd Morgan is a project manager. Robert Morgan is chief executive officer. Kevin Morgan was indicted on 35 counts, while Todd Morgan was indicted on 26 counts.”

From Rochester First. “Todd Morgan, the son of prominent Rochester developer Bob Morgan, pleaded not guilty to charges of fraud on Thursday. Prosecutors say Todd and his cousin Kevin Morgan misled financial institutions in order to get bigger loans for seven properties across Western New York. Prosecutors say the pair would take steps, like turning on televisions and radios, to make vacant buildings appear occupied.”

“Two loan officers, 43-year-old Frank Giacobbe of East Amherst and 34-year-old Patrick Ogiony of Buffalo, were also charged in the case. And Wednesday, U.S. Attorney J.P. Kennedy said the investigation is still underway and more people could face charges in the investigation.”

May 29, 2018

Some Folks Are Getting Into Homes They Couldn’t Afford

A report from Mansion Global on New Mexico. “Santa Fe is now the ‘hottest second-home market’ in the world, according to ‘Luxury Defined,’ Christie’s annual analysis of global luxury residential housing dynamics, which was released earlier this month. ‘New Mexico’s capital city of Santa Fe posted luxury sales volume levels not seen since 2005-2006,’ according to the report. ‘We have a very large second home market—that is a big focus here,’ said Darlene Streit, an agent with Sotheby’s International Realty in Santa Fe. ‘Lately we have been seeing a lot of people coming from Colorado as well as our usual markets of Texas and California,’ she said. ‘We’re also seeing a lot more New Yorkers.’”

“Ms. Streit defined the Santa Fe luxury market as ‘over $1 million, some would say over $1.5 million.’ There are no hard numbers on how much of the luxury market is second-home buyers. ‘I would say it’s more than half,’ Ms. Streit said. The overall Santa Fe luxury market is doing quite well, said Stephanie Duran, an agent with Barker Realty/Christie’s International Real Estate based in Santa Fe. ‘Two years ago, in the $2 million-plus price range, we had no more than five homes sold within the city limits,’ she said. ‘Last year, we had 20.’”

From Fortune. “For decades, it’s been part of the American dream: owning a vacation home, a lakeside or mountain getaway somewhere for the family to escape to on weekends or for a week or two in summer. And with the country enjoying strong economic growth, a healthy stock market, and relatively low mortgage rates, you might think beach houses and country cabins would be especially hot commodities today.”

“But all is not well in Holiday Village. ‘Vacation-home sales have been relatively weak for the last four or five years,’ says Aaron Terrazas, senior economist for Zillow. Demand is being stalled by a traffic jam of different trends—ranging from climate change to demographics to, of all things, the Trump tax reforms. Year-over-year price changes in many second-home markets have dipped into negative territory, and some experts think that trend could go national over the next couple of years—making many buyers think twice about a real estate investment that people used to count on for both fun and profit.”

“There were only 721,000 vacation-home sales transactions that year, a 36% drop from 2014.”

From the Detroit Free Press in Michigan. “In 2016, Fritz McGirr and Shahar Josef-Ben began searching for a home in Detroit. After Josef-Ben graduated and took a job in the city, the couple decided the idea of buying a home seemed more practical. So they did. They put the house back on the market when Josef-Ben got a job in Boston this year. The bungalow they purchased for $170,000 two years ago is now pending a sale for $239,000. The 40% spike in price for 1438 Seventeenth St. could be surprising for some — especially since the home sold for just $39,000 in 2013, following a mortgage foreclosure.”

“On a cool spring day last week, Johnny Espino stood outside his family’s home on Hubbard. ‘That one sold for $110,000. I heard that’s going for $177,000,’ he said about one house on the block. ‘The rich are coming back and buying homes for any price you put on it. We could probably put this house on the market for a quarter of a million and it would sell.’”

“He may not be exaggerating. One street over, a house on Vinewood in the nearby historical Hubbard Farms is pending a sale for $300,000. That home was built in 1900. It’s 2,879 square feet with four bedrooms, two baths. Jose Franco has called southwest Detroit home since he was 3. Franco always assumed he’d buy a home where he grew up. It’s recently occurred to him that this may not be possible ‘I tear up a bit because it’s becoming harder for me to find something for myself, it’s getting ridiculous,’ said Franco. ‘We don’t make crazy money. It’s getting hard to find affordable places to buy … because outsiders are coming in and buying them up like candy almost.’”

From “It’s no secret that we’re in one heck of a sizzling housing market, with prices reaching new heights in many parts of the country. It’s a go-go seller’s paradise of historic proportions. It may seem like nothing can slow down those runaway prices for everything from high-rise condos in the biggest cities to cookie-cutter, single-family homes in the suburbs. But here’s the news: There are exceptions to every rule.”

“There are actually a few metropolitan areas in the U.S. where prices are coming down. (Only 27 of the nation’s 350 largest metros saw price drops.) We compared the 12-month periods of May 2016 to April 2017 with May 2017 to April 2018 to come up with our findings. Then we ranked metros that saw the biggest price cuts. Now let’s take a look at the metros where buyers can still get a home for a discount. Maybe even a deep discount!”

“1. Santa Maria–Santa Barbara, CA. Median home list price: $951,600. Price drop*: -17.7%. The tony swath of California coast, almost two hours north of Los Angeles, got hit with a double whammy of natural disasters over the past year. 2. Pottsville, PA. Median home list price: $72,300. Price drop: -8.1%. The unemployment rate hit 5.7% in March, well above the national average of 4.1%. That’s left fewer folks with the means to become homeowners. ‘Homes between $50,000 to $125,000 aren’t selling as fast’ as they were last year, says Erica Ramus, owner and broker at Ramus Realty Group.”

“3. Napa, CA. Median home list price: $823,900. Price drop: -6.7%. ‘In the immediate aftermath [of the blazes], the market slowed down,’ says Kristofer Chun, an associate broker at Kristofer Chun Real Estate, in Napa. ‘We are slowly seeing some of these burnt-out lots come on the market priced around $500,000,’ Chun says. That’s a fraction of what they were valued at before the blazes.”

“4. Austin, TX. Median home list price: $373,000. Price drop: -4.3%. For years, fun ‘n’ funky Austin has been experiencing a prolonged growth spurt. Builders responded in kind by putting up sleek, new apartment and condo buildings downtown and creating new subdivisions and communities of more suburban, single-family homes on the outskirts of the city and beyond. But they may have gone a bit overboard. The result has been something rare these days: a surplus of housing. After years of surging home prices, they’re finally beginning to head south as a result of that overbuilding.”

“Not only have prices dropped, but foreclosures are up, too. That’s a sign of an overheated market: If prices get too high, buyers might overextend themselves in an attempt to get their foot in the door. In the first three months of this year foreclosures in Austin increased 30% compared with the same period last year, according to ATTOM. Those increased foreclosures came from borrowers who bought homes a few years back when prices were lower—so recent borrowers who took out even higher debt loads might be headed for trouble.”

“‘The Austin market has performed very well for the last few years, but it is not immune to some distress creeping in,’ ATTOM’s Darren Blomquist says. The surge in foreclosures means ’some folks [are] getting into homes they couldn’t afford.’ Long before the rest of the housing market fully recovered from the last recession, Austin was growing at a rapid pace. If prices keep falling here, the rest of country might want to hope the city isn’t a bellwether this time around, too.”

From Patch Cambridge on Massachusetts. “Apparently there are only two homes currently on the market in Cambridge with pool access, according to the folks at And this is one of them. It’s part of the River Court Condominium complex which is not a small building built in 1989. The unit is about the size of a small house and comes with plenty of amenities you might find in such a building, but it does come with a heavy price tag: just under a $1 million. Check out what the realtor has to say about it and start window shopping.”

“Address: 10 Rogers St Apt 720, Cambridge, Massachusetts. Price: $995,000. Square Feet: 1208. Bedrooms: 2. Bathrooms: 2 Baths. Features: Benefit from 1st Buyers Remorse!”

May 28, 2018

This Isn’t Shrewd Investing, It’s Desperate Speculation

A holiday weekend topic starting with Business Insider. “Central bankers are like ‘pyromaniac firefighters’ creating crisis after crisis that they then try to solve, a hedge fund manager and economist has told Business Insider. Daniel Lacalle, a chief economist at Tressis SV and a fund manager at Adriza International Opportunities, told BI in an interview that he blames the 2008 financial crisis on central bankers who don’t understand modern financial markets and are using tools from the 1960s to try and control them. ‘Central Bankers presented themselves as the solution to the problem that they created themselves. I call it the pyromaniac firefighter,’ he said. ‘You create a massive fire and then you present yourself… to stop it.’”

“Lacalle believes that central banks are currently repeating the same mistake that led to the last crisis, creating the next bubble through the ongoing purchase of government debt (now at around $20 trillion). This has pushed up the price of bonds, inflated the value of financial assets, and injected excess money into the economy.”

“‘There is a point where the perception of value from investors starts to crack,’ said Lacalle, ‘The problem of these policies is that we completely obliterate what money is… By making money completely worthless, you basically promote mall-investment and indebtedness. I think central bankers genuinely believe that bubbles created in financial markets are some sort of benign collateral damage,’ Lacalle said, adding that the policies have been a ‘lottery’ for investors but have pushed the rest of the population further into debt.”

From The Daily Mail the UK. “Lee McIntosh loves his flat in Finsbury Park, North London. The one-bedroom property in a council block, which he bought for £233,000 in 2012, was valued at £290,000 two-and-a-half years ago by his mortgage lender, Halifax. Since then, figures from the property website Rightmove show house prices in his area of the capital have risen by more than 15 per cent — in theory adding another £43,500, taking the price to £333,500.”

“So, when Lee’s fixed-term mortgage deal came to an end last month, he thought he’d benefit from the hefty increase in value by qualifying for the bank’s very best fixed-rate deals. But, to his astonishment, Halifax has instead decided that the value of his home has fallen in the past two-and-a-half years. Initially, it claimed the flat is now worth just £278,000 — £12,000 less than the value it gave it two-and-a-half years ago. So Lee, who runs a theatre ticket business, demanded the bank reconsider its decision. Halifax sent out its valuer again, but only bumped up its estimate to £285,000 — still £5,000 below the valuation from the end of 2015.”

“He believes he will now end up paying around £200 more a year. Lee, 36, says: ‘I think it’s an utter disgrace. How can Halifax say my flat is worth so much less than it was in 2016, when house prices have risen?’”

“Experts say Lee is not alone. One of Britain’s biggest mortgage brokers, John Charcol, has seen the number of so-called down valuations — where a lender values a property at less than a buyer believes it is worth — double over the past year. Nick Morrey, product technical manager at the firm, says that staff are dealing with 20 to 30 cases of down valuations each month, with lenders stating that houses are worth up to £100,000 less than their owners believed.”

“‘It is the valuer’s head on the block if the property market dips and the bank is left with lots of loans that are greater than the value of the property,’ says Mr Morrey. ‘When things are as uncertain as they are at present, valuers are going to err on the side of caution.’”

“The surge in down valuations is just one of a growing number of red warning signs flashing over the property market after years of rapid growth, particularly in the South. Houses price growth is trickling downwards nationally, buyers are borrowing record amounts for record lengths of time and estate agents are struggling to shift homes for their asking price. Meanwhile, banks and building societies have started offering 100 per cent mortgages with a twist again in a desperate bid to keep borrowers coming through their doors.”

From ABC News in Australia. “If you’ve ever spoken to a real estate agent, you would know there are only two scenarios when it comes to Australian property. When the market is running hot, you need to get in quick. And when it’s cooling, it’s an opportunity to grab a bargain. Either way, there’s never been a better time to buy.”

“Right now, Australian property is running hot and cold. After nearly six years of either spectacular or frightening gains — depending on whether you own a home — capital city real estate is in reverse, particularly in Melbourne and Sydney. High-end property has been hit hard while less expensive real estate continues to advance. And while the two major capitals are in decline, regional values are not only holding up, they’re stacking on gains. In the three months to the end of April, Sydney, Melbourne, Brisbane and Adelaide all clocked up declines with Hobart the only capital to continue the kind of boom time gains to which we’ve all become accustomed.”

“The reasons? Some analysts argue last year’s crackdown by the banking regulator on investor loans, who mainly use interest-only finance to maximise the benefits of negative gearing, finally is having an impact. But that doesn’t really explain these trends. Tightening investor credit was supposed to take the heat out of the market, particularly at the lower end. Clearly, that’s not happening, at least not yet.”

“There are only two things that keep senior Reserve Bank officials awake at night; China and Australian real estate. RBA boss Philip Lowe has become increasingly vocal about China’s massive debt mountain and the dangers it poses for Australia should it implode. But our housing market is equally as unnerving. Our major banks have a decidedly unhealthy exposure to domestic real estate, with up to 60 per cent of their total loans allocated to Australian mortgages.”

“After being burnt by big business in the 1987 stock market meltdown, they decided en masse that real estate was a safer option and poured trillions of dollars into home loans, which we consumers happily lapped up. The problem is, if Australian real estate declines in any significant way, it will put a serious handbrake on the economy. When the value of your major asset is going backwards, you’re less inclined to spend and less likely to be given credit. That, in turn, weakens the domestic economy which eventually leads to higher unemployment, mortgage defaults and, potentially, a banking crisis.”

“It’s not just the banks who have a vested interest in keeping the property bubble bouncing along. Every layer of government has become addicted to the great Australian dream, which in the past 40 years has transformed from owning your own patch of dirt to making a motza from property. The Federal Government needs rising property prices to maintain a stable economy while state and local governments feed off the enormous fees and taxes it generates.”

“Since the latest boom began in late 2012, a boom deliberately orchestrated by the Reserve Bank to absorb construction workers leaving the mining industry as the resource investment boom wound down, state and local governments have seen property revenues rise by 65 per cent. So the next time you hear a politician talk about the need for affordable housing, don’t believe a word of it. None of them offer any serious solutions primarily because they know there are only two options, neither of which are palatable.”

“Either property prices need to collapse, which would only occur as part of an apocalyptic economic event, or wages need to take off which no major party is likely to endorse. Everything else is just window dressing. When it comes to property prices, population growth has been every federal government’s secret weapon.”

“For years, we’ve been told our skyrocketing housing costs has been a supply problem. Instead, there has been a deliberate effort to keep piling on the demand, just to maintain the illusion of economic growth and to keep the real estate sales clicking over.”

From The Globe and Mail in Canada. “When things go wrong in the housing market, people get angry. So expect to hear a lot of irate commentary on whose fault it is if house prices keep falling in Toronto and other places where people have been making lots of money off the housing boom. The narrative is already taking shape: The introduction of mortgage stress tests for home buyers by the federal government’s banking regulator has ruined the housing market and, in particular, hurt first-time buyers.”

“Allow someone who doesn’t make a living off the sale or financing of real estate to set you straight on all of this. What’s happening in housing is actually healthy. Slowing the market down now lessens the risk of a plunge that would traumatize this country worse than any stock-market crash ever.”

“The stress tests ensure you can afford a mortgage if rates climb well above current levels. In some cities, people are finding that the house they want to buy wouldn’t be affordable if they had to pay a higher mortgage rate. The housing-industrial complex says this is bad – a cruel denial of every Canadian’s right to live the dream of home ownership. Buyers knocked out of the market by the stress test are being saved, not persecuted.”

“In the real estate sector’s blame game, the economy is another victim of the misguided attempt to address soaring home prices. Housing is a pillar of the economy, the argument goes. Constraining it hurts us all if the result is an economic slowdown.”

“Given how far house prices have risen in some cities, a pullback of some sort is pretty much inevitable at some point. We have zero chance of avoiding a situation where the housing sector acts as a drag on the broader economy. Should we still be angry at the mortgage stress tests for triggering a housing slowdown in some cities? Couldn’t we have waited and let things unfold without intervention?”

“No way. There’s a housing mania in this country that has to be stopped before it collapses the entire market. Recent example: A report by CIBC World Markets and Urbanation Inc. found that investors accounted for at least 48 per cent of all buyers who took possession of newly built condos in the Greater Toronto Area last year. At least 44 per cent of those investors with a mortgage are currently in a negative cash flow position, which means rents charged to tenants don’t cover their mortgage payments and condo maintenance fees.”

“This isn’t shrewd investing. It’s desperate speculation that distorts the housing market and adds to the danger of an outright crash in housing that is worse than anything caused by the mortgage stress test. In Toronto and surrounding cities, the mortgage stress tests are doing the important work of protecting lenders and borrowers in overheated markets at a time of rising interest rates. Given how emotionally and financially overinvested we are in housing, it’s natural that some people are angry about this.”

May 27, 2018

In A Crazy Market You See Crazy Ideas Emerge

A weekend topic on various manias starting with Physicians News. “The Maryland Proton Treatment Center chose ‘Survivor’ as the theme for its grand opening in 2016. But behind the scenes, the $200 million center’s own survival was less than certain. Insurers were hesitating to cover procedures at the Baltimore facility, affiliated with the University of Maryland Medical Center. The private investors who developed the machine had badly overestimated the number of patients it could attract. Bankers would soon be owed repayment of a $170 million loan. Only two years after it opened, the center is enduring a painful restructuring with investors poised for huge losses. It has never made money, although it has ample cash to finance operations, said Jason Pappas, its acting CEO since November. Last year it lost more than $1 million, he said.”

“For years, health systems rushed enthusiastically into expensive medical technologies such as proton beam centers, robotic surgery devices and laser scalpels — potential cash cows in the one economic sector that was reliably growing. Developers got easy financing to purchase the latest multimillion-dollar machine, confident of generous reimbursement. There are now 27 proton beam units in the U.S., up from about half a dozen a decade ago. More than 20 more are either under construction or in development.”

“If the dot-com bubble and the housing bubble marked previous decades, something of a medical-equipment bubble may be showing itself now. And proton beam machines could become the first casualty. ‘The biggest problem these guys have is extra capacity. They don’t have enough patients to fill the rooms’ at many proton centers, said Dr. Peter Johnstone, who was CEO of a proton facility at Indiana University before it closed in 2014. ‘In any industry that’s really an emerging industry, you often have people who enter the business with over-exuberant expectations,’ said Scott Warwick, executive director of the National Association for Proton Therapy.”

From AZ Big Media. “The medical office space market slowed during the first three months of 2018. Rents fell, vacancy rose and sales of medical office properties fell off a bit. Vacancy in medical office buildings rose 10 basis points during the first quarter to 14.4 percent. The rate remains approximately 100 basis points lower year over year in both on-campus and off-campus medical properties. First quarter posted negative net absorption of approximately 11,500 square feet.”

“Sales of medical office properties slowed during the first quarter. Prices for medical condos fell slightly in the start of 2018 with a median price of $176 per square foot in first quarter. Sales of traditional, non-condo buildings dropped by 40 percent from the end of 2017. The median price for traditional buildings also fell to $136 per square foot, down from $157 per square foot in 2017.”

From The Real Deal. “The hotel market — which for years has struggled with dropping revenues and oversupply — is finally showing some signs of promise. Average revenue declined at a slower pace last year, and demand appears to be on the rise. The number of new hotel rooms slated to open in 2018 is 7,802 — the highest number seen since at least 2000, according to hospitality research firm STR. Anthony Rinaldi, head of the Secaucus, New Jersey-based Rinaldi Group — which raked in 977,079 square feet of new hotel work in 2017 — said he hasn’t seen a decrease in demand for the product.”

“‘I keep hearing that the market is oversaturated with hotels,’ he said. ‘I am reading about it, I am hearing about it, but I’m not seeing it.’”

From the Houston Chronicle. “When construction is completed by year’s end, the Proguard Self Storage facility near Memorial City will total nearly 270,000 square feet and boast 1,750 air-conditioned units. The Houston-based company operates five storage centers locally. Proguard’s massive storage facilities, some of the largest in Houston, exemplify a building boom in an oft-overlooked real estate sector overshadowed by trophy office towers, luxury apartments and gleaming hotels and hospitals. However, industry leaders are increasingly concerned that self-storage is becoming overbuilt in many parts of Houston.”

“Self-storage operators are slashing rents to prop up occupancy rates in an increasingly competitive market. Houston rents have dropped for a second straight year, falling 4.8 percent to 86 cents per square foot. Last year, rents plunged 7 percent, Marcus & Millichap reports. ‘There’s way too much storage being built in Houston right now,’ said Richard Loeb, a partner with San Antonio-based SurePoint Self Storage. ‘We’re killing the goose that laid the golden egg.’”

From The Telegraph. “The Australian owner of Homebase has sold the struggling DIY chain for £1 after a bungled attempt to rebrand it turned into one of the ‘most disastrous’ buy-outs of a British retailer. Wesfarmers will book a loss of between £200m and £230m on the sale to HMV owner Hilco Capital. Rob Scott, Wesfarmers managing director, admitted Homebase had been hampered by his company’s ‘poor execution’ after the takeover, compounded by a consumer slump that has swept the retail industry in recent months.”

From the Associated Press. “Although interest in farmland by Wall Street investors and pension funds dates back at least to the late 1980s and early 1990s, the 2007 financial crisis reignited interest. Farmland investment looked stable in comparison to other real estate. ‘It’s certainly true there was new money that came into agriculture during the boom period between 2007 and say 2013,’ said Pat Westhoff, director of the Food and Agricultural Policy Research Institute at MU.”

“With low commodity prices and high rental rates in the last few years, fixed rents aren’t always easy to make. Rents have come down a bit in recent years, but not too much. ‘Most of the farmers across the Midwest are seeing three to four years of loss,’ said Wendong Zhang, an applied economist at the University of Iowa and researcher for Iowa’s farmland ownership survey. ‘They’re essentially burning through their working capital.’”

From the Bend Bulletin. “Recreational cannabis has been legal in Oregon for only two years, but the state produced enough last year to supply every adult resident with more than 5 ounces of legal marijuana. There were more than 1 million pounds in the supply chain. But growers think there’s a glut, and the mismatch between production and consumption of recreational marijuana has led to dropping wholesale prices, with some growers scaling back production or getting out of the market.”

“It’s these unknowns that made Joseph Stapleton decide to take a step back and seek only a retailer’s license from the OLCC rather than a retail license and a grower’s license. The number of people seeking licenses could be contributing to the glut, Stapleton said. ‘There are a lot of guys bailing this year,’ Stapleton said. ‘They’re not getting their price, and there’s too much product around.’”

From Undercurrent News. “Thai processors are currently suffering the worst slump in sales in the industry’s history, according to one of the country’s largest seafood suppliers. Satasap Viriyanantawanit, general manager at Siam Canadian Group, which is headquartered in Thai capital Bangkok, told Undercurrent News it’s no overstatement to say the current slump is the worst he’s seen faced by the industry in its 40 years.”

“‘I strongly suspect that most of the plants are suffering at least a 50% year-to-date sales drop compared with last year. It is the worst record in Thailand’s [shrimp industry] history,’ he said. Prices in India and Indonesia have fallen below those in Thailand, said Viriyanantawanit. Subsequently, US importers are opting to buy from those countries instead of Thailand, he said. He said a decline in raw material prices has left shrimp farmers in Thailand ’screaming’ about losses and urging processors to pay more, although a recent minimum price guarantee offered by exporters was rejected.’

“An industry source in Thailand who wished to be quoted unnamed reckons countries like India, not Thailand, are faring worse from the current price slump, because they are ‘new to the game.’ ‘They thought production had no limits,’ he said. ‘New leveraged investment is always at risk.’”

From ECNS. “Southern China’s Hainan Province has halted surging applications for horse racing businesses to prevent speculative investment and a market bubble. The island province has reportedly allowed horse racing as part of efforts to build China’s biggest pilot free-trade port. Sensing fresh opportunity, some companies have rushed to apply for business registrations. The China Securities Regulatory Commission has also urged listed companies to refrain from marketing hype when it comes to horse racing.”

“Developing horse racing is not an effort to legalize gambling so it’s necessary to prevent investment of a speculative nature, said an opinion piece on China Newsweek. In its development, Hainan has had setbacks including property bubbles, in 1988 and 2010 respectively, and car smuggling so authorities today need to learn lessons from the past according to the report. The opinion piece said Hainan also needs to be aware of speculative investment in property and horse racing.”

“Hainan’s new development can also advance regional economic integration and promote the 21st Century Maritime Silk Road, but any ideas of making huge fortunes overnight or hyping the horse-racing concept must be guarded against.”

From the New Zealand Herald. “Sleeping pods going for up to $200 a week inside an Auckland CBD apartment have been dismantled for violating a number of council bylaws. The pods drew controversy when they popped up on Trade Me in August last year, with eight ’state of the art’ Japanese-style sleeping capsules in one apartment stacked two high. But the Trade Me listing for the capsules, which had been seen more than 2000 times, was taken down within hours of being put up without explanation. Auckland Council this week confirmed the owner did not have resource consent to install the pods in the first place.”

“Housing affordability campaigner Hugh Pavletich said council had done the right thing in asking for the set-up to be dismantled. In a crazy housing market you see ‘crazy ideas emerge.’ ‘We’ll see all different variants like in Hong Kong where they’re living in pipes. But all we want to see happen is normal markets restored in New Zealand,’ he said. ‘That’s what the focus should be - supporting housing affordability so we don’t see this kind of nonsense.’”

May 26, 2018

Investors Opted To Push Already High Values Up

A report from My Northwest in Washington. “Earlier this month, The Seattle Times reported that in 2017, nearly 90 percent of new housing in the city was built in 18 percent of land zoned for residential. The median price of a single-family home is now pushing $820,000. But there are steps being taken. In an effort to address the lack of affordable housing, Seattle Mayor Jenny Durkan announced a streamlined process to build backyard cottages — an effort that has long been stalled at city hall. Additionally, people who cannot afford a home may be relieved to hear apartments are being overbuilt and rent may soon be on the decline. In fact, Matthew Gardner, chief economist at Windermere Real Estate says the city is already seeing that. ‘We went from supply-demand balance to actually being oversupplied,’ he said.”

From KMBC News in Missouri. “A downtown Kansas City developer will soon learn if its proposed ‘Three Light’ project in downtown Kansas City will get another round of tax breaks. The Cordish Cos. is asking for a 25-year tax incentive to build its new 300-unit luxury high-rise apartment building. ‘If we are able to move forward on Wednesday, we plan to start the $130 million Three Light building in early 2019, bringing us to a total of more than 900 apartment units in the Power and Light district,’ said Nick Benjamin, Vice President of Development for The Cordish Companies. ‘Without incentive, new construction high-rise apartment buildings aren’t feasible in downtown Kansas City, even with substantial rent growth.’”

From WHO TV in Iowa. “Higher rise living space is planned for downtown Des Moines, including more than 500 rental units. The city says 200 of those should be available by 2022, but some residents say that’s a lot of homes to fill. ‘I think it’s crazy. I just don’t think there is any need for it, but that’s just my opinion,’ Des Moines resident Jodi Aldini-Zepeda said. ‘The apartments they do have, are they vacant or filled?’”

“According to Zillow, there are currently more than 200 units listed as vacant downtown.”

From News 5 Cleveland in Ohio. “The cost of new construction in the City of Cleveland continues to rise with several current projects advertising townhomes and brownstones for well over $400,000. This is in stark contrast to the average annual income of a family in the Cleveland-metro area, which the U.S. Census Bureau places at just over $52,000. ‘What we’re seeing here in the City of Cleveland in terms of new residential construction is the majority of the focus is on the very, very high end,’ said William Mahnic is an associate professor in the Business and Finance Department at Case Western Reserve University.”

From NBC Bay Area in California. “A couple turned their home into an illegal hotel where a party held by guests last year ended in a shootout that sent partygoers fleeing from rooftop to rooftop and terrified neighbors, a San Francisco official said. A lawsuit filed by City Attorney Dennis Herrera alleges Erik M. Rogers and his wife, Anshu Singh, unlawfully rented their Bernal Heights home through short-term rental websites for at least 319 nights between June 2016 and October 2017, sometimes charging more than $800 a night.”

“The couple, who spends most of the time in Bali, Indonesia, also illegally converted the home into two units, Herrera said. Police were called to the home in October 2017 after a party ended in a gunfight that left one person wounded and more than a dozen homes and cars pierced by bullets in the quiet, residential neighborhood. Neighbors told police the gunfire sent dozens of partygoers fleeing through rooftops and backyards.”

“‘In the middle of a housing crisis you have a couple who aren’t even living in the country turning a house into an illegal hotel for tourists and partiers,’ Herrera said. ‘This could have been a home that kept one more family in San Francisco. Instead, it brought a deluge of gunfire to a quiet neighborhood.’”

From AM New York. “As the city looks to build its way out of the costly housing market, one stretch on the western side of Manhattan — from 14th Street in Chelsea to Columbus Circle — has been the epicenter of this effort. That community district has added about 28,000 units of housing — double the number of new digs in any other neighborhood — between 2000 to 2016, according to a report. Yet the cranes seem to be largely catering to the highest earners — renters in new buildings in 2016 had median incomes almost one-third higher than all renters citywide, the report found.”

“And amid an era of great demand for more affordable accommodations, Chelsea and Hell’s Kitchen have seen more of their apartments go unused: the rental vacancy rate increased from 3.9 percent in 2010 to 6.6 percent in 2016, the report found.Jonathan Miller, president of the Miller Samuel appraising firm, said in the wake of the 2008 financial crisis, more investors opted to put money into real estate development — pushing already high land values up. That environment makes it difficult for projects to profit without targeting the more affluent end of the market, Miller said.”

“He described the city’s efforts as well-intentioned, but likely to add to the glut of luxury housing rising across the city without adding a significant amount of affordable homes. ‘Trickle-down housing policy doesn’t work,’ said Emily Goldstein, senior campaign organizer at the Association for Neighborhood and Housing Development advocacy group. ‘What we have in New York City at this point is a glut at the top end of the market that has not resulted in rents coming down or burdens being alleviated at the lower ends of the market. It’s resulted in high-vacancy at the top end of the market.’”

From the Democrat and Chronicle in New York. “The investigation into possible illegal acts within developer Robert Morgan’s real estate portfolio has moved quickly, leading to criminal charges alleging fraud to obtain $167.5 million in loans over six years, federal authorities said. But the indictment of four men — including the son and nephew of developer Robert ‘Bob’ Morgan — does not mean that the investigation is over, U.S. Attorney James P. Kennedy Jr. said at a news conference in Buffalo.”

“‘In this case, we noticed irregularities in the manner mortgages were obtained,’ Kennedy said. ‘That led to this investigation. We’re looking at everything.’ The criminal charges focus on seven properties in Buffalo, Syracuse, Avon, and Pennsylvania. ‘These seven properties are where we started and we’ll continue to investigate their properties,’ Kennedy said.”

“Todd and Kevin Morgan and two business associates — Frank Giacobbe and Patrick Ogiony — are accused of bank and wire fraud. Giacobbe and Ogiony are part of the Buffalo-based mortgage broker, Aurora Capital Advisors LLC. The charges allege that the foursome — Todd Morgan, 29, of Rochester and Kevin Morgan, 42, of Pittsford, along with Giacobbe, 43, of East Amherst, and Ogiony, 34, of Buffalo — conspired to provide lenders with falsified income data to help secure loans. They also allegedly staged vacant apartment units to dupe inspectors into thinking they were occupied.”

“They are accused in a 62-count indictment of conspiracy to commit wire fraud and bank fraud; wire fraud; and bank fraud. The alleged acts took place between March 2011 and June 2017 following an investigation that has been underway for the last 18 months, Kennedy said.”

“In a written statement released Wednesday afternoon, Robert Morgan said that ‘in light of recent events,’ his nephew and his son had been suspended from the company without pay. ‘Morgan Communities continues to cooperate with a federal investigation related to federally backed loans placed to several developers through a specific mortgage broker,’ the statement said. ‘We have been and continue to be current on all loan obligations.’”

“Federal authorities noted that the mortgages, some backed by federal lending entities Freddie Mac and Fannie Mae, were packaged into bundles and sold to investors — a practice that was central to the 2008 housing crash. The indictment alleges out-and-out fakery was involved when a Morgan limited liability company was seeking to refinance the project in the fall of 2014. A refinance of this sort typically involves combining several smaller loans into a single, larger obligation.”

“Giacobbe and possibly others created a fictitious $1.37 million loan and allegedly persuaded their lender, Arbor Commercial Mortgage, to roll that sum into the amount the Morgan company was refinancing, the indictment alleges. The indictment said Giacobbe ‘created and conspired to create’ paperwork related to the non-existent loan. Giacobbe is accused of pocketing $63,000 in broker’s fees from the $6.3 million transaction with Arbor. The indictment does not say what happened to the extra $1.37 million that Morgan company borrowed.”

“Other overt acts alleged in the 32-page indictment include faking paperwork and submitting inflated property appraisals to persuade lenders to provide bigger-than-needed loans, and at least one other instance in which a mortgage was allegedly fabricated to plump up a refinance.”

“Whether the indictment signals that lenders are falling down in their ability to spot fakery remains to be seen. It also remains to be seen if there are other instances in which investigators find evidence of exaggerated values and inflated loan amounts in Morgan’s property empire. There are plentiful examples of Morgan projects in which a property’s apparent market value is dwarfed by the size of the loans secured by that property.”

“The Democrat and Chronicle has examined public records for 31 Morgan developments in Monroe County. In all but one of those projects, mortgage loans exceed the assessed value of the property and are often 1½ to 2 times greater. Why loans exceed the apparent property value in so many cases is not clear.”

May 25, 2018

Investors Suddenly Struggling To Hang On

It’s Friday desk clearing time for this blogger. “In his corner of American finance, where hard selling meets hard luck, Angelo Christian is a star. Each time Christian sells a home loan, the company he works for, American Financial Network Inc., takes as much as 5 percent. Many of Christian’s customers have no savings, poor credit, or low income—sometimes all three. Some are like Joseph Taylor, a corrections officer who saw Christian’s roadside billboard touting zero-down mortgages. Taylor had recently filed for bankruptcy because of his $25,000 in credit card debt. But he just bought his first home for $120,000 with a zero-down loan from Christian’s company. Monthly debt payments now eat up half his take-home pay. ‘If he can help me, he can help anyone,’ Taylor says. ‘My credit history was just horrible.’”

“Christian can do this kind of deal because he is, in effect, making the loan on behalf of the federal government through its most important affordable housing program. It’s a sweet deal: He gets his nearly risk-free commission. Taylor puts no money down. If things go south, the government ultimately bears the risk. Many borrowers ‘are living paycheck to paycheck and, if they lose their jobs, they go into default immediately,’ says John Burns, a housing consultant.”

“One reason more borrowers may be stretching: Real estate prices are soaring again.”

“Far south of Orlando, the city of St. Cloud has had a lot of room to expand outward and attract developers. St. Cloud has no shortage of land, but it doesn’t have enough local jobs. About 90 percent of the residents who work commute out of the city to get to their jobs. Builders are ‘going crazy’ buying up residential lots and creating a housing bubble, said Craig Shadrix, Ocoee’s assistant city manager. ‘If you had asked me 10 years ago if we would be seeing housing prices from $400,000 to $500,000 up there on a routine basis, I would have laughed, but that’s what’s happening now,’ he said.”

“The City of Trees is getting noticed. The limited run Fixer Upper-style show on HGTV is helping put the spotlight on the booming Boise area in yet another way. The concept is simple: the pair buy a house, make improvements (usually drastic) and work to resell the homes for a profit. Two of the homes on the show with the highest price tags have sat on the market unsold, despite a tidy wrap-up at the end of each episode. A home along the rim at Kathryn Albertson Park was purchased for $350,000 - with another $350,000 into renovation costs.”

“Toward the end of the episode, Robertson tells the camera they have a deal in hand. But the home didn’t sell until well after the episode was produced and the show was aired. The home was removed from the market just Sunday after a price reduction from $989,700 down to $974,900. Another home in Boise’s North End was said to have sold ‘above asking’ during the show, but is still listed for sale - listed since March 10th at $897,700.”

“Nestled into the side of Mt. Soledad about a half-mile from the coast sits the residence dubbed ‘Essencia.’ In more recent years, the group has fallen on harder times — a home on Plum Street in Point Loma sat unfinished for years before falling into foreclosure, eventually netting a handful of misdemeanor charges for Concepto principal Francisco Mendiola. La Jolla’s ‘Essencia’ suffered a similar fate — the property appears to have bounced between a series of investor-owners since it was built, with ten documents related to foreclosure proceedings having been filed against the property between 2008 and 2014.”

“A handful of attempts have been made to sell the property, none publicly successful. In 2007 a listing at $18-20 million failed to attract a buyer, same with a 2008 attempt that ranged from $19.5 down to $14.95 million. A six-month stint on the market for $17.9 million in late 2015 did not result in a sale, nor did 2016 attempts at $16,750,000 and $14,600,000. An attempt to rent the mansion for $20,000 per month also met no takers. The property sat off-market for more than a year before it was re-listed in April, this time carrying an asking price of $14,500,000, the lowest reported to date.”

“Southern California home prices notched yet another record in April, with the median price hitting $520,000. Still, there’s been a shift this year as the number of homes on the market increases slightly and buyers become more price sensitive, market watchers say. ‘We’re still seeing multiple offers on well-priced homes, (but) we’re seeing price reductions on higher-priced homes,’ added Mike Cocos, general manager for ERA North Orange County in Yorba Linda. ‘Now that we have the inventory, buyers are going to take a little longer to pick and choose. … (Buyers) are a little more selective than they were last year.’”

“A group of Montreal condominium buyers fear they’ve lost both their deposits and their condos after the unfinished building they were to move into in Saint-Henri was sold to another developer. It may be a case of buyer beware: real estate experts and commercial lawyers say buying into a new condo development often doesn’t work out as planned. ‘I feel kind of scammed,’ said Ying Zhang, one of 14 buyers taking both of the developers to court in the hope of either getting their condos or their money back. ‘How can you pay a down payment and now have nothing?’”

“It was an ambitious plan: Donna Pirie offered to give away her £1.7m Aberdeenshire mansion in a competition, but she wanted to sell £3.75m worth of tickets to do so and give £1m to charity. In the end, she sold just 10,000 tickets at £25 each – totalling £250,000 – despite national newspaper coverage, so she ended up with a net loss of £31,500. Pirie is one of a growing number of people who are trying to sell their homes through ‘win a house’ schemes. The slowdown in the property market over the past year has led to an explosion in the number of properties being offered as prizes, particularly by homeowners who fail to achieve the asking price they want.”

“Sam Mitchell of online estate agents House Simple thinks sellers simply need to lower their prices. ‘If you are finding it difficult to sell your property, rather than resorting to desperate measures, take a step back and find out why it might not be selling,’ he says.”

“Guo Qirui says it’s a lonely journey when he goes home to his rented luxury condominium in Phnom Penh, where the Chinese retail executive has lived for nearly half a decade. The majority of the homes, sales agents and residents say, are sold to absent Chinese landlords. ‘Probably half of the completed units have been handed over but every night it’s all dark. Not one light is switched on,’ Guo told Reuters.”

“‘In terms of the high-end segment there is oversupply,’ said Ross Wheble, Cambodia country head at property consultancy Knight Frank. ‘This is a question that everyone’s asking in terms of sustainability. With Chinese investors buying these units, are they actually going to be occupied?’”

“The hype is such that some like Beijing native Jiang Zheming bought a unit last month despite having never visited Cambodia before. Another Chinese buyer who asked to only identified as Alex, said he bought more than 100 flats. CBRE and Knight Frank said there were already signs the market was softening. The frequency of new launches has fallen while landlords were reducing their asking rents, they said.”

“Chrek Soknim, chief executive of Cambodian property agency Century21 Mekong, said he did not think a market slowdown would be bad for locals given that these apartment owners were mostly Chinese. ‘If they can’t sell, it’s not a problem for us.’”

“Mortgage revaluations of second-hand homes in inner Brisbane are between 20 per cent and 30 per cent lower than the prices they originally exchanged for, one more sign of falling demand and over-supply in the Queensland capital, according to private property lender Development Finance Partners (DFP). DFP, which provides commercial loans to residential developers, has discovered that not only are the values of new dwellings being pushed down, but secondary apartments and townhouses have been swept up in the downward slide.”

“The large number of newly completed apartments – about 8300 – expected to hit the city in 2017-18 will only worsen the problem DFP says, quoting the latest residential data from property research group BIS Oxford Economics. An additional 5000 units are in the pipeline for 2019.”

“‘It’s a shock and it pressures those owners who do not have substantial equity,’ DFP director Matthew Royal said. ‘The new, shiny, state-of-the-art properties are easier to let and those owners, keen to get cash flow, may set a rental that is lower than rentals applying for nearby, older, properties. Making things worse is that, in a new development a large number of rental properties emerge at once, flooding the market.’”

“Adding to the woes of lower rents, banks are refraining from refinancing interest-only loans, forcing many borrowers to repay both principal and interest. ‘Lower rents push down a property’s value, reduced cash flow arrives as principal and interest needs to be paid and an investor, financially comfortable up until then, is suddenly struggling to ‘hang on’, Mr Royal said. ‘Unfortunately I am predicting more pain than gain for the most exposed assets this time next year.’”

“Financial bubble are not accidents. Our asset-backed banking system creates bubbles by design—they’re an inevitability. Imagine a homeowner who owns a $1 million house free and clear. The owner goes to a bank and borrows $800,000 against the house. This credit money springs into existence as an accounting entry of a private bank. The borrower goes out into the market and starts purchasing other assets: stocks or a weekend house. The new money drives prices higher, including the assets that form the collateral of the banking system.”

“Since collateral values now have increased, the banking system is happy to increase its loans to borrowers, which pushes prices yet higher, and so on, in a positive feedback loop. The Chicago Tribune reported in June last year: ‘Several major lenders are offering 1 percent down payment loans, and now a large national mortgage company has gone all the way, requiring absolutely nothing down.’”

“It looks like the lessons from the 2008 housing crash have been erased completely: a quasi-government agency, which operates under federal conservatorship, is guaranteeing loans made by reckless institutions to shaky borrowers. The difference is that the reckless institutions are not banks but non-bank lenders. If we follow all of the credit tributaries back to their source, we see that this system is more malignant than ever. The banks are, in fact, still funding mortgages, just surreptitiously. In the new normal mortgage transaction, the non-bank lender funds its loan to the borrower by in turn borrowing ‘warehouse loans’ from a bank.”

“These banks loans are secured by the new mortgages and are extremely short-term, generally for only 15 days, which is the time needed for the non-bank lender to flip the mortgage to one of the government-sponsored enterprises or Ginnie Mae. These GSE then securitize the incoming mortgages into mortgage-backed securities (MBS) and guarantee the payments ‘to increase affordable, sustainable lending,’ Fannie Mae claims. And who owns most of the $7 trillion of outstanding MBS? The Federal Reserve owns 25 percent and banks another 27 percent.”

May 24, 2018

The Party Is Over And The Hangover Is Just Beginning

A report from the Toronto Star in Canada. “New construction home sales hit the lowest number for April in over 20 years, says the association that represents home builders. Newly built single-family home prices dropped 5 per cent year over year to $1.15 million, down from about $1.2 million in March. There were 65 per cent fewer houses and condos sold last month compared to April 2017. That put the sales of single-family homes — detached, semi-detached and townhouses — 70 per cent below the 10-year average. Condos were 38 per cent below that average, according to the Building and Land Development Association.”

“Although new home data by Altus Group goes back only as far as 2000, BILD said previous data shows 1995-1996 was the last time April sales were as low as the 1,727 last month. The new construction home industry is being affected by many of the same factors that have led to a sluggish 2018 in re-sale real estate in the Toronto area, said BILD CEO David Wilkes. Part of the slowdown is seasonal, he said. There is a lull in the housing market compounded by interventions from government and new mortgage stress test rules introduced by Canada’s banking regulator. ‘We’re in a bit of a pause right now,’ said Wilkes. ‘People are reassessing and part of that reassessment, no doubt, stems from the affordability issue we need to address within the GTA.’”

From Bloomberg on the UK. “Lance Paul put his home in West London on the market last May with a 1.5 million-pound (US$2 million) price tag. A year on, the retired animator is asking 1.1 million pounds and still hasn’t found a buyer. Now, after dozens of viewings that came to nothing and a few low-ball bids, the 71-year-old has an offer that’s agonizingly close to the floor he promised himself he would never go below. He just might accept it. ‘The fear from my point of view is because things are volatile, it could go down even further,’ Paul said.”

“Similar deliberations are playing out across London as sellers weigh whether to take what they can get in a falling market or sit tight in the hope the slump will be short-lived. ‘The party is over for the London housing market and the hangover is just beginning,’ said Neal Hudson, founder of research firm Residential Analysts.”

From the Sofia News Agency on Bulgaria. “The luxury property market in Bulgaria is moderately high during the first quarter of 2018, according to an analysis by Unique Estates. Activity during the first three months was mainly in the lower price segment - up to 300-350,000 euros. Buyers are mainly people with free capital who are interested in homes which they can renovate, and resell them at a later price. ‘In recent years, this type of purchase has gained popularity among people looking for a lucrative investment. Recently, however, this kind of offers are rarer and this limits the potential for deals,’ commented Galina Grodova, senior partner at Unique Estates.”

“In the middle price segment of the luxury market - 500-800,000 euros, transactions in the first quarter were significantly less. The increased supply of rental properties has led to a drop in prices over the last year. Then there was a growing interest, especially in apartments in the center of Sofia, because of the EU Presidency. Many homes have been rented in advance, and this has led to high activity in the market, which continued until the autumn of 2017. In recent months, however, the demand has fallen to its usual levels. At the same time, the peak of investment purchases led to a further oversupply of the rental market, so prices in many areas went down.”

From the Daily Star on India. “Kaniz Fatima Binte Alam, a doctor, took Tk 48.50 lakh home loan at 8.5 percent interest in October last year from a lender with expertise in financing homes. Within six months, Fatima was astonished to get the lender’s notification that the interest rate has been revised to 12.5 percent, nearly 50 percent hike, effective from March this year. ‘Now it has become very difficult for me to repay the loan,’ she said.”

“It is not only home loans, interest rates have been increased for all loan products, be it industrial, SMEs or trade financing, jacking up their cost of doing business. The increase is by two to four percentage points, according to data of a number of banks. Interest rate for industrial loans has gone up as high as 16 percent, which was 12 percent a year ago. No bank is offering SME loans under 15 percent interest. Even at that high rates, many banks cannot lend because of liquidity crisis.”

“‘We are collecting term deposits at 10.5 percent now from seven percent last year,’ said Arif Khan, managing director of IDLC. Even though authorities concerned are pressing lenders to bring down the interest rate to single digits, it is not possible for them because of high cost of deposits, he said, blaming high-interest saving instruments. Like bankers, he does not see any possibility of lending interest rates going down in the near future. ‘Bad loans are another factor that makes new loans expensive,’ Arif said.”

From the Vietnam Bridge. “Investors continue pouring money into the high-end apartment market segment, even though there is a sufficient supply. With the selling price of VND45 million per square meter at minimum, the number of target customers is not high. By the end of the first quarter of 2017, nearly 30,000 apartments of this kind had been marketed in the eastern part of HCM City alone. Buyers from Hanoi could partially ease the oversupply, but it is still not enough.”

“There is no official report about the number of apartments sold to those who have real demand for apartments. However, the figure is estimated at roughly 30 percent. The government in early 2018 showed its determination to obtain a GDP growth rate of 6.5-6.7 percent this year. Analysts warn that the high GDP growth rate may lead to a ‘real estate bubble’ like the one in 2007 and 2010. The bubble was created by a high GDP growth rate and loose credit policy.”

“GDP in 2007 grew sharply by 8.48 percent, while HCM City gained an impressive 12.6 percent growth rate, the highest level in 10 years. Currently, real estate credit accounts for 10.8 percent of total outstanding loans in HCM City. Nguyen Van Duc, deputy director of Dat Lanh Real Estate, said the real estate market is ‘fragile’. Negative signs in the market appeared after the fire at Carina apartment block. After the accident, speculators rushed to sell products. However, despite the price decreases, there have been few transactions.”

From Stuff New Zealand. “A bankrupt businessman’s Auckland housing development is up for mortgagee sale as creditors chase millions of dollars in unpaid bills. The housing development in the North Shore suburb of Birkenhead sits near the site of a major landslide that swallowed an Auckland Council-owned carpark in October last year. Chelsea View Estate Trust sole director Stephen Robert Kelly was made bankrupt in October 2017 - his second time being bankrupt since 2011. Kelly said: ‘It’s got nothing to do with me, mate,’ before hanging up on Stuff.”

“Kelly was first made bankrupt in 2008 with personal debts of more than $28 million. His ‘hopeless financial position’ arose from his interest in a number of significant property developments that stalled or faced considerable problems, Justice Raynor Asher said at the time.”

From Domain News on Australia. “There is no doubt that Brisbane’s apartment market has suffered over the past few years. Amid the alarming headlines of plummeting approvals and collapsed developments, the impact on sales and prices is very real. Data from the Domain Group shows Brisbane’s median unit price has fallen every quarter since June 2016 and is now sitting at a four-year low. The latest figures show prices dropped by nearly 3 per cent in the 12 months leading up to March this year and, looking further afield to include Greater Brisbane, the figures are even more glum: units fell by 4.3 per cent in the three months to March 2018 alone.”

“Across town, prices are (often reluctantly) being reduced to meet the market. Recently it was reported a Brisbane unit development had resorted to huge price cuts to move the last of its units – prices for Belise apartments in Fortitude Valley were slashed nearly 25 per cent. In Kelvin Grove, units in the Urban Village that were valued at $450,000 two years ago are now going for $399,000.”

“LJ Hooker New Farm agent Pauline Karatau says she is contacted every week by unit owners desperate for her to sell their property. ‘There are a lot of people hurting. I get emails from them every week,’ she says. ‘You know they paid well over the odds and it’s hard.’”

May 23, 2018

You’ll Find Money, It Falls From The Sky

A report from WMUR in New Hampshire. “New Hampshire is in the midst of a record-breaking housing market. Real estate experts said sellers can often get above their asking prices, while buyers must battle in a bidding war. More than 17,000 homes were sold in the state last year, the most ever in one year. The median price was $266,000. The only time the median price was higher was in 2005, before the market crashed, when it was $270,000. Realtors recommended that if you’re going to buy, be prepared to act quickly. ‘You have to use all your tricks,’ said Realtor Ofe Polack of Coldwell Banker. ‘This is a race. You have to be ready like you are for any race.’”

“Polack said houses that are furnished nicely, priced right and in a good location are selling in 24 hours. She recommended that buyers have a preapproval letter on hand, be ready to stretch their budgets and consider distinguishing themselves from the pack by writing a letter to the homeowners. As the housing market continues to improve, so, too, does the economy. ‘In general, we’re just paying more for housing, and that’s good for banks, because banks are getting larger loans at higher interest rates,’ said Michael Tasto, professor of economics at Southern New Hampshire University.”

From Fox 4 Kansas City. “It looks so easy on those HGTV home improvement shows. It’s no secret that Johnson County, Kansas, is enjoying its hottest real estate market ever. The high demand for quality housing in Kansas’ most-populated county has house-flippers competing for homes at the same rate as families and realtors. What looks like an old house to you looks like a goldmine to others. Drive down most any street in Overland Park, Prairie Village or Leawood, and you’ll see the mobile dumpsters and hear power tools working in the distance. The sound of people working rings like a cash register in this industry.”

“The race to purchase distressed houses still includes flippers who don’t have experience. John and Melanie Zahner said it’s been three years since they attended a seminar on house rehabbing they heard advertised on the radio. ‘They were saying, ‘You’ll find money. It falls from the sky,’ Melanie Zahner laughed.”

The Cullman Times in Alabama. “Cullman has garnered plenty of accolades for its expanding economy and low unemployment, but during this burgeoning economic drive the population has grown at a slow pace. The Cullman Area Chamber of Commerce has launched a housing study that will seek to verify one that is already suspected — a lack of housing. ‘One point that stands out is that since 2014, the number of housing units sold has increased but the inventory of housing has decreased,’ said Chamber of Commerce CEO Leah Bolin. ‘Marshall County has grown more population while Cullman has enjoyed tremendous economic growth. We think it comes back to housing. While this has occurred, the average price has increased and affected affordability.’”

From KGW 8 in Oregon. “The housing market has slowed a little in Portland. The real estate website Zillow even says it’s a buyer’s market right now. But prices are still high. According to Zillow, the median home price is just under $460,000. One developer, Eli Spevak, is using some city incentives to get a few more affordable homes on the market. It comes as Portland city planners are trying to re-zone areas to fit more people into established neighborhoods. Instead of high-rise apartments, or McMansions, the new zoning will allow for more duplexes, triplexes or multi-family structures.”

“Asking price for those 3-bedroom, affordable townhomes is $219,000. The rest of the units will be market rate priced, $300,000 to $500,000. ‘That way I know there’ll be some legacy, so if prices go through the roof again, some homes will stay affordable,’ Spevak said.”

“A lot of developers in Portland are hated; seen as bulldozing perfectly good or historic homes, or building ugly, overpriced ones.”

The Houston Chronicle in Texas. “A half-dozen flooded houses mostly in Meyerland will hit the auction block next month, a process expected to help set the value of Harvey-damaged properties in the area. Meyerland was one of the hardest hit neighborhoods during Hurricane Harvey and previous storms. It now has a glut of properties for sale. A recent count of listings by real estate agents came to 147. ‘Sellers have been hit by all these low-ball offers. They just don’t know how to act or react,’ said Houston real estate broker Paul Lynn, who is handling the auction. ‘Here’s another way to get it sold, to get confirmation of what the value is. Meyerland is really soft and there are a lot of for-sale-by-owners that are out there, too.’”

The Democrat and Chronicle in New York. “A federal grand jury has indicted the son and nephew of Rochester real estate mogul Robert ‘Bob’ Morgan on fraud charges. Todd and Kevin Morgan are named in a 62-count, 32-page indictment along with business associates Frank Giacobbe and Patrick Ogiony, each of Aurora Capital Advisors LLC, a Buffalo-based mortgage broker. They are charged with conspiracy to commit wire fraud and bank fraud; wire fraud; and bank fraud.”

“The charges involve seven properties, including apartment complexes in Buffalo, Syracuse and Avon. ‘The defendants are charged with fraudulently obtaining over $167.5 million worth of loans relating to seven residential apartment complexes located here in New York and in Pennsylvania,’ U.S. Attorney James P. Kennedy said in a news release, also including properties in the Pittsburgh, Pennsylvania area that were the subject of a recent search warrant that was mistakenly unsealed last week.”

“Kennedy continued: ‘As a result of the fraudulent conduct alleged in this indictment, defendants’ conduct not only unjustly enriched them but threatened to undercut the very foundations upon which our mortgage banking and investment systems are based.’”

“Between March 2011 and June 2017, the Morgans, Ogiony, and Giacobbe allegedly defrauded financial institutions such as Arbor Commercial Mortgage LLC and Berkadia Commercial Mortgage and government-backed enterprises like the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal National Mortgage Association (Fannie Mae).”

“Authorities allege the Morgans received inflated loans to pay off debt that didn’t exist. Prosecutors said the four acted in a variety of manners to persuade mortgage lenders to issue loans for residential apartment complexes for ‘greater amounts than they would have issued had they known the truth’ and ‘that the lenders would not have issued at the time of issuance had they known the truth.’”

“They allegedly inflated the rent rolls, the records that showed how many people were residing in their properties, and with higher rent rates than were actually being charged. They also allegedly ‘conspired to inflate income for storage units’ at one of the properties. In an email, Giacobbe asked Kevin and Todd where an extra $72,000 in storage unit income came from, and Kevin replied, ‘Magic.’ Prosecutors allege the defendants provided lenders with ‘fraudulently altered leases.’”

“At one apartment building in Pennsylvania during a lender-required inspection for Freddie Mac in January 2015, the Morgans allegedly tried to make some of the apartments appear occupied by turning on the radio and placing mats with shoes outside the apartments. Giacobbe also allegedly arranged for a woman to ’stage an apartment’ to make it appear occupied and to tell inspectors that her boyfriend was asleep in the bedroom.”

May 22, 2018

A Veritable Avalanche Of New Supply

A report from the Richmond Times-Dispatch in Virginia. “The Richmond area has been in an apartment building boom in recent years and that continues, with more than two dozen apartment complexes near completion or under construction. In all, more than 3,000 apartment units are on tap to come onto the rental market in the Richmond area this year and in 2019 and 2020, and hundreds more apartment units are in the development pipeline. Since 2000, more than 17,400 apartment units have been added in the Richmond region. ‘We’ve gone through a period where a lot of the headlines are around the amount of supply being built. It raises the question of too much supply or not enough,’ said Max Peker, a market analyst for real estate research firm CoStar Group. ‘Certainly we need the housing units coming in, but what is coming in and what is being built is at the top end of the market.’”

“Andrew R. Little, an investment banker and a principal a Richmond-based real estate investment firm, said the apartment market here ‘is pretty much still on fire.’ ‘There are older apartments that are trading at valuations that are surprising,’ he said. ‘The price per unit on some of those trades versus what it costs to build new apartments, the difference would appear not to be great enough to buy the older assets. Just build the new assets.’”

From National Real Estate Investor. “Apartment landlords can no longer raise rents like they used to. So many new apartment units are opening that the percentage that vacancy is inching higher across the country. The number of new apartments opening has been trending higher than the number of apartments absorbed. Developers are expected to open a little more than 300,000 new units a year through 2019, matching the current high level of production, according to RealPage.”

“All the new development is putting stress on the apartment sector. ‘Vacancies have been rising since late 2016 as a veritable avalanche of new supply (a record high for some areas) works as a counterbalancing force,’ says Victor Calanog, chief economist of data firm Reis Inc.”

From Bisnow on Colorado. “The 20,000 apartment units under construction in metro Denver represent a 10% increase in the region’s inventory, CoStar market analyst David Pierce said. ‘That’s one of the top five highest amount of construction we’re seeing in the country, in terms of percentage,’ Pierce said. ‘Rents have grown by 1% a year in downtown for the last two years. For the higher-end stuff, rent growth is barely positive.’”

“Because there are so many new buildings to choose from — and 6,000 more units under construction — it is also the neighborhood that offers the most concessions, Pierce said. ‘There have been at least 10 properties in the lease-up stage since the end of 2013,’ Pierce said. ‘It’s not a leasing environment that’s conducive to asking someone for a 5% rent hike. If you’re looking for a deal — maybe a month or two free rent — you can find that.’”

The Rochester Business Journal in New York. “There are 1,700 new housing units in the works that, when occupied, will bring Rochester’s downtown population to 10,000 by 2021, according to the Rochester Downtown Development Corp. Why the resurgence and revival of downtown living? Developers aren’t exactly sure, other than it may be nothing more than Rochester riding the wave of a continuing national trend. ‘I can’t tell you why, all I know is it’s real,’ said Andy Crossed, managing partner with Rochester-based Park Grove Realty. ‘People are moving back to urban areas.’”

From the Democrat and Chronicle in New York. “A prominent downtown Rochester developer is facing a $38 million foreclosure action in Buffalo, having allegedly defaulted on loans for a student housing complex. Developer Tom Masaschi and DHD Ventures also are named in Rochester lawsuits by contractors that worked on 88 Elm St., an upscale housing tower adjacent the Midtown block. The Buffalo property in question is called Monarch 716, a 10-building complex with a clubhouse located near the State University College at Buffalo campus. Opened last fall, Monarch soon was put up for sale and began collecting liens and lawsuits shortly thereafter.”

From WGCU on Florida. “The seas are rising, frequently flooding the streets even when no storms are on the horizon. But that hasn’t stopped foreign investors from shelling out big dollars for Miami real estate. Many are in it for the relatively short-term investment, then they’ll try to sell before climate change takes its toll, observers of the local market say.”

“Broker Peter Zalewski is one of Miami’s most consulted condo specialists, especially by foreign buyers. ‘Many of the people I deal with — I’m not dealing with a family of four and a dog, I’m dealing with the investor — they’re going to be in and out,’ he says. ‘Their horizon is typically three, five, seven years they’re in and out. It’s kind of an issue if you’re worried about 10 or 20 years from now. It’s not an issue if you’re looking to capitalize on current market trends. It’s a trader mentality.’”

From The Real Deal on Florida. “During a period when banks across Florida were hesitant about lending on large construction projects, Bank of the Ozarks was on a tear: With just over $22 billion in assets on its books, it provided more than $1.2 billion in construction loans in the Miami metropolitan area from 2013 through 2017, according to the company’s annual reports. In Miami-Dade alone, the bank was the largest condo construction lender for the county’s biggest projects, responsible for 26.5 percent of the total dollar volume of loans issued to the 25 biggest projects during the last five years, an analysis by The Real Deal shows.”

“While some believe that Ozarks is a disciplined lender that’s merely filling a big void in lending activity, others question if it is overly exposed to one of the country’s most speculative real estate markets. Its critics draw comparisons to Corus Bank, a Chicago-based lender that aggressively financed condo construction in South Florida and was seized by regulators in 2009 after the condo market collapsed.”

“Charles Penan of Miami-based debt brokerage Aztec Group, noted the bank has the ability to make very large loans and offer non-recourse financing, which is unusual in the development lending business today. ‘They are not the cheapest bank in town, but they are offering non-recourse and a lot of borrowers are offering to pay for non-recourse,’ he said.”

“A spokesperson for the bank said that the real estate group’s ‘focus is on building a loan portfolio with the lowest credit and interest rate risks utilizing discipline and expertise.’ Some, however, have questioned whether its strategy is sustainable. Carson Block, a well-known short seller who made a name for himself exposing fraud in Chinese companies, warned in a presentation in 2016 that Ozarks is overexposed to commercial real estate and construction lending in particular. He said the bank had too many unfunded balance sheet commitments, meaning it will need to continue to make acquisitions in order to fund its lending.”

May 21, 2018

Prices Go Up Just To See Where That Ceiling Is

A report from Builder Online. “The Realtors, in Washington this week for the annual 2018 REALTORS® Legislative Meetings & Trade Expo, got an earful Friday. The message was for home builders, and it was ‘Build more.’ The session focused on rapidly rising home prices, tight home inventories and whether or not the country is in the middle of a bubble. All three of the panelists agreed that more new home construction is necessary to meet rising demand from increasing household formation and curtail the affordability crisis. However, the panelists were quick to point out that just because we are not currently in a bubble does not mean we won’t enter one. If supply and demand continues to become more and more out of balance, it could trigger a fast price growth said NAR Chief Economist Lawrence Yun.”

“‘A best-case scenario is largely dependent on new home construction. An increase in inventory will provide some much-needed release,’ he said.”

From Growella. “Mortgage guidelines are loosening, lenders tell us. But, consumers haven’t seen the memo. According to the Federal Reserve’s Senior Loan Officer Survey on Bank Lending Practices, a quarterly questionnaire sent to the Fed’s member banks, lenders are reducing their hurdles for mortgage loan qualification. As compared to last quarter: Conforming loans: 98% loosened or made no change to guidelines. FHA and VA loans: 100% loosened or made no change to guidelines. Jumbo loans: 100% loosened or made no change to guidelines.”

“In aggregate, fewer than 1 percent of mortgage lenders are working with tighter mortgage guidelines as compared to the start of year and that’s excellent news for today’s buyers of homes. Buyers aren’t getting the message, though. In Fannie Mae’s monthly National Housing Survey, a survey of 1,000 consumers nationwide and their feelings toward housing and home loans, the number of respondents who said ‘it would be difficult to get a mortgage today’ spiked, adding six percentage points from the month prior. There’s a disconnect somewhere.”

From Port City Daily in North Carolina. “It’s slim pickings for the locals and a steal for out-of-towners. The Cape Fear region’s real estate is moving off the shelves faster than its inventory can be restocked. ‘It’s like a frenzy market,’ said Patrick LaJeunesse, who dissects real estate numbers every day at Cape Fear REALTORS. Last month, the median days on the market was 37. The last time houses were moving that quickly was in Jan. 2007.”

“‘We’re consistently eating up more and more inventory,’ LaJenusse said. ‘The appetite seems to be getting stronger.’ The biggest difference? ‘We’re not going to dive down,’ LaJenusse said.”

“According to Tim Milam, the president of Coldwell Banker Sea Coast Advantage, lending requirements have tightened up, buyers have grown more conscious of their susceptibility to bad loans and the market–for the most part–has stabilized. Still, appreciating costs can elicit déja vu. ‘We have a lot of people asking, are we at the top of the market again?’ Milam said. ‘Are we there?’”

“Particularly in the upper-tiers of the housing market, LaJeunesse said out-of-towners are getting a deal. ‘These aren’t local people buying these properties,’ LaJeunesse said. From New Jersey to New York to California, LaJeunesse said people are flocking to the southern coast and away from higher property taxes. ‘They’re selling their properties at discount price and coming down here,’ LaJeunesse said. ‘It’s almost like buying at a discount rack price. The question is on more of affordability issues and greed. You’re going to start seeing people and prices go up just to see where that ceiling is.’”

The Chicago Sun Times in Illinois. “A week or so ago, retired Chicago Public Schools teacher Josephine Sennet received a letter from the Cook County assessor’s office, and what she read floored her. In the space of a year, the estimated market value of her home in the Lakewood Balmoral neighborhood had shot up about 51 percent, likely meaning a huge increase in future property taxes. Reactions have been similar across this North Side enclave of handsome, historic homes.”

“‘I haven’t added on anything,’ said Sennet, 78, who has lived in her home since 1972. ‘I don’t have a grand, glorious kitchen. All the bathroom fixtures are what came with the house.’”

“But several real estate agents the Chicago Sun-Times spoke to agreed the reassessments seem unusually high, even with an improving economy. One veteran agent who specializes in North Side properties said home prices actually appear to be falling. ‘What’s happening, unfortunately, over the last year — and at a rapidly accelerating pace — is people not having confidence in the real estate market, and we’re noticing a big slowdown in sales,’ said Realtor India Tougne. ‘Although the inventory is low, the prices are not going up in a corresponding fashion.’”

“One client, Tougne said, had an offer of about $1,325,000 for a home back in 2016 in Lakewood Balmoral but hesitated long enough for the buyer to back out. The owner then made some improvements and put the home back on the market last year. ‘We just finally sold it after almost a whole year for $1,000,050,’ Tougne said. ‘Boy, was she kicking herself.’”

From the Houston Business Times in Texas. “The price has been lowered again at a well-known mansion in The Woodlands. The listing price is now $7 million, down from $7.95 million in December 2016, according to Nan & Co. Properties’ website, which has the listing. The Carlton Woods home belongs to Houston socialite Theresa Roemer and Lamar Roemer, who first listed the home in 2015 for $12.9 million before lowering the price to $9 million in July 2016.”

“Platinum Luxury Auctions was planning to auction off the 17,300-square-foot home located on a 2-acre estate in the summer of 2016. But the auction was delayed due to a softening in the luxury housing market.”

The News Tribune in Washington. “I am a small property developer. For the past many years, I have purchased homes and rehabilitated them with the intent to re-sell them. In 2010, I purchased two houses in Tacoma. One was on the Hilltop, the other close to Point Defiance. Both were in deplorable condition, but I gutted them and completely rebuilt them. When they were complete, market conditions made them impossible to sell at a profit, so I put them in the rental market.”

“This spring I decided that the market had improved, and I decided to sell them. The Hilltop house was the smaller of the two, about 1,100 square feet with no garage or fenced yard. After considerable research and rumination, I elected to price it at $194,000. The larger house, which measures a little over 1,800 square feet, I priced at $370,000. These prices are very comparable to the similar houses in the respective neighborhoods.”

“The larger house has been on the market for over a month. I have received no offers. The smaller house I placed on the market last Friday evening. By Monday, I had 11 signed offers ranging between $200,000 and $243,000. With the offers, I received several touching letters from prospective buyers telling me that they were offering everything they had, and to please consider them because they were desperate to buy a house for their family to live in.”

“Every one of the buyers was prequalified, and every one of them was employed. All had good credit. They were all offering the maximum amount they could qualify for, based on their income. I realized that I was looking at a sample of middle America and the housing dilemma it’s facing. Most middle-class Americans simply cannot afford a house that costs in excess of $250,000.”

“So, what’s a person to do? My advice for all those people trying to buy a single-family home at below $250,000 is to bide your time and save all you can. I know it’s hard, but the key to buying something during the next recession will be cash. Now is the time to prepare for the next downturn. It’s coming in the next few years. Save as though your life depends on it, and a house you can afford will be your reward.”

May 20, 2018

Buyers Lose Their Herd Urgency

A report from Global News in Canada. “If you’re thinking about selling your home in Saskatoon but don’t have to, you might want to hang tight. The number of home sales recorded across the country dropped by 2.9 per cent in the month of April to the lowest level seen in more than five years. According to the Canadian Real Estate Association, the number of homes sold across the country also fell by 14 per cent from March to April of this year. Dustin Ratzlaff’s home sold in two months but he admits he and his wife listed it for lower than they were expecting to and didn’t get their asking price of $379,000. ‘It definitely is a buyers’ market right now, working through that was a big challenge for my wife and I and resetting our expectations.’”

“Kent Braaten, the couple’s realtor, says it could have been sold a lot sooner. ‘We had an offer on it three weeks in but the problem was the buyers couldn’t sell their home.’ A situation not uncommon to our market these days with Braaten adding that there’s no urgency for buyers when it comes to putting in an offer and that they’re shopping around. On the seller side, they’re left between a rock and a hard place and facing some difficult decisions ahead. ‘I think any of us that own a home, we always want to sell it for more than we paid for it but in not every case is that possible,’ said Jason Yochim, CEO of Saskatoon Region Association of REALTORS®. Condos, for example, he said are selling for a lot less than they were four to five years ago.”

From CBC News in Canada. “Seems new condo projects are popping up everywhere in Calgary: city centre, inner-city and suburbs. Is there really a market for all of these condos? Who is going to buy them? Isn’t Calgary supposed to be in a recession, with slow growth and high unemployment? Aren’t people fleeing Calgary? Turns out there are some solid reasons behind the condo boom. Developers are not building for today, but for future demand.”

“Add it all up, and there’s a whopping total of 88 sites entailing 6,522 homes currently under construction. That’s room for about 13,000 people — roughly the number of people who live in Brooks. In addition to all this shovel-in-the-ground stuff, there are another 128 condo projects that have the necessary permits, but construction hasn’t started yet. That’s a lot of condos. ‘Yes, we have a glut of condos on the market in Calgary today,’ said Calvin Buss, president of Buss Marketing. ‘And yes, it will take time to absorb them all. But they will get absorbed.’”

From the Canadian Press. “Lynne Kent says owning a home in Vancouver that’s valued at $4 million isn’t the blessing it may appear to be. She and her husband are among a small group of homeowners in British Columbia facing a tax bump on homes assessed at over $3 million who say they simply can’t afford it — a claim that some are questioning. ‘I think the whole property value escalation is more of an albatross than a benefit, and have seen it that way because this whole escalation is really pushing us out of our home,’ said Kent, 71.”

“For the Kents, that would mean an extra $2,000 annually. Kent and her husband bought their three-bedroom bungalow in the Kitsilano neighbourhood in 1972 or 1973 for about $40,000, which was their household income at the time. They renovated the 1923 home in 1982, themselves. As retirees, they live on Canada Pension Plan and Old-Age Security payments, plus some savings, she said.”

“Kris Sims, B.C. director of the Canadian Taxpayers Federation, says it could represent a slippery slope to an extension of the tax to less expensive homes. And she pointed to families not unlike the Kents, who have children and want to pass their homes on to the next generation, which may not be able to afford the taxes on them. From Sims’ view, it doesn’t matter if a home is assessed at $8 million. The homeowners don’t deserve a ’surprise’ $16,000 new tax each year, she said. ‘On paper, their homes have ballooned in assessed value,’ Sims said. ‘That is why this is really unfair, because it’s based on assessed value, not (price) when it’s sold.’”

From the Australian Financial Review. “Sydney’s auction clearance rate fell to 50 per cent at the weekend, and housing market economists have predicted further ‘gradual’ price corrections over the quieter winter months. ‘This is consistent with continuing gradual falls in prices,’ said AMP Capital chief economist Shane Oliver. ‘Sales volumes are also continuing to decline on a year ago.”

“Sydney detached house prices have fallen more than 5 per cent over the past 12 months, according to CoreLogic. Listed estate agents McGrath recorded a 55 per cent clearance rate in Sydney, selling 39 from 71. However 17 homes sold prior to auction – an indication of vendor nervousness – and five properties were passed in with no bids.”

From New Daily in Australia. “The inner Sydney apartment of The Block judge Neale Whitaker has failed to sell at weekend auction. It was passed in on a vendor bid and now comes with a $1.65 million asking price. The apartment was bought for $1,705,000 in 2016 when inner city market conditions were stronger.”

From Domain News in Australia. “The Melbourne auction clearance rate was stuck in the low 60 per cent range at the weekend for the third week in a row, prompting market watchers to urge buyers to apply ‘more strategy’ to their purchasing. The trend to pass-in negotiated results has shone a spotlight on the ample leverage held by prospective buyers. ‘The market has certainly turned into a buyer’s market, so you can negotiate and not just on price,’ said executive chairman of the WBP Property Group, Greville Pabst.”

“Mr Pabst said it was unwise for a buyer to accept an agent’s invitation to ‘go inside’ a property after a pass-in and be contained in a room. It was better, he said, to stay outside on the street where you could see and evaluate any remaining competition.”

“Other buyer’s advocates reported a large number of pass-ins around Melbourne on Saturday, particularly for properties priced from $2 million to $4 million. Woledge Hatt director Adam Woledge said Camberwell’s family home market between $2 million and $3 million was soft: ‘There are a lot of offerings in the Camberwell market and they are not really going anywhere.’”

“Nelson Alexander sales director Arch Staver said a number of people in the present market had made purchasing decisions last spring but postponed selling an existing home: ‘They intended to sell in six months’ time, but the reality is that six months is a long time in the real estate market. Things change. Banks freeze up on lending and buyers lose their herd urgency.’”

From in Australia. “Home sellers will need to consider new strategies to entice buyers if they want to offload their properties for a top price in Sydney’s changing housing market, experts have advised. This has followed a major shift in the supply and demand balance across much of the market, which has put buyers in a stronger position to negotiate more favourable purchasing terms. Figures from SQM Research showed there were 33,000-34,000 homes for sale in April and March — 34 per cent more than at the same time last year and the highest number since 2011.”

“The listing jump corresponded with a drop in buyer demand, with additional data from revealing there were nearly a fifth less people actively searching Sydney listings compared to a year ago. The biggest impact of the change was that sellers could no longer expect to list their homes for hundreds of thousands more than what comparable properties sold for only months ago and still expect to attract a buyer, said SQM Research director Louis Christopher.”

“Sellers in areas where large numbers of new homes were being released for sale such as Sydney Olympic Park and Putney in the northwest typically had to slash the most off their original asking prices to make a sale. ‘Vendors have to price their properties more competitively in this market,’ he said. ‘There is a risk in listing too high.’”

The Sydney Morning Herald in Australia. “If you want a sense of how intense the pressure is for apartment development in Sydney, talk to the manager of the landmark Tennis Ranch at Gladesville. Therese McCabe said the owner of the land on Victoria Road fielded ‘a couple of offers a week’ to sell. And her customers, who have seen how quickly apartment blocks have sprung up in the City of Ryde, keep asking if they will be closing. ‘Hopefully not yet,’ she answers.”

“Mrs McCabe was speaking after the state government froze new planning proposals for residential development in Ryde, conceding that rapid growth in apartments was outpacing infrastructure. It also suspended in both the City of Ryde and City of Canterbury Bankstown new planning rules that make it easier for residents to convert their blocks into medium-density homes.”

“Mrs McCabe believes new residential developments have generated too much traffic in Gladesville and questions how many apartments are vacant, either because they have not sold or are owned by investors. ‘I really do think it’s gone from ‘a little’ to ‘too much’ in a short space of time,’ she said. Ms Hall pointed to one apartment block she thought was fine, with a retail area below, but others were just too tall and many units were unoccupied.”