The Housing Bubble

A report from Builder Online. “We heard repeatedly over the two-and-a-half days of the just-concluded Housing Leadership Summit that although times are good now, and demand is solid for whatever builders can deliver to an inventory-starved market, clouds of uncertainty have begun roiling up on the not-too-distant horizon. Although the onset of the last downturn–the Great Recession that took down housing–is more than a decade hence, home builders, their investment partners, and their associated business ecosystem remember one aspect of it as if it were yesterday. They remember that their early-warning systems failed, and they remember that the models to detect what was really going on versus what was ‘fake news’ of demand were broken.”

From Local Memphis in Tennessee. “House hunting this spring? Good luck!! The Memphis housing market is hot! Karen Dzubuk and her partner Osvaldo Lungo know firsthand how difficult the process can be. They have looked at house after house. They have put in one bid after another and they’ve lost time and time again. The sixth time was the charm, they finally got a contract on a house in Cordova. Are you ready for this? They put in their bid sight unseen!!”

“‘He was telling me this morning ‘you’re crazy. You just bought a house and never walked into the house.’ I said, ‘I guess so,’ said Dzubuk. Dzubuk’ s advice to house hunters, remain patient. ‘We hit the jackpot we did.’”

From CAL Matters on California. “The median price of a California single family home is now well over half a million dollars. That’s more than double what the average house costs in the rest of the U.S. Put a more nauseating way, you could buy two ‘average’ non-California houses for the price of one California house. It’s also not a surprise that with unliveable wrecks selling for that much, residents are starting to look for other places to live. According to data from the California Department of Finance, Santa Clara County lost 17,000 more residents to other parts of the state or country than they gained last year. That’s the second biggest net domestic migration loss of any county in the state.”

“Prices are getting prohibitively expensive in and around L.A.’s downtown core. Los Angeles real estate agent Jenn Cahill specializes in neighborhoods east of downtown Los Angeles like Boyle Heights. She says she gets approached by young families with budgets of $500,000 all the time. Which means a lot of her role is adjusting expectations. ‘You walk into a bedroom, and they immediately think it’s a closet,’ says Cahill. ‘And you’re like, no, no ,no, it’s a bedroom, with a little shoebox closet in the corner.’”

From Bloomberg. “Riskier U.S. mortgages are creeping back into the bond market again. They’re being made to people with lower credit scores and with more debt relative to their income. And in separate transactions tied to rental homes, Wall Street banks are putting together securities with fewer safeguards for investors — a potentially worrying sign of complacency. ‘Underwriting starts out very strict and as time goes on, it’s kind of the proverbial frog in the pot of boiling water,’ said John Kerschner, head of securitized products at Janus Henderson Group Plc, which manages $372 billion. ‘The heat keeps going up and up and then you realize, oh, this is really not good.’”

From The Oregonian. “Oregon’s total employment fell by 2,900 jobs in April, the first monthly decline since December 2016, according to state jobs data. In a study released last week, Oregon regional labor economist Pat O’Connor found state ‘wage growth slowing to a grinding halt’ beginning last summer. The slowdown coincided with the weakening job market, according to O’Connor. Portland State University economist Tom Potiowsky wrote that the region is in its ninth year of expansion – one of the longest stretches on record.”

“Signs of slowing population growth, and a cooler housing market, are reflective of a more mature economic expansion without any immediate signs of trouble. ‘As such, we see growth continuing in the Portland (area) at a slower rate but no recession on the horizon – at the very least, not in 2018,’ Potiowsky wrote.”

From NBC DFW in Texas. “Home builders across Dallas-Fort Worth are turning their attention to so-called starter homes with a renewed focus on adding homes under $300,000 back into the market. While the DFW housing market has cooled slightly, real estate experts still point to a seller’s market where inventory’s lower than demand. According to Metrostudy, the median new home price in DFW is down 2.4 percent from last year. It’s expected to continue to drop or at least remain flat, which experts said will help extend this current real estate cycle DFW is in.”

“‘Really, affordability is finding land that’s affordable. It’s finding locations that allow us to get a land price that’s cheaper that we can pass on that cost,’ said Vice President of Construction Greg McGriff. While McGriff said they build anywhere from $200,000 to $500,000 homes, the community currently under construction in Red Oak will focus on those below $300,000.”

“But when they start with land at a lower price point, they can build small, minimize amenities and source materials locally to create homes that appeal to the majority of current buyers who don’t want to exceed $400,000. They’re homes that appeal to buyers like David Taylor who’s looking to relocate from Colorado for retirement. ‘Most definitely the pricing on a new build is a better value to me,’ said Taylor. It’s also an option he feels gives him plenty of options in a red-hot real estate market.”

From Sparefoot on Colorado. “These days, it feels like the self-storage supply in Denver, CO, is at least a mile high. And that could lead to a rocky future for self-storage operators and developers in the region. A report from Marcus & Millichap indicates that among the top 50 U.S. metro areas, the self-storage inventory in the Denver market grew by the second highest level — 36.4 percent — from 2013 to 2018. Only one market, Raleigh, NC, had a higher rate of inventory growth.”

“In light of that potential danger, Joan Lucas, a Denver self-storage broker affiliated with the Aurora, CO-based Self Storage Sales Network, is urging self-storage developers to think twice about building more facilities in the Denver market. ‘Simply stated, the market cannot absorb one more project,’ Lucas said. ‘I believe the Denver market is oversupplied, and it will take some time for the housing market to catch up with all of the self-storage development.’”

“The wariness of operators like Public Storage about the Denver market ‘makes it bad for everyone, because the major institutions drive the cap rates and pricing,’ Lucas said. ‘If they stop looking at Denver as a great place to park their money, we will all be hurt.’”

From the Times Ledger on New York. “The Center for New York City Neighborhoods released a report from its Policy Research Manager Leo Goldberg and Data Manager John Baker in late April detailing the dangerous effects of real estate speculation in Queens and the other boroughs. The April 23 report, ‘How Real Estate Speculators are Targeting New York City’s Most Affordable Neighborho­ods,’ depicted which neighborhoods throughout the city and Queens were most affected by flippings and foreclosures in 2016 to 2017 due to the speculation.”

“Homeowners who want to buy affordable homes can’t because investors are buying them and then selling at prices up to 50 percent higher than similar non-flipped homes, according to Cristian Salazar, a spokesman for CNYCN. Typically, a property flip involved an individual or real estate investor buying a house, fixing it up first and then selling it for significant amount, according to representatives of Federal Bureau of Investigations, who are investigating illegal property schemes.”

“The FBI has noticed that con artists are trying to cash-in on flipping by buying homes at low prices, paying an appraiser to submit false paperwork saying there was work done on the house, therefore, justifying the high price of the home and then they get a friend or family member to take out a loan on the house from a bank as a buyer, according to the agency. The bank would unwittingly give out a high loan to the buyer and the con artist will pay the buyer a small fee and make a profit from the sale. The bank ends up taking a huge loss after the property ends up getting foreclosed on.”

From NBC Miami in Florida. “Forty-five percent of home sales in Miami-Dade in 2017 were cash deals, according to ATTOM Data Solutions. Real estate agents like Alicia Cervera de la Madrid, a member of the Miami Association of Realtors, love this cash market. ‘It’s a more stable market and it’s a healthier market. So that’s a good thing,’ says Cervera.”

“But some of the cash raises the suspicion of John Tobon, deputy special agent with Homeland Security Investigations. And he says the dirty money makes everyone pay higher housing prices. ‘A lot of that money comes from illicit sources,’ says Tobon. ‘The initial response to all of this influx of money is, ‘Oh this is great,’ but I think we are starting to see why this is bad,’ says Tobon. ‘It is bad because unless you can come up with $600 or $700 thousand cash, you cannot buy or legitimately compete for a home in the greater part of Miami-Dade, Broward and Palm Beach.’”

“Nobody knows how many properties have been bought with dirty money but Tobon says there’s a lot of money available from black markets around the world such as Russia, Colombia, and Venezuela. ‘The amount of money–its hundreds of billions,’ says Tobon.

“To combat dirty money the Treasury Department now requires title companies in South Florida and other hot real estate markets to share more information on buyers who make transactions of $1 million or more. Those buyers can stay private using a perfectly legal process of making the purchase through a limited liability company or LLC. Separating good buyers from bad ones isn’t easy as many people use LLCs to buy properties.”

“The NBC 6 Investigators reviewed local property records and found that in 2017 in Miami-Dade, at least 11,690 residential properties in Miami-Dade were purchased by or transferred to an LLC. That number has almost doubled in last five years. The Treasury found nationally nearly one in three of the $1 million plus purchases involved a person or company that had been the subject of a previous suspicious activity report.”