June 30, 2018

They Bought At The Top Of The Market

A weekend topic on related bubbles starting with Sparefoot. “A report released recently by Yardi Matrix shows that as of April 30, 2018, Nashville, TN, had more self-storage facilities in the construction or planning stage as a share of existing supply — 27 percent — than any other major U.S. market. Next was Portland, OR (25 percent), followed by Boston, MA (23 percent), Denver, CO (21 percent), Raleigh-Durham, NC (17 percent), and Charlotte, NC (17 percent). The Raleigh-Durham market witnessed a 12 percent year-over-year drop in April 2018 in average rents for a 10×10 climate-controlled unit and a 7 percent drop for a 10×10 non-climate-controlled unit.”

“Meanwhile, Denver posted 7 percent declines in both categories. Across the board, the four major Texas markets saw average 10×10 rents fall anywhere from 4 percent to 8 percent. ‘It’s pretty clear that we are toward the tail end of the development cycle,’ said David Dent, senior analyst at Yardi Matrix. ‘We’re at peak supply levels.’”

From The Villager in New York. “Bleecker St.’s stretch through the West Village continues to be plagued by retail vacancies. Some blocks sport as many as seven empty storefronts total and several in a row. Yet local real-estate experts say that commercial rents on the street have actually dropped dramatically — by more than 50 percent, according to some estimates. Adelaide Polsinelli, senior managing director at Eastern Consolidated noted that there may still be financial difficulties for those who bought in at the height of Bleecker St.’s rates.”

“‘Anyone who bought their property on Bleecker, or in the area, from 2014, 2015, they bought at the height,’ she said. ‘So there has to be a real serious conversation with their financing, their lenders, their investors, what the expectation is going to be. Because anyone who bought with the expectation that rents were rising and they bought at the top of the market is going have a serious problem.’”

From Bisnow on New York. “In the first three months of 2018, Manhattan retail rents slumped almost 20% year over year to hit $653 per SF, according to figures from CBRE. Barely anywhere was left unscathed, with rents declining in almost all of Manhattan’s retail corridors. Landlords and retailers are trying to make sense of a market where retail rents have skyrocketed in the city over the last several years. Colliers International Vice Chairman Brad Mendelson agreed the luxury market is quiet. ‘When rents peak out, tenants pull out,’ he said.”

“C&W Senior Director Alan Napack is marketing a 2K SF retail space, vacant for more than a year now, in Brooklyn’s Park Slope. The landlord had previously had a certain type of tenant in mind, but now says they will take a chance on a less-established operator. ‘Everyone is looking for a national tenant, [but landlords] are now more opening their minds,’ Napack said. ‘Some of them will even take less of [a] security deposit, basically to get their business.’”

“But not all landlords have that option. ‘Some landlords are overleveraged but just can’t make that adjustment,’ said Lee & Associates Executive Managing Director Richard Kave.”

From Successful Farming. “As farmers face the fifth year of a downturn, prices remain mired below the cost of production. ‘It’s a liquidity crisis, but solvency is solid,’ says Michael Langemeier, associate director, Purdue University’s Center for Commercial Agriculture in West Lafayette, Indiana. ‘Many producers are using noncurrent assets like land to infuse liquidity. For others, low liquidity and high solvency leave them very little room to maneuver. Indiana cash rents are flat to 5% lower than 2017.’”

“At the Kansas Ag Mediation Service, Dave Kehler says, ‘Producers do whatever it takes to keep farming. The average Kansas operation can sustain itself, but it can’t handle family living or outside expenses. Banks can encourage farmers to analyze their operations while they still have equity. We’re having some success. Sometimes it’s helping with a dignified exit plan.’ He adds, ‘Farmers need to take a hard look at cash flow and budgets – not just keep doing what they’ve been doing and expect it to be different.’”

From Farm Equipment. “To better understand the manufacturer-dairy farmer relationship, H&S Mfg. Co. President Craig Harthoorn and Product Marketing Manager Ron Zygarlicke sat down with Daryl Sternweis and Heather Heiman (D&B Sternweis Farms) along with Josh Heiman (Heiman Holsteins). The group, all based in Marshfield, Wis. discusses tight budgets, hiring mishaps and rising environmental standards.”

“Daryl Sternweis: ‘In our farm’s situation, we’re almost put into survival mode. Where the prices are, you’d love to go and buy that new piece of equipment, but you’re just pulling the reigns knowing you can’t. You try to get what milk you can out of the cows, and in a way, we’re almost our own worst enemies. We try to increase our milk production because you still need that income, but when the milk price drops, we have to produce even more milk.’”

“Josh Heiman: ‘You’re always looking at input costs. It doesn’t matter if it’s feeds or crops. How can we knock off 12 cents on each cow per day to make that profit margin just a little higher? But with no profit margin, the question becomes, ‘How can we lose less money in a day?’”

From CBS News. “‘Think about trying to live today on the income you had 15 years ago.’ That’s how agriculture expert Chris Hurt describes the plight facing U.S. farmers today. Since 2013, farm income has been dropping steadily, according to the U.S. Department of Agriculture. This year, the average farm’s income is projected to be 35 percent below its 2013 level.”

“Longtime farm advocates see parallels between today’s situation and the farm crisis of the 1980s, when many U.S. farmers struggled economically. ‘The farm crisis was so bad, there was a terrible outbreak of suicide and depression,’ said Jennifer Fahy, communications director with Farm Aid, a group founded in 1985 that advocates for farmers. Today, she said, ‘I think it’s actually worse.’”

From Senior Housing News. “Eric Mendelsohn, CEO of National Health Investors, is a self-professed ‘contrarian investor’ who is bullish on skilled nursing while others view this as a beleaguered sector. He recently sat down with Senior Housing News. Q: ‘Oversupply has been an ongoing concern in senior housing, do you see the situation getting better any time soon? I’ve been hearing that the tide should start to turn around mid-2019?’”

“Mendelsohn: ‘I think we’re starting to see it already. We’re getting lots of calls from developers who have been turned down by banks, and that’s an early indicator. When banks turn off the spigot of money, then developers start looking for secondary sources, either more equity or a REIT or a pension fund, who may not be as savvy as a bank and as regulated as a bank. So, that call volume tells me, and my conversations with other banks tells me, that things are slowing down. So I definitely think by the end of this year we should see a slowdown in construction. All the new product that’s coming on in the next 12 months will probably be the last hurrah.’”

“Q: ‘Do you see opportunities for NHI to acquire distressed properties, where occupancy has suffered due to all the new competition? ‘”

“A: ‘As a REIT, we need to be careful. I love distress as much as the next investor, but we have to be mindful that we have to pay a dividend, so buying a failed development is tricky. We did exactly that in New Hampshire earlier this year, with a loan. So, we have a first mortgage, we’re getting current payments on it, and the property is filling up according to our predictions. But that’s what you’ll likely see more of, more developments that are built, that are half full, with lackluster performance, that can be purchased at a deep discount.’”

June 29, 2018

The Global Binge On Cheap Finance Is Our Modern-Day Debacle

It’s Friday desk clearing time for this blogger. “The Credit Union of Colorado has revived a loan product that disappeared following the housing crash a decade ago — the zero-down conventional mortgage. Reaction to its return will likely range from first-time homebuyers wondering what took so long to survivors of the foreclosure crisis asking why did they awaken a financial beast better left for dead. ‘We are looking for a way for individuals to get into the market right away rather than having to save up a down payment while the prices are going up,’ said Doug Schneider, vice president of marketing at the credit union.”

“Lou Barnes, a mortgage industry veteran with Premier Mortgage Group in Boulder, said there is a reason why zero-down loans went away, along with a host of other riskier loan products that contributed to the housing crash. ‘If you can’t save, what are you doing buying a home with nothing down? … Rolling out stuff like this has marked cycle tops,’ he warned.”

“In West Roseville, many new homes are going up and new neighbors are moving in. Realtor Jose Chavez said new housing developments are popular for homebuyers, but recently they’ve been all too inviting for the those who are not welcome. ‘Since May we’ve had 13 construction site thefts. Twelve have been in the west side of town where all the homes are being built,’ said Rob Baquera with Roseville PD. Baquera made the connection between new homes and thefts. ‘This is a trend we see more and more just based on the fact there are a lot of homes on the market,’ Baquera said.”

“Police said vacant homes are attractive to criminals. ‘Criminals are seizing the opportunity of not many neighbors being around. They are going into the houses in the middle of the night and pulling out appliances and selling them,’ Baquera said. But Chavez said there are ways to try to prevent this crime from happening. ‘Stage the home. Make it look like someone is living there,’ Chavez suggested.”

“The Minnesota Land Planning Act mandates that each of the 105 municipalities in the seven-county metro area undertake a decennial comprehensive plan update. This radical land-use experiment will cost Minneapolis our most affordable homes, because developers are in the business of maximizing profits. Free to build where they want (instead of where the city should encourage greater density), developers will tear down the lowest-priced homes. Additionally, the role of speculators will invariably overshadow house investment by single-family homeowners. This paper recently chronicled hundreds of vacant and boarded houses in the city. One speculator alone owned 87 vacant residential properties on the North Side.”

“The former CEO of Saks just sold a condo at Faena House for $7.9 million, nearly half of its original asking price. Fair Properties LLC, which is managed by Stephen Sadove, sold the condo in Miami Beach according to property records. Sadove bought the condo from the developer for $8.1 million in September 2015 and then tried to flip it for $14.5 million, or about $3,500 per square foot, the same month he closed on the unit. Sadove is one of many high-profile buyers who have tried to flip their condos at the ultra-luxury 42-unit building.”

“What works in Toronto and Vancouver won’t work everywhere else. That’s the message the Association of Regina Realtors CEO Gord Archibald wants to communicate to the federal government. As a result of people leaving the marketplace, demand for property in southern Saskatchewan is decreasing even further. ‘In Regina, we’ve got supply levels and the number of active listings on the market at all time highs and we’re seeing already weak demand being dampened through these rules.’”

“The slump in London house prices is accelerating with the market now falling at its fastest pace for almost a decade, new figures reveal. Prices have now been in reverse for four consecutive quarters and have not dropped at this pace since Autumn 2009 when the market was still reeling from the impact of the financial crash. However, some property experts said the situation on the ground on London is even worse than the Nationwide figures suggest.”

“Property buyer Henry Pryor said: ‘Nationwide is giving us the equivalent of the weather ten days ago. The real picture is that the housing market is far more perilous than it was for sellers negotiating deals in June. I would say prices are down five per cent year on year in London. I have just agreed a deal for a property in Maida Vale that was on at £2.25 million in 2016 for £1.7 million.’”

“In 2016, when the majority of developers and households remained confident, casting aside the possibility of property prices dropping, Chief Financial Market Strategist Jihad El Hokayem went against mainstream analysts and rang alarm bells, predicting a ‘two for the price of one’ free-fall. Two years on, and El Hokayem is of the belief that the situation is much more dire than what he initially thought. Today, El Hokayem is adamant that if prospective buyers wait longer, they’ll snatch three properties for the price of one in 2020.”

“El Hokayem’s logic hasn’t wavered since and is based on the most basic economic theory, that the market is oversupplied and demand is shrinking, with all signs pointing towards a downward spiral. How did Lebanon find itself in this predicament? Witnessing the real estate market stagnating, with developers scrambling to find buyers, billions of dollars were injected for subsidized housing loans of up to LBP 800 million for a single apartment, with a ’significant share being handed out to affluent individuals who did not need this help, leaving minimal funds for people who were really in need.’ The spiral could have been avoided, maintains El Hokayem, ‘if developers acknowledged the truth and adjusted their prices, sold their inventory at lower prices, and deposited the funds in the bank.’”

“These concerns are fueled as Lebanese buyers who purchased a property through an installment plan, begin to realize that their investment value is gradually dropping, prompting them to ponder the possibility of relinquishing ownership of the property only to buy it later at a lower price. ‘If someone bought an apartment valued at $200,000 two years ago and is now valued at $120,000, what’s to stop him to him from forgoing the $30,000 he already paid and give the apartment back to the bank?’ he asks. ‘It feels a lot like the subprime mortgage crisis of 2008, but on steroids, due to the lack of transparency.’”

“The Chinese property industry’s bad year keeps getting worse, sending bonds of some developers to record lows and triggering fresh concerns about a major pillar of the world’s second-largest economy. Tighter financing constraints, a state campaign to rein in real estate prices and a tumbling yuan are battering the sector just as it faces an unprecedented wall of maturing offshore debt. The worry is that defaults will jump and economic growth will take a hit. Real estate accounts for about 20 percent of China’s gross domestic product, when both direct and indirect contributions are considered, according to Bloomberg Economics.”

“‘Private developers will face the toughest ever repayment pressure in the third quarter,’ said Zhang Hongwei, a research director at property consulting firm Tospur. ‘Builders will make big cuts to prices in exchange for cash income.’”

“Is the current period of falling prices a temporary dip, or does it foreshadow something else more dramatic? Is the long bubble about to turn into the cataclysmic crash so frequently forecast by the doom-mongers? ABS numbers earlier this month confirmed Sydney’s six-year house price party ended in March. Unlike just 12 months ago, developers such as Sydney-based Ceerose are now unable to sell units and are turning landlord and renting them out instead.”

“Those who bought in the latter stages of the boom could soon be facing negative equity. Despite banks increasingly forcing buyers to put down larger deposits to satisfy the concerns of regulators, falling prices mean their homes may already be worth less than they borrowed. Former Reserve Bank board member Warwick McKibbin told The Australian Financial Review this week that it was past time for the central bank to begin preparing households for higher interest rates.”

“‘If the argument is ‘we can’t raise rates because if we do we could make the housing market a lot worse’, or prick some other asset bubble and cause a shock – if that’s the problem – it’s better to raise rates now than wait six months,’ he says.”

“Many banks are already being forced to pay more for the money they lend households. Smaller lenders like Bank of Queensland, AMP Bank, and ME Bank this week announced plans to hike their mortgage rates by up to 40 basis points. Bigger lenders are facing the same pressures, but may be reticent to draw attention through mortgage rate hikes amid the banking royal commission. Peter Sheahan, director of institutional markets at Curve Securities, likens what is happening in money markets around the world as the US Fed unwinds its crisis-era monetary policy stimulus to the late 1980s, when Australian farmers and corporates ran into serious trouble borrowing low-interest rate Swiss francs without hedging the currency.”

“‘We are seeing another period in history where it proves to be dangerous to borrow too much money in a foreign currency,’ he says. ‘The adjustment phase can be seen in our own domestic funding problems that are emerging.’ Australian banks rely heavily on US dollar funding sources, which are becoming more costly. ‘The global binge on cheap USD finance is our modern-day foreign currency debacle,’ he says.”

“Much of this is likely to play out in coming months, say money market experts, coinciding with more negative headlines out of the nation’s biggest property markets as prices drop. A big unresolved question for state governments, regulators and the Reserve Bank is whether these adjustments lead to a wider panic. That has always been the Reserve Bank’s biggest concern throughout the whole post-GFC cycle; that an eventual fall in property prices that were bid up to unsustainably high levels topples consumers into a defensive crouch.”

June 28, 2018

We’re In For A Year Of Change

A report from the Toronto Star in Canada. “In one of Canada’s most expensive neighbourhoods, in hilly West Vancouver, sits a row of seemingly abandoned mansions. Not a single person can be found on the upper north side of Highview Place on a weekday midafternoon. The homes were developed by British Pacific Properties, starting in 2013. The empty houses are valued at between six and eight million dollars. The only sign of life is a robin flitting in six-foot-tall weeds. The Star knocked on the doors of the seven houses, but didn’t find anyone at home. Land titles for the homes list mailing addresses in Vancouver, West Vancouver and Richmond, B.C., while others list addresses in China.”

“A visit to two of the Vancouver mailing addresses on a Friday afternoon — a house on Vancouver’s west side and a Coal Harbour condo — failed to find the owners of the West Vancouver properties. A few doors south, a neighbour, who was not comfortable giving her name, said that in the three years she’s lived on her street, there’s never been anyone living in the row of empty Highview mansions. ‘It’s very unsightly. There are six-foot weeds in front of the property,’ she said. ‘It takes away from the vibrancy of the neighbourhood.’”

From This Is Money in the UK. “After spending four years living in a soulless apartment in a converted hotel in Abu Dhabi, Gabriel Ward was itching to return to the UK. When he stumbled across an advertisement for a block of £120,000 luxury apartments in an up-and-coming part of Manchester, it felt like the opportunity he’d been waiting for. He put down the required 80 per cent deposit, or £96,000, leaving just enough in his life savings to cover the remaining £24,000 when it was due on completion. Although it was a large sum, he only had to put down £3,000 to start with and he was reassured that he was making a smart investment.”

“But his one-bedroom flat hasn’t been built. Across the country, thousands of investors in so-called buyer-funded developments are in the same boat. Gabriel says the moment he discovered his £96,000 was lost is etched in his memory. He was sent an email by another investor who told him nearly all the money they had paid towards the homes had vanished. ‘I was recovering from six rounds of chemotherapy and had been in a very dark frame of mind because of my illness. Then all of a sudden I’m thinking: ‘So I’m going to live but now I’m completely broke. ‘I felt such shame. I’ve never had a lot of money to my name, so I’m devastated to have fallen for their appalling tactics.’”

“Administrators have pulled the plug on the Angelgate project as a hunt begins for the millions that have vanished.”

From TV 360 Nigeria. “A former representative of Nigeria to UNIDO-France, Mr Olusola Kayode, has called for the introduction of high tax regimes for vacant houses to check their proliferation in urban centres. He expressed concern about the existence of empty houses in many neighbourhoods in major towns in the country whilst many people remained homeless or lived in squalor.”

“‘There have been worrisome trends of empty houses in many neighbourhoods in Abuja in spite of the prevailing high housing deficit. When you look around there are so many houses locked up and here are people in satellite towns and slums looking for houses to live in. This, therefore, requires that policies stipulating punitive measures such as high tax regimes for vacant houses should be promulgated to check the proliferation of empty houses that tend to create artificial scarcity and high rental values.’”

From Live Mint on India. “From setting up offshore offices and organizing events to helping find tenants, luxury home builders are trying every trick in the book to boost sales, apart from offering discounts and flexi-payment schemes. Even as mid-income housing is taking off, luxury project launches fell 70% last year, said a report by property consultant Cushman & Wakefield. Tata Housing Development Co. Ltd is approaching NRIs to sell its Kolkata luxury homes costing around ₹ 3.5 crore. However, it has struggled to sell two homes priced at ₹ 1.7 crore at Thane outside Mumbai.”

“‘Everything is tough to sell today. The challenge is to get people to come for a site visit, which has dropped significantly. Buyers know they will get a 10-15% discount in this market and they may negotiate for more,’ said a person familiar with the company’s plans.”

From Property Guru on Borneo. “Real estate developers in Sabah is urging the state government to help them tackle the oversupply of completed houses, reported the Borneo Post. ‘When the market is bullish, these overhang properties will gradually be absorbed. But the number of overhang units is accumulating in the current market slowdown,’ said Sabah Housing and Real Estate Developers Association (SHAREDA) President Chew Sang Hai.”

“In fact, the proportion of unsold units – defined as those with Occupancy Certificates (OCs) that have been listed for sale for over nine months – has reached 25 percent, mainly consisting of bumiputera units.”

From ABC News on China. “Fancy villas, high-rise apartment blocks, lakes, parks and sprawling road networks: Ghost cities in China have it all. Just one crucial element is missing — the people. Built for a population that never came, about 50 of these surreal sites lay desolate across the country. But still the construction continues. These new cities are usually built in rural areas on the outskirts of existing cities. Dinny McMahon, author of China’s Great Wall of Debt, explained the driving force behind the new construction projects, seemingly built for no-one.”

“‘The phenomenon very much has been driven by the debt splurge that really kicked into gear after the global financial crisis,’ Mr McMahon said. ‘Local governments around the country tried to juice and stimulate their economies by building more infrastructure and stimulating the property market.’”

From Mansion Global on Australia. “In Sydney, the median value of houses in North Bondi fell from A$3.03 million (US$2.24 million) to A$2.62 million (US$1.94 million) between the August 2017 market peak and May this year, a drop of 13.4%. The median value of houses in the coastal suburbs of North Narrabeen, Dee Why and Elanora Heights fell by 11.8%, 11.7% and 11.4% respectively.”

“In Melbourne, the median value of houses in exclusive Canterbury fell by 19.3% from $3.18 million (US$2.35 million) in November 2017 (Melbourne’s market peaked slightly later than Sydney’s) to $2.56 million (US$1.89 million) in May this year. Armadale and Malvern median house values fell by 19.2% and 14.9%. Expensive homes in Sydney and Melbourne are undergoing a ‘downward trend in pricing,’ said Charles Tarbey, chairman of Century 21 Australia. ‘I’ve found that downward trend is continuing but in a modest fashion. It’s not a dramatic change but anybody buying in that range of A$2 million and up has the potential to negotiate. Prior to this period, that wasn’t the case.’”

“In Melbourne, auction clearance rates for the Queen’s Birthday long weekend (June 9-11) were 56% across the Century 21 network, compared to 76% on the same weekend last year. ‘That’s a 20-point difference in the space of 12 months,’ Mr. Tarbey said. ‘So it’s a big change. You now have an opportunity to make an offer rather than be forced to push yourself because you might miss out.’”

“Buyers looking at luxury apartments might also gain some attractive deals, according to Mr. Tarbey. Some apartments bought off plan when the market was booming are reaching completion and banks are refusing to accept the price tags paid for them when lending to the buyer. Some buyers are declining to settle and foregoing their deposits, forcing developers to resell or hold pre-sold apartments for better times. This phenomenon is particularly apparent in Brisbane, he says.”

“But the current situation is a stark contrast to a prolonged real estate boom that ended last year. ‘We’re in for a year of change,’ Mr. Tarbey said. ‘The top end is feeling it. If a bit more stock comes on the market, and the equity markets change [for the worse], people will start to rethink their easy purchasing activities undertaken over the last few years.’”

June 27, 2018

Eager To Cut A Deal And Unload Old Inventory

A report from the Chinook Observer in Washington. “The housing crisis hits low-income, disabled and senior folks the hardest all over the nation. On every possible data point, our county numbers are much worse than either the state or national averages. The relative numbers of ‘housing-impaired’ individuals in our county are scary. The median age in Washington state and the nation as a whole is 38 years old. The media age in Long Beach is 53. Likewise, the median income in Washington state is $62,800; while the median income in Pacific County is $38,000; and a shocking $26,800 in Long Beach. Every demographic related to a housing crisis in our county is dramatic and several times over the national averages.”

“According to data on actual structures, we have a total of 15,977 housing units in our county. Of those nearly half — 6,700 — are unoccupied and assumed to be second homes or vacations homes. Many of these second homes sit empty or are used as short-term rentals. and, therefore, are not available for rental housing.”

From Inman News. “Realtors in the rapidly gentrifying San Francisco Bay Area city of Oakland, California, have been caught on camera giving advice on how to use legal loopholes to evict tenants to a local news reporter posing as a prospective buyer. In early June, KPIX 5 reporter Susie Steimle attended at least three open houses for renter-occupied duplexes and triplexes in the Oakland area, and at each one, real estate agents coached Steimle on how she could use an exemption in Oakland’s ‘Just Cause for Eviction Ordinance’ to evict tenants without notice and make a profit.”

“‘You can move in, and then once you have lived in the property, then the… umm… the restrictions on evictions and stuff go away,’ said the first agent who was giving a tour through a triplex. ‘A lot of people, that is what they do for a living,’ said a second agent who was listing a duplex. ‘They will buy apartments that have below market rate rents, and figure out a way that they can get them up higher so they can sell it for a profit.’”

From Capital Public Radio. “California has one of the highest percentages of seniors living in poverty in the United States, behind only Washington DC, according to the Kaiser Family Foundation. One in five seniors in California live in poverty, after adjusting for spending on basic necessities. Each month, Rosanne Goodwin scours her one-bedroom apartment outside San Diego for possessions to sell on eBay.”

“‘I’ve sold photo albums,’ Goodwin said. ‘I’ve sold whatever I could that’s just around the house, hand tools that I’ve had since I was in my 20s that my dad had given me for being out on my own. I just look around and wonder what can I sell now that will generate some income?’”

The Houston Chronicle in Texas. “At Arabella, a high-end condominium tower along the West Loop, buyers with good credit can qualify for a mortgage with just 10 percent down. But those with an M.D. after their name can get a mortgage without putting down a penny. Through a lending program with Iberia Bank, doctors can qualify for 100 percent financing, said Arabella developer Randall Davis. ‘They’re also working on a program for lawyers,’ Davis said.”

“Iberia, Bank of America and a number of other banks have special loan programs for physicians and other professionals. Arabella is under construction at 4521 San Felipe. The building has 99 units priced up to about $4 million. The units are 75 percent sold.”

The Daily Mail on Florida. “Joanna Krupa has now slashed the price of her stunning $1.9 million Miami apartment by $300,000, despite the abode boasting floor-to-ceiling windows and skyline views. The 39-year-old Polish model’s former home was dropped to $1.595 million in the hopes of a quick sale, after she and now ex-husband first purchased the home in 2013 for $1.4 million.”

From Globest on Florida. “Veteran developer Inigo Ardid says that market conditions in Miami have prompted his firm to take advantage of a unique opportunity here. Ardid, co-president of Key International, says his firm and partners Integra Investments and Wexford Capital will begin marketing its 32-unit ultra-luxury condominium project in East Boca Raton later this year. The fact that Miami has seen approximately 11,000 new condominium units hit the market in the last two to three years has cut into demand for new product, he notes. ‘The market in Miami has been soft and we began looking outside of Miami,’ he says.”

“While pricing has not been set as yet, Ardid says each 4,000-square-foot home will be priced in the ‘multi-millions.’ ‘It will be a very high-end project,’ Ardid says.”

From Mansion Global on New York. “Manhattan luxury housing rebounded in the second quarter of 2018 from a gloomier-than-usual winter real estate season, according to the Olshan Report. Developers eager to cut a deal and unload old inventory helped drive luxury deals in the second quarter. Between April and the end of June, developers sold 43% of all apartments—many at a discount—up from 38% in both 2017 and 2016, according to the report.”

June 26, 2018

A Glut Has Quickly Turned The Tables

A report from the Dallas Morning News in Texas. “Dallas is on the list of cities where apartment builders may be overdoing it. Apartment construction in the Dallas area will far outpace demand, according to a new report by Yardi Systems Inc. The number of new apartments opening in the next two years in Dallas will be almost three times the projected demand, according to Yardi’s new forecast. More than 45,000 apartments are expected to open in the area during the next two years. ‘In the near term, markets at risk of oversupply include Denver, Seattle, Charlotte, Dallas, Phoenix and Miami, where deliveries are expected to outpace demand,’ Yardi analysts said. ‘We expect construction will moderate after the more than 600,000 units currently under construction are completed’ across the U.S.”

The Seattle Times in Washington. “For years, the Seattle rental market was so heated that renters would constantly monitor online listings and quickly show up to available apartments with checkbooks and references in hand. For many apartments, they’d have to fill out applications on the spot and cross their fingers. Those days are over. A glut of new apartments washing over the city has quickly turned the tables as vacancy rates hit their highest levels since the recession, led by downtown Seattle, where one-fourth of all apartments are now sitting empty.”

“This is all happening because of the region’s record apartment-construction boom. Overall, the city is getting more new units this half-decade than in the previous 50 years combined, and the peak of the openings is happening right now. Even in 2016, the Seattle area was already building the most new apartments per capita of any big metro area in the country, according to ApartmentList — and construction has only sped up since then.”

“At newly opened properties, 40 percent of all brand-new units across the region are sitting empty — that works out to about 5,000 units that have never been lived in, according to Apartment Insights/RealData. About 10,000 additional units across King and Snohomish counties are sitting empty at buildings that aren’t brand new, largely because of regular turnover. A stunning 26 percent of all apartments in the core of downtown Seattle right now are empty, up from just 5 percent a year prior.”

From the Denver Channel in Colorado. “Denver has a new idea to help deal with the affordable housing crisis, but city subsidies to people for existing vacant apartments is also drawing criticism. The program is called Lower Income Voucher Equity (LIVE) Denver. The basic concept is taking existing empty apartments, putting them in a pool, renting them out at a discount to lower-income people, and having the city pay the difference in the form of a subsidy. But not everyone is on board with the idea of subsidizing empty existing apartments.”

“‘We are perpetuating the problem of high rents in this city when we help to subsidize the occupancy of vacant apartments,’ City Council member Kevin Flynn said at Monday’s meeting. Colorado Coalition for the Homeless President John Parvensky also had concerns during an interview with Denver7 earlier this month. ‘If they have vacant units it’s because the rent’s too high. All they need to do is reduce to market level, they will fill up, and there won’t be these empty units,’ he said.”

From National Real Estate Investor. “Campus Apartments CEO David Adelman Talks About What’s Next in Student Housing. NREI: What were some of the markets where supply got too high? DA:I think you’ve seen a lot of supply in College Station, Texas, that’s Texas A&M University. Previously you saw a lot of supply in Statesboro, Ga., Georgia Southern University. There’s a lot of supply at the University of Arizona. It really just depends. In some cases, the school will grow into that supply, in other cases it won’t. At Texas A&M there’s an enlarged enrollment over the next 10 years, so that will probably be absorbed. Some of the other markets—it might not be.”

The Reading Eagle in Pennsylvania. “Advantage Point, the long-delayed student housing project off Kutztown University campus in Maxatawny Township, is going to be built, its developer said. Greg Sarangoulis, developer, said he is not discouraged by Kutztown’s declining enrollment, which fell from 10,707 in 2010 to 8,329 in 2017, a 22 percent decline. In addition, Kutztown now requires freshmen and sophomores to live on campus for their first two years. And there is currently a glut of student housing in downtown Kutztown.”

“‘I remain optimistic about the project,’ he said. ‘I think there’s been a slight uptick in the student population.’”

The New Orleans Advocate in Louisiana. “For years, rising tourism in New Orleans has driven a downtown construction boom, thanks in part to generous tax credits that have made it profitable to bring vacant or underutilized historic buildings back into commerce as hotels. Now, the city is attracting attention from a new sector of the hospitality industry: timeshares, or at least a new version of the half-century-old business model.”

“A handful of recently restored apartment buildings and hotels that are now listed for sale could likely go this route, according to some hospitality leaders — a shift that’s partly driven by a recent zoning law change that allows timeshares in areas of the Central Business District where they previously faced permitting hurdles. With hundreds of apartment units added in recent years, some developers and real estate experts, including Lenny Wormser, senior vice president at Hospitality Real Estate Counselors, say there’s an ‘oversupply of apartments’ in the CBD, which has caused the rental market to soften. At the Elk Place building, for example, the occupancy rate had fallen into the 80 percent range.”

From The Real Deal on Illinois. “Demand for rental units in the Chicago area has not kept pace with the torrid rate of apartment construction. The uptick in vacancy is due to the more than 9,000 units added in the Chicago area in the past two years. In the city, the vacancy rate was up to 6.9 percent from 5.4 percent year over year, despite net absorption of 1,700 units. The suburban vacancy rate, meanwhile, rose from 5 to 5.4 percent.”

“Marcus & Millichap said the large number of completions could slow investor interest amid concerns of oversupply. Deal volume Downtown dropped slightly in the last 12 months, with fewer new or recently built residential buildings changing hands, the report said. While the report projected a slowdown in deliveries, developers have plans to add tens of thousands of new units in the coming years.”

The Chicago Sun Times in Illinois. “No doubt, lots of Chicagoans are having a tough time finding a place to live that won’t leave them broke. Every area of the city, from Jefferson Park to the South Loop to Gage Park to Pullman, has a dearth of affordable housing, especially two- and three-bedroom units that are big enough for families, according to a report from the DePaul University Institute of Housing Studies. Chicago is right to take a hard look at strengthening its 2015 Affordable Requirements Ordinance. The ARO let developers sidestep requirements to include below-market rental units in new construction projects by paying into a fund to finance construction of affordable units elsewhere.”

“The ARO made sense, to a certain degree. Chicago got more affordable units, although fewer than the city projected, and the fund helped support subsidies for very low-income housing. But the program also has been a disappointment. Developers, as it turned out, were willing to shell out up to $175,000 not to build affordable housing, especially downtown or in wealthier North Side neighborhoods. Most of the new units were built in low-income communities on the South and West sides that already have a glut of low-income housing.”

June 25, 2018

Inflated By Government Schemes And Taxpayers’ Money

A report from the North Shore News in Canada. “Sales in the top end of the North Shore real estate market are continuing to fall and prices are beginning to edge downward. The most recent statistics from the Greater Vancouver Real Estate Board point to a continuing slump in the housing market from its frenzied peak two years ago. Sales of single-family homes to the end of May were down 77 per cent in West Vancouver from the peak of the market in 2016, said Brent Eilers, a West Vancouver real estate agent with over 35 years’ experience. In North Vancouver, sales are down about 54 per cent over that two-year time frame.”

“An average West Vancouver selling price of $3.8 million at the peak of the market is now down to about $3.2 million, said Eilers. In the highest end of the luxury market, that change is even more pronounced. ‘If you talk to people who have homes worth over $4 million . . . they’re down a ton,’ said Eilers.”

The Financial Mail on the UK. “Britain’s ten biggest builders have seen the value of their shares drop by a combined £3.6 billion in the last two weeks as fears grow that the housing market is heading for a downturn. Vince Cable, the Liberal Democrat leader, said: ‘Housebuilding bosses seem to have secured excessive pay and bonus packages just before a downturn in the market – housebuyers will be furious. Shareholders will also be left wondering why these executives should be able to award themselves such obscene packages after claiming credit for a market that has been inflated by Government schemes and taxpayers’ money.’”

From The National on Dubai. “Whether it’s driving a hard bargain with your landlord or looking for a new place, prices are dropping across the board. A flood of new properties in existing suburbs and desert communities has also helped. ‘The handing over of new properties to the market has caused an oversupply of stock in Dubai, this in turn has driven the rental prices down in 2018,’ says property agent Tony McMahon from HMS Homes. All of the apartments and villas below have seen substantial drops in the asking price.”

From the South Africa Times. “Namibia’s housing market seems to be correcting itself, as prices, especially in the upper tiers, are dropping sharply. This comes after a decade during which Namibia’s property prices shot through the roof to be among the highest in the world. Sam Mwando, a lecturer in the department of land and property sciences at the Namibia University of Science and Technology, questioned then whether the latest ‘catchphrase’ in advertisements ‘selling under valuation’ meant that there had been an oversupply of overpriced properties on the market by developers. ‘Residential prices are bound to drop if the supply of property in the long-term outstrips effective demand. When that happens, then the housing bubble bursts,’ he said.”

From the South African. “Residential sales experts have noted a decrease in average gross yields for realtors, the first downward trend of its kind in seven years. Property specialists believe this is due to an oversupply of overpriced properties within the City Bowl and Atlantic Seaboard. Property sector strategist at FNB Home Finance, John Loos, explains that after outperforming the rest of South Africa for ten years, the City Bowl’s freehold property market has taken a hit: ‘A correction was expected to happen. The Atlantic Seaboard and City Bowl showed a combined growth of over 111% the past five years, which is simply exceptional.’”

The Hindu Business Line on India. “Excess leverage for land accumulation, combined with lack of sales, has taken the debt levels of real estate developers to more than ₹4 lakh crore as of December-end 2017. As developers are unable to service debt, industry experts believe a repayment crisis could be looming large. Moreover, there is a supply glut with unsold inventory levels as high as almost four years. ‘I don’t see any reason for a mid-size or small developer to differentiate and emerge a winner. They should join hands with some private individuals and recapitalise or else a stage will come when lenders will have to take a haircut, which has already started happening,’ said Amit Bhagat, CEO, ASK Property Investment Advisors.”

From Bloomberg on China. “Real estate is the driver of the Chinese economy. By some estimates, it accounts (directly and indirectly) for as much as 30 per cent of gross domestic product. Keeping housing prices buoyant and development robust is thus an overriding imperative for China - one that is distorting policymaking and worsening its other economic imbalances.”

“Despite reforms in recent years, there’s little question that Chinese real estate is in bubble territory. From June 2015 through the end of last year, the 100 City Price Index, published by SouFun Holdings, rose 31 per cent to nearly US$202 per square foot. That’s 38 per cent higher than the median price per square foot in the United States, where per-capita income is more than 700 per cent higher than in China. Worried about these prices, and about growing indebtedness among developers, China’s State Council has hatched a plan to encourage rentals.”

“This is a thoroughly misguided way to address the problem. For one thing, rental yields in China are extremely low. In big cities, such as Beijing and Shanghai, yields are hovering around 1.5 per cent (compared to an average of about 3 per cent in the US and 4 per cent in Canada). Wages in China simply aren’t high enough to keep up with the credit fuelled rise in asset prices, and thus developers can’t earn a reasonable rate of return by renting out units. A tax break won’t fix that.”

“Worse, developers are heavily weighted down with debt, much of it short-term. Many are paying out 7 to 8 per cent bond yields, with debt-to-equity ratios of around 380 per cent. Encouraging them to rent out their housing surplus thus drives a money-losing trade: Developers rent to consumers to make a 1.5 per cent yield, while paying a combined debt-and-equity cost of capital of almost 10 per cent.”

“That 8.5 per cent negative yield multiplied by millions of units amounts to an enormous subsidy for renters, but it significantly worsens developers’ debt problems. Actively encouraging this is not exactly standard economics.”

The New Zealand Herald. “We are now well along the downward track on the real estate cycle; and if you can predict when the upturn will start, you can probably predict when interest rates will rise too. Over at Westpac, economists write: ‘In Auckland, house prices are now falling gradually on a monthly basis, are down 2 per cent since February. Average prices in the region are now back at August 2016 levels.’”

From Domain News in Australia. “Mortgage-reliant buyers struggling to get finance ratcheted up the pressure on housing prices in Sydney’s budget and mid-priced suburbs at the weekend. On Saturday, Jon Snead of The Agency-North, passed in a two-bedroom apartment at 11/52-54 Pitt Street, Redfern. The property received no genuine offers despite its sub-$1.2 million guide price. Mr Snead said several buyers who turned out to look at the flat had said they needed to get their finance sorted. ‘What’s stopping people from buying is a bit of greed from vendors who say, ‘I’m not selling for less than this,’ he said.”

“Dragging down the citywide clearance rate have been suburbs such as Cabramatta with a five-month auction success rate of just 25 per cent, Liverpool (28.1 cent), Brighton-le-sand (34.4 per cent) and Pennant Hills (36 per cent). On Saturday, a large number of properties – 74 homes – were withdrawn from their scheduled auction sale.”

From MarketWatch. “It’s hard to argue there are deep divisions between the so-called red and blue states in the U.S., but one thing seems to be bringing the country together: sky-high real-estate prices. While voters often tell pollsters they want to move to places with like-minded neighbors, home economics is starting to trump politics. ‘The way you depolarize the country isn’t with political rhetoric. It’s with a moving van,’ said Redfin CEO Glenn Kelman, who lives in Seattle. ‘I know people who’ve never met someone who voted for Trump. (They are) imaginary creatures. Anyone we imagine, we can imagine a monster. But when you meet a conservative, or you meet a liberal, you immediately moderate your views.’”

“Most of the time — by a ratio of nearly 8 to 1 — a blue-stater moved into a red state rather than the other way around during the past 12 months, Redfin said. ‘When I go to Texas or other parts of country known as conservative, there’s a real feeling that’s going to change. Nevada, Arizona, Texas, those are solid red states. Those states all (are experiencing) massive amounts of migration,’ he said. ‘San Francisco thought it had a monopoly on enlightenment and diversity, but that attitude is beginning to seem quaint. (Places like San Francisco) are increasingly a ‘no-fly zone for people with families,’ he said. ‘With anyone who is director-level and below, the conversation is, ‘We can’t afford to live here.’”

June 24, 2018

The Markets Where We Really Want To Give Stuff Away

A weekend topic starting with Seattle Magazine in Washington. “Representatives of Laconia Development and Realogics Sotheby’s International Realty recently announced that a planned residential tower, now under construction at 600 Wall Street in downtown Seattle, will be delivered as condominiums for sale instead of apartments for rent. It will soon deliver opportunities to own a home in a market where more than 91% of the estimated 30,000 multi-family housing units added to downtown Seattle during the current decade were developed for rent. Dean Jones, CEO of Realogics Sotheby’s International Realty believes renters are increasingly positioning themselves for capital appreciation, mortgage interest deductions and attainable home ownership options before being priced out. He notes that consumer confidence and rising home prices are key for presales, when savvy buyers can purchase a new home in advance of closing and moving in.”

The Battle Creek Inquirer in Michigan. “What difference can a hundred people make? In a downtown the size of Battle Creek’s, potentially a lot. By the end of next year, a total of about 100 new downtown apartments should be coming online in Heritage Tower and McCamly Plaza. ‘It’s the chicken and egg,’ said John Hart, Battle Creek’s downtown development director. ‘Who will come to a district to develop a business if people aren’t going to be there?’”

“The reason why supply hasn’t matched the demand yet is because of how costly it is to create the units versus what banks are willing to lend, Hart said. A project that’s $250,000 might get appraised at $207,000, and making up that gap is what stalls developers, he said. But once a market is established, appraisals will be more favorable and banks more willing to lend, he added. ‘It’s sort of a ripple effect,’ Hart said. ‘The great thing is Battle Creek is there now.’”

From RE Business Online. “Lending intermediaries are not seeing any slowdown in the availability of capital for the student housing sector in 2018. At the same time, many lenders have slowed their lending for all multifamily products, carefully balancing portfolios after the boom in conventional multifamily that occurred in the past few years. Last year was a record year for student housing financing for the government sponsored entities (GSEs) Fannie Mae and Freddie Mac. Together they funded a total of more than $5 billion in student housing volume in 2017. Fannie Mae reported volume of $3.8 billion last year for student housing, while Freddie Mac reported a volume of $1.6 billion for the calendar year.’

“‘Fannie Mae and Freddie Mac continue to be the most active in permanent student housing loans,’ says Peter Benedetto, senior managing director of Berkadia.”

From The State in South Carolina. “Richland County Council reversed course from a decision it made two weeks ago and decided to offer a 10-year, 33 percent property-tax break for a proposed student apartment complex. If the project moves forward, the owner will save nearly $4 million on property taxes over the next decade. But Richland County Council shot down a fifth developer’s request for the tax break for student apartments planned at the BullStreet development, with some council members arguing that the student-housing market was becoming saturated and there was no need to offer a building incentive.”

The Denver Post in Colorado. “Two big builds make up a small slice of the apartment market being constructed in the city, and they are part of a trend playing out in Denver and nationally: developers building luxury apartments at a much higher rate than apartments attainable for lower-income earners. Denver’s seemingly astronomical rent growth since 2000 finally appears to be slowing down. ‘I am concerned about an oversupply of luxury,’ City Councilwoman Robin Kniech said. ‘I think there is this vague hope out there that if developers overbuild luxury, they will lower prices. I don’t see any evidence that is a likely outcome. You may need to offer more incentives to get folks in, like a month of free rent.’”

“The metro area is expected to see 10,000 to 12,000 new apartments delivered this year, according to the Apartment Association of Metro Denver. Scott Johnson, mountain states division president for Lennar Multifamily Communities, acknowledges that apartment occupancy in Denver dipped slightly early last year. Lennar announced this week that it will break ground next year on two 17-story apartment buildings in the Golden Triangle neighborhood, adding another 600 units. ‘We don’t see the same supply numbers coming in the next couple years,’ Johnson said. ‘Construction costs have gone up so much relative to rents. I think we’re in a period where we are going to see starts slow down.’”

The Dallas Morning News in Texas. “Good news for Dallas-Fort Worth apartment residents: Your monthly rent is growing at the lowest rate in years. But you may have to move to get the best deal. The cool-down in rent hikes is being caused by a flood of apartments hitting the market across North Texas. ‘We’ve had some really solid rent growth but now it is beginning to slow down,’ said Greg Willett, chief economist with Richardson-based RealPage.”

“The opening of thousands of D-FW rental units in the last year has put a lid on apartment rent increases in some markets and fueled a rise in concessions that landlords use to attract tenants. Willett said Dallas is on the list of U.S. rental markets where new apartment residents are getting the most freebies, amounting to about an 8 percent concession in rents. ‘You typically get one month of free rent,’ he said. ‘The two markets where we really want to give stuff away right now are Atlanta and Houston.’”

“Atlanta concessions average more than 9 percent and in Houston the giveaways amount to an 8.6 percent break in average rents, according to RealPage. What’s working against landlords and in tenants’ favor is the wave of apartments hitting the market in North Texas. With almost 31,000 units under construction, D-FW leads the nation in apartment development, ahead of the New York area and Washington, D.C., according to RealPage. ‘We will continue to deliver a lot of products for the next couple of years,’ Willett said. ‘There are a handful of places where we are really, really building a lot.’”

From WCPO in Ohio. “Downtown Cincinnati’s West Fourth Street is about to get a makeover. The Loring Group, a Blue Ash-based apartment company with more than 500 units in suburban locations, has acquired four buildings with nearly 300 units that will be renovated to compete against the rising number of high-priced apartments in Cincinnati’s urban core. Class A properties are now fetching rents above $2 but The Loring Group wants to make its units available for roughly $1.50 per square foot. ‘Not everyone can afford to live at The Banks,’ said Scott Davis, a Loring Group partner.”

From Bloomberg on New York. “Apartment landlord AvalonBay Communities Inc. is marketing a stake in roughly $1.2 billion of its Manhattan real estate, according to people with knowledge of the offering. AvalonBay is seeking a buyer for a 50 percent interest in a group of seven properties, including buildings in the Chelsea and Morningside Heights neighborhoods, said the people, who asked not to be identified. Values of U.S. apartment buildings surged to records in recent years as many Americans turned to renting following the recession and younger people put off buying homes. Growth has started to level off after prices climbed to 42 percent above the previous peak, in 2007, according to real estate research firm Green Street Advisors LLC.”

“Apartment landlords in Manhattan are contending with a flood of new supply that has limited their ability to raise rents. They’re cutting asking prices and granting tenants more breaks such as rent-free months as they struggle to keep their buildings full. The company, one of the biggest publicly traded U.S. apartment landlords, said the New York market was one of its weakest performers in the first quarter. Supply in the area ‘is expected to peak late this year and then fall off considerably in 2019,’ Chief Operating Officer Sean Breslin said on the company’s earnings call in April.”

June 23, 2018

The Flawed Nature Of Economic Theory

A weekend topic on housing bubble awareness starting with the Bellingham Herald in Washington. “The steady drumbeat in local real estate recently is that inventory is tight and home prices keep rising. It appears some buyers have had enough. While inventory remains tight, sales are solid and home prices continue to rise, price reductions are also increasing along with homes being pulled off the market. Between June 13-20, 52 price reductions were made on homes for sale across Whatcom County, including 23 price reductions in Bellingham, said Darin Stenvers, branch manager at John L. Scott’s Bellingham office, adding that this is up from earlier this year.”

“Another telling statistic: Of the homes that have come on the market within the last 30 days, 46 Whatcom County homes have been pulled off the market, including 10 in Bellingham. Newly listed homes get taken off the market for a variety of reasons, including being priced too high and not getting offers. Troy Muljat of Muljat Group Realtors agreed there is a split happening in the market, and not just because some sellers are asking too much for a house. The rise in interest rates earlier this year has reduced the purchasing power of buyers who are taking out mortgages. ‘What prices are and what people can afford — that gap is widening,’ Muljat said.”

The Naples Daily News in Florida. “May also saw inventory levels continue to stabilize, according to the Naples Area Board of REALTORS®. There was very good news for buyers in the report as May’s overall median closed price dropped 5 percent to $337,000 from $355,000 in May 2017. Moreover, the overall median closed price for homes priced above $500,000 decreased 14 percent to $507,000 from $590,000 in May 2017. ‘We haven’t seen inventory levels in May this high since 2013,’ said Mike Hughes, general manager for Downing-Frye Realty, Inc. ‘I was concerned that the low end of the market would start shrinking after season, but the May report showed inventory increased 6 percent for homes under $300,000.’”

From Bloomberg on Canada. “The chill that has crept over some segments of the Toronto housing market may soon extend to one of its persistent hot spots: condominiums. Evidence of a slowdown is emerging as new rules make it tougher to get a mortgage and borrowing costs rise for the first time in almost a decade. Projects are taking longer to sell and, in some areas, developers are using incentives to move units. Unlike prices for detached homes, which are down almost 10 per cent from the peak last year, condo prices have continued to climb, reaching a record in May. But the pace of appreciation has slowed. At the same time, supply is rising.”

“Negative monthly cash flow reached $424 on average for resale condos in the first quarter of 2017, according to an April report. Many investors will accept negative cash flow as long as they see price gains on the underlying asset. However sustaining the recent pace of price gains over the longer term may be difficult, the Bank of Canada said in a report this month. ‘If expectations reverse and prices recede, speculators may quickly sell their assets, which could lead to large, rapid price declines.’”

From North Shore News in Canada. “Dear Editor: Allan Angell’s comments that the ‘NDP should be shot’ and the resulting ‘hear, hear’ from the crowd is a tragic reminder that, as the famous economist Thomas Picketty wrote, ‘No hypocrisy is too large when elites are forced to justify their positions.’ As an owner of a real estate brokerage, Mr. Angell has been one of the biggest beneficiaries from this phenomenal rising real estate market, and it shameful that he is the most vocal against a relatively small increase in education levy.”

From Nine News in Australia. “Painful though it may be for existing property owners who are selling, we are witnessing what a bubble slowly deflating back to reality looks like. Data showed that across Australia’s eight capital cities prices fell in the first quarter of 2017. Sydney was hardest hit. This downward price pressure is consistent with a reduction in auction clearance rates documented by CoreLogic. A big correction to property prices would require a major trigger. The most likely candidate for that trigger is interest-only loans. More and more attention is finally being paid to dangers caused by Australia’s profligate use of such loans. As written last year, at the peak a staggering 40 percent of residential mortgages in Australia were interest only.”

“The Australian Prudential Regulation Authority (APRA) stepped in last year, capping new interest-only loans at 30 percent of new loans. That, along with a tightening of underwriting standards by banks, has led to a sharp drop in such loans. In a moment of gaping honesty eight weeks ago, the RBA’s Chris Kent highlighted the difference between the average and marginal borrower. ‘About half of owner-occupier loans have prepayment balances of more than six months of scheduled payments. While that leaves half with only modest balances, some of those borrowers have relatively new loans,’ he said.”

“It doesn’t matter than some of them are new borrowers – other than that they bought at the height of the bubble, making them more susceptible to financial stress than other borrowers. The fact is that a whole bunch of folks are on the wire. If their payments go up they are going to struggle to make them. And if a lot need to sell at once then, as they say at NASA, ‘Houston, we have a problem.’”

“We are about to see a three-year wave of shifts to principal-and-interest loans. Worse still, the loans originated in those years were heavily mediated by mortgage brokers whose incentives were all about moving volume, not quality. The air may fizzle out of the Australian balloon, or it may burst violently. Either way Australians should be asking hard questions about why APRA waited so late to act on interest-only loans, liar loans and underwriting standards in general.”

From Domain News in Australia. “A financial crisis may be poised to swallow Australia’s housing-debt-laden economy and usher in the first recession the country has seen in 26 years, a leading Australian economist says. Australian household debt is now hovering at a record high of about 120 per cent of GDP – among the highest in the world and well above Canada, Britain and the United States. And with the bulk of that debt confined to mortgage debt, and house prices now falling in Sydney and Melbourne, economists are sweating.”

“‘Economic history shows that more often than not a rapid build-up of debt usually comes with a consequence,’ Capital Economics’ Paul Dales writes. ‘The only question is how bad will that consequence be?’”

“Banks have tightened their lending practices following intense scrutiny from the financial services royal commission, which held deeper and darker issues than were first thought. And housing finance has slipped, particularly in the investor and interest-only segments of the market, with experts doubting a reversal will occur any time soon. ‘In a financial-crisis scenario, credit conditions tighten significantly, credit falls outright and the resulting bigger fall in house prices and weakening in the economy calls into question the quality of banks’ assets,’ Dales writes. ‘Banks then tighten credit further, triggering further falls in house prices and a deeper recession.’”

From Multibriefs. “Several years ago, a picture was taken at night of the One Hyde Park development in London. The building is home to some of the world’s most expensive real estate, reaping in up to $180 million for a single apartment. In the photo, there was not a single light on in the gleaming tower. Because no one lives there. As real estate prices continue to steadily rise, seemingly endlessly, we have seen the concept of a ‘home’ become divorced from its original purpose as shelter, and becoming instead a financial asset class in built form.”

“The extension of financial thinking into housing has led to our homes being increasingly viewed as commodities. As Manhattan apartments become popular as a ‘pied-a-terre’ for holders of global capital, it has been reported that in some parts, up to 1 in 3 apartments lies empty for at least 10 months a year. Apparently, landlords in the city are sometimes making such a good return on their investment that they simply don’t want the ‘hassle’ of renting the apartments out to tenants — a process known as ‘warehousing.’”

“At the most shifty end of the spectrum, these properties serve as a haven for laundering money stolen from state budgets over the world. By using offshore companies, this means of parking your ill-gotten money can be largely untraceable. Stories abound of prime properties being bought with cash. If the investor needs an injection of cash, the building becomes their ATM. It can also act as collateral to leverage further investment. International property investment can serve another purpose too — sometimes buying their investor the ultimate prize, the so-called ‘golden passport.’ It appears that even citizenship is up for sale, and property can be one way to buy it.”

“Beyond the rarified world of the so-called ‘1 percent,’ however, the rest of the market is no stranger to the financialization of housing. The number of ordinary citizens who are beginning to think more like property developers than residents of a home in on the rise — fueled by TV programs like ‘Property Ladder.’ Home improvements today are often not made based on pragmatic needs, such as an extension to provide a bedroom for a growing family. They are now often made on the basis of the impact on sales value.”

From The Irish Times. “Almost every economic event or phenomenon is considered the product of the interaction of the laws of supply and demand, argues The Concise Encyclopedia of Economics. The ‘law’ is currently being invoked by those who believe the solution to the Irish housing crisis is to simply build more houses. It is an analysis echoed regularly by grateful developers and estate agents. But the ‘law’ of supply and demand is a micro-economic concept and applicable only to the ‘economy’ of individuals, households and firms.”

“The ‘economy’ of a globalised country such as Ireland is, in stark contrast, a macro-economic concept, the result of analysing the aggregate activities of more than four million people operating within global markets for housing and other assets. As evidence of the flawed nature of this fundamental micro-economic theory, we only have to look at Ireland’s housing market in 2006 – the year in which the market boomed before imploding catastrophically.”

“Further evidence can be found in the Irish housing market since 2006. One glance at the CSO’s 2016 census of housing stock makes clear that Ireland’s surplus stock is higher than it was in 1991 – then at 9.1 per cent. In 2016, the overall vacancy rate, including holiday homes, was 12.3 per cent. If holiday homes are excluded from the housing stock, the vacancy rate drops to 9.4 per cent. In 1991, Dublin’s surplus was 5.1 per cent of the total.”

“To understand Ireland’s housing crisis, and to formulate sound policy to deal with it, requires a macro-economic approach. As Josh Ryan-Collins and Laurie McFarlane argue in Rethinking the Economics of Land and Housing, land is inelastic, a gift of nature. It cannot be created and converted into capital. It cannot be produced or reproduced, or ‘used up.’ Above all, land (and property) is confined by boundaries. It cannot be moved out of Ireland.”

“The supply of credit, by contrast, is elastic and with the help of global central banks and financial institutions can be produced almost ad infinitum by both global but also Irish monetary and financial systems. And unlike land, credit and capital are not confined by boundaries. In our globalised world, capital is highly mobile and its unregulated flows unreliable and unstable.”

“To understand Ireland’s housing crisis we need to lift our eyes from the micro- to the global macro-economy. To follow ‘the Great Wall of Money’ – $453 billion (€390 billion) – aimed at global markets in real estate. Ireland is just one country whose finite and fixed stock of land and property is massively inflated by this onslaught of unregulated capital. The global owners of capital are in a frantic search for safe, high-yielding assets in which to park their capital.”

“House prices have been blasted into the stratosphere, not because of a shortage of supply, but by the excess of a potent propellant – finance. House prices will fall when the propellant is withdrawn – and flows of finance decline. Indeed, there are already signs that globally, capital flows are in retreat. Expect Irish house prices to follow suit.”

June 22, 2018

We Just Came From A Few Years Of Record Everything

It’s Friday desk clearing time for this blogger. “As the market gets more competitive, mortgage lenders are looking for ways and means to cut costs. The quarterly Fannie Mae survey of lenders had found that despite lenders making significant investments to improve operational efficiencies, margins had declined over the past few years. The survey also painted a sobering picture of the housing market, indicating that mortgage demand sentiment had reached a three year low. Lenders’ profit margin outlook also took a dive and remained in the negative territory for the seventh consecutive quarter.”

“Time to beg for a raise. The price of being a homeowner touched a nine-year high in the first quarter, with borrowers in some parts of the U.S. spending half their income on mortgages, according to Zillow. ‘For the past few years, historically low mortgage rates provided the silver lining for buyers as prices rose higher and higher,’ said Aaron Terrazas, senior economist for Zillow. ‘That affordability edge is getting thinner. In markets that have seen some of the biggest increases in home values, housing costs already take up a larger share of income than they did historically, making it all the more difficult for buyers.’”

“The affordability squeeze is worst on the West Coast, including in the Silicon Valley area, where homeowners spend more than half their incomes on mortgage payments, according to Zillow.”

“Home sales are spiking in Lafayette Parish and the overall housing market looks relatively stable, according to a new report. Increased sales in the plus-$300,000 range aren’t keeping up with the glut of new listings, particularly when it comes to resales. Year-over-year sales in the high-end range were up 13 percent in May, but new resale listings, which far outnumbered those for new construction, were up 31 percent. ‘The problem has been in that there has been too much supply coming on the market, and that is particularly exacerbated in the upper end resale market,’ said William Bacque, president of Van Eaton and Romero.”

“The Chicago Tribune has already warned of a bubble in the city’s house flipping ‘frenzy.’ ‘Denise and I were amazed at the state this house was in – these unethical flippers are little more than con-men trying to make a quick buck at the expense of Chicagoans looking for a home,’ said Charles Bellefontaine of Chicagoland Home Inspectors. ‘Make no mistake about it: These homes are dangerous. Sooner or later, the effect of ‘quick flipping’ is going to result in tragedy. This is a ticking time bomb that is coming about purely because of greed with no concern for consequences. As home inspectors, we are vigilant against this threat and condemn this unethical behavior. Who wants to buy a potential death trap?’”

“Vancouver’s real estate market has been electric for the past few years. Prices in the British Columbian city have been soaring since 2015, but tightened lending, higher interest rates across Canada, the city’s new government and tax worries may dampen the mood. Prices were down 4.6% to and average of C$1.3 million (US$1.07 million) compared to the month before, according to Zolo, which updates data in real time. That’s a 7.2% decrease from the previous year, as of June 4.”

“‘We just came from a few years of record everything—record sales, record prices, record time on the market,’ said Vancouver-based agent Leo Wilk. ‘That was from about 2015 to honestly about four weeks ago. ‘Interest rates are up and banks are tightening up lending. That has slowed things down. Anytime you decrease buying power, buying decreases.’”

“Turkish sales of housing rose for the first time in four months after the government introduced incentives such as slashing mortgage rates charged by state-run banks. House purchases via mortgages fell 11.7 percent in May from a year ago, a slower pace of decline than previous months, the data showed. A slump in mortgage lending, prompted by a rise in interest rates, had been the main factor in depressing the market. Turkish housebuilders have also cut prices. In May, 40 large firms jointly reduced the price of some new housing by 20 percent to stimulate demand and sell off old stock.”

“Property owners will have to brace themselves for lower returns and rising vacancies as more tenants battle to pay their rent. The market has weakened so much that rentals in some areas are down more than 30% year on year. This is particularly true for Cape Town, where buy-to-let owners have been forced to either lower their asking rentals or face the prospect of sitting with empty properties. That signals a sharp reversal of fortunes for Cape Town landlords. This time last year, rentals in the Mother City were still testing new highs, and demand for properties to let seemed never ending.”

“Letting specialist Grant Rea says there has been a significant shift from October to a rental market that is oversupplied. Rea says many landlords who were letting their units on a short-term basis through Airbnb have found that the returns don’t justify the time and effort involved. In addition, increased competition in the Airbnb market has placed pressure on rates. ‘Many [landlords] have returned to long-term letting, which has flooded the rental market as a result,’ he says.”

“It would be India’s first privately built and managed city, one of five planned for 30,000 to 50,000 people each. Today Lavasa is an incomplete shell housing some 10,000 people, a symbol of the excesses gripping the world’s second-most-populous nation. This onetime hilltop paradise is becoming for some a hell on earth. Signs of neglect are everywhere: maintenance is late or nonexistent. And that’s for the construction already done. For the unfinished building works—i.e. most of it—there is little happening.”

“Arguably even worse off than current residents are the thousands of people who have put down their life savings or borrowed money to buy property here, only to fear it may never get built. ‘In 2012, when we first came to this place, it was booming—from being a vibrant place it has come down to be a ghost town,’ said David Cooper, a 63-year-old resident of Lavasa’s home for senior citizens, Aashiana. ‘There is hardly anyone who wants to stay.’”

“For a glimpse of where Lavasa may be heading, look to Aamby Valley, another affluent township outside Mumbai turned ghost town built by a separate developer. That $5.5 billion township is facing liquidation after its backer defaulted. ‘Selling big land banks like Lavasa or finding investors who can write big checks for a project like that would be quite a struggle in the current environment,’ said Amit Goenka, managing director of Nisus Finance Services Ltd. ‘There are just too many distressed sellers and not enough buyers in this market.’”

“In China’s Inner Mongolia province, in the middle of the Gobi desert, row upon row of largely vacant apartment towers line the streets of Kangbashi, a new district of the city of Ordos. Earlier this month, Xu Yongfen and his family moved into one 28-story building. But most apartments remain unoccupied, their doors still covered in plastic wrap, and at street level, barren storefronts are visible in all directions. ‘This area is nearly totally empty,’ Mr. Xu says.”

“Built by the dozen across the country, the new areas reflect—and were meant to accelerate—China’s economic boom. As the country’s growth has slowed, many of them have become serious liabilities, deep in debt, with little prospect of full occupancy anytime soon. Officials have since reduced their population goal to 300,000, and they are just halfway there. An early resident, Hu Richa, has been waiting seven years for more neighbors. Still, he says, ‘There’s barely anyone living here.’”

“Sold apartments aren’t necessarily occupied. Chinese families often use them as investments or to hold until their children become adults, which explains why Kangbashi is so thinly populated. Asked about excess inventory in the new district, an Ordos housing official said that Kangbashi is still growing toward its capacity. ‘Supply is low, and the need is large,’ she said.”

“The Sabah Housing and Real Estate Developers Association (Shareda) has written to Chief Minister Datuk Seri Shafie Apdal to request the State Government to hold roundtable discussions with developers and stakeholders over the issue of the overhang in residential properties. Shareda president Chew Sang Hai said the association would put forward several proposals to the government, including acquisition of overhang residential units by the government for People’s Housing Project (PPR) or 1Malaysia People’s Housing Programme (PR1MA).”

“He said the issue of residential overhang would be greatly alleviated if the government would absorb the unsold units in the market. He added that the overhang was defined as unsold completed property that have been in the market for more than nine months. Chew said property overhang in Sabah had reached 25 percent, majority of which are bumiputera units. ‘When the market is bullish, these overhang properties will gradually be absorbed. But the number of overhang units is accumulating in the current market slowdown,’ he said. He said developers could previously sell off 80 to 90 percent of their properties upon launching. ‘Given the current market circumstances, hitting 60 to 70 percent sales for a project is already considered an amazing feat.’”

“Changes proposed to restrictions coming on foreign buyers may go too far and risk exposing New Zealand to a dangerous over-supply of housing, says ANZ chief economist Sharon Zollner. ‘It might seem like a far-fetched concept here in New Zealand with our chronic housing shortages, a sharp increase in housing supply is not everywhere and always a good thing, in the big picture,’ she said. Zollner said the Australian ANZ research team expected prices to fall 10 per cent from their peak to lowest point in Sydney and Melbourne. That was driven in large part by credit availability, she said, but more apartments could be expected to become available over the next year or two, as prices continued to stall.”

“‘If a significant number of foreign investors were to not settle because prices were heading south, it would amplify the downward pressure on the housing market,’ she said. Former ANZ and now independent economist Cameron Bagrie said investors who had previously looked for capital gains would not get them, but yields - the measure of rent compared to purchase price - were not high enough for investors who wanted properties for income. ‘There will be a new wave of buyers who are more yield-based investors but at the moment the numbers don’t stack up, it’s a Mexican stand-off.’”

“A founding member of one of Australia’s biggest real estate fund managers Charter Hall’s Cedric Fuchs has warned of serious vulnerabilities in the housing market with people not adequately prepared for the risks of a downturn. The fund manager said there was growing complacency in the residential property markets especially when it came to managing debt. ‘I don’t think a lot of people have done stress tests when they have gone to buy residential property,’ he told The Australian Financial Review. ‘I don’t think people know where these fingers of vulnerability lie. It’s very much like an avalanche. Nobody knows where the voids are under the fingers of snow that can pull everything down.’”

“Now, as house prices around the country start to show negative growth - the ABS this week recorded the first annual price fall in Sydney since the March quarter 2012, Mr Fuchs says people should exercise extreme caution in the housing market, even with record low interest rates. ‘We have seen a very artificial thing happen with the central banks pulling interest rates down - I think the last time interest rates went that low was 500 years ago.’”

“‘It’s one big experiment. I think people are in unchartered waters. A lot of people who kept missing out at auctions thought their affordability was still ok because of lower interest rates. The debt has increased dramatically and I don’t think people have stress tested for when the rates go up. Nobody really knows how the debt sits and who is behind it.’ Mr Fuchs tells the story of a recently divorced friend who he was amazed to learn had heavily leveraged five houses.”

June 21, 2018

This Summer’s Market Has Turned Out To Be Crowded

A report from the Sierra Sun. “As we reach the end of January 2018, it’s interesting to note that the inventory of Incline Village and Crystal Bay residential real estate currently for sale on the multiple listing service is far less than what it was just 2 years ago. Part of the reason that we have seen the inventory drop to its lowest level in several years is the unusually high rate of sales during the past two years. In 2016 and 2017, we had well over 400 properties closing escrow each year in Incline Village and Crystal Bay. This is well above the historical norm of the mid 300s that we saw in 2014 and 2015.”

“Realistically, we are not going to see a return to the boom times of 500 to 600 residential transactions per year anytime soon unless there is some type of extraordinarily positive economic event or a new buying mania grips the general public.”

The Portland Mercury on Oregon. “Portland City Council is considering adding two new fees to Portland’s growing Airbnb market. Over a dozen Airbnb hosts spoke in opposition to the ordinance at a June 13 city council meeting, calling it ‘regressive’ as well as a threat to their own ability to afford Portland’s housing prices. ‘Airbnb is helping thousands of Portlanders like myself to monetize our biggest asset and stay in our homes,’ said Airbnb host David Bo at the meeting.”

“Data from Insideairbnb.com, an independent website that provides data on Airbnb’s footprint in major cities, shows the company has more than 4,700 listings in Portland. Entire houses and apartments (as opposed to a single room in a home) make up about 66 percent of those listings. The proposed fee, however, is meant to address a housing crisis that is exacerbated by a glut of STRs in Portland.”

From Curbed Seattle in Washington. “Despite a glut of luxury apartment towers moving into Seattle, very few of them are actually the condos they appear to be—except when they suddenly switch it up. A 41-story tower coming up at Sixth Avenue and Wall Street, bordered on one side by Denny Way, will be condos and not rental units as originally planned. The building broke ground on Tuesday.”

“The project, now dubbed ‘Spire,’ has been in the works since 2006, when California-based Laconia Development bought the property. Plans were ultimately abandoned during the recession, then picked back up in 2013, when it started winding through design review.”

From Builder Online on New York. “Home prices and sales inventory in Manhattan, Brooklyn and Queens spiked in May, with inventory across the city reaching all-time highs, according to StreetEasy. The company said that while sales inventory often peaks in May amid home-shopping season, this year set new records. Inventory in Manhattan rose 16.7% compared to last year, the largest year-over-year increase on StreetEasy record. Brooklyn and Queens saw similar surges, with inventory up 23.4% and 42.8%, respectively.”

“While inventory levels rose dramatically, the number of recorded sales fell for the third consecutive month. Recorded sales dropped in every submarket across Brooklyn, Manhattan and Queens, with the largest annual dips occurring in Upper East Side, Midtown and the Rockaways.”

“One out of every six homes received a discount. 16% of homes for sale were discounted, an increase of 3.6 percentage points year-over-year. ‘Sellers are betting on a wave of demand from the peak shopping season, but this summer’s market has turned out to be a crowded one,’ says StreetEasy Senior Economist Grant Long. ‘Higher-end homes, particularly those joining the market from the ongoing stream of new development, will be pressured to lower prices or linger on the market. This summer is poised to offer an excellent negotiating opportunity for buyers with big budgets.’”

The Voice of San Diego in California. “Kirk Effinger, a Realtor and writer from Escondido, gets very defensive in his letter to Voice of San Diego in response to a recent op-ed by Russell York. In Effinger’s letter, his aggressive tone would suggest that York hit a raw nerve by pointing out the fly in the ointment of the ‘build anywhere and everywhere’ paradigm. This glut of high-end housing is not being purchased by people trading up, as Effinger argues.”

“Effinger shrugs his shoulders, admitting, ‘Will the housing being proposed in the unincorporated areas of the county be largely available only to upper-middle and upper-income families? Perhaps.’ This lack of certainty echoes the Building Industry Association’s position that we can’t guarantee affordable housing but maybe, just maybe, if we build enough high-end housing, it will somehow trickle down to the poor and the homeless. Unfortunately, the facts have not borne this out. When we produced 152 percent more ‘above moderate’ units than needed between 2007 and 2014, it had no impact on housing costs overall.”

From KSBY in California. “Mission Hills residents are buzzing about plans for a new supportive housing facility called Brisa Encina. The County of Santa Barbara posted a sign for public notice. Some neighbors do not support the planned project. ‘I don’t like the idea of them putting a facility up here when they have so many vacant buildings downtown,’ said Denise Rojas, Mission Hills resident.”

The Hartford Business Journal in Connecticut. “Hartford area sales of existing dwellings — as well as inventory — dropped in May just as the peak summer sales season opens, Realtors say. There were 1,089 single-family houses sold last month, down 2.3 percent from 1,115 units closed on in May 2017, Greater Hartford Association of Realtors (GHAR) said. Median price for those sold homes fell 1.7 percent, to $225,000 vs. $$228,900 a year earlier.”

“The inventory of houses for sale plummeted 13 percent to 5,344 units available from 6,147 for sale a year ago, GHAR said. A lack of inventory — or too much — impacts sales and prices. ‘Low inventory levels are making it difficult for housing sales to progress,’ said GHAR CEO Holly Callanan.”

From Tap into Newark in New Jersey. “Prominent members of Newark’s African-American clergy community converged at an Essex County government hearing to argue that additional measures are needed to find some relief for local homeowners facing foreclosure. ‘This is a crisis of epidemic proportion in our particular county,’ said the Rev. Ronald Slaughter, the pastor of St. James AME Church in Newark, at a hearing held earlier this week at the Essex County Hall of Records. ‘To put someone out of their home after 15 or 20 years for missing a few payments, and not allowing them to make things right, is a crisis.’”

“According to a January report from ATTOM Data Solutions, New Jersey led the nation in foreclosures in 2017 at a rate of 1.61 percent of all housing units, compared to a rate of .51 percent nationally. The report noted that as of the end of 2017, there are 57,559 New Jersey properties with a foreclosure filing, including default notices, scheduled auctions or bank repossessions. Essex County has been particularly hard hit by the wave of foreclosures. According to statistics cited by Slaughter, provided by Essex County Sheriff Armando Fontoura, the county executed about 3,000 foreclosure notices in 2017.”

June 20, 2018

If You Do A Price Drop, Buyers Think Your Price Is Flexible

A report from The Oregonian. “Portland’s housing market is showing signs of relief for would-be buyers. The inventory of homes on the market climbed in May. Fewer bidding wars broke out, and price growth has slowed. But it’s a tale of two markets, brokers say. While the top of the market is cooling off, there’s still stiff competition over homes that are affordable to first-time buyers. New numbers from the Regional Multiple Listing Service show there were 5,380 homes on the market at the end the month, the most of any May since 2014. Sales, however, are falling. The listing service said some 2,800 homes sold in May, a decline of 3.2 percent compared to a year ago.”

“Homeowners looking to sell, having watched the red-hot run of recent years, are still adjusting to the slower gains. Some are overly aggressive in pricing their homes, which can backfire if you have to drop your price, said Dustin Miller, a broker with Windermere Realty Trust in Lake Oswego. ‘If the buyers see you do a price drop, now they think your price is flexible, especially if you’ve been on the market for a long time,’ Miller said.”

From The Globest on Illinois. “Prices steadily increased last month throughout the metropolitan Chicago housing market, an echo of the numbers recorded in May 2017, RE/MAX reports. But the firm also found that the market has essentially split in two, and the luxury market has a very different story than the one for more affordable homes. ‘There is an extraordinary amount of inventory for luxury homes,’ Paul Wells, a real estate expert with RE/MAX in Barrington, IL, tells GlobeSt.com. But few moderately-priced homes, meaning those costing less than $550,000, are hitting the market.”

“The number of homes selling for $550,000 and above increased by 60 units, or +4.7%, while inventory in those categories now range from a 5.1-month supply to as high as a 25-month supply. ‘I still believe the average person is not comfortable with the economy,’ Wells adds. And many are also reluctant to put their homes up for sale. The lack of moderately-priced homes has in some ways become a vicious circle as many feel they won’t find a replacement home. Furthermore, ‘there is very little new construction.’ Still, ‘it’s all very good for homeowners, because it’s driving up prices.’”

From The Real Deal on Florida. “A member of the Soffer family is suing the development group behind The Ritz-Carlton Residences, Miami Beach over the condominium project’s construction delays, and is looking to get her deposit back. It’s the fourth lawsuit filed by buyers in the last four months, all seeking a refund of deposits due to delays. Marsha Soffer filed suit in Miami-Dade County Circuit Court last month against the development group, 4701 North Meridian LLC, which is a partnership between Ophir Sternberg’s Lionheart Capital and Elliott Management Corp. Soffer is alleging breach of contract and is seeking a refund of her $2.52 million deposit.”

“‘Basically, we want our deposit back,’ said Soffer’s lawyer David Haber. ‘They (the developer) didn’t and couldn’t deliver.’”

The Loudoun Times in Virginia. “Average sale prices were flat but overall home sales activity increased by 5.7 percent year-over-year in May, according to an analysis of the Loudoun County real estate market. New listing activity decreased in May versus last year (-5.8 percent) as Loudoun County added 1,035 new homes to the market. The erratic change in new listings from month to month signals little long-term relief from the market’s consistently low home supply. Overall price growth continued to stagnate in May as median sale prices were identical to last month and May 2017 at $475,000.”

“Great Falls’ 22066 remains the county’s zip code with the highest median sales price continues at $915,000, despite declining 8.0 percent from May 2017. For the second straight month, Sterling’s 20165 saw the largest decline in median sales price from the prior year – declining 13.9 percent to $450,000. Sterling’s 20164 continues as the county’s least expensive zip code with a median sale price of $386,500 in May.”

The Sun Advocate in Utah. “1,806. That number got quite a bit of attention among area Realtors. It was tucked into a recently released economic development report produced by Lewis Young Robertson & Burningham on behalf of Carbon County. It supposedly reflects the number of vacant housing units in Carbon County, amounting to nearly 20 percent of all homes in the area. One reason the statistic worries Realtors is because they believe it could negatively impact the market, which has seen increasing values lately.”

“‘We were up a lot from 2016. We had a really busy market in 2017,’ said Balynda Scovill, president of the Carbon-Emery Board of Realtors. ‘Values didn’t go up a ton, but they did go up a little bit. Our days on market went down.’”

“A look further shows the Census Bureau reported similar numbers for other years. In 2016, for example, it reported the number of vacant homes in Carbon County was 1,861. In 2014, it reported 1,752 vacant homes. In 2013, it was 1,773; and, in 2012, 1,768. First quarter home sales and listings provided by Scovill indeed reflect the strongest first quarter in more than five years. The activity suggests everyone should disregard what the Census Bureau is reporting. It just isn’t true.”

The Daily Independent in California. “The Ridgecrest Police Department got together with concerned citizens, including many realtors and contractors, to discuss strategies and options for dealing with abandoned properties in Ridgecrest. Asked how many abandoned houses and buildings there are in Ridgecrest, Chief Jed McLaughlin replied ‘there’s a ton.’”

“McLaughlin said RPD can help find property owners and their current addresses. Several realtors seemed happy to hear this. Many agreed that many of the properties in question tend to be owned by investors who do not live in Ridgecrest. ‘Have you guys found that its difficult even when you do find the people? Are they not willing to talk? Not willing to sell?’ McLaughlin asked. ‘Or do they just want so much money that its not worth it?’”

“‘All of the above,’ someone said with a laugh.”

From News.com.au on California. “The glittering Lake Merritt is a popular spot with affluent families, surrounded by luxury homes and the expensive offices of major tech companies. Just a few blocks away, people living in squalid tents are begging the local authority workers to stop throwing their battered possessions into garbage trucks, as the police calmly look on. This is normality in Oakland, California, one of the most dangerous cities in the Golden State and victim of a rapidly widening wealth divide created by Silicon Valley.”

“One in 12 people in Oakland was at risk of falling victim to a crime in 2017, and the city has a higher murder rate than troubled San Francisco, with 20 reported homicides per 100,000 individuals, as well as 65.2 rapes, 723.8 robberies, and 616.7 aggravated assaults for every 100,000 people in 2016. While the city has improved its crime rates in recent years, the majority of the top 10 most dangerous Californian cities are satellite towns close by — Stockton, Modesto, Vallejo, Richmond.”

“‘Rental costs have tripled in the last few years in the Bay Area,’ Mission for the Homeless director Michael Meadows tells news.com.au. ‘The gap between the rich and the poor continues to widen.’”

“Housing is so expensive in the San Francisco Bay Area that even most people who work at a full-time job can’t afford the rent,’ says Heather Freinkel, Managing Attorney at the Homeless Action Center. ‘Rent for a one-bedroom apartment is $2000 [$A2686] a month. That means that people who are retired, those with disabilities, and families with children can’t afford market rate housing. There is a great deal of construction going on, but it’s all to build more market-rate, expensive luxury housing.’”

“‘We are seeing families lose homes that they have owned for generations due to foreclosure or predatory developers who buy at a low price, do some superficial remodelling, and ‘flip’ or sell the property soon after to make hundreds of thousands of dollars in a time-span of three to six months.’”

June 19, 2018

A Discussion Of How Far House Prices Will Fall

A report from the San Francisco Chronicle in California. “While much of San Francisco’s housing market continues on at its usual breakneck speed, the luxury market—generally defined as listings above the $2-million mark—usually takes a substantial summer sabbatical. That means that right now sellers in that segment are rapidly slashing prices, trying to get buyers’ attention before the summer slowdown hits. In fact, 22 of the 34 price reductions between May 7 and June 7 were for homes priced above $2 million, according to Paragon Real Estate. There’s another good reason for big cuts—some up to $1 million—in the luxury market. These properties are more likely to be overpriced to begin with.”

“‘More expensive homes have always been much more subject to egregious overpricing; owners and listing agents sometimes have a hard time being realistic when pricing large, beautiful houses,’ said Paragon’s Patrick Carlisle. ‘But even in a crazy hot market, buyers won’t buy homes they consider well overpriced.’ Take a look at the gallery above for some prime examples of listings throughout the city that have taken price cuts in the hundreds of thousands of dollars in the past month.”

From Global News in Canada. “If you’re looking to purchase a home this summer- the odds are in your favour. According to the chair of the Realtors Association, housing inventory is at it’s highest peak since 2008. ‘We had a little bit more in 2008. But it’s definitely the highest since then,’ Darcy Torhjelm said. ‘There’s lots to choose from in just about every category. I’m not seeing prices dropping drastically.’”

From City AM on the UK. “The price of homes in the City and its surrounds has slumped as the London market continues to chill, according to real estate firm Your Move. The research showed that house prices in the City fell 25.9 per cent in the year to April, although this was only on a small number of sales, while prices in Southwark dropped 19.1 per cent. A number of London boroughs have also seen big falls over the last 12 months, with house prices in Wandsworth down 13.1 per cent. Overall, 24 London boroughs have seen prices fall over the year, and just nine have seen them rise.”

From Homes & Property in the UK. “London house sellers are at last getting real: average asking prices have fallen in two out of three boroughs over the past year, according to a new study. Substantial falls have been witnessed in Hackney (3.7 per cent), Hammersmith and Fulham (3.9 per cent), and Ealing (4.5 per cent). There has been a significant 16.4 per cent increase in the number of houses and flats on sale in the capital over the past 12 months.”

“‘The goal posts have just moved,’ said Miles Shipside, Rightmove director. ‘Sellers in locations that have seen larger percentage increases in the number of available properties will have to price lower than properties they are competing against, as there are few better tactics than a bargain price to tempt buyers.’”

“Tom Page, manager of Fyfe Mcdade estate agents in Shoreditch, agreed. ‘There is no space for immature pricing in today’s market,’ he said. ‘There used to be an argument for pricing a property high and trying your luck. However, there are no longer enough buyers in the market for overpriced properties to get attention.’”

From ABC News in Australia. “There are few topics more contentious amongst economists, and at barbeques, than the direction of Australian home prices. But 2018 has marked a dramatic shift in that discussion. In the years between 2012 and 2017, most of the conversation centred on how high home prices could rise. Late last year discussion heated up on whether they might fall. Now that all the major indices are showing falling prices, with leading indicators like housing finance and auction clearance rates showing no signs of a bounce, 2018 has moved on to a discussion of how far house prices will fall.”

“On Monday, those UBS analysts put out a note warning that limits on debt-to-income ratios (DTIs) would further constrain mortgage lending and, therefore, home prices. UBS said APRA is looking at limiting the proportion of loans going to borrowers who have more than six times their annual income in debts. Given that the typical Sydney home is currently nine times the median income, while Melbourne is at eight, UBS argued such a limit would almost inevitably put further downward pressure on home prices as many potential buyers would not be eligible for a loan that was large enough.”

“For those who have been warning of an Australian housing bubble (myself included) this is a clear sign we are in one. If the market was not irrationally overvalued, there would be plenty of cashed-up value investors, not to mention would-be owner-occupiers, to step in and buy as prices fell. But if the main thing holding up demand and prices for expensive homes in Sydney and Melbourne is a belief that a large price fall is not possible, then you are firmly in bubble territory.”

From Nine News in Australia. “Sydney’s housing bubble looks set to finally – if not quite burst – at least deflate somewhat over the next two years. House prices across Greater Sydney have already fallen by 3.4 percent in the past 12 months – more than any other capital city apart from Darwin (where property values are down 7.7 percent). Sydney’s inner regions have seen the biggest price drops. The median value of a Sydney property currently sits at $875,816, but this has plunged sharply in key areas.”

“In Sydney’s CBD and inner south, house prices have fallen dramatically by 13.6 percent since their peak in June last year, while Ryde and the inner west have seen falls of just over 10 percent since August and March 2017 respectively. On the city’s North Shore, property values have fallen by 8.7 percent, while the Northern Beaches didn’t fare much better, recording a 7.5 percent drop since June last year. Western Sydney properties have seen smaller property price falls, with the inner south west, Parramatta, Blacktown and the Baulkham Hills/Hawkesbury regions all recording falls of between 5.9 and 6.8 percent.”

“Macquarie Securities economist Justin Fabo said while market corrections are always worrisome he believes the regulators would be largely delighted with the orderly cooling of housing markets so far. ‘To us the real risk is on the demand side,’ he said. He said if households were to lose faith in housing markets given still-elevated prices, the demand for credit could fall more than he expects. ‘The main thing to fear for Australian housing is fear itself,’ Mr Fabo said.”

“As property prices in Australia have climbed over the past few years, thousands of Australians desperate to get a foothold on the property ladder have used interest-only loans. But the interest-only period on these loans doesn’t last forever. Over the next three years, interest-only loans worth a combined total of about $360 billion will roll over to interest plus principal — and that means borrowers will face higher repayments.”

“For Queensland farm manager Hugh Mackey, 61, the switch to interest-plus-principal repayments may prove too much. He and his wife tried to build a retirement nest egg, buying two investment properties in the coal mining town of Blackwater in 2008, financed by almost half a million dollars in interest-only loans with ANZ. ‘I’m not sure I can retire at 65 the way things are going now,’ he said.”

“The town’s rental market has slumped, the houses have halved in value, and Mr Mackey is struggling to meet his loan repayments.”

“‘At the moment, with interest only, we’re forking out I think approximately $30,000 a year of our own money, separate to the rental income, to not default on the loans.’ Mr Mackey has never missed a payment so far, but this month his loans are switching over to principal-plus-interest. That means he’ll have to find another $12,000 every year to cover the mortgages. He is yet to speak to his bank. ‘If it gets serious and ugly, I presume they can probably bankrupt me,’ he said.”

“Even if he sells both investment properties, he has zero equity and may still owe ANZ about $250,000. He says he regrets ever buying the Blackwater houses. ‘It was probably the worst decision I’ve ever made in my life,’ he says.”

“It has become harder to refinance, with banks applying greater scrutiny to people’s debts and spending habits. By 2015, interest-only loans had grown to almost 40 per cent of outstanding housing credit in Australia. In March 2017, the Australian Prudential Regulation Authority put the brakes on, limiting interest-only lending by the banks to 30 per cent of new home loans. Earlier this month, official data showed new lending to property investors had fallen to its lowest level in two years.”

“But Australia is still exposed with these types of loans when compared to overseas markets. In the UK, 17.6 per cent of home loans are interest only. In the US, where interest-only loans played a role in the global financial crisis, lenders there have only recently started offering these types of loans again, but with extra safeguards.”