July 31, 2018

Everyone Misses The Boom Time

A report from the Globe and Mail in Canada. “In Canada’s fourth-largest city and one of its fastest growing and strongest economies, homes sales continue to trend downward compared with 2017, while home listings continue to grow. But rather than panic, many owners and buyers in the market have kept counting on quick relief, believing Calgary’s next boom will solve their problems. Industry watchers say these hopes, based as they are on a pattern of downturns lasting no more than two years that stretched back into the 1980s, are about to face something of a reality check.”

“A lot of people ask me if we are getting back to ‘normal,’ said Todd Hirsch, a Calgary-based economist with the Alberta Treasury Branches. ‘And when they say that, I suspect what they mean is early 2014, which was a boom time – because that’s what everyone misses, that’s what felt comfortable, especially for people in the oil and gas sector. People were making a lot of money and real estate prices were booming.’”

“When people ask him this, Mr. Hirsch said his reply is blunt: ‘I say, ‘If you mean early 2014, no, we’re not going back to that.’ Anyone who bought before 2015, such as Mr. Hirsch, is feeling this pain. He says his own condominium in downtown Calgary is likely worth about 20 per cent less than it was four years ago.”

“Ann-Marie Lurie, executive director of the CREB, said the organization opened the year expecting prices and sales growth to remain stable, but instead sales have dropped and prices have softened. Calgary has ‘too much supply’ of all types of housing, she said, while several other factors have exacerbated the situation: the dampening effects of the federal ’stress test’ on first-time home buyers; slow job recovery in traditional sectors; and homeowners jumping at the somewhat-rebounding market to list their properties in 2017 and early 2018, adding to the supply overload.”

The Western Investor in Canada. “If housing is a harbinger of a city’s economy, Edmonton could be in trouble. Residential land sales in the Alberta capital dropped 57 per cent last year from 2016 and ‘are tracking close’ to 2017 levels so far in 2018. Sales of multi-family rental building buildings through the first three months of this year, meanwhile, have plunged 74 per cent from the record high set in the first quarter of 2017, according to the Edmonton Flash Report from Altus Group.”

“‘Due to high vacancy rates, landlords were forced to offer discounts and incentives to fill their units. This trend will start to end this year. Things might be a little unsteady until 2019, but they will improve,’ said a report from Braden Equities, a large Edmonton property management firm, which is forecasting lower vacancy rates.”

From This Is Money in the UK. “Homebuyers in the UK are managing to knock £10,822 off asking prices on average as the majority of the country remains very much a buyers’ market, new figures suggest. The latest figures from Hometrack have revealed a UK-wide discount to asking price of 3.5 per cent - the difference between what a home was originally listed for and what it eventually sells for. Taking into account this month’s average asking price of £309,191, that means on average buyers are clinching houses for £10,822 less than what the sellers want.”

“That doesn’t sound like that much, but it is worth bearing in mind that a sizeable number of properties see much bigger cuts than this and many will see tens of thousands of pounds shaved off listed asking prices before they go under offer. Buying agent Henry Pryor, who has bought and sold over 1,000 properties, recommends buyers start low and raise their offer gradually. ‘The buyer decides what a house is worth, the seller decides if it’s enough,’ he said. ‘Remember, the agent is not a broker,’ added Pryor. ‘He is paid by and represents the seller. His job is to pick your pocket and he will try every technique to do so.’”

From Reuters on Australia. “Growth in Australian home loans for investment hit record lows in June as tighter lending standards and hikes in some mortgage rates sucked the life out of the buy-to-let sector, piling further pressure on house prices. Tuesday’s figures showed the stock of outstanding credit for home investment fell 0.1% in June, from May. That was the first drop since the global financial crisis and only the third decline in the near-30 year history of the series.”

‘Annual growth in investor credit slowed to an all-time low of 1.6%, a long way from the 10%-plus seen at the peak of the housing boom in 2015. An added wrinkle has been an increase in funding costs for banks over the last few months which had put upward pressure on mortgage rates. In a recent report, Moody’s Investors Service noted that 16 small and midsize banks had raised their home loan rates in the face of higher wholesale costs and slower loan growth.”

“The four major banks had held off so far, in part due to intense public scrutiny amid a government inquiry which had turned up evidence of widespread misdeeds in the industry. Moody’s suspected that might not last. ‘The rate hikes by the smaller banks may be paving the way for the major banks to raise their rates and preserve margins, despite the politically charged environment,’ the agency said.”

“While such a move would be positive for bank profits and their credit quality, it would come at a tough time for the once red-hot markets of Sydney and Melbourne. The latest data from property consultant CoreLogic showed prices for the combined capital cities were heading for their tenth straight month of decline in July.”

From the Sydney Morning Herald on Australia. “Banks are tipped to remain cautious about mortgage lending for the next two years, continuing a trend that has dragged borrowing by investors to a near standstill, and caused a Sydney-led slump in house prices. Banking experts on Tuesday predicted that a tighter supply of credit would continue to have a major impact on the housing market for next year and possibly longer, as the royal commission hangs over the sector.”

“The comments came as new figures showed housing investor credit growth had slowed to a new record low, a result of banks slamming the brakes on lending to landlords and people taking out interest-only loans. Paul Mirams, a partner specialising in real estate at insolvency firm KordaMentha, said a slide in demand for properties from Chinese buyers would be a drag on the market.”

“‘Broadly speaking we think the Chinese will be a net negative for the next couple of years on residential prices, and that’s probably going back to normal, rather than the last four or five years that have not been normal,’ Mr Mirams said.”

The Tribune India. “The business of land and property is not called ‘real estate’ for nothing. By now, nearly all — rich, middle class, and poor — would have realised that no other estate, whether executive, legislature or judiciary, can rein in this ‘real power’. The state government is preparing to give Cabinet approval to the Punjab Laws (Special Provisions for Regularisation of Unauthorised Colony) Bill, 2018.”

“It may be a good time to recall that over the past two decades, governments came and went, property prices saw boom as much as bust, regularisation policies were framed and changed, investors suffered, home buyers were stuck in hellholes, but no one ever told you not to invest in ‘real estate’. That is because this is perhaps the single largest and quickest route to transfer hard-earned money from the common citizen to the politician-builder, who also is now common.”

“What happened on ground was that the builder paid nothing, home buyers paid money, and the government collected copious funds. And that is it. With little real growth to justify the property bubble (yes, the prices are still not real), there is a vested interest to continue blowing air into it. Is anyone out there expecting the regularisation policy to bring relief from choked sewers, empty rooftop water tanks, and blown-out power transformers? Please forget that, and get used to real life.”

Nobody Wants To Pay The Peak Price

A report from The Real Deal. “According to the National Association of Realtors‘ new survey cited by the Wall Street Journal, the number of purchases by international buyers fell by 21 percent between 2017 and 2018, amounting to a drop of $32 billion. It’s the largest decline on the books. Though good news for Americans who’ve been eyeing properties particularly in more expensive enclaves, waning interest from abroad compounds the effects of a softening housing market–especially for luxury condo developers, who often target wealthy foreigners.”

From the Miami Herald. “In a move with significant implications for the U.S. housing market, Florida Republican Sen. Marco Rubio is seeking to take a Treasury Department crackdown on dirty money in luxury real estate and expand it from a few high-priced enclaves to the entire nation. Rubio says his proposal is an attempt to root out criminals who use illicit funds and anonymous shell companies to buy homes — a form of money laundering that hides the cash’s tainted origin from law enforcement and banks. The widespread practice enables terrorism, sex trafficking, corruption, and drug dealing by providing an outlet for dirty cash, according to transparency advocates.”

“Through an amendment to an unrelated major spending bill, Rubio will ask Treasury to study whether government regulators should force shell companies that buy homes priced at $300,000 or more in cash nationwide to disclose their owners. That could be a figure as as high as 10 percent of the nation’s real-estate deals.”

“A similar reporting requirement affecting transactions priced at $1 million or more has already had a chilling effect on all-cash corporate sales in Miami-Dade County, which has been under Treasury’s microscope since 2016. As soon as the order took hold, shell companies buying homes with cash dropped off the map, a recent study by academic economists found. In Miami-Dade, the number of corporate cash sales plummeted 95 percent, although a strong overall market suggests creative buyers found ways to circumvent the rules, researchers said.”

“The temporary directives — called ‘geographic targeting orders’ or GTOs — were later expanded to other housing markets in Florida, New York, Texas, California, and Hawaii where foreign and anonymous investors are gobbling up real estate and driving up prices. The rules require title agents to identify the owners of shell companies buying homes with cash and disclose their names to the federal government.”

“While overall home sales held steady even after the FinCEN rule went into place, the real-estate study found, luxury home prices were slightly softer in markets affected by the GTO. That suggests that expanding the GTO could have a dampening effect on the nation’s real-estate market, said Jeff Morr, a luxury real-estate broker at Douglas Elliman and chairman of the Miami Master Brokers Forum, an industry group.”

“‘Does it stop money laundering? Probably, yes,’ Morr said. ‘Is it good for the real-estate market? Probably, no.’”

From National Real Estate Investor. “Investors have become less willing to pay top prices for apartment buildings in New York City. Prices on apartment assets in Manhattan south of 96th Street have dropped slightly relative to income, and have lost their upward momentum in the rest of the city. As interest rates push higher, investors are becoming more cautious. ‘Nobody wants to pay the peak price,’ says Jim Costello, senior vice president with New York City-based research firm Real Capital Analytics.”

From Crain’s New York. “A record influx of wealthy foreign buyers, a growing population and historic high employment have kept the city’s residential markets hot for years. But as reports pour in about what could be the beginning of a nationwide housing slowdown, data from the second quarter of the year show that Manhattan is already showing signs of weakness. The number of newly built apartments sold in Manhattan dropped precipitously in the second quarter, falling by 36.7% from the number in the second quarter of 2017. The median sale prices for the units also fell, dropping by 19.2% during that period to $2.6 million from $3.3 million, according to data from Douglas Elliman.”

“The number of existing unit sales, which comprise 87% of the residential sales market in Manhattan, dropped by 12.3% in the three-month period from the year prior. The median sales price for the units was $975,000 in the second quarter, up slightly from the same period a year ago but less than the record $995,000 average set in the third quarter last year.”

“Jonathan Miller, CEO of the market research and appraisal company Miller Samuel, said he believes sales prices are a lagging indicator. More significant to the trajectory of the market is that for three successive quarters, sales volume for existing units has been down. ‘I characterize that as a reset, and it does have the potential to fall farther,’ Miller said. ‘Demand is continuing to be softer than it was last year.’”

“About 6,000 units are for sale in Manhattan—not an outsize number, Miller said. He attributed the slowdown to buyer fatigue from years of pricing increases; the fallout from the Trump administration’s income tax changes, which limited the deductions for mortgage interest to the first $750,000 borrowed and for state and local taxes (including property taxes) to $10,000; and growing unease over the possibility of a recession in the next year or two. ‘We’re definitely going through a period of change,’ Miller said, ‘and it’s not entirely clear where it’s heading right now.’”

From Business Den in Colorado. “A disgruntled Evergreen couple that sold their 8,000-square-foot mansion for $550,000 below their asking price has turned on their one-time broker and the agent who represented the buyers. Former Evergreen homeowners Catherine and Robert Ross last week sued agents Caroline Wagner, Sonia Chritton and the brokerage Sotheby’s International Realty Affiliates, claiming that the agents conspired against them, and shared compromising and confidential information with the buyers that led to a lower sales price.”

“According to the lawsuit, LIV Sotheby’s International Realty agent Caroline Wagner had a six-month contract with the Rosses to sell their home at 580 Packsaddle Trail in Evergreen. The Rosses listed the 8,700-square-foot, seven-bedroom home at $1.9 million, according the lawsuit. The Rosses claim they told Wagner in confidence about financial difficulties, which required them to refinance the home with a hard-money loan. They claim that only Wagner and the bank knew about their loan.”

“The lawsuit states that under Wagner’s contract, she was prohibited from disclosing the sellers’ reasons for listing the home without their consent, and that she was required to remain mum even after the termination of the contract. After seven months of working with the Rosses, Wagner said the couple cut her and hired a different agent.”

“‘When I took the listing, I said, ‘The price you want is too high,’ Wagner said when reached by phone. ‘They fought me all the way. They didn’t want to budge. They went to somebody else because they thought somebody else could do better than I could.’”

“The lawsuit states that in May, the Rosses ran out of money, except for the value in their home. According to the complaint, Wagner then told Sonia Chritton, a LIV Sotheby’s agent at the time, about the Rosses’ financial position and their weak negotiating position. Defendant Chritton finally admitted to the Rosses’ agent that she received the information about their loan and financial hardships from the Rosses’ ex-selling agent,” the lawsuit alleges.”

“Chritton allegedly took this information and used it to help her clients, buyers Annette and Stephen Pummel, to make a low ball offer, according to the complaint. The Rosses accepted the offer and sold their home for $1.37 million on May 30 to the Pummels, Clear Creek County property records show. The Rosses originally purchased the property in 2009 for $595,000, according to property records.”

“Wagner denied the allegations that she communicated with Chritton about the property and the Rosses’ financial difficulties. ‘That is bull,’ she said. ‘I looked at my emails and I have never ever had communication with Sonia. The Rosses are trying to fabricate something to make some money.’”

“Chritton said that word about the Rosses’ financial difficulties did get out. But it wasn’t real estate agents who spilled the beans. Chritton said neighbors told her clients about the Rosses’ loan and financial situation, and told the Pummels to look into the loan.”

July 30, 2018

Where Investors Played A Bigger Role

A report from the Toronto Star in Canada. “There are fledgling signs of recovery in the Toronto region’s real estate market. But those have come too late for homebuyers like Abid Mirza and his fiancée, Sapna Singh, who bought a pre-construction home in Barrie at the height of the market in February 2017. They think that their house, not yet finished, is now worth about $100,000 less than the $639,900 they agreed to pay. Mirza, a PhD student who works in communications and is the signatory on the home, said it will likely take years to recover the home’s value and, in the meantime, their financing costs have risen.”

“To make matters worse, delays in construction — their builder, Colony Park Homes, had originally offered a closing date of Sept. 11, 2017, that was then extended to April 10, 2018, and is now set for Aug. 8 — have also prompted them to twice delay their wedding. A real estate agent and former reporter, Singh said she and Mirza were aware there was risk in the housing market but she wasn’t prepared for the speed and severity of the market’s rise and fall in the past two years.”

“‘We saved up a down payment. We’re first-time buyers,’ she said. ‘I would never have expected all of that was happening at the same time.’”

“It’s not clear how many consumers are in Mirza and Singh’s situation. But the fallout on resale homes from the extraordinary last two years was significant, according to a study published earlier this year by Toronto realtor and analyst John Pasalis. He found 988 homeowners lost $136 million in less than five months when the Toronto-area housing bubble burst.”

“‘The thing that took us back was not the fact that the price went down but the unwillingness of the builder to work with us,’ said Mirza. ‘House prices go up and down — that’s normal. But when the market was good, they said, ‘We have you, we’ll take care of you.’ Now they don’t want to help.’”

The Calgary Sun in Canada. “Sales in Calgary’s top-tier housing market (homes priced at $1 million-plus) in the first half of 2018 are up from the last half of 2017, but are down when compared to the first half of 2017. Single-family and attached homes showed sales declines, while the condo market recorded increases.”

“‘The reality is that sales in the first half of the year are down compared to the same time last year — inventory is on the rise and we’re seeing motivated sellers willing to adjust prices to match buyers’ market conditions. Rising interest rates and tighter mortgage guidelines will only continue to test the Calgary market in the months ahead,’ says Mary-Ann Mears, managing broker, Sotheby’s International Realty Canada in Calgary.”

From Domain News in Australia. “Suburbs in Sydney’s inner west have borne the brunt of the city’s steepest annual drop in property prices since the Global Financial Crisis. While Sydney’s median house price fell by 4.5 per cent year-on-year, a handful of suburbs in the inner west saw prices decline at double the rate, according to Domain Group data. Petersham was the worst hit with prices falling 15.2 per cent, the greatest decline for any suburb across Sydney.”

“Earlwood, Balmain, Annandale and Russell Lea followed suit, each recording a drop in house prices between 7 and 8 per cent. Sans Souci in the south had the second-largest drop in prices across Sydney, with the median falling 13.9 per cent to $1.205 million. ‘I think it reflects a combination of those areas being among the most popular. During the boom they were the key beneficiaries,’ said Dr Shane Oliver, AMP Capital’s chief economist. ‘That’s where investors played a bigger role in the boom times, therefore those areas have become more vulnerable when the market has turned down again.’”

“Malcolm Lewis and his wife bought their family home in nearby Randwick at the peak last year. But they aren’t phased by the potential loss in value as they’re hoping to hold onto their family home beyond 2020, when prices are predicted to rise again. ‘We weren’t really concerned about whether the property market would go up or down,’ Mr Lewis said. ‘The Sydney property market has had a stellar run, people shouldn’t be alarmed if a little bit of air comes out of the market. Over the longer term I could not imagine this area (Randwick) would significantly underperform in the market in any way.’”

From Oregon Business. “According to the American Community Survey there are appoximately 352,000 rental units in the Portland metro area. The census Housing Vacancy survey estimates a 4.8% vacancy rate for the metro area during the second quarter of 2018. Combining these figures would imply roughly 16,000-17,000 vacant units, said Chris Salviati, housing economist for the rental site ApartmentList.”

“The community survey rental stock estimates are based on 2016 data and do not take into account new apartment construction over the past year and a half. Another disclaimer: The vacancy rate may include apartments that have been rented to a tenant who has yet to move in.”

“In a city grappling with affordable housing and homelessness crises, the big question is whether vacancy rates, which everyone agrees are rising, will continue to exert downward pressure on rents. Portland rents have already fallen 2.2% in the past year.”

Pulling A Rabbit Out Of A Hat

A report from the Bellingham Herald in Washington. “Rents in Bellingham and other Whatcom County cities have declined in the past several months according to a new study, but local observers say they’re not seeing rent declines and don’t see the housing crisis easing. Average monthly rent for the Bellingham metro area was $1,547 in June, according to Zillow. That’s an annual countywide drop of 2.2 percent and it shows a steady decline in metro-area rental prices from a peak of $1,672 a month in October 2017. Bellingham rents have been falling steadily since a peak of $1,734 in October 2017, according to Zillow.”

“Tom Follis, a Bellingham real estate appraiser and broker, said he suspects that the Zillow report is an aberration. ‘I think it’s an anomaly rather than a trend,’ Follis said. ‘There a lot of ‘for rent’ signs out, no question. But they’re aimed at the college students.’”

The Tribune Star in Indiana. “As two more large-scale apartment projects prepare to open, there are indications the Terre Haute rental market may have reached capacity, especially for certain demographics. Another housing development that has been on hold for more than a year is now undergoing closer scrutiny and a veteran local builder cautions against further investment in rental properties. ‘Anyone building rental units right now is making a mistake,’ said Rick Jenkins, who has constructed apartments as well as single-family homes. ‘The market is very soft in newer, higher-priced units … that are renting for $1,000 per month or more.’”

“Some apartments are offering discounts on monthly rental rates and move-in specials, actions that suggest they are responding to competition.”

From Press Connects in New York. “New York City-sized rents — backed in part by a government grant and tax breaks — have arrived in Binghamton. The first wave of an expected 122 apartments at 50 Front St. is now being marketed at prices rarely before seen in the region. One- and two-bedroom units at the city’s newest apartment complex are being listed between $1,720 and $2,440. Three-bedroom units are also planned, though pricing on those has not been disclosed.”

“Those rents are raising eyebrows among some in the local real estate market. ‘I don’t know who’s going to rent these things,’ said Eric Strong, a Binghamton real estate agent who specializes in rental properties. ‘It will be pulling a rabbit out of a hat. They are setting a new standard if they can get that.’”

“Among the amenities of this development on the west banks of the Chenango River are a fitness center with cardio machines and free weights; a business center; an outdoor terrace with fireplace; a dog park; in-apartment washer and dryer; quartz countertops; stainless-steel appliances; secure parking below the building; and wifi in all common areas. Rental rates for the apartments are comparable to the mortgage payments on a huge Binghamton home.”

The Denver Channel in Colorado. “Residential builders in the Denver area are set to complete more than 15,000 new apartments this year, a substantial increase over last year’s numbers, according to RentCafe. RentCafe estimates that metro Denver will see about 15,187 new apartments completed in 2018. That’s an increase of 150 percent compared to 2017’s numbers and puts Denver among the top three metros in the country for new apartment construction.”

“The metro area with the largest number of new apartments entering the market this year is also the country’s biggest city overall: New York. The Big Apple will see nearly 20,000 new apartments by year’s end. Coming in second place is the Dallas-Fort Worth metro area, which is expected to complete construction on more than 17,000 apartments in 2018.”

The Colorado Springs Gazette. “Apartment dwellers dug deeper into their pocketbooks during the second quarter as Colorado Springs-area rents hit another record high. Monthly rents averaged $1,156.76 during the April-June period, about $15 more than the previous record set during the same quarter last year, according to the Colorado Division of Housing and the Apartment Association of Southern Colorado. Some of the newest apartments that were opened during the first quarter and being filled in the second quarter were higher-end, amenity-filled units that carry higher rents — likely helping to push up the overall rental costs, said Laura Nelson, the Apartment Association’s executive director.”

“‘When you get some more of those luxury units coming on line, you do see that bit of a spike,’ she said.”

“The area’s apartment vacancy rate of 6.3 percent in the second quarter was unchanged from the first quarter and nearly identical to that of a year ago, the report showed. With a total of 49,494 apartments in the Springs area, the 6.3 percent rate translated to just 3,139 vacant units in the second quarter. ‘When you take 6.3 (percent) of 49,000 units, that’s not a whole lot for a city our size,’ Nelson said.”

“The number of units added by builders and developers in the second quarter totaled just 222. During the first half of this year, 234 apartments have been added; a year ago during the same period, the number of new units totaled 770. More units are on the way. ‘We need thousands more,’ Nelson said. ‘It is a complete supply and demand issue. I know people don’t like to see the high-end ones come on line, but really, they still add to the supply. Those folks who can afford them will move up and that will open up a unit that maybe is more affordable for someone else.’”

From USA Today. “Here’s an alternative to both a hotel and an Airbnb: a pop-up hotel. That’s the concept that startup WhyHotel has introduced to Washington, D.C., and Baltimore and hopes to expand across the country. Last year, WhyHotel began operating these pop-up hotels within newly-built luxury rental apartment buildings that have yet to lease out all their units. Once a building is completed, it can take a year or two to fill up. WhyHotel has swooped in to offer owners the ability to make money off their empty units.”

“Guests, in turn, can enjoy amenities of the apartment. Some, such as pools, gyms or dry-cleaning services, might even overlap with services offered at a hotel. Jason Fudin, WhyHotel’s CEO, says they can charge a decent premium because ‘these are the newest and nicest buildings in the city.’ The company recently received $3.94 million in seed funding, which it will use toward opening one or two more hotels this year and another six to 12 next year.”

From Patch Illinois. “The owner of a 221-unit apartment tower on Howard Street has put the building on the market less than two years after purchasing the property for $46 million, Crain’s Chicago Business reported. The 2008-built building has been sold three times since falling into foreclosure during the Great Recession, Crain’s reported. Due to increasing supply of rental property along the North Shore, the median cost of apartments has grown at less than half of the rate of the Chicago suburbs overall.”

“There are nearly 1,000 new apartment units currently planned or being built in Evanston, which has increased the risk of oversupplying the market, according to Crain’s. HFF is marketing the 415 Premier property as an opportunity for new buyers to carry out improvements and charge higher rents, Crain’s reported.”

The Journal Sentinel in Wisconsin. “A Walker’s Point upscale apartment project that’s been decades in the making has started converting its third historic building — with one more to go. River Place Lofts will eventually total about 150 units when that final building is completed on Milwaukee’s near south side. River Place Lofts was initially planned as condominiums. Developer Peter Moede began converting the Beam House in 2001, when new condos were going up throughout the downtown area.”

“Work on the Beam House stopped for three years while Moede fought a raze order issued by city building inspectors. By the time that dispute was resolved, the condo market was starting to become overbuilt. Moede repaired the fire damage, which was covered by insurance, but put his development plans on hold. Several years after the 2007-2008 housing market collapse and the related global recession, work began on converting the Beam House to apartments. By then, there was strong demand for high-end rental housing throughout the downtown area. The apartments at River Place Lofts’ four buildings are being constructed with enough space and high-quality finishes to some day convert to condos, Moede said.”

“‘It’s going to come back,’ he said about the condo market. ‘But there’s still people who want to rent. People want flexibility. They don’t want to be tied down.’”

“One-bedroom apartments in the Finishing House will be around 1,000 square feet, commanding about $1,500 to $2,000 in monthly rents. The Dock House also has features not found in most downtown area apartments, such as a lounge where residents can store wine in refrigerated cases; a cigar lounge with a humidor; and a pontoon boat docked along the canal.”

July 29, 2018

Headed For A Less Than Soft Landing

A report from the Manteca Bulletin in California. “Housing affordability in Manteca along with Stockton and Lodi is sinking back to pre-Great Recession levels. Data for the three cities puts the median household income at $63,000 with the median resale home costing $365,000. Based on those statistics only 28 percent of the households can afford to buy the median-resale home. Housing sales for both new and existing homes reflect that reality with a solid majority of buyers coming from the Bay Area. Re/Max Executive broker pointed out as housing demand and prices have increased in San Joaquin and Stanislaus counties wages have been essentially stagnant.”

“Costa noted at the same time banks are returning to 100 percent loans — the same mortgages that fueled much of the housing collapse when many borrowers without ’skin in the game’ walked away from homes that dropped in value even though they could still afford the payments. Agents are also seeing sellers who are pushing for prices that are significantly above nearby comparable of similar properties used to determine appraised values. Costa indicated that in many cases bank appraisals are coming in that justify the higher selling prices.”

“Costa said the resale market reflects a growing trend that is being seen in new home sales of multiple families buying a home together and sharing living space.”

The Marin Independent Journal in California. “Marin’s median home price jumped to $1.165 million in June, up 8.4 percent over the $1.075 million median price in June 2017, CoreLogic said. Recent reports about people leaving the Bay Area because of the high cost of housing haven’t appeared to directly influence the June numbers — but they could gradually have an impact on the Marin market. ‘Lower priced homes are still selling briskly,’ said Kathy Schlegel, of Golden Gate Sotheby’s International Realty in San Rafael. ‘However, the upper end homes in various areas of Marin are presently sitting on the market longer.’”

“‘An example is the $1.5 million to $2.5 million home market in Novato,’ she said. ‘As of July 4, there were 27 homes listed as active in this category. As of July 24, three of these homes went into escrow, while five new listings came on the market.’”

The Herald Net in Washington. “A dusty school bus sits in front of a two-story house on the edge of a Bothell-area neighborhood. In the back yard, a rundown sedan is parked with another like it hidden behind piles of black, overflowing trash bags. Since 2013, the sheriff’s office has partnered with the county health district, code enforcement and human services to combat nuisance properties like the Bothell house. The team is dealing with 45 nuisance properties, with possibly 10 more on the way. The majority of these homes are in the north end of the county. Nine months ago, they were concentrated in the south.”

“The owners are usually banks or people who are out of state, elderly or deceased. Some are in prison or hospitals. This makes it easier for squatters to move in and the house to deteriorate. The bank is set to take the house in Bothell. A bank spokesman said state and federal laws prohibit the bank from cleaning the property until the home is foreclosed. Anders Olin, a county code enforcement officer, has his doubts. The bank originally set a June 29 auction date for the property, but canceled the sale in May, Olin said.”

“The rise and decline of nuisance properties is partially tied to the housing market, said Snohomish County sheriff’s deputy Dave Chitwood said. ‘If some houses go into foreclosure and they’re just sitting there, we might get a spike,’ the deputy said.”

“Ryan Weber moved into his Delta Neighborhood home in November with his wife and baby. He noticed a house next to his was foreclosed on, but not vacant. No one was living in the house full time, but people came and went at all hours of the day. Now, all there is to do is wait for the bank to list the house for sale. When that day comes, Weber said he’d be interested in putting down an offer and renting the house out. That way he can avoid any future nuisances, he said. Weber said he sees houses like this one throughout the city. ‘A lot of people don’t know what to do,’ he said.”

From WTOP on Maryland. “Distressed home sales, including foreclosures and short sales, hit an 11-year low nationwide in the second quarter, but two Maryland cities are among those left behind. In Baltimore, 20.7 percent of home sales in the second quarter were distressed sales, the highest percentage in the nation among cities with a metropolitan area population of 1 million or more. Philadelphia, New York, Cleveland and Providence, Rhode Island, all had distressed sales of between 19 percent and 20 percent.”

“Among all 148 metropolitan areas Attom Data Solutions analyzed for distressed sales, Hagerstown, Maryland, ranks in the top five, at 22.1 percent.”

The Miami Herald on Florida. “A web of former Venezuelan officials and businessmen was charged in Miami Wednesday with operating a massive $1.2 billion international money-laundering racket funded with stolen government money that was invested in South Florida real estate and other assets. The defendants are accused of embezzling funds from Venezuela’s vast oil income and exploiting its foreign-currency exchange system to amass illegal fortunes in the United States and other countries, according to a federal criminal complaint.”

“‘Venezuela’s state of social, political and economic crisis, in which multibillion-dollar corrupt and criminal ecosystems thrive, drives rivers of criminal proceeds through South Florida,’ says a Homeland Security Investigations affidavit filed with the complaint in Miami federal court. ‘[It] has become an international money-laundering hub and a desirable destination for well-to-do foreign criminals and kleptocrats.’”

“The federal probe, called Operation Money Flight, was launched with the initial focus on the defendants’ efforts to launder a portion of the $78 million. ‘Two years and over one hundred recordings later, Operation Money Flight revealed an international conspiracy to launder the PDVSA funds through Miami and several large-scale international money-laundering organizations,’ the complaint says. ‘More specifically, the investigation revealed the use of Miami real estate and sophisticated false-investment schemes to launder hundreds of millions of U.S. dollars.’”

“The Miami Herald and el Nuevo Herald reported in March that Alejandro Andrade, a former bodyguard to Chávez who rose to the rank of national treasurer between 2007 and 2010, is suspected of laundering millions of dollars stolen from the Venezuelan government to invest in real estate, show horses and other assets in South Florida and elsewhere, according to sources in Miami and former Venezuelan government officials familiar with the investigation.”

“Andrade’s acquisitions in South Florida and other parts of the United States don’t show up in public records because the purchases were made through shell companies that allow him to keep his ownership hidden, sources said.”

From 27 East on New York. “At first glance, the South Fork real estate market statistics for the second quarter of 2018 look grim: Key metrics by Miller Samuel Inc., a real estate appraisers and consultant firm for Douglas Elliman, indicate the median sales price declining by 5.3 percent, and the number of sales reduced by 12.8 percent when compared to last year’s second quarter. But the declines are nothing to lose sleep over, and there are other metrics to be happy about, including significant growth in the $5 million to $8 million range.”

“‘There is a downward correction in Hamptons market,’ said Carl Benincasa, a Douglas Elliman regional vice president of sales. ‘Buyers are always aware of it before sellers. But now the sellers are finally figuring out where buyers are and they are making the adjustments they need to meet them. That’s why you are seeing prices drop; that’s why you are seeing houses are being sold faster; that’s why you are seeing listing discounts go down: because sellers are pricing their homes more reasonably.’”

“‘One of the characteristics of the high-end housing markets around the region, whether we are talking about New York City or the outlying suburbs, is a sales decline,’ said Jonathan Miller, the president and CEO of Miller Samuel, ‘and the Hamptons is no different.’ Mr. Miller said one of the key observations was the decline in sales activity of homes in the $1 million to $5 million price range—or a ’soft middle’—which made up a bulk of the quarter’s loss.”

“After 37 years selling real estate on the South Fork, Judi Desiderio, the CEO of Town & Country, said she has never seen a time that has had the high-end market this strained, ‘except maybe after 9/11.’”

The Williston Herald in North Dakota. “Northstar Center was proposed as a large, mixed-use development on U.S. Highway 2, just across the road from another proposed large, mixed-use development called Williston Crossings. Neither of the projects made it off the ground before oil took a dive in prices, spooking investors, and putting a number of projects in Williston on hold. Stropiq, which had proposed Williston Crossing, shelved its project, citing the downturn in oil, as well as changes to the retail landscape nationwide. They have since shifted their attention to a subdivision called The Meadows.”

“North Star, meanwhile, appears headed for a less than soft landing. The development is to be sold at auction to the highest bidder Aug. 14. The sale follows a foreclosure initiated by YAM Capital LLC. YAM Capital, in court documents, said it is owed $9.031 million dollars from the development. The master plan for Northstar Center showed more than 2,000 dwelling units and more than 2.7 million square feet of commercial space. City officials at the time had promoted Northstar Center as a gateway to Williston, which was, at the time, one of America’s fastest-growing micropolitans.

July 28, 2018

Investors Don’t Want To Catch A Falling Knife

A Saturday desk clearing post on international markets. “A proposal for a downtown Vancouver luxury condo tower that was scheduled to go to a public hearing next week has been abruptly cancelled by the owner. It’s a sign of what some see as a shift in Vancouver’s hot real estate market, as the demand for high-end property has weakened. Realtors and real-estate analysts say it is not surprising to see a luxury project stalled, given the current conditions. ‘Everything’s corrected and the luxury market is gone,’ said Ian Watt, a realtor who specializes in higher-end housing. ‘Anything under $2-million will sell, but in the last two months, there’s been only one sale over $3.5-million.’”

“Realtor Karel Palla echoed those numbers, saying that ‘at this point, there’s a very small percentage of people that can afford that type of product.’ And Michael Ferreira, whose company closely tracks pre-sales, said a year ago, ‘you would see 85 per cent sold within the first three months. Now it’s 50 to 60 per cent. You’re now seeing more incentives to attract buyers.’”

“Located in Calgary’s exclusive Southwest side, Aspen Woods is one of the newer, hipper neighborhoods in this section of Alberta, Canada. Its affluence matches that of Calgary, which, according to a report by Calgary Economic Development, in 2015 had the distinction of being home to the most millionaires per capita of any major city in the country. ‘We are seeing a huge decline in the prices of luxury homes over C$2 million in Calgary and surrounding areas and feel we are at the bottom of the valley,’ said Rachelle Starnes, CEO of The Starnes Group. ‘We are seeing some of the luxury homes listed over C$2 million selling for 15%-25% less since the peak of 2008.’”

“The British housing market is oversaturated by new homes offered for sale this month. However, indicating that previous sellers have given their properties too high, a third of the advertised offers have gone through at least one price drop – the highest share for that period of the year since 2011. The slowdown is mostly seen in London and neighboring regions where demand has been hit by higher taxes on expensive properties and shrinking demand from foreign investors. According to Rightmove, vendors in oversupply areas will have to compete more actively with prices, presentation and advertising of their property to attract buyers.”

“‘Although the growth in the number of vendors is a desirable signal for more liquidity on a generally devoid of market deals, unfortunately, this is happening in a quieter time of year,’ said Rightmove director, Miles Shipside.”

“As safe as investing in gold, real estate was the next go-to choice for Keralites. Things have changed in recent times, according to industry sources, the return on investment (ROI) seems fastly diminishing with a mismatch of demand vs supply being reported across the city. As strange as that sounds in a metropolitan city like Kochi, industry experts say 80 per cent of the investments in apartments were done for speculative reasons, the price slump and tougher laws have resulted in many of them being left unoccupied as renting it out was never owners motive to begin with.”

“Geojit Investment Strategist V K Vijayakumar says the occupancy rate of relatively newer apartments is just over 20 per cent, owing to an average yield rate of just 2 per cent for apartment rentals in Kerala. He says real estate goes through veritable boom cycle for about eight years, with that period ending in 2012, resulting in an inevitable price slump. ‘Add to it, demonetization and the Benami Transaction Amendment Act of 2016, transactions have come down by 80 per cent,’ says Vijayakumar.”

“When the northern city of Tianjin relaxed residency requirements earlier this year, such was the demand that applicants slept outside police stations and officials fielded 300,000 applications in 24 hours. But the biggest attraction is getting a slice of real estate. ‘The direct reason for getting a hukou [residency permit] is to buy a house,’ said graduate Wang Zhuohang, 24.”

“Liberal Chinese economists argue that Beijing should abolish the system of residency permits, allowing talent and investment to flow according to market forces. They say, for example, that if unsold housing stock is offloaded in second-tier cities it will simply leave a glut of housing in smaller cities. ‘The measures competing for talent in second- and third-tier cities are not sustainable and are causing resource mismatches. It will lead to inefficient investments,’ said Zhang Jun, an economics professor at Fudan University in Shanghai. ‘Original inventories [of housing stock] are large, and now there will be a new round of investment.’”

“Yang Xiaodao, a 26-year-old civil servant in the Chinese city of Xiamen, says taking out a 30-year-mortgage on a two-bedroom apartment with her husband was the most regrettable decision of her life. Although their parents covered the 1.5 million yuan (£172,285) down payment on the 2.9 million yuan flat, mortgage payments eat up more than 70 percent of the couple’s combined income of about 10,000 yuan a month - average for the city.”

“‘Our spending power has plummeted,’ Yang said. ‘We do not dare to have a kid. We do not dare to buy a car. We do not dare to travel.’”

“Throughout China, home prices that are among the highest in the world relative to incomes have pushed millions of households to debt levels similar to those seen in the United States just before its housing crisis.”

“The number of unsold private residential units reached a three-year high in the second quarter, based on data released by the Urban Redevelopment Authority. This is despite the URA noting that a ’significant number’ of new housing units are set to come onto the market due to the large number of properties sold en-bloc and the redevelopment of these plots over the past two years.”

“As at the end of June, there was a total supply of 45,003 uncompleted private residential units with planning approvals, compared with 40,330 in the first three months of the year. Of these, 26,943 units remained unsold as at the end of June — up from 23,514 units in the previous quarter, and the highest since the first quarter of 2015 when there were 27,061 homes unsold.”

“Tricia Song, head of research for Singapore at real estate services firm Colliers International, said: ‘We believe developers will likely pace out the launches of new projects and thereby reduce the risk of an oversupply of units in the market. Even if those units with no planning approvals were included to bring the number to 37,263, that will take at most 4.4 years to absorb, which ‘is not excessive in our opinion,’ she added.”

“It is now cheaper to rent a three-bedroom house than a two-bedroom unit in Brisbane, new research reveals. More than 9800 residential properties remain vacant in the city. SQM Research managing director Louis Christopher said he was confident the worst was over for Brisbane landlords and the city was set to benefit from Sydney’s housing downturn.”

“Median Sydney house prices fell 4.5 per cent last financial year, the biggest 12-month fall since 2008, according to Domain. The pain seems to have been worse in higher-income areas including the east, the upper north shore and the inner west where prices fell as much as 12 per cent. Anyone who banked that prices would keep rising like a skyrocket and bought expecting to sell quickly probably will now be learning a harsh lesson. On the other hand, some people are being forced to sell now because of divorce or sickness or change of job. They are the ones doing it tough especially if they bought in the last 12 to 18 months.”

“Albany property owners are being forced to drop weekly rents to attract tenants, according to Real Estate Institute of WA figures. Wellington and Reeves rentals manager Tam Emin confirmed rental prices were beginning to drop over town, which was good for tenants but bad for investors. ‘We’ve got a lot of rental properties on the market — it’s probably been more than what I’ve seen for a long time,’ she said. ‘Vacancy rates are starting to go up, so we’re catching up with Perth now. We’re still getting a lot of inquiries, but the market is quite flooded.’”

“Tens of thousands of Australian home owners are opting to sell their property as the national housing market trends downwards. Melbourne led the nation with 6,821 new properties for sale over the past 28 days, with total listings riding at a high of 10.5 percent. In second place was Sydney, which despite dropping 4.5 percent in value over the past year had 5,601 new properties listed in the past 28 days. Total listings in Sydney – which include properties that have previously been advertised – were up 21.7 percent on this time last year, with the most properties for sale on record since 2012.”

“Brisbane had 3,789 new properties listed in the past 28 days, and an increase of 1.2 percent in total listings compared to this time last year. There are more properties listed for sale in Brisbane at this time of year than at any time since 2012. Adelaide had 1,646 new listings over the past 28 days, while Perth had a whopping 3,007 newly listed properties in the last month. Despite rapidly dropping property prices, Perth’s total property listings are up 1.7 percent on last year and are higher than every other year since 2012.”

“Sydney’s falling apartment prices look set to continue into the next decade. An estimated 20,000 apartments are lying vacant in NSW, with the empty homes labelled ‘zombie blocks’ in the industry. The falls are being driven in-part by continued apartment construction in NSW, with Australian Bureau of Statistics figures released earlier this month showing more than 66,000 apartments are under construction across the state.”

“SQM Research director Louis Christopher said the city’s apartment prices were ‘nowhere near the bottom. To what magnitude, we don’t know yet,’ he said. ‘But they’ll continue to fall.’”

“The Domain figures show Sydney’s median house now sitting at $1.144 million, down from its peak of $1.198 million in June 2017. Mr Christopher said two likely scenarios would play out in the Sydney market — either a ’sharp fall’ or a longer ’stagnant period’ similar to what was seen in the Sydney market from 2004 to 2012. ‘This downturn is more than a restriction of credit,’ he said. ‘It’s more becoming demand-related. Investors don’t want to catch a falling knife.’”

July 27, 2018

Prices Fall And Product Continues To Hit The Market

It’s Friday desk clearing time for this blogger. “While prices continue to rise, Mike Figura, Mosaic Community Lifestyle Realty’s owner, said some indicators do suggest a gradual cooling of the local market. For instance, both Asheville and Buncombe had fewer home sales overall in the first half of this year compared to last. Also, the average days on the market increased, which means homes aren’t selling as fast. And at the higher end of market, houses are lingering too, creating more inventory. Nobody is ringing the alarm bells, but Figura contends ‘if builders aren’t smart about what they’re building, they could flood the upper prices ranges. There were some significant increases in inventory levels in the higher price ranges between the second quarters of 2017 and 2018 in the both the city and county.’”

“The real estate market is cooling in parts of North Texas according to realtors and experts. Two nice houses side-by-side in Frisco are an example according to, Ebby Halliday Realtor Brian Johnson. One he sold in May 2017 for over the asking price. ‘We listed for $309,000. In 3 days I had 17 offers. We sold it for 335,’ he said. The one next door has been on the market 49 days. It has hardwood floors, an updated kitchen and master bath. ‘This home has over 600 square feet more and its way more updated and I’ve got no offers,’ Johnson said. ‘Now we just dropped the price 10 thousand and I do have someone interested.’”

“The U.S. housing market — particularly in cutthroat areas like Seattle, Silicon Valley and Austin, Texas — appears to be headed for the broadest slowdown in years. Some of the most expensive markets, where sales are falling under the weight of prices, are now seeing substantial increases in supply, according to Redfin Corp. In San Jose, California, inventory was up 12 percent in June from a year earlier. It rose 24 percent in Seattle and 32 percent in Portland, Oregon.”

“‘Affordability is becoming a major headache for homebuyers,’ said Lawrence Yun, the National Association of Realtors chief economist. ‘You are seeing home sales rising in Alabama, where things are affordable. But in places like California, people aren’t buying.’”

“In pricey Southern California, sales of both new and existing homes fell sharply in June compared with a year ago, according to CoreLogic. Demand is still quite strong, and while prices continue to gain, more listings are showing price reductions. ‘The market is strong, but I’m seeing a noticeable difference in the number of buyers that are looking at my listings each week,’ said David Fogg, a real estate agent based in Burbank, California. ‘Many properties are now not selling and/or coming down in price.’”

“Orange County mortgage broker Jeff Lazerson said people are increasingly refusing to waive appraisal contingencies and willing to step away from a deal rather than engage in bidding wars. ‘I haven’t seen hesitation like this in years,’ said Lazerson. Lazerson explained the feeling of many would-be buyers like this: ‘This economic expansion, this run-up in home prices, has been going on a very, very long time.… At what point does all this stop?’”

“If there is a true slowdown around the corner, one of the first signs would be a subtle shift of power from sellers to buyers. Inland Empire real estate agent Kira Madrigal said sellers in the markets she covers still have the ‘upper hand,’ but buyers are increasingly willing to submit ‘low-ball’ offers.”

“The number of closed sales from April through June dropped 6.2 percent year over year, to 91 homes in L.A.’s luxury market. In the non-luxury market, the median sales price in L.A. County, primarily Westside and Downtown, slipped for the first time in over five years to $1.3 million. That’s a 7.1 percent decline compared to last year, and the first drop in 23 consecutive quarters. Sales in this segment dropped 5.8 percent to 1,701 homes. There were 453 luxury homes listed for sale, up from 346 last year over the same period, and 365 in the first quarter of 2018. It is also taking brokers longer to sell the homes in this segment. The amount of days the homes spent on the market jumped 41 percent year over year to 120 days.”

“Discounts on asking prices also rose to 11 percent, up from 6.8 percent last year. The slowdown in sales is also happening beyond L.A. County. In a new report from CoreLogic, just 22,706 homes sold across six counties in Southern California last month, representing a nearly 12 percent drop year over year. The figure was also 15 percent lower than the average sales since 1988.”

“June sales of both newly built and existing homes in the San Francisco Bay Area dropped just more than 9 percent compared with a year ago, according to CoreLogic. Sales of newly built Bay Area homes were nearly 32 percent below the historical average, going back to 1988. ‘Price growth is only part of the problem that home shoppers have faced,’ said Andrew LePage, a CoreLogic analyst. ‘The median price paid for a Bay Area home this June was up almost 13 percent year over year, but the principal-and-interest mortgage payment on that median-priced home was up about 22 percent because of the rise in mortgage rates – more than half a percentage point – over the past year.’”

“Much has been made of the dazzlingly wealthy foreign buyers who snap up luxury condos in New York City and Miami; breathtaking beach houses in Honolulu; and sophisticated modern estates in San Francisco and Seattle. But foreign-resident buyers and recent immigrants closed on far fewer properties in the 12-month period ending in March 2018—by about 21%, according to a recent report from the National Association of Realtors®. ‘I’m seeing a slowdown with Chinese buyers,’ says New York City–based real estate agent Kerry Lynn of Douglas Elliman, who works primarily with Chinese and South American buyers who are looking for newly constructed, high-rise condos with luxury amenities in Manhattan for $1.5 million to $2 million.”

“‘Inventory shortages continue to drive up prices and sustained job creation and historically low interest rates mean that foreign buyers are now competing with domestic residents for the same, limited supply of homes,’ said Lawrence Yun, chief economist for the Realtors. For international investors who are looking for condominiums in large cities as an investment, the supply theory doesn’t really hold.”

“‘I don’t think it’s the supply issue because these buyers are buying in the higher end and there is more supply there, particularly in the gateway cities like Miami and New York,’ said Sam Khater, chief economist at Freddie Mac. ‘It could be just that their appetite for U.S. real estate is waning.’”

“Long Island has become a tale of two housing markets, with home buyers competing for starter houses while high-priced properties linger on the market, a new report shows. The top fifth of sales fetched a median price of $820,000, down 0.6 percent annually. For the Island’s luxury market – that is, the top 10 percent of sales – the median price fell by 6.7 percent annually, to $1.05 million. Throughout Long Island – except for the Hamptons and the North Fork — homes sold in 5.1 months on average, at a 3 percent discount from their listing price, the report shows. Luxury homes, though, spent an average of 17 months on the market, and sold for a 6 percent discount. The Hamptons was the only region to see a price decline, with a median price of $975,000, down 5.3 percent year-over-year.”

“Recent news that home sales in Westchester County declined by 18% the second quarter in 2018 in comparison to the same period in 2017, should have not only local elected municipal officials very concerned, but also those at the New York state level. This is the fourth consecutive quarterly decline in the county’s home sales. Westchester residents are putting up their homes for sale since federal tax reform now significantly limits to $10,000 the deduction of local and state taxes. This is about half the $17,179 average tax paid by Westchester residents in property taxes in 2017. As more and more people put up their homes up for sale, this will start to lower home values.”

“Why the face? Maybe because this buyer’s flipped two units at 432 Park Avenue at a loss. An LLC by the name of ‘WHY THE FACE’ just sold a unit on the tower’s 65th floor for $24.2 million, records filed with the city’s Department of Finance show. That’s down from the $25.6 million the buyer paid in March 2016, and $8.3 million less than what the apartment was initially listed for in April 2017. This mysterious buyer sold another unit at a slight loss — roughly $73,500 — on the 28th floor. The unit was purchased, according to city records, on the same day as the other apartment. The buyer paid $1.8 million and then sold the unit in June.”

“The perils of flipping luxury apartments in today’s market are well-documented. As prices fall and a steady of flow product continues to hit the market, turning a profit is increasingly difficult.”

“Declining demand has driven down housing prices across most of the North Shore, but sales of homes in Evanston have remained robust. The average sales price fell by 4.3 percent in 2018, according to local real estate data, dropping from over $750,000 to under $718,000 in the north suburban market. For the north suburban housing market as a whole, the median sales price fell 8.1 percent, from $631,000 to $580,000 compared to last year.

“June home sales in Greater Hartford lost the upward momentum of earlier this year, as purchases and prices paid slipped for the second month in a row, a new report shows. The median sale price of a single-family house — in which half the sales are above, half below — dropped 6.3 percent, to $225,000 from $240,000 for the same month a year ago, according to the Greater Hartford Association of Realtors. Holly Callanan, chief executive of the association, said, ‘It is possible potential buyers are stalling because of the low inventory that makes for limited choices.’”

“If you’re looking into buying a home in Williston, you’re in luck, depending on what you want to spend. ‘It is busy, could we use some more inventory, yes. Everybody tends to be around that 250 to 350 price range,’ said Chelsey Melby, Basin Brokers Real Estate agent. For those looking to sell, don’t over price. With so many homes available, Melby says buyers can afford to be a little picky. ‘If they are priced right for the square footage in the area a lot of times they will go as fast as 24 hours. If you see a housed that’s overpriced it will sit probably 90 to 180 days,’ said Melby.”

July 26, 2018

There Are Signs That Boom May Soon Be Over

A report from Michigan Biz. “West Michigan commercial real estate industry insiders see signs of a genuinely healthy market, albeit one that’s likely plateaued. With several large-scale projects currently under construction around the region, many wonder what comes next for the area. Q: Why do you think we’re now attracting these larger projects? Chris Beckering, executive vice president of Pioneer Construction, a Grand Rapids-based general contractor: ‘To some extent, that’s been a selffulfilling prophecy because there’s this magic number of 100 units for financing. You’re getting into a whole other tier of financing options when you’re over 100 units … so developers like to build them because they can finance them. When they’re done and stabilized, there’s a huge market for selling them.’”

From Fox 6 Now on Wisconsin. “The real estate economy in Wisconsin is hot. So why are taxpayers paying the price? A FOX6 investigation finds it’s all because of something called ‘tax increment financing’ — or TIF for short. ‘It’s a taxpayer subsidy of a real estate development,’ said State Senator Duey Stroebel, a Saukville Republican who is a realtor by trade. TIF-funded projects are helping cities, towns and villages across Wisconsin to re-invent themselves with new luxury apartments, town homes, condominiums, music venues, restaurants, shopping centers and more. That means taxpayers are fronting millions of dollars for private developments.”

“‘Why?’ Stroebel asked. ‘We are in a booming real estate economy… does the taxpayer really need to subsidize high-end apartments?’ In recent years, the senator says TIF use has exploded, even for projects built on valuable real estate. ‘It just doesn’t make sense.’”

From WGLT in Illinois. “The off-campus student housing business has changed drastically in the last decade, when ISU closed (and later demolished) two giant dorms and pushed 1,500 students into the private sector. Landlords—many of them developers themselves—have responded by building fancier and fancier apartments, trying to meet the demands of a modern college student. That’s continued this summer, as builders put the finishing touches on three new apartment buildings surrounding ISU.”

“It’s been like that year after year. Townwide Normal has seen 64 new apartment buildings with over 1,240 units built over the last decade, many for the ISU market, according to Town of Normal records. Yet there are signs that new-construction boom may soon be over, including the possibility of more on-campus university housing at ISU.”

“‘With this (Lodge expansion) project and a couple others, we’re probably at a saturation point,’ said Andy Netzer, general manager and managing broker at Young America Realty, the largest student landlord in Normal. ‘The supply and demand has shifted a little. For the next couple of years, you’ll not see a lot of new construction coming on. If we did more of this, we’d be creating our own vacancy somewhere else,’ Netzer added.”

From Bisnow on DC. “For years, D.C. apartment developers have built thousands of apartments, and they have leased them up quickly, satiating a seemingly endless desire for new rentals in the urban marketplace. But the tide is starting to turn. Vacancy in D.C.-area apartments in the second quarter rose from 2.7% in 2017 to 3.6%, according to Delta Associates’ latest report. While absorption has begun to slow, construction has not. Over the next three years, more than 29,000 apartments are expected to deliver in the region, up from just under 28,000 from 2017. ‘We had projected for the past year or two that absorption would steadily start to decrease, and that is steadily starting to happen,’ Delta Associates President William Rich said.”

From AM New York. “As owners put a slew of homes on the market, the bevy of choices dragged Manhattan home prices down 1.1 percent — the largest annual decline since the financial crisis, according to StreetEasy. Rental rates in Long Island City, Astoria and Sunnyside stagnated, and about 25 percent of units were leased at discounted rates, according to StreetEasy. Grant Long, StreetEasy’s senior economist, wrote that condos in that corner of the borough are often purchased as an investment that can be rented out.”

“‘Rents in Northwest Queens have been declining over the past year, driven in large part by the new construction in Long Island City,’ Long wrote. ‘But with increased competition on the market, they [investors] should be ready for renters to negotiate and be willing to offer concessions in order to stand apart from the pack.’”

From Community Impact on Texas. “The supply of apartment units coming online in the Greater Austin area—and in the Cedar Park and Leander area—is outpacing the demand for those types of products. According to Apartment Data, three out of the past four years have seen more than 11,000 units added to the Austin area market annually. ADS President Bruce McClenny said the area market tends to operate better at delivering 7,000 units per year. ‘There’s just been too many units delivered, so there’s been an oversupply of units,’ he said.”

From KOMO News in Washington. “William Shadbolt shows off his newly remodeled Belltown studio he owns and has rented for $1,195 a month. But, he has decided to sell it, not because he no longer wants to be a landlord, it’s that he no longer likes being a landlord in Seattle. ‘After all the different ordinances the City has passed, it just wasn’t worth renting out property in the City of Seattle,’ said Shadbolt.”

“And he’s not alone. A just-completed study by researchers at the University of Washington, paid for by the City of Seattle found 40 percent of landlords survey indicated they have sold or will be selling rental properties in the city because of the new rental restrictions. Meanwhile, real estate website Zillow has found rental prices in Seattle still very high but flattening out. ‘Data from May and June of this year see rents dip in the city,’ said Aaron Terrazas, Senior Economist at Zillow. ‘This has happened in other major cities in New York, Washington, D.C. and San Francisco in the past few years and its finally catching up to Seattle,’ said Terrazas.”

The Bay Area Reporter in California. “Due to a variety of factors, from changing demographics and consumer behavior to rising rents and costs to do business in San Francisco, there is a glut of vacant commercial spaces along Market Street between Octavia Boulevard and Castro Street. Over a decade ago, Bevan Dufty, when he was the neighborhood’s supervisor, led an effort to plan for what residents wanted to see in the design of the dozen buildings being proposed for vacant lots and former gas stations along upper Market Street. With half of the projects now built, Dufty recently told the B.A.R. that he has mixed feelings about their impact.”

“During the middle of most weekdays in the Castro, Dufty said, one could roll a bowling ball down the sidewalk due to the lack of people in the area.”

The Desert Sun in California. “Jerry Marymont’s house – a three-bedroom property overlooking the tenth fairway of a private golf course – was set to net him $13,000 during the Coachella Valley Music Festival. But Marymont says he hasn’t seen a cent from the booking. The company he hired to manage his rental, Luxe Vacation Homes, shut down on July 6, leaving Marymont among a group of Coachella Valley homeowners that say Luxe checked out of the local vacation rental industry without paying them for recent reservations.”

“Marymont estimates the company owes him $18,000 in total – a sum he thinks is likely small compared to the debts other homeowners could claim. ‘I guess I was one of the lucky ones,’ he said.”

“Instead of splitting income with each homeowner, they say the company used rent to fund its operations and depended on revenue generated from subsequent guests to pay back homeowners for previous bookings. In a February 2018 court deposition, Luxe Vacation Homes CEO Justin Steubs estimated that the company owed homeowners $700,000.”

“Steubs did not consent to an interview, citing the advice of his attorney. In a written statement to The Desert Sun, he denied accusations that Luxe Vacation Homes is a Ponzi scheme and accused a former partner, Eleazar Lua, of defaming Luxe in a previous interview. Steubs said increased competition prompted Luxe to close. ‘Unfortunately, due to competing market forces and internal corporate restructuring issues, Luxe Vacation Homes has encountered financial difficulties and has decided to wind down and close,’ Steubs wrote.”

“To understand how Luxe Vacation Rentals unraveled, The Desert Sun is drawing from interviews with homeowners and 375 pages of court documents and real estate disciplinary records. The court papers include a February 2018 deposition in which Steubs describes the Luxe business model as ‘a ticking time bomb’ and acknowledges using homeowners’ money to fund operations.”

“Based on the financial information court-appointed accountant H. Les Kornblatt was able to gather, Luxe Vacation Homes appeared to be insolvent every year from 2012 to 2017. ‘The only way the company has survived in recent years is by use of the excess cash flow generated from property ‘guests’ over the actual payment of rents collected to company clients,’ Kornblatt wrote. ‘Sort of like a Ponzi situation; as long as the ‘guest’ base continues to grow, then there is cash flow to meet the corresponding obligations.’”

July 25, 2018

Lenders Have Had This Lightbulb Moment

A report from the Wall Street Journal. “Chinese investors have become net sellers of U.S. commercial real estate for the first time in a decade, reversing a yearslong trend when these buyers spent tens of billions of dollars and helped boost the market for hotels and other properties. Chinese insurers, conglomerates, and other investors sold $1.29 billion worth of U.S. commercial real estate in the second quarter, while purchasing only $126.2 million of property, according to Real Capital Analytics. This marked the first time that Chinese investors were net sellers for a quarter since 2008. ‘I was shocked,’ said Jim Costello, senior vice president at Real Capital Analytics. ‘They really curtailed their buying and stepped up sales.’”

“Chinese lenders also want to avoid the painful repercussions that losses would cause. ‘If there is a fire sale, the banks also lose,’ said Edward Tse, chief executive of Gao Feng Advisory Co., a Shanghai-based consulting firm.”

From the South China Morning Post. “Shanghai has cancelled five planned land sales worth a total of 10 billion yuan (US$1.47 billion) in 20 days, underscoring dampened appetite of developers weighed on by tightened funding and tepid sales. Chinese developers are facing a liquidity squeeze and rising funding costs as a result of government’s deleveraging campaign and efforts to rein in housing prices.”

“‘The cancellation is probably due to the unattractive bidding prices that developers intended to make,’ said Alan Jin, property analyst with Mizuho Securities. ‘The developers are suffering a rough time facing the price cap and tightening credit. It dose not make sense for them to bid high.’”

“The cooling land market is not limited to Shanghai. On Monday, Suzhou, a city near Shanghai, also said three plots planned for sale failed to find buyers. In Shenzhen, 26 parcels of land were sold in the first half, fetching 10.9 billion yuan, down 67 per cent from the same period last year. In June, a commercial site with development for housing in Qianhai, the city’s new financial district reportedly failed to sell. Country Garden, the country’s largest developer by sales, in June has order a halt of land acquisition in third, fourth and fifth-tier cities, scaling back a previously ambitious plan to be present in all counties in China, according to Shanghai media the Paper.”

The Sydney Morning Herald in Australia. “Australia’s version of the sub-prime crisis that ushered in the global financial crisis could be looming, with a significant number of the 1.5 million households with interest-only loans likely to struggle with higher repayments, experts warn. Martin North, the principal at consultancy Digital Finance Analytics, said interest-only loans account for about $700 billion of the $1.7 trillion in Australian mortgage lending and it was ‘our version of the GFC.’ ‘My view is we’re in somewhat similar territory to where the US was in 2006 before the GFC,’ Mr North said.”

“Craig Morgan, managing director of Independent Mortgage Planners, said one in five people who took a loan two or three years ago would not qualify for the same loan now, because of the crackdown on lending by the regulator and ongoing fallout from the Royal Commission into financial services. ‘In the last six months lenders have had this lightbulb moment of what ‘responsible lending’ means,’ Mr Morgan said.”

From Bloomberg on India. “Indian lenders struggling to recoup loans worth about US$20 billion to troubled property developers have to contend with another challenge: A lackluster recovery from the worst home-sales slump this decade. To recover the dues, banks are taking control of land parcels and unfinished projects that can be sold along with loans. This comes at a time when home sales volumes have declined about 40 per cent over four years and prices have dropped as much as 20 per cent on average, said S Sriniwasan, managing director of Kotak Investment Advisors, which oversees the alternate assets business of parent Kotak Mahindra Bank Ltd.”

“‘Weaker hands are going out of business in realty and lenders are working on recovering US$20 billion worth of stressed loans to developers,’ said Mr Sriniwasan, who has been bidding to buy properties that banks are putting on the block. ‘All those land banks, which developers used to tout as a valuation booster, are turning into bank lands now,’ and creditors will have to take haircuts while selling the collateral.”

“‘This US$20 billion stress is just at banks. We don’t even know what level of non-performing loans is there in non-finance companies’ books since their recognition norms are more relaxed and bad loans are not really coming out,’ he said. ‘The day of reckoning is not far.’”

From IOL News in South Africa. “An increase in To Let signs is being seen in Cape Town’s city centre, which has enjoyed a property boom for a decade. Property companies have cited the drought, the weak economy and an oversupply of residential properties as the main reasons for a decrease in demand for apartments to rent and more properties staying on the market. In the past five years, prices of homes across the city have risen by nearly 80%, making Cape Town’s properties the third most expensive in the world after Shanghai and Vancouver.”

“Steer & Co said the drought had also resulted in fewer visitors to the city and property owners previously letting their properties short-term now had to switch their properties into the long-term letting market as the short-term vacancies were high. This had in turn led to a large amount of new rental stock coming onto the market, creating even more supply. Spokesperson Teresa Hamilton said the situation was causing alarm or ‘at least disappointment’ among some property owners.”

From Insauga on Canada. “The GTA’s new home market is facing some challenges. The Building Industry and Land Development Association (BILD) announced that through the month of April, the new home market had lower sales than usual, which resulted in an increase in remaining inventory. In total only about 1,727 new homes were sold in April. April sale were the lowest for the market in over 20 years. Single-family home sales were down 65% from last April of last year. This was also 70% from the 10-year average. Condominium apartments came out to 1,225 new home sales, which was down 65% from April of last year as well, and down 38% from the 10-year average.”

“The low number of sales is troubling for the market. The total new homes remaining in inventory are about 14,297 units. The benchmark for new single-family homes decreased in April to $1,151,815. This is down 5% over the last year.”

The Delta Optimist in Canada. “The rate at which presale condos and townhomes are being snapped up has plummeted across Greater Vancouver and the Fraser Valley. MLA Advisory said in its mid-year report that the absorption rate of newly released presale units in June 2018 across the Lower Mainland was just 50 per cent, compared with 94 per cent in January this year. ‘The current pre-sale landscape is shifting from its once unsustainable, hyperactive growth to a balanced, more normal market,’ said Suzana Goncalves, chief advisory office at MLA Canada.”

“The anticipation of slower sales and potentially lower prices could be encouraging some pre-sale buyers to sell their sales contracts, known as assignments. A look at listing services Craigslist, Kijiji and Vancouvernewcondos on July 18 found 587 presale condos being offered from West Vancouver and Squamish to Surrey and Langley by both real estate agents and private owners.”

From Property Industry Eye on the UK. “There has been a ‘significant’ rise in down-valuations which are now running at the highest rate since the crash in 2008. The Victoria Derbyshire Show yesterday looked at the problem, with Russell Quirk one of the contributors. Quirk, CEO of Emoov, said that one in five of its transactions is currently being down-valued by surveyors after the sale has been agreed. Two years ago, it was fewer than one in 20. Quirk said it reflected surveyors predicting a crash, and that they were covering their backs. He said: ‘Surveyors are prophesying a crash. The system is built to protect them.’”

“Comments on the BBC forum included a question about what was making lenders nervous – Brexit? Another said: ‘House prices are way too high relative to earnings and the bubble must burst at some point. And that may be soon.’”

From Yle Uutiset on Finland. “Anja Soininen would like to sell her home and move closer to her son’s family, but there are no interested buyers for her property in Polvijärvi, eastern Finland. Her three-room house with a sauna and ‘nice neighbours’ has been on the market since May. ‘If only I could sell it by the autumn; I hope that someone would show an interest,’ she says.”

“She might have to wait longer, however, as it is not uncommon for dwellings outside Finland’s growth areas to sit unsold for several years nowadays. Sami Pakarinen, chief economist for the Confederation of Finnish Construction Industries, told the financial paper Kauppalehti in 2016 that one million of Finland’s housing units are ‘in the wrong place.’ ‘For the last 25 years, we’ve been building a lot of housing in the wrong places, when you think about future needs. If we’ve got three million units, then a rough estimate would say that one million of them are in the wrong places,’ he said.”

“Markku Tykkyläinen, a professor of economic geography at the University of Eastern Finland, says problems arise when people’s only capital is the home they live in. Unfortunately, a person’s dwelling is not the best long-term investment, he says, even if the homeowner would wish that it were so. ‘The situation has now grown acute: houses in small communities are being put up for sale, but there are no young people interested in buying them,’ he says of the situation in Finland.”

“One reason the sale of older homes has dragged on for years in some instances is because the sellers have refused to lower their prices. Anja Soininen hopes to get 68,000 euros for her small home in Polvijärvi, and she says that for the time being, she has no intention of backing down on the price. ‘There have been so many expenses that I want to get my asking price,’ she explains.”

“But even if she were to end up dropping her price, it may not help attract a buyer. The Joensuu-based Karjalainen newspaper recently carried a story of an apartment owner in Outokumpu, eastern Finland who dropped the price of her 90-square-metre flat from the original asking price of 80,000 euros to 33,000 euros – and the flat still hasn’t sold.”

July 24, 2018

It Will Sit Forever If A Seller Has An Inflated View

A report from News Channel 5 in Tennessee. “About 30 percent of millennial first time home buyers are pulling funds from their 401K, IRA, or borrowing against their retirement funds to afford a down payment, according to a new study. Locally, experts said that trend is not surprising, given how expensive and competitive the market is. Nashville realtor Paul Sek said he recommends people take the time to set themselves up for success and consider what you can realistically afford. Sek said he also often sees family members, particularly parents, helping millennials with down payments through personal loans.”

“‘People have completely neglected the starter home and they want the dream home right off the bat,’ Sek said. ‘They don’t understand they’re still in their 20’s or 30’s and they think they should buy the $500,000 or $1 million home.’”

From WKRN in Tennessee. “If you’re looking for a new home, you may have noticed some price reductions. So with an influx of people still moving to the area, could the price of homes be dropping? Sher Powers, President of the Greater Nashville Realtors, says there are definitely areas where buyers can get a really good deal right now. Powers said, ‘When people price they always need to look at what’s going on right now in the market, not yesterday, not tomorrow, they need to pull current comps, and not assume because prices rose every three months in their neighborhood that it’s continuing to do that. Everything sells if it’s priced correctly, and it will sit forever if a seller has an inflated view just because a neighbor’s house sold for $50,000 more.’”

From the Wall Street Journal. “Home sales fell for the third straight month in June, defying the strongest period for U.S. growth in years as rising mortgage rates and escalating prices at the lower end of the market drive away potential buyers. There were 1.95 million existing homes available for sale in June, up 4.3% from May and 0.5% from a year earlier. That is the first yearly inventory increase since the middle of 2015, according to Lawrence Yun, the trade group’s chief economist. ‘Maybe this is indicating that…the lows in inventory may be coming to an end,’ Mr. Yun said.”

“Jessie Culbert, a Redfin agent in Seattle said inventory there has increased, allowing buyers to move at a more leisurely pace. Previously, properties incited bidding wars and got 10 or 20 offers, she said. Now she counsels sellers that multiple similar listings are likely available. ‘We’ll have to sharpen the pencil on the list price,’ she said. Buyers she encounters have often toured 20 properties and seem to feel little urgency, she said, adding: ‘Many of the buyers got burned out. It’s just exhausting to be in the hunt for a long time and losing out.’”

From CBS Bay Area in California. “Allen Dugan’s home is still available after one open house which last year would have been unheard of for a property like this in Cupertino. ‘It’s unpredictable. We’re hoping for the best. Hoping to get a high price,’ says Dugan. It’s a refurbished farm house with a main house, a guest house and detached garage with a studio, all on a quarter acre. It just listed for $3.2 million.”

“But Dugan realizes the Silicon Valley real estate market is changing again. ‘We’ve been following the market for a number of years and it’s time to make a move,’ he says. ‘The market was crazy and now it’s gone from crazy to good.’”

“New numbers suggest the Bay Area real estate market cooled off a little in the May to June time frame. Sales of homes under a million fell by 50 percent since last year. Higher-end homes are holding their value, but are taking longer to sell. Real estate people are calling it ‘buyer fatigue.’ Realtor Dave Clark says some homes are still getting offers for over the asking price but others are selling for below asking price. ‘Now it’s what I call a perfect market. Prices are where they should be, activity is where it should be. We have multiple offers sometimes, sometimes we don’t,’ says Clark.”

“So far, no offers on Dugan’s place but since it’s walking or biking distance to the new Apple campus it shouldn’t take long.”

The American Statesman in Texas. “Amid strong demand for housing, Central Texas homebuilders ramped up production in the second quarter as they started work on more than 4,500 houses, new figures show. Starts totaled 4,537 from April through June, a 3.3 percent increase over the year-ago quarter, Metrostudy said. For the 12 months that ended in June, starts totaled 16,675 — up 1.9 percent from the prior 12-month period, the housing-market consulting firm said. ‘Thanks to continued strong job growth, demand is high,’ said Vaike O’Grady, Austin regional director for Metrostudy.”

“The supply of houses that are finished, but vacant — now numbering 2,872 homes — is up nearly 25 percent from a year ago. ‘While the level is relatively high, it’s indicative of builder confidence in future demand,’ O’Grady said. Half of the vacant inventory has base prices below $300,000, where there’s the most demand, O’Grady said.”

From Culture Map Austin in Texas. “In the Austin home market, it’s a tale of two trends. Homes for sale are spending longer on the market, but fewer homes are fetching prices above the list price, according to new data from real estate brokerage Redfin. One real estate agent says these two trends are a sign of much needed stability in the local market. Meanwhile, just 21.7 percent of homes in the Austin area were sold above list price in the first half of 2018, according to the Redfin data. That’s the lowest since the first six months of 2012, when 15.5 percent of home purchases were above list price.”

“‘After a very busy start to 2018, and several years of intense homebuyer competition and strong price growth, it finally feels like the local housing market is starting to stabilize,’ Andrew Vallejo, a Redfin agent in Austin, tells CultureMap. ‘In contrast with previous years, buyers are no longer pay[ing] whatever it takes to win a bidding war, and homes are staying on the market longer. Bidding wars are less common than they were earlier this year, and when there are multiple offers, we rarely see prices escalate as high as they did in previous years.’”

From The Real Deal on New York. “Even the cheap apartments aren’t selling. In Manhattan, units priced below $1 million are piling up, according to StreetEasy. Inventory climbed 27 percent in June from a year earlier — to the highest level for the month since 2013, the website found. It’s essentially a buyers’ market across the board, and the total number of available homes in Manhattan is at the highest for the month since 2011. In Brooklyn and Queens, total inventory for June was the most since 2008.”

“In the second quarter, Manhattan sales saw a third consecutive decline. As units pile up, condominium developers have been ramping up discounts and incentives. This month, Toll Brothers is holding a nationwide sales event in an attempt to boost sales. And Extell Development has offered price cuts and perks on sponsor units at One57. “

July 23, 2018

Equity Will Shrink, Maybe Even Evaporate

A report from the Post Independent in Colorado. “CoreLogic reports that ‘over half [of the 52] major U.S. housing markets are overvalued.’ And Denver’s one of them. This situation probably extends to the entire front range metroplex. So does it mean that we’re on the edge of 2008 all over again? Probably not. The present state of affairs is a classic manifestation of the Law of Supply and Demand. When a desirable commodity is in short supply, demand always drives up cost beyond its intrinsic value, generally not too long before a compensating downward adjustment. So maybe it’s time to sell, not buy.”

“There will be price adjustments in markets like Denver. Some residential homeowners’ equity will shrink, maybe even evaporate if they have a high-ratio loan, but there’s little reason to expect a crash and resulting endemic recession. Capital sources, from Fannie Mae and Freddie Mac, to Bank of America, to the Second National Bank of Downriver Montana, have kept the brakes on by carefully underwriting loans to assure that borrowers can pay them back. The American Dream of home ownership is alive and well. You just have to have more money if you’re a serious dreamer.”

From The M Report. “The risk of fraud in mortgage application increased at the end of the second quarter, according to the latest quarterly Mortgage Fraud Risk Index released by CoreLogic. CoreLogic said that the index rose to 149 for the second quarter, trending up 12 percent from the same period last year and rising 3 percent from the previous quarter. The report said that Q2 2018 was the seventh consecutive quarterly increase in mortgage fraud risk. The Mortgage Fraud Risk Index is calculated from the aggregation of individual loan application fraud risk scores during the previous quarter.”

“‘There is an increase in borrowers applying for loans on multiple properties,’ the report said. ‘While the tight housing inventory and competitive market likely play a role, data also shows investors purchasing multiple properties concurrently and at times dividing loan applications across lenders.’”

“The index also found an increase in identity discrepancies. It also noted red flags on income reasonability during the quarter. Regionally, Florida led the states with the most number of metros with the highest fraud risk. In fact, the Lakeland-Winter Haven metro area had the most significant increase in the fraud risk index at 20 percent. According to the report, the increase was due to high-risk flags in this region that included investors rapidly acquiring multiple rental properties, and the potential use of owner-occupant financing to obtain these properties.”

“Other Florida regions on the list included Miami-Fort Lauderdale-West Palm Beach; Tampa-St. Petersburg-Clearwater; Deltona-Daytona Beach-Ormond Beach; and Orlando-Kissimmee-Sanford.”

The Modesto Bee in California. “Home prices have risen about 50 percent in Modesto in the last four years. The median price for an existing single family home in January through May of this year was $310,100 in Turlock, $349,500 in Oakdale and $461,500 in Ripon. Prospective Bay Area buyers experience reverse sticker shock when coming out to the valley, like Jennifer and Frank Xu of south San Jose. ‘These homes are a fraction of what you’d pay in the Bay Area. This home would sell for $1.5 million there,’ said Frank Xu. The new three-to-four bedroom homes in Cypress Grove sell for between $374,900 to $460,000.”

“Many of the major developers like Century Communities and Florsheim Homes didn’t start building again in earnest until last year. Aaron Lewis — president of Realty One Group Gold and who is in his 15th year selling homes in the Modesto area — said institutional buyers and investors who bought homes as rental properties are taking their profits and getting out of the market.”

The Arizona Daily Sun. “Freshly constructed roads, foundations and home structures cut through scrub brush that covers a corner of land at the edge of Doney Park. The new rural subdivision, called The Hills at Slayton Ranch, is one of several projects that have been working their way through the pipeline at Coconino County’s community development department in recent years. Together, the housing projects have claimed some of the last large, developable and ’subdividable’ county land around Flagstaff, said Jay Christelman, director of the community development department. ‘We’re running out,’ Christelman said.”

“Building activity in general has ticked upward as well, with permit activity in 2018 already on track to be 30 percent higher than last year, Christelman said. As for the subdivision projects that are in progress, most are ones that have been revived after coming to a standstill during the recession. Construction in the 126-lot Slayton Ranch subdivision began in 2004. The first and second phases of the project were completed by 2006, but progress stalled during the Great Recession and the housing market bust, said Tim Shinkle, a realtor who is the local marketing representative for the subdivision and is developing some homes there. ”

“Most buyers of the 2.5-acre lots are custom building their homes, Shinkle said. He is building two spec homes in the subdivision that he said will sell for between $600,000 and $620,000 for about 2,500 square feet.”

The Minot Daily News in North Dakota. “The number of properties receiving notices of foreclosure in Ward County spiked to more than a thousand this year. That’s not quite doubled from last year, but it reflects an increasing number of incidents in which property owners are letting taxes fall into arrears. Some development properties have faced foreclosure because the market for housing changed in recent years. A proposed housing development near Berthold is one that never quite took off.”

“‘At this time, we are not encouraging that development. We have a fair amount of homes for sale in the city,’ Berthold Mayor Steve Ibach said.”

From Crain’s New York Business. “It’s not just luxury-home listings that are piling up in New York City. Even units for less than $1 million are hurting for buyers. In Manhattan, the inventory of sub-$1 million apartments surged 27 percent in June from a year earlier to 3,087, the most for the month since 2013, according to StreetEasy. Such listings jumped 17 percent to 2,738 in Brooklyn, and climbed 6 percent to 2,314 in Queens.”

“When combined with listings over $1 million, Brooklyn and Queens both had the largest number of available homes for June since 2008, according to StreetEasy. Total inventory in Manhattan hasn’t been this high for month since 2011. ‘There are a lot of options out there, so be picky,’ said Grant Long, senior economist for the listings website. ‘The power is in your hands to negotiate.’”

“Another surge of listings is expected in September, a time when many homeowners try to recapture buyer attention after a summer break, according to Long. If purchases don’t clear some of the supply before then, ‘what’s added in the fall will push us undoubtedly to the highest inventory levels that the city has ever seen,’ he said.”

The York Daily Record in Pennsylvania. “Realtor and developer Steve Chronister is saddled with millions of dollars of debt and lost his own home to foreclosure in 2017. According to documents filed in the York County Judicial Center, Chronister has almost $2.7 million in judgments against him. The biggest single debt — $919,923.88 — is to a Glen Rock company that Chronister contracted — but allegedly did not pay — to install sewers, water lines and streets for property development by Chronister’s limited partnership — Hallam Properties LLC — in Paradise Township. Chronister had plans to build a housing development on Beaver Creek Road.”

“Paradise Village was to be a 48-unit neighborhood of ranch-style duplexes with a list price of $219,900 each. The contractor was to be paid from proceeds from the sales of the first 11 homes sold. As it is, one home has been built. It is still for sale, on a short, dead-end street off of Beaver Creek Road. At the end of the street are a couple of backhoes surrounded by tall weeds.”

“Last year, Steve Chronister and another limited partnership — Equine Meadows Associates — were subject of a revival of a lawsuit in which a judge determined he owed at least $420,897 to the Equine Meadows Condominium Association. In the original complaint, the association alleged that the developers and marketers of the condominium complex ‘gave buyers misleading and inaccurate information in the disclosure documents required to be provided to buyers of condominium units, failed to remedy various defects in construction and failed to complete improvements to be incorporated in the Condominium property, and mismanaged the Condominium while it was under (their) control.’ Chronister could not be reached for comment.”

From New Jersey Advanced Media. “When the housing bubble burst, every town in New Jersey suffered. Most places in the nation did. Much of the state has recovered considerably in recent years, but not everyone. There are actually only two towns in New Jersey with higher median home values than at the peak of the market: Hoboken and Weehawken. Outside of that, every other community remains down at least 4 percent. An analysis of real estate data from Zillow shows a handful of towns have a median home value of less than half of what it was 12 years ago, when the market peaked.”

July 22, 2018

The Great Grandmother Of All Scandals

A weekend topic starting with the Miami Herald in Florida. “When a company called the Flower of Scotland paid $1.13 million — in cash — for a three-bedroom condo in Sunny Isles Beach last year, it had to do something unusual: tell the federal government who its real owner was. In years past, the Delaware-based shell company could have put down the money and walked away with a new condo — and a boat slip on Dumbfoundling Bay — no questions asked. But a temporary rule imposed in early 2016 by the U.S. Treasury Department on Miami-Dade County and Manhattan, two of the nation’s most attractive real estate markets to dark money, began to strip away that kind of secrecy.”

“Now, a new working paper from economists at the Federal Reserve Bank of New York and the University of Miami offers one answer: The anonymous cash buyers stopped buying homes — at least using the method targeted by regulators. In Miami-Dade, the first-of-its-kind study found a 95 percent drop in how much cash shell companies and other corporate entities spent on homes. The decline began immediately after the rule took effect in March 2016.”

“Such devotion to the luxury real estate industry as a financial driver has led to economic inequality, researchers say.’We’ve had artificial drivers that have pushed up the prices of the overall housing market, to the point where many people are going to look to leave the area for a better standard of living,’ said Jack McCabe, a Florida real estate analyst and consultant. ‘The expenses eat up too much of their income.’”

The South China Morning Post. “Unit 78B of the 90-storey Trump World Tower in Manhattan offers breathtaking views of the East River and the United Nations plaza through floor-to-ceiling windows in its living and dining areas. The residence, available for rent for US$15,000 per month since May, is among 89 worldwide real estate assets owned by the company of Ye Jianming, a mysterious businessman who amassed one of China’s biggest fortunes – and the country’s largest non-state oil conglomerate – in less than a decade from out of nowhere.”

“Ye has been missing from public view since the start of Lunar New Year celebrations on February 16. Although he hasn’t yet been charged with any crime, Ye is believed to be under detention to help Chinese regulators with unspecified investigations into the debt incurred by his China Energy Finance Corp (CEFC). The list of assets, valued at a combined 21.64 billion yuan (US$3.19 billion) as of March 1, include the Upper East Side apartment, a mountainside villa in Lisbon, Wan Chai offices, luxury flats at Hong Kong’s Cyberport and CEFC’s corporate headquarters in the former French Concession in Shanghai, according to an inventory obtained by the South China Morning Post.”

“The properties were the results of CEFC’s global shopping spree, which only ended in 2017 when Chinese financial regulators brought the boom down to crimp runaway borrowings and stem capital flight in the country. The first cracks in the CEFC empire began to appear in November 2017 when Patrick Ho Chi-ping, Hong Kong’s former Home Affairs Secretary, was arrested in New York on charges of routing money meant for bribing politicians through US financial institutions.”

“‘The debt crisis of CEFC was caused by US pressure, after CEFC began extensive cooperations with Rosneft,’ according to a memo in May that summarised the Chinese company’s debt levels for creditors, obtained by the Post. ‘Media reports led to panic among investors, which ultimately led to a break in the credit line that has been extended to the group.’”

From Casino.org on Canada. “In British Columbia, an ongoing casino money laundering investigation is about to enter its second phase, and the province’s overheated housing market will be the target. ‘Dirty Money’ report author Peter German has estimated that more than $100 million has been ‘cleaned’ at BC casinos over the past decade. German will now begin work on a new report looking at a potential secondary effect of the money-laundering scandal: BC’s housing market bubble.”

From Better Dwellings in Canada. “Canadian real estate sales are slowing in the country’s biggest markets. Canadian Real Estate Association (CREA) numbers show June 2018 saw large declines compared to last year. Most of Canada’s major markets faced declines, but British Columbia bared the brunt of them. Fraser Valley reported 1,380 sales in June, a 44.11% decline from last year. Vancouver came in at 2,467 sales, a 37.59% decline from last year. Victoria reported 678 sales, a 29.52% decline from last year. The industry is blaming a policy measure that cracks down on second homes, but seriously? We thought the industry was saying there’s no empty homes in BC? Strange that it would be so impactful.”

From The Guardian on the UK. “A surge in homeowners putting their property on the market – just as buyers melt away in summer – is depressing house prices, according to the biggest property website, Rightmove. The number of properties coming on to the market in July rose by 8.6% but there has been ‘no corresponding increase in buyer numbers to soak up the new seller influx,’ Rightmove said. After a long period in which estate agents decried the lack of properties on the market, they have more on their books than at any time since September 2015. As a result, sellers are having to cut overly optimistic asking prices to find buyers.”

“Rightmove said: ‘The proportion of sellers already on the market that are reducing their asking prices is the highest at this time of the year since 2011, indicating initial over-optimism on price.’”

From The Monitor on Uganda. “The Financial Intelligence Authority (FIA) has cited real estate as the most attractive investment for money launderers. Mr Sydney Asubo the FIA executive director, said a National Risk Assessment survey conducted by the Authority found that real estate was responsible for moving ‘dirty money’ because of its profitability and lax regulation. ‘Most of the land in Uganda is untitled and rules around transfer are not stringently enforced. Land is also not registered and rarely loses value. It usually appreciates [which makes it attractive to money launderers],’ he said.”

From Edge Prop on Malaysia. “A new front into the 1MDB inquiries has opened up. Already under investigation in the US, Switzerland, and Singapore; there is now the possibility of Chinese involvement. This new development in the financial scandal around the 1MDB investment fund has led to the government suspending three major construction projects with Chinese firms. Tony Pua, special officer to the Finance Minister Lim Guan Eng, tasked with sifting through the masses of documentation linked to 1MDB calls it ‘the great grandmother of all scandals.’”

“The new administration has been astounded by what it had found, Pua told the BBC. ‘The entire project smelt like a scam. [There were] clearly elements of money laundering taking place,’ he said to the BBC. ‘We were giving money out — to a Chinese company — and we suspect this money is being funnelled to parties related to the previous administration.’”

From ECNS on China. “Hainan’s latest tough cooling measures are timely and necessary to prevent the market becoming overheated once more, and reflect its resolve not to rely on property any more for development, according to governor Shen. But he said real estate is unsustainable as a pillar industry in Hainan. ‘We will never let Hainan become a real estate processing plant,’ the governor said.”

The Sydney Morning Herald in Australia. “A surge in ’shadow’ lending to property developers to fill a gap left by nervous banks has sparked warnings that a wave of unregulated finance could leave the property market exposed to new risks. After a decade of booming, Australia’s housing market is slowing down fast, as banks tighten their new lending, and investors retreat from the market, especially in Sydney and Melbourne.”

“Property developers have no choice but to turn elsewhere for finance because banks have slashed how much they are willing to lend, say financiers Wingate. Whereas a bank previously may have lent at a loan to value ratio of up to 65 per cent, this has been slashed to 50 per cent or, in some cases, lower, the group’s head of property Mark Harrison said. And the result? ‘Demand has probably doubled in the last 18 months,’ he says.”

“‘I would not suggest the market is going crazy in terms of its risk appetite,’ says Steve Bulloch, head of PGIM Real Estate’s Australian business. ‘There are few signs of widespread distress at the moment, but a challenge is likely to arise for some developers who have paid a lot of money for their land and need to refinance their acquisitions. That’s probably where the squeeze will come.’”

From Domain News on Australia. “Nobody knows how many billions of dollars in dirty money is pouring into Australia’s housing market, but global authorities describe local real estate as a prime target for money laundering – and you may have paid more for your house because of it. The likelihood of cashed up crooks increasing house prices is much greater than many people realise, given the hidden nature of the problem, a lack of regulation in the Australian real estate industry and the staggering sums involved.”

“Real estate agents say corrupt money can also influence average house prices, because criminals paying more than market value for one house are likely to encourage higher asking prices for similar properties in the same street. Estimates vary, however an International Monetary Fund calculation converted to local currency shows up to $5 trillion in corrupt money – more than three times Australia’s GDP – flowing into global financial systems last year. Only 0.2 per cent of the illegal transfers were likely to be seized or frozen, according to a UN report.”

“No official estimate of how much tainted money is laundered through Australian housing has been publicly released, but there’s no shortage of warning signs. Australia’s financial crime intelligence authority, Austrac, reported $1 billion in suspicious transactions flowing into the nation’s housing from China alone during 2015, but some analysts believe that’s just the start.”

“A Transparency International report last year found Australia’s housing market is more open to laundering than the US, Britain or Canada, failing in all ten areas that allow criminals to easily purchase properties anonymously to hide stolen money. Professor Jason Sharman of Cambridge University, a global money-laundering expert whose views are included in the OECD report, says Australia already has extremely powerful laws against money laundering. ‘The problem is that in most cases the government chooses not to enforce them,’ he says.”

“Laws governing UK real estate agents were introduced last year after investigations showed a huge flow of corrupt money, estimated to be tens of billions of pounds, had driven up housing prices. In London, the National Association of Estate Agents says its members have already been fined millions of pounds for failing to comply with the new anti-money-laundering laws, with some facing bankruptcy as a result.”