August 2, 2018

A Higher Supply At A Time Of Falling Demand

A report from Global News on Canada. “The number of real estate sales in Greater Vancouver hit its lowest level since the year 2000, according to data from the Real Estate Board of Greater Vancouver. What’s more, condo prices dropped for the first time since January 2017. Vancouver realtor Steve Saretsky, who watches the condo market closely, said he’s not surprised to see condo prices start to falter amid tighter mortgage rules and a slew new B.C. taxes aimed at cooling the housing market. ‘The detached market has been correcting for two years now, and it really shouldn’t come as a surprise that the townhouse and condo market is now following suit,’ he said.”

“With detached home prices continuing to slide, Saretsky said many people who might have been pushed into the condo market for affordability reasons may be back in the market for a bigger property. ‘At some point, you have to look and say, ‘Why am I spending a million dollars on a two-bedroom condo?’ he said. ‘At some point it just doesn’t make sense.’ He said stalling condo prices at the high and low end of the market are also discouraging speculators, and their exit is, in turn, further reducing price pressures.”

From Toronto Storeys in Canada. “New condo activity has slowed down in Toronto and the GTA, but new condo construction is surging. In the first half of 2018, sales of 9,058 units were down 58 per cent from 2017 (21,316) and they were 13 per cent below the 10-year first-half average of 10,471 sales. Pre-construction buyers have become more cautious since the sharp spike in new condo prices last year and the recent slowdown in price appreciation for resale units.”

“Investors are key to new condo sales. The sales strongly depend upon their activity and interest in the market changes with the outlook for investment returns. Condo apartment construction starts in the GTA reached a record 7,981 units in Q2-2018. The total number of condo units under construction also hit a high of 63,903 units, of which 95 per cent were pre-sold. Construction was driven higher by a record number of new condo pre-sales in 2017.”

“New condo sales dropped by 56 per cent annually in Q2-2018 to 4,977 units as new project openings slowed and absorptions moderated to their longer-term average. Of the 5,759 units brought to market in pre-construction projects in Q2-2018, 56 per cent were pre-sold by quarter end, which compares to an 80 per cent opening absorption of the record 9,521 units launched in Q2-2017.”

“The average opening price for new launches in Q2-2018 was $835 per square foot, up 18 per cent year-over-year but down from the high of $954 per square foot for units launched in Q4-2017. Unsold inventory in development moved up to 9,341 units.”

From CBC News. “A lofty condo project planned for the edge of Westmount is now destined to be a seniors housing complex. Brokers say the change reflects the ongoing decline of condo sales in Edmonton. Bradley Gingerich, a senior VP at CBRE, said at a cost $1 to $2 million for a 2,000 sq. ft. unit, One Properties only sold a handful in two years. Chair of the Realtors Association of Edmonton, Darcy Torhjelm, said condo sales are down eight per cent from last year and vacancy is up more than 20 per cent.”

“‘They’re not able to sell them as quickly as they had anticipated when they first bought,’ Torhjelm said of the condo developers. ‘Because these things would be planned a couple of years ago.’ Gingerich said prospective homeowners have higher thresholds to meet to qualify for mortgages. ‘The new mortgage rules have really wiped out a large part of the buyers,’ he suggested.”

“Sales offices touting the once-coveted condominiums are boarded up and some, like the Vibe on 116th and 107th Avenue, are replaced with rental offices. Others have boarded up offices, temporarily abandoning plans to build towers in the core of the city. Lamb Development Corp. was successful in getting the lot at 10160 106th Street rezoned for a 37-storey Jasper House Condos 2015, only to put the project on hold two years later.”

“Brad Lamb, CEO of Lamb Development Corp. said they sold about one hundred one-bedroom units but the more expensive condos weren’t moving. Lamb isn’t giving up hope the condo market will recover in Edmonton but figures it may take a few years and a rebound of oil prices and consumer confidence. ‘All those things that make people want to buy stuff that cost a lot of money.’”

The Sydney Morning Herald in Australia. “House prices have fallen at their fastest rate in more than six years, fuelling concerns that prices in Sydney and Melbourne may fall ‘too far, too quickly,’ hurt economic growth and drive anxiety among policymakers. The market now predicts house prices could fall by more than 10 per cent in Sydney and Melbourne from their peak by the time the market stabilises in 2019. They have already been falling for 10 months straight.”

“Capital Economics chief economist Paul Dales said the most worrying aspect was that ‘prices will soon be falling at an even faster pace.’ ‘The further decline in the number of home sales in March to a seven-year low was larger than the fall in the number of new listings,’ he said.”

“He warned this was before the full effect of the banking royal commission was known. Banks have tightened their books in response to revelations at the commission, putting the financial system on a surer footing, but risking steeper price drops. Australian Prudential Regulation Authority chair Wayne Byres said in July that the ‘heavy lifting on lending standards has largely been done,’ but Mr Dales warned ‘there is still a big risk that the royal commission results in a further tightening in lending standards.’”

The Daily Telegraph on Australia. “Sydney rents have been falling at the fastest rate ever recorded following the release of a sudden glut of rental apartments in the Hills, Parramatta and other western regions. Figures released Wednesday showed the fall was not only the biggest since records began, but one of the few times tenants have ever benefited from an improvement in rental pricing. It is the first time CoreLogic has ever recorded a drop in Sydney rents on a citywide basis since they began tracking the market in 2008, according to head of research Tim Lawless. The group had recorded falls across individual regions, however.”

“‘There is a higher supply of rental housing at the moment, but it has come at a time of falling demand,’ Mr Lawless said.”

“Rents were falling the fastest in areas with a higher supply of new housing. This included the inner west, Hills district, Blacktown and Ryde. CoreLogic’s latest hedonic home value index also revealed these city regions recorded the sharpest falls in property prices over the past year. Dwelling prices in the Hills region dropped an average of 9.2 per cent, while inner west prices recorded the second biggest average fall at 8.8 per cent. This was followed by the Blacktown’s region 7.8 per cent price fall and the 7.7 per cent fall in Ryde regional prices.”

Now Sellers Are, Like, ‘What’s Going On?’

A report from the Financial Times on New York. “Home sales have slowed down this year in the Hamptons, bringing the median price below the $1m mark. Second-quarter sales fell 12.8 percent from 2017 levels, according to data prepared for Douglas Elliman by Miller Samuel Real Estate. The median price dropped 5.3 percent to a $975,000, compared with $1.03m a year earlier. The spring selling season is usually the high point of the year in the Hamptons, so the drop is stoking concerns that the resort areas of Long Island’s south shore are succumbing to the pressures depressing property activity in other parts of the US. The inventory of homes listed at more than $4.25m rose 36.5 percent year on year in the second quarter to 329, according to Miller Samuel. Sales in the luxury market were down 11.6 percent from last year’s level.”

“‘The prices really ran up quickly and a lot of inventory built up,’ said John F Wines, a broker at Saunders & Associates in Southampton. ‘Now sellers have had to get a little more realistic.’”

“Judi Desiderio, chief executive at Town & Country Real Estate in East Hampton, said there is a ‘glut in the market,’ with pricing pressures most pronounced at the highest end. ‘Those homes are being brought down significantly,’ said Ms Desiderio. ‘We have seen houses listed at $15m brought down to $12m, and maybe trading at $9m or $10m.’”

The International Business Times. “Amid sky-high home prices, rising interest rates on mortgages and a shortage of entry-level listings, the demand for housing has dropped 9.6 percent in June from the same time last year, per a monthly index from Redfin. This is the most substantial decrease since April 2016. That decline came from a 2.2 percent decrease in the number of homebuyers requesting tours and a 12.2 percent drop in requests made on houses from May to June. The number of people demanding home tours also fell 6.1 percent annually in June and there were 15 percent fewer offers made on homes, the report said.”

“Places like Seattle and Washington, D.C., which both have a short supply of homes available, saw double-digit increases in homes for sale in June. However, homebuyer demand dropped 3.7 percent that same month in those cities. For the year, the demand decreased by 14.8 percent and by 14 percent respectively. That may be because buyers are a bit more frugal based on locale, experts say.”

“‘As much-needed large inventory increases finally arrive in some of the hottest markets, buyers are taking the opportunity to be choosy, offering only on well-priced homes,’ said Pete Ziemkiewicz, head of analytics at Redfin. ‘With more homes to go around, buyers don’t need to bid as aggressively to win bidding wars, so prices, while still growing, are growing a lower rate, and home sales are slowing.’”

The Star-Tribune on Minnesota. “After a bustling spring, homebuilders in the Twin Cities hit the pause button last month. Applications to build for-sale houses were nearly flat while rental apartment construction tanked, reversing a two-month trend. During July, 477 permits were issued to build 659 units, according to Housing First Minnesota. That was a 5.1 percent increase in permits from the same period a year ago, but a 40.4 percent decline in total units.”

“Ian Peterson, Twin Cities division president with David Weekley Homes, attributes the July pause to a strong spring that borrowed future demand. Talk of rising mortgage interest rates in the coming months also might have encouraged some to buy earlier in the year than they otherwise might. ‘Was it a typical July? I’d say a little slower,’ he said. ‘It wasn’t significantly slower.’”

The Philadelphia Inquirer in Pennsylvania. “Even before she and her husband started seriously house-hunting for their first home, Nicole Benson Paul had heard the stories of Philadelphia’s cutthroat real estate market. It would have been no surprise — understandable, even — for Paul and her husband, Zach, to succumb to the trend that has captured thousands of city residents in the last few years: diving head-first into the market, voraciously bidding for properties, and overpaying or waiving contingencies to obtain a home when necessary.”

“Instead, the Pauls are part of what Philadelphia real estate agent Ashley Lauren Farnschlader calls the new ‘wait-and-see’ buyers — a new category of house-hunters who are tired of searching, exhausted from bidding, and hesitant to go all-in on a house. Whether they are skeptical about where the market and economy are heading, recovering from buyer fatigue, or simply waiting to find the right home at the right price, many Philadelphia buyers are no longer clamoring for homes the same way they did in 2016 and 2017, local agents say.”

“‘Buyers are buying smarter,’ said Dylan Ostrow, an agent for Berkshire Hathaway HomeServices Fox & Roach in Center City, who helped the Pauls buy their first home in June. ‘I’ve told so many different clients … ‘We can wait for the right property. Something will come along priced correctly.’”

“For Paul, 29, and her 30-year-old husband, the patient approach paid off. In April, months after they had started shopping, the pair made their first serious bid — on a 1,400-square-foot rowhouse in Philadelphia’s popular Graduate Hospital neighborhood. The house had listed in the spring for $519,900 after sitting for months at $539,900. The couple swooped in and bid tens of thousands below the asking price. After negotiations, the Pauls nabbed the home for slightly more than $500,000, and settled in June.”

“Ordinarily, in the last few years, the Pauls’ experience would have been considered an uncommon steal in a highly sought-after neighborhood — a blip in an always ascending market. But the 2018 spring selling season was not the same real estate market that sellers, developers, and agents have enjoyed for the last few years, new data show, raising questions about where the Philadelphia real estate market could be headed.”

“According to Lawrence Yun, chief economist at the National Association of Realtors, the slowdown in Philadelphia and other cities is only ‘temporary’ and has been driven perhaps by rising interest rates or more first-time buyers seeking — and finding — lower prices. Other observers simply see it as sellers dropping their prices to attract today’s more cautious buyer.”

“‘Last spring we were selling anything… and now my sellers are, like, ‘What’s going on?’ said Mike McCann, a Center City real estate agent for Berkshire Hathaway HomeServices Fox & Roach. ‘We’re at the top of the bell curve, and we’re seeing softness. Sellers are talking about it. Agents who are entrenched in the market are seeing it. You just have to be more cautious now in your pricing.’”

The Del Mar Times in California. “After heavy debate for the last year-and-a-half and a gridlocked last meeting, the Encinitas City Council must now make its decision on one of its most pressing issues two days before the county’s deadline to qualify for the November election. The city will have to lock in its housing element update and the ordinance’s wording for the ballot at its next meeting on Aug. 8.”

“Over the last year-and-a-half, residents have packed city council chambers late into the night, advocating for and disapproving of proposed sites, height restrictions and other elements of the document. One of the most contested properties — a 7.6-acre, city-owned site best known as L-7 and located at 634 Quail Gardens Lane — was removed in mid-April following complaints from neighbors of the nearby Quail Gardens neighborhood. Those residents complained of an oversaturation of affordable housing in the area.”

The Lawrence Journal-World in Kansas. “A local developer has withdrawn his plans to build a five-story mixed-use condominium building in downtown Lawrence. The developer of the Vermont Place project, Bob Schumm, said he decided to abandon the project as proposed because not enough people were interested in purchasing a condo. Schumm said he did not want to build a speculative project and therefore planned to pre-sell all 11 of the condos before moving forward. He said that after spending the last 10 months marketing the condos, he had pre-sale agreements for only three units.”

“Regarding why there was not more interest in the condos, Schumm said he thinks the main reason was cost, especially in comparison with existing housing in Lawrence. He said the sales price of an unfinished condo in Vermont Place was $295 per square foot, as compared with about $150-200 per square foot in the existing housing market in Lawrence.”

“‘That’s what you’re faced with, is the competitive pressure of existing housing space versus condo space,’ Schumm said. ‘If we had a much larger urban footprint with other condos in it, then there would be a condo market where you could say, yeah, that’s about what it cost to do this.’”