August 7, 2018

It’s Not Time To Panic, But This Market Is Cooling

A report from the Denver Post in Colorado. “Metro Denver’s housing market normally softens as the summer wears on, but this year it is cooling faster than normal. Higher borrowing costs are a likely culprit. The number of homes sold in the metro area dropped 15.6 percent in July from June, and year-over-year the decline is 8.5 percent, according to the Denver Metro Association of Realtors. ‘It’s not time to panic, but this market is showing signs of cooling, and Realtors need to manage seller’s expectations as market conditions change,’ advised Steve Danyliw, chairman of the DMAR Market Trends Committee.”

“The inventory of homes and condos available for sale at the end of July rose 4 percent to 7,643. That is still under half the historical average for metro Denver, but it represents the biggest supply for a July in three years, Danyliw said in his report.”

The San Mateo Daily Journal in California. “High real estate prices along the Peninsula may soon hamper home sales, according to a recent report questioning the sustainability of the region’s historically expensive market. Such a trend would continue the current market trajectory, as the median home sale in June price dipped by about $200,000 from just a couple months prior, according to the San Mateo County Association of Realtors.”

“But with the median home sales prices across the county sitting at about $1.6 million according to the most recent SAMCAR data, it is reasonable to expect the unprecedented levels of unaffordability will begin to take a toll, said CoreLogic. Frank Nothaft, chief economist for CoreLogic, points to markets in Southern California and the Bay Area, where costs pushed sales volume down by an average of nearly 10 percent over the last year.”

The Miami Agent Magazine in Florida. “Miami’s housing market may be turning toward one favoring buyers moreso than sellers. That’s one finding from a new study of Miami-Dade County’s real estate market by the Miami Herald and polling firm Bendixen & Amandi International. Two major factors indicate a shift in Miami housing prices in the coming months. There is a 32-month supply of condos in downtown Miami, indicating an oversupplied market. There are also plans for new rental buildings, only adding to Miami’s supply saturation. Landlords and owners will have to lower prices in order to stay competitive, according to the Miami Herald study.”

“With prices expected to drop, 49 percent of agents and brokers surveyed for the study said now is a good time to buy. Only a quarter of the agents and brokers recommend selling given the current state of the market. An overwhelming 74 percent of those surveyed say now is the time to own rather than rent.”

“Luxury properties are seeing an oversupply trend as well, but prices are already low. Luxury properties in Miami are being sold at prices 15 to 20 percent lower than their original asking price.”

From The Real Deal in New York. “Price for empty Georgica Pond-front plot once owned by David Geffen slashed to $19.9M A 1.64-acre property on the shores of Georgica Pond had its price cut for the first time since it hit the market, dropping by $3.6 million from its original ask of $23.5 million, Curbed reported. The property had been part of a 5.5-acre compound that media mogul David Geffen bought from Courtney Sale Ross for $52 million in 2014. Developers bought the compound from Geffen two years later, subdivided it and put the pieces back on the market. Two were sold for a combined $24 million, 27east reported in May.”

Investors Got In At Way Too High Of A Price

A report from WAMU. “When she moved into her new apartment complex in Pentagon City, Carol Millman didn’t realize she would be sharing her building with hotel guests. But one morning about a year ago, as Millman stood in line awaiting a free breakfast provided by the building’s management, she made an unnerving discovery: her building was renting out apartments to temporary guests. Unbeknownst to Millman and other residents of The Bartlett, a company called Global Luxury Suites was renting apartments in the building. Millman had stumbled across a practice that’s become common in brand-new apartment buildings in the Washington region.”

“But some say developers and landlords are turning to companies like WhyHotel as a last resort, and overlooking the negatives. Joe Rieling is the co-founder of Nomadic Real Estate, a property management company in D.C. He says WhyHotel strikes him as a sound idea, because it capitalizes on the desperation of property owners that have gotten into financial hot water.”

“Thousands of new rental apartments hit the D.C.-area market around the same time in recent years, Rieling says. Many of them opened after prolonged construction delays that cost developers a lot of money. Then rents stopped rising — largely because of the new supply — and developers found themselves in significant debt without enough rental revenue to make up the shortfall.”

“‘I see it all the time now,’ Rieling says. ‘You’ve got all of these investors … who got in at way too high of a price, got kind of caught up in the frenzy of multifamily housing here in D.C., and as the unfurnished rental market started to return to reality off its peaks in 2013, 2014, the only model that can produce them revenue to generate a profit or even just to break even’ is short-term housing, he says.”

From Curbed Atlanta on Georgia. “Following a short-term visit in June to the Old Fourth Ward, a reviewer named Micheal opined online that he’d enjoyed ‘the best Airbnb I’ve stayed in.’ He hadn’t taken up temporary residence in an O4W bungalow or VRBO condo—but a Ponce City Market studio apartment dubbed ‘The Edison Loft,’ which costs $199 per night. Such brief PCM lodging arrangements will be the new normal.”

“Officials with the Flats at Ponce City Market, the development’s residential component, announced a collaboration this week with Atlanta Luxury Rentals to operate short-term rentals. The changes come at a time when other large apartment developments have been offering concessions—six weeks of free rent, for instance—to lure tenants in submarkets crowded with new inventory, such as Midtown. Earlier this year, property management software specialists RealPage found that metro Atlanta is leading the nation when it comes to average rent discounts.”

The Union Tribune in California. “Long before she got fed up and moved out, Whitney Harchanko said, weird things began to happen in the halls of the Hollywood building she had lived in for years. People rang her doorbell at odd hours, confused about which apartment they were seeking. Drunk strangers sprawled next to the pool. Housekeepers flitted around during the day. Harchanko snapped photos and tracked down online ads for short-term rentals in the building, urging the manager to stop it from happening.”

“‘Nothing ever changed,’ Harchanko said, ‘except they put up a sign in the elevator.’”

“Those signs, posted in the elevators by Redwood Urban property management, declared that subleasing apartments for short stays was not allowed. Yet the building near the famed corner of Hollywood Boulevard and Highland Avenue is still advertised online to travelers by an international company called Ginosi, which rents out furnished apartments to nightly guests.”

“Pelican Residences is another, catering to travelers from across the globe at seven apartment buildings, mostly in Hollywood, according to a manager. That manager, Chris Rivers, said building owners are happy to get rid of apartments that are sitting empty and that renting out units for short stays creates jobs for housekeepers and others who cater to vacationers, who then spend money wandering neighborhoods. ‘It generates money for the city,’ he said.”

From Multi-Housing News on Washington. “What to Expect From Seattle’s Hot Market. Can this last? Billy Pettit, president of local development company Pillar Properties, explains why he anticipates a slowdown. As a multifamily and senior housing developer in the Puget Sound area, Pillar Properties owns more than 1,600 units in the region. Pettit: ‘The new supply has absolutely introduced new challenges to the market here. We have seen downward pressure on rent growth and, for the first time in a while, we have seen the use of concessions appearing more and more in the market.’”

“Q: Is there any more room for multifamily expansion downtown? Pettit: ‘The short answer is yes, there is definitely more room for multifamily expansion in the downtown core. It really comes down to timing for us. Do I want to deliver another 2,000 units in the next two years? No. Do I want to deliver another 2,000 units over the next five years? More likely. Do I want to deliver another 2,000 units over the next 10 years? Absolutely.’”

From WBUR in Massachusetts. “Rents in Greater Boston have fallen slightly over the last year — but only for the top tier of the market. For everyone else, they’ve ticked up. The changes in this region’s rental prices are quite small, but follow a trend in big metros that was noted by The Washington Post on Monday. ‘Since last summer,’ the Post reported, ‘rents have fallen for the highest earners while increasing for the poorest in San Francisco, Atlanta, Nashville, Chicago, Philadelphia, Denver, Pittsburgh, Portland and Washington, D.C., among other cities.’”

“The divergences at different rental price points raise questions for local officials about how to address growing housing costs. Many argue that moderating prices should filter down through a growing supply of housing stock; others say more direct intervention is needed.”

“As the Post writes: ‘City officials have said that a boom in luxury housing construction would cause rents to fall for everyone else, arguing that creating new units for those at the top would ease competition for cheaper properties. In part based on that theory, cities have approved thousands of new luxury units over the past several years, hoping to check high rents that have led more than 20 million American renters to be classified as ‘cost burdened,’ defined as spending more than 30 percent of one’s incomes on housing.”

“But although some advocates say the dividends could still pay off for low-income renters, others say more direct government action is needed to prevent poor residents from being forced out of their cities or into homelessness. …”

From Common Dreams. “Diane Yentel, chief executive of the advocacy group National Low Income Housing Coalition, outlined the governing theory that has led to this nationwide crisis. ‘For-profit developers have predominantly built for the luxury and higher end of the market, leaving a glut of overpriced apartments in some cities,’ she explained. ‘Some decision-makers believed this would ‘filter down’ to the lowest income people, but it clearly will not meet their needs.”

From Bisnow on Texas. “Houston’s apartment rents remain cheaper than those in most major metros in the country. Cushman & Wakefield Senior Director Ed Nwokedi said the city’s economy has remained healthy and offered stable affordability compared to other gateway cities. ‘Apartment rents are competitive based upon the continuous population growth and [overbuilding] supply,’ he said.”

“Houston multifamily occupancy was near 90% as of August, with 11,691 units absorbed over the past 12 months, according to ApartmentData. The market delivered 9,806 units or 43 communities within this period with an additional 10,577 units or 40 communities currently under construction. The report also predicts more than 18,000 apartment units or 68 new communities will be proposed by developers before year’s end.”

“‘Like clockwork, you can depend on developers to overbuild apartments ahead of demand,’ Nwokedi said.”

What The Ceiling Looks Like

A report from the Seattle Times in Washington. “Homes are sitting unsold for weeks. Bidding wars are becoming less common. More sellers are even dropping their asking price to attract buyers. The change began suddenly in May — normally the peak buying season — and has only accelerated since, according to new data released Monday. The number of homes for sale across King County jumped 44 percent in July from a year ago, the biggest increase in a decade and the third straight month of huge inventory growth, according to the Northwest Multiple Listing Service. Inventory now exceeds 2015 levels, reversing three years of steep declines.”

“King County’s median house price of $699,000 in July was down $27,000 from the record highs reached a couple of months prior. That’s not a normal seasonal drop; just the opposite: Last year, July was the most-expensive month of the year in local real estate. Seattle’s median house price of $805,000 was down $25,000 from the high point reached in the spring and was the lowest since last winter, as inventory in the city shot up a whopping 60 percent. Prices on the Eastside fell $30,000 in one month, to $947,000.”

“‘I think we’ve hit a bit of a plateau, pricewise,’ said Allie Howard, a Windermere broker in Seattle. ‘We’re starting to see what the ceiling looks like.’”

“Zillow reported that the share of local home listings with a price cut has grown to its highest point in four years, and has doubled just in the past four months. About 12 percent of listings in the Seattle metro area had a price cut in June, just behind the national rate of 14 percent.”

“The market cool-down is part of a national trend as inventory finally starts to tick up after years of decline, and price growth continues to moderate. But the Seattle area stands out on the national stage: It saw the second-biggest jump in homes for sale in the country, according to”

“Real-estate experts pointed to a variety of factors driving the cool-down: Rents have stabilized, putting less pressure on first-time buyers to get out of their apartments. Mortgage rates are at their highest point in years, eating away at buying power. Population and job growth in the region, while still strong, has waned. Some agents have reported falling interest among Chinese buyers. The natural question now becomes: Is the market simply taking a breather before surging back up again, or is this the beginning of a new normal — or, even, a sign of a bubble beginning to form?”

The News Tribune in Washington. “Demand for affordable homes in Pierce County has boosted median sale prices in rural areas by nearly $71,000 in the last year, according to the Northwest Multiple Listing Service. ‘Pierce County has, for a handful of years, been the affordability solution for buyers who would otherwise buy in King County,’ said Mike Larson, president/designated broker, Allen Realtors, Lakewood. ‘I think the craziness of the King County market has magnified that fact even more. Buyers are willing to spend two or three hours in their cars each day if it means buying twice as much house.’”

“Area agents and brokers are doing their parts to calm the clamor spilling from King County. ‘The expectation of multiple offers and the ability of sellers to simply dismiss inspection repair requests is behind us,’ Larson said. ‘The days of doing a market analysis and then pushing the envelope on the list price an extra 5 percent are gone. Ultimately, I think that’s healthy for the market.’”

From The Reflector in Washington. “Housing market trends have national media calling it the start of a broad slowdown of the market. Real estate agents are seeing some early impacts in Clark County but overall the market remains strong. Real estate agent Luke Loiselle says that those who are a part of his Keller Williams Realty team have noticed some ’softening’ of the market.”

”I would not call it a crash, or any other alarmist term yet,’ Loiselle wrote in an email about what he has seen, ‘but we are definitely seeing more inventory, more days on market and more price reductions. Don’t get me wrong; we are still rapidly accelerating.’”

“Further adding to a housing market slowdown is interest rate creep, Loiselle said. According to data from the Freddie Mac Economic Housing and Research Group, rates have risen steadily this year for 30-year fixed home mortgages, now currently sitting at about 4.5 percent. Loiselle said that every percentage-point interest rate increase translates into a 10 percent drop in buying power.”

“Loiselle said although the market softening is across the board in Clark County properties, some areas where it’s more sluggish were places farther out into the county as well as pre-existing homes that are near new construction similarly priced as buyers can get something new for not much more.”

“Loiselle said there were some advantages for those looking to sell in the current market, if they were planning to buy a new home as well they can take advantage of interest rates that are trending upward. First-time homebuyers could also benefit, given that it would take a while for the slowdown to lead to a better deal than what is current — some four to eight years. ‘If that is your goal, be OK with waiting for many years before you purchase,’ Loiselle said.”

“For those looking for a home sooner, now might be the time. ‘Waiting until next year, you are only going to see higher interest rates and higher prices, because it will take time for that higher interest rate to adjust to the prices coming down a bit,’ Loiselle said.”