August 19, 2018

I Just Want To Get Out, I’ve Been Holding Too Long

A report from the Vancouver Sun in Canada. “A number of Vancouver realtors believe a significant decline is happening in Metro Vancouver house prices, through official statistics are so far providing more muted signals. Realtor Ian Watt uses the independent figures from SnapStarts Publishing Company, which reports median prices. For July, it shows that prices for detached homes on Vancouver’s west side have fallen 26 per cent in a year, dropping by just under $1 million, from $3.8 million to $2.8 million. In West Vancouver, detached home prices have fallen over 30 per cent or $1.1 million, from $3.6 million in December 2017 to $2.5 million in July.”

“By comparison, the real estate board’s index shows a year-over-year decrease in July of 8.4 per cent for the west side and 8.3 per cent for West Vancouver.”

“Realtor Stuart Bonner watches detached homes on Vancouver’s west side and says the drop in sales and prices that he is seeing feel like a ‘canary in the coal mine’ — a warning of what is to come in other parts of the Metro market because the west side is where the ‘chain reaction’ starts. The downward trend would come off some intense price gains in the last few years. Watt says, in January 2015, the median sale price for downtown condos was for $493,000, according to SnapStarts. In January 2018, it was $950,000 for an increase of 93 per cent.”

“‘My thoughts are if they went up that fast, they can certainly go down that fast. That was a one-time Chinese money infusion and a spectacular frenzy, which are both over. Vancouver will never be affordable, but it will drop 25 per cent or more,’ says Watt.”

“Prices tend to be cut as properties sit unsold on the market. So another way to look at things is to count how many months it would take for the current inventory of homes on the market to sell, given the current pace of home sales, a measure called months of supply. Bonner says as this statistic increased in July, the average detached home price dropped 11.6 per cent to $3.323 million from $3.757 million last year. The median detached home price dropped more slightly from $3.009 million to $2.984 million. There has been a drop of 25 per cent in average home price and 22 per cent drop in median home price since the highs of 2017, according to Bonner.”

“‘Detached, attached and apartments on the west side are now all experiencing price reductions and while this is creating good buying opportunities, buyers are holding off in anticipation of further declines,’ Bonner wrote to clients in a note. ‘This will exacerbate the decline and soften prices further.’”

“Realtor Steve Saretsky says when prices were rising, it was the ‘irrational buyer who would set a new level by bidding $200,000 over the asking price.’ Now, the prices are being set by owners who are willing to take a lower amount because they have to sell for personal reasons, such as a divorce or an illness that forces downsizing. ‘We are in a period of price discovery,’ says Saretsky, with some sellers adjusting their expectations and some finding it harder to do so.”

“One would-be seller of a one-bedroom condo in Yaletown, for example, who thought in the fall of 2017, his place might go for $750,000. He got an offer for $735,000, but didn’t take it then, says Saretsky. ‘He asked me what it would be worth now, based on recent sales and I said, ‘asking anything higher than $700,000 would be on the high side. Maybe $685,000. And he said, ‘oh no, he couldn’t sell it for that since he had that previous offer for $735,000. So it’s tough to adjust if people have been anchoring those prices.’”

The Australian Financial Review. “All eyes have been on Sydney where the softness has been most apparent as investors are forced from the market by curbs on lending. Sydney prices have dropped 5.4 per cent for the year. SQM Research’s Louis Christopher said auction volumes are beginning to pick from the winter lows and clearance rates so far haven’t deteriorated further, in Sydney and at a national level.”

“‘The pick-up for the spring selling season is now upon us. The market is going to be very much tested,’ he said. ‘We’ll know from this whether we’re going to experience a deep crash or whether it’s going to be an orderly downturn that will last a period of time but won’t be anything at panic levels.’”

“Anecdotally, sellers are showing more signs of capitulating and a willingness to meet where the market is now at, according to Mr Christopher. ‘I’ve been hearing this more and more from sellers: ‘I just want to get out. I’ve been holding too long, I want out.’”

What We’re Seeing Is More Of A Market Correction

A report from the Los Angeles Times in California. “It’s been on again, off again, on again and now it’s sold. Grammy-winning music star Marc Anthony and his wife have parted ways with a second home they own in Tarzana. The closing price was $3.2 million. The East Coast-inspired Traditional, built in 2014, has been on and off the market for the better part of two years, listing for as much as $4.35 million and as little as $3.35 million. Anthony bought the place in 2015 for $4.125 million, records show.”

The La Jolla Light in California. “Razor House listed for $30 million. One of the most stunning (and stunningly expensive) houses in La Jolla is back on the market. The Razor House at 9826 La Jolla Farms Road. Sitting on three-quarters of an acre above Black’s Beach, the clifftop valhalla has six bedrooms and bathrooms in 11,954 square feet of living space and was featured in commercials for Calvin Klein and Visa. Believe it or not, the asking price is less than its 2007 construction cost ($34 million) and 2008 asking price ($39 million), but considerably more than it last sold for in 2011 ($14 million).”

From KRON 4 in California. “By most measures, the local residential real estate market is still going strong. But there are signs that the market is cooling down some, at least for now. You may have noticed a few more ‘for sale’ signs in your neighborhood of late, suggesting that inventories are up. Homes are still selling but there are also signs some of those homes are selling for a little less right now, says Climb Real Estate’s David Contreras.”

“‘There is talk of it cooling off a little bit, but what we’re seeing is more of a market correction,’ Contreras said.”

“In San Jose, for example, Zillow reports prices were dropped on 9.5 percent of listings in June, up from 7.2 percent one year ago. ‘What’s happening is we’re seeing prices not going up $100,000 or $200,000 over the asking price,’ Contreras said. ‘Things are getting a little more tamer.’ Don’t expect home prices to fall too far, Contreras said.”

The Idaho Business Review. “Jack Harty, principal of Harty Mortgage Advisors in Boise, has a mixed message for clients who approach him about building revenue-generating properties. Harty sees signs that the economy has reached a peak, and he advises clients they may be better off selling some of their existing properties at existing high prices rather than risking construction of too many more properties. ‘There are pressures at work that over time, if unabated, will tend to reduce the value of income-producing properties,’ Harty said. ‘Right now we’re on the crest of a wave. When will the wave break?’”

“His message of caution is shared by several others involved in Idaho real estate loans, who believe it’s time for borrowers to factor in the possibility that a market correction may be on the horizon when they plan their projects. Jeff Newgard, CEO of Idaho Falls-based Bank of Idaho, said he’s heard a lot of talk lately about a market correction. ‘(Before the Great Recession) there was so much money to be made for a bank on development lending, and when things fell apart, everything came down like a house of cards,’ Newgard said. ‘Just because (the economy) has been going this way for a few years doesn’t mean it will continue the same way.’”

The Oversupply Is Pulling The Market Down

A report from the Palm Beach Post in Florida. “His gubernatorial campaign comes as some in West Palm Beach have soured on Jeff Greene, the real estate mogul who once seemed ready to lead West Palm Beach out of the Great Recession. In 2011, he embarked on a shopping spree that saw him spend more than $200 million on Palm Beach County real estate, mostly in West Palm Beach and Palm Beach. While he has won city permission to build two splashy towers on Quadrille Boulevard and so-called micro-apartments downtown, he has yet to break ground on those projects. Greene, for his part, has grown less bullish about the prospects for his hefty investment in downtown West Palm Beach. ‘It’s not going that great,’ he said Friday.”

“As for the micro-apartment project, Greene said he spent hundreds of thousands of dollars on engineering and design, but he was scared off by a building boom that could add more than 2,000 new apartment units to downtown West Palm Beach. ‘We just don’t have the kind of dynamic economy here that has pushed rents up to the point where it makes sense to build new apartments,’ Greene said. ‘All of these new buildings are putting stress on the market.’”

The Sun Sentinel in Florida. “The stalled Las Olas Ocean Resort near Fort Lauderdale Beach may be close to being sold to a Rhode Island hospitality company after it became the only bidder to make an offer for the property, which is now in Chapter 11 bankruptcy proceedings. The bidder, MHF Properties VI LLC, is an affiliate of Magna Hospitality Group of Rhode Island. The company had agreed to put up the initial offer for an auction that was to take place under the supervision of the U.S. Bankruptcy Court.”

“But after MHF offered $39.1 million, the auction was called off when no one offered a competing bid. Construction on the 12-story, 136-room resort ground to a halt after 550 Seabreeze Development LLC sought protection from its creditors — namely Bancorp Bank — which filed a foreclosure suit against the owner in January. The bank claimed the developer defaulted on a mortgage, which had an unpaid balance of $36.9 million.”

“It remains unclear whether several dozen investors from China will recover anything. Collectively, they contributed $30 million through a U.S.-sponsored foreign investor program that would have yielded immigration visas as a reward for creating jobs at the resort. About a third of them filed a lawsuit in bankruptcy court alleging fraud by Bancorp and four of the developer’s managing members.”

The Commercial Observer on New York. “Developer Rutherford Thompson filed for Chapter 11 bankruptcy protection on Tuesday to prevent the UCC non-judicial foreclosure on his stalled condominium development at One Bennett Park, also known as 29 Overlook Terrace, court documents filed in the U.S Bankruptcy Court for the Southern District of New York show. As previously reported by CO, the foreclosure auction of 100 percent of the ownership entity’s interest in the Hudson Heights property—pledged as collateral for the current debt on the property—was due to take place Wednesday at 11 a.m. at the offices of law firm Kramer Levin, with Ariel Property Advisors overseeing the bidding process. Thompson’s filing was made only a day earlier, ‘on an emergency basis.’”

“The 23-story, 114-unit condo building is still under construction despite completion being anticipated years ago. The project has faced ‘a host of problems involving lenders, cessation of financing, cessation of construction and changing market conditions,’ Thompson’s filing states.”

“Thompson claims in the court filing that the debt wasn’t repaid due to an inability to sell the property. After several extension of the loan’s maturity date the lender declared a default and scheduled a UCC foreclosure auction ‘despite ongoing efforts by me to procure a buyer or new lender for the property,’ Thompson claims.”

“The goal of the Chapter 11 filing is to preserve One Bennett Park’s status quo and allow Thompson ‘one final opportunity to procure a buyer for the property so as not to forfeit a project that still retains a potentially bright future after ten years of turmoil,’ he states in the document.”

From The Real Deal on New York. “The oversupply of high-end condos in Manhattan, Brooklyn and Queens is pulling the luxury market down. A report from Stribling & Associates for the first half of 2018 noted that the high-end condo market logged a nearly 40 percent decrease in transactions, according to Mansion Global. ‘This was the first time in the past six years the condo market saw a reduction in sales,’ Stribling’s Garrett Derderian wrote in the report.”

“The report found the number of sales valued at $5 million or more fell 31 percent in the first six months of the year, according to the brokerage’s numbers. In Manhattan alone, the inventory of condos is slated to hit a recent peak with close to 8,000 units expected to come online in 2019, as The Real Deal reported. Appraisal firm Miller Samuel predicts it would take about 4.5 years to sell the units.”

The Business Insider on New York. “Retail rents across Manhattan continued to fall in 2018’s second quarter, but leasing activity is picking up as landlords come to terms with the market, according to a report from Cushman & Wakefield. ‘We’ve seen more velocity,’ said Steve Soutendijk, a retail broker at the firm. ‘There’s definitely been a shift in landlords’ expectations.’”

“New York City has 16.4 acres of undeveloped land in its central business district — more than other coastal cities including Miami, Los Angeles and Washington, D.C., according to an analysis by Commercial Café that ranked 25 cities across the country. That revelation comes despite the massive development boom in the five boroughs that has outpaced every other metropolitan area on the list. Between 2013 and 2017, New York added 30 million square feet of housing and commercial space, more than triple the total for the next city, Dallas, which saw 8.5 million square feet of new properties.”