The Housing Bubble

It’s Friday desk clearing time for this blogger. “Catherine Horne and Joe Hicks rent a home in Maple Valley. And while they like it, they’d rather be homeowners. And it’s been a frustrating couple years to be a home buyer in the Seattle market. They felt overwhelmed watching home prices climb. ‘That was part of it, like gosh, two years ago this house was worth $400,000, now it’s $600,000,’ said Hicks. ‘Like boy, I wish we could have got in on that.’”

“It’s why they’re interested to see the latest trend in the Seattle housing market – Zillow senior economist Aaron Terrazas calls it a normalization. ‘Obviously, we’ve become accustomed to having the hottest housing market in the nation,’ he said. ‘That’s rapidly shifting.’ There’s also more housing inventory on the market - 13.2 percent more. ‘As a consumer, someone trying to buy a house, it gives us hope,’ said Hicks. ‘But as someone in [real estate development,] like a lot of other people it also brings some fear. Kind of a doubled edged sword a little bit.’”

“Despite a shortage of available homes, many Tampa Bay sellers are getting a rude awakening when the sign goes up but no offers come in. More sellers are being forced to drop their prices as the reality hits that buyers don’t love that funky tile or purple accent wall. According to Zillow, two-thirds of the nation’s largest housing markets — including Tampa Bay — had more listings with price cuts than they did a year ago. In just the seven days ended Wednesday, prices were reduced on nearly 1,300 single- family homes in the four-county bay area — 11.5 percent of all listings. Many of those already had dropped in price and some are in especially hot markets like Tampa’s Seminole Heights and St. Petersburg’s Crescent Lake area.”

“Charles Richardson, Coldewell Banker’s senior regional vice president, analyzes market trends to help Zales and other Coldwell agents. He says he’s found ‘an amazing number’ of price cuts at almost every level, whether it’s houses over $1 million or under $300,000. In Hillsborough County in July, for example, more than half of all single- family homes for sale had undergone price ‘repositioning’ in the past 60 days. Of houses listed between $150,000 and $300,000 — so much in demand there is only a two-month supply — 70 percent had dropped in price.”

“‘You’d think that just because there are a lot more buyers than sellers, they’d be falling all over themselves to buy property, but until it’s price well, they will not,’ Richardson says. As a rule of thumb, Judson Kidd, an agent with Southern Roots Realty in St. Petersburg, suggests that sellers drop the price 10 percent if they haven’t gotten an offer in 15 days and 20 percent if there are no offers in a month. ‘But you’d be surprised how much they are initially, ‘No, no, no, this house is worth it,’ he says.”

“It’s a tough sell in Cochrane right now, leaving motivated sellers vulnerable to the whims of the market and buyers with no shortage of product to choose from. Eleanor Kidder of Kidder and Co. Real Estate and Property Management, has been a Cochrane resident for 34 years and a realtor and property manager in town for the last 20. Never has Kidder seen such an abundance of product available, although she is yet to see significant price reductions reflective of a saturated market. ‘Just as there are no buyers out there, there are no renters … the housing bubble is a side effect of our economy,’ explained Kidder.”

“‘Prices are going to have to come down … and your (house) is going to have to be the shiniest, cleanest and prettiest,’ she added. Kidder also emphasized that the 398 listings she counted on MLS the morning of Aug. 22 do not account for new builds or what is available on the market by builders and developers – who have the ability to offer incentives not found in the re-sale market.”

“Remortgaging activity in London surged to a nine-year high in the second quarter of this year, as buyer activity and house prices continued to fall. ‘After decades of boom, the lack of home-buyer activity and month-on-month decline of house prices in London marks uncharted waters for the capital’s property market’, Shaun Church, director of Private Finance said. The Office for National Statistics said the average cost of a home in London stands at £477,000, which is the highest of any region in the UK.”

“But, what these figures didn’t reveal was how the top of the market in London has been struggling, with prices plummeting well below 10 per cent in notoriously expensive areas like Kensington and Chelsea.”

“Some three years ago, Joseph Mutua’s employer, a Kenyan government agency, offered its employees a chance to buy homes. The deal was so good that Mutua could not leave it despite owning another home on the outskirts of the capital Nairobi, where he lives. ‘I shopped around for a house in suburbs that neighbor Nairobi. Got one, a three-bedroom bungalow at 65,000 U.S. dollars, which I bought,’ he recounted.”

“Since he had another home, he chose to rent the house located in Kitengela, south of Nairobi. Mutua, however, is now grappling with the reality that he may not complete repaying the loan faster as he had hoped as tenants become hard to come by. The senior accounting manager blames his predicament to increased construction of apartments in the suburb. ‘In the about three years I have owned the house, it has been occupied for only 11 months. This year someone stayed in for only two months and is now vacant,’ he said.”

“‘I bought an apartment in Ruai. I have not raised rent for the last four years to avoid the house staying vacant,’ said banker Samson Atesa. ‘They say we have a housing shortage but why are these houses remaining unoccupied?’ posed Atesa, who charges 150 dollars for the flat, lesser than his anticipated 200 dollars. The turn of events in Kenya’s housing sector is one of the reasons bad home loans are on the rise. Henry Wandera, an economics lecturer in Nairobi, noted the glut in the market does not only hit mortgage holders but also those who took ordinary loans from banks and Saccos to build houses.”

“It is the tenant’s market due to the rising supply of residential properties, particularly condominium and apartment units, in Kuala Lumpur. Property owners are charging lower rents as the glut continues to hit the sector, especially in Kuala Lumpur. ‘It’s true that it is a tenant market right now as they have plenty of choices,’ sai Zerin Properties Sdn Bhd CEO Previndran Singhe. ‘There have been drops in rental in KL, generally around 10%. Some owners have to reduce their rents because their units are already old and they will not be able to compete (in rental rates with new units) if they don’t upgrade their homes.’”

“Knight Frank said more projects in Kuala Lumpur are scheduled for completion by 2H18. These projects are expected to contribute some 2,084 units to the existing supply.”

“Nan Fung Development has become the second Hong Kong developer to sell new homes below market price as the property market in the world’s least affordable city starts to feel the effects of rising interest rates, cooling measures and a slowing Chinese economy. Nan Fung is offering the first batch of 487 flats at its LP6 project in Tseung Kwan O next month at HK$15,304 per square foot, 3 per cent lower than the average price at the nearby 1,600-unit Malibu project that started selling in March.”

“It is as much as 30 per cent below the price of some units at Malibu sold this month, according to Dataelement, which monitors sales of new flats in Hong Kong. The warning bell signalling a possible end of Hong Kong’s 15-year home-price rally has begun to ring louder, with many experts predicting a drop in home prices and developers starting to cut their prices.”

“Last week, Sun Hung Kai Properties, Hong Kong’s biggest developer, said it had cut the prices of homes at its Cullinan West II development atop Nam Cheong MTR station in Kowloon by as much as 10 per cent, the second time in less than a month it has taken such action.”

“The amount of Chinese cash which once poured into Australian property has about halved, leaving developers and agents scrambling to recapture the record volumes of investment. ‘We’d been getting a bit drunk off this flood of money coming from China,’ said Investorist chief executive Jon Ellis. ‘Once the tap turns off people get a bit anxious and they say ‘where can we go next?’”

“One of biggest potential emerging markets is India. More agencies and developers were setting up offices on the subcontinent in an effort to tap into a market that has so far been relatively uninvolved in Australian property. ‘They’re thinking: ‘OK, this is new. There’s just as many people here as in China and there’s a lot of money getting around’, Mr Ellis said.”

“Jamshedpur builders contacted by this paper said they had never faced such challenging times. Shibu Burman, former president of Builders Association of India (Jamshedpur chapter) who’s extremely active in the outfit, said the realty scenario was ‘dismal.’ “We did an annual business of Rs 200 crore here. Now, I estimate that it has dropped by 90 per cent.’ Of over two dozen builders in the steel city, only five are somehow completing projects. The rest have apparently stopped construction activities.”

A report from Ithaca.com on New York. “Recent trends show the seemingly bottomless demand for student housing might have actually met its bottom, or is at least approaching it. ‘We are hearing the same complaints and it is getting stronger than it has in the last few years,’ Tompkins County Assessor Jay Franklin wrote in an email. ‘Ten years ago, I would say that vacancy wasn’t an issue at all. But starting 2 years ago, we started hearing more from landlords about vacancies they were experiencing. I think it will only get worse with the number of apartments we have being built, are in the planning stage, and also the projects that haven’t been formally announced yet.’”

“‘You’re definitely seeing a higher vacancy rate across the board because of all the new inventory that has come online,’ said Visum CEO Todd Fox. ‘Most of the growth has come in the student housing market. Because of all the new student housing beds being added to the market, we are starting to see price compression in rents [...] You cannot deny how it’s becoming increasingly difficult to lease apartments and how it’s taken significantly longer to get buildings rented. If you don’t think there is softening in the student housing market you’re either delusional or uninformed.’”

“Fox did not respond to questions regarding the possibility of a student housing ‘bubble.’ ‘Real estate is like musical chairs,’ Fox said. ‘Each time a new building gets built, the less opportunity exists in the market. The difference in the real estate industry is that you don’t want to be the last one to grab the chair.’”

“Landlords Association of Tompkins County Vice President Brian McElroy confirmed that they are hearing constant stories of landlords having to reduce monthly rents significantly and, even after that, still struggling to occupy their properties. ‘A lot of landlords who are having a hard time renting their apartments. I know of several landlords who are sitting on empty apartments, who have taken their rent down to 2012-2013 prices who still aren’t able to fill their apartment. This year has been a lot softer than people have talked about.’”

“As development continues, the remaining chances to jump into the market grows ever smaller, Fox said. With that comes more anxiety that a developer who gets into the market too late will end up holding the bag, and quite a few unoccupied units, when demand is finally satisfied.”

From the Tennessean. “Robert Piraino was just starting to feel at home, six months after moving into one of Nashville’s newest luxury buildings, when an email arrived saying that a new owner is transforming the complex into part-time hotel rooms. Piraino was not asked to move out of the Olmsted in SoBro. Instead, he was told he may be soon living in a building filled with revolving streams of tourist neighbors.”

“Miami-based Newgard Development Group bought the six-story understated charcoal-colored building for $90 million last week. The group is now rebranding the building in partnership with Airbnb for a new home-sharing apartment community startup called Niido. Thousands of new hotel rooms are under construction at more than 100 new hotels. Those new buildings are expected to open their doors in the next few years across the greater metropolitan area.”

“‘Professional people live in this building. Now we’re going to have strangers coming and going,’ Piraino said. ‘One of their ads says: ‘It’s spring break all year-round at Niido.’ I don’t want to come home to a place where people don’t care and leave garbage everywhere. That’s not the community vibe I want to live in.’”

From Curbed DC. “The District’s top lawyer is notifying landlords who appear to lease apartments like hotel rooms that they may be breaking the law. D.C. Attorney General Karl Racine sent letters requesting information about short-term rental practices from 19 owners and managers of 33 multifamily buildings in the city suspected of running hotel-type operations. In a release, Racine’s office does not specify the landlords or their buildings, but says blocks of short-term rentals—usually advertised on vacation websites—are ‘concentrated in neighborhoods like Logan Circle, Dupont Circle, Capitol Hill, and Chinatown.’”

“Laws require businesses to provide adequate disclosures about the material terms of the goods or services they sell, and prohibit landlords from converting rent-controlled units into temporary accommodations, respectively. Racine’s office argues that operating rentals less than 90 days in length in apartment buildings is misleading when tenants are not made aware of the activity.”

“Public complaints about the disruptions that short-term rental guests can cause have also seen an uptick. In December, residents of a luxury apartment building in Logan Circle told the Washington City Paper that temporary visitors threw loud parties and clogged common areas, and that their landlord had not fully disclosed the extent of the activity before they moved in.”

“Residents of another luxury apartment building, along the H Street NE corridor, also told the paper in July that they had experienced similar issues, including ‘[drunk] interns launching fireworks off the roof’ and overtaking the building’s pool.”

From Bisnow. “Market forces in most cities are making it nearly impossible to build new housing that the middle class can afford — and the gap between subsidized low-income housing and high-end apartments is wider than ever. From coastal economic hubs to Midwestern industrial towns, cities have experienced rising rents that have not been matched by wage increases. For middle-class renters who cannot qualify for subsidized housing, finding affordable apartments on the market has become more challenging by the year.”

“While cost burdens for most renters have gone up, those with the means to splurge on an apartment have been presented with more options than ever. There has been a boom of high-end apartment construction this cycle, accompanied by a stagnant — and in some cases shrinking — supply of affordable, middle-class housing. Since the recession, the number of Class-A multifamily units, those commanding the highest rents, has grown to 5 million nationwide, up from 3.9 million, while the stock of Class-B and C units has remained virtually unchanged at 5.7 million, according to Fannie Mae.”

“Developers are often seen as a major cause of the problem, viewed as avaricious operators who only want to build luxury condominiums. The reality, developers told Bisnow, is far more complex. Their ability to build housing is stymied by the price of land, rising construction costs, few tax incentives and, ultimately, a lending environment that simply does not support workforce housing. When it comes to building housing, developers said, they don’t set the rent.”

“‘The reality is, the bank is saying, ‘If all else fails, we need to make sure we are not losing money,’ said André Bueno, the founder of Los Angeles-based real estate investment firm Bueno Group. ‘[They say] here’s where your rents need to be, and here’s the cap rate we are applying to the project.’”

From KFOR in Oklahoma. “Students at the University of Oklahoma are moving this week into student housing. However, not many are choosing the new luxury student apartments on campus. ‘Those residents halls not getting filled is a huge issue,’ said student Asher Nees. ‘When I saw that they were constructing them, I thought didn’t they just build two great brand new ones across from Headington, yes and I don’t think they can even fill those ones,’ Nees said.”

“The apartments have rates close to $4,000 for a two bedroom and more than $6,000 for a one bedroom with a bath, per semester. The apartments are only 70 percent filled - a waste of money, according to some students. The newest apartment, Cross, is only 28 percent occupied.”

From Williamette Week in Oregon. “Last week, WW wrote about luxury apartment owners using an approach to attract new renters: offering move-in freebies like Amazon gift cards, Visa check cards, six weeks free rent and yearlong health club memberships. Here’s how readers weighed in. PostMichael McKeeism: ‘What a brilliant idea: build unaffordable housing and then bribe potential residents with gift cards that transfer wealth to a company largely responsible for its home city’s housing crisis.’”

“Bobby Benson: ‘Or you know, they could build housing that people could afford and forget about the perks. Just a thought.’”