The Housing Bubble

A report from the Western Investor on Canada. “With the region now deemed the second-least competitive housing market in Canada, the tides have certainly turned in Lower Mainland’s housing market – particularly in the detached sector, and especially for higher-priced properties. The recent sale of the unique Cube House in Vancouver is a prime example of this. This architecturally striking property on chi-chi Point Grey Road, one of the city’s priciest areas, sold for $7,950,000, down from its most recent asking price of $8,195,000. However, this was following three listings of this home in 2017, the first of which asked $14 million on the nose, with records showing there was no sale of this property from these listings.”

“It was listed again for $8.99 million in March this year, then reduced to $8,195,000 before finally selling last month. This steep price drop is just one of many. Of the 1,508 Lower Mainland homes sold for more than $2 million on the MLS so far this year (registered as sold by August 24), 1,320 sold for below their asking price.”

“The median price reduction across the entire region for $2 million-plus homes was six per cent – but that doesn’t take into account any previous listings of the same properties. For example, as the Cube House was relisted at $8,195,000, it is deemed to be sold three per cent below asking – this reduction doesn’t account for the $14 million listing in 2017.”

“The percentages are steeper among even higher-end properties, such as the $5 million plus sector, as they have further to decline. In West Vancouver, the median price reduction seen so far this year was eight per cent for $2 million-plus home sales, and 10 per cent for $5 million-plus transactions. In Vancouver proper, the median reduction for $2 million-plus homes was just five per cent, but for home sales above $5 million it was 11 per cent.”

“The most expensive home to sell on the MLS in the Lower Mainland so far this year is a grand, 12,000-plus-square-foot Shaughnessy mansion. This property sold for $26 million, which was three per cent under its $29,980,000 list price – but nearly 26 per cent below the original ask of $35 million.”

From Burnaby Now. “It looks like foreign buyers have all but disappeared from the Metro Vancouver real estate market – if you believe the latest data. There are questions about whether the data being collected truly shows who is buying a property – or whether foreign buyers are using loopholes. Are foreign buyers just using proxies to front for their purchases? We remain unconvinced that the official data is truly reflective of who is buying. What’s obvious is home sales have slowed.”

“‘Total residential sales in Metro Vancouver fell by 25 per cent in the first six months of this year compared with sales during the same period a year earlier,’ said Business in Vancouver. In Burnaby, detached home sales have definitely slowed, with a total of 56 sold in June, down from 103 in June 2017. Over the same period, the median price of a home fell from $1.65 million to $1.45 million.”

From In Brampton. “Sales of new homes in the GTA slowed down in July while prices held steady, the Building Industry and Land Development Association (BILD) announced. Sales of new condominium apartments in low, medium and high-rise buildings, stacked townhouses and loft units, at 855 units sold, were down 52 per cent from July 2017 and down 40 per cent from the 10-year average.”

“Sales of new single-family homes, including detached, linked and semi-detached houses and townhouses (excluding stacked townhouses), at 216 units sold, were up 85 per cent from last July–a month that saw the lowest single-family home sales in decades, with 117 units sold–but still 77 per cent below the 10-year average.”

“The benchmark price of new condominium apartments was $774,759, up 16.5 per cent from last July, but virtually unchanged from last month. The benchmark price of new single-family homes was $1,142,574, down 13.2 per cent from last July and just 0.85 per cent above last month.”

The Calgary Sun. “For anyone involved in Calgary’s housing industry (new and resale) and those trying to sell their homes, 2018 has been a trying year. The Calgary Real Estate Board (CREB) has released its 2018 Calgary Economic & Housing Outlook mid-year update that summarizes the year to date: ‘Stricter lending conditions, a rise in interest rates, persistently high unemployment and slow economic recovery have weighed on housing demand so far this year.’”

“CREB has this to say about Calgary’s MLS market. ‘Economic recovery is expected to gain further traction through the latter part of this year. This should help limit the pullback in demand, but it is unlikely it will be enough to offset the declines from the first portion of the year. As a result, total sales activity within the city is expected to decline by 9.7 percent to 17,047 units, a downward revision from previously forecast levels.”

“‘A slight improvement in market conditions in the second half of the year should reduce some of the upward pressure on inventory. Issues of oversupply will not likely be corrected this year, causing modest price declines across most product types.’”

“And the new homes market: ‘New-home inventories have remained elevated for nearly two years, as projects were being completed at a time when our city was facing weak migration and housing demand. The majority of the inventory is multi-family product, which includes apartment, row and semi-detached homes. The additional supply, particularly for higher density products, has contributed to the steeper declines in resale pricing for apartment and row-style homes.’”

“‘Many new home builders have become more aggressive with their pricing to pull demand toward new products versus resale homes. Price adjustments on the new home side of the market can weigh on home prices in areas that are near new developments.’”

From Troy Media. “Here are some interesting statistics obtained by Calgary’s Business from the Canadian Real Estate Association regarding the resale housing market in the province. Year-to-date, until the end of July, there were 33,225 MLS sales across the province. That’s down 6.5 per cent compared with the same period in 2017. During the same period, the average MLS sale price in Alberta fell by 2.9 per cent year over year to $391,952.”

“Recently, Calgary’s Business reported that RBC Economic Research in its Canadian Housing Market Forecast Update said Alberta MLS sales in 2018 are expected to drop by 5.8 per cent from 2017 to 53,900 units. ‘Markets such as Calgary and Edmonton remain abundantly supplied at this stage,’ said the report.”

A weekend topic starting with Westfair Online in New York. “A visa investment fund is suing the developers of the MetLoft Bronxville condominiums for $5 million, claiming the project is in default. The allegations, at first glance, are simple: The loan was guaranteed by the developers. Now that the project is in default, they must repay the loan. But the MetLoft developers are also embroiled in a messy series of lawsuits, bankruptcies and dueling allegations of fraud.”

“The $5 million came from a fund operated by Advantage America EB5 Group in Manhattan, a firm that finances real estate projects with money from foreign nationals. Foreigners who invest $500,000 to $1 million in projects that create jobs in the U.S. can obtain EB-5 visas and permanent residency. Advantage America loaned $5 million to the condo project in 2015, according to the complaint filed this month in New York County Supreme Court.”

“The plan was to build 61 loft-style, luxury apartments with indoor parking, an indoor pool and a fitness center. But MetLoft, now known as EMC Bronxville Metropolitan LLC, defaulted on its loan obligations last year, according to the complaint. Attempts to reach a lawyer who has previously represented the developers for comment failed. Another group petitioned the court to force EMC Hotels & Resorts LLC, operator of the Time Nyack Hotel, into liquidation.”

“The petitioners in both bankruptcy cases are asking the court to appoint a trustee to protect their interests. They claim that Edgar Melo Costa, ‘a known fraudster,’ has taken over both projects. Court filings allege that Costa, a Portuguese national, claimed he had sold a private jet company for $450 million but actually owes $1.5 million to companies in Portugal ‘that he cheated out of money.’”

“Costa, the court filings stated, is associated with Brent Borland, who allegedly brokered MetLoft’s EB-5 financing. The U.S. Securities and Exchange Commission sued Borland in May for misappropriation of $6 million in an airport project in Belize. Neither Costa nor Borland were named as defendants in Advantage America’s lawsuit.”

“Costa has hired Mercury LLC, a Manhattan ‘high-stakes public strategy firm,’ to defend his reputation. ‘We work for Edgar Costa,’ spokesman Chapin Fay wrote in an email, ‘who has been the target of a smear campaign by former business associates.’ The PR firm claims that the Wellingtons mismanaged the condo and hotel projects and that Costa discovered ’several instances of possible illegal activity’ that contributed to the poor financial performance on the hotel project.”

From VT Digger. “A swanky New York City condo regulators say former Jay Peak owner Ariel Quiros purchased with ‘ill-gotten gains’ from investors — and for a few nights was used by a sitting Vermont governor — has sold for nearly $4 million. A federal judge this week gave approval for the sale of Quiros’ Fifth Avenue condo, with the proceeds going to investors and other creditors in his Vermont developments who regulators say he looted to buy the condo.”

“That $4 million sale price is about $1 million less than the condo’s initial listing price, and more than $3 million less than Quiros had tried to sell it for more than a year ago. The condo is part of a luxury 60-story hotel and condo complex, now known as The Residences at 400 Fifth Avenue, in midtown Manhattan, near the Empire State Building.”

“Michael Goldberg, the court-appointed receiver now overseeing the assets at the center of the Jay Peak investor fraud scandal, filed the motion this week seeking a judge’s approval to sell the unit for $3,995,000. Goldberg wrote in his filing that no offers came in for six months while the asking price was $4,950,000. That’s when he lowered the price and soon after the $3.9 million offer came in, he wrote.”

“According to court filings, Quiros and his wife bought the condo in December 2011 for $4,149,368, making the purchase with EB-5 immigrant investor money that he helped raise and which was meant to fund massive upgrades at the Jay Peak ski resort. In total, state and federal regulators say Quiros and Bill Stenger, Jay Peak’s former CEO and president, misused $200 million of the more than $350 million they raised from foreign investors through the EB-5 visa program.”

“Quiros, according to regulators, siphoned off $55 million for himself through the ‘Ponzi-like’ investor fraud scheme, paying off personal expenses, such as taxes, and buying the New York City condo. On May 27, 2016, a month after federal and state regulators filed securities charges against Quiros and Stenger, Gayles approved a motion on Quiros’ behalf to take out a $1.5 million mortgage on the condo to pay ‘reasonable’ attorney fees and $15,000 a month in living expenses.”

“Quiros then listed the condo for $7.2 million, but in September 2016 he ‘terminated’ the listing agreement. In June 2017, the condo was turned over to Goldberg, the receiver, with the judge ordering that he ‘undertake his best efforts to market and sell the Condominium.’ According to Goldberg’s filing, the $3.9 million sale price is within the range for ’similarly size luxury, high-rise condominiums’ in Manhattan. ‘Moreover,’ the receiver wrote, ‘the property has been exposed to the marketplace, providing evidence of the actual value of the property based on the response of real-world buyers.’”

From Habitat Magazine. “Some 8,278 condo units are in the Manhattan development pipeline, and around 2,000 of those are expected to hit the market within the next year, according to an analysis by Halstead Property Development Marketing, Crain’s reports. A soft market could get downright squishy.”

“The new development market has grown increasingly soft, especially for the priciest product, as projects planned after the height of the market in 2014 now come up for sale – joining many existing new buildings that have not moved all of their units. As a result, supply has grown. Halstead’s first-quarter report showed around 6,000 apartments available in the borough, though some of those were being held off the market by developers until they can unload more units.”

“Of the 2,000 units that will likely hit the market within the next year, some of the larger projects will be in Harlem, the Upper West Side and at the Waldorf Astoria, which is being converted to condos. The remaining condos, which total 6,242 units, are in development projects that were not far enough along to file sale documents with the attorney general’s office. Many of these units, according to Halstead’s numbers, are concentrated in Midtown South.”

A report from the Sacramento Bee in California. “A Carmichael resident landed in the national spotlight in March, when she put her family home up for sale. She had one special instruction for her real estate agent: Do not sell to a Donald Trump supporter. After being taken off the market temporarily, that home’s sale is now just about a done deal — with a six-figure cut to its original asking price.”

“Listed for $625,000 in March, the two-bedroom, two-bathroom home is pending sale at a price of $495,000, according to documents and listings available on multiple real estate websites this week. The homeowner used a different real estate agent this time. The current listing agent said Friday she was not aware of any restrictions or special instructions.”

“Ryan Lundquist, a certified residential appraiser and active real estate blogger in the Sacramento area, noted the pending sale Thursday on Twitter. Lundquist told The Bee on Friday the $130,000 price difference was most likely due to of the home being overpriced in the first place, with reasons related to politics or media attention playing less of a factor. ‘Part of the problem was, it looks like it was priced like it was remodeled, when it really wasn’t,’ he said.”

From Bloomberg. “Warren Buffett can’t seem to close this deal. Now, he’s lowering the price of a vacation home in California by US$3.1 million to attract potential buyers and finish the sale. The price for the Laguna Beach house, earlier set at US$11 million, was cut to US$7.9 million, according to Allison Olmstead, a spokeswoman for listing agent Bill Dolby.”

“Buffet put the home up for sale last year after more than four decades of owning the California vacation property. Luxury real estate can often sit on the market for longer due to a smaller pool of buyers, with some properties listed for US$4 million or more in Orange County, California, expected to spend over a year on the market, according to data-provider Reports on Housing.”

From KTNV in Nevada. “Luxury real estate agents in Las Vegas say nearly a majority of their clients are people from California moving here drawn to no state income tax and less congestion. While that’s good news for Las Vegans who already own homes, but for those trying to get into the market, it’s making things more difficult.”

“But there may be some good news on the horizon - with more homes being built, former GLVAR president Dave Tina, says according to economists, Las Vegas’ market may soon level off more. ‘It’s not going from a sellers market to a buyers market, but it’s going from a crazy seller’s market where maybe you have 10 offers to just 5, so that’s healthy for us,’ Tina says.”

The Seattle Times. “Wenatchee, a city of barely 35,000 people, now has a rush hour. Its housing market is startlingly Seattle-like in its velocity: That ‘low’ median home price is actually 13 percent higher than a year ago, and already out of reach for many in a town with a median household income below $49,000. Rents have risen even faster: the average two-bedroom apartment goes for $1,534, up 23 percent from a year ago, according to Rent Jungle.”

“The Wenatchee Valley has been officially discovered by the outside world as the go-to place for everything from wine tourism and real estate speculation to cannabis farming and bitcoin mining. (It’s telling that Pangborn Memorial Airport in nearby Douglas County may soon offer daily air service to the San Francisco Bay Area.) And, critically, Wenatchee’s housing sector, still recovering from the recession, has fallen behind in adding new supply.”

“Wenatchee realtors say a growing share of their clients are now Westsiders, who often have a significant economic advantage over locals. When they sell a Seattle-area home, they can ‘come over here and pay cash and still have a chunk of change left in the bank,’ says Steve Bishop, a longtime Wenatchee real estate broker.”

“Worse, even as these low wages make it hard for many North Central Washington residents to pay rent and mortgages, the supply of locally affordable housing is dwindling under pressure from wealthy Westsiders and other outsiders. Outside demand for higher-end residences has become so steady that local contractors have ‘a disincentive to build houses at the lower end,’ says Tim Hollingsworth, a Chelan city councilmember who is active in affordable housing efforts.”

“‘Why would you go around and build little 1,200-square-foot houses for ‘normal’ people when you could build a luxury house for way higher margins and make more money?’ he adds.”

“In Chelan County, officials estimate that the number of vacation rentals has grown over the last 15 years from a few hundred to at least 2,400, most of them in tourist areas. In a county with barely 36,000 total residential units, according to the most recent survey in 2015, and less than 9,300 full-time rentals, the sharp increase in vacation rentals represents a significant loss of permanent housing. Meanwhile the number of full-time rentals in Chelan County fell 8 percent between 2010 and 2015, according to county records.”

“When employers go scouting to find rentals for prospective hires, Doug England, a Chelan County commissioner says, ‘repeatedly they are told ‘no, that’s been converted to a vacation rental’ or ‘yeah, they can stay there until the first of June but then can’t get back in until the first of October’ when the tourism season ends.”

“Some North Central Washington realtors explicitly pitch the vacation-rental concept to Westside buyers as a way to talk them into a bigger second home: a buyer with a $400,000 budget for a vacation home can afford to upgrade to a $500,000-plus home if he or she is willing to ‘Airbnb it,’ realtors say.”