August 28, 2018

The Most Expensive Markets Seen Serious Jumps In Inventory

A report from CNN. “If you’re a real estate agent, odds are you haven’t been closing as many deals lately. ‘We’re hearing things from our real estate agents that we haven’t heard in three years about homebuyers stepping back from high prices,’ said Redfin CEO Glenn Kelman on the real estate firm’s second quarter earnings call.”

“Foreclosures plagued the housing market during the financial crisis as borrowers struggled with loans they couldn’t afford and homes prices plunged. These days, borrowers are in much better shape, but there are signs that foreclosures are on the rise again. The housing analytics firm Attom Data Solutions found that foreclosure starts are increasing again for the first time since 2015. The trend is particularly visible in hurricane-hit cities like Houston, but also increasingly expensive places like Los Angeles.”

“The loans having the most trouble are those that the Federal Housing Administration-insured in 2014, when the agency was backing off on the very tight standards it had imposed during the great recession. ‘We’re seeing enough in these bellwether markets that I think it’s an inflection point,’ says Daren Blomquist, senior vice president for communications at Attom.”

The Boca Raton Observer in Florida. “Risky Business? Distressed sales, foreclosures and short sales in Miami are down, with the Miami Herald reporting that ‘only 9.9 percent of the sales in January involved properties in trouble, including bank-owned and short sale properties. Those kinds of properties accounted for 12.7 percent of the sales last year.’”

“But they’re baaack! Borrowers and investors are hot on the trail of so-called ‘nonprime’ mortgages, according to CNBC. These are basically the same subprime mortgages, only supposedly better underwritten, for people with poor credit scores, the self-employed and others who are unlikely to qualify for a prime mortgage.”

From The Mortgage Report. “According to a new analysis from, some of the nation’s most expensive markets have seen serious jumps in housing inventory. The biggest increase? That was in San Jose, California, where listings rose 44 percent over the year. Seattle — another pricey Western housing market — took second, with a 29 percent spike in listings year over year.”

“Other areas that also saw big jumps in housing inventory include Providence, Rhode Island; Portland, Oregon; San Diego, Sacramento, Riverside and San Francisco, California; Dallas; and Jacksonville, Florida. ‘July inventory growth is in high-priced, competitive markets, and often at the pricier end of these markets,’ according to Danielle Hale,’s chief economist. ‘It’s not just California markets that have seen an increase in inventory, markets on both coasts and in the South reported inventory increases in July.’”

From Geek Wire on Washington. “Seattle’s 21-month run as the nation’s hottest housing market is over. Las Vegas topped the Case Shiller U.S. National Home Price Index this month. Buyers in cities dealing with the positives and negatives of tech booms, such as Seattle and San Francisco, are sitting out, said Glenn Kelman, CEO of Redfin.”

“‘In Seattle, Portland and San Jose where prices have increased the most, the percentage of homes selling in the first two weeks on the market declined in June from 61 percent to 52 percent,’ Kelman said. ‘As U.S. home prices have increased faster than wages for 70 straight months, buyers in markets like these have finally had enough, at least for now.’”

“The purported slowdown, as well as Seattle abdication of the title of the nation’s hottest housing market comes as the city’s biggest employer has somewhat slowed its dizzying pace of growth. Amazon reported its first decline in headcount in nine years during the first quarter of this year, when its overall figure dropped by 2,900 employees.”

From NBC Bay Area in California. “A recent report from the San Francisco Chronicle revealed a hair-raising fact: thousands of homes that got a green light to be built are idling on untouched land. Experts NBC Bay Area talked to said it cannot all be explained by higher costs and a lack of labor. A look at the sun-kissed skyscrapers in San Francisco’s South of Market area and you may think new housing projects are popping up all over the city. Don’t be fooled.”

“‘Why are we only seeing ultra-luxury projects get built? Because those are the only things that developers currently can make any money on,’ said Todd David, executive director for the San Francisco Housing Action Coalition.”

They Are Whispering: ‘Just Give Me An Offer’

A report from the Colorado Real Estate Journal. “Interest rates that continue to creep up have not had a major impact on Front Range lending activity. With an unprecedented amount of money on the sidelines, there remains too much money chasing too few deals. Nowhere is this more evident than in the disparity between interest rates and cap rates. To the casual observer, they appear disconnected, if not unhinged. Factoring in too much money chasing too few deals handily reconciles the difference.”

“The loosening of these lending standards may not bode well for multifamily landlords in softer markets. A slowdown in construction for pricey, Class A multifamily products may prevent this problem from spiraling out of control in some submarkets, particularly ones that already are saturated with elite housing options where affordability is experiencing various forms of obsolescence from rent concessions to outright vacancy.”

“While multifamily remains popular, the ratio of income to housing costs creates an intuitive nervousness: How long residents can spend more than 50 percent of their income on rent or mortgages? Traditionally, rents could not exceed 30 percent of a tenant’s income. Now it is closer to 50 percent. None of this is lost on bank regulators, some of whom are privately expressing concerns about today’s renter being no different than the overleveraged 2006 sub-prime homeowner.”

From KGTV in California. “A new study from the Public Religion Research Institute paints a grim picture of people struggling to make ends meet in San Diego. It says 45% of San Diegans fall into an auspicious category: people who work full time and still struggle with poverty. On the low end, the Bay Area had just 27% of people in that category. Los Angeles was at 49%. The San Joaquin Valley had the highest percent at 68%.”

The Des Moines Register in Iowa. “Des Moines has many complexes that have fallen into deep disrepair, local property managers say. ‘It’s pretty simple. Slum landlords exist throughout the U.S. because it’s a very profitable business to be into,’ said Jim Conlin, who has owned and managed properties in Des Moines for 50 years.”

“‘There’s been so much money chasing the acquisition of these kinds of apartments. People buy something that is not well maintained and then try to flip it for $10,000 a unit,’ he said. ‘When the music stops playing … there’s going to be an adjustment. And those with deteriorated properties, unqualified tenants and negative cash flow aren’t going to be standing when that adjustment is over.’”

“A mix of research shows Des Moines residents enjoy a high standard of living and a glut of higher-income rentals downtown, but the housing crisis afflicting lower-income families and minimum-wage workers is growing worse.”

The St. Louis Business Journal on Missouri. “Commercial lending in St. Louis isn’t keeping pace with other markets, and apartment construction may be reaching the saturation point, according to local banking professionals. ‘We talked with our Atlanta Fed colleagues who did a proprietary study that looks at all lenders — banks, insurance companies, REITs, pension funds,’ said Julie Stackhouse, executive vice president of the Federal Reserve Bank of St. Louis. ‘What it showed is exactly what the bankers are saying: CRE lending has flattened in St. Louis. Commercial multi-family lending grew solidly in 2016 and 2017. Thus far in 2018, it is slightly down. Is St. Louis overbuilt? We’re somewhere in that vicinity.’”

The Daily Texan. “West Campus is notorious for ever-expanding growth, and the past year was no exception. Four new student housing projects were completed in 2018 and have recently opened for students. There are 10 more slated for completion in 2019. The abundance of new units for rent does not necessarily correlate to lower prices, said Laura Cochrane, an Austin-based realtor with REspace Realty.”

‘Cochrane, who has worked with students in West Campus for 25 years, said newer developments would rather have vacancies than drop their rental rates. Instead, Cochrane said students should stay away from high rises and look for older, individually owned condos and houses. ‘Even though they’re older, they’re almost as nice as the newer stuff,’ Cochrane said. ‘They might not have all of the amenities, but (they are) a quarter of the price marked down. These developments are just shooting themselves in the foot.’”

From Bisnow on New York. “Two years after the luxury market began to slow down, some New York City developers are finding the only way to get a pricey condominium sale done is to offer a compromise. ‘There’s only one tool in the toolbox — it’s called the price,’ said Olshan Realty President Donna Olshan, whose firm tracks contracts signed on units priced at or above $4M. ‘2013, 2014 and 2015 were the golden years of new development in New York. We are past that … Rarely have I seen buyers be so aggressive and make such low offers.’”

“In 2015, the uber-luxury craze had developers rushing to build ritzy towers to capitalize on the hot demand. Flash-forward three years, and the city is awash with new development options, and buyers are nervous about paying too much. The last week saw 24 contracts close on all types of Manhattan units over $4M, a stellar number for late August, according to Olshan’s report. But her figures indicate that units at that price point are sitting on the market for an average of 439 days, the highest rate in 12 years.”

“Meanwhile, prices are being cut by an average of 9% before going into contract, she said, which means the units are selling for at least a 15% discount. It is a challenging set of realities for those selling new units. ‘[Sponsors] are discounting. They are whispering in the brokers’ ears: ‘Just give me an offer.’”

“Sources told Bisnow that while some developers may have patient equity partners that are able to let them hold out for a certain price, many are under pressure to get product sold. Complicating matters is that, with interest rates rising, political uncertainty and fears that tax law changes will squeeze some of New York City’s wealthiest residents, a sense of insecurity is spreading among high-end buyers.”

“‘There’s oversupply, there’s just way too many choices. People are wondering what’s going to happen and they pause,’ said Corcoran Group broker Vickey Barron, who is marketing a condo at Magnum Real Estate’s 100 Barclay St. for $59M.”

“In the first half of the year, there were 303 sales of condominiums priced at $5M and above, a 39% fall from the year before, according to the half yearly report from Stribling private brokerage. ‘These first-half numbers were really shocking,’ Stribling Vice Chairman Kirk Henckels said. He believes the improved co-ops numbers are the result of sellers in that sector seeing the writing on the wall and cutting asking prices. ‘It’s really the consumer saying ‘this is enough,’ he said. ‘New developments showed a huge decline, falling 54% while resale condos only fell 25%.’”

“Already steep competition could be set to steepen. Manhattan’s new condo inventory is projected to hit 7,900 next year, The Real Deal reported earlier this summer, citing data from appraisal firm Miller Samuel. That is a significant increase on the average from the last few years — which has sat between 3,000 and 4,000 units — and means it would take about four-and-a-half years to sell all the units.”

“‘There is lot of inventory but it’s not meeting the buyers’ need,’ Compass President Leonard Steinberg said. He said the right product at the right price will still attract plenty of interest. He noted that many of the steep discounts are the result of overpricing when the listings first came to market. ‘After excess there is pullback,’ he said.”

The Years Of Rapid Price Appreciation Are Now Behind Us

A report from the Washington Post. “Last summer, the Washington area real estate market was as competitive as ever, but the pace of the market has slowed considerably this year. In July, the typical home in the Washington metro area was on the market for 39 days before finding a buyer. That’s 19 days longer than last July, according to Redfin. Of the Washington area homes that sold in July, 21 percent of them were off the market in two weeks or less, down from 43 percent during the same period last year. What is causing this slowdown?”

“The number of homes for sale is on the rise. After declining nearly every month in 2016 and 2017, the Washington metro area has seen year-over-year gains in the number of homes for sale every month this year. If you stepped away from the market out of frustration over the lack of homes to buy, consider taking another look. Added inventory has created more opportunities, and buyers have a bit more leverage this year than they did in 2017.”

“Don’t expect to buy a property and be able to sell it within a year or two for a profit. The years of rapid price appreciation are now behind us, so buy the home that you want to be in for the long term.”

“Advice for sellers: Adjust your expectations and price conservatively. While conditions are still competitive, the market has slowed and your home may take longer to sell than it might have a few years ago. Pricing conservatively is the best way to drive interest and offers in your home. We’ve noticed buyers are becoming a bit more demanding and particular when it comes to inspection items and repairs.”

From Hartford Business in Connecticut. “Home builders Eric and Kevin Santini are plenty busy these days finishing a fresh batch of rental townhouses in their Deer Valley North development in Ellington. But for the first time in a decade-and-a-half, the Santinis have no new single-family houses on their building schedule — and don’t foresee building any in the near term.”

“Santini Homes, experts say, is far from the only Connecticut home builder sweating out a housing slump that, coupled with rising tariff-related costs for imported lumber and other building materials, higher municipal permit-inspection fees, plus a labor shortage among certain trade skills, has drastically cut new housing starts.”

“‘It’s the Connecticut economy,’ said Eric Santini Jr., a principal in the family’s decades-old homebuilding enterprise based in Ellington and president of the Home Builders & Remodelers Association of Central Connecticut. ‘If you don’t have strong job creation, you’re not going to have housing starts.’”

From CBS 5 in California. “Construction costs for new housing are going through the roof in San Francisco and developers are feeling the pinch. They are having trouble getting their projects finished, or even started. But a closer look shows many big developments are hitting a financial wall that is quickly becoming the new barrier to more badly-needed affordable housing.”

“According to a survey by the San Francisco Chronicle there are currently 6,750 units of housing under construction in the city. That’s about 1,000 more than a year ago, and there are another 15,000 approved for building. It’s a gold mine for the construction business, but financial quicksand for housing developers who have to cover the increases. ‘This is a normal curve,’ said Eric Tao, president of AGI Capital. ‘The construction costs started going higher and faster than values were going up – so projects get stalled.’”

The Herald Tribune in Florida. “Is the country on the verge of a residential real estate market correction? The National Association of Realtors states that home prices are at or approaching record highs in many markets. But association chief economist Lawrence Yun says concerns about whether the housing market has peaked and is headed for another significant slowdown are unfounded.”

“That view is not held universally, however. A Sarasota resident fellow of the American Enterprise Institute and co-director of its Center on Housing Markets and Finance co-wrote a commentary published in The Hill last month. Under the headline, ‘Booming housing market today presents serious risk for future,’ Ed Pinto and two institute colleagues wrote, ‘If the past is prologue, prices will correct when demand flattens as the economy cools or credit conditions tighten.’”

“‘When demand temporarily exceeds supply, prices rise,’ they wrote. ‘Whether or not the price increase is sustainable depends primarily on whether the strength in demand is sustainable.’”

“The article concludes with a suggestion. ‘The housing market today has too much highly leveraged demand from investors and buyers chasing available supply. As a result, real home prices have increased 25 percent since the early 2012 low, a pattern mirroring the early years of the last price boom. So long as this price boom continues, the risk of a serious correction increases. Tightening government housing agency underwriting policies today is the best way to reduce the potential for large home-price declines in the future.’”

“Frank Nothaft, chief economist for CoreLogic, sees forces at work to lower prices. ‘Further increases in home prices and mortgage rates over the next year will likely dampen sales and home-price growth,’ he wrote in the August MarketPulse report. One thing’s for sure. Home prices cannot continue to rise at ‘overvalued’ rates.”

From Curbed Seattle in Washington. “It’s increasingly common for Seattle-area home listings to slash their asking prices, according to Zillow. While lowering an asking price isn’t totally uncommon, the percentage of listings cutting their prices has nearly doubled since last year in the Seattle metro area, which includes Tacoma, Everett, and Bellevue, rising from 6.9 percent in June 2017 to 12 percent in June 2018.”

“The difference is even more dramatic in Seattle proper, with more than double the listings asking less than when they were first listed, jumping from 4.3 percent to 10.7 percent over the same time period. Inventory has also only gone up, giving buyers more homes to choose from. Back in June, Seattle saw more than a month of inventory—a figure based on number of homes for sale and typical sales time—for the first time since September 2016, and it’s gone up since then.”

The Bellingham Business Journal in Washington. “As anyone who’s read the headlines knows, the real estate market in our area has been on a boom. The Seattle Times recently reported that the greater Seattle area has led the nation in home prices for 20 months in a row, tied for the second-longest streak. The last time we saw record-breaking prices like this was in the mid-2000s, and home buyers are understandably nervous. The real estate market in Whatcom County takes some of its cues from Seattle. Here are a few things I think you should consider given current market conditions.”

“The most important piece of advice I can give is to not panic. I strongly believe that unless we see a dramatic wage increase in the community to support the bulk of the market, real estate prices simply can’t continue the way they are. The real estate market in Whatcom County is already showing signs of slowing down. We’re beginning to see reduced prices and inventory sitting longer, which indicates we’ve likely seen the top of the curve. In the next year or two we should expect to see more affordable housing that is line with Whatcom County wages.”