The Housing Bubble

A report from Post Media on Canada. “The Metro Vancouver pre-sale condo market, which had been seeing double-digit-percentage price gains of between 30 to 60 per cent, with each new project seemingly selling out and setting ever higher prices, is showing signs of slowing. Meanwhile, investors and buyers entering the market for the first time are also becoming more price-sensitive and selective. They’re asking more questions about the value of projects and the ‘local track records’ of developers.”

“‘There is an adjusting of expectations,’ says Michael Ferreira, managing principal at Urban Analytics. ‘Gone are the days when it didn’t matter who was building it. There is a flight to quality and brand,’ says Ferreira.”

The Online Citizen in Malyasia. “Last Monday, the Malaysia leader Mahathir Mohamad said at a press conference that foreigners will not be allowed to buy residential units at the Country Garden project. They also won’t be granted visas to come and live there. Mahathir has been uneasy with the astronomical amount of Chinese investment in Malaysia even before the election. And Forest City has always been a thorn in his eye.”

“Besides, the $100 billion Forest City megaproject is an easy target. It is a white elephant built for foreigners. Locals can hardly afford to buy those homes and are unlikely to benefit from the luxury development.”

“So what is the bargaining power of a foreign developer like Country Garden in Malaysia? The largest developer in China is running out of luck recently in their country. On top of frequent work accidents amidst tight completion deadlines, poor quality control is also a big damage to Country Garden’s reputation.”

“A China property agent told the Hong Kong media that he is afraid of accompanying buyers of Country Garden projects to collect keys. Because owners are often shocked by the poor building quality and bad workmanship once they open the door. There are incidents of collective actions of owners to return the keys to the developer and refuse to accept the units. This problem also caused widespread protests in different parts of China.”

“Why are two-thirds of Forest City’s buyers from China? Chinese buyers sold on the project are mainly the middle class and SME owners. Like other Chinese nationals who are keen to leave the country, they long for clean air, safe food, western education and freedom. Yet they are not eligible to migrate to western countries. They may lack the financial means to migrate as investment immigrants. But they do have some spare cash to invest.”

“The developer’s promise to help them apply for permanent resident status though Malaysia, My Second Home Programme is the best answer. According to the Prime Minister’s Office, purchase of properties does not guarantee automatic residency in the country. Only renewable multiple-entry social visit passes for 10 years will be issued to successful applicants through the Malaysia My Second Home programme.”

“To invest in an overseas property without due diligence is to buy a cat in a sack. When the developer let the cat out of the bag, naïve buyers have to face the consequences.”

The Business Insider Australia. “If you’re in the market to buy a home in Sydney, you’re in luck. Not only are prices falling, the amount of properties listed for sale across the city has risen to the highest level since the GFC. The number of Sydney homes for sale jumped by 30.4% in the year to August, leaving total listings at the highest level since the GFC, according to SQM Research. Total listings in Sydney rose by 10.9% in August.”

“‘Sydney residential property listings are now at the highest level recorded since February 2009, surpassing the peak in listings recorded during the 2010-12 housing downturn,’ said Louis Christopher, Managing Director of SQM Research. ‘Some home owners are readying for a sale and want to list their homes sooner rather than later before prices fall any further, especially in Sydney, where asking house prices are down 2.1% over the month to 4 September.’”

The Australian Financial Review. “Naomi Holtring and her husband have two big problems in Sydney’s sliding housing market. The first is that they can’t sell their property because they will lose money. The second is that they are struggling to get tenants. ‘We have two properties, one [in Merrylands West] is rented out. The other one in Liverpool is vacant and when we took it to a real estate agent he said we would have to put the rent down to $330 from $390 a week,’ Ms Holtring said. ‘If we take a big hit on the rent and also have to pay agent fees, it would be hard to swallow.’”

“Harder still, is selling out. Sydney house prices have fallen again in August with dwelling values in Sydney now down 5.6 per cent in the last 12 months, according to Corelogic. They are falling at their fastest pace in nine years.”

“Ms Holtring owns a two-bedroom apartment in Liverpool, in Sydney’s south-west and is currently renovating to attract more tenants, but she is finding it difficult to attract tenants. ‘There is an oversupply of units in the area, and the supply means people have more choices, and as we are on the highway, it doesn’t help.’”

“Ms Holtring is already actively cutting costs, and is using cheaper online property managers which charge less than traditional agents. She is nervous about selling. ‘If Bill Shorten comes in, he may remove negative gearing and that will make a bad situation far worse. Many people won’t be able to afford their properties and they will dump their houses and there will be a crash.’”

“But it is vacancy that is the new issue. Rising vacancy is caused by the sudden surge of completed new dwellings, and a flood of properties that have come back onto the market because they failed to sell as the market softened. For two weekends, The Australian Financial Review went to auctions in these areas and attended many passed in auctions. At some auctions, there were no bidders or anyone inspecting.”

“Some western Sydney real estate agents report up to 50 per cent of their listings are from homeowners who cannot afford to move to more expensive principal and interest loans. Some, such as LJ Hooker’s Peter Tannous’ clients are selling their homes for less than purchase prices.”

“Telltale signs include a spike in foreign buyers trying to sell homes purchased two to three years ago, large numbers of new project homes on the market and smart buyers looking for a bargain. As an example, The Avenue Real Estate’s Steven Liu says for a house priced at $1.3 million to $1.4 million, buyers are offering around $1.1 million.”

“The softening house market and tighter macroprudential policies are not only cooling house prices but causing an avalanche effect on other aspects of real estate such as rents, property management services and jobs for real estate agents. Adding further woe to the situation are concerns of a change in government, Realrenta.com.au director Marlene Liontis says.”

“‘The anecdotal evidence is investors are getting nervous,’ she said. ‘Last week’s events in Canberra saw an unprecedented spike in the calls we were getting. A lot of investors rely on negative gearing to keep them in the game and if that is limited, it is going to throw a lot of investors out.’”

A report from the Madison Park Times in Washington. “Despite what you may have read or heard, the Seattle real estate market isn’t crashing. The sky isn’t falling. It is, however, a market in transition beyond the usual seasonal slowdown. It’s not the bubble bursting; there’s no need to panic. But all signs point to a normalization of the real estate scene compared to the last few years, and especially the crazy environment of this past spring.”

“The fact is, there are a number of other major markets around the country that have transitioned from a seller’s market to a heavy buyer’s market. The amount of foreign money pouring into real estate in these places has dried up. Foreign investments are no longer taking up extra inventory in existing housing and new construction.”

“While the bubble isn’t bursting here, we are shifting to more of a neutral market. A record number of homes entered the market in June — the most since the crash in 2008. So, there is a lot more inventory available to buyers. Some neighborhoods have plateaued in terms of price — home prices can only rise so high before buyers just won’t or can’t buy.”

“While we saw a record number of homes come on the market in June, we’ve also seen a record number of price reductions. If you’re considering selling your home, or are already on the market, you’ve got to recalibrate your expectations. Especially in terms of pricing strategy: sellers are typically behind the market by several months. Price right for the market now.”

“As an example, I had buyers looking at a home that had been on the market for 44 days, asking $2.2 million (priced too high), and we went to see it when it was cut to $1.998 million. My buyers made an offer of $1.95 million with contingencies. The listing broker was dismissive and defensive, asking ‘How dare you?’ We withdrew the offer.”

“The buyers agreed to be patient. We waited two weeks, resubmitted the same offer, and it was accepted. However, the sale didn’t go through — the inspection found significant water damage and resulting rot that had not been listed on the sellers’ disclosure. It would have been an expensive nightmare to remediate.”

“Last spring, a seller wouldn’t have had to accept a normal offer, with any negotiation and/or contingencies. And a buyer may well have won a bidding war, only to find out much later about the water damage.”

A report from Downtown Bellevue in Washington. “Mira Flats, the condominium building that was previously apartments, are beginning sales in fall 2018. Located on 103rd Avenue Northeast, residents can easily enjoy dining, shopping, and entertainment in downtown Bellevue. Mira Flats has studio, one-, two- and three-bedroom residences available, ranging in size from about 400 to 1,200 square feet. Prices start in the $500,000s and go above $1 million for the larger homes, according to a press release for the seller. The new website for Mira Flats mentions a starting price even lower at $400,000s.”

From KIRO in Washington. “For 21 months in a row Seattle led as the nation’s hottest housing market in the monthly Case-Shiller home price index. Of late, however, prices dropped as housing availability increased and sales slowed down, reports Mike Rosenberg at the Seattle Times. ‘The last few months prices have dropped from their spring highs. The number of homes for sale has shot back up to 2014 levels, and the number of people buying homes has fallen back down,’ Rosenberg said.”

From 6sqft in New York. “Owning a piece of New York City history just got a little cheaper. The oldest home in Brooklyn Heights, located at 24 Middagh Street, has hit the market again, this time asking $4.5 million, a price drop of over $2 million from when it was listed last year.”

From Crain’s Chicago Business. in Illinois. “A key measure of demand, absorption—or the change in the number of occupied apartments—totaled 2,995 units in downtown Chicago in the first half of the year. But Integra forecasts that developers will complete just 3,000 apartments downtown this year, down from a record 4,348 in 2017, when absorption totaled 3,385 units. It could be the first year since 2014 that demand exceeds supply.”

“But they will flip back over the next two years, raising the specter of a glut once again. Integra forecasts that developers will complete a record 4,500 apartments downtown in 2019 and another 4,700 in 2020. The supply surge could challenge landlords, especially if the economy loses its momentum or even heads into a recession.”

“Competition could become especially fierce in the South Loop and West Loop. Developers will complete more than 2,600 apartments in the South Loop between now and the end of next year, including NEMA Chicago, an 800-unit tower at the southwest corner of Grant Park being built by Miami developer Crescent Heights. The West Loop will gain more than 1,400 apartments by the end of 2020, including a 492-unit tower at Madison and Halsted streets being developed by Chicago developers Fifield and F&F Realty.”

“‘It’s kind of the calm before the storm,’ said Ron DeVries, senior managing director in Integra’s Chicago office. ‘Probably the biggest challenge will be down in the South Loop.’”

A report from the Riverdale Standard on Florida. “These are some of the findings of the 2018 Miami-Dade Real Estate Study. Analysts say the increased optimism reflects an oversupply of unsold condos and a growing number of new rentals buildings — two factors that should make sellers and landlords adjust their asking prices in order to remain competitive. ‘You’re starting to see the repercussions of overbuilding,’ said Peter Zalewski, founder of a website that tracks condo development in South Florida. ‘The supply of rental apartments is going through the roof and as the cranes come down, rents are going to come down, too. And there’s a 32-month supply of condos in downtown Miami alone, so the only way you’re going to move a condo in this market is to lower your price.’”

“Half of the study respondents said the current market inventory of luxury properties priced at $1 million and above is high, with comments such as ‘the industry is stagnant,’ ‘tons of inventory on the market much longer’ and ‘buyers’ market right now.’ Daniel de la Vega, president of One Sotheby’s International Realty, said luxury properties are trading at 15 percent to 20 percent lower than their asking price, but they’re still selling.”

“For the fourth year in a row, Miami Beach was once again named the most overvalued neighborhood, with a median price per square foot price of $520, . Brickell clocked in second at $497 per square foot, while the luxury enclaves of Sunny Isles Beach ($554) and Key Biscayne ($753) tied for third. ‘Brickell has a majority of the properties that are condos,’ a broker from Miami commented for the study. ‘They are always overvalued, because they are catering to offshore buyers.’”

“Henry Torres, CEO of The Astor Companies, said that although the pre-construction buyers overall at his Merrick Manor condo development at 4200 Laguna St. are 60 percent foreign, this year’s buyers have been predominantly locals, with foreign buyers ‘few and far between,’ he said. ‘We used to have a big influx from Venezuela, but that has slipped to practically nothing,’ Torres said.”

From Fox 5 New York. “Housing inventory in New York City is at a 7 year high and it is one of the best times to buy in recent history, especially as a lot of homes typically come on the market in September in our area. Grant Long, Senior Economist at StreetEasy says he’s expecting that inventory to hit new records in September and October. Once that happens, expect homes that have been on the market a little bit longer to lower their prices to compete for buyers.”

“Grant says the striking part about the housing market right now is that there’s a lot of inventory across the city. So whether you’re looking in Manhattan, Brooklyn or Queens, there’s a good chance you’ll find plenty of homes available. And that means prices could come down even further.”

“Grant says 1 in 4 homes on the market right now has had a price cut. Overall it is a buyer’s market in New York right now. And the best thing buyers can do is take their time. Grant says there’s a lot to choose from and buyers have the upper hand. They can afford to pass on a home that isn’t quite right for them or isn’t at the right price and wait for a better fit.”

The Dallas Morning News in Texas. “If you’re looking to build wealth, it might be wiser to rent a home in Dallas-Fort Worth than to buy. That’s the finding of a study by economists at Florida Atlantic and Florida International universities. That’s because Dallas-Fort Worth has the most ‘overheated’ residential real estate market, in terms of price appreciation, among the 23 largest metro areas in the U.S., according to the economists. They don’t think the region’s home price growth is sustainable.”

“‘I can’t tell you when it’s going to happen, but there’s going to be some downward [pricing] pressure,’ said Ken Johnson, a real estate economist at Florida Atlantic University and co-creator of the Beracha, Hardin & Johnson Buy vs. Rent (BH&J) Index. ‘There’s 50 or 49 other times this has happened, and prices always come down. The prices of the houses will eventually get too high. I can’t tell you when, but I know they’ll come down.’”

“North Texas home price increases have been decelerating in recent months as the supply of houses for sale has grown and purchases have slowed. The Dallas-Plano-Irving metro saw a year-over-year increase of more than 32 percent in housing inventory — homes, new and old, available for sale — during the April-June period, according to Trulia.”

“That means the Dallas metro’s inventory grew to include 14,875 houses, up from 11,653 in the first quarter — and up from 11,234 houses for sale in the second quarter of 2017. The Fort Worth-Arlington metro was similar, with nearly 35 percent inventory growth in that time period.”

“Ben Caballero, CEO of Addison-based HomesUSA.com, makes his living based on consumers buying homes. He holds a Guinness World Record as the most productive real estate agent in the world, in terms of sales. What he’s not buying is the notion that North Texas is facing a housing bubble.”

“‘I don’t see that nationally or locally that there’s any fear of a bubble,’ he said, echoing the sentiment that prices are easing locally as supply picks up. ‘I haven’t talked to anybody in the industry that’s concerned about a bubble and that’s Realtors, everybody. If you’re talking about a bubble, I don’t see it.’”

“He also thinks that, even at eight years, owning a home would still win out financially in most cases. ‘I would say there’s been very few times in history where you have an eight-year period that if you held a home for eight years you’d be in a negative [financial] situation,’ he said.”

From Dear Monty. “Reader Question: Before the banks caused the 2008 meltdown, I purchased my home for $475,000. Homes directly around me have recently sold for anywhere between $215,000-$360,000. Prices are finally rebounding here, and I have the most beautiful home in the area. Can I expect to make any money by putting my home for sale or should I wait to die in this house before I make a profit?”

“Monty’s Answer: Many areas have recovered entirely from the meltdown our federal government created years before 2008 (more about this below). We all don’t live in Seattle, San Francisco, or Las Vegas, but around the country, even the slowest markets to recover are progressing. Currently, many pundits expect the market’s appreciation rate to cool because of rising mortgage rates.”

“Many consumers incorrectly believe the banks were responsible for the 2008 meltdown. While the banks and many others were undoubtedly complicit, they were not the cause. The Federal government runs the banks. Insights from folks such as Warren Buffett, who studies financial markets daily, are excellent sources of information. Here are excerpts from his 2008 Annual Letter to Shareholders for his perspective on the meltdown.”

“‘Derivatives are dangerous … They allowed Fannie Mae and Freddie Mac to engage in massive misstatements of earnings for years,’ Buffett wrote. ‘So indecipherable were Freddie and Fannie that their federal regulator, OFHEO, whose more than 100 employees had no job except the oversight of these two institutions, totally missed their cooking of the books.’”

“‘On June 15, 2003, OFHEO sent its 2002 report to Congress — specifically to its four bosses in the Senate and House, among them none other than Messrs. Sarbanes and Oxley. The report’s 127 pages included a self-congratulatory cover-line: ‘Celebrating 10 Years of Excellence.’ The transmittal letter and report were delivered nine days after the CEO, and CFO of Freddie had resigned in disgrace, and the COO had been fired. No mention of their departures was made in the letter, even while the report concluded, as it always did, that ‘Both enterprises were financially sound and well managed.’ In truth, both enterprises had engaged in massive accounting shenanigans for some time. Finally, in 2006, OFHEO issued a 340-page scathing chronicle of the sins of Fannie that, more or less, blamed the fiasco on every party but — you guessed — Congress and OFHEO.’”