The Housing Bubble

A report from the Sydney Morning Herald in Australia. “House prices are falling and mortgage interest rates are rising and anyone doing anything with property – buying, selling, upgrading or downsizing – is likely scratching their heads about what it means for them. Shaun Hardy, 38, and his wife Megan Maurice, 33, bought a two-bedroom flat in Ashfield seven years ago for $394,000 that was valued at more than $600,000 earlier this year.”

“Hardy, a barista, says he is not concerned about the property market going down. ‘It doesn’t really concern us,’ Hardy says. ‘If it means first home buyers can afford things that’s fantastic, it’s not a case of ‘we’ve got ours’. We realised we’re not going anywhere, house prices might be falling but unit prices are falling even more, so thought we’d be comfortable and enjoy our flat more rather than just complain.’”

“Vincent Turner, the founder of online mortgage broker Uno Home Loans says it is usually being able to save the deposit that is the biggest problem for first timers and, with falling prices, that is going to be easier. ‘If your time horizon is in excess of 10 years, then seeing a 10 or 15 per cent drop over the next couple of years [in the value of the property] is not the end of the world,’ he says.”

“Renovation can be a great alternative to paying the significant transaction costs of buying another house. However, it is a better option for those who bought some time ago and whose property is worth more than when they bought. ‘It’s not such a good option for those who bought only a couple of years ago, as your property will likely be worth what it was at the time you bought it,’ Turner says.”

“Martin North, the founder of Digital Finance Analytics, says upgraders need to do their homework before applying for another mortgage on a more expensive property. Lending standards are becoming tighter, so you might not be able to borrow more than your current mortgage and that will also be true if your circumstances have changed, he says. ‘So it is worth checking this out early. Generally, mortgage borrowing power has been reduced in recent months,’ he says.”

“One strategy may be to sell, rent, and wait for the market to fall further, before buying. ‘That might work, but you are taking a bet on the market. You might be right but you could be wrong,’ North says.”

“For those trading down; seeking a smaller place to release capital, you may want to bring the transaction forward because larger value homes are falling faster than smaller ones, North says. He also notes that prices have been falling ‘more dramatically on the urban fringes.’”

A weekend topic on market distortions starting with Washington City Paper. “It seems like there’s nothing real estate developers haven’t figured out a way to glossy-up. The new generation of group houses popping up around D.C. and the DMV, called ‘co-living’ apartments, are like the Everlane of the housing world—a comfortable, tasteful basic that’s inoffensive enough to appeal to a broad range of palates and sensibilities. ”

“One such company, OSLO, has leaned all the way in to the Zeitgeist: ‘You might hit the snooze button a few too many times,’ an orange-and-grey card on its website flashes, before showing, inexplicably, a glossy photograph of a white woman’s legs sticking out of her leopard-print coat. Other missives include ‘you might not be using your liberal arts degree;’ ‘you might cuff your jeans too many times;’ and ‘you might not be saving 10 percent of your paycheck.’ It’s a nod to the fact that young adults tend to have negative savings, and then a wink and a shrug: Life’s hard, it seems to say, so why not pay a premium to live with like-minded people?”

“OSLO is one of several companies cashing in on the fascination some young adults have with living alongside a pack of lovable screw-ups à la New Girl, reinforcing the stereotype that millennials are pretty and misguided, cashless and pathless. All told, OSLO is more like an apartment building where your landlord just happens to pick your roommates for you.”

“Across town, on Richardson Place NW, Common operates an apartment building that has vexed neighbors since the beginning of its development in 2016. A septuagenarian neighbor complained at the time that Common is ‘basically a glorified rooming house’ and ‘too big for the immediate context.’ The fully furnished two-story, six-person apartments will run each tenant between $1,425 and $1,700 per month, a fee that includes weekly cleanings (yes, the housekeeper will wash your dishes), all utilities and furniture, and basic supplies like salt, pepper, olive oil, and garbage bags.”

“In addition to another location in Chinatown, Common also operates buildings in Seattle, Chicago, San Francisco, and New York City. On its website, Common boasts a savings of $500 on average in D.C. for its memberships compared to a traditional studio rental. A closer look at the company’s savings breakdown shows that this ad is predicated on the assumption that someone living in a D.C. studio apartment will pay $1,795 for the apartment, plus $240 a month for a housekeeper and $110 for utilities, among other costs (none of which are even close to true for this reporter, even during the summer’s sweatiest months when the air conditioning is on full-blast). The same is true for its calculation of what it costs to share a Craigslist apartment with friends, which it estimates will run a tenant $1,610 per month in D.C.”

From The Takeout. “It’s an apartment so small, you wouldn’t be blamed if you thought it was in the heart of Manhattan. But this 200-square-foot residence actually exists in a pricey area of St. Louis, and is so compact that the kitchen has to bunk up with the bathroom: The toilet, bathtub, oven, and sink are all in one room.”

“This tiny splendor was advertised at $525 a month, and is now rented. The AP reports that Harold Karabell of S.F. Shannon Real Estate Management says the new tenant loves it: ‘Toilet/kitchen combo aside, Karabell says the apartment has a lot to like, including refinished hardwood floors and new windows.’ Spoken like a true real estate agent.”

The Jacksonville Daily Record. “The Indianapolis-based developer with three luxury apartment communities in Jacksonville this week purchased property to construct another multifamily neighborhood. Becovic Management Group purchased 16.75 acres of undeveloped land on Gate Parkway for $2.7 million. Becovic President Muhamed Becovic said the company plans to build about 230 ‘high-end’ units in four- or five-story buildings.”

“Amenities include a saltwater pool, dog park, walking trails and a 24-hour fitness center. The community hasn’t been named, but Becovic said they are considering something with the words ‘banyan wood.’ He said that other metropolitan cities in Florida, such as Orlando and Miami, are oversaturated, but that Jacksonville still has room for growth.”

The The E’ville Eye. “Zumper published their latest monthly rental report for the Bay Area that covers 30 cities in our region. Emeryville dropped from fifth to the sixth highest rents in our region. The price of one bedroom units also fell, dropping 3.7% to a median of $2,890. Two bedrooms dropped 4.2% to a median of $3,670.”

The Yorkshire Post. “There was nothing luxurious about student accommodation but over the last decade the scene has shifted and for many students, the days of sharing a bathroom with four others are long gone. With fees over a three-year degree course approaching £30,000, it appears that students are no longer prepared to accept poor quality accommodation. According to property agent GVA, the latest generation of student accommodation typically includes fast broadband and wi-fi, shared study areas, plus flexible communal facilities in a secure environment.”

“However, there is also a growing appetite for the top of the market with buildings featuring fitness suites, gaming pods and even private cinema rooms. Most new student accommodation is now provided by the private sector as universities focus on funding the core areas of educating and research. Figures by JLL show that the number of student beds in Yorkshire has risen by 48 per cent, from 45,000 to almost 67,000 in the last five years, despite the number of full-time students only rising by one per cent during the same period.”

“‘We consider the market to be balanced with little scope for further new schemes unless exceptionally well located,’ said GVA directors Roger Lown and Dai Powell. Meanwhile, in Sheffield, which is home to two universities, there is a significant pipeline of accommodation in the city. There are approximately 21,000 existing student beds with a pipeline of a further 9,000 beds, according to GVA.”

“Mr Lown and Mr Powell added: ‘If all of these are built there is a significant risk of an oversupply. However it is by no means certain that all of the schemes with planning permission will be built.’ So is the student housing bubble about to burst?”

From Newshub. “A massive haul of nail guns, drop saws and other power tools went up for auction in Christchurch on Thursday as part of the liquidation of Maven Interiors. It’s just the latest building company to go under in the city as earthquake work dries up, leaving tradies without work. All that’s left of Maven Interiors is its tools, lined up at the auction house at a bargain price for those still gainfully employed.”

“‘A lot of people got really comfortable with the way it was and how busy it was, and how good the money was and that sort of stuff - and now, obviously, it’s changed,’ explained Joe De Leijer from Competitive Painters. Builder Chris Sinclair is one of those who had to downsize to survive, reducing his staff number from 36 to just a dozen. He got by, picking up other work - but others are not so lucky. ‘The worst thing to do is when people start dropping their prices because they’ve not got the work, but those prices aren’t accurate,’ he says.”

From Standard Media. “Stanlib Income-Real Estate Investments Trust might have pinned its hopes too high when it sank the first cash it raised into Greenspan Mall. The allure of shopping malls that has taken hold in the country for a while now is quickly fading, leaving the South African-based financial provider along hundreds of other investors in a discomfiting financial position.”

“‘Rental income has come slightly under pressure due to a temporary increase in vacancies coupled with some tenants bargaining for reduced rentals upon renewal of leases,’ Stanlib said in a statement.”

“Most investors were lured into setting up malls by the gospel of an expanding middle class. Property consultancy Knight Frank in a report extolled the manner in which ‘the retail property sector has been a major focus for development activity within Africa over the last decade, causing the shopping mall concept to take root in increasingly wide range of major African cities.’ It noted that this growth has been driven by, among other factors, the explosion of the continent’s ‘consumer markets.’”

“However, it appears like the middle-class hype was just that, a hype; the mall bubble has finally burst. Kenya’s floating middle class noted AfDB, is at 44.9 per cent and without them, the country’s middle class would be at a low 16.8 per cent. The middle class that investors have tumbled over each other for includes this consumer group that is closer to poverty than riches.”

“Today, of the 10 biggest malls in sub-Saharan Africa, three are in Nairobi. Two Rivers Mall, Garden City Mall and The Hub are ranked second, third and fourth largest malls respectively behind South Africa’s Mall of Africa which is the largest in Africa, straddling 131,000 square feet. Experts have described the shopping mall craze as a ‘ticking bomb.’ Returns on these investments have been on the decline as too many malls scramble for a few moneyed shoppers.”

“British magazine The Economist, in a special report titled ‘Business in Africa,’ declared: ‘This is the Africa of business magazines and bank ads: A continent that is rising at a prodigious pace and creating profitable new markets for multinational firms.’ The magazine noted that there were 1.2 billion opportunities in Africa. Nairobi, specifically, was described as ‘a city of malls and highways’ by the magazine. And Garden City, which had just been opened, was celebrated as ‘the latest temple to consumerism.’”

“Today, Garden City is easily another ghost mall with an embarrassing sight of empty floors and deserted parking lots.”

A report from the Marysville Globe in Washington. “Have you noticed? It’s not such an insane, over-the-top real estate market anymore. The thought of I’ll just throw a for sale sign in my front yard on Thursday and have a crowd of crazed buyers offering $15,000 to $25,000 over my asking price is nearly over. A shift in our real estate market is taking place. Many sellers are searching to understand the term ‘Price Reduction’ as they are unaccustomed to hearing that horrible word spoken to them by their real estate broker. We have seen a record number of price reductions over the last two months.”

“Enthusiastic sellers who overpriced their homes in May and June are sitting in their homes scratching their heads saying, ‘My broker said there would be multiple offers.’ Those sellers and today’s sellers need of a major dose of reality, and the days of multiple offers are days of the past.”

From Northwest MLS on Washington. “House-hunters in Western Washington can choose from the largest supply of homes in three years, and they are facing fewer bidding wars, according to officials from Northwest Multiple Listing Service. New statistics from the MLS show prices appear to be moderating (up about 6.7 percent overall), but brokers say they are not bracing for a bubble, or even anticipating a quick shift to a buyers’ market.”

“In Clark County, inventory doubled from a year ago to lead the list based on percentage gains. King County was runner-up with a 74.3 percent increase, rising from 3,329 active listings a year ago to 5,803 at the end of August. A slower pace of sales also contributed to the boost in supply. ‘The Puget Sound residential housing market remains positive, though the market has transitioned from a frenzied state to one of strong sales activity,’ remarked J. Lennox Scott, CEO of John L. Scott Real Estate.”

“George Moorhead, designated broker at Bentley Properties, commented on buyers ’still sitting on the sidelines despite clear indicators.’ He believes, ‘This is the best time in three years to be aggressive in the marketplace’ given rising inventory, a significant increase in the number of cancelled and expired listings, and more incentives being offered by builders. ‘We are now seeing price reductions in new home communities as builders try to move inventory of completed homes,’ he noted.”

“With more homes on the market in the tri-county area, growth of home prices has slowed, noted OB Jacobi, president of Windermere Real Estate. ‘Buyers are under less pressure to bid on any home that comes on the market,’ he remarked. ‘Despite what some of the headlines may read, this is no cause for panic; in fact, it’s good news because it’s an indication that we are moving closer to a more balanced market,’ he suggested.”

“‘The real estate sky isn’t falling,’ said Dick Beeson, who acknowledged the ‘huge increase in inventory the past few months speaks volumes about the anxiety levels sellers have as they try to get all they can before the market crashes, which it won’t. The Northwest still has the best economy in America,’ Beeson emphasized.”

“Why the run-up in listings?, Beeson asked rhetorically. Sellers have read about exorbitant prices and the need for inventory, he explained, adding ‘I guess we should have schooled them a bit about a phasing in process and not to bunch up at the listing house door.’ Several brokers commented on the importance of realistic pricing. ‘You can’t underprice a home in today’s market, but you can overprice it,’ Beeson stated.”

The Gloucester Times in Massachusetts. “The bidding dual over the Brightside condo highlighted an auction that brought in $139,500 for the city’s coffers – far less than the $300,000 initially raised at a similar auction last year, but one that disposed of five of the six properties on the block. ‘Some of the properties maybe weren’t as sexy as some of the ones last year,’ said auctioneer Paul Zekos, whose Zekos Group LLC of Shrewsbury has run the city’s recent tax auctions. ‘But we did sell all but one of the properties – and five out of six isn’t bad.’”

“Two of the vacant-land properties sold at last year’s auction ultimately wound up back on the block Thursday after last year’s bidders defaulted on closing, Zekos had said. ‘There really is no goal for these types of things,’ said city treasurer and collector John Dunn. ‘They get what they can get, and we go from there.’”

“The biggest drop in potential sales revenue Thursday may have come when the only property aside from the Brightside condo with a house on it failed to draw any bids at all, even as Zekos lowered the minimum bidding on the 58 Hill Top Road site from an initial $100,000 to $30,000. The property is assessed by the city at $214,800.”

“Another property, at 72 Witham St., sits virtually across Thatcher Road from the main Good Harbor Beach parking lot, and includes just .35 acres, complete with wetlands. So after getting no bids at $30,000, Zekos dropped the bidding to $10,000 – and still initially got nothing. But Janet Muzzy, seated toward the back of the hall, shouted out $2,500, then agreed to raise her bid to $5,000 after Zokos and Dunn conferred over a minimum bid they intially set at $5,600. Dunn agreed to accept the bid. ‘You drive a hard bargain,’ Zekos told her.”

The Star Press in Indiana. “Many readers will be unfamiliar with Indiana’s housing glut, which the U.S. Census reports are more than 300,000 excess homes. This is partly because few community leaders and even fewer Realtors wish to talk about this chronic problem. I’ll explain by beginning with a Muncie example that is applicable to much of the state.”

“Shortly after my recent article on the urgent need to preserve middle-class neighborhoods, a Realtor replied to my column. He took exception with my inference that there was an excess supply of homes in the greater Muncie region. Citing local real estate data listing of only 392 homes for sale in Delaware County, he argued that there was an acute housing shortage. He could not have been more wrong.”

“That same week the local paper listed the county sheriff’s sale of some 1,300 homes, a modest share of the annual listing of abandoned homes in the county. Worse still, the most recent Census data reported more than 5,100 vacant homes in Muncie alone, with more than 1,000 more across the rest of the county.”

“In any market, excess supply causes prices to drop, and Muncie is a prime example. Across three city council districts comprising 14,600 homes, the average tax assessment is less than $45,000 per home. My research with Professor Dagney Faulk indicates that homes priced in this range are over-assessed by 62 percent to 156 percent. That means when these homes do sell, they are changing hands at a fraction of their assessed value, or about the price of a decent used car.”

“The cause of this is clear. The Census reports that Muncie has lost close to one in six families since the early ‘70s and one out of every 50 families since 2010. This means thousands of excess homes that suppress prices across the county and beyond. The realtor who criticized my data on excess homes, or rather criticized the Census count of excess homes, claimed there was abundant demand for homes priced in the $250,000 range. That is unalloyed nonsense.”

“Every Realtor can tell stories of families visiting their community who are dissatisfied with the choices. I shouldn’t have to write this, but the presence of a buyer willing to pay $250,000 for a home that cost well more than $300,000 to build ain’t evidence of demand for new housing.”