The Housing Bubble

A report from Bloomberg on China. “Chinese property developers are offering free luxury cars and hefty discounts to lure buyers as lending curbs and funding constraints squeeze their finances. China Merchants Shekou Industrial Zone Holdings Co is giving away a BMW Series 3 or X1 to buyers of a three-bedroom unit or townhouse at its Shanghai development. The car, or cash equivalent, equates to about a 10 percent discount on the 3.1 million yuan ($450,000) price of the 89-square-meter apartment.”

“At China Evergrande Group’s 646 nationwide projects, a basic 11 per cent price cut widens to as much as 26 per cent once extra perks, such as discounts to buyers referred by Evergrande employees or previous buyers, are thrown in. A further incentive: An initial down-payment of just 5 per cent is required, compared with the usual 30 per cent deposit required by local governments.”

“The giveaways and discounts suggest debt-laden developers are pulling out all stops to raise revenue, with the sector facing a record $23 billion maturity wall in the first quarter of 2019. At the same time, China’s determination to keep a lid on home prices has made it harder for developers to generate swift cash from sales.”

“‘Financing is becoming hard for everyone, even including the giant players,’ said Sabrina Wei, head of northern China research at Cushman & Wakefield Inc in Beijing. ‘They need discounts to boost sales and collect cash.’”

“Developers in neighboring Hong Kong are also offering perks such as free holiday and travel packages and easy credit to lure buyers in a sign one of the world’s hottest property markets may finally be cooling. At China Merchants Shekou’s ‘Harmonious’ development, prospective buyers have signed up for just 25 of the 350 apartments, local land registry filings show. Only eight buyers signed up for Gezhouba Real Estate’s 223-unit ‘Magnolia Garden’ project in Shanghai’s west. In the city’s north, Sanxiang Impression Co’s 161-unit complex enticed just five people.”

“‘Property projects are no longer an easy sale,’ Cushman’s Wei said. ‘We may soon see this prolonged upbeat property season behind us.’”

The Daily Telegraph in Australia. “Home sellers in some popular pockets of Sydney are slashing their asking prices by more than $150,000 after growing anxious with the long wait to find buyers. New sales figures reveal properties in parts of the Hills District, St George and Canterbury are taking an average of more than four months to sell, with some listed for even longer without finding a buyer. Purchasers are capitalising by negotiating up to 12 per cent off the listed price, in some cases saving more than $150,000, the CoreLogic data shows.”

“Realestate.com.au chief economist Nerida Conisbee said buyers were often getting big discounts because they faced little competition. And buyers are cashing in on homes initially listed with ‘unrealistic’ price expectations, Ms Conisbee added. ‘These sellers have to make big drops to their prices to attract buyers because their homes have been listed for so long without selling,’ she said.”

“Among the biggest discounts was on the sale of a four-bedroom Kenthurst house at 241 Pitt Town Rd, which sold for about $300,000 below the listed price after seven months on the market. A few blocks down the road, number 192 recently sold eight months after first being listed. The $1.75 million sales price was well below the initial price guide of $1.93 million to $2.05 million.”

“The typical price in these suburbs was 10-12 per cent below the listed price, but in some cases was even lower. This included on the sale of a five-bedroom house on Adam St in Campsie, which sold for $330,000 below the listed price, and a four-bedroom townhouse on Isabel St in Belmore for $364,000 below the listed price.”

From Domain News. in Australia. “Properties in the affordability heartland of Sydney are languishing on the market, with the time it takes to sell climbing to its highest level in years. Vendors in the west and north-west have taken the biggest hit with houses taking 23 days longer to sell than they did over the same period last year.”

“Among them is Ropes Crossing homeowner Matt Crabbe, whose four-bedroom duplex has been for sale since July. Had he sold this time last year, his sales campaign would likely be over. Instead, his family’s modern duplex has been on the market for 54 days … and counting, and the price guide has been reduced to $620,000 to $640,000 — sitting just above the $618,000 records show it sold for in 2016.”

“‘We knew that we’d probably cop a little bit of a hit [with prices pulling back],’ he said. ‘If [66 days] is what it takes, that’s what it takes,’ Mr Crabbe said. ‘We’re lucky as we’re not desperate and we don’t have a deadline [to sell], so for us it doesn’t matter if it takes 100 days.’”

“‘You’ve got to be realistic … or the property will stay on the market too long and go stale so it just depends on your priorities,’ Mr Crabbe said. ‘[But] we’re also very mindful that we’re not prepared to lose on it, so it’s a bit of a balancing act.’”

A report from Bloomberg on New York. “Manhattan apartment vacancies dropped in August to the lowest level in more than four years as landlords, facing the end of peak leasing season, focused on filling empty units before the slower winter months arrive. Taken together with a decline in rents and an increase in concessions, it’s a sign that landlords cared more about finding tenants than pushing the line on prices. ‘These landlords know what comes after the summer so, yeah, they definitely want to fill these vacancies as best they can,’ said Hal Gavzie, executive manager of leasing at Douglas Elliman.”

“Owners offered sweeteners, such as a month’s free rent or payment of broker fees, on 35 percent of new leases in August, up from 24 percent from a year earlier, Miller Samuel and Douglas Elliman said. The median rent, with the value of those concessions subtracted, fell 2 percent to $3,310. It was the third straight month with a decline.”

“‘The past few years, the strategy of being aggressive and not willing to react to market conditions caused them to rack up more vacancies,’ said Gary Malin, president of brokerage Citi Habitats, which released its own report on the rental market Thursday. ‘They learned their lesson.’”

The Wichita Eagle in Kansas. “The Douglas is no more. The 240 posh downtown apartments at Douglas and Market will now be known as ReNew Wichita — the result of a recent change in management. As of last Friday, the apartments at 200 E. Douglas are managed by California-based Trinity Property Consultants. Previously, they were managed by the South Carolina-based Greystar, which operated the complex since its opening last year. The most notable change: Rent has been lowered by about $200 per apartment.”

“Studios now start at $650 per month, while one-bedrooms start at $850 and two-bedrooms start around $1,200. Previously, the cheapest studio at The Douglas rented for about $890 per month. ‘The property’s gorgeous, but the main thing we hear from people is the price point,’ said Kim Lewis, who is the new community manager for ReNew Wichita.”

“The property is currently at about 74-percent occupancy, Lewis said. The new management wants to fill those vacant units — so much so that the first 10 applicants who move into the complex will receive two tickets for a Royal Caribbean cruise (good for up to three years). ‘The reason we’re a little more motivated than normal is because we’re at the tail end of leasing season,’ Lewis said. ‘We just don’t want to go into the winter months and have a huge amount of vacancies.’”

“All the amenities of the luxury complex will stay: included with the rent, residents get valet parking, 175 cable TV channels and internet, as well as access to the ‘Sky Lounge’ with rooftop wading pool, a ‘bark park’ with dog wash, a 24-hour fitness center and more.”

The Advance Titan in Wisconsin. “The Annex of Oshkosh informed students it would not be ready for move-in on Monday, Sept. 3, three days before the start of the fall semester. The luxury student housing told residents that move-in day would start Labor Day, even doing hard-hat tours every so often to show residents what the place looked like.”

“According to an anonymous source, promises were made about the readiness of the apartment complex. ‘We came in for a tour and the guy was just like, ‘Oh yeah, don’t worry about it, we have a hundred men here today. It’ll be fine.’ And that was like a month before that,’ the source said. ‘I came again and it looked the same from the outside.’”

“On Wednesday, Aug. 29, The Annex emailed residents telling them that they would have to push the move-in time on Sept. 3 from starting at 8:30 a.m. to noon, adding they will be having a final inspection that Friday, three days before move-in day and that there is a possibility they may not get approved. Residents were informed that The Annex had booked rooms at a temporary hotel in anticipation.”

“According to an anonymous source, on Saturday, Sept. 8 residents were able to move into the Annex, but not without having some problems. ‘They were supposed to have the elevator working and everything, and they weren’t working at all,’ the source said. ‘So everyone had to carry their things. It was insane.’”

“Many of the units still have chipped paint, no screens on the windows and some residents even got reassigned units because theirs weren’t ready. ‘When I got into the apartment, it looked very rushed,’ said Mailine Yang, a resident at The Annex. ‘There were holes in the wall, drywall dust on counters and dents and cracks in the walls. It’s pretty disappointing to see that in a brand new complex.’”

From KTRK in Texas. “Some students moving into off-campus housing at Prairie View A&M University say their move-in has been nothing but chaos. Students who applied to live at the brand new Panther Hill Apartments say their move-in date was delayed several times and they say the new construction units aren’t completed.”

“‘There’s debris everywhere, her bedding was still in boxes, a construction worker had to come in and put her bed together. It’s dirty,’ said parent Tracie Watson.”

“Watson says they had to clean up the mess from construction in their daughter’s apartment, the furnished apartments are missing furniture and they say they had to assemble some of the furniture. Some students moved in as workers were still painting the walls. Construction trash litters the hallways, equipment is parked outside doors and in some cases, the new tenants say the air conditioning isn’t working either.”

From Crain’s Chicago Business in Illinois. “Suburban apartment landlords keep hiking rents, but they’ve lost some of their pricing power. Ron DeVries, senior managing director in Integra’s Chicago office, attributed some of the slowdown to a shift in jobs from the suburbs to downtown. At the same time, landlords in some suburbs are having a harder time raising rents amid competition from new buildings.”

“The rising rents of the past few years have fueled a suburban construction boom, with developers adding 1,363 units in the suburbs so far this year and another 4,148 under construction, according to Integra. Developers completed 2,831 suburban apartments in 2016, an annual record, and 1,843 last year.”

“The construction is spread out over a large metro area, reducing the risk of a glut, but some suburbs where developers have been especially busy have felt the impact. On the North Shore, which has added 1,917 apartments since the beginning of 2015, the median net rent fell 6.2 percent in the second quarter from a year earlier, more than any other suburban submarket, according to Integra.”

“Landlords in northwest suburban Des Plaines will also face competition over the next year or so from three new apartment developments totaling 619 units. ‘That’s going to be a challenge,’ DeVries said. ‘That’s quite a bit of inventory for one community.’”

A report from Bloomberg. “Former Federal Reserve Chairman Ben Bernanke acknowledged that policy makers made two critical errors fighting the financial crisis a decade ago: They failed to see it coming with such force then underestimated how much economic damage it would cause later. ‘Nobody saw how widespread and devastating the crisis itself would be,’ he said in a short video discussing the results of a 90-page paper.”

“Mr Bernanke is the second Fed policy maker to issue a public mea culpa this week. Former Vice Chairman Donald Kohn agreed that the central bank made forecasting errors during the crisis and its aftermath. The Fed also over-estimated the potential costs of its controversial quantitative-easing program and so was more timid than needed in carrying it out, he said.”

“Echoing comments made last week by former Treasury Secretary Timothy Geithner, Mr Bernanke voiced concern that post-crisis reforms had left the Fed and other policy makers with fewer tools to combat the next crisis. In an effort to prevent future government bailouts, Congress curbed the ability of the Fed, the Federal Deposit Insurance Corp and the Treasury Department to provide emergency support to the financial system.”

“While the reforms overall had significantly improved the system’s resilience to shocks by boosting bank capital and other measures, ‘policy makers need to have the appropriate tools to fight the next crisis,’ Mr Bernanke wrote in his paper. ‘On this count, I am somewhat less sanguine,’ he said.”

From Knowledge Wharton. “This week, the world is remembering what is called ‘Lehman Weekend.’ A decade ago, on September 15, 2008, the giant investment bank filed for bankruptcy, triggering what is now called the Great Recession. Today, 10 years on, lending has become more stringent. Even so, causes for concern do exist, say experts at Wharton and elsewhere. Their biggest source of anxiety is that the government-sponsored Fannie Mae and Freddie Mac, despite being under receivership, do not have deep enough reserves to withstand another crisis.”

“Detroit-based Quicken Loans, the country’s largest residential mortgage lender, earlier this year partnered with Airbnb, ‘enabling the property rental company’s hosts to use rental income on a primary residence to refinance their mortgages,’ according to a press release. ‘Airbnb and Quicken Loans are firmly aligned to drive innovation in the real estate industry to dramatically improve and simplify client experience, as well as saving homeowners time and money,’ it stated.”

“Wharton real estate professor Benjamin Keys notes that nonbanking financial institutions are originating ‘a large fraction of loans’ and they immediately securitize them to Fannie Mae or Freddie Mac. ‘These nonbanks may not be able to withstand a downturn because they have little to no capital buffer, especially in their roles as servicers,’ he warns.”

“Wharton finance professor Richard Herring says he is concerned about the unintended effects of the prolonged policy of near-zero interest rates. ‘It has led to a major distortion of financial decisions…. It has undoubtedly permitted several inefficient firms to continue operations beyond the point they would otherwise have become bankrupt. It has contributed to the rise in stock market values and it has led individual savers to take risks they do not understand to try to obtain a positive, inflation-adjusted return.’”

From Mansion Global on New York. “A four-bedroom apartment in The Dakota, a prestigious Manhattan co-op building that housed the likes of John Lennon, Roberta Flack and Judy Garland, returned to the market for $12.5 million on Wednesday. The home, encompassing approximately 4,600 square feet of living space, has been on and off the market for the past three years. It first asked $17.5 million in September 2015 and the price dropped to $13.245 million before it was taken off the market this July, listing records on StreetEasy show.”

“‘The price reduction is a market-warranted reset,’ said listing agent Nikki Field of Sotheby’s International, who co-listed the apartment with colleague Benjamin Pofcher. ‘In order to sell a high-end property like this one, we have to market it with compelling and attractive price points.’”

From Life & Style Magazine. “Finally! Kendra Wilkinson has sold the Calabasas, CA home she once shared with her husband, Hank Baskett, and their two children. The mega-mansion sat on the market for months, but now a new report reveals an offer is pending — following a massive $250,000 price cut. According to Radar Online, the former Girls Next Door star listed the house for $2,495,000 in June before significantly dropping the cost. ‘REDUCED AGAIN!’ the listing on Zillow read. ‘Seller wants an offer.’”

“‘I’m trying to get out of my house fast,’ the 33-year-old reality star tweeted (then deleted) amid her marriage woes.”