May 23, 2017

A Disconnect Between Economics And Reality

A report from the Seattle Times in Washington. “As Seattle summers keep getting hotter and hotter, a once-unthinkable perk for renters here has become more commonplace: air conditioning. Traditionally, there hasn’t been much of a point for local developers to spend the extra money to install A/C and new construction was rare enough that new buildings didn’t need extras — they stood out just for being new. But now the record apartment construction boom sweeping the city has created what some in the industry have called an ‘amenities arms race’ to attract tenants. Things like rooftop decks, gyms and dog play areas are a dime a dozen. Now A/C has become a way for landlords to stand out in a sea of apartment ads.”

“‘I don’t think it’s a fad, I think it’s probably going to be a new normal, because it is getting warmer,’ said Megan Murphy, a senior manager at one of the biggest developers in town, Paul Allen’s Vulcan Real Estate. ‘Now it’s becoming more competitive, as well — it’s not just about being the new kid on the block, it’s about being the new kid on the block with all the extras.’”

From the Denver Post in Colorado. “Metro Denver landlords are cutting their advertised rents at one of the highest rates in the country, according to Trulia. Nationally, rent increases have plateaued and more landlords are starting to realize that rent hikes year-after-year aren’t a given, noted Felipe Chacón, author of the report.”

“Compounding the problem, many of the apartments and homes built are on the more expensive end of the market, while the jobs created in metro Denver are mostly on the lower-end of the wage scale, said Mark Vitner, a senior economist with Wells Fargo Securities. ‘There is a real affordability issue in Denver,’ Vitner said, adding that could be contributing to a recent slow down in in-bound migration and job growth.”

From Construction Dive. “On a national basis, rental hikes are finally easing, with about one in 10 listings experiencing a rate cut year-over-year, and the national median rent dropping by 2.9%, Trulia reported. Of the 100 largest metro areas, 83 saw a growth in price cuts this year as compared with the previous year. The Texas cities of Dallas, Austin, Houston and Fort Worth had the highest proportion of increases in rent reductions. When it comes to price reductions of for-sale listings, Dallas and Austin topped the list in year-over-year increases, followed by San Antonio, TX, San Jose, CA, Camden, NJ, and San Francisco.”

The Norman Transcript in Oklahoma. “Rent charged on multi-family properties in Norman is on the decline, according to recent studies. City leaders approved a moratorium in January for a wide swath of central Norman in reaction to R-3 zoning, which allowed large, multi-family structures to be built alongside historic bungalows. That six-month moratorium on new construction is set to expire soon, but the multi-family rental market is already experiencing the effects of a soft market, according to some experts.”

“‘What’s happening is we are starting to see more concessions in the market,’ said Mike Buhl of Commercial Realty Resources Co. in Norman. ‘If you just drive around town, you see signs up at apartments like ‘$99 Move In’ and I saw one that said ‘Two Months Free.’ When you see signs like that for concessions, lower rents are a result. All of that is adding inventory, and I’m not sure there’s full demand for that inventory.’”

“Buhl said many investors bought older apartment properties thinking they could do some improvements and raise rents on those properties. ‘That may be much more difficult when the market is showing signs of softness,’ he said.”

The Sun Sentinel in Florida. “If you want to rent in the lap of luxury atop downtown Fort Lauderdale’s tallest building, you’ll have to pay eye-popping prices. Penthouses in the new 45-story Icon Las Olas apartment tower that offer panoramic water views will command $7,000 a month and up. A one-bedroom, 960-square-foot unit will rent for a more accessible $2,500 a month. Originally planned as a condo tower, the $200 million project at 500 E. Las Olas Blvd. is now best suited as a rental, says developer Jorge Perez, though he isn’t ruling out a conversion to condominiums at some point.”

“Lewis Goodkin, a longtime South Florida housing analyst, agrees that Perez’s best bet now is to cater to the rental market. He cited a softening condo market and challenges in acquiring financing. Apartments are safer investments, and Goodkin said the superb downtown location means Icon Las Olas won’t have trouble renting the more modest-sized units. But he’s less sure about demand for the priciest digs.”

“‘When you’re talking about $7,000 a month, the market thins out a lot,’ Goodkin said. ‘People who can afford that are pretty fussy about where they are.’”

From Multi-Housing News. “Jay Rollins, managing principal & co-founder of JCR Capital, talked to Multi-Housing News about the next stage in the cycle. MHN: Could you give us some details on a particular market where this theory could apply? Rollins: Many markets are overbuilt—such as Denver, L.A. and Tampa—and rents will fall, but lenders have been conservative in their underwriting, and they will be fine. It will be equity and mezzanine lenders who will be disappointed.”

“MHN: What are your predictions in connection to the multifamily market’s future? What is the next stage of this cycle going to look like? Rollins: Not very different, except you will not see much more new construction of Class A multifamily in urban markets for a while.”

From Forbes. “In the last 10 years, Treetop Development has become one of the major and more sophisticated multifamily housing players throughout the greater New York City area. The company, founded by Azi Mandel and Adam Mermelstein, now owns and manages about 8,500 apartments. However, at its peak, it had over 10,000 units. Over the last two years, Treetop sold a number of projects, specifically in northern Manhattan.”

“Omri Barzilay, Contributor: The markets are rallying for more than eight years. Do you think that’s something that can continue?”

“Mandel: Pointing to history, the real estate market has experienced a downturn every seven to 10 years, and some of the fundamentals that have forced market downturns in the past are in place right now. There are signs that demonstrate a disconnect between economics and reality. For example, apartment rents are going down while building prices are not, which is typically indicative of a bubble.”

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Comment by Ben Jones
2017-05-23 07:36:47

‘With memories still fresh from the 2007 financial meltdown precipitated by unrestrained real estate borrowing, US bank lending officers are showing a reduced tolerance for risk and reporting tightened CRE lending policies - most notably on multifamily lending.’

‘The reaction is in response to numerous factors, including ongoing concerns from federal regulators about an overheated CRE lending environment, a more uncertain outlook for CRE property prices, and the impact from rising vacancy rates in certain property types. At the same time, banks too are reporting weaker demand for CRE loans in the first quarter for similar reasons.’

‘The tighter lending policies appear to be hitting multifamily loans the hardest…Signs of oversupply have begun to emerge in some metro areas and Fitch said there could be a higher risk of lower rents should demand soften. Effective rents in New York City at year-end 2016 fell modestly relative to the previous year, which was the first year-on-year decline since 2009, Fitch noted.’

‘Moreover, multifamily vacancies are expected to increase this year. Fitch noted supply pressures in many markets including Houston, Seattle, Denver, Washington DC, San Francisco, San Jose and Orlando.’

‘Fluctuations in apartment vacancy rates are expected to vary depending on property type and market. Luxury/Class A properties could be at greater risk, owing to the surge in supply relative to Class B/C properties, Fitch said.’

‘The preference for commercial real estate as an asset class might be changing, said John Affleck, a research strategist for CoStar Group. Overall CRE transaction volume fell pretty sharply in the first quarter. Transaction volume in the first quarter totaled about $96 billion in the first quarter. That’s down about 15% from Q1 last year, CoStar data shows.’

“For multifamily the drop is even more precipitous — about $29 billion compared to $44 billion in the first quarter of last year,” Affleck said. That is down about 34% from a year ago. “At the same time, CoStar’s Repeat Sales Index for multifamily shows that pricing has flat lined over the past three quarters,” Affleck said.’

‘The Federal Reserve’s April loan survey showed a significant number of banks also reported lowering loan-to-value ratios on construction and land development and on multifamily loans. A significant net fraction of banks also raised debt service coverage ratios on multifamily loans.’

Comment by Auslander
2017-05-23 08:19:03

It seems to me that a lot of this higher end housing will become lower end housing(more affordable) because there are not that many people who are willing or able to pay these inflated prices. These Yellen bucks were used to create beautiful and expensive structures but can’t be supported in the rental or ownership markets that they were built. They will fall from their original value to a price range more sustainable creating a downward pressure on values and rents.

Comment by Mr. Banker
2017-05-23 09:49:07

It`s not about paying prices, it’s about paying chunks of prices, paying
for chunks of prices spread over time.

Comment by Mr. Banker
2017-05-23 09:53:43

It’s easy to get your price if the buyer can buy it with a promise.

Comment by aqius
2017-05-23 09:42:00

Reading all of the stories: like 2008 all over again.

greed is king, with ego his willing queen.

rulers that never die.

Comment by Puggs
2017-05-23 10:09:39

…people never learn.

Discipline requires a lot of self control.

Comment by new attitude
2017-05-23 10:44:39

or just be a tightwad, ya can’t lose if you don’t play.

Comment by Jingle Male
2017-05-24 03:33:06

It is too early to be 2008. It seems more like 2002. The questions now are: How much irrational exhuberence will build and when will it blow?

I remember thinking the market was getting frothy in 2002 (up by 50%) and it just kept on going until 2005 (up another 100%).

Comment by Mike
2017-05-23 10:06:36

The Commerce Department said on Tuesday new home sales declined 11.4 percent to a seasonally adjusted annual rate of 569,00 units last month. March’s sales pace was revised up to 642,000 units, which was the highest level since October 2007.

Comment by Drater
2017-05-23 11:25:04

“…but but but it was cold in April and rained one inch”

- NAR spokeshole

Comment by new attitude
2017-05-23 10:40:58

my co-worker just sold a rural property off the grid, all cash, in less than 3 weeks. Had 3 people interested, but no financing avail for off the grid.

Comment by Jingle Male
2017-05-24 03:36:46

A friend in Seattle just put his house on Zillow and has 2 offers and 8 more showings scheduled. He will choose from multiple offers over asking this weekend!

Comment by rms
2017-05-24 06:34:36

Someone must promise to feed the squirrels… in writing.

Comment by drumminj
2017-05-24 07:27:23

He will choose from multiple offers over asking this weekend!

Yep. Coworkers here are house hunting, and repeatedly encounter multi-offer, way over list price scenarios. The craziness is still alive and well in Seattle.

Comment by resistance
2017-05-24 11:16:38

The hot money flow lives on in SEA. Influenced by Tech Bubble 2.0, Chinese money laundering moved south from Vancouver, people fleeing CA, and the boomer progressive left’s continued self-serving pillaging and plundering of the younger generations, as they decry a need for cheaper housing, while laughing all the way to bank. Hardly realizing that they’re selling their cities out from under their children and grandchildren’s feet. The latter of which have almost zero hope of ever owning the homes they grew up in. Saddled with student loan mortgages, low paying jobs (especially compared to housing prices), a stagnant economy, unless you’re in on the tech and RE ponzi,and boomers sucking up more and more resources, their prospects are dim for the foreseeable future.

Good on ya, grandma and grandpa boomer! Might as well take it all. HELOC and reverse mortgage that pos, and live it up! Give the banks everything, and leave your kids the bill.

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Comment by bob
2017-05-24 12:46:38

Seattle is crazy now - with all the Amazon/Google/HBO/Facebook hiring.

I know someone (late 20’s) that just joined Amazon —- who’s parents re-fi’ed to give him $70K for a down payment for a townhouse in Mt. Baker neighborhood.

It will probably work out as he is an engineer - but what about all the others

Comment by taxpayer
2017-05-23 11:38:27

so where are rents rising ?

Comment by new attitude
2017-05-23 15:36:35

santa barbara and carmel

Comment by PitchforkPurveyor
2017-05-23 17:16:56


Comment by Jingle Male
2017-05-24 03:39:15

Sacramento foothills. I don’t know about apartments, but SFR rentals are in high demand with very low vacancy. Rents up 5% over last year.

Comment by Ethan in Northern VA
2017-05-23 12:05:02

Drove westward to Home Depot in NoVA, heading away from Washington DC. Tons of new development, drive till ya $600K qualify stuff. There are so many signs along the road advertising the new developments, mostly just brand names of home builders like Ryan.

I think I’m going to look into getting low cost plastic signs printed that says OVERPRICED! and HOUSING BUBBLE! Black text, yellow plastic with some sort of retention clip then clip them onto some of the signs. Bumper stickers is another way to do it but slower application.

Comment by SW
2017-05-23 13:10:53


Comment by Sean
2017-05-23 20:56:48

20147 here. People know it but don’t want to admit it. Inventory is increasing, price ‘improvements’ are increasing, people are worried about their GS-14 job or are just plain punching out of NoVa. I’m in the same boat, just keep saving money and wait. Strike when the iron is hot, and my iron ain’t even plugged in yet!

Comment by In Colorado
2017-05-23 13:04:58

Reporting from London, UK …

Arrived here on Sunday and staying at a hotel in the Earl’s Court neighborhood, which is just west of Kensington.

Just down the street from the tube station is an “estate agent’s” office (what we call a “realtor”). Flats start at 800,000 pounds. Now you might think this is a posh nabe, but you’d be wrong. There are “council flats” everywhere (think Section 8) and the members of the free sh!t army are very visible. Riding the tube back to the hotel at the end of the day you see both suits and bums riding and getting off at the same station. Also have seen more than a few late model benzes, beamers and Audis parked in the council flat parking lots (visible from the main street), so you know there is rampant fraud going on, hiding income, etc.

And before I forget to mention it, cranes everywhere. And everything is EXPENSIVE.

Comment by In Colorado
2017-05-23 13:07:32

that should read “Section 8″

Comment by butters
2017-05-23 13:38:47

Land of Money Launderers.

Comment by In Colorado
2017-05-23 14:17:49

And Chinese tourists everywhere. Was at the British Museum today. Tons of Chinese tourists. It was like that last Summer in Austria and Germany.

Comment by sod
2017-05-23 16:48:35

I lived in England for a few years. We rented what the landlady said was previously a “council” house.

We were impressed with that initially. We thought she meant that one of the members of the town council used to live there. Oops.

Comment by redmondjp
2017-05-23 13:18:45

To be fair, a lot of this so-called “air conditioning” mentioned in the original article is actually a side-benefit of installing heat pumps as the primary heat source (which work very well here in the temperate Puget Sound area).

Comment by Avg Joe
2017-05-23 13:36:08

Was just there about 6months back, same experience.

Comment by new attitude
2017-05-23 19:33:06

Yosemite was full of Chinese too.

Comment by In Colorado
2017-05-24 02:55:05

Even at our hotel, which is about 5 subway stations from Westminster, there are some Chinese. But the bulk are on group tours and are probably staying in more central, and thus more expensive, hotels. Ours is about $150 USD a night, and best of all, has A/C unlike other comparably priced hotels, as the weather has been on the warm side (should be close to 80F tomorrow). No rain in the forecast for the rest of the week into next week, last time I checked,

Comment by SW
2017-05-23 14:50:51

Anyone have any idea if dropping MFH rents will affect SFR rents and/or SFR prices?

Comment by Ben Jones
2017-05-23 14:59:23

How could it not?

Comment by SW
2017-05-23 15:59:28

I figure it will. Just looking for some insight into the chain of events?

Will dropping MFH rents cause renters to avoid moving into SFR rentals until SFR rents drop too?

Same question for SFR prices?

I suspect the simple answer to both questions is…Yes!

However, nothing’s ever that simple.

Comment by Rental Watch
2017-05-23 17:22:00

Multifamily rents rising make renters more anxious to own (thus increasing demand on the margin), which, all else equal, pushes prices higher.

Multifamily rents declining make renters less anxious to own (thus decreasing demand on the margin), which, all else equal, pushes prices lower.

That said, I think it will be case-by-case if declining rents actually pushes prices lower, or simply slows the rate of price increases.

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Comment by SW
2017-05-23 18:52:18

Thoughtful answer.

Comment by SW
2017-05-23 16:13:42

From the MHN article:

“As long as there are people, it’s a great asset. While the market has been extremely robust for years, lenders have generally stayed conservative and are not out over their skis the way they were in 2007.”

I think we’ve seen on this blog that they haven’t been conservative, correct?

Comment by Ben Jones
2017-05-23 16:37:41

‘It will be equity and mezzanine lenders who will be disappointed’

The one quote about not building much A class: if true a buncha guys better start looking for a job if true because that’s 90% plus of what has been built in the biggest boom in 40 years.

Comment by Albuquerquedan
2017-05-23 17:30:36

Long day and I may not be able to post tomorrow but this is interesting:

Comment by Raymond K Hessel
2017-05-23 17:55:35

Pack a crow lunch.

Comment by Carl Morris
2017-05-24 10:17:58

What I find interesting about Shanghai is that supposedly the real estate is even more expensive than the SF bay area, yet the rent is so much less.

Comment by Albuquerquedan
Comment by Ben Jones
2017-05-23 18:20:32

‘Meanwhile, Chinese mainland investment in properties in Hong Kong soared 213 percent year on year to a record HK$36.1 billion (US$4.6 billion) during the quarter.’

‘Office rents in HK could have just hit the down button
The Straits Times-May 17, 2017
A record bid for a car park in Hong Kong’s central business district could be an indicator the city’s crazy commercial property price boom is about to end.’

Comment by Raymond K Hessel
Comment by Albuquerquedan
2017-05-24 05:53:20

You can cut yourself shaving more. Its outlook was actually upgraded to stable. I go into more detail above. Once again Raymond you are waiting for Godot, nothing in the report to suggest an imminent collapse of China. Wish I had more time today but I do not and I said that before the downgrade hit the wires.

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Comment by Not Even a Smidgen
2017-05-23 17:50:09

When the birds fly north the remodels begin (Jupiter Island/Palm Beach/Singer Island) the remodels begin.

x 3 this year.

Comment by Raymond K Hessel
2017-05-23 17:53:10
Comment by Raymond K Hessel
2017-05-23 17:57:36

The Greek bailouts, and can-kicking, never stop. Heckova job, Draghi.

Comment by Raymond K Hessel
2017-05-23 18:13:07

Santander (subprime auto lender) checked the loan applications of just 8% of auto borrowers to verify income.

What could possibly go wrong?

Comment by Raymond K Hessel
2017-05-23 18:32:07
Comment by aNYCdj
Comment by Raymond K Hessel
2017-05-23 19:08:30

Ordinarily this Moody’s downgrade of China would concern me, but thanks to ABQ Dan I now know that this is in fact a validation of China’s robust, perpetual economic expansion.

Comment by acutehemroid
2017-05-23 21:18:18

One thing that we need to consider in all coastal real estate markets is sea-level rise. We are exeriencing this rise now, and it will get worse. How much worse? Well, that is being revised as we speak. These revisions never seem to be in our favor. So, Florida’s coastal properties will lose BIG billions. It will be the sea rise, hurricanes, etc. I’m set to retire, but the place I always planned to retire -N. Florida coast- is now out of bounds. I’ll be fine until I get too old to deal with storms, high tides, and flooding. We will all get there.
P.S. Some thought on global warming.

The radiant heat that the earth absorbs from the Sun during the day is radiated back to space from the warmed surface as it rotates through the night time. CO2, water vapor, methane, particulates, etc. are what we depend upon to act as a “blanket” to absorb and re-radiate some of the heat back toward the surface of our planet during the night. This keeps us from being the moon which has no atmosphere to speak of. Too much green house gasses in our atmosphere and our planet retains more of the incident energy from the sun. This WILL cause the Earth’s temperature to rise. I always have several students who do not accept that human activity can increase greenhouse gasses enough to do this. I then pointedly explain that refrigerant released into the atmosphere, CFCs, caused a decline in the thickness of the ozone layer around the earth. If human-produced CFCs can do that, then the vastly greater amounts of human-produced green house gases can cause too much heat retention. So, I’m very much pro-solar, wind, conservation, biomass, and nuclear power. How we reduce the CO2 is just time. A long time.

Comment by redmondjp
2017-05-23 22:36:23

I’d like to believe you, but the whole CFC thing was about expiring patents and Dupont wanting a newer, patent-protected freon.

And CFCs are heavier than air and settle to the ground. So how do they get miles up into the atmosphere to cause this ozone damage?

Comment by Prime_Is_Contained
2017-05-23 23:44:25

How we reduce the CO2 is just time. A long time.

And this CO2 that gets “reduced”, as you call it, by the passage of time—goes where exactly? Is it destroyed? Of course not.

So if it can “go” somewhere with the passage of time—e.g. end up sequestered beneath the surface, sequestered within the oceans, sequestered in the form of living breathing plants—doesn’t that suggest that the CO2 that we are pumping out in the form of oil and natural gas actual was above the surface and in the atmosphere at some point before it ended up sequestered? So all of that extra CO2 was around at some point—and yet the planet survived.

Comment by @AltFacts
2017-05-24 01:14:46

“—and yet the planet survived.”

In a manner of speaking…

Big Five mass extinction events

Although the Cretaceous-Tertiary (or K-T) extinction event is the most well-known because it wiped out the dinosaurs, a series of other mass extinction events has occurred throughout the history of the Earth, some even more devastating than K-T. Mass extinctions are periods in Earth’s history when abnormally large numbers of species die out simultaneously or within a limited time frame. The most severe occurred at the end of the Permian period when 96% of all species perished. This along with K-T are two of the Big Five mass extinctions, each of which wiped out at least half of all species. Many smaller scale mass extinctions have occurred, indeed the disappearance of many animals and plants at the hands of man in prehistoric, historic and modern times will eventually show up in the fossil record as mass extinctions. Discover more about Earth’s major extinction events below.

Comment by Rental Watch
2017-05-24 08:58:48

So, 5 mass extinctions–caused by what exactly?

Certainly not CO2 being expelled into the atmosphere by man…

What percentage of the 4.5 billion years of earth’s history were CO2 concentrations higher than they were today?

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Comment by acutehemroid
2017-05-24 07:48:10

Ok, this is a fair question: “Where was the CO2 that was in the atmosphere sequestered?”
Answer: “It was sequestered as oil, coal, and in the shells of sea creatures.” We’ve released it when we started burning hydrocarbons to fuel the industrial revolution. We needed the industrial revolution. It solved many problems, but it also created more problems associated with the solution- as usual. These are just more problems to solve. We’ll do that. We will. We’re human beings.

Comment by Jingle Male
2017-05-25 04:34:31

…but you won’t!

Comment by Gordon Gekko
2017-05-24 05:31:14

You may want to expand your various sources when researching sea level rise for some other perspective(and check the details of the actual data used).

More importantly to me personally, you mentioned that that the N. Florida coast is now “out of bounds”. Moving from the New England, We have lived like kings ( we have stupidly invested so much in ’stawks’ the last 3 decades)here for 15 years. What am I missing?!?! I am suddenly worried. Should I get Al Gore on the phone?

Comment by acutehemroid
2017-05-24 12:50:20

I meant the northern Gulf Coast like Panacea or Sopchoppy or some such place.

Comment by phony scandals
2017-05-23 21:44:48

“One thing that we need to consider in all coastal real estate markets is sea-level rise. We are exeriencing this rise now, and it will get worse. How much worse? Well, that is being revised as we speak. These revisions never seem to be in our favor. So, Florida’s coastal properties will lose BIG billions.”

But still the last check at 4 this afternoon the Atlantic Ocean sea-level in Jupiter Fl was in the same place as it was in 1982.

Here is a Global Warming end of winter as we know it sea-level rise lecture you may not have heard yet.

Comment by Neuromance
2017-05-23 21:47:47

Canada Must Deflate Its Housing Bubble
The central bank needs to raise interest rates, and soon.
by The Editors
May 23, 2017, 9:00 AM EDT

[T]he bubble bears little resemblance to the U.S. subprime boom that triggered the global financial crisis. Although one specialized lender, Home Capital Group, has had issues with fraudulent mortgage applications, regulation has largely kept out high-risk products. Homeowners haven’t been withdrawing a lot of equity, and can’t legally walk away from their debts like many Americans can. Banks aren’t sitting on the kinds of structured products that destroyed balance sheets in the U.S. Nearly all mortgage securities and a large portion of loans are guaranteed by the government.

That said, the situation presents clear risks. As buyers stretch to afford homes, household debt has risen to 167 percent of disposable income — the highest among the Group of Seven industrialized nations. This is a serious vulnerability, and a big part of the rationale behind Canadian banks’ recent ratings downgrade. The more indebted people are, the more sensitive their spending becomes to changes in prices and interest rates, potentially allowing an otherwise small shock to result in a deep recession.

Comment by Neuromance
2017-05-23 22:05:47

Supply and demand coming into equilibrium in a speculative bubble is bad news for the bubble.

There are Tons of Newly Built Homes – Just the Wrong Kind
CNBC via Mortgage News Daily
May 23 2017, 11:53AM

Ask anyone house hunting this spring, and they’ll tell you there are far too few homes for sale. But, really, it’s the price tags of the homes for sale that are the issue.

The median price of a newly built home sold in April fell 4 percent compared with a year ago, according to the U.S. Census, but that is not because builders have suddenly put up cheaper homes. It has to do with the mix of homes that are selling.

Builders say they are now targeting the millennial buyer — launching new, slightly lower-priced brands and stripping down the models — but clearly, it’s not enough. The supply of existing homes for sale is near a record low, but the supply of newly built homes for sale just jumped dramatically, returning to its 30-year average. The chasm between the two is all about prices.

More evidence of the rift between what builders are putting up and what buyers can afford: inventory is suddenly high when builders are still not even close to normal production levels.

Comment by In Colorado
2017-05-24 04:04:52

No one wants to build 150K starter homes. So instead we get a glut of 500K McMansions.

Of course, for Londoners paying a million dollars plus for a tiny flat, an American McMansion must seem like a bargain. A pity the Piccadilly tube line doesn’t have a station in USA suburbia :-)

Comment by taxpayer
2017-05-24 04:14:02

they could skip the chimney Global Warming and chopping wood, way to much effort for mills
skip the garage, GW and they can’t afford cars

save 30K between the two

Comment by @AltFacts
2017-05-24 00:43:51

“As Seattle summers keep getting hotter and hotter, a once-unthinkable perk for renters here has become more commonplace: air conditioning. Traditionally, there hasn’t been much of a point for local developers to spend the extra money to install A/C and new construction was rare enough that new buildings didn’t need extras — they stood out just for being new. But now the record apartment construction boom sweeping the city has created what some in the industry have called an ‘amenities arms race’ to attract tenants. Things like rooftop decks, gyms and dog play areas are a dime a dozen. Now A/C has become a way for landlords to stand out in a sea of apartment ads.”

So climate change really is real after all!

Comment by taxpayer
2017-05-24 04:19:52

no, just need to keep snowflakes very cool

Comment by Raymond K Hessel
2017-05-24 04:33:34

Dropping prices would be the best way for landlords to stand out.

Comment by Raymond K Hessel
Comment by Dday
2017-05-24 06:17:04

The article makes a good point that China is at the mercy of the Fed. A one point rise in interest rates would decimate China’s financial system, because of China’s foolish decision to link its internal financials to an external currency.

Comment by Raymond K Hessel
2017-05-24 04:39:10

ABQ Dan assures us that China’s economic expansion continues apace, yet the red flags keep proliferating. Like commodity broker Nobel crashing hard in recent days. Which suggests China’s construction boom is coming to a screeching halt.

I am experiencing cognitive dissonance as my previously unshakeable faith in ABQ Dan’s inerrant prognostication has become shaken of late.

Comment by Raymond K Hessel
2017-05-24 04:44:01

Another central banker “irrational exuberance” moment. So when Housing Bubble 2.0 implodes and takes the global financial system with it, Draghi can say we were warned.

Comment by Raymond K Hessel
2017-05-24 05:02:12

Bitcoin: “A classic mania.” And we know how all manias end.

Comment by Rental Watch
2017-05-24 14:11:35

So, the Fed has now said that they will decrease their balance sheet by effectively allowing a controlled burnoff. So, they’ll still be buying more GSE and Treasury securities, but less than 100% of the amount that is maturing each month.

By my read of one of the Fed’s quarterly financial statements, it looks like approximately $40B of principal is repaid each month–they have been buying roughly the same amount to keep the balance sheet at a crazy (but steady) level of $4.5T.

Some rumors are they they plan to only decrease the balance sheet to approximately $2.5T.

So, they need to shed $2T of debt over time.

If they simply allowed 100% of the principal reduction (without buying more debt), it would take the Fed 50 months to shrink the balance sheet to $2.5T ($2T divided by $40B per month).

So, if they are planning on letting less than 100% of the burnoff to occur each month, it sounds like they are planning for 5-10 years to shrink the Fed’s balance sheet.

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