Huge Gluts Of Overpriced Homes
A report from MarketWatch. “Housing starts ran at a 1.16 million seasonally adjusted annual rate, the Commerce Department said Wednesday. That’s 4.8% below June’s pace, and 5.6% lower compared to a year ago. It also missed the MarketWatch consensus forecast of a 1.23 million rate. ‘The economics of building, with fixed costs associated with permitting and environmental requirements rising steeply, favored the high-end of the market for much of this expansion (it is easier to get those fixed costs back on a $500,000 home than a $300,000 home),’ wrote Stephen Stanley, chief economist for Amherst Pierpont Securities, in a note out Wednesday.”
“‘Anecdotal reports point to a widening chasm between the entry-level market, which is red-hot with inadequate supply, and the luxury market, where there are huge gluts of overpriced homes in many areas. Builders will have to figure out how to make money building starter homes to balance that equation, and that seems to be where we are headed,’ Stanley added.”
From National Real Estate Investor. “In a few overbuilt downtowns, apartment rents are starting to fall. But experts claim that demand for apartment units continues to be so strong, the trend won’t last for long. In Houston, rents dropped by 1.6 percent on average over the past year, according to RealPage. In the top ‘urban core’ neighborhoods where developers have opened the most new apartments, rents have fallen by more than 10.0 percent. ‘There is still some pain immediately ahead for Houston, mainly reflecting that another 22,000 or so apartments will be delivered in the coming few months,’ says Greg Willett, chief economist for RealPage.”
“Developers are expected to open 20,000 new apartments in New York City this year, according to RealPage. That’s about 25 percent up from the year before. ‘Some further rent cuts are possible,’ says Willett. ‘Queens will join Manhattan and Brooklyn among the areas struggling to digest sizable new supply.’”
“Developers are now opening new apartments in Nashville at a rate of nearly 8,000 a year. That’s about double the rate of completions in 2016 and 2015, according to RealPage. ‘And the downtown submarket—where construction is heaviest—is suffering sizable rent cuts,’ says Willett.”
From Real Estate Business Online. “The multifamily market in South Florida is gaining strength but not sales velocity due to converging market and demographic forces. It’s clear the current upcycle will continue beyond the usual period as immense demand from investors is causing an incredible scarcity of Class A product, and the lifestyle preferences of millennials are intersecting with the luxury condo boom. Most condos under construction in South Florida are high-end properties that only a small percentage of the population can afford. That impacts the new blood in the marketplace: millennials. Research shows that they don’t want to own homes and can’t afford them. Millennials are comfortable paying higher rents, as much as 55 percent of their income in Fort Lauderdale.”
“Going forward, a mix of investors will buttress the multifamily market. We’ll have the traditional international sources of capital: Latin America, Canada and Europe, plus new money from Russia, the Middle East and Asia. Add to them out-of-market property owners within the United States. To complete a 1031 exchange, a New York investor that just sold at a 1.5 to 2 percent cap rate will outbid locals on a Miami deal with a 5 percent cap rate.”
The Daily Emerald in Oregon. “A lot has changed at the University of Oregon since the early 1990s. ‘Much of the grounds and feel is still the same,’ 1990 grad and Eugene mortgage company owner Eric Lundberg wrote in an email. However, off-campus neighborhoods have had a much more abrupt transition. ‘Housing around the U of O has changed dramatically,’ Lundberg wrote. ‘The amount and scale of recent student housing near the U of O is staggering.’”
“A combination of increased demand for luxury housing and tax breaks offered by the city of Eugene has led to a housing boom in the last 10 years, and changed the way students live off campus. Today, many UO students live in luxurious, pre-furnished apartments where the amenities make college life very comfortable. The kitchens are stainless steel, residents soak in poolside Jacuzzis, and the gyms are always open.”
“As the Eugene and UO community grows, so does the need for housing. ‘We did have a major student housing shortage for many years,’ Lundberg wrote. Now, there is anything but a shortage of housing. A student housing construction boom began around 2008, and changed the shape of campus-area neighborhoods. Since then, numerous large housing complexes have opened. Lundberg pointed to some of the conditions that have led to the housing boom, most of which has been financed by out-of-state developers.”
“To incentivize new construction in the downtown area, the city gave tax exemptions to builders of new and renovated multi-unit properties. The Eugene Multi-Unit Tax Exemption, or MUPTE, helped many new apartment buildings develop around the downtown area. For instance, 13th and Olive, the largest student housing complex at 1,300 beds, is exempt from property tax until 2024, totaling $8.5 million in savings. An investment firm from Singapore bought the 13th and Olive complex this year for $104 million — an example of big, out-of-state investors getting involved with the Eugene housing market.”
“Although the city has recently excluded student housing from the MUPTE, Jim Walsh, vice president of sales at Rosboro, a Springfield lumber company, believes the tax exemption existed too long. The housing shortage of the ’80s and ’90s is long gone, as new apartment complexes have struggled to fill up and often offer deals to students in an attempt to get leases signed. ‘Talking to people around town, they may have overbuilt,’ Walsh said, as many buildings maintain empty rooms.”
“Although construction projects have slowed recently, the development spree isn’t over. In April, a Houston-based company purchased the property on Franklin Boulevard near The Hub. The company is planning to build a new 12-story apartment tower, roughly the same size as The Hub. In the oversaturated campus housing market, a new building of that size might struggle to find renters.”
From Crain’s New York Business. “A judge delayed a decision in State Supreme Court yesterday on whether an under-construction Billionaire’s Row apartment tower should go into foreclosure. Judge Eileen Bransten postponed a preliminary ruling that could determine the fate of the high-profile Steinway Tower project at 111 West 57th Street until Monday. Ambase Corp., a part owner of the property, is seeking a preliminary injunction to hold off a foreclosure by mezzanine lender, Spruce Capital.”
“Ambase’s attorney, Stephen Meister, alleges that the other partners in the project, developers Michael Stern and Kevin Maloney, are conspiring to eliminate Ambase’s $66 million stake by agreeing to the seizure by Spruce. If Meister succeeds in delaying the strict foreclosure in court, it would preserve Ambase’s stake in the project for the time being. Spruce Capital, whose $25 million loan on the property is currently in default, could move to hold a standard foreclosure auction for the property, but that process could take several weeks or months. Meister said a conventional foreclosure would potentially allow Ambase to recoup at least some of its investment.”
‘a New York investor that just sold at a 1.5 to 2 percent cap rate will outbid locals on a Miami deal with a 5 percent cap rate’
A 1.5 to 2 % cap rate is walking talking insanity. And the tax code keeps the madness rolling on.
‘According to a national survey by ‘Apartment List’, Seventy-seven percent of L.A. renters plan to re-locate to a different city when they decide to settle down. Apartment List surveyed over 24-thousand renters in 50 metropolitan cities across the U.S. including one-thousand in Los Angeles.’
Let’s find out where those different cities are, so that we can make rents unaffordable there also.
Don’t worry, you’re not invited on that gravy train.
“It’s a big fuckin’ club, and you ain’t in it.”
-George Carlin
‘After years of recent increases, the cost of leasing office space in San Mateo County ticked down recently and experts are at odds over what the discount means for the future commercial real estate market. Construction is booming, office rental rates dipped marginally and vacancy is expected to increase in the next quarter, according to the most recent market report from commercial real estate company Colliers International.’
‘As the report showed office asking prices dropped down to $5.08 per square foot, a 10 cent discount from the last quarter. The reduction is an exception to the general rule established in the market that has shown almost constant annual growth since the Great Recession, when the cost per square foot for office space floated near $3.’
‘While no one is raising questions about the overall health of the market, some commercial experts suggest the middling office gains are worth watching. “Healthy corrections are needed to avoid larger collapses in the future,” according to the Cushman and Wakefield report.’
But that’s the thing: in a world of multi-year ZIRP and QE, we don’t get any corrections until it just falls over from a glut.
Ahem…
‘While no one is raising questions about the overall health of the market’
Saw something strange on Zillow for rentals in north San Jose over the weekend. Everything was down by a couple hundred bucks a month. ”
Finally” I think to myself. But then after the weekend was over the next batch of new listings (from the same complexes) were back up again.
Not sure if this is the modern version of the gas station wars of long ago (some of these complexes are just right across the street from each other) or something else happened. Each complex does have a spread that wide between identical units based on desirability of view and floor…maybe the advertise the less desirable ones on the weekend? First time I’d seen it happen though.
‘While no one is raising questions about the overall health of the market’
This is B.S. People have been raising questions about the health of the market here for years, but they have been masked by empty buildings continuing to get leased. All the hallmarks are there for a correction coming (lots of office being built, tenants leasing more space than they need today, some tenants putting sublease space on the market, etc.).
People who haven’t been raising questions have had their head in the sand.
It’s kinda strange that there’s no national attention to a billion dollar foreclosure.
‘A judge delayed a decision in State Supreme Court yesterday on whether an under-construction Billionaire’s Row apartment tower should go into foreclosure’
The Judge is running for reelection.
If it’s laundered ….(why am I even mentioning this)…. they’re offering the judge a “request” that he can’t refuse.
I really wish dirty judges would be exposed. Unfortunately, it’s rare.
I’m thrilled to see filthy socialists exposed.
She…..the judge is Eileen…..you sexist, nazi, alt-right, racist…….Trumpateer!
Just winding your clock GR, I know you’re probably a Democrat….
‘Research shows that they don’t want to own homes and can’t afford them. Millennials are comfortable paying higher rents, as much as 55 percent of their income in Fort Lauderdale’
A skeptic might say banking on 55% (gross mind you) income in rents is a formula for disaster. Personally I would never let that ratio happen. And I’ve read these “analysts” say it’s 65-70%!
Ben, this is an effect of the Gig Economy. Millenials switch jobs so often that they are willing to pay high rent just to keep that mobility. And yes it’s going to be a disaster.
To be honest I don’t know what a millennial is. To me it’s another made up pigeon hole useful for generalizations. The whole country is rent burdened right now for many reasons we’ve discussed. As a landlord, I know life happens. A car breaks down, relationship problems, health. And when life happens, people paying 50% toward rent are going to be faced with a decision and the landlord is going to come up short. So - don’t go there!
Research shows that they don’t want to own homes and can’t afford them.
Maybe they don’t want to own homes because they can’t afford them.
+1 Ben. Spot on.
As a landlord, I know life happens. A car breaks down, relationship problems, health.
Saw another repo man in my neighborhood this evening. Not sure if he was picking up from my apartment complex or the housing development behind it, but he caught his prey.
New looking black pickup with construction materials sticking out the back and one of those car stickers with some kind of company name on the side. He was pulling away from me as I was walking, so I couldn’t see more than that.
I’ve been seeing a lot of repo activity in my upper-middle class neighborhood over the last 4 months (N TX).
Saw a Repo man at my office [a goberment facility with security] years ago, where the debtor tried to call the cops on him. Was a pretty funny argument in the parking lot, but the car was still towed!
I saw a repo guy snatch one car from inside an open garage in 2009. Once he had it in the street, he knocked on the front door to let the defaulted owner get his stuff.
I guess if they can see it, they have authority to enter private property…..
“…let the defaulted owner get his stuff.”
The ghetto rats I worked with would climb into an open window given the chance, and bingo… you just lost your repo. In my world you got the heck outta there, asap.
I didn’t make up the Millenial moniker, Ben. They are the class of young people about age 22-35 now. The first generation who had computers even from infancy. They aren’t the only rent-burdened people by a long shot. But at least if they are renting, they can pack up and move to the next job. It would be even worse if they were paying 45% income for a mortgage.
Otherwise, what can these young folks and rent-burdened folks do to get the rent down? Get more roommates? Buy a cheap house and hope they don’t have to move for 5 years? Move to the barrio neighborhoods and live in second-world conditions? Vote for … who? … to get the gov to stop making loans to luxury developers?
For a time, my wife lived in a studio apartment in an apartment complex that also had a meth lab at one point. I lived down the street.
Sometimes you live in the hood to get the rent down and save money.
“Millennials are comfortable”
I just imagine them feeling so luxuriously comfy parting with 55% of their income for rent.
That’s like saying that poor people don’t want to own large-screen TVs and can’t afford them, and are comfortable paying higher rents at rent-a-center.
With the social and political turmoil going on as we speak, do you guys think this will fast forward the popping of the stock and real estate bubble? I myself feel disheartened by the current situation.
I quit watching TV years ago and have never regretted it. I’ll see a bit when I’m in an airport or something, but it just confirms what a bunch of disinformation/propaganda trash it became long ago. It would depress anyone given enough time. I listen to the radio to pass the time when driving, but I have to turn it off sometimes too when I hear the words, “threat - afraid”, etc, too much. I’ve said before, there’s too many channels competing for eyeballs and what they’ve settled on is competing with gotcha-fear BS that’s almost all made up or not very important.
TESTIFY! Turn off the Tee-vee, turn down the radio, try to avoid internet headline aggravators. Cancel your FB, Twatter or whatever.
It’s all major BS anyway, the death throes of the globalist leviathan.
I’ll give an example: I was aware of the hub bub about North Korea. Then I read an article posted on antiwar.com about how both sides were talking on back channels and had agreed nothing was going to happen. I thought, “nice, get everyone worked up knowing all along it was nothing.” This was a McClatchy article, any media outlet could have run that as a screaming headline, but that wouldn’t get clicks and blood pressures up. Anybody that spent 5 minutes on that “crisis” would have been better off talking a walk.
And I was vaguely aware of the festivities in Charlottesville and then read about some public relations company that hires paid protesters for $25.00 an hour. A pity nobody told the poor gal who got killed she should have received hazard pay to be assigned to her family.
After her parents are done making the rounds on tee-vee, I smell lawsuit.
Anybody that spent 5 minutes on that “crisis” would have been better off talking a walk ??
I agree although there is room for error when you have the likes of Kim & Trump. Watch the stock and Bond markets. They always know first before most when the SHTF.
There are significant things going on:
‘Which Way for the Trump Administration?’
‘The battle over foreign policy’
There are significant things going on ??
Yes there are. And any one error could freeze up our economy and send us back towards 2009. The markets tell us that there is not much to worry about. That’s what worries me.
“And any one error could freeze up our economy and send us back towards 2009.”
That would be awesome. Bring it!
Ending this nations longest war wouldn’t threaten the economy.
“Ending this nations longest war wouldn’t threaten the economy.”
Exactly. But isn’t it interesting how war and the economy are so intertwined in the minds of some people.
Some people wouldn’t be making any money if they couldn’t keep us afraid of something.
+1,000 to not watching TV and not paying attention to “the news”
Live your life. It’s no more worthwhile getting worked up over things outside your control than it is worrying about the weather.
I have this theory that the MIC is just a bunch of 58-66-year old baby boomers who want to hang on to their jobs for another 5 years until they retire. After that they won’t care who’s at war.
“…than it is worrying about the weather.”
That depends on where you live.
glut of homes!? someone PLEASE inform the all these middle-aged realtor/investor women in my area who bombard me daily with postcards touting low inventory = hot market begging me call them right away for top dollar!
realtors never admit reality. they always weave fairy tales.
the markets going up / its going down / buy out of fear / buy out of greed / does this dress make my azz look fat!? / should I buy a Mercedes? that bitch down the hall just leased one . .. !?!?
but above all, its a GREAT TIME TO _________________________!
they must get that imprinted in their heads during realty training. every. single. one. parrots the same. trite. shopworn. phrase.
cue apt 401
I left New England (thank god), moved back south and to a job that puts me on travel work projects throughout the US. Yes, I am a based up “millennial” who’s occupying a room at my parents while I am home for some of the year, but boy oh boy, I will have cash when this SHTF (again).
I am currently working out of Portland Oregon, and man, its so overbuilt from when I was here in 2013. New condos and high rises everywhere, and more and more homeless. Yet everyone I met whos younger is typically living outside the city or in the less expensive districts (Southeast). So I dont know whos occupying all these brand new, near complete, or just starting luxury projects….boomers moving in??? Ha.
As long as you’re not married, you should live in a room at your parents’ house while saving for as long as possible. It’s a brilliant move, in my opinion.
I am a person who has pretty much avoided high rent my entire life, finding situations which work for me and allow me to save most of my income.
‘As long as you’re not married, you should live in a room at your parents’ house while saving for as long as possible. It’s a brilliant move, in my opinion.
I am a person who has pretty much avoided high rent my entire life, finding situations which work for me and allow me to save most of my income. ‘
A person was once was considered a nerd, weirdo type if they lived with their folks and saved up their money. Now, 20 somethings and even 30 somethings are laughing all the way to the bank if they can room with mom and dad and save moolah up. I’ll tell them, they are not missing a thing by having their own place except they probably will not have much of a dating life, which won’t be so bad if they are loaded with money later on…..
****they are not missing a thing by not having their own place
dandroidz
There’s nothing wrong living at home. Soon enough your parents will be waiting for the mail to arrive and looking through the screen door for people.
Portland jumped the shark around 2002. Totally over. Great setup you have.
‘I am currently working out of Portland Oregon, and man, its so overbuilt from when I was here in 2013. New condos and high rises everywhere, and more and more homeless. Yet everyone I met whos younger is typically living outside the city or in the less expensive districts (Southeast). So I dont know whos occupying all these brand new, near complete, or just starting luxury projects….boomers moving in??? Ha.’
Nobody goes there. It is too crowded.
dandroiz. what did you not like about New England?
barry manilow loves his weekends there . .
‘dandroiz. what did you not like about New England?
barry manilow loves his weekends there . .’
I think he lived in the Boston area. High rent, crazy driving and parking challenges, etc. Also, the northeast has some winters that can suck.
High rent, insane prices for truly decrepit houses, and what about the girl…
“…a student housing construction boom began around 2008, and changed the shape of campus-area neighborhoods. Since then, numerous large housing complexes have opened. Lundberg pointed to some of the conditions that have led to the housing boom, most of which has been financed by out-of-state developers…”
These developers have absolutely no idea about the local markets, and built the wrong product, ignoring what wages afford.
But why? Why buy an apartment that yields 1.5% when you can get almost double that on a treasury bond? They are speculating. It doesn’t have anything to do with the rental market.
‘An investment firm from Singapore bought the 13th and Olive complex this year for $104 million’
Here again we see Asians with bushels of Yellen bucks looking for a place to die. (See yesterdays post).
But why? Why buy an apartment that yields 1.5% when you can get almost double that on a treasury bond? They are speculating. It doesn’t have anything to do with the rental market.
And a lot of it is OPM, like with the institutional investors, right? I mean, it’s ever so much more delicious to
reel in the suckersfind some smart investors and take your cut and then if it goes south, say “oh, well”.I find it quite curious that conditions in various cities across various states are due to “out-of-state developers.”
Out-of-state developers are everywhere I guess. In every state.
Funny, that.
Why not just do business in your own state if conditions everywhere are so wonderful? Unless of course, they aren’t. Unless you cannot get approved for new projects in states where you have previously done business. Etc.
Grass is greener…
To your point, I once spoke with an RE investor that told me that all of his work was within, IIRC, a 4 square mile area in Seattle. Keepin’ it local.
I wonder if the stainless steel kitchens in the student housing make Spaghetti-O’s taste any better than a normal kitchen.
Or cup-o’-noodles for that matter!
It’s the whine rooms that make all the difference.
Just heard a stockbroker-type on the radio. He was saying the bull market in stocks is in no danger of collapsing because of strong global corporate profits, strong global manufacturing indices and the lack of risky lending ( which I dispute, but today default risk is socialized which will prevent default damage from harming private firms ).
But why then are interest rates near zero or negative around the world, why is QE still going on around the globe (article from 8/2016 but still relevant), and why is non-government debt high and growing? And despite employment rates reaching stratospheric levels, there is curiously little or no wage growth in much of the economy.
~~~~~~~~~~
(Government debt I think is showing itself to be a different beast today than it was in years past. Central banks can print money to buy government debt, and the only difference between that and flat out money printing is that “buying debt” suggests a modicum of restraint somewhere in the system, as politicians would quickly destroy any currency they were allowed to print flat out. As long as prices remain stable, no harm no foul apparently (of course, money printing in order to send money to favored entities is another stealth tax/wealth distribution effort, like inflation)
However, this is very redistributive, truly socialism for the rich and well connected, rugged individualism for everyone else).
From your last link …
“After his photo of a 89-year-old street vendor went viral, a kind stranger set up a GoFundMe campaign to help this hard-working man who recently lost his only daughter. Now over $290k has been raised to give Fidencio a long-awaited rest from pushing his cart.”
Hmmmmm … if one were to simply find and strip a heart-breaking picture such as this from the net and run his own GoFuneMe campaign then he just might get some hefty amounts of spare-change sent to him by total strangers.
The cost of him in doing so is, what, zero? and the potential reward is … well in this case so far the reward is $290k.
I like it.
“GoFuneMe” = “GoFundMe”
If word of the enormous success of this particular GoFundMe campaign gets out (and it will) then I expect to see a flood of similar campaigns - true or not - to be spawned.
By the way, if any of you pukes want to learn how to convince total strangers to send to you money in the mail then send to me a self-stamped-addressed-envelope along with a twenty dollar bill and I will send back to you instructions on how it can be done.
Mr. Banker, I find your insight refreshing. A minority of humanity loves the scam - they live for the scam. I’ve met con artists myself. However, this case was by all accounts legit, reported on by ABC, CNN, BBC and others. If you google “Fidencio Sanchez paletas”, you can see the links.