August 30, 2017

The Boom Has Created A Vast Oversupply

A report from Crain’s Chicago Business in Illinois. “The laws of economics dictate that growing demand drives prices up, but not if supply is rising by a greater amount. That’s exactly what’s happening in the downtown Chicago apartment market. Landlords are losing some of their leverage over tenants as a flood of new apartments washes over the downtown market, a historic surge in supply that’s more than offsetting rising demand. A key measure of apartment demand, absorption—the change in the number of occupied downtown units—tells another part of the story.”

“Absorption rose to a record 2,582 units last year, according to Appraisal Research. After a surprisingly strong second quarter of leasing, Appraisal Research Vice President Ron DeVries expects downtown absorption to hit 3,000 this year and 3,200 in both 2018 and 2019. Those are big numbers—9,400 units over three years—but the expected supply of new apartments—12,500 units—is even bigger, meaning the market could be out of balance for a while.”

“Several more buildings will open by the end of the year, and demand tends to taper off after Labor Day. That’s why DeVries expects some developers to start offering more deals on rent in the coming months. ‘There’s a lot of units still coming on line this year, and the prime leasing season is pretty much over,’ he said.”

The Norman Transcript in Oklahoma. “Despite increased evidence that new multifamily properties marketed toward students are rolling out too quickly for the demand, investors still love Norman apartments, according to Mike Buhl of Commercial Realty Resources Co. ‘I tie it back to interest rates, but I think investors are just convincing themselves that this makes good sense,’ Buhl said. ‘They’re going to put money into them, and then reposition them and raise rents. That looks good on paper, but I don’t think it’s a good time to do that in Norman.’”

“Buhl tracks the historical trend from fall 2008 when enrollment was 26,201, an increase of 1,736 students over the nine year period between 2008 and 2016. While student demand is constant, he said, the construction boom has created ‘a vast oversupply of student housing.’”

“Not counting construction of on-campus housing by OU, Buhl reported 3,195 student bedrooms added to the market since 2014. ‘Adding smaller duplex developments that include six to eight bedrooms each, along with the OU housing, and the number surpasses 4,000 new student bedrooms to the market,’ Buhl said in his mid-year report. ‘While it’s a tough time to be a student landlord in Norman, the effects of overbuilding the sector will have a broad impact. We’ve created an inventory of units that’s not going to be absorbed in the next two or three years, if you look at historical trends.’”

From Multi-Housing News on New York. “Aleksandra Scepanovic, co-founder and managing director of Ideal Properties Group, a Brooklyn-based real estate brokerage, recently took time to talk to MHN about the state of affairs of multifamily in Brooklyn. MHN: What have you seen so far in 2017 when it comes to multifamily investment opportunities in your area? Scepanovic: A glut of new Class A supply is causing a weakening in the rental apartment absorption rate, coupled with a steady supply of concessions.”

“MHN: What do you see as the trends in multifamily housing in your sector? What is on your radar? Scepanovic: Enduring rent concessions are wide-spread as the existing assets try to compete with the influx of new developments.”

“MHN: What’s your biggest piece of advice with today’s current market? Scepanovic: Analyze, analyze, analyze, and only then invest. If a project doesn’t pencil out, remember the old adage: ‘Some of the best deals are the ones you don’t make.’”

The Real Deal on New York. “The rise of foreign investment in Manhattan over the past few years has been a boon to the real estate industry. But as 2017 passes the mid-year mark, the trend’s flipside is increasingly becoming apparent. Back in November, Chinese capital was still king here, paying top dollar for the glitziest assets and telegraphing much more to come. Then Beijing took action, and things changed rapidly. The Chinese government began enacting a series of controls designed to curb capital outflows, particularly bets on what it deems risky investments.”

“When The Real Deal took an in-depth look at the issue in May, brokers channeled their supernatural optimism and said they don’t see it having a big impact on New York. It’s getting harder to defend that stance now. This month, Morgan Stanley reported that Chinese overseas real estate investment could fall by 84 percent this year. And Chinese regulators formalized capital controls, vowing to no longer tolerate ‘irrational’ investment overseas, particularly in real estate.”

“The problem is that several big overseas investors retreating from New York would no longer just be a hiccup — it could shake the market to the core. Foreign buyers often bid top dollar for trophy assets, setting new benchmarks for pricing. It may not be a coincidence that the spread between the average cap rate of prime Manhattan properties and the 10-year Treasury yield (an imperfect but useful indicator of how overpriced a market is) is far lower now than it was in 2012 or 2013 (see chart, courtesy of RCA).”

“‘I don’t think you can ignore what’s going on globally,’ said Savills Studley’s Heidi Learner. ‘It’s not just true for commercial real estate.’”

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Comment by Ben Jones
2017-08-30 15:32:37

‘I tie it back to interest rates, but I think investors are just convincing themselves that this makes good sense’

Yup. This article starts off with one of the long established apartment firms selling everything they have to some Californians.

Comment by Mafia Blocks
2017-08-30 15:51:36

Millbrae, CA Housing Prices Crater 11% On Excess Housing Inventory

Comment by Jingle Male
2017-08-31 05:08:13

Excess inventory? All 10 houses? HA, you are such a jokester. Millbrae housing is tighter than a drum. My sister lives there and gets unsolicited offers every month……

Comment by Mafia Blocks
2017-08-31 05:39:15

Your sister ought to find a different line of work.

Alameda, CA Housing Prices CRATER 8% YOY

Comment by Jingle Male
2017-08-31 07:44:02

HA, such a comedian. Such a joker.

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Comment by Mafia Blocks
2017-08-31 07:56:46

Just for you my friend… Just for you.

Agoura Hills, CA Housing Prices CRATER 9% YOY

Comment by Taxpayers
2017-08-30 15:59:27

Chighetto going to boom
Never mind tax increases up the yingding

Comment by Ben Jones
2017-08-30 16:21:53

‘Absorption rose to a record 2,582 units last year, according to Appraisal Research. After a surprisingly strong second quarter of leasing, Appraisal Research Vice President Ron DeVries expects downtown absorption to hit 3,000 this year and 3,200 in both 2018 and 2019. Those are big numbers—9,400 units over three years—but the expected supply of new apartments—12,500 units—is even bigger’

This website in Chicago has been reporting on this brick wall for a while. Rents are already down, and “DeVries expects some developers to start offering more deals on rent.” And what if this rosy outlook for 9,400 units doesn’t happen? Absorption went negative in greater Dallas in the first quarter. I don’t think Chicago is growing faster than Big D.

Comment by oxide
2017-08-30 20:50:08

I’m still skeptical as to whether rents area actually “down.”

Sure, it’s easy to say that rents are 2% down or there are concessions. But, you’re only comparing a luxury apartment to itself, not to what’s already there, or what *should* have been built. For example, in my area, a new Luxe complex just went up. The average 2/2 is $2700/month. At the older, no-nonsense complex down the street, the average 2/2 is $1900.

So really, “what difference does it make” if El Luxo drops its rent from $2700 to, say, $2200? The rent at the Grade B+ complex is not going down at all, and won’t have to. They can always attract slightly higher-pay folks trying to live in their means, or they can upgrade and jack the rent even more.

Comment by Mafia Blocks
2017-08-31 05:20:16

Why would anyone raise rents when all these empty houses, condos and apartment buildings are empty?

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Comment by Jingle Male
2017-08-31 05:20:54

Oxy, it is all relative. There are residents who would not pay $800/Mon more for higher quality, but will pay $300/Mon more. That will affect the older complex……which will drop their prices a bit to compete.

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Comment by oxide
2017-08-31 07:47:36

I guess it depends on the complex and the customers, Jingle. If there is a pool of folks who can afford $300 more for amenities, then the vacancies they leave could be filled by a lower-tier of people who would see the older complex as a move-up. That is, vacancies fill in from the bottom. So the older mid-tier complex will always find tenants without dropping rent. Isn’t that what we’re seeing with SFH? The lower cost houses aren’t the ones dropping their prices.

If all the inventory is out of the range of affordability, does it still count as inventory?

Comment by Mafia Blocks
2017-08-31 08:15:02

Depends how long you can sustain negative cash flow.

Comment by SW
2017-08-31 09:22:05

There are multiple experts that would tell you when the top of the market falls the bottom goes with it

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Comment by oxide
2017-08-31 10:31:24

We’re not even seeing that now. We’re seeing articles of luxury homes dropping a hundred large like it’s nothing, but then the $200K houses are in hot bidding wars.

The reason the bottom falls is that when the top gets hit, it’s the bottom tier of workers that gets laid off first.

Comment by Mafia Blocks
2017-08-31 10:40:09

The ‘bidding wars’ make for great headlines but we know it’s just part of the REIC narrative.

Comment by econ_teacher
2017-08-31 11:06:09

Remember: FHA limits provide an artificial floor. Anything below that floor will likely be less affected, because demand is artificially propped up there.

Still, prices are set at the margin.

If I’m shopping for a $500K 3/2 in an average neighborhood, and I see that a 3/2 in a nicer neighborhood is going for $525K, that’s going to lower the value I place on the house in the average nabe. The more buyers see that, the more downward pressure it puts on houses in average neighborhoods.

Comment by Mafia Blocks
2017-08-31 11:22:41

Prices are propped there. Demand? Not so much.

Remember….. I can ask $50k for my run down Chevy pickup but where is the buyer at that price?

So it is with all depreciating assets like houses.

Comment by Jingle Male
2017-08-31 14:16:27

My friend is selling a house in Roseville, CA. Listed it for $799,000. 9 offers, 5 over asking. He took the all cash deal with no contingencies.

“The ‘bidding wars’ make for great headlines but we know it’s just part of the REIC narrative”…..more HA HA comedy!

Comment by Mafia Blocks
2017-08-31 14:54:54

Everything is possible on the internet until it’s time to substantiate. Meanwhile…..

Petaluma, CA Housing Prices CRATER 13% YOY

Comment by Karen
2017-08-31 21:09:49

My friend is selling a house in Roseville, CA. Listed it for $799,000. 9 offers, 5 over asking. He took the all cash deal with no contingencies.

What’s the address?

Comment by taxpayers
2017-08-30 16:54:08

do taxpayers now rebuild 200,000+ homes

Comment by Mafia Blocks
2017-08-30 18:16:42


Comment by alphonso bedoya
2017-08-30 18:20:29

have you experienced a major fire, flood or hurricane?

Comment by 2banana
2017-08-30 21:38:23

My house was hit by a major natural disaster a few years ago.

About $120,000 in rebuilding.

FEMA was about worthless.

I became my own GC. Constant fights with the insurance companies but, as an engineer, I had my paperwork together. They eventually paid about 98% of the claims I submitted.

An interesting FYI. Insurance would only pay in $10-20K increments and then I had to prove the work was done before the next check (and they checked by inspection and talking with the contractors).

ALL insurance checks had to be approved by the mortgage company (I physically had to drive to their office and prove the work being completed with documentation) before they countersigned it.

They told me they were burned by Katrina with people cashing the checks, not doing any work and then walking on the mortgages.

Comment by snake charmer
2017-08-31 07:10:38

Good information Banana.

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Comment by Taxpayers
2017-08-31 04:20:25

I pay for insurance

Comment by da bear
2017-08-30 18:21:43

Can’t wait for Jingle Mail Monday!

da bear

Genius is 90% mental.

Comment by Jingle Male
2017-08-31 05:13:17

Every day is Jingle Mail Saturday now…..I have retired.

Comment by Karen
2017-08-30 20:46:48

Fannie Mae, Freddie Mac and the Federal Housing Administration, which back the vast majority of mortgages today, have already announced that they will offer forbearance for at least 90 days to borrowers in the Houston area and could, in some cases, extend that up to a year.

In the Houston area and outlying areas hit by Hurricane Harvey, there are more than twice as many mortgage properties with nearly four times the unpaid principal balance as there were in the Louisiana and Mississippi counties hit by Hurricane Katrina in 2005.


Comment by Patrick
2017-08-30 18:23:04

“Cajun Navy” Anyone who helped should be given a shirt with “Cajun Navy” written on it, and only they should be allowed to wear it - by law.

Blue sky, can you believe these guys going into areas they are not familiar with, overtop cars, fast currents, fallen trees, traffic signs, walls -
at night !!! Never knowing if there is a tornado nearby, or a broken dam !! Some of them by themselves, and none seem to have been hurt so far.

Very brave. Impressive. These guys really are heros.

Comment by 2banana
2017-08-30 21:43:29

The US Navy sent in some rescue ships.

They collided with buildings and had to be withdrawn.


Comment by Jingle Male
2017-08-31 05:16:08

Dam, that’s funny.

Comment by Taxpayers
2017-08-31 04:22:05

And some $
Take it from fema bureaucrats

Comment by jeff
2017-08-31 04:58:27

“Very brave. Impressive. These guys really are heros.”

Are you talking about the White Supremacist Navy that risked their necks to save anyone no matter the color of their skin?

SPLC Warns of ‘Turmoil and Bloodshed’ With New Map Identifying Confederate Monuments, Cities, MIDDLE SCHOOLS


The Southern Poverty Law Center (SPLC), a far-left outfit that labels mainstream conservative organizations “hate groups” and whose “hate map” inspired a terrorist attack in 2012, has released a map of every Confederate monument in America. But the map does not just include statues: it also lists towns, cities, counties, and even middle schools that bear the names of Confederate generals.

“More than 1,500 Confederate monuments stand in communities like Charlottesville with the potential to unleash more turmoil and bloodshed,” the SPLC posted with the map (emphasis added). “It’s time to take them down” (emphasis original).

Comment by Young Deezy
2017-08-31 07:47:29

F the SPLC. Bunch of S-stirrers, and to no good end. The lives of every POC in the US will not be improved 1 iota even if every confederate monument came down.

Comment by MightyMike
2017-08-31 09:00:31

Are you talking about the White Supremacist Navy that risked their necks to save anyone no matter the color of their skin?

Who exactly are you accusing of being white supremacists?

Comment by Patrick
2017-08-31 13:46:18

They probably were all colours – including grey from fright !

Imagine a tiny little lightweight boat travelling at 20 mph, or more, overtop aligators, deadly snakes, sunken cars, currents, winds, lightning, tornados, possible dam breaking – by yourself – at night – twisting and turning between trees and buildings still standing after being hit by aircraft carriers !!

Trying to find people in distress, loading them into your boat and telling the remaining ones you will be back for them – and you were.

Wow – I don’t care what colour they are.

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Comment by jeff
2017-08-31 17:12:49

“Who exactly are you accusing of being white supremacists?”

You need to ask Logan Anderson.

Hillary Staffer Triggered by Confederate Flag on Boat Saving Black Flood Victims


Former Hillary Clinton staffer, Logan Anderson, was watching the news when she suddenly became so triggered that she felt the need to go on Twitter.

On her television, was a boat rescuing African-American flood victims in Texas with a Confederate flag attached. Anderson tweets:

Logan Anderson @LoganD_Anderson
12:56 PM - Aug 27, 2017 · San Francisco, CA
732 732 Replies 625 625 Retweets 1,202 1,202 likes

Comment by jeff
2017-08-31 18:34:34

“Wow – I don’t care what colour they are.”

Nor would I, but evidently Logan Anderson does.

Comment by da bear
2017-08-30 18:27:48

“Read my lips, NO NEW TEXAS!”

da bear

Comment by rms
2017-08-31 19:02:00

“Read my lips, NO NEW TEXAS!”


Comment by 2banana
2017-08-30 23:43:21

Good data and charts.


The US Cities with the Biggest Housing Bubbles
Wolf Richter • Aug 29, 2017 • Wolf Street

For the good folks who hope fervently that the Fed doesn’t have reasons to raise rates or unwind QE because there isn’t enough inflation, here is an update on one aspect of inflation – asset price inflation, and particularly house price inflation – where the value of your hard-earned dollars has collapsed over a given number of years to where it takes a whole lot more dollars to pay for the same house.

Real estate is local. Therefore real estate bubbles are local. If enough local bubbles balloon at the same time, it becomes a national housing bubble. As the above chart shows, the US national Housing Bubble 2 now exceeds the crazy levels of Housing Bubble 1, and in all ten major metro areas, home prices are setting new records.

In the Boston metro, the home price index is now 11% above the peak of Housing Bubble 1 (Nov 2005):

Home prices in the Seattle metro have spiked over the past year, pushing the index 20% above the peak of Housing Bubble 1 (Jul 2007):

Then there’s Denver’s very special house price bubble. The index has soared a stunning 43% above the peak of Housing Bubble 1 (Aug 2006):

People in the Dallas-Fort Worth metro felt left out during Housing Bubble 1, when prices rose only 13% in five years, while folks in other parts of the country were getting rich just sitting there. They also skipped much of the house price crash. But they know how to party when time comes. The index has now surged by 42% from the peak in June 2007:

The Atlanta metro, where home prices had plunged 36% after Housing Bubble 1, has now finally squeaked past the prior peak by 2%, with a near-perfect V-shaped bubble recovery:

Portland’s home prices have kicked butt since 2012, with the index soaring 71% in five years – not that homes were cheap in Portland in 2012. Portland’s house price bubble is now 20% above the peak of Housing Bubble 1:

The San Francisco Case-Shiller Index, which covers the five-county Bay Area and not just San Francisco, is now 10% above the insane peak of Housing Bubble 1. During the last housing crash, the index plunged 43%. Eight years of global monetary craziness has sent liquidity from around the world sloshing knee-deep through the streets, which has performed miracles:

Los Angeles home prices performed similar feat, doubling from 2002 to July 2006, before giving up two-thirds of those gains, then soaring once again. The index is now 3% above the peak of totally insane Housing Bubble 1:

New York City condo bubble never saw the crash in its full bloom. Prices are now 19% above the peak of the prior bubble (Feb. 2006). Over the past 15 years, the index has soared 112%:

Asset price inflation means that the dollar loses its value when it comes to buying assets. Wage earners, when they’re trying to buy assets today – not just homes but any type of asset, including buying into retirement plans – are finding out that their labor is buying only a fraction of the assets that their labor could buy eight years ago. This is how these monetary policies have crushed the value of labor.

Comment by Jim A
2017-08-31 05:24:14

Off Topic, and it’s been some time since I commented here but…
Does anybody have a feel for what the effect of all the post-Harvey foreclosures is going to have on banks? Many of the houses with SIGNIFICANT damage were outside the flood zones and therefore relatively few have flood insurance. People who owe more than 200k on a house that is now uninhabitable and worth a small fraction of that due to flood damage are likely to walk away in big numbers.

Comment by Mr. Banker
2017-08-31 05:52:20

The banks will do just fine. They will claim victim status and will be bailed out as all who claim victim status get bailed out.

Comment by 2banana
2017-08-31 07:28:17

Who in their right mind would walk on a 3% down Mel Watts mortgage?

Comment by Professor 🐻
2017-08-31 07:35:22

No effect on banks.

The loans are federally guaranteed against default at the taxpayers’ expense. If payments from homeowners cease, the guarantees will kick in.

And the banks already offloaded the loans to the GSEs who securitized them. So the loans are off the banks’ books.

In short, it’s turtles all the way down.

Comment by Sean
2017-08-31 07:39:29

Lots of mold damage, which will be hidden by subcontractor Bubba and his ‘amigos’. House will be sold to a young family, who will waive the inspections to make their offer more attractive. Their family will slowly be dying in their granite counter topped tomb. People will call for actual mold tests and not just checking a box on a form. Said people will be labeled as a ‘Snowflake Libtard’. Family will take out a loan against their house for ‘mysterious illnesses’. They will die. The end.

Comment by rms
2017-08-31 19:00:13

+1 ‘Merica.

Comment by Professor 🐻
2017-08-31 07:26:39

Bitcoin is going ballistic on the non-news that the Fed’s rate hike plans are on indefinite hold.

Bitcoin rises again, setting another record
By Ryan Vlastelica
Published: Aug 31, 2017 8:37 a.m. ET
Ether also rises, but remains below its own record

Comment by oxide
2017-08-31 07:57:22

Bitcoin is only as good as the nearest power line. A friend showed me his golden grams. IMO a better use of $$.

Comment by Professor 🐻
2017-08-31 08:19:52

Agreed. In the long run, Bitcoin is dead.

Comment by Professor 🐻
2017-08-31 07:43:38

Ten years after the crash
FT Magazine
‘Nonprime has a nice ring to it’: the return of the high-risk mortgage
Subprime loans were one of the main causes of the financial crisis. So why is lending to high-risk borrowers making a comeback?
by: Ben McLannahan

It was about a decade ago that Dan Perl chucked it all in to go surfing in Mexico. As a veteran underwriter of subprime mortgages, he’d seen enough by April 2007 to know that there was serious trouble ahead. So he pulled down the shutters, took an extended break in Baja, California, and then lay low for a few years, trading loans for a New York firm, Carl Marks & Co.

But now he is back in the game, leading a small band of lenders making subprime loans once more. Or “nonprime”, as they prefer to call it these days. The sector is on course to produce about $10bn this year — a tiny slice of America’s $1.6tn overall home-loan market but one that’s growing rapidly.

Plenty of people told Perl, 68, that he couldn’t bring this stuff back so soon after the global financial crisis, and after regulators all over the US radically tightened rules on mortgages. People said he was risking his net worth, that he’d “be sued into oblivion”.

“How many times we hear that, Kyle?” he asks, turning to his protégé, 39-year-old Kyle Gunderlock, who was a VP of sales at Perl’s old firm and is now president of the new one, known as Citadel Servicing Corp, based in Irvine, California.

“‘You guys are going to get f***ing arrested,’ is the one I always remember,” says Gunderlock.

Comment by DirtyLawyer
2017-08-31 08:30:36

Gotta love when the shameless realwhores give opinions on the local housing market (and quoting “Dr.” Yun no less! Wow!)

“Dr. Lawrence Yun, National Association of Realtor’s Chief Economist, had been predicting a housing shortage for about six years. In the Boise area, it is worse because of four things: 1) The cold and snow kept many builders from starting homes in the early months of 2017. 2) Skilled labor shortages is keeping builders from being able to replace inventory as fast as they are selling it. 3) People that lost their home to short sale / foreclosure have had enough time to rebuild their credit and qualify for a mortgage again. 4) Rents on a modest home are still higher than a mortgage payment on the same home driving investors to compete with first time home buyers.

Too many agents and sellers list homes for too much money to start with in a strong market and then are forced to drop prices to the market price. I have seen newer resale homes listed at above new construction pricing and usually the price drops below what it should have been to start with because the home has become “stale” on the market.

Homes over $300k typically rule out the typical rent and hold investors and first time buyer’s so that market is more stable. Homes over $500k are still slower to sell because in that price point, a buyer can have a very nice custom home built if they have time.”

Comment by oxide
2017-08-31 11:07:35

From Wiki: Yun was born in South Korea. He attended primary and secondary schools in South Carolina. He received his Mechanical Engineering degree from Purdue University. He received his Ph.D. in Economics from the University of Maryland, studying under Professors Dennis Mueller and Mancur Olson.

Yun is nothing to sneeze at. But this just proves how pathetic this country is, when mechanical engineers are so snubbed that one can make a better living shilling for the realtor cheerleaders.

Comment by Senior Housing Analyst
2017-08-31 09:27:51

Orange, CT Housing Prices Crater 8% YOY

Comment by SW
2017-08-31 09:29:42

Listened to a REI podcast yesterday. Investor being interviewed in Atlanta says “everyone is overpaying”. Even “experienced investors”.

I’m hearing this same overpaying story multiple other places than just here. This tells me it’s true. The “multiple witnesses” proof.

On another note, the Atlanta investor is predicting a 2019 correction in Atlanta. That lines up with my predictions.

2018 - automobiles
2019- housing
2020 - financials

Comment by Prime_Is_Contained
2017-09-01 00:40:31

Why will automobiles lead by a year? They didn’t the last time around, did they?

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