The Housing Bubble

A report from The Real Deal. “According to the National Association of Realtors‘ new survey cited by the Wall Street Journal, the number of purchases by international buyers fell by 21 percent between 2017 and 2018, amounting to a drop of $32 billion. It’s the largest decline on the books. Though good news for Americans who’ve been eyeing properties particularly in more expensive enclaves, waning interest from abroad compounds the effects of a softening housing market–especially for luxury condo developers, who often target wealthy foreigners.”

From the Miami Herald. “In a move with significant implications for the U.S. housing market, Florida Republican Sen. Marco Rubio is seeking to take a Treasury Department crackdown on dirty money in luxury real estate and expand it from a few high-priced enclaves to the entire nation. Rubio says his proposal is an attempt to root out criminals who use illicit funds and anonymous shell companies to buy homes — a form of money laundering that hides the cash’s tainted origin from law enforcement and banks. The widespread practice enables terrorism, sex trafficking, corruption, and drug dealing by providing an outlet for dirty cash, according to transparency advocates.”

“Through an amendment to an unrelated major spending bill, Rubio will ask Treasury to study whether government regulators should force shell companies that buy homes priced at $300,000 or more in cash nationwide to disclose their owners. That could be a figure as as high as 10 percent of the nation’s real-estate deals.”

“A similar reporting requirement affecting transactions priced at $1 million or more has already had a chilling effect on all-cash corporate sales in Miami-Dade County, which has been under Treasury’s microscope since 2016. As soon as the order took hold, shell companies buying homes with cash dropped off the map, a recent study by academic economists found. In Miami-Dade, the number of corporate cash sales plummeted 95 percent, although a strong overall market suggests creative buyers found ways to circumvent the rules, researchers said.”

“The temporary directives — called ‘geographic targeting orders’ or GTOs — were later expanded to other housing markets in Florida, New York, Texas, California, and Hawaii where foreign and anonymous investors are gobbling up real estate and driving up prices. The rules require title agents to identify the owners of shell companies buying homes with cash and disclose their names to the federal government.”

“While overall home sales held steady even after the FinCEN rule went into place, the real-estate study found, luxury home prices were slightly softer in markets affected by the GTO. That suggests that expanding the GTO could have a dampening effect on the nation’s real-estate market, said Jeff Morr, a luxury real-estate broker at Douglas Elliman and chairman of the Miami Master Brokers Forum, an industry group.”

“‘Does it stop money laundering? Probably, yes,’ Morr said. ‘Is it good for the real-estate market? Probably, no.’”

From National Real Estate Investor. “Investors have become less willing to pay top prices for apartment buildings in New York City. Prices on apartment assets in Manhattan south of 96th Street have dropped slightly relative to income, and have lost their upward momentum in the rest of the city. As interest rates push higher, investors are becoming more cautious. ‘Nobody wants to pay the peak price,’ says Jim Costello, senior vice president with New York City-based research firm Real Capital Analytics.”

From Crain’s New York. “A record influx of wealthy foreign buyers, a growing population and historic high employment have kept the city’s residential markets hot for years. But as reports pour in about what could be the beginning of a nationwide housing slowdown, data from the second quarter of the year show that Manhattan is already showing signs of weakness. The number of newly built apartments sold in Manhattan dropped precipitously in the second quarter, falling by 36.7% from the number in the second quarter of 2017. The median sale prices for the units also fell, dropping by 19.2% during that period to $2.6 million from $3.3 million, according to data from Douglas Elliman.”

“The number of existing unit sales, which comprise 87% of the residential sales market in Manhattan, dropped by 12.3% in the three-month period from the year prior. The median sales price for the units was $975,000 in the second quarter, up slightly from the same period a year ago but less than the record $995,000 average set in the third quarter last year.”

“Jonathan Miller, CEO of the market research and appraisal company Miller Samuel, said he believes sales prices are a lagging indicator. More significant to the trajectory of the market is that for three successive quarters, sales volume for existing units has been down. ‘I characterize that as a reset, and it does have the potential to fall farther,’ Miller said. ‘Demand is continuing to be softer than it was last year.’”

“About 6,000 units are for sale in Manhattan—not an outsize number, Miller said. He attributed the slowdown to buyer fatigue from years of pricing increases; the fallout from the Trump administration’s income tax changes, which limited the deductions for mortgage interest to the first $750,000 borrowed and for state and local taxes (including property taxes) to $10,000; and growing unease over the possibility of a recession in the next year or two. ‘We’re definitely going through a period of change,’ Miller said, ‘and it’s not entirely clear where it’s heading right now.’”

From Business Den in Colorado. “A disgruntled Evergreen couple that sold their 8,000-square-foot mansion for $550,000 below their asking price has turned on their one-time broker and the agent who represented the buyers. Former Evergreen homeowners Catherine and Robert Ross last week sued agents Caroline Wagner, Sonia Chritton and the brokerage Sotheby’s International Realty Affiliates, claiming that the agents conspired against them, and shared compromising and confidential information with the buyers that led to a lower sales price.”

“According to the lawsuit, LIV Sotheby’s International Realty agent Caroline Wagner had a six-month contract with the Rosses to sell their home at 580 Packsaddle Trail in Evergreen. The Rosses listed the 8,700-square-foot, seven-bedroom home at $1.9 million, according the lawsuit. The Rosses claim they told Wagner in confidence about financial difficulties, which required them to refinance the home with a hard-money loan. They claim that only Wagner and the bank knew about their loan.”

“The lawsuit states that under Wagner’s contract, she was prohibited from disclosing the sellers’ reasons for listing the home without their consent, and that she was required to remain mum even after the termination of the contract. After seven months of working with the Rosses, Wagner said the couple cut her and hired a different agent.”

“‘When I took the listing, I said, ‘The price you want is too high,’ Wagner said when reached by phone. ‘They fought me all the way. They didn’t want to budge. They went to somebody else because they thought somebody else could do better than I could.’”

“The lawsuit states that in May, the Rosses ran out of money, except for the value in their home. According to the complaint, Wagner then told Sonia Chritton, a LIV Sotheby’s agent at the time, about the Rosses’ financial position and their weak negotiating position. Defendant Chritton finally admitted to the Rosses’ agent that she received the information about their loan and financial hardships from the Rosses’ ex-selling agent,” the lawsuit alleges.”

“Chritton allegedly took this information and used it to help her clients, buyers Annette and Stephen Pummel, to make a low ball offer, according to the complaint. The Rosses accepted the offer and sold their home for $1.37 million on May 30 to the Pummels, Clear Creek County property records show. The Rosses originally purchased the property in 2009 for $595,000, according to property records.”

“Wagner denied the allegations that she communicated with Chritton about the property and the Rosses’ financial difficulties. ‘That is bull,’ she said. ‘I looked at my emails and I have never ever had communication with Sonia. The Rosses are trying to fabricate something to make some money.’”

“Chritton said that word about the Rosses’ financial difficulties did get out. But it wasn’t real estate agents who spilled the beans. Chritton said neighbors told her clients about the Rosses’ loan and financial situation, and told the Pummels to look into the loan.”