A Shift In Relative Value?
Readers raised the question of a change emerging in housing markets. “Is the difference between limited bubble deflation in New York City and a few other cities relative to the rest of the country indicative of a shift in relative value? Of is the relatively low amount of cash out refi, HELOC and subprime mortgages in these markets, and thus lower rates of foreclosure, merely allowed extend and pretend to disguise price drops by keeping houses off the market?”
“There are those who have asserted that a limited number of cities that attract billionaires around the world are doing ‘better’ (ie. are less affordable) than other markets in the same countries. But I don’t think we have enough billionaire’s to fill a city with 3 million housing units. The city has become more attractive relative to the suburbs. And young people from across the country because they want to live in cities, and there are only a few left in the U.S. that aren’t socially and economically dead.”
“But those young people cannot afford the prices being charged, and neither can those who grew up here, who tend to be worse off. And although NYC immigrants are far more likely to be legal and come from around the world rather than just Mexico, most of them can’t afford it either.”
A reply. “NYC people don’t need cars as much, live in condos which don’t need renos or pools, but possibly take same or more amount of vacations. They probably have more trouble arranging financing on condos and I think they have a higher percentage of condos to single family homes than other parts of NA. I don’t know if the higher population of bankers and Wall St people have anything to do with it.”
“Once located I would also imagine they are more prone to stay in place and therefore a larger percentage had their homes before the carnage. Didn’t they have, or still have, tough rent controls which might be locking related ownership values in place. I know the prices of condos in Toronto and Vancouver are higher than NYC - much - except for the ultra penthouse types.”
“It will be interesting to see how this thread develops. You could be identifying the new ‘Class System’ for America. Economics certainly will have to be considered (jobs).”
One added, “I think it has much more to do with the corrupt transfer of borrowed money TO the banking elite (i.e., ‘New York’), FROM the rest of us. That, of course, is temporary.”
“Vancouver has nothing to do with it. You could just as easily argue that ‘Vancouver condos are more expensive than Arizona condos. Therefore, Arizona condos are underpriced.’ Canada = Socialist housing bubble = Bigger problem.”
And finally, “It’s not just the city. I live 300 miles to the west and it is taking a very long time for the price wishing to crack. It has started, and the voices have changed, but the prices are still in the sky.”
From Westfair Online in New York. “Stamford’s Palmer Hill development is more bustling today with trucks and tradesmen than it has been in the past two years. Palmer Hill townhomes range in size from 2,000 to 4,000 square feet and are currently priced from the low $600,000s to more than $1 million.”
“‘The dream of the single-family house for young couples isn’t the overriding desire today,’ said Bill McGuinness, president at Palmer Hill Partners. McGuinness said for couples commuting to New York City, a clubhouse, swimming pool and zero external maintenance on brand new construction is a major plus over moving into an older home.”
“‘It definitely relates to the instant gratification generation,’ said McGuinness. ‘But what it really comes down to is they are more able to buy.’”
The Day in Connecticut. “Farmington-based developer Mark Steiner, who has an $8 million agreement with the state to buy the former sanitarium and home for the mentally disabled, wants a zoning change to eliminate the age requirement and add new language that would permit the demolition of one or more historic structures on the 32-acre campus. In an interview Steiner said the market for age restricted housing has shifted since the requirement was put in during the late 1990s, and there have been ‘a number of failures.’ ‘Most people who buy age-restricted are in their 70s,’ Steiner said. ‘It’s not a reliable market.’”
“Steiner plans to market the development to people who live in metropolitan New York for second homes and to empty-nesters. Steiner said the price of the condos would start at about $500,000. ‘If you are going to spend $500,000 and you have kids, you are more likely to buy a house with a yard,’ Steiner said.”
The Philadelphia Inquirer in Pennsylvania. “As Philadelphia wraps up a five-year planning effort…a detailed master plan, which will be presented to the public Monday evening, shapes the empty acres along the central Delaware waterfront into the flagship of a 21st-century lifestyle city, with dense neighborhoods of middle-class housing, street-level retail, gracious parks, restored wetlands, and a riverside recreation trail.”
“The place imagined in the plan bears little resemblance to the celebrated waterfront neighborhoods of Vancouver, British Columbia, and New York’s Battery Park City. The plan’s shorter skyline is an up-front acknowledgment that the low housing demand in Philadelphia cannot support a continuous wall of urban high-rises. The city no longer harbors any expectation that a vibrant waterfront neighborhood will spring full-blown from the pages of the plan, said Thomas P. Corcoran, president of the Delaware River Waterfront Corp., which commissioned the strategy.”
“‘Our goal is to hit singles and doubles, and not try to hit for the fences like we did in the past with Penn’s Landing,’ Corcoran said.”
The Washington City Paper. “For the last two years now, reports have said the same thing with such regularity that they’ve ceased to even make headlines: The housing market is in freefall, except around here. While home prices had reached a new low for the recession nationally on the closely-watched Case Shiller Index, the D.C. area posted a robust 4.3 percent growth rate since last year. It was as if the real estate crash were already ancient history.”
“For rockstar urbanist Richard Florida, the D.C. area is just another vindication of his theory of the ‘creative class,’ which dictates that cities do better when they attract people in the fields of science, technology, arts, and ‘professional fields.’”
The Palm Beach Post in Florida. “The Palm Court at Wellington is a model of real estate reinvention. An apartment building turned condominium, pillaged then deserted by investors, it has been rejuvenated by a bulk buyer who recycles units back into rentals with prices in the $1,200-a-month range. But some remaining boom-time buyers feel conquered rather than liberated.”
“As real estate’s rule changes turned the tables on winners and losers, Palm Court’s discord is mirrored in shared communities throughout Florida. Glory-day investors hoping to pad their retirements now make payments on homes worth a pittance of their purchase prices and in communities where they have little say over the future.”
“‘We’ve taken the eyesore of Wellington and turned it into a very nice place to live,’ said John Slattery, who, as director of acquisition for the bulk buyer, is president of the Palm Court homeowners association. ‘There were drug dealers, pit bulls, derelict cars, garbage everywhere. The place was a disaster.’”
LA Downtown News in California. “The construction cranes are returning to City West. Although there may not be as many as were seen in Downtown circa 2006, in a couple of years, they will give way to new residents. Although the development is earning praise, it is vastly different from what was first proposed for the site. When initially broached in 2007, 1111 Wilshire was envisioned as a 398-condominium complex priced at $200 million. Like many projects announced at the height of the market, it stalled and was downscaled. Unlike many of those same projects, it has actually secured funds and moved to construction.”
“The seven-story structure will rise on the site of a former parking lot. Apartments will range from studios to three-bedroom units and from 527 to 1,319 square feet. They will be decked out with granite counters, wood-plank vinyl flooring and stainless-steel appliances. Some residences will feature floor-to-ceiling windows.”
“‘We think it’s a really appropriate density for the center of City West,’ said Tom Warren, chief operating officer of Holland. ‘The high-rise was anticipated to be condos but the market turned and we believe the market for rental housing will be strong for a number of years.’”
The Vancouver Sun in Canada. “A growing belief that Metro Vancouver’s hot housing market is being driven by Asian investment, primarily from mainland China, is a misconception, according to experts in the real estate field. In fact, they say, evidence suggests buyers are mainly Canadian citizens, immigrants or new residents in Canada -many with strong links to mainland China and many residing and working in China while their families establish roots in B.C.”
“Most purchases are also being made as long-term holdings - in some cases for children attending local universities -with little of the quick ‘flipping’ prevalent in previous hot markets. ‘From what we’ve seen from most of the major launches, it’s a different buying habit than previous runs on the market,’ Jennifer Podmore, real estate advisory leader for accounting giant Deloite, said in an interview. ‘Generally, we’re not seeing the investor as the main drivers of the market. There are certainly a lot more Asian purchasers, but not Asian investors coming to purchase a condo and then leaving.’”
“Daryl Simpson, Bosa Properties’ vice-president of sales and marketing, agreed, citing their 202-unit Sovereign tower in Metrotown that recently sold out in one day, largely to ethnic Chinese buyers. However, it’s incorrect to identify the buyers as mainland Chinese, he said, because most came from other parts of Metro Vancouver. Some may have connections with mainland China, but no more than ‘half a dozen buyers’ had addresses outside Canada.”
“Robert Dominick, VP of sales and acquisitions for WestStone Properties, said Asian buyers are fuelling sales at his 393-unit Surrey City Centre highrise, Ultra. ‘We opened the door for [our most recent] sales two weeks ago. We didn’t advertise and simply through phone calls to Asian realtors in our first week we generated 23 sales.’”
“Dominick said some buyers showed up on buying trips organized by Chinese-based tour operators, but that most aren’t interested in ‘flipping.’ He said many buyers involve China-based husbands with family in Metro Vancouver, while some want a condo for their children attending the nearby Simon Fraser University campus.”
“Polygon Homes president Neil Chrystal said it’s difficult to say how many buyers are mainland Chinese investors, adding that ‘we see a lot of people speaking Mandarin, which is an indication.’”
“Vancouver has nothing to do with it. You could just as easily argue that ‘Vancouver condos are more expensive than Arizona condos. Therefore, Arizona condos are underpriced.”
Which leads to the investment strategy of MEW in bubble areas to invest in the “cheap” areas. Canadians do think AZ and FL houses are a steal. Same as DC and NY were snapping up real estate in upstate NY for the last decade. There are some that regret that now.
It might be the expansion in 2 different hospitals, a new cancer center and a Ronald McDonald house on the way but our community has seen an explosion in Indian and Asian ex pats.
The only businesses that I currently see expanding where I live are universities–both the traditional and for-profit varieties–and hospitals.
Oh yeah. Wasn’t EVERYONE investing in Buffalo a few short years ago?
“For rockstar urbanist Richard Florida, the D.C. area is just another vindication of his theory of the ‘creative class,’ which dictates that cities do better when they attract people in the fields of science, technology, arts, and ‘professional fields.’”
So someone developed an actual theory that attacting yuppies (especially when you mix some art house types in with the frat house types) to dying cities helps them spring back to life? Fascinating. Tell me more. I would have never known that young overly educated people with solid goals and futures that want to move in and gentrify neighborhoods was better than the alternative. It is always strange to read credit being given to people with “ideas” that others know so instinctively that in their mind nothing needed to be said.
This brings up another point that bothers me about many cities, and that is their demand that low income housing be built as a component of new inner city construction. My personal belief is that it holds cities back from realizing their potential. Just think how much nicer cities would be if everything that was built was beautiful and architectually significant. Those with lower means could live in the older housing stock where prices would fall accordingly. Not only do I not think everyone needs new (and this is not brutal, as I myself do not live in new housing, nor would expect to if I had little or no income), I think building new cheap construction is heartbreaking and is putting the infrastructure in place for not-so-distant future slums.
While I won’t take a position on “low income” components here specifically, it is interesting that the same govt bodies that mandate these things also do everything possible to keep housing prices high. Also, if you look at low income prices in places like the SF Bay area, they are still very expensive. Anyway, mean old supply and demand seems to be filling the need through condo to apartment reversions in places like LA.
I think that less than 10% of politicians understand the real world economic consequences of their actions. The remaining 10% understand it, but they conceal their knowledge as they rely on the ignorance of others help steer the money flow into the pockets of those that they and their contributors choose (e.g. tax subsidies for homebuyers go straight to the banks and developers, and actually hurt buyers).
‘While I won’t take a position on “low income” components here specifically, it is interesting that the same govt bodies that mandate these things also do everything possible to keep housing prices high.’
High home prices coupled with government subsidies to lure in low-income buyers into home ownership seems like a good recipe for leading myriad low-income families into financial ruin.
Is this the goal of affordable housing policy, or an unintended consequence thereof?
It is always strange to read credit being given to people with “ideas” that others know so instinctively that in their mind nothing needed to be said.
but he sez it in a way cool way …peace out
yo diggity
““For rockstar urbanist Richard Florida, the D.C. area is just another vindication of his theory of the ‘creative class,’ which dictates that cities do better when they attract people in the fields of science, technology, arts, and ‘professional fields.’”
While I think he’s generally on target, I don’t think what’s happening in DC makes that case at all. DC is tied to the hip with federal spending which hasn’t had significant cuts yet. While DC has a lot of generally higher paid contractor jobs and Fed and Defense jobs because of the number of agencies headquartered there, I don’t really view a lot of these jobs as “creative class” in nature as described by Florida. It’s better than having lots of lower-wage service-sector jobs, but there aren’t very many private sector “creative class” jobs or truly “creative” public sector jobs.
“DC is tied to the hip with federal spending which hasn’t had significant cuts yet.”
Bingo, especially as regards yet. The ‘creative class’ explanation is a red herring as regards DC housing prices.
The irony is the ‘creative class’ used to go where rents were cheap. Austin, Santa Fe, Coconut Grove, Key West, Sausalito, Greenwich Village, Soho, Tribeca, Cape Cod, Carmel- all those places were once where you could live cheap while you pursued your muse. Now you need to be a trust fundie to live there as a starving artist.
The “Creative Class” is often the first wave of gentrifiers.
They are often willing to seek out lower priced areas for roomier work spaces and places where you can use power tools and such without the neighbors complaining. (Such as the original inhabitants of SoHo)
The ability to live on a modest income and have the time needed for creative pursuits WAS a part of the deal, once upon a time.
But once they make the place interesting (and probably safer) they eventually get pushed out. Not sure where they’re going now, places like Peekskill (about an hour north of NYC) have actually established Artists Housing in an effort to attract them.
I live in one of those “creative class” neighborhoods. Here’s a quick bit o’ history:
For many years, this area was one of the few where African Americans could own property in Tucson. It was once called Sugar Hill, and it was just south of the red line at Grant Road.
As desegregation took hold in the 1960s and 1970s, quite a few people realized that they were no longer required to live here. So, the people with the get up and go got up and left.
If they still live in Tucson, they live just about anywhere else. The Foothills or Oro Valley if they have the bucks, or Marana if they’re middle class.
On Sundays, you see quite the trek toward churches like Siloam Freewill Baptist, Mount Calvary, and Mount Olive. But once church is over, the exodus goes in reverse.
Which leaves the question of the neighborhood. For a time during the 1980s and 1990s, this place rivaled the worst aspects of Compton, California. It was quite the hotbed of gang activity, especially among the Crips.
Well, another thing started to happen in the 1990s and 2000s, and that was the influx of gay and lesbian couples, artists, and just plain folks who couldn’t afford Tucson’s rapidly rising house prices.
And here we are. Some of the elderly African American families are still here, and they are some of the most enthusiastic backers of us newcomers. Why? Because we’re law-abiding people who come in and fix up rundown houses.
We also have a sense of civic-mindedness about this place. I tell you about all my calls to 911 and various other agencies about the various problems around here, and trust me, I’m not the only one who does this sort of thing. Not by a longshot.
For rockstar urbanist Richard Florida
—————————————
I’m going to become a rockstar ruralist by putting forth a theory that dictates that rural areas do better when they attract farmers and ranchers.
“Most purchases are also being made as long-term holdings - in some cases for children attending local universities -with little of the quick ‘flipping’ prevalent in previous hot markets.” Can someone please explain this sentence for me. I do not understand how buying a place for your kid to live in while they go to college is considered a long-term holding, without the overly rosey, unrealistic investment stategy mindset that over took the flipping class. Is “no more than 4 years” now considered long term as far as the period of time one expects to hold real estate? In the alternative, if they think they can cash flow it while living in another Country after their kid graduates, switches schools or drops out, isn’t this pure frenzied speculation.
Quick flipping: 4-6 month flipping glorified by HGTV Flip this House. On one episode the flipper bemoaned having to make “another” mortgage payment.
Long-erm flipping: AZSlim is the expert on this. Daddy buys a house for Princess. Princess attends Univ of Az for four years, takes in roomies for beer and condom money. Sell house after four years for $100K more. Use $100K to pay off princess’s college bills. Free college! Of course it didn’t work. The timing had to be exactly right and you had to hope that princess didn’t trash the house.
In my mind, any ownership that outlasts the 3-5 before the ARM resets is considered long-term.
I think anything over the 3 years needed to not pay back the $8k tax credit is long term.
Long-erm flipping: AZSlim is the expert on this. Daddy buys a house for Princess. Princess attends Univ of Az for four years, takes in roomies for beer and condom money. Sell house after four years for $100K more. Use $100K to pay off princess’s college bills. Free college! Of course it didn’t work. The timing had to be exactly right and you had to hope that princess didn’t trash the house.
And I can’t resist pouncing on this comment.
You’ve described the house across from me to a tee. Appears that the family was about to sell two years ago, when Princess was about to graduate, but I think that the cost of bringing the place back up to snuff proved to be a stopper.
So the house was passed along to Prince, the younger brother and his buddies. They’re taking the same lousy care of the place as Princess.
Any-hoo, I just spotted another neighborhood house that appears to be a trashed student investment. Owner’s out in Oro Valley, which is just north of here. House was purchased by said owner back in 2006.
Over the weekend, I saw a guy walking inside of the house with one of those metal clipboard boxes that the tradesmen use. Methinks he was writing an estimate on repairing the damage to the place. Judging from the big drywall hole that can be seen from the street, I think that place is going to be a real fixup job.
good point Natalie maybe anything over the bubblicious 1-2 ye hold, is now considered long term. Personally I consider a long-term investment in real estate to be at least 15 years…
True. Also, I would like to see what sort of appreciation factor they built into their modeling to conclude that owning for 4 years or less is cheaper than investing the money in some other manner and renting after taking all transaction costs into account.
The old rule of thumb was 5 years for what they called breakeven. Breakeven didn’t mean vs renting, it meant that you shouldn’t have to bring money to the table at closing, due to having just barely covered the exit costs with 5 years of principle payments. To be ahead of the game in 4 years vs. renting would have to assume, like you said, quite a bit of appreciation.
I can remember discussing the housing bust with parents of college-aged kids, and thinking they understood, really got it, only to hear they’re off to the college town to go condo-shopping. There’s a total disconnect, or they really think it’ll all bounce back in 4 years. Or maybe it’s become a class expectation or status symbol.
I think when they talk to someone like us, they hear us, and it kind of makes sense, but it can’t really compete with all the other signals telling them to buy buy buy. Many would rather gamble on scoring big than take the conservative route where you never get rich and live the life you “deserve”.
There was actually a “learn how to flip homes” infomercial on the tv when I woke up this morning. Gheesh!
I’m waiting for the Ditech commercials to return.
(snark off)
I posted a back-of-the-envelope estimate of $500,400 negative equity balance per underwater mortgage in today’s Bits Bucket.
I would be interested to hear from anyone who can either corroborate or refute my calculation, as on the surface, this figure seems outlandishly high.
“…merely allowed extend and pretend to disguise price drops by keeping houses off the market?”
Holding homes off the market results in thin market conditions and artificially inflated (”fixed”) prices. What I would like to know is whether collusion is used to hold the shadow inventory off the market. If so, I believe this would constitute a violation of the Sherman Antitrust Act.
“For rockstar urbanist Richard Florida, the D.C. area is just another vindication of his theory of the ‘creative class,’ which dictates that cities do better when they attract people in the fields of science, technology, arts, and ‘professional fields.’”
That’s hogwash as regards the reason DC prices are holding up while other areas are not. There are any number of other cities with creative classes where real estate values are tanking.
I thought Washington D.C. has only the government class and contractor class.
Well if you turn it down, someone else will take your place. Under 7% unemployment. Jobs are relatively secure at the Temple of Syrinx (see “2112″ lyrics).
“Jobs are relatively secure at the Temple of Syrinx ”
That’s why you work there, right?
creative at finding income opportunities.
The old geezer in today’s Making Homes Affordable add is ghoulish. Where do the Obamanites find such scary looking people to use as poster children for mortgage modifications?
Do you really think they are Obamanites?
I thought the ads were placed by a federal housing agency in the administration branch.
BTW, the woman in those ads is also ghoulish.
THE COMMUTE
Situated on Metro-North’s New Haven line, Old Greenwich has weekday morning rush-hour trains from a red slope-roofed National Register structure about every 20 minutes; they take 53 to 72 minutes to arrive at Grand Central Terminal. Monthly passes cost $237 in person and $232.26 online.
Near the station, there are 524 reserved parking spaces; permits cost $242 a year. There is a waiting list of 120 names, or a wait of about a year, said Allen Corry, the town’s parking services director.
NYC, or at least Manhattan, has more co-ops than condos. Co-ops also artificially help keep prices up, since board approval is required for buying and selling and most boards don’t let owners rent out apartments. If co-op rules relaxed the Manhattan real estate market, especially for rentals, might look very different.
While co-ops do have more strict rules, during the last NYC real estate slump some coops did loosen up subletting rules because too many people couldn’t sell. (Potential renters get thoroughly scrutinized.)
I just think this is one are where NYC moves slower that other areas… we just don’t have enough rich people to make 3 or 400% increases in a little over 10 years sustainable.
board approval is required for buying and selling and most boards don’t let owners rent out apartments.
I never realized how much coops and good trailer parks had in common.
The Philadelphia Inquirer in Pennsylvania. “As Philadelphia wraps up a five-year planning effort…a detailed master plan, which will be presented to the public Monday evening, shapes the empty acres along the central Delaware waterfront into the flagship of a 21st-century lifestyle city, with dense neighborhoods of middle-class housing, street-level retail, gracious parks, restored wetlands, and a riverside recreation trail.”
“‘Our goal is to hit singles and doubles, and not try to hit for the fences like we did in the past with Penn’s Landing,’ Corcoran said.”
Oh please - some facts about Philly.
1. Has been run by socialist democrats and public unions for the last 60 years
2. Has LOST half of its population in that same time period
3. Has the HIGHEST wage tax in the nation (about 4.5%)
4. Has an amazing array of other insane taxes (including a “gross profit” tax - send in your money even if you have no net profits)
5. Has some of the highest automobile insurance in the nation
6. Is beyond corrupt.
7. Has voter fraud out the wazoo (in some Philly districts more people vote than are registered!)
In short - no one in the right mind is going to move there to buy their “dream on the urban waterfront”…
You know Philly really blew it in the 1970s. Rizzo was a disaster, and people expected Goode to be a good government guy and clean things up, but then the Move thing happened and his administration was another disaster.
I thought Rendell fought the good fight.
Speaking as a native Pennsylvanian who was born in Pittsburgh and grew up outside of Pittsburgh and Philadelphia, I can personally attest to the downfall of Philadelphia. It was well underway during the 1960s.
And I’ll agree to the notion that Rizzo was a disaster. His doom and gloom talk about trouble during the Bicentennial celebrations kept people away from the city in droves.
Rendell? He did indeed fight the good fight. The cleanup of Center City and the creation of the Avenue of the Arts are very much to his credit.
Rendell? He did indeed fight the good fight. The cleanup of Center City and the creation of the Avenue of the Arts are very much to his credit.
Rendell was a master of sucking Pennsylvania tax dollars into Philadelphia.
He did nothing to actually fix anything about Philadelphia. Crime, industry, jobs, schools, etc. all got worse.
With a republican PA house, a republican PA senate and republican governor - those days are long over.
Rendell? He did indeed fight the good fight. The cleanup of Center City and the creation of the Avenue of the Arts are very much to his credit.
Rendell was a master of sucking Pennsylvania dollars into Philadelphia.
He did nothing to actually fix anything about Philadelphia. Schools, crime, industry, jobs all got worse.
With a republican PA house, a republican PA senate and republican governor - those days are long over.
I thought Rendell fought the good fight.
If you were a member of a public union.
For everyone else - it was rotten.
Too funny
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Philly Shuts Down Alex’s Lemonade Stand
MyFoxPhilly | 06/13/2011 | staff
The saga of the city of “no” continues as Philadelphia shut down an Alex’s Lemonade Stand.
The city’s Department of Health shut down one at 18th and Market streets on Thursday.
An inspector said they didn’t have a permit to operate, or a hand-washing station.
A health department spokesman says they offered to help get the stand in compliance but were turned down. That stand, did not re-open.
You’ll see the area’s most famous lemonade stands popping up everywhere this weekend. It’s the group’s biggest fundraising event of the year to benefit kids’ cancer research
The new class system might not be based on wealth, but the ability to hold the wealth you already have. NYC being an example.
The change in relative value I see around here is that houses closer to downtown- in the inner-ring suburbs- are holding their value, while houses further from downtown- particularly McMansions, and houses in the exurbs- are losing a lot of value. The exception being downtown condos, which are being hammered as hard as McMansions in the exurbs.