Speculators Can’t Be Choosers
The Real Deal reports from New York. “With the New York City luxury condominium market on a long hot streak — resales of condo units are now trading at a 19-year high — developers are rethinking traditional ways of doing business. One dramatic shift: Builders are increasingly plowing ahead with condo projects without putting together a fall-back plan to turn a property into a rental. The meteoric rise in condo prices isn’t the only reason developers are casting back-up plans aside. ‘Since the current Manhattan development math largely only works as condo, I’m not sure how a plan B would be possible in this period,’ said Jonathan Miller of appraisal firm Miller Samuel. ‘With the going-in land cost at record levels, a condo project is generally not feasible as a rental or a hotel.’”
“If the property market were to take a header, developers of condos might have a struggle with lenders to hold on to their projects. ‘The out-of-pocket money the developers and their equity partners would have to contribute until they can sell could be substantial, based on the amount of rent they receive versus the carrying of common charges and taxes,’ said Andrew Gerringer, managing director at the Marketing Directors.”
AM New York. “The Manhattan condo market saw a spike in the number of available units and prices in July, according to StreetEasy. Costs are now at a nineteen year high. The median sales price in July was close to $1.4 million, a 14.4% jump from the $1.2 million median price during the same period last year.”
“The real estate site’s last report found the average asking price for condos and co-ops during the second quarter of 2014 was $1.24 million. Home hunters looking to get a bargain on those units will have to save up. StreetEasy’s latest report said 45.3% of the units listed in July were priced above $1.9 million and only 23% were priced below $914,000.”
The Gothamist in New York. “New York YIMBY has published renderings of the new residential tower planned for 125 Greenwich Street, rising to a ridiculous 1,356 feet tall and becoming the largest residential tower in all of Lower Manhattan. Shvo’s tower will rise to 77 floors, which considering its height, isn’t that many. Why not more floors you ask? Because this condo tower will have some truly insane ceilings; some apartments will be as high as 24 feet.”
“Three floors in the tower will be devoted to ‘maid’s rooms,’ while the lower floors will become a mix of retail space and amenities for the building’s many actual residents. The incorporeal residents, those oligarchs who will buy apartments in the tower without any intention of actually living there, will be missing out on the outstanding view of the harbor. It’s a shame they never visit their 24-foot high walls, which were honestly just made for a Dan Flavin installation, but speculators can’t be choosers.”
The Boston Globe in Massachusetts. “Lenders started 702 foreclosures in July, a 72.5 percent increase from the same month a year earlier, the Warren Group reported. Year-over-year, foreclosure starts have increased for five consecutive months. Through the first seven months of the year, they are up 20.2 percent from the same period in 2013.”
“Cassidy Murphy, editorial director of the Warren Group, said the jump in foreclosure starts doesn’t indicate a return to the problems of several years ago, but rather lenders resuming actions that they delayed last year while waiting for new rules to be clarified. ‘Lenders are more comfortable moving forward with foreclosures from a legal standpoint,’ said Murphy.”
The Providence Journal in Rhode Island. “Despite falling numbers of distressed-property sales in Providence, the city still has a distressed-property problem. The City of Providence has identified about 650 vacant properties. Some of the city’s vacant properties are ‘zombie foreclosures’ created when an owner has abandoned a home, but it has not yet been foreclosed by the lender that holds the mortgage. Banks may be slow in foreclosing because they don’t want to realize the loss on their books, according to City Solicitor Jeffrey M. Padwa. The foreclosure may also be avoided because the lender does not want to become legally responsible for paying taxes or assuming other ownership costs.”
“In other cases, investors who bought foreclosures at rock-bottom prices leave them boarded up because they are uninhabitable, but then don’t want to spend the money to rehabilitate them, and instead plan to hold them until prices rebound and they can make a profit. ‘We have a huge amount of vacant, abandoned and foreclosed properties that need to be digested,’ Padwa said.”
From CentralMaine.com. “Keith Ludden looks out his living room window and worries about the foot-tall grass, peeling paint and other obvious signs that the house across the street in his otherwise well-kept neighborhood is vacant could attract vandals, thieves and varmints. He worries that the unmaintained house, and others like it in neighborhoods around the city, not only lower the value of the homes near them, like his, but also could act as a deterrent to people and businesses considering a move to Augusta.”
“One of the challenges is within the foreclosure process ‘there is that weird gray area where no one wants to take responsibility, where the house or property is in limbo with who owns it,’ said Ward 2 City Councilor Darek Grant. ‘It goes on for a year or so. You start to see a lot of property like that fall into disrepair. It’s a problem. It can become a public safety issue, and it drives down everyone else’s property values.’”
“Tom Connors lives next to a Hutchinson Drive home in the city’s large Mayfair neighborhood, which he said has been empty for the last year. Connors said another neighbor is trying to sell his ‘immaculate’ home near the vacant home, and he’s concerned anyone coming to look at his property to consider buying it could be scared off by the vacant, unmaintained home they’ll pass just before they get to the one that’s for sale. ‘There are homes like this in every neighborhood in Augusta,’ Connors said. ‘There was one on Windy Street that was vacant for a couple of years, that had water in the basement and raccoons living in the garage.’”
From North Jersey.com. “Seven years after the meltdown of the subprime mortgage market, New Jersey continues to be a hotbed of home repossessions by lenders. In West Milford, homeowner Paul Onder has been in a stand-off with debt collector Select Portfolio Services for four years: Who owns the mortgage? He said he hasn’t made a payment on his $450,000 debt consolidation loan since 2010. ‘They want me to pay money? Where is that money going?’ he said.”
“Disputes like these could multiply in the months ahead as the numbers of new residential foreclosure filings continue to rise. New filings in New Jersey in the 12 months ended June 30 climbed 38 percent, to 47,534 filings from 34,347 the previous 12 months, according to the New Jersey Administrative Office of the Courts in Trenton. In the year ended June 30, 2012, there were 12,341 foreclosures filed.”
“Meanwhile, Onder remains in his West Milford home while his standoff with Select Portfolio Services grinds on. ‘They are paying my taxes, and they are paying my insurance,’ he said. ‘All they are doing is threatening because they have no leg to stand on.’”
The Valley News in Vermont. “Vermont is the only state in the nation that saw a drop in housing prices for single-family homes in the four quarters leading up to winter 2014, according to the federal Housing Price Index. Jeff Carr, the governor’s economist, took the grim housing index, along with several other factors, into consideration when they downgraded the state’s revenue forecast in July. The drop in housing prices at the beginning of 2014 is ‘of concern,’ Kavet said, and they’ll be watching closely to see if it continues to decline for the rest of the year. ‘Even one more quarter would add to the concern,’ he said.”
“Staige Davis, CEO of Lang McLaughry Real Estate, sees the housing price index decline as a warning sign. He agrees with analysts who point out that Vermont’s real estate market doesn’t have as much ground to gain because the state’s housing prices didn’t fall as far as many other states during the recession. But that doesn’t allay his concerns about the uncertainty he’s seeing among buyers. He also said a high number of homes are for sale. ‘It’s not a wonderful market,’ Davis says.”
The desperation is thick now that housing prices are falling……again.
…in Vermont. HA!….”the only state….”
My neighbor’s house just went pending for $135,000 over the Zestimate…in less than 10 days. It is also important to note the price is still $175,000 less than he paid in 2005! Equally notable, the sales price is also 100% higher than the price I paid in 2010. We will see if the buyer can close the deal!
No cratering in the Sacramento foothills.
Falling in CA AZ OR and WA too. Dump it, get over it and get on with your life J._Fraud.
As you are making this comment on the HBB, I guess you’re saying, “it’s not a bubble, look at how much prices are going up.”
About a month ago, I was visiting some people north of Dallas. They told me they had bought their house 3 years ago for just over $200k, and someone had just sold a similar house nearby for a little over $300k. I congratulated them on their wisdom and market savvy, of course, holding my tongue. I thought later, how could a 50% increase in 3 years not even seem unusual to them? Has that ever happened in their lifetimes?
Yeah, we’ll see if the buyer can get a loan. Then you’ll have yard high grass and skunks under your car when they walk away.
“It is also important to note the price is still $175,000 less than he paid in 2005!
…
No cratering in the Sacramento foothills.”
Er…didn’t your neighbor’s property crater by $175,000 from what he paid in 2005?
Not to suggest it could ever happen to you…
Yes Whac, it did crater on him. I could have been there too, but for the HBB and help recognizing market conditions in 2005. I am not saying markets don’t go up and down. Obviously they do. Life is a risk. I made my bed and am happy with my decisions.
I too am amazed the house went pending at such a high price, just like Ben is amazed. My comment was simply that just because prices dropped in Vermont, doesn’t mean they are cratering elsewhere….because the are not. Could values crater in the Sacramento foothills? Sure.
However, I purchased at the bottom in 2010 and have a fixed rate loan at 3.25%. My ownership costs less than renting, I stroke about $600/mon in principal reduction and get a tax benefit as well. That is why I purchased when I did. It makes excellent economic sense and owning provides me with a wonderful peace of mind. I enjoy my home immensely.
…and Ben, it may very well be a bubble.
However, the buyers today are a lot different from the buyers in 2005-2006. They have real money and substantial incomes vs the fog a mirror flippers who purchased in this neighborhood 9 years ago with 80-20 sub-prime debt and never made the first loan payment (and are now in the Dublin Federal Prison for Women).
“the buyers today are a lot different from the buyers in 2005-2006.”
You’re right but not in the way you think.
The few suckers the made the error to buy a house the last few years paid massively inflated prices from which they’ll never recover. Just like the suckers in 2005-2006. Further to the point; credit profiles of buyers since 2009 are that of partially employed and chronically under employed individuals.
And you should know better by now to question whether there is a bubble. As you’ve been repeatedly schooled, I’ll take this opportunity to state once again that current asking prices of resale housing are at a very minimum 2x construction costs (lot, labor, materials, profit).
“I purchased at the bottom in 2010″
What will say about that bottom when your house is worth far less then you paid?
Suggestions:
“I purchased at what I thought was the bottom”
“I bent over during the Realtor Feeding Frenzy”
“I was going to be a real estate Tycoon! TYCOON I TELL YOU! …can you spare some change… or maybe a cigarette?”
The incorporeal residents, those oligarchs who will buy apartments in the tower without any intention of actually living there, will be missing out on the outstanding view of the harbor. It’s a shame they never visit their 24-foot high walls, which were honestly just made for a Dan Flavin installation, but speculators can’t be choosers.”
And that’s the rub. The prices are being run through the roof by people who may never spend any time at all in their “investments” and they’ll expect Joe/Jane six-pack to pay the same exhorbitatnt $1200 sq. ft. price to live in a 500 sq. ft. I bdrm condo in Manhattan. This insanity leeches right over into Queens, Brooklyn and the Bronx. My hometown has been ruined.
This insanity leeches right over into Queens, Brooklyn and the Bronx. My hometown has been ruined ??
This opinion suggests the Have’s provide quality of life for everyone in New York;
http://www.city-journal.org/2014/24_3_nyc-private-wealth.html
“Three floors in the tower will be devoted to ‘maid’s rooms,’ while the lower floors will become a mix of retail space and amenities for the building’s many actual residents. The incorporeal residents, those oligarchs who will buy apartments in the tower without any intention of actually living there, will be missing out on the outstanding view of the harbor. It’s a shame they never visit their 24-foot high walls, which were honestly just made for a Dan Flavin installation, but speculators can’t be choosers.”
It seems like an increasing share of residential construction in major cities around the globe is targeted for absentee oligarch owners who won’t live in the unit, but just buy for the property as an investment.
What could possibly go wrong from here?
I would love to be able to read history books from the future to see their take on this madness.
What astonishes me is that this kind of conspicuous venality is engaged in heedless of potential social consequences, as if politicians and central bankers could manipulate those too. This is the absolute golden age of the oligarch; we’ll never see another one like it.
I don’t know that it is much different now than most other moments in human history. For instance, I take the impression that about one percent of the population in pre-revolutionary France lorded over the rest. The US Middle Class of the post-WWII years was the anomaly.
“Meanwhile, Onder remains in his West Milford home while his standoff with Select Portfolio Services grinds on. ‘They are paying my taxes, and they are paying my insurance,’ he said. ‘All they are doing is threatening because they have no leg to stand on.’”
Which ‘they’ pay Onder’s taxes and insurance?
I’d like a ‘they’ to pay for my housing expenses. Where do I sign up?
The lender is making the payments: Force placed insurance to be sure if the property is destroyed, the loan is repaid from insurance proceeds. They pay the property taxes to prevent a “tax sale”, since the taxes have priority over a first mortgage.
That was one of the many huge failings of subprime: no impounds included in the loan payment. Just add another cost to the many, including the $300/hour for the servicer to arrange such outlays for the RMBS investor pool!
They pay the property taxes to prevent a “tax sale”, since the taxes have priority over a first mortgage.
That’s kind of funny right there, as the lender could certainly buy the property at the tax sale just as easily as at a foreclosure auction that they initiated—likely with no cost, as they would not have to initiate the foreclosure!
The only reason I can come up with for not doing this: the lender does not yet want to take back the property, and would prefer to stall and do it on their own timeline, rather than have the county government dictate the timeline.
I think in a tax sale, people would bid over the tax delinquent amount, since the delinquency would like be cents on the dollar. Any overbid goes back to the deed holder, in this case the borrower if he is still on title.
It would become a can of worms. If the lender bid at a tax sale, he would lose more than just the loan amount on an overbid.
If the lender bid at a tax sale, he would lose more than just the loan amount on an overbid.
The lender obviously would not bid a penny more than what was owed to them—if some other fool is willing to pay that much, then the lender is made whole.
But you know very well that when someone hasn’t paid the mortgage for years like this, they are likely DEEPLY underwater. There is no way in h#ll the lender is going come out whole.
And thus they extend and pretend.
everyone is entitled to a free house,phone,edu etc………..
‘new development marketers, analysts and other real estate experts said a Plan B is extremely scarce at this stage of the cycle. Developers are more willing to take a risk when they know the market is stable, they said.’
‘This is in marked contrast to five years ago, when many developers opted to scrap condo plans and seek renters for units instead. And before that — prior to the housing crisis — banks routinely underwrote exit strategies for condo projects that sought a switch to rentals.’
‘That practice has disappeared, said Nancy Packes, president of real estate marketing firm Nancy Packes Inc. The meteoric rise in condo prices isn’t the only reason developers are casting back-up plans aside. The cost of land is also much higher than it was in 2008.’
We paid too much to have a plan B. Very nice. And how about this one:
“Developers are more willing to take a risk when they know the market is stable”
Ben,
I think the article is understating the risks being taken.
We were pitched on a number of condo deals over the past few years. The pitch went something like this:
“We’ll buy the broken condo from the bank, repair any damage, and remarket/sell the units. AND, the good news is that if we can’t sell, it “works” as a rental property.”
However, our definition of “works” was that we can earn a 8-10% unleveraged yield on our investment while we wait to sell.
However, everyone else’s view was that “works” meant a yield of 5-6%. So, we made no such investment, for lack of a “Plan B”.
In places like SF and NYC, “works” today means a 4% yield (or lower).
So, when they say that Plan B doesn’t work, that’s on a yield expectation that has already been reduced to historically low levels based on the Fed’s ZIRP. In other words the bar was lowered by the Fed on what “works” as a rental, and even on that low bar these condos don’t pencil?!?!?
Wow.
And their last sentence needs to be re-written:
“Developers are able to add supply when they can convince banks and investors that the market is stable.”
Complacency seems to have entered the market in NYC…that addition of supply is a sign to me that the condo market has entered the next phase of this housing cycle. How long the development cycle continues is an open question, but adding supply at such a high cost is certainly NOT a sign of a “healthy” market.
You need to man up for once and back up your statement and answer the following;
How is falling housing prices negative?
Only if they are correlated with a bad economy (which is often the case). Otherwise, affordable housing is a big plus.
Then why did you characterizing falling housing prices as negative?
Ben - this from Ritholz’s site - what do you think of this chart?
http://si.wsj.net/public/resources/images/MI-CE770_NONBAN_G_20140827184203.jpg
China real-estate: A bubble bursting
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In an interesting finding, Trulia’s “Bubble Watch” analysis of current listings … is higher now than during the peak of the housing bubble in 2006.
So sad to see your post with no string of off-topic, vitriolic rants from ABQDan soon to follow.
Lake Forest, CA Housing Prices Crater 7% YoY As Housing Inventory Balloons Statewide
http://www.zillow.com/lake-forest-ca/home-values/
Mountain View, CA Sale Prices Plunge 13% QoQ
http://www.zillow.com/mountain-view-ca/home-values/