June 18, 2015

It Seems Like The Floodgates Have Opened

A report from CNBC. “More than 60 percent of builders surveyed in May reported that the overall supply of developed lots-that is, with all the necessary infrastructure to build homes-was low to very low, according to the National Association of Home Builders (NAHB). That is the highest percentage since the builders began asking the question back in 1997. Where we really see the difference in A lots is the price going up. Demand is there but at what price?’ said Paul Emrath, vice president of survey and housing policy research at NAHB.”

“Land prices have actually surpassed their peak values in many markets where builders are particularly active, especially in Texas. Finished lot values in Dallas are 40 percent higher than their peak, according to John Burns Real Estate Consulting. Other markets, like Charlotte and Raleigh in North Carolina, Denver and Phoenix are also seeing new highs.

“‘Land is extremely expensive, the developer is selling it for a lot of money and the only way to make money for a builder is to build a big, huge expensive home,’ noted John Burns in a recent interview. That is why the median sale price of a newly built home continues to soar, up more than 8 percent in April from a year ago, according to the U.S. Census. Builders are focusing on more expensive homes, because that’s where they can make the most profit.”

National Real Estate Investor. “Developers planning new apartment buildings today won’t finish for two years or more in many parts of the country—hundreds of thousands of apartments now under construction have already softened the national multifamily markets. But many developers are now planning new projects anyway. ‘It’s kind of late in the party, when all the punch is gone,’ says Ryan Severino, senior economist and associate director of research for Reis Inc., a New York City data firm. ‘We always end up overdeveloping.’”

“Two years from now, in 2017, developers are expected to complete 161,000 new apartments, according to projections by Reis. That’s a lot less than the 197,000 new apartments anticipated to come on line in 2016 and the whopping 230,000 new units expected this year. It’s still a lot, however. Just to compare, the average number of new apartments produced in a year over the last few cycles is just 120,000. (Those totals don’t include the more than 100,000 units of affordable housing built every year through government programs.) ‘It seems like the floodgates have opened,’ says Severino. ‘The new supply under construction completely outstrips the demand from demographics.’”

The Seattle Times. “A national high-rise residential developer has filed a plan with Seattle for two 39-story towers in Denny Triangle that could add as many as 1,000 apartments in one half-block. Miami-based Crescent Heights Crescent’s proposal shows big investors are still hungry to own apartments in Seattle despite a construction boom that already has boosted supply in three years by 25 percent. ‘It’s a lot considering what’s already in the pipeline,’ said Seattle market analyst Brian O’Connor, who’s not involved with the Crescent Heights project.”

“Developers have more than 18,000 apartment units under construction in King County, with most of them in Seattle, according to Dupre+Scott Apartment Advisors. It’s more lucrative to sell an apartment project to one big investor than a condo unit to individuals, said O’Connor. ‘We’re getting these big, big capital funds, and they don’t want to do a little deal,’ he said. ‘They love these big towers because they can place a huge amount of capital in one place.’”

The Idaho Statesman. “Across the board, Treasure Valley developers are busier and more aggressive these days than they have been for almost a decade. A hot market brings complications, and some are reminders of why the economy got into trouble last time. ‘It’s crazy out there again. You’ve seen what’s happening. It just gets nutty,’ says Tommy Ahlquist, chief operating officer of the Gardner Co. ‘You’ve got subs in an already shallow market just saying, ‘Hey, it’s heyday now. I’m going to make my money.’ And tripling, quadrupling their prices … And you can’t blame them. They’re in demand. They’re just a market-driven community, too.’”

“Competition could be lurking in the multifamily residential sector, which is considered part of the commercial real estate industry. Co-founder Mike Brown say says he is wary of a sudden burst of supply on the local market that would reduce demand for LocalConstruct’s projects. Demand seems to be strong enough, at least in the multifamily sector, to absorb a glut of apartment projects either under construction or in the planning phases across the valley.”

“‘When rents rise and fall in a market, you may be protected to a certain extent by being the newest or otherwise somehow the best — the best-located within the market, or having the nicest product,’ Brown says. ‘But if the market is going down, you’re going down with it.’”

The Midland Reporter Telegram. “A recent report shows that rents for two-bedroom apartments in Midland and Odessa have fallen the fastest compared to other Texas cities, while overall rents rose, according to ApartmentList. The site’s Andrew Tam, VP of data science, said that when comparing the same apartments month-to-month in Midland and Odessa, two-bedroom rates fell by 6 percent and 7.8 percent, respectively. Those drops were the largest drops statewide. Average prices for two-bedroom units fell by 5 percent in Midland, and one-bedroom units fell by 4.2 percent month-to-month.”

“The May report echoes a previous Reporter-Telegram article, where local apartment managers discussed how they have had to cut rates significantly and offer move-in specials to court a shrinking pool of workers. The occupancy rate for Midland in April was 86 percent –11.6 percent lower than April 2014, according to ALN Apartment Data.”

“The falling apartment rates are reflective of a business that has grown quickly in the last few years because of an overwhelming demand for housing and is now coping with an oversupply as the oil field continues to struggle with the downturn in prices. In June 2014 there were 15 apartment complexes permitted and under construction, totaling 2,586 unit, according to data obtained from the city of Midland. Among those was the luxury 110-unit Wall Street Lofts, which is currently at 65 percent occupancy and 75 percent leasing, according to developer Roger Gault. He said that prices at the Lofts have not changed despite being 11 percent lower than Midland’s average occupancy rate.”

Real Estate News Exchange. “An attempt by an American student housing REIT to convert hotels in downtown Montreal into upscale student housing has been a monumental failure, the company’s latest leasing figures indicate. Campus Crest Communities, which owns a US $2 billion student housing portfolio, transformed the Delta and Holiday Inn Midtown into student residences last year. The high amenity Evo Centre-Ville and Evo Vieux-Montréal projects include such features as indoor pools, state-of-the-art gym, Lavazza coffee bars, Pilates and game rooms, tanning beds and 80-inch TVs on every floor. Single rooms rent for $1,075 per month, while double room go for $675.”

“But despite the frills, Campus Crest’s 2014-15 leasing results showed only 242 beds out of 2,223, or 10.9 per cent, were occupied in the two Montreal Evos as of Sept. 30, 2014. Newly released figures show things have improved only slightly since last September for the Montreal Evos. In late May, Campus Crest released updated 2015-16 pre-leasing results as of May 18, indicating its Evo Montreal properties are only 14.6 per cent pre-leased for the 2015-16 academic year.”

“While Campus Crest had been banking on the fact there are 200,000 post-secondary students in Montreal and far too few campus residences to hold them, it has yet to work out that way. That’s despite the fact the REIT has ramped up its marketing activities to increase student interest in Evo Montreal. During the winter, Evo Montreal was one of the sponsors of what was dubbed the ‘world’s largest toga party’ an attempt to break a Guinness World Record.”

The New Zealand Herald. “An over-supply of low-quality CBD apartments risks sparking a crash that could see prices plunge, an expert says, while another agency is warning of an Auckland ‘apartment bubble.’ Apartment Specialists managing director Andrew Murray told the Herald the number of lower-end apartment developments had surged as developers looked to cash in on Auckland’s buoyant housing market. Many developers were marketing most of their stock to offshore investors, with owner-occupiers now making up only about 40 per cent of the CBD apartment market, Mr Murray said. Around 90 per cent of a central city apartment building under construction had been sold to foreign investors.”

“‘They’re all being sold offshore. They’re all going to be rentals. The quality of the units being built at the moment by some developers in the CBD is not high enough. It’s a joke and these things are all going to crash because they’re selling them for so much,’ Mr Murray said. He said a 41sq m CBD apartment with no car park was currently selling off the plans for $637,000. ‘That is not sustainable, not even in Sydney.’”

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Comment by Ben Jones
2015-06-18 03:10:57

‘Every new apartment building in Denver is now offering one month free as a move-in incentive; some buildings will give you two months free if you push them. There are at least 12 new big buildings in central Denver in various stages of construction.’

Comment by Housing Analyst
2015-06-18 03:24:50
Comment by taxpers
2015-06-18 03:54:13

Zillow calling Manhattan up 8% while the flip show for ny filmed 6 months ago has them saying the hi end is soft
Por Que?

Comment by Housing Analyst
2015-06-18 04:35:48

You sure about that? How about a link.

Comment by Ben Jones
2015-06-18 04:25:10

‘Just over a year ago, a Seattle real estate developer was working with the owner of a prime downtown property on a plan to build a 400-foot-tall hotel/condo, but that partnership has ended.’

‘The developer, Eugene Gershman of GIS International, last week said GIS no longer is working on the proposal at the southwest corner of Minor Avenue and Stewart Street. Gershman declined to say what happened to the deal GIS had with the Chinese-headquartered company that owns the property.’

‘Before the Great Recession, Gershman’s company, GIS, had planned a hotel/condo on the property. GIS subsequently sold the property to RBF Property Group of Guangzhou, China for $5 million, and in 2014 Gershman said the two companies were jointly working on the hotel/condo project called the Daola Seattle.’

‘Daola, which means “you have arrived” in Mandarin, is an independent hotel brand in China, Gershman said.’

‘That was in May 2014, and three months later GIS sued Daola Seattle/RBF to recover the unpaid principal of $1.63 million for the property, according to a court filing.’

Comment by Ben Jones
2015-06-18 04:27:58

‘If you build it, they might not come. These words should haunt the City of Waterloo and local developers bulldozing forward with the construction of new housing for thousands of university students — housing that may not be needed.’

‘According to a study released last week, the supply of this kind of accommodation could have already outstripped demand. The market could be oversaturated. And if the situation isn’t handled carefully, the building boom that has transformed the city north of University Avenue may go bust.’

‘Perhaps unsurprisingly, Waterloo Mayor Dave Jaworsky has sloughed off the study conducted by the local town and gown committee. Politicians love new development because it fattens municipal coffers. Moreover, the new residential towers in the Northdale neighbourhood are part of the city’s solution to decades-old tensions between an established residential community and often boisterous university students who gradually took over.’

‘But Jaworsky should take a harder look at the figures in this jarring report. Based on firm numbers, as well as some estimates, the town and gown committee reported there is already a possible 1,100-bedroom surplus in the city. With another 6,200 bedrooms planned for construction off-campus and 900 bedrooms planned on the city’s two university campuses, the surplus could swell by a staggering 7,100 bedrooms in the coming years. Yet, while the number of bedrooms for students is surging, the number of new students enrolling at the two local universities is basically flat.’

‘Officials and student leaders at both the University of Waterloo and Wilfrid Laurier University are worried. While an oversupply of housing could lead to lower rents that students would love, there are concerns students could become isolated in half-empty high-rises.’

Comment by Arizona Slim
2015-06-18 07:28:23

We have a glut of student housing here in Tucson. And, from what a friend tells me, one of the new complexes has occupancy rates in the 60% range.

That’s way low.

Comment by Ben Jones
2015-06-18 04:35:25

‘It’s crazy out there again. You’ve seen what’s happening. It just gets nutty,’ says Tommy Ahlquist, chief operating officer of the Gardner Co. ‘You’ve got subs in an already shallow market just saying, ‘Hey, it’s heyday now. I’m going to make my money.’ And tripling, quadrupling their prices … And you can’t blame them.’

Oh, but many posters out there want SO BAD for construction costs to be high! Ignore it if you want. They are taking you for FOOLS! Crow eatin’, squirrel feedin’ FOOLS!

Comment by Housing Analyst
2015-06-18 04:40:53

Construction costs only go high when a “homebuilder” adds a layer of cost for doing nothing.

Need a structure built? Call a contractor.

Comment by Housing Analyst
2015-06-18 05:04:51

Of course you’d be wishing construction costs weren’t $55/sq ft for a new structure if you paid $200/sq ft for a 20+year old shack and then doubled down on those losses by financing it for 15 or 30 years.

Comment by Ben Jones
2015-06-18 05:40:57

Another email I got:

‘Don’t Be Misled by the “Drop” in Housing Starts —Some Markets are Showing Large Increases in Homebuilding’

‘Builders in most markets are confident that this slow-motion rebound will continue. That is why builder confidence has improved and lot development is up 21.5% compared with a year ago (from the latest Metrostudy research).’

‘Recently-reported Metrostudy quarterly data, construction of single-family
detached homes, versus four quarters ago.

* Northern California +46.3%

* Reno +44.9%

* Las Vegas +36.5%

* Naples/Ft. Myers +27.4%

* Tampa +15.4%

* Atlanta +15.0%

* Denver/Co. Springs +14.9%

Comment by Ben Jones
2015-06-18 05:42:24

Northern California +46.3%

Single family, detached. More than Reno! Well you know, they’re running out of land in Reno.

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Comment by Jingle Male
2015-06-18 07:01:47

Home builders are your best friend. The more homes that get built, the more supply will meet (or exceed) demand and the more likely housing will be affordable. Save a whale, take a home builder to lunch!

Comment by Housing Analyst
2015-06-18 07:05:23

With 25 million excess empty and defaulted houses, supply met demand decades ago Jingle_Fraud.

Comment by rj chicago
2015-06-18 07:53:01

This chart is interesting but is it true? Man o man just yesterday I saw a big ol banner here in Ch*tcago near the Mart that proclaimed 26 new condo units coming with an opening price tag of 1.2 to 1.6 mil. I will take a snappy next week when I am down there again - overpriced - hmmmm…..


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Comment by Housing Analyst
2015-06-18 09:47:35

Really? A link to Trulia, a NAR affiliated outfit? And you’re asking if its true?


Comment by Rental Watch
2015-06-18 13:38:58
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Comment by Ben Jones
2015-06-18 04:54:07

3,366 Properties Price Range $0 - $50,000


Comment by Ben Jones
2015-06-18 04:57:45

I just got this in an email:

• 179-04-201-005, $5.05 per foot, - below comps
• Lake Mead Blvd, Pueblo Blvd, Essex Ave, Mohawk Ave
• Close to Tuscany, Calico Ridge, Lake Las Vegas
• Existing approved plans for Boat, RV, Self-Storage Yard
• Soil Report complete
• Phase 1 Report complete
• Drainage Study complete
• Geotechnical Report complete
• Entitled and Approved for Storage, RV, Boat, Automotive, Yard
• CH Commercial Highway Henderson Zoning
• Potential to re-zone residential parcels
• Owner Broker Developer can build to suit

Comment by Housing Analyst
2015-06-18 05:02:28

No $90k water meters? $50k building permits?

Comment by Ben Jones
2015-06-18 05:37:50

The 300% Instant Gains on China IPOs Are Suddenly Vanishing


‘The Bloomberg China IPO Index dropped 10 percent from its high on May 27 through Wednesday, while all 10 of this month’s worst-performing companies in the benchmark Shanghai Composite Index are IPOs from the class of 2015. Jiangsu Broadcasting Cable Information Network Corp., which peaked at 197 times earnings after 23 straight days of post-IPO gains, has since lost 39 percent.’

“Investors are becoming more fearful than greedy,” said Chen Xingdong, the chief economist and head of macro-economics research at BNP in Beijing. “Stock prices have gone too high despite weak economic growth.”

But. But, China’s a no-brainer. They’re so rich. They make money on empty cities. Turn those machines back on!

Comment by GooglerInSF
2015-06-18 14:05:59


Comment by Ben Jones
2015-06-18 05:53:49

‘RealtyTrac released its May 2015 U.S. Foreclosure Market Report™, which shows foreclosure filings — default notices, scheduled auctions and bank repossessions — were reported on 126,868 U.S. properties in May 2015, up 1 percent from the previous month and up 16 percent from a year ago to a 19-month high. The increase in May was driven primarily by a jump in bank repossessions (REOs), which at 44,892 were down 1 percent from the previous month but up 58 percent from a year ago, and a 5 percent year-over-year increase in scheduled foreclosure auctions.’

‘REOs increased on a year-over-year basis for the third consecutive month, and scheduled foreclosure auctions have increased on a year-over-year basis in four of the last eight months.’

“May foreclosure numbers are a classic good news-bad news scenario, with the number of homeowners starting the foreclosure process stabilizing at pre-housing crisis levels but the number of homeowners actually losing their homes to foreclosure still well above pre-crisis levels and on the rise,” said Daren Blomquist, vice president at RealtyTrac. “Lenders and courts are pushing through stubborn foreclosure cases that have been languishing in foreclosure limbo for years as options to prevent foreclosure are exhausted or left untapped.”

‘Following the national trend, 38 states and the District of Columbia posted year-over-year increases in REOs, including New Jersey (up 197 percent), New York (up 116 percent), Ohio (up 114 percent), Georgia (up 108 percent), Pennsylvania (up 106 percent), Florida (up 63 percent), Michigan (up 63 percent), Maryland (up 62 percent), and California (up 31 percent).’

‘Among the nation’s 20 largest metropolitan statistical areas, 13 posted an annual increase in foreclosure activity in May, including Dallas (up 64 percent), St. Louis (up 56 percent), Baltimore (up 35 percent), New York (up 34 percent), Philadelphia (up 28 percent), Atlanta (up 27 percent), Detroit (up 27 percent), San Francisco (up 25 percent), Houston (up 18 percent), Miami (up 17 percent), and Seattle (up 10 percent from a year ago).’

“The increase in foreclosure activity in the Seattle area doesn’t concern me at this time,” said Matthew Gardner, Chief Economist Windermere Real Estate, covering the Seattle market. “Given the growth in home values in our region, I believe that it’s fairly safe to assume that this increase is primarily a function of banks starting foreclosure proceedings after having delayed taking action for some time. I would not be surprised to see the annual rate continue to remain elevated for a while as we get through the pipeline.”


‘U.S. scheduled foreclosure auctions so far this year are running about 40 percent higher than their pre-crisis levels from 2005 and 2006.’

‘San Francisco (up 25 percent)’

Got crow Rental watch?

Comment by Rental Watch
2015-06-18 08:51:47

RealtyTrac notes SF county’s foreclosure rate is 1 out of every 4,319 homes.


The nation’s rate is 1 in every 1,041.

California is at 1 in every 1,142.


So, despite going up by 25%, the rate is still 1/4 of the national average. The rate went from ridiculously low to very low. Yawn.

The places that people should be focused is where foreclosures have been repressed…NY, NJ, FL.

NJ and FL are now starting to clear their inventory (top 2 foreclosure states). NY is still lagging considerably–NY has a non-current loan rate of 9.2% vs. FL at 8.4% and NJ at 10.8%. New York’s foreclosure rate should be triple where it is currently.

CA’s non-current loan rate is 3.7%, the 7th lowest in the country.

Comment by Housing Analyst
2015-06-18 08:59:37

And CA’s foreclosure moratoriums are holding back 4.4 million defaults.

Comment by Ben Jones
2015-06-18 09:01:23

January 16, 2014

‘With one in every 96 homes reporting at least one foreclosure filing in 2013, the national foreclosure rate has dropped to 1.04% — close to the historic norm of just below 1%. During the 2010 peak of the housing crisis, the national foreclosure rate was 2.23%.’


So deadbeats are running over 3 times the historic foreclosure rate. But hey, you’re better than Florida!

Comment by Rental Watch
2015-06-18 11:42:42

So, nationally, foreclosure rates are approximately normal, and CA is approximately the same as the national average, but places like FL are still a mess.

I’ve been saying for many years now that CA has been clearing it’s issues, but that places like FL are a slow motion trainwreck.

From the article you posted:

“”Eight of the top foreclosure cities are in Florida,” said Blomquist. “We used to say that about California, but now California doesn’t have any cities in the top 10.”"

How is any of this inconsistent with what I’ve been saying?

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Comment by Rental Watch
2015-06-18 11:45:31

The 3.7% non-current rate is NOT the foreclosure rate.

That includes foreclosures, as well as delinquencies.

The breakdown from Black Knight is that 3.2% of the 3.7% are delinquencies, and 0.5% are those in the foreclosure process.

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Comment by Ben Jones
2015-06-18 12:12:46

They’ll probably be foreclosed. And millions more after them. The HELOC’s are coming too, and we all know how Californians love to liberate that equity! (Got to keep up that lifestyle in a sub-Mississippi economy). When I was driving back from Texas the other day, cash-out refi ads were playing all day.

Comment by Rental Watch
2015-06-18 13:12:21

“They’ll probably be foreclosed.”

Based on what?

Historically, the rough steady state of non-current loans nationally was about 5%.

Of this, 4.5% are in the delinquent bucket, and 0.5% are in the foreclosure process.

In this delinquent bucket, there are various levels of DQ.

30 days…missed one payment. About 15% of the time historically (and currently), 30 days late becomes 60 days late. The rest either stay 30 days late, or cure to be current (about 40% of the time).

60 days late: About 25% of the time they become 90 days late. The rest stay at 60 or 30 days late (1 or 2 payments behind), or cure to current (about 15-20% of the time).

Once they are 90 days late, there is only a 10% chance that they cure.

The current “roll rates” (the percent of loans that go from current to 30, or 30 to 60, or 60 to 90) are at low levels. The March Mortgage Monitor provides the data.

The first step in the process, going from “current” to missing 1 payment is at the lowest rate in 15 years (if not longer). 0.73% of loans in March went from current to 30 days late.

In other words, your comment “They’ll probably get foreclosed” is not correct.

During the bubble, these “roll rates” were approximatly double the normal levels. Over time, this built up the massive number of homes in the foreclosure pipeline…the shadow inventory.

Now, we are burning off the distress (at different paces based on individual state laws), and the additions to the pool of distress are back down to normal levels.

Comment by Housing Analyst
2015-06-18 14:31:46

“Based on what?”

Based on the fact that millions(including you) overpaid by a few hundred thousand dollars not mention the reality that CA’s foreclosure moratoriums will expire eventually.

Comment by Ben Jones
2015-06-18 14:42:09

It’s a bubble, based on that.

Comment by Rental Watch
2015-06-18 14:49:52

At least you used the word “probably”.

I’m going to say that they probably won’t, based on historic precedent and current “roll rate” data.

Comment by Housing Analyst
2015-06-18 14:53:41

And I’[m going to say they’re already delinquent based on the fact they overpaid a 250% premium for a depreciating asset.

Comment by Ben Jones
2015-06-18 15:12:31

‘When the next wave of REO activity hits, it will be unlike any other past cycle in the distressed mortgage market and will be heavily influenced by some of the leftover problem loans from the last downturn, as well as new defaults created from those loans, servicing and changing ownership of more recent originations, according to the president of the National REO Brokers Association.’

‘And that downturn in the housing market is on the near horizon, adds Michael Krein.

“The mortgage industry — and in particular the default/REO industry — has always been cyclical, and typically, inversely related to the general real estate market,” Krein told several hundred attendees at the 2015 National REO Brokers Association Education Conference in Broomfield, Colo.’

“However, it is always the overheating of the general real estate market that characteristically foreshadows a resurgent REO market,” he continued. “We have now had almost six straight years of rising or ‘recovering’ real estate prices — that is probably the longest continual uptick in real estate prices in over 100 years.”

‘He went on to point out that the precise beginning and end of each cycle is never a precise point, as there is always an overlap during the transition.

“This is exactly the point we are in now,” he added. “This will be my sixth market cycle and although each one has shared some of the same components, it should not be said that history is necessarily repeating itself, as each cycle can truly be considered somewhat unique.”

‘One such problem is the reset of home equity line of credit and Home Affordable Modification Program loans. As Krein sees it, especially after having conversations with executives at RealtyTrac, the numbers being reported about these resets are actually under-reported — only considering HELOCs with a loan-to-value over 125% of fair market value being at risk. Krein believes the problem is likely to be four to five times larger, because many borrowers with a HELOC and LTV ratios over 90% may choose to do a strategic default, because technically, by factoring in the cost of sale of real estate, anything over 90% LTV is still “underwater.”

“We are still in a very strange period in the real estate industry, as there have been so many changes that have occurred that no one would have previously imagined,” Krein said. “There is now more data available than ever before, yet many reports and conclusions being published are much more clouded.”

‘Because so many reports are focusing on such incredibly narrow bands of information in order to generate reporting outcomes that suit their agenda or narrative.’

‘A case in point would include a recent report from the California Association of Realtors indicating that, “a solid housing market continues as California’s pending home sales dial higher from a year ago for [the] fifth straight month.”

‘The CAR report states that with the California housing market continuing its upward trend, pending home sales registered their fifth straight annual gain, with the last three months being in the double-digits.’

‘Overall, the report continues, “the competitive market persists with more sales and bigger premiums paid above list price.” While it is indisputable that California is experiencing tremendous home price increases due to high demand and low inventories of available housing, there are many other less anomalous markets where home prices are as stagnant as wages for middle-class Americans. And in some cases, home prices are decreasing.’

‘Many factors, including the worsening Housing Affordability index; a continuing rapid rise in rents; continued unemployment (including those who have left the job market altogether); underemployment; predictions of rising interest rates by Federal Reserve Chair Janet Yellen; a still abysmal economic environment; and global instability, are all coming together to make my predictions that a new downturn is coming — and those of Mike Krein, and other housing industry analysts — seem more plausible every week.’


‘the longest continual uptick in real estate prices in over 100 years’

But you stay where you are Rental Watch. Right where you are.

Comment by Puggs
2015-06-18 15:21:59

“And I’[m going to say they’re already delinquent based on the fact they overpaid a 250% premium for a depreciating asset.”

Exactly - add to the fact that many of these “delinquent borrowers” took out 30 year mortgages or worse, interest only. while putting Carson and Olivia through private school, two car payments and a gym membership.

Q. Have you ever attempted to pay of $100,000? Do you know what that feels like? - The sacrifice it takes? Then what makes you think you can pay off $300,000+ ($750,000 total after INT)?

A. You never will…

Comment by Rental Watch
2015-06-18 17:29:19

“But you stay where you are Rental Watch. Right where you are.”

Except I’ve already stated that I’m NOT standing still (we are selling our rental portfolio).

And I’ve been quite clear that I believe home prices to be at a cyclical peak and that we will see a downturn within the next several years (which is why when people ask if they should buy a house, my comments have been to NOT buy).

While the timing of housing downturns are hard to predict, I have stated that I believe we are not going to have that downturn until we have seen much stronger new housing development numbers.

He says “near horizon” for the downturn. I think he’s dead wrong. Unless, of course we see a 2MM housing start number in 2016–but I don’t see that happening.

Comment by Housing Analyst
2015-06-18 17:41:43

This is not a cycle Rental_Fraud. It’s a massive unprecedented bubble.

Comment by Ben Jones
2015-06-18 19:58:18

‘we are selling our rental portfolio’

I’m not. I made an offer on another house this morning. I wonder if you might be a speculator whereas I might be an actual investor?

Comment by inchbyinch
2015-06-18 07:33:43

A small tract (25 SFHs) and a huge a Townhome project,is going up not to far from us. With Ca’s drought, I can’t believe they are building, let along, more landscape to water. I guess you just buy off the county and city, and up your development goes. Here we are living “yellow it’s mellow/brown flush it down” lives, and these noodle heads are getting the A-OK.

Comment by cactus
2015-06-18 08:18:11

they water everyday at Moorpark College but at night so most miss the water running down the curb.

Comment by inchbyinch
2015-06-18 09:48:46

Hi cactus
I guess commercial properties are exempt from the watering restrictions? It runs down the curb, WTH. Yet, if we didn’t treat it as “blue gold” we’d be fined.

We found a sprinkler leak just 3 months after we bought (below the surface of the front lawn) and by turning off the system and hand watering (pita) we went from 20 CCFs 5.9 CCFs for the 66 day billing cycle. They better not grandfather us into the 24% mandatory reduction. We’re exceeding our share.

Comment by Bluto
2015-06-18 11:47:13

There is quite a bit of residential construction going on where I live in Sonoma Co. too including apartments as rents are high so presumably it will be profitable. From what I’ve seen locally project approvals are all about fee and permit income for the nearly bankrupt (thanks to crazy pension benefit increases enacted 13 years ago) county and little to do with the merits or impact of the project, the drought, etc.

Comment by inchbyinch
2015-06-18 16:52:25

Just curious, what is your water conservation target in Sonoma County? In East Ventura County it is 24%.

We bought a pool cover and we’ve had no evaporation, the water is nice and warm, but we grew quite an algae farm.
It’s a learning curve. You have to keep on it, and we didn’t.

How about San Diego County? Anyone want to chime in?

Comment by Bluto
2015-06-18 22:48:03

It varies by city and is 16% IIRC where I live in Santa Rosa . Water was already very expensive here even before the drought and FWIW now the water agency is marketing supposedly clean power and residents were signed up automatically unless they knew to opt out…the new power agency does not actually make any power, just buys power and clean power credits and PG&E does the actual work of delivering it.


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Comment by rj chicago
2015-06-18 08:24:24

“More than 60 percent of builders surveyed in May reported that the overall supply of developed lots-that is, with all the necessary infrastructure to build homes-was low to very low, according to the National Association of Home Builders (NAHB). That is the highest percentage since the builders began asking the question back in 1997. Where we really see the difference in A lots is the price going up. Demand is there but at what price?’ said Paul Emrath, vice president of survey and housing policy research at NAHB.”
“Land prices have actually surpassed their peak values in many markets where builders are particularly active, especially in Texas. Finished lot values in Dallas are 40 percent higher than their peak, according to John Burns Real Estate Consulting. Other markets, like Charlotte and Raleigh in North Carolina, Denver and Phoenix are also seeing new highs.
“‘Land is extremely expensive, the developer is selling it for a lot of money and the only way to make money for a builder is to build a big, huge expensive home,’ noted John Burns in a recent interview. That is why the median sale price of a newly built home continues to soar, up more than 8 percent in April from a year ago, according to the U.S. Census. Builders are focusing on more expensive homes, because that’s where they can make the most profit.”

If this is indeed true - and yes, HA there is 95% of the earth’s land available - Rental Watch called it correclty a few weeks ago and has me paying alot of attention to the issue of land.
At the outset I have to agree with the report above posted this morning - land has become increasingly expensive even in the amount of time (2 years or so) since I began a search in anticipation of building a home between the Springs and Denver - gave up on that when the tap fees, taxes, utilities etc. started to mount pretty quick making even the build of a modest 3/2 very expensive and more than I was willing to pay.

Also - I think it was WPA who derided my ‘two year old article’ post on the Otrauma admin taking aim at the burbs with impending policy to ‘force’ development back toward the city centers. Wondering what he is thinking now.
One comment I saw was the anecdotal evidence of increased foot traffic and auto traffic density and use along with increased demand on city infrastructure etc that substantiates this ’shift’ in living. What Otrauma’s policy will do is put more demand on already failing inner city infrastructure - water mains etc are breaking here in Ch*tcago all the time - many being near 100 yrs. old.

Link here that WPA commented on:

And a newly minted linky here:

My response to WPA was know your history - you gotta understand history - sometimes the mere mention of impending policy is enough to clog the sludge pipe as it were and grind things to a halt. With the threat of this policy enactment - why would developers even begin to dig on raw land risking dollars on a future where there is little to no demand. The effect - distorted market for land, less development, higher prices on remaining already developed lots. In other words - only the wealthy have access to housing as costs accelerate and those already in homes underwater or otherwise are effectively stuck with a now illiquid ‘asset’ and unable to move.

Comments most welcome. But keep it civil.

Comment by Housing Analyst
2015-06-18 08:48:24

When you’re building on spec and overlaying a 150% fee above lot, labor, materials and profit, you can make any claim you want no matter how true it is.

Comment by rj chicago
2015-06-18 09:26:30

Data HA data - look at the price of land over the last few years and help explain the attendant silo of construction going on. I read here and on other sites that little in the under 300k range is being built across the country. These guys have to make a go of it or fold -
A question:
Are you then saying that it is desireable to force builders out of business due to distorted (read the Fed and otrauma policy) economics or are you accusing them of being greed merchants?

Comment by Housing Analyst
2015-06-18 10:08:46

And nobody is paying it except for Wall St.

Your point?

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Comment by rj chicago
2015-06-18 11:56:31

Agree on Wall St. - however I have to ask again…..Are you accusing them of being greed merchants solely?
I don’t intend to have this be read as an attack - I need to understand your points better.

Comment by Housing Analyst
2015-06-18 12:37:04

I couldn’t care less. What is a “builder”? What is your question?

Comment by Rental Watch
2015-06-18 13:22:15

rj, there are two options, as you correctly lay them out:

1. Homebuilding companies are keeping prices high, and greedily charging high prices to generate large profit margins; or

2. Based on construction costs (which includes impact fees, infrastructure costs, as well as direct and indirect hard and soft costs), builders cannot sell homes for much less than they are today and still make a profit.

The problem with hanging your hat on #1 is that large homebuilders hardly have a monopoly on building homes. They don’t even have an oligopoly. It is an incredibly competitive business, and as they say, anyone with a pickup truck and a Skilsaw can build a house.

If #1 were indeed the case, it would be an unstable equilibrium, as more and more contractors would enter the business, driving down margins.

To believe in #1 is to believe that the free market doesn’t work with new home construction, and I have not seen any such evidence supporting that view.

On the other hand, I have seen underwriting for the construction of new home subdivisions recently, and I can tell you, when you add in all the costs…it ain’t cheap. Even though the direct construction costs are in the $55-$60 range per square foot.

Comment by Housing Analyst
2015-06-18 13:31:02

“impact fees, infrastructure costs, as well as direct and indirect hard and soft costs”

LOL@ Rental_Fraud. About the only thing you can turn a profit on is bull$hit Rental_Fraud because it’s not in the construction business.

Comment by redmondjp
2015-06-19 00:09:22

Rental Watch - you are incorrect about anybody being able to build a house. Most people today can’t even use a hammer properly, much less make a free-hand cut with a circular saw.

But actually building the house is easy - it’s complying with the hundreds of regulations as part of the entire process that is difficult, to the point that only developers do it.

And even the developers are HIGHLY specialized. I’m watching two short-plats within sight of my house right now. First, the “dirt guys” (property developer) come in. They do all of the plans, get all of the approvals, and do the site prep - all drainage, utilities, stormwater vaults, curbing, landscaping, fencing, streetlights, mailboxes, street signs, paving, etc.

At the four lot short-plat behind me, they put $250K just into the stormwater vault (which has more square footage than my entire house). I’m pretty sure that they’ve got close to $1M in improvements in total, on top of the $500K for the raw land. So that’s almost $400K PER LOT, with no house yet even built on it. After building, the houses will be sold for $1M+.

This is to comply with federal, state, and local regulations. Otherwise the property developer wouldn’t do a lot of it, and neither would I (stormwater runoff detention is way overrated).

So we will never see $150K new homes in this neighborhood ever again, despite what HA might claim. If he can change the clean water act, then I might agree with him.

Comment by Housing Analyst
2015-06-19 04:48:44

“it’s complying with the hundreds of regulations as part of the entire process that is difficult, to the point that only developers do it.”


Really? We build stuff all year round and we do it all the time. And it’s not difficult. Even local mom and pop shops make it look easy.

Whats the problem?

Comment by rj chicago
2015-06-18 14:52:21

HA - A builder is a builder - a guy or a company that builds houses. My question remains - are you antagonistic toward builders and the housing industry in general? Again - not to attack - but I sense animosity toward the housing industry in general when in fact and to make my point my anger is directed more toward Wall St. as you correctly point out and the Big Bad Bank. Frankly right now I pity the builders as they are on the hook for some rather bad times ahead given the distorted and corrupt economy we live in.

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Comment by Housing Analyst
2015-06-18 15:00:12

A builder is a builder? Do you mean a contractor? We build lots of things. We’re contractors. What is a builder?

What is your point?

Comment by Puggs
2015-06-18 13:48:51

In the West I could buy a lot in 2009 for 60K but today someone wants 150K?? Same with labor.

Man yer completely loco if you build a house at these prices today. But yet, people are.

Comment by rj chicago
2015-06-18 14:55:00

+1 at Puggs.

Comment by Ben Jones
2015-06-18 15:49:09

‘Apartment Mania’

‘According to Bloomberg, apartment construction nationally has been rising since 2009. Apartment construction permits, a leading indicator of multifamily construction, was at an all-time high of 557,000 units in May. Permits last approached this level in June 2008.’

‘Hot in the City Portland multifamily trends have followed the other coastal cities. The Portland Housing Bureau reported that multifamily permits increased from 2,619 units in 2013 to an all-time high of 4,236 units in 2014. Vacancy rates are currently at 2.7 percent in Portland, which is below the national average of 4.1 percent. The Zillow Rent Index for Portland was up 7.2 percent from January of 2014 to January of 2015, which is above the national average of 3.3 percent. The number of cranes on both sides of the river in Portland’s central city is evidence that the trend remains in force.’

‘Nationally, apartment construction is anticipated to peak in 2015 as rising interest rates potentially curtail new construction. Portland may have a longer runway of continued growth due to underdevelopment of multifamily housing prior to the real estate crisis, an influx of people to Portland and the current lack of supply. Broadly speaking, real estate development moves in cycles. Here in Portland, whether it’s the unsold Portland condos following the 2009 financial crisis or fewer food cart pods, we have seen firsthand that whatever the hot trend in Portland is, it has the potential to … cool down.’


Comment by TruDat
2015-06-18 16:27:26

Housing to collapse hard in 2017, right after the global currency reset. September China becomes USA’s new master, you can kiss the U.S. dollar good bye. Might not happen over night, but it will happen.

Comment by Housing Analyst
2015-06-18 16:34:18

You’ve got the timeframe right but the details askew. The dollar is the default global currency and there will always be high demand for it.

Comment by Puggs
2015-06-19 11:50:14

“The borrower is slave to the lender”. Time to relocate.

Comment by inchbyinch
2015-06-18 16:58:46

Hey guys, I read Barney Frank, is now on the BODs of a Bank. He claims they aren’t in the CDS or Derivatives market, so they align with his belief system. Wasn’t he a leash the banks guy. (Dodd-Frank Act)

Comment by AmazingRuss
2015-06-18 19:21:10

Looks like he’s the one that ended up on a leash.

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