A Price Point Even The Middle Class Can Afford
Bloomberg reports from New York. “Tumultuous stock and commodity markets are roiling investors around the globe. For Hong Kong developer Neo Que Yau, that presents an opportunity on Manhattan’s 59th Street. ‘The world economy is fairly weak in general, and I think there’s a lot of room for the New York market to grow,’ said Neo, who’s building his company’s first tower in the city, and the tallest it’s ever developed. His $160 million project at 118 East 59th St., where all 29 units are at least a full floor, began sales this month, with prices starting at $5 million for the lowest apartment.”
“In cities such as New York, Chinese developers are betting on increasing demand from the rising number of fellow countrymen seeking property overseas, including homes for children studying abroad, said Omer Ozden, who helps Chinese institutional clients find development opportunities as president of RockTree Capital. ‘Absorption for the five, 10, 20 million-dollar condos has slowed,’ Ozden said. ‘There’s a limited number of purchasers who can buy at that price point. If you can hit a price point that even the middle class can afford, that’s a very large market.’”
WTHR in Massachusetts. “If you had $650,000 to spare you could buy a three-bedroom, two-bathroom condominium on East Seventh Street in South Boston. Or, for the same $650,000, you could buy one single parking space in the Brimmer Street Garage in the Beacon Hill neighborhood. That would be all 171 square feet — housing sold separately. But one of many reasons the $650,000 asking price is raising a lot of eyebrows is the last parking space to sell here, just last month, went for $390,000.”
“And per square foot that you’re buying, that makes the Brimmer Street Garage more expensive, inch for inch, than the $37.5 million dollar condo under construction at the top of the Millennium Tower. Once you plunk down the purchase price, you still have to pay a $250 monthly condo fee for the all-valet garage, plus some $2,700 a year in city property taxes. For all those reasons, David Bates, a real estate broker who works nearby, doubts the owners get their $650,000 price. ‘If we were in a situation where we were going to bring in an appraiser,’ Bates said, ‘I think they’d have a tough time coming back with a valuation of $650,000.’”
The Tribune in California. “Local real estate agents note that there are two distinct markets in play, with sluggish sales for higher-end homes pulling down both median price and sales volume. Dennis Allan, owner/broker of Allan Real Estate Investments in Arroyo Grande, said that many of the pricier homes are sitting unsold for a year or more because of high-end buyers who are ‘very price conscious.’ Lower-priced homes, on the other hand, are seeing brisk sales and rising prices.”
“Many first-time homebuyers are finding the current housing market frustrating for a number of reasons that include intense competition from ‘investors and other first-time buyers for a limited amount of units,’ said Jordan G. Levine, economist at Beacon Economics. He also noted that, despite low interest rates, more stringent loan processes may make the housing market out of reach for some first-time homebuyers. ‘While the price of the home may be affordable relative to income, most banks are requiring larger down payments than during the heights of the previous bubble,’ he said.”
National Mortgage News. “The housing market is weakening due to slower economic and job growth, along with other factors, such as low inventories and tight credit conditions that continue to stymie potential buyers, according to industry analysts. ‘Most of the data measuring current conditions in the housing market have weakened recently,’ Wells Fargo Securities economists wrote in a recent report.”
“‘Texas is not growing like it was,’ the report reads. Texas alone accounted for 15.7% of single-family housing permits in 2014, and Houston was the nation’s top housing market by a large margin, according to the report. ‘Today Houston’s economy is in recession.’”
KYYR TV in North Dakota. “The cost of living in Minot has risen significantly over the past five years, but now with the downturn in oil prices will the prices start going down? And with the new construction increases, that supply putting some power back in the hands of the ones signing the lease. ‘I think renters are being more price conscious now so there’s a lot more shopping around going on,’ said Justin Hammer, IRET Properties.”
“But was the new construction too much? Now that all of these apartments have opened are there still enough people coming in to Minot to fill the vacancies? ‘The Magic City Apartment Association did a survey and we came in at just under 11 percent, that’s probably the lowest it’s going to get,’ said Hammer.”
The Daily Press in Virginia. “Foreclosures on the Peninsula are on the rise. RealtyTrac recorded 511 residences in Newport News, Hampton, York and James City counties that were foreclosed on during the first eight months of 2015. That’s a 28 percent increase over 399 recorded foreclosures on the Peninsula during the first eight months of 2014, according to the report. Another 1,167 homes in the Peninsula’s largest municipalities were facing foreclosure auction proceedings. That’s a nearly 50 percent increase over the 785 homes slated for foreclosure during the first eight months of 2014.”
“Newport News recorded 302 foreclosures, according to the report, up 23 percent from 245 foreclosures posted during the first eight months of 2014. Foreclosure activity also increased in Hampton, with 85 foreclosed homes since the start of the year, according to the report. That is up 150 percent from the 34 recorded foreclosures in the city during the first eight months of 2014.”
CBS Philly on New Jersey. “The numbers are staggering. Foreclosure auctions are up 61 percent and bank repossessions have more than tripled. For Alejandra and Jose Perez of Galloway Township, New Jersey it was like a one-two punch. Alejandra says, ‘My husband, his hours got reduced from 40 hours to 16 hours a week and then I ended up losing my job also as well, so it got even worse.’”
“The parents of three children, Alejandra and Jose now work multiple part-time jobs to make their condo mortgage payments. Alejandra says, ‘I mean it was full time, I had benefits, I had everything, and I lost it.’ The couple now struggles to stay afloat, but for how long. Alejandra says, ‘we won’t be able to afford our monthly payments.’”
“‘It’s a very real issue for many of our fellow neighbors,’ says Markita Morris-Louis of Clarifi, a non-profit credit and housing counseling agency. She says that the Perez family is far from alone. ‘We knew this was on the horizon,’ says Morris-Louis. According to RealtyTrac, nearby Atlantic City topped national metropolitan foreclosure filings in the 3rd quarter of this year. One in every 97 homes had some sort of foreclosure activity. Trenton wasn’t far behind with one in every 172 homes in financial distress.”
‘U.S. multifamily-building prices are 33 percent higher than they were at the prior peak in 2007, according to Moody’s Investors Service and Real Capital Analytics Inc., a jump stoked partly by the abundant financing from Fannie Mae and Freddie Mac. That’s raised concerns that a bubble is forming that might pop when interest rates rise, according to Levy, the investment banker. Taxpayers could be on the hook for losses incurred by the mortgage companies if apartment values were to fall sharply.’
‘Detractors argue that providing subsidized loans to deep-pocketed real estate investors isn’t in line with the mandate of the government-sponsored entities.’
“If the purpose of the GSEs is to provide liquidity to the secondary mortgage market, in an effort to promote homeownership, a focus on funding multifamily rental properties seems inappropriate,” Josh Rosner, an analyst at research firm Graham Fisher & Co., said in an e-mail. “This approach only serves to deliver a public subsidy to private players.”
“Taxpayers could be on the hook for losses incurred by the mortgage companies if apartment values were to fall sharply.”
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Looking back at the response to 2008, and policy thereafter, our political leaders bet everything on that event being an extreme anomaly with no chance of happening again. Of course, our bankers know there is no such guarantee, so with the active assistance of the executive and legislative branches of government, they’ve made sure they’re protected at the expense of the rest of us when it does happen again.
The political consequences of it happening again will be the end of democracy. It will be deserved.
It’s already happening. It never stopped. It is just a continuation of the mortified, comatose, failing economy.
Inflated, bottlenecked and fixed prices my friend.
I’m not so sure about “the end of democracy”, but major economic pain usually does topple regimes. That would be a good thing.
Not necessarily; it’s likely that we will get a more totalitarian government instead which will make the Obama(/Hillary) years look like the good ol’ days. We’re already most of the way there.
The downtown of my local suburb city of 50K people has been transformed into an Agenda 21 showpiece (midrise apartments with ground-floor retail, owned by multinational corporations, and situated along the future light-rail line) over the past 15 years, and the locals like it not one bit. It has been an election issue this year, but people don’t realize that there is nothing that local governments can do to stop it.
That just because you’re a bunch of local-yokels!!! Don’t you know the future is high-density, car-less, downtowns!!! /scarasm off
As far as opposition to urban planners who know how the rest of us should live, well, the opposition should start at the local level and keep going up the food-chain.
I’ve heard folks say that taking away the GSEs for multifamily would increase interest rates (and potentially cap rates) by 1%.
And moving cap rates from 5% to 6%, all else equal, would decrease the capital value by 20%. That’s big.
I was listening to a radio show yesterday that’s about multi-family rental investing. This guy was talking about how you could not lose. He mentioned, “stuff we were buying for $8,000-10,000 per door a few years ago is selling for $35,000-40,000 per door now.”
I’ve found that the easier it is to understand the thesis, the easier it is for prices to get out of whack.
People are drawn to simple stories.
Everyone lost their homes, they all need to rent, therefore rental units are good investments.
Good thesis, right?
The problem is that a huge amount of the gains in apartments have been due to cap rate compression, which is tied directly to GSE lending and capital flowing to the sector (making the rosy projections a self-fulfilling prophesy).
Yes, income from properties have risen, but they haven’t gone up as much as values.
‘U.S. multifamily-building prices are 33 percent higher than they were at the prior peak in 2007, according to Moody’s Investors Service and Real Capital Analytics Inc., a jump stoked partly by the abundant financing from Fannie Mae and Freddie Mac.’
No bubble here. Nothing to see. Move along, folks.
‘…providing subsidized loans to deep-pocketed real estate investors isn’t in line with the mandate of the government-sponsored entities.’
Really!?
These government sponsored hedge funds, which were supposed to be permanently shuttered by now, apparently operate carte blanche, out of the reach of the rule of law that governs private financial institutions.
This little item came in a few days ago. Nothing to see here:
‘Mortgage giant Freddie Mac reported a $475 million net loss for the third quarter due to losses it sustained on the investments it uses to hedge against swings in interest rates.’
Oh, but the source of the bleeding was much larger that 475 million:
‘Freddie’s third-quarter loss was attributed largely to accounting losses from derivatives, financial transactions that the company uses to hedge against swings in interest rates. Freddie reported derivatives losses of $4.2 billion in the July-September quarter, widened from about $600 million a year earlier.’
That’s 4,200 million dollars lost in 3 months. And what exactly were the wild interest rate swings that happened in that quarter? Aren’t we lucky to have a vigilant media watching for such financial shenanigans?
What percentage of the TOTAL trade(s) was $4.2 Billion ? Was it 7%? 25%? 50%?
Did they place actual or mental or no STOPS?
Just in:
‘Mortgage giant Fannie Mae reported net income of $2 billion for the July-September period, down from $3.9 billion a year earlier. The government-controlled company attributed the third-quarter decline in profit mainly to losses on the investments it uses to hedge against swings in interest rates.’
‘Fannie reported that it lost $2.6 billion on accounting for derivatives in the third quarter.’
http://finance.yahoo.com/news/fannie-mae-posts-2b-profit-135858003.html
That’s 6.8 billion gone in one quarter. Interest rates moved very little.
It smells like conflicts of interest.
Where is an inquisitive media on this? Who got the 6 billion? What kind of derivatives were they? How can they screw up this bad if they are under control of the government? Don’t forget, when the GSE’s first got into trouble (publicly) it was reported that derivatives were the problem.
hmmm … and who was on the other side of that trade … ?
The status of generations following Generation Greed is starting to show up in the vital statistics. Death rate for Whites age 45 to 54 is rising. Wait until these generations, and those after, reach old age.
http://www.economist.com/news/united-states/21677598-white-middle-aged-americans-are-getting-sicker-unseen-killer
As for suicide, the suicide rate for this generation has been higher that the one before since they were teens. Poorer than the generations before, and growing up in worse family situations following the boom in divorce/single parenting.
The suicide rate for the young has soared, even as that of the old has plunged, representing the priorities in our society. Wait until the disadvantaged generations begin to reach old age themselves.
It’s the age of the debtor. Being a broken down debt donkey with no hope can be depressing.
Apparently increaing numbers of people committing suicide or developing an addiction to heroin or oxycontin have an unfavorable effect on death rates. Who could’ve imagined?
Chino Hills, CA Housing Prices Fall 4% YoY; Delinquencies On The Rise
http://www.zillow.com/chino-hills-ca-91709/home-values/
Federal Way, WA Housing Prices Crater 13% YoY
http://www.zillow.com/market-report/11-15/99491/federal-way-wa-98003.xls?rt=14
“The numbers are staggering. Foreclosure auctions are up 61 percent and bank repossessions have more than tripled. For Alejandra and Jose Perez of Galloway Township, New Jersey it was like a one-two punch. Alejandra says, ‘My husband, his hours got reduced from 40 hours to 16 hours a week and then I ended up losing my job also as well, so it got even worse.’”
Besides the news reports about people losing work hours or jobs, we have recently seen personal friends and associates in our immediate circle face layoffs for the first time since the Great Recession. I’m sure it’s coincidental and not indicative of a broader trend.
It should be no surprise after the biggest mining boom in history collapses that there will be a few bubble jobs lost. It’s only the beginning unless another bigger bubble gets blown somewhere.
“you still have to pay a $250 monthly condo fee for the all-valet garage”
which means you’re probably expected to tip the valet in addition to the condo fee, most likely. Not just every day you do the in-out but, given that it’s the east coast, probably at holiday time as well a la an apartment doorman. Why do people so readily vote to be separated from their money?
We’ll fix that - we’ll just pass a minimum-wage law for valets. Then the customers won’t feel bad about not tipping them. See how that works? Mandatory $15/hour restaurant workers in the Seattle area are already learning that the hard way.
Meanwhile, my local Olive Garden is working to eliminate table-side order taking, placing tablet computers on each table which the customers are supposed to use to place their orders. Which reminds me of the short-lived “phone-it-in-from-your-table” phase that A&W Root Beer dine-in restaurants had for awhile back in the 1970s.
‘Jordan G. Levine, economist at Beacon Economics…‘While the price of the home may be affordable relative to income, most banks are requiring larger down payments than during the heights of the previous bubble.’
Now now Jordan, Thornberg is going to get mad if you say this is a bubble.
“most banks are requiring larger down payments”
And I don’t buy this BS either.
Funny.. I remember going to see a debate between Thornberg and some real estate shill about a possible housing bubble in the mid-2000s.
Since when did Thornberg drink the kool-aid?
Thornberg is on the receiving end of bubble bucks these days, so he has to avoid pissing off REIC constituents.
‘On Wednesday, the Federal Reserve’s triumvirate reiterated that liftoff in December was still a possibility. That possibility is contingent on economic data continuing to show improvements in the labor market that give monetary policy makers more confidence that inflation will trend back to 2 percent over the medium-term.’
‘But Janet Yellen, Stanley Fischer, and William Dudley aren’t really data-dependent, according to Citigroup Head of North America Economics William Lee. They’re market-dependent. During an interview on Bloomberg TV, Lee said the Fed seems to react much more to financial market conditions than the evolution of economic data.’
‘This, according to Lee, is a huge mistake. “That violates one of the cardinal rules of a young economist that you learn at the Fed, which is don’t let the markets push you around because markets tend to overreact and tend to panic first and think later,” said Lee, who worked as a Fed economist prior to joining Citi.’
“The boss is violating that cardinal rule that every young economist has learned,” the economist continued. “Now she’s the insider’s insider so that makes it even more disturbing that the boss, who’s the ultimate insider boss, has violated those junior rules.”
http://finance.yahoo.com/news/citi-janet-yellen-violated-one-120253056.html
What, exactly, are the “cardinal rules” that a young economist at the Fed learns today? How to say everything and nothing at the same time? Some version of the Greenspan put? I thought it was obvious that the Fed is reactive. It reacts to market perversions that it caused itself, thus compounding them.
I predict no raise in rates, whether in December or in 2016. We’ll get negative interest rates and/or QE4 if we go into recession.
Party on ……
http://www.hollywoodreporter.com/features/hollywoods-notorious-party-house-has-836255
The owner sounds like quite the individual. From the article:
“He got his contractor’s license straight out of high school and has been developing and flipping dwellings ever since — first tract homes in the flats and later hillside mansions, which he designs in a brazen style he proudly characterizes as “bold” (think lights installed on each floor that rotate colors, a la Hollywood Squares) and others believe could be considered tasteful only by confirmed members of the doucheoisie.”
“Tumultuous stock and commodity markets are roiling investors around the globe. For Hong Kong developer Neo Que Yau, that presents an opportunity on Manhattan’s 59th Street. ‘The world economy is fairly weak in general, and I think there’s a lot of room for the New York market to grow,’ said Neo, who’s building his company’s first tower in the city, and the tallest it’s ever developed.”
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Did Mr. Yau contradict himself there? A fairly weak global economy with a lot of room in New York to grow?
The artist’s rendering of the building looks like a tower of stacked children’s blocks.
Southlake, TX Housing Craters; Prices Plunge 13% YoY
http://www.zillow.com/southlake-tx/home-values/