The Housing Bubble

A report from Bloomberg. “The six-bedroom mansion in the shadow of Southern California’s Sierra Madre Mountains has lime trees and a swimming pool, tennis courts and a sauna — the kind of place that would have sold quickly just a year ago, according to real estate agent Kanney Zhang. Not now. Zhang is shopping it for a discounted $3.68 million, but nobody’s biting. Her clients, a couple from China, are getting anxious. They’re the kind of well-heeled international investors who fueled a four-year luxury real estate boom that helped pull America out of its worst housing slump since the 1930s. Now the couple is reeling from the selloff in the Chinese stock market and looking to raise cash to shore up finances.”

“Across the U.S., the story is much the same. The world’s economic woes — from China to Russia to South America — are damping sales in the high-end real estate market. In the Los Angeles suburb of Arcadia, where Zhang is struggling to sell the six-bedroom home, dozens of aging ranch houses were demolished to make way for 38 mansions built with Chinese buyers in mind. They have are priced as high as $12 million. Many of them sit empty because the prices are out of the range of most domestic buyers, said Re/Max broker Rudy Kusuma, who blames a crackdown by the Chinese on large sums leaving the country.”

“In Sunny Isles, Florida, faraway currency fluctuations are endangering the sale of a $3.7 million condominium. A Colombian woman who put down a 50 percent deposit is fretting over how she’ll cover the other half over the next year, said her agent, Mauricio Rojas. In Houston, the plunge in oil prices to a 12-year low is killing the luxury boom. The whole Houston real estate market is going to take a hit ‘but the upper end is going to be impacted most,’ said Patrick Jankowski, senior vice president of research for the Greater Houston Partnership.”

“Even in San Francisco, where the market for luxury properties remains strong, the inventory of listings for $2 million or more jumped in October to a record level, said Patrick Carlisle, chief market analyst for Paragon Real Estate. Both buyers and sellers were getting increasingly worried about the direction of the economy, he said. ‘More sellers are jumping in and more buyers are holding off because they’re worried about where the volatility is going,’ Carlisle said.”

DNA Info New York. “Much has been made of the effect of foreign investors on driving up New York real estate prices, with some local real estate companies specifically soliciting foreign buyers for upcoming projects before soliciting New York residents. A wave of condos where foreign buyers purchased — as investments to rent out — are flooding the rental market, causing a glut of high-end listings as other high-end rental buildings are simultaneously opening, said Karla Saladino, managing partner at Mirador Real Estate.”

“‘We’re seeing major price drops below last winter’s rent,’ she said of rentals. For instance, when marketing a ’stunning penthouse’ in the Flatiron, Saladino looked at comparable units for pricing information. Usually, she’d find about four similar high-end units. This time she found 48.2.”

The Broward Palm Beach New Times in Florida. “The U.S. government announced two weeks ago that it will begin monitoring all-cash home sales of $1 million or more in two counties — New York (a.k.a. Manhattan), and Miami-Dade, where fraud is also expected. In response to an article about the new program, Melissa Hoff Roth, a Fort Lauderdale realtor, shared her own thoughts about the crackdown on Miami’s condo market on Facebook. She wasn’t exactly upset. ‘Got cash?’ she wrote. ‘The Ft Lauderdale market is hot and a better deal than Miami anyway! Give us a call!!’”

“That’s right: Hoff Roth, and her business partner, Howard Elfman — who is both the president of the Fort Lauderdale Association of Realtors, and director of the entire state’s Association of Realtors — believe the federal monitoring program will push these foreign buyers out of Miami and up into Broward. And they think this is a good thing. ‘It’s a blessing for Broward,’ Hoff Roth said. ‘We’re going to say, ‘We’re not going to look into your pocketbooks, your bank accounts. If you have money, if you can provide a cashier’s check. We’ll work with you. And it’s happening just as Miami is falling.’”

The Denver Post in Colorado. “Metro Denver apartment rents leveled off and vacancies rose sharply between the third and fourth quarters after a surge in new supply left more landlords scrambling to fill their units, according to a quarterly update from the Apartment Association of Metro Denver. In a sign more downward pressure on rents could be coming in the months ahead, the area’s apartment vacancy rate surged to 6.8 percent from 5 percent in the third quarter. It was the biggest quarterly surge in vacancies since heavy job losses caused people to move out of their apartments back in 2008 and 2009.”

“Vacancy rates were highest in northwest Denver at 17.4 percent; Boulder County, excluding Longmont and the city of Boulder, at 14 percent; downtown Denver at 11.2 percent; and north Douglas County at 9.6 percent. Developers have focused on those areas for higher-rent apartments. Given that owners of new apartment buildings may not be familiar with the survey, or may be too busy leasing units to respond, the actual vacancy rate in those areas might be understated, said report co-author Ron Throupe, a real estate professor at the University of Denver.”

“Supporting the argument of oversupply on the high-end of the market, the more affordable areas developers passed over show much tighter apartment vacancy rates. The report said developers added 1,678 new units to the local market, but that net absorption was a negative 4,247 units, meaning once-occupied units were sitting vacant. Throupe, however, dismissed concerns that the apartment market was headed for a ‘crash’ or that the rising vacancy rate signaled a deeper economic weakness. ‘Rents won’t crash,’ he said. ‘We will go flat for awhile. We aren’t having a major downturn.’”