February 19, 2016

Lower Demand, Oversupply And A Business Downturn

It’s Friday desk clearing time for this blogger. “Faced with both an uncertain global economy and signs of softening in the city’s ultra-luxury condominium market, should JDS Development Group and Property Markets Group really be soldiering on with plans to build 111 West 57th Street? That’s the question an analyst asked of top executives at Apollo Commercial Real Estate Finance, which provided the mezzanine debt for the supertall project on Billionaires’ Row. ‘Is it your understanding that, despite all the volatility in CMBS and market disruptions, that the developers there are – is it their plan to continue to march forward and at this point?,’ Steven Delaney, an analyst at JMP Securities, asked. ‘Nobody’s pulling back and saying, ‘Okay, I am putting my project on mothballs till the market settles down?’”

“The question, a signal of the market’s broader worries about a correction at the top of the Manhattan residential market, comes as lenders begin to retreat from financing uber-luxe projects. Stuart Rothstein, COO of Apollo Global’s real estate business, looked to dispel worries about the viability of the project during the call. ‘Is what’s going on a risk-off mentality and a lack of liquidity, or it is a fundamental shift in the underlying economy and are we heading towards a recession?’ I’d say I’m not smart enough to know the answer to that,’ he said.”

“There’s an adage that says, ‘the rich are always rich’. There is also an expectation that expensive homes will keep appreciating, regardless of how the overall housing market is performing, But in reality, high-end housing has been showing some signs of weakness. Right here in Anne Arundel County, we are also seeing continued softness for the million-dollar market.”

“When you look at homes priced between $1 and $2.5 million, the months of supply (MOS) is nearly 12, meaning it would take a year to sell all the houses in that price range currently on the market. In May and June of 2015, the situation was even worse, with the MOS for high-priced homes climbing to over 18 months! All this adds up to a glut of expensive homes on the market. If your place is worth $1 million plus, don’t shoot for the moon on price. All you’ll do is shoot yourself in the foot.”

“Good news for those looking to rent in Chicago: Rental rates in the city are falling according to a new report from Abodo. Chicago had the third biggest monthly drop in rental rates among the national markets the company tracks, 9 percent. Only San Jose, California; and Las Vegas, Nevada, both with 11 percent drops, had larger falloffs. Several factors may be contributing to the downward trend, including dropping demand for units and a glut of available housing options in Chicago, the Abodo spokesman said. There has been a huge boom in housing constructing in recent years, according to Michael Taus, Abodo’s vice president of growth. ‘We believe a steady decline in rent prices in Chicago might be on the way,’ he added.”

“Despite a continued production of more than 11-million barrels of oil a month, the effects of the slowdown are moving into Watford City. Economic Development Director Gene Veeder says in many cases, salaries have been trimmed and company housing subsidies have fallen by the wayside, and housing prices are falling to keep units full. ‘They’ve dropped by 50 percent.’”

“More than a third of the housing units in Abu Dhabi are unrented because of a drop in demand and landlord behavior, according to the municipality. ‘Nearly 37 per cent of the available housing units in Abu Dhabi are now vacant…our target is to reduce that level to 8 per cent in 2020,’ said Abdullah Al Baloushi, director of the land and property division in Abu Dhabi municipality. ‘As for the new real estate law, we hope that it will ensure a more accurate property database, control the market and push unqualified and unauthorized brokers out,’ he told local reporters in the capital.”

“Abu Dhabi, with a population of more than two million, has one of the highest rent rates in the world but rents have eased over the past few months due to lower demand, oversupply and a business downturn because of low oil prices.”

“A massive number of Melbourne homes are lying vacant, research from a tax reform organisation shows. More than 82,700 residential properties — or 4.8 per cent of Melbourne’s housing stock — sit empty, while many people struggle to afford to buy or even rent accommodation. Prosper Australia project director Karl Fitzgerald said the report showed land was being hoarded for profit. ‘The incentives for property speculators to hold prime locations empty is an affront to anyone locked out of housing,’ Mr Fitzgerald said.”

“When it comes to putting the frozen city of Yingkou, near the border with North Korea, on the style map, the developers are not short of ambition. But one thing is missing. There aren’t any prospective buyers. In fact, there are no people here at all. No cars on the eight-lane roads; no one in the Olympic-themed sports centre. As dark descends, light shines only from ‘The Happy Pizza Hut,’ Yingkou’s brush with western cuisine. Whole apartment blocks are black. ‘No one wants to live on this side of the river,’ explains a resident of the nearby old town. ‘It’s too far from everything. There are no jobs. It’s a complete waste of money.’”

“Among Yingkou’s developers, ambition has given way to desperation. They admit privately they’ve only sold a fraction of their stock. None would risk talking publicly, but I get a rare opportunity to sit down with Wang Shi, founder and chairman of Vanke, the world’s largest home builder by sales. ‘It’s a real problem,’ he concedes. ‘Many cities have an oversupply of housing.’”

“The wealth and sophistication of Fort McMurray is hard to compare with smaller boom towns, but one common feature is that the decline is often gradual, as enormous reservoirs of wealth seep out of the community. After many years of prosperity, residents cannot accept that the party is over. As houses go up for sale and municipal projects grind to a halt, everyone knows that something important has changed in Fort Mac as the global price of oil has fallen further and stayed low longer than almost anyone expected.”

“‘There was a lot of hope,’ Hark Savinsky says of Atikokan, which saw its population shrink from about 7,000 to just over 2,000. ‘And this is part of the denial, I suppose.’”

“He compares the community’s reaction to the stages of grief, where acceptance only comes after denial, anger, bargaining and depression. It’s hard to say what stage Fort McMurray is at just now. The talk that everything will be back to normal ‘after we get the pipeline’ may indeed be part of the denial stage. In December 2014, I quoted one of Canada’s top commodity economists who said oil had oversold and would bounce back to $70 US a barrel in 2015. But these days even optimists are losing their smiles.”

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Comment by Jingle Male
2016-02-19 03:56:28

“……4.8 per cent of Melbourne’s housing stock — sits empty, ”

Ridiculous and irresponsible. There should be a vacant property taxation policy. Use it or lose it. Vacant properties are a scourge.

Comment by Jingle Male
2016-02-19 04:08:21

“…In December 2014, I quoted one of Canada’s top commodity economists who said oil had oversold and would bounce back to $70 US a barrel in 2015. But these days even optimists are losing their smiles.”

Maybe Dan moved from Albuquerque to Fort Mac.
Calling MacDan, MacDan?????? Come in!

Comment by Ben Jones
2016-02-19 04:50:00

‘How is the Palestine, TX Real Estate market, anyway? In a nutshell—heating up! There is quite a difference in the Palestine, TX real estate market from this same time last year, as well as a difference from just last month!’

‘List Price to Sales Price Average: 92.44% This means that if the property listed at $100,000 the average final sales price was $92,440.’

‘As of today, the market absorption rate (at the time of this posting) is 7.52. Whatever does that mean?! It means that if no other properties were listed for sale in Palestine, it would take 7.52 months to deplete the housing inventory in Palestine, Texas. An absorption rate between 3-6 months is generally considered a balanced market. This month, the market has shifted into a buyer’s market!’

Comment by ibbots
2016-02-19 07:24:12

Palestine in east texas….it is a piece out there. Lake Palestine is pretty nice, it is surrounded by meth labs like some of the lakes in east texas.

Comment by ibbots
2016-02-19 07:25:34

Doh! Is not…..surrounded.

Comment by Sean
2016-02-19 08:22:27

I’ve always thought this was a false metric. A house here kept slashing and slashing its price, finally selling many months later. The agent then advertised “Our houses sell for 98.5 percent of the list price”. Yeah, the NEW list price, not the original listing price.

Comment by scdave
2016-02-19 08:59:39

Your in Austin Sean ??

Comment by Puggs
2016-02-19 21:02:25

No silly. It’s Sean Austin!


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Comment by Ben Jones
2016-02-19 04:55:37

‘B.C. drunk on high housing prices’

‘Budget downplays massive unaffordability problem for Gens X, Y and their children’

‘B.C. Premier Christy Clark criticized Alberta last week for failing to diversify its economy or manage its books, hoping to convince everyone that her province is doing much better.’

‘It’s not - at least from a generational perspective. For Canadians in their 20s, 30s, 40s and their children, B.C. has the worst economy in the country. The 2016 pre-election budget delivered last week does little to fix it.’

‘The bulk of today’s aging population came of age around 1976. Back then, young people in B.C. earned around $51,000 for full-time work (inflation adjusted). Today, full-time earnings pay the typical 25-to-34-year-old around $43,000. That’s the largest decline of any province in the nation.’

‘Simultaneously, housing prices have exploded here more than anywhere else. In 1976, a young adult could buy a B.C. home for around $217,000 (in today’s dollars). Now homes cost nearly $600,000 on average - even though many are smaller condos with balconies, not houses with yards.’

‘This divide between earnings and the cost of housing reveals that the standard of living for younger British Columbians has taken a nosedive. It used to take five years for a typical young Canadian to save a 20 per cent down payment on an average home. Now it takes 12 years across the country, 15 years in Metro Toronto, 16 years across all of B.C., and 23 years in Metro Vancouver.’

‘Even if we ignore that average prices have been skewed by the uber-wealthy, just 15 per cent of homes in Metro Vancouver cost less than half a million dollars and have three bedrooms - enough rooms for a family with two kids. This region includes half the province’s population, residing in cities that stretch from Delta to Langley and Maple Ridge.’

‘No matter how much the premier and Finance Minister Michael de Jong brag about the province having the best growth rates in the country and about B.C.’s triple-A credit status, they are leading the worst-performing economy for younger Canadians when measured by the interaction of earnings relative to the cost of living.’

‘It’s time for the B.C. government to concede that the existence of escalating housing prices is no longer an absolute good.’

Comment by Ben Jones
2016-02-19 04:59:52

‘Premier Christy Clark reissued a stern warning to B.C.’s realtors on Wednesday, saying she has no patience for unethical behaviour and will personally intervene if a pending investigation by the Real Estate Council of B.C. fails to solve problems plaguing the industry.’

‘Clark’s reminder, delivered at a Vancouver Board of Trade luncheon, came some 24 hours after the government tabled a budget that was roundly criticized for not going far enough in addressing some of the factors fuelling Metro Vancouver’s hot real estate market.’

‘While acknowledging the majority of B.C. realtors conduct themselves in an “ethical, honest and upfront way,” Clark said a “small number of realtors” have not been living up “to their ethical obligation.”

“This is a hot market, and in a hot market, there is all kinds of opportunity for unsavoury speculators and unsavoury operators to get involved,” Clark said.’

‘Clark repeated her position that government will get involved if the real estate council is unable to prove through their investigation into issues such as “shadow flipping” that unscrupulous or dishonest behaviour by realtors is being “found out” and “being penalized.”

‘Clark, however, wouldn’t say if she was looking for, or wanting the council to return with, disciplinary action against specific realtors. She also wouldn’t commit her government to directly penalizing realtors should the investigation conclude the council hasn’t been responding appropriately.’

“I’m hopeful the report is going to come back and we will find out that the rules have been followed and, where they haven’t, the proper discipline has been meted out,” she said.’

‘Opposition housing critic David Eby said it was “ironic” that the premier was talking about enforcing rules, given that her government didn’t use this latest budget as an opportunity to close the tax loophole that some realtors are exploiting during “shadow flipping.”

‘Eby said a scan of recent disciplinary decisions by the council suggests the reprimands levied against realtors have not been in line with the infractions they’ve committed. “I’ve seen examples of fraud, I’ve seen realtors cheating clients and ripping them off and getting 30-day suspensions, or at most, a year suspension,” he said. “It’s almost impossible to lose your licence to practice real estate in British Columbia.”

‘Between July 2014 and June 2015, the B.C. Real Estate Council opened investigation files on 536 complaints. It cancelled three licences, issued suspensions, fines and reprimands, and accepted six permanent licence surrenders.’

Comment by snake charmer
2016-02-19 07:35:18

Heh. The premier’s “stern warning” sounded like Holder promising to enforce the law against banks. Fail. And everybody knows it.

Comment by In Colorado
2016-02-19 12:20:19

It used to take five years for a typical young Canadian to save a 20 per cent down payment on an average home. Now it takes 12 years across the country, 15 years in Metro Toronto, 16 years across all of B.C., and 23 years in Metro Vancouver.’

On the bright side for those who are saving for a down payment on a million dollar shack in Vancouver, after the crash their saving should be enough to buy the same shack for cash.

Comment by Ben Jones
2016-02-19 05:03:33

‘Spain raids China’s ICBC offices in money-laundering probe’

‘Authorities raided the Spanish headquarters of Industrial & Commercial Bank of China Ltd. on Wednesday and detained five directors, under the orders of a judge investigating the bank over alleged money laundering.’

‘Spanish and European law-enforcement officials are probing the Chinese bank’s Spanish unit in the alleged laundering of at least €40 million ($44.6 million) in deposits from suspected criminal organizations, Europol, Europe’s law-enforcement coordinating body, said.’

Comment by Ben Jones
2016-02-19 05:08:07

‘British Columbia to track foreign home buyers amid affordability anger and influx of Chinese cash’

‘British Columbia, under pressure to address the high cost of housing after the average price of a detached home in Vancouver jumped 40 per cent last year, introduced new measures on Tuesday aimed at boosting affordability in Canada’s priciest market, including tracking the citizenship of buyers.’

‘The pledges, also including a new higher property transfer tax rate on luxury homes, comes as Beijing is increasing its efforts to plug the burgeoning stream of funds flowing out of China.’

‘With the average price of a detached home hitting C$1.8 million (US$1.3 million) in January, up from C$1.3 million a year ago, frustrations have reached a fever pitch, sending angry protesters swarming onto the lawns of homes slated for demolition and everyone from tech CEOs to Vancouver’s own mayor calling for measures to slow speculation.’

‘The transfer tax applied to the portion of a home valued over C$2 million rises to 3 per cent from 2 per cent. The new rate is well below the 12 per cent transfer levy charged on properties over 1.5 million pounds ($2.15 million) in London, England, which also faces an affordability crisis, and de Jong made it clear his government is not mulling measures to cool housing prices. The Province newspaper quoted de Jong as saying “we are not interested in reducing the value of homes”.

“This budget simply shows the province is drunk on high housing prices,” said Paul Kershaw, a policy professor at the University of British Columbia. “We have to acknowledge that ongoing escalation in housing prices is not a uniform good.”

‘The pledge follows months of increasingly frantic cries from locals for more data on foreign ownership in Vancouver, where real estate agents say buyers with ties to China are the dominant force at the top end of the market. One study of buyers in Neighbourhoods on the city’s pricey Westside found that buyers with non-Anglicised Chinese names made of 66 per cent of all C$2 million-plus buyers, and 85 per cent of C$3million-plus buyers.’

‘This apparent flood of Chinese money comes despite efforts by Beijing to clamp down on currency outflows. Chinese citizens are only allowed to convert the equivalent of US$50,000 a year - well below the C$600,000 down payment on a C$3 million home.’

Comment by Ben Jones
2016-02-19 05:30:14

‘Some upmarket Abu Dhabi landlords are starting to offer tenants small rent reductions as the low price of oil prompts the capital’s housing market to soften. Overall average housing rents in Abu Dhabi fell by 1 per cent during the three months to the end of December 2015, the real estate services broker CBRE reported, as landlords reduced rents for some larger and higher-end apartment types.’

‘It said that tenants looking for cheaper accommodation were renting homes in off-island locations such as Khalifa City, where annual rents for one-bedroom apartments are between Dh40,000 and Dh55,000. In the city centre, they rent for between Dh60,000 and Dh110,000.’

“In response to the tempered market outlook, some landlords are now starting to offer tenants more flexibility, while also becoming more receptive to minor rental discounts, as they strive to maintain and build tenant loyalty to uphold occupancy rates,” said Matthew Green, the head of research and consulting in CBRE’s Dubai office.’

‘Abu Dhabi scrapped its rent cap, pinning rent rises for existing tenants to just 5 per cent, in 2013. The move, which came at a time of an economic boom, helped fuel rampant inflation in 2014 and led to the brokerage ranking Abu Dhabi as the second most expensive place to rent in the world last year – something that has prompted many tenants to up sticks to the cheaper parts of town.’

‘But the oil price slump has prompted the Government to put some planned infrastructure projects on hold, precipitating a series of job cuts in the capital’s highly paid oil and gas, infrastructure, construction and services sectors.’

‘And last week, the British engi­neering company Atkins became the latest construction-related group to cut jobs in the region because of worsening economic conditions. The western law firms Simmons & Simmons, Latham & Watkins, Baker Botts and Herbert Smith Freehills have also recently closed their offices in the capital.’

‘Other major infrastructure projects in the emirate are likely to come under pressure in the coming months as state budgets are squeezed further, pos­sibly leading to further staff cuts for the sort of well-paid expats who would otherwise be renting upmarket apartments in the city.’

Comment by snake charmer
2016-02-19 07:42:51

“More than a third of the housing units in Abu Dhabi are unrented because of a drop in demand and landlord behavior, according to the municipality. ‘Nearly 37 per cent of the available housing units in Abu Dhabi are now vacant…our target is to reduce that level to 8 per cent in 2020,’ said Abdullah Al Baloushi, director of the land and property division in Abu Dhabi municipality.”

There’s absolutely no way that reduction is going to happen. Those places weren’t built for locals.

I mean, does anyone even know someone who lives there? I know a couple of people who have taken one-year work assignments in other Gulf States — Qatar, Kuwait, etc. But no one who has stayed in the region longer than that.

Comment by Bad Andy
2016-02-19 08:43:01

I know some in the IT world that didn’t work out their contract. Good question.

Comment by Larry Littlefield
2016-02-19 05:30:18

How today’s economy is similar to the early 1930s. Financial imbalances, rising debt.


I’d add one other way.

Back then, rapid industrialization in the developed world created a big increase in supply, but the resulting income was not widely shared. Instead, consumer demand was created using the first widespread consumer debt. People became stretched, particularly farmers whose incomes were stagnant (a much bigger share of the economy then), until the whole thing collapsed in a crisis of demand.

In the past 30 years, the development of former “Third World” countries has created another positive supply shock, but once again the benefits have not been widely shared. Consumption was once again maintained by rising consumer debt, and when that failed government debt. The result is another crisis of demand.

Comment by scdave
2016-02-19 08:30:45

Nice post LL…..

Comment by Ben Jones
2016-02-19 05:36:50

‘How Is the ‘Hotel Capital of the Eagle Ford Shale’ Faring in the Midst of an Oil Bust?’

‘Deep in South Texas oil country, there’s a place known as the “Hotel Capital of the Eagle Ford Shale.” More than 20 hotels were built in the small town of Cotulla during the oil boom, but that boom came to a standstill in 2015.’

‘Of all the hotels that opened in Cotulla, there was nothing like the Malana. It sits off the highway, one of the first hotels you see after driving through miles of flat South Texas brush country. It’s right in the middle of the oil patch, but its tiled façade looks like something you’d see in L.A. or Miami. Its website boasts 75 rooms that are “eclectically modern.” It promises not just comfort, but sophistication.’

‘Now, it lies vacant. The parking lot is empty, and it appeared to be closed down. The only sounds were the hum of highway traffic and a flag getting whipped around by the wind.’

“If things had gone the right way – and even if the market had adjusted – I think we could have been okay,” says Bob Zakariah, who led the investment group that owns the Malana. “But the $27 to 30 is not something that is sustainable for anyone. We can’t pump money into a building that, unfortunately, will not give a return in the immediate.”

‘The $27 to $30 he’s talking about was not the cost of a room; it’s the price of a barrel of oil. He says when the new hotels in Cotulla were built, the developers were betting oil prices would stay higher, which would bring in more oil workers to fill the rooms. But, the sustained crash went against those projections.’

‘Zakariah says he realized it was seriously bad news about six months ago. “You knew when you saw the companies – the Rutherfords, the Halliburtons – were starting to lay people off en masse,” he says.’

‘On the streets of Cotulla, people express almost a sense of betrayal that things went bust so quickly. Silvia Casillas and her sister Enedelia both lost their jobs as maids at a trailer park that rented to oil hands when it closed down. “My last day of work was [Nov. 7], and that was it,” Silvia says. “They said that [the jobs] would [last] 20 years, with the oil boom and everything.”

‘Silvia and her sister are sitting in their car a few blocks from the railroad tracks, waiting for a county food bank to open up. They say they can’t find work and were wondering what happened to that 20-year promise.’

‘In Cotulla, Dovolina says the Malana hotel might be repurposed into a retirement home. But if oil doesn’t rebound soon, Zakariah says, his hotel won’t be the last one here to go under.’

Comment by Ben Jones
2016-02-19 07:17:11

From a link posted yesterday:

“When everyone had cheap money and lots of it, they could drill sub-optimal wells,” Roth said. “Some of that acreage isn’t that fantastic. If the Eagle Ford was discovered today, how much would actually be leased? At $40, what would have happened? A lot less would have happened.”

Where is Bernanke? Giving a $150,000 speech? Here’s your easy money Bernanke, distorting markets and now a whole town swirls the bowl.

Hey financial media, can you connect these dots? Easy money equals bad planning equals layoffs and SHTF kinda stuff.

Comment by Sacks of Dong
2016-02-19 16:07:41

The Malana looks like it could “re-purpose” well into a jail. It has that vibe already.

Comment by Ben Jones
2016-02-19 05:38:32

‘Apartment vacancies in Sioux Falls have spiked to a high not seen since 2010, according to the most recent data from the South Dakota Multi-Housing Association.’

‘The group’s January report found a vacancy rate in of 8.6 percent for apartments in the city. That’s almost double the 4.5 percent reported in July 2015. The last time the vacancy rate was that high was from July 2010 to January 2011.’

Comment by Ben Jones
2016-02-19 05:42:40

Denver metro housing market catches refinancing fever’

‘Borrowers made big push to lock in equity gains on homes ahead of interest rate hikes’

‘Denver area residents refinanced 28 percent more mortgages during the last three months of 2015 than they did in the same period in 2014. That was the fourth-biggest jump among the 65 metro areas that RealtyTrac studied with 5,000 or more loan originations and way ahead of the 2 percent increase in mortgage refinancings measured nationally.’

‘Three Tennessee cities ranked ahead of Denver — Nashville up 80 percent, Knoxville up 46 percent and Memphis up 31 percent. Other cities with big gains in refinancing activity included Grand Rapids, Mich., up 25 percent; Fort Meyers, Fla., up 23 percent; and Portland, Ore., up 21 percent. Des Moines, Iowa; Tulsa, Okla., and Albuquerque all had 19 percent gains.’

‘Borrowers who refinanced might have been trying to get ahead of a Federal Reserve interest rate hike in December. A more likely motivation was a move to capture equity after a big run-up in home prices.’

“In many of the major metros with a big increase in refinancing originations, the common denominator is home prices that have reached new peaks or are at least close to their previous peaks,” said Daren Blomquist, a vice president at RealtyTrac.’

‘Denver differed from the Tennessee trio and other cities with heavy refinancing activity in that mortgages taken out to purchase residential properties didn’t increase. Those actually dropped 3.3 percent in metro Denver, which lines up with reports on sluggish home sales in the final months of last year.’

Foreclosures here we come.

Comment by taxpayers
2016-02-19 06:45:30

Watford has an econ development gov employee?
Chop heads!
Salaries getting trimmed” but not his

Comment by Mafia Blocks
2016-02-19 06:52:58

In other words, Denver Debt Donkeys are attempting to stave off the inevitable by cash out refi’s.

Once again…. This is what happens when you pay 250% premiums for a depreciating asset like a house and then double down on those losses by financing.

Comment by Goon
2016-02-19 10:42:45



Some of these shacks were listed 4+ months ago, and had already cut asking prices 2, 3 times, with nary a buyer in sight. No “pentup demand” for $700,000 starter homes happening here.

Denver Business Journal also reluctantly reports a near doubling in apartment vacancy rates.

Comment by Ben Jones
2016-02-19 10:53:41

‘Drive in or around downtown Denver and it won’t take you long to spot a crane and then another and then one more — with nearly each one representing yet another apartment building trying to outshine the ones that came before it — like six months before.’

‘But despite a vacancy rate of 6.8 percent and trending upwards, according to the Apartment Association of Metro Denver, developers still see the metro area as a lucrative market, and they’re using some incredible amenities and rent discounts more than ever before to not only get people to rent, but to keep them renting for years to come.’

‘It used to be that a gym and pool would help developers separate themselves from most other complexes, but the luxury apartment craze has made those amenities seem almost mundane to many luxury apartment shoppers.’

‘Spencer Stuart, with Legacy Partners, said they’re just trying to “one-up” the next developer, which makes it likely that every developer is thinking the same way.’

‘Many apartment companies combine the amenities with anywhere from two-weeks free rent to two-months free rent to attract potential renters.’


And Mel Watts is funding most of this all over the country. It’s gonna be a CRE disaster.

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Comment by Ben Jones
2016-02-19 10:58:17
Comment by Goon
2016-02-19 11:17:43

I live in a building that does not allow any pets, that alone eliminates interest from half the pool of potential renters. My building does not have balconies or fireplaces. It has a ground floor exercise room, a top floor lounge with a pool table and bigscreen TeeVee, and a rooftop deck with a gas grill.

Special snowflake millennial renters need more than this after going to college living in dorms more like hotels than the cinder block walled dorms at my Football Factory State University.

Comment by Ben Jones
2016-02-19 11:27:56

I kind of stumbled upon this apartment bubble, mainly because I found a radio show about it. Here’s what these people think, almost all of them; it’s a new paradigm. People are going to rent forever and are willing to pay whatever we say because there’s a shortage! Throw out those old ways of measuring what something is worth. The governments tilted the tax code so we get tax free cash flow, we can do a 1031 exchange every 10 years or so, prices double every ten years, maybe less. It’s the golden age of multi-family and you CAN NOT LOSE.

I actually heard a guy go on saying you couldn’t lose for 30 minutes. And with the GSE’s funding it, it’s flip time! D units become C’s, C’s become B’s, and B’s become A’s. The new stuff? It’s all A+ baby, because with land doubling or tripling, that’s all that “pencils out.” And the best part; we’ll just raise the rents to pay for it. And next year, we’ll raise rents again. We’re never gonna stop raising rents. They’ll go up big time, forever! This is what they think.

‘According to the 2016 U.S. Multifamily Investment Forecast report released by Marcus & Millichap, the U.S. apartment market is poised for another year of expansion, marking a seventh consecutive year of rent growth and robust apartment demand.’

‘In 2015, the multifamily investment market willingly absorbed the largest wave of completed units since the 1980s.’

“Demand for apartments has been underpinned by steady employment growth, positive demographic trends, and modest but consistent wage increases,” said John Chang, first vice president, research services, Marcus & Millichap.’

“These factors have helped tighten apartment vacancies and push rent growth to an historic high. Even with significant construction gains, the industry remains hard-pressed to meet demand in several markets as accelerating household formation combines with the millennial generation’s continuing preference for rental housing.”

“The housing market and commercial real estate market, generally, are transitioning from a rapid-paced recovery to a healthier, more sustainable, normalized rate of growth.”

‘All 46 markets tracked in the report’s National Multifamily Index (NMI), are forecast to post continued employment gains and effective rent growth in 2016. The report notes that while employers are projected to create 2.6 million new jobs, the expected delivery of 285,000 new apartment units will track marginally ahead of the level of demand, resulting in a 10-basis-point uptick in apartment vacancy to 4.3 percent.’

‘Even with a slight increase to vacancy levels, rising employment and wages will support an increase in the national average rent of approximately five percent.’

“Strong results generated by apartment investments in 2015 will continue to spark rising activity in 2016 and will encourage investors to broaden their acquisition criteria beyond core markets,” noted John Sebree, national director of Marcus & Millichap’s National Multi Housing Group.’

“As economic momentum spreads to secondary and tertiary markets, investors will increasingly pursue opportunities in these areas; this will in turn offer investors who have held assets in these smaller metros to reposition their portfolios. The apartment market will be exceptionally dynamic this year, drawing capital from a broad range of sources.”

“Life insurance companies increased their allocations to the multifamily sector at the end of 2015 and promise to become a greater source of debt in the institutional segment of the market in 2016,” said Hughes.’

“Government-sponsored enterprises will also refocus on workforce housing and smaller niches of the multifamily market. There is also movement in CMBS issuances which will continue an ebb-and-flow pattern similar to that in 2015,” added Hughes.’

“The most notable difference in lending we anticipate this year as opposed to last is increasing bridge lender activity in response to the demand for financing for value-add strategies and asset repositioning.”


value-add strategies and asset repositioning - This is industry speak for slapping some new carpet in or granite counter tops and raising the rent 40%.

Comment by Ben Jones
2016-02-19 11:32:54

‘I live in a building that does not allow any pets’

As a landlord I couldn’t take this route. Too many people have pets. Once I was talking with this feisty carpet cleaner guy while he was working on some pet stains. He said, “Why does anyone have carpet? You couldn’t give me a piece of carpet.”

Comment by snake charmer
2016-02-19 12:08:45

“For instance, the new Legacy Partners development will feature a fitness center and third-story pool with a mountain view, but it will also feature a roof-top deck, a conference center, offices, a lounge with televisions, a gaming room, a wine cellar, a self-serve bike repair shop and even a ‘dog spa,’ a dog washing station that may or may not be staffed.”

I’m always curious how frequently these costly amenities are used. Exercise equipment must be maintained and becomes dated very quickly. What’s in the gaming room, a pool table and foosball?

Every single one of these items is a luxury, especially for young people burdened by debt who can’t find a stable well-paying job.

Comment by CHE
2016-02-19 13:57:59

From what I saw when my friend managed a brand-new $3000+ a month apartment building in Downtown LA - not much.

Hardly anyone used the rooftop deck. I saw a handful of people at the pool - mostly I assume because it only got sun a couple hours a day.

My favorite amenities were a dog grooming room and a massage room.

Comment by rj chicago
2016-02-19 11:52:21

Denver -
Sounds like the cry of sad pandas is about to commence. Yikes…all them rentals and one with an in home gigolo to boot - love the picture of the shirtless guy on the site that Ben posted…..:) - Me I would prefer a topless female type with a couple of nice hoots!!! THAT would sell me on a rental anyday.

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Comment by Ben Jones
2016-02-19 12:03:54

When I was out there recently, there was construction everywhere. There are a bunch of condos downtown. (Hobo’s too). The thing about downtown is, everything is expensive. A cup of coffee or a bottle of water - tack on 40-100%.

Comment by Combotechie
2016-02-19 07:01:51

“Despite a continued production of more than 11-million barrels of oil a month, the effects of the slowdown are moving into Watford City. Economic Development Director Gene Veeder says in many cases, salaries have been trimmed and company housing subsidies have fallen by the wayside, and housing prices are falling to keep units full. ‘They’ve dropped by 50 percent.’”

An observation: A mining operation will keep on generating income as long as the ore is excavated from the ground and and oil will do the same, it will keep on generating income income as long as the oil is pumped out of the ground.

But a mining operation and an oil generating operating differ in that the mining operation needs to keep a lot of people employed, keep miners employed, in order to keep ore coming out of the ground but an oil well won’t; An oil well will keep on pumping oil long after the well is drilled. Once the well is drilled the oil drilling work force will move on to drill another well but the oil-extraction work force will remain on the scene.

So, what does this mean?

IMO a mining operation is a truly and totally boom-or-bust operation in that if the price of ore drops to the point that makes the extraction of ore unprofitable then the mine will be shut down and the result will be a ghost town because everyone - everyone! - associated with the mine will be out of a job.

But an oil town is not like that; An oil town will still have income coming in due to the oil that is continuously being pumped out of the ground from wells that have already been drilled and the wages of the workers that are on the scene to make this happens. But the wages of the drillers will vanish because the low price of oil will kill the incentive for new wells to be drilled and it is the lack of these wages - the wages from the drillers - that causes the town’s finances to diminish - diminish but not diminish to the point of going to zero, something that will happen in a mining town.

Which means all hope of an economic recovery vanishes in an ore-extracting mining town when the mines are closed and income drops to zero and hence the inhabitants - all of them - pack up and move off to someplace else (see Bodie).

But in an oil town this does not happen; In an oil town there is still enough of a dribble of income going into the town to keep the economy of the town alive (if barely) due to the continuous operation of the oil wells. Which means the town may evolve into a poor town, a very poor town that barely hangs on, but it won’t evolve into a ghost town.

Which means the oil town inhabitants will always suffer by enduring poverty conditions because the town will always remain in poverty as long as the drillers are kept away by low prices, but mining town inhabitants will not suffer enduring poverty because low ore prices will end up shutting the town down and this will drive the inhabitants out of the town.

Comment by Combotechie
2016-02-19 07:16:12

Note: Generally it is not the wealth of the oil that goes into powering the finances of an oil town, instead it’s the wages paid out in order to extract the oil that goes into powering the town’s finances.

The wealth of the oil itself ends up in places that are associated with Wall Street.

Comment by Mafia Blocks
2016-02-19 07:15:22

25 MILLION excess, empty and defaulted houses CHECK

Housing demand at 20 year lows and falling CHECK

Housing prices inflated by 250% CHECK

Household formation at multi decade lows CHECK

Rampant housing fraud CHECK

A media corrupted by the housing industry CHECK

Population growth the lowest in US history CHECK

Immigration flat to slightly negative CHECK

What were you saying about housing?

Comment by Senior Housing Analyst
2016-02-19 07:30:46

Dallas, TX Housing Market Craters As Prices Plummet 15% YoY; Toxic Mortgages Financed Inflated Sales


Comment by Mafia Blocks
2016-02-19 07:34:53

Novato, CA Housing Prices Crater 12% YoY


Comment by Larry Littlefield
2016-02-19 07:43:35

“The Saudis may go public, OPEC’s in disarray, the U.S. is suddenly a global exporter, and shale drillers are seeking lifelines from investors as banks abandon them.”


“Welcome to oil’s new world order, full of stresses, strains and fractures. For leaders gathering in Houston next week at the IHS CERAWeek conference — often dubbed the Davos of the energy industry — a key question is: what will break first? Will it be the balance sheets of big U.S. shale companies? The treasuries of Venezuela and Nigeria? The resolve of Saudi Arabia, whose recent deal with Russia to freeze output levels offered the first hint of a rethink?”

“After watching prices crash through floor after floor in the worst slump for a generation, the industry is eager for answers. Insiders say it’s not too hard to visualize what markets might look like after the storm — say five years down the line, when today’s cost-cutting creates a supply vacuum that will push up prices. But it’s what happens in the meantime that’s got them scratching their heads.”

Comment by Blue Skye
2016-02-19 13:37:37

“Insiders say it’s not too hard to visualize what markets might look like…”

They might look like they did 30 years ago.

Comment by Mafia Blocks
2016-02-19 07:46:13

Update: “Crude Tumbles Back Below $30″


Remember….. Nothing accelerates the economy, creates jobs and cures poverty like falling prices to dramatically lower and more affordable levels. Nothing.

Comment by Senior Housing Analyst
2016-02-19 09:33:23

Austin, TX Real Estate and Homes for Sale-17,383 properties found


Austin, TX Price Reduced Homes for Sale-3,952 properties found


23% of all Austin TX sellers slashed their price at least once

Comment by taxpayers
2016-02-19 11:18:52

this reduces percentage seems to run 20-45%
got a standard deviation number
you could post when it 2+ st dv

Comment by Senior Housing Analyst
2016-02-19 17:42:01

Thanks but no thanks. Readers prefer to see the daily housing data.

Comment by Mafia Blocks
2016-02-19 09:46:13

“Why Negative Interest Rates Spell Doom For Capitalism”


Keep in mind that negative interest rates are a hallmark of communist central planning(central banking) and command and control economies.

Comment by Ben Jones
2016-02-19 09:47:23

‘If you go under the knife or consult a lawyer or financial adviser, the chances are fairly good that the person caring for you will be humming to the tune of a loss-making rental property.’

‘Surgeons, anaesthetists, lawyers, mining engineers and financial managers have the highest propensity among the professions for investing in rental properties, and the highest average tax benefits. Twenty-eight per cent of surgeons claim deductions for losses on rental income, and earn an average tax benefit (reduction in their tax liability) of $4,161.’

‘Surgeons, anaesthetists, lawyers, mining engineers and financial managers have the highest propensity among the professions for investing in rental properties, and the highest average tax benefits.Surgeons, anaesthetists, lawyers, mining engineers and financial managers have the highest propensity among the professions for investing in rental properties, and the highest average tax benefits.’

‘Anaesthetists are even more likely to take a plunge on a loss-making rental property, with 29 per cent claiming rental losses and earning average tax benefits of $3,352.’

‘Lawyers are only the third biggest sharks in this busy pond, with 22 per cent of lawyers earning an average tax benefit of $1,788, just ahead of mining engineers (22 per cent, $1,336) and finance managers (23.4 per cent, $1,247).’

‘In sharp contrast, teachers, nurses and police – who Treasurer Scott Morrison says are the biggest users of negative gearing – are less likely to own a negatively geared property, and those that do claim much smaller deductions.’

‘Tax benefits from rental losses dwarf those from share investments. The total rental losses claimed in 2012-13 was $12 billion. In 2011-12, share investors claimed losses of just $1.4 billion.’


Comment by Mafia Blocks
2016-02-19 09:52:41

“‘Anaesthetists are even more likely to take a plunge on a loss-making rental property,”

Huffing their own $hit.

I can confirm the theme of this though. I know a herd of people in the medical field who made the error of “investing in housing”. They’re good at their jobs but incredibly naive and stupid with money and business decisions.

Comment by Puggs
2016-02-19 10:17:36


Just cuz you make $200,000 doesn’t mean you can out earn your stupidity ALL the time…

Comment by snake charmer
2016-02-19 10:04:46

It’s not a profession, but I’m guessing that real estate agents, on a per capita basis, own more rental properties than medical professionals.

Comment by Ben Jones
2016-02-19 09:50:27

‘Chicago had the third biggest monthly drop in rental rates among the national markets the company tracks, 9 percent. Only San Jose, California; and Las Vegas, Nevada, both with 11 percent drops, had larger falloffs.’

San Jose, eh?

Comment by Senior Housing Analyst
2016-02-19 09:55:48

San Jose, CA Housing Market Craters; Prices Plummet 8% YoY On Falling Rental Rates And Ballooning Inventory


Comment by rj chicago
2016-02-19 11:44:30

“Several factors may be contributing to the downward trend, including dropping demand for units and a glut of available housing options in Chicago, the Abodo spokesman said. There has been a huge boom in housing constructing in recent years, according to Michael Taus, Abodo’s vice president of growth.”

One thing this guy forgot to mention is the folks who are just simply moving away and vacating this liberal utopian wet dream.

Comment by Combotechie
2016-02-19 11:52:19

Some info from the BLS for San Jose-Sunnyvale-Santa Clara …


Check out the 12-month rate-of-change for “Information” employment from its peak of 14.0 percent in August, 2015 to the last (preliminary) report of 10.2 percent in December. That’s a big drop off, a drop off that maybe suggests a change in trend. Maybe.

If the big bucks are made in the information industry and these big bucks find their way into real estate then any change in the information industry should be reflected in real estate, and maybe this is what we are beginning to see. Maybe.

Something to think about.

Comment by rms
2016-02-20 01:40:57

“…from its peak of 14.0 percent in August, 2015 to the last (preliminary) report of 10.2 percent in December.”

Realize that 58-degrees F is the freezing point in California; think hibernation. When it thaws out in Spring the madness will return.

Comment by Ben Jones
2016-02-19 09:54:35

‘Is what’s going on a risk-off mentality and a lack of liquidity, or it is a fundamental shift in the underlying economy and are we heading towards a recession?’

Give that man a see-gar!

‘Whole apartment blocks are black. ‘No one wants to live on this side of the river,’ explains a resident of the nearby old town. ‘It’s too far from everything. There are no jobs. It’s a complete waste of money.’

The BBC article goes on to say this CEO is off around the world to build more housing and wonders, will he repeat these blunders elsewhere?

Comment by Ben Jones
2016-02-19 09:59:07

Not a good sign.

‘Beijing is banning all foreign media from publishing online in China’

‘In the latest sign that China’s long-touted “opening up” is reversing into a “closing down,” a Chinese ministry has issued new rules that ban any foreign-invested company from publishing anything online in China, effective next month.’

‘The Ministry of Industry and Information Technology’s new rules (link in Chinese) could, if they were enforced as written, essentially shut down China as a market for foreign news outlets, publishers, gaming companies, information providers, and entertainment companies starting on March 10. Issued in conjunction with the State Administration of Press, Publication, Radio, Film and Television (SARFT), they set strict new guidelines for what can be published online, and how that publisher should conduct business in China.’

‘“Sino-foreign joint ventures, Sino-foreign cooperative ventures, and foreign business units shall not engage in online publishing services,” the rules state. Any publisher of online content, including “texts, pictures, maps, games, animations, audios, and videos,” will also be required to store their “necessary technical equipment, related servers, and storage devices” in China, the directive says.’

‘Foreign media companies including the Associated Press, Thomson Reuters, Dow Jones, Bloomberg, the Financial Times, and the New York Times have invested millions of dollars—maybe even hundreds of millions collectively—in building up China-based news organizations in recent years, and publishing news reports in Chinese, for a Chinese audience. Many of these media outlets are currently blocked in China, so top executives have also been involved in months of behind-the-scenes negotiations to try to get the blocks lifted.’

‘They will be tough to enforce, Ying Chan, the director of the journalism program at the University of Hong Kong, told Quartz. “Using rules of the print age to govern the internet does not work,” she said. “How do you license media in an age when everyone could become a writer and publisher? With these set of regulations, the government is fighting both market forces and technology.”

‘Nonetheless, the rules are yet another indicator that under president Xi Jinping, Beijing is moving to consolidate control, reduce foreign influence, and wipe out any dissent in China.’


Comment by Goon
2016-02-19 10:46:32

Notice the similarity between this and what fat old hag Dianne Feinstein wants in USA with legal protections afforded only to designated real journalists?

Comment by Ben Jones
2016-02-19 13:34:32

Is China Trying to Hide Capital Outflows?

‘The central bank omitted data on “position for forex purchase” during its latest report, the South China Morning Post reported today. The unannounced change comes at a time pundits are questioning whether outflows have the potential to cripple China’s currency and economy. Capital outflows lead to a weaker currency, which concerns the hordes of Chinese companies that borrowed debt in foreign currencies over the past few years and now have to pay it back with a weaker yuan.’

‘The impulse to hide bad news shouldn’t come as a surprise. China’s government has been evasive about economic matters from this summer’s stock bailout to its efforts propping up the value of the yuan. Analysts still have a variety of ways to estimate the flows, but the central bank is making it ever more difficult.’


Comment by Blue Skye
2016-02-19 13:49:07

Capital outflow, Corporate debt defaults going parabolic, daisy chained guarantees falling like dominoes, unpaid wages, shutdowns, layoffs, frantic interventions, & etc.

All of these things are being reported in China increasingly and the picture looks darker by the day. I do not imagine that censorship will help at all.

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Comment by In Colorado
2016-02-19 17:03:36

And yet they claim to have 7% growth.

Comment by Ben Jones
2016-02-19 11:03:02

Remember the farmland bubble?

‘Farming and construction equipment behemoth John Deere has sent warning shots to its industry once again as it cut its outlook for this year. The company said Friday that it expects equipment sales to fall 10%, down from a previous forecast of -7%. Deere’s profits in its fiscal first quarter tumbled 80% to $1.12 per share, still beating analysts’ forecast for $0.71 according to Bloomberg.’

‘Incomes in the farming industry have been drying up amid an oversupply of crops that has weakened prices.’


Comment by taxpayers
2016-02-19 11:16:41

everyone quit eating. It happens

My county is raising RE taxes 10x the rate of family income.
Time for a Yurt

Comment by Combotechie
2016-02-19 12:20:36

The World Bank’s Agriculture Price Index chart …


Five years ago the price index was at 225 or so, now the index is at 83.3.


Comment by Blue Skye
2016-02-19 13:51:19

Overcapacity in everything, everywhere.

Comment by phony scandals
2016-02-24 10:44:19

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Comment by phony scandals
2016-02-24 10:45:21

Old Guys Rule T-shirts - Trenz Shirts
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