The Days Of Impressively Peaking Values Are In The Past
A report from Bloomberg. “Welcome news for America’s renters could be unhelpful for the Federal Reserve. A 42-year high in the number of apartment buildings under construction points to an impending surge in supply that portends a moderation in the cost of shelter, which in June capped the biggest 12-month jump in almost a decade. Any cooling in the most pronounced driver of inflation means the Fed will have to wait even longer to reach their 2 percent price target — a prerequisite for some policy makers to raising interest rates.”
“Costs for shelter accounted for 63.9 percent of the run-up in the consumer price index excluding food and fuel in the 12 months ended June, the most since 2007 and almost four times the contribution of medical care, the next-biggest source of upward pressure, according to the Labor Department. That boost will be difficult to repeat.”
“Ben Weixlmann, who recently relocated to Washington, saw seven apartments over two months before moving with his girlfriend into a new development in Arlington. For a few hundred dollars more, they snagged a two-bedroom place instead of having to settle for a one-bedroom. ‘We found somewhere we’re both quite pleased with,’ said the 28-year-old, who works for an aerospace company. What helped cinch the deal: a 14-month lease for 12 months of rent.”
The Naples Herald in Florida. “Naples Area Board of Realtors Mike Hughes was somewhat subdued as he announced the latest data for the real estate market in Collier County. NABOR’s second quarter market report showed double-digit declines in pending and closed sales. It’s provided for a splash of cold water after a torrid 2015. ‘We’re facing some headwinds,’ Hughes conceded. ‘We have a nasty presidential election, and I don’t care who you’re for, it’s going to continue to be nasty until the election takes place. So that’s one thing that’s affecting consumer confidence.’”
“Pending sales dropped by 11 percent over the same period a year ago, with closed sales falling by 14 percent. Median closed price, which rose by double digits in 2015, has remained virtually flat, growing by 2.0 percent to $325,000. Meanwhile inventory on the market rose by 35 percent over this time last year. ‘[T]he days of impressively peaking values and expecting a price over market value are in the past,’ said Kathy Zorn, of Florida Home Realty.”
From Greenwich Times in Connecticut. “Second-quarter home sales in Fairfield County reached their highest level in a decade, according to a new report from Douglas Elliman. But not everything went up. The median sales price was $360,000, a decrease of 16.5 percent from the same quarter last year, and the luxury median sales price, at the top 10 percent of the market, fell 26.4 percent to $1,815,700. ‘What’s happening in Greenwich is what we’re seeing across the region,’ said Jonathan Miller, president and CEO of Miller Samuel Inc. ‘The market is softer at the top and firmer in the middle and at entry-level.’”
“In Greenwich, with its pricey real estate market, housing price trends and sales fell short of the levels from last year. Both the sales of single-family home and condos declined; the median sales price for the former fell 7.5 percent to $1,757,000 while it declined by 26.5 percent to $680,000 for the latter. Luxury-market prices followed the overall trends of the market.”
The Inland Valley Daily Bulletin in California. “The townhomes sit half-finished — or half-unfinished depending on your perspective — and the city of Claremont has had enough of what officials and residents are calling blight. So this week, city officials will be meeting with Newport Beach-based William Lyons Homes to discuss the status of a 95-unit townhome project near the 210 Freeway, Mayor Sam Pedroza said. The development has not been, well, developing for some time, said Pedroza, who, along with other city officials, is calling for the project to either get moving again or be sold to another builder who will finish it.”
“‘I think we’ll continue pushing to make sure that either the developer moves forward with something or they figure out a way to unload it to someone else. From a city perspective we’re not going to ignore it,’ Pedroza said. ‘Not only is it a blighting type of situation, but the community gets upset when they see nothing is happening as well.’”
“Claremont Community Development Director Brian Desatnik said the city is working to find options that would complete the project. ‘We don’t like any project sitting half-completed, so the site as it currently sits is a blight on the neighborhood,’ Desatnik said. ‘It is not acceptable to us.’”
“The Claremont City Council in February was informed that construction was halted. Desatnik said William Lyon Homes, which has 19 other projects currently for sale in Southern California, indicated it needed 60 days to reassess the market. ‘They did not believe the market was in a place where they needed it to be in order to proceed with the project,’ he said.”
Rental watch has been in denial about this:
‘A 42-year high in the number of apartment buildings under construction points to an impending surge in supply’
Every time I say it’s a 30 or 40 year high in construction, he has a conniption. More from the article:
“To expect rents to stay this strong would be a bit of an overreach,” said Richard Moody, chief economist at Regions Financial Corp. “Will the market be able to absorb all that supply that’s coming on? I have my doubts. We’ll see rent growth decelerating.”
‘Shelter inflation is “reaching a plateau,” Goldman Sachs economists wrote in a June research note, and while it may remain elevated into next year, they don’t project any additional pickup. Counterparts at Morgan Stanley went one step further, forecasting a deceleration over the next couple of years.’
“Additional supply in the multifamily market caps the upside in rental-price growth as vacancy rates are now rising and supply is catching up with demand,” Morgan Stanley economists wrote.’
‘All those projects are now coming on line: The number of buildings under construction with five or more units climbed in June to the highest since 1974 and the most were completed since 1989, Commerce Department data show.’
“Everybody got enthusiastic about building, and what we’re seeing now is an excess supply,” said Ryan Severino, a senior economist at Reis Inc., which tracks apartment trends. “I don’t think apartment demand will collapse, but it’s struggling to keep pace with the huge volume of construction.”
1974. 1989. Rental watch claims to be a numbers guy. Look at the chart titled, “Multifamily buildings in the pipeline at multidecade highs.”
You may be a numbers guy, but you may need glasses.
You are focusing on one aspect of housing…multifamily development. I’m looking at housing as shelter…whether it be for rent or for sale.
I think if you looked through my posts, you would see long ago I noted that apartments was an area that concerned me.
However, when you combine apartment development with single family development (after all, shelter is shelter), we aren’t building enough.
https://www.census.gov/construction/nrc/historical_data/index.html
Pull the “All Data” spreadsheet for “started”.
Is that seasonally adjusted or not?
They have annual, seasonally adjusted, and NOT seasonally adjusted.
R_F is making progress through. Just last week he begrudgingly conceded to the grim reality of 20+ million excess empty and defaulted housing units.
“Costs for shelter accounted for 63.9 percent of the run-up in the consumer price index excluding food and fuel in the 12 months ended June, the most since 2007 and almost four times the contribution of medical care, the next-biggest source of upward pressure, according to the Labor Department. That boost will be difficult to repeat.”
So the Fed is deliberately engineering and cheerleading for rental price inflation in order to provide themselves with an excuse to raise interest rates?
What a bizarro world of macroeconomic policymaking we Americans inhabit!
The so called rent decreases in San Francisco have yet to cross the GG bridge. My sister’s rent went up again last month.
Yet still half the cost of buying at current grossly inflated asking prices of resale housing.
’so called rent decreases’
It’s even shown up in corporate earnings, which has a bit of a lag from the market. Like months.
Hmm maybe I should short AVB.
Hang onto every dollar you can…. You’ll need every last one of them. Thank us later.
Yeah I wish, but I gotta get a new car sometime in the next few months.
My perspective…FWIW.
The biggest risk is for people that have all their bets on filling up brand-new units at very high rents. The depth of demand at those rates is probably not there for all the units being delivered. HOWEVER, the effect on rents for cheaper housing will be muted.
In other words, if you are banking on a major collapse in overall rent levels in the SF Bay Area, I would question that assumption by looking at the overall vacancy rate in the region compared to the number of units being delivered, and see if the number of units being delivered is going to meaningfully increase the overall vacancy rate.
How much does the “glut” of apartments being developed represent as a percentage of the total rental housing stock? 1%? 2%? 3%?
If your starting point is a vacancy rate of less than 4%, you can make your own judgement as to how much of an overall difference that will really make.
Here is a recent article on the difficulty in adding units in SF.
http://sf.curbed.com/2016/7/22/12259876/trulia-delays-red-tape-home-prices
Here is the money quote:
“The city’s housing stock has increased only 12.3 percent over the last 20 years.”
With that logic, the housing and rent prices should have never dropped after the dotcom & 2008 crashes.
RW,
Your may be right about rents only moderating, NOT dropping, assuming employment stays at current levels or increases slightly.
But if the app bubble (I refuse to call it a tech bubble; AirBnB and such are NOT tech companies) pops, then you have a triple wham:
1. Falling employment, especially in high paying jobs
2. Increased housing supply
3. And I wouldn’t be surprised to see, if prices start to drop, a lot less buying by Chinese “investors” and such
4. And all that would lead to absolutely massive rent drops, at least 30% (like after the dot-bomb implosion), and probably a lot more (since there wasn’t the same level on new housing coming on-line), like back to what they were in 2009
“With that logic, the housing and rent prices should have never dropped after the dotcom & 2008 crashes.”
Recessions effect jobs, sentiment, etc. Of course it will effect housing everywhere. HOWEVER, if you look at the severity of home price drops and speed of price recovery, the price drops were less severe in the SF Bay Area, and the price recovery more rapid.
I know, I was watching as a renter for years for prices to fall to a level that made sense…while prices farther inland fell by 50-60%, closer to the coast, they did not. And the window to buy was short.
BearCat,
I totally get it…I have the same gut feel–I mentioned my concern about office in the Bay Area a while back. However, at the same time, Uber, AirBNB, etc. are NOT dogfood.com. They do serve a purpose, they do earn a profit, and regardless of whether they grow to be $200B companies, they will likely exist. Just look at Groupon. I wouldn’t want to own it, but it still pays salaries.
And you have Facebook that I think you would agree is growing like mad and Google which is also growing like crazy.
The housing problems in the Bay Area have been building for decades. It will take a long time and lots of development to “normalize” the market.
Nonsense.They do not earn a profit.
Facebook is not “growing like crazy.”
People are spending less time on social media apps -> http://www.cnbc.com/2016/06/06/people-are-spending-much-less-time-on-social-media-apps-said-report.html
Plus now that you’re seeing these social networks start to ban people and block links that don’t jive with their company’s political stances (ie Facebook blocking links to DNC email scandal), you’re likely to see more people desert these personal data aggregators.
Facebook had 4,600 employees in 2012 on $5B in revenue.
They have 12,700 employees in 2015 on $18B in revenue.
Roughly tripling headcount and revenues in 4 years seems like pretty robust growth to me.
And we’ll see how they did last quarter in a few days time.
‘grow to be $200B companies’
Black market taxi’s and illegal bed and breakfast apps. I was thinking the other day; Long Term Capital Management rocked global markets by losing $2 billion. Uber will piss that much away in a year:
‘Uber’s Confidential Financials Revealed. They Lose Money On Every Ride But Make it Up on Volume.’
by Gary Leff on January 17, 2016
‘And it turns out that one reason they’ve needed to raise so much capital is because they lost about $1 billion during the first 6 months of 2015. They’re spending big money to expand into new markets. For all of the complaints by drivers – especially in California, arguing they ought to be reimbursed for miles as employee business expenses, for instance — giving drivers an average of 80% of each fare isn’t enough to cover their costs.’
The way I see it, it’s not a coincidence that all these grilled cheese trucks and the like just happened to pop up after the biggest money creation binge in human history.
Don’t know the exact percentage….but lots of those hires were outside CA.
it pays salary
So does k-mart. But is the salary being paid or the rise in salary match the rise in house prices. That’s the crux of the matter, isn’t it?
‘grow to be $200B companies’
BS on the 200B valuations and such. We have suspended the laws of physics and mathematics and any common sense to arrive at that valuation. How long will that continue?
‘Twitter Inc reported its slowest growth in quarterly revenue since going public in 2013 as the company faces intensifying competition. The microblogging service operator’s shares plunged 10 percent in extended trading as revenue for the quarter fell short of analysts’ estimates. Revenue forecast for the current quarter also came in below estimates.’
‘Twitter forecast current-quarter revenue of $590 million-$610 million, well below the average analyst estimate of $678.18 million.’
‘The company’s net loss narrowed to $107.2 million, or 15 cents per share, in the second quarter ended June 30, from $136.7 million, or 21 cents per share, a year earlier.’
As private companies Uber and AirBNB aren’t required to share their finances with anyone but their investors, so you can be sure that any information they share about them puts the company in its most positive light.
Having in a past life worked for a VC-funded tech company (niche market; not any of the ones listed) that led the industry in marketshare and grew sales 5-10% YoY while being cash-flow positive exactly one month in its 10 year history, I find metrics on sales, marketshare, and number of users/transactions/employees an imperfect substitute for metrics on profitability.
Facebook at least is a public company and has to disclose its finances but is in a very fickle industry. And as they say, “past performance is no guarantee of future returns”.
“Long Term Capital Management rocked global markets by losing $2 billion. Uber will piss that much away in a year:”
LTCM lost about $4.5B of equity, but they had used that equity to leverage into positions–borrowing about $125 Billion, and purchasing derivatives of more than $1 Trillion.
With the exception of their last financing, which I think was reported as debt, Uber has been financed with equity. If Uber fails, lots of venture capital investors will have bad days (including Google, who invested more than $200MM into Uber), but Uber’s failure has no chance of causing global catastrophe.
BS on the 200B valuations and such. We have suspended the laws of physics and mathematics and any common sense to arrive at that valuation. How long will that continue?
That’s my point. From my perspective, there are only a 2 or 3 of companies based in the Bay Area with meaningful claims to be worth more than $200B. Apple, Google and Facebook (although Facebook is a stretch based on current earnings).
The valuations are not as relevant as jobs created by companies that make money, and not burn through it–and there are more of those now than during dotcom.
“Long Term Capital Management rocked global markets by losing $2 billion. Uber will piss that much away in a year:”
LTCM was founded in 1994 and imploded in 1998.
I found their name to be richly ironic - “LONG TERM Capital Management.”
Economy
Bailout of Long-Term Capital: A Bad Precedent?
Economic View
By TYLER COWEN DEC. 26, 2008
THE financial crisis is a result of many bad decisions, but one of them hasn’t received enough attention: the 1998 bailout of the Long-Term Capital Management hedge fund. If regulators had been less concerned with protecting the fund’s creditors, our current problems might not be quite so bad.
Long-Term Capital was advised by finance quants, or quantitative analysts, who made a number of unsound, esoteric bets, including investments in interest rate derivatives. When Russia’s inability to pay its debts roiled global markets, the fund, saddled with high-leverage and off-balance-sheet obligations, was near collapse.
Because Long-Term Capital owed large sums to banks and other financial institutions, the Federal Reserve Bank of New York organized a consortium of companies to buy it out and cover the debts. Alan Greenspan, then the Fed chairman, eased monetary policy to restart capital markets, which were starting to freeze up. Long-Term Capital’s shareholders were wiped out, but none of the creditors took losses.
At the time, it may have seemed that regulators did the right thing. The bailout did not require upfront money from the government, and the world avoided an even bigger financial crisis. Today, however, that ad hoc intervention by the government no longer looks so wise. With the Long-Term Capital bailout as a precedent, creditors came to believe that their loans to unsound financial institutions would be made good by the Fed — as long as the collapse of those institutions would threaten the global credit system. Bolstered by this sense of security, bad loans mushroomed.
…
Correlates with what I’m seeing from Trulia… many more places on the market, no price drops.
All in good time Pipe…. All in good time.
‘The median sales price was $360,000, a decrease of 16.5 percent from the same quarter last year, and the luxury median sales price, at the top 10 percent of the market, fell 26.4 percent to $1,815,700. ‘What’s happening in Greenwich is what we’re seeing across the region,’ said Jonathan Miller’
“In Greenwich, with its pricey real estate market, housing price trends and sales fell short of the levels from last year. Both the sales of single-family home and condos declined; the median sales price for the former fell 7.5 percent to $1,757,000 while it declined by 26.5 percent to $680,000 for the latter”
Here I go again with this false bubble talk. The ass poundings continue though.
And doesn’t this sound kinda bubbley?
‘The days of impressively peaking values and expecting a price over market value are in the past’
House prices should never, ever, do this. We’ve got a poster who will stamp his little feet when I say that, but it’s true.
House prices should never, ever, do this.
Well we are talking gambling, aren’t we?
It’s much worse than gambling, actually, because large financial institutions and top government officials are complicit in aiding, abetting and cheerleading the bubble’s growth.
“House prices should never, ever, do this.”
Precisely. Houses are shelter, not investment vehicles. House prices have historically tracked inflation. Anytime that gets out of whack, it should throw red flags.
Not according to RF/JF/CrackPipe/Redmond &Donks.
Falling prices to dramatically lower and more affordable levels is the definition of a ‘housing recovery’.
“The median sales price was $360,000, a decrease of 16.5 percent from the same quarter last year, and the luxury median sales price, at the top 10 percent of the market, fell 26.4 percent
Paging Herr Hessel! Paging Herr Hessel! Feckless Boomer Alert! David Stockman has the indictment to end all indictments of the boomers on Zero Hedge right now! Must read for Herr Hessel. It will make his pants tighter than tight.
I just looked him up. He was born in 1946, making him a baby boomer.
Irrelevant.
‘Welcome news for America’s renters could be unhelpful for the Federal Reserve. A 42-year high in the number of apartment buildings under construction points to an impending surge in supply that portends a moderation in the cost of shelter, which in June capped the biggest 12-month jump in almost a decade. Any cooling in the most pronounced driver of inflation means the Fed will have to wait even longer to reach their 2 percent price target — a prerequisite for some policy makers to raising interest rates.’
‘Costs for shelter accounted for 63.9 percent of the run-up in the consumer price index excluding food and fuel in the 12 months ended June, the most since 2007 and almost four times the contribution of medical care, the next-biggest source of upward pressure’
With central planning like this, who needs enemy’s?
Are making housing and rental prices go up and retiree income security collapse parts of the Fed’s mandate now?
Markets
Why Pensions’ Last Defense Is Eroding
Long-term returns for U.S. public pensions are expected to drop to the lowest levels ever recorded
Demonstrators from Erie, Pa., rallying at the Pennsylvania Capitol in Harrisburg last month to press for more state aid for district schools. Photo: Harvey Levine/Associated Press
By Timothy W. Martin
July 25, 2016 7:16 p.m. ET
Long-term returns for U.S. public pensions are expected to drop to the lowest levels ever recorded, portending deeper pain for states and cities as a $1 trillion funding gap widens.
Twenty-year annualized returns for public pensions in the U.S. are poised to decline to 7.47% once fiscal 2016 results are released in coming weeks, according to an estimate from Wilshire Trust Universe Comparison Service, which tracks pension investment returns.
That would be the lowest-ever annual mark recorded by Wilshire, which began tracking the statistic 16 years ago. In 2001, near the height of the dot-com boom, pensions’ 20-year median return was 12.3%, according to Wilshire.
The dip is intensifying a national debate over whether states and cities can continue to afford pension obligations, as the soaring costs are squeezing budgets across the U.S.
“Many states and local governments may be facing difficult choices if investment returns remain low,” said Keith Brainard, research director at the National Association of State Retirement Administrators. “The money has to come from somewhere.”
Connecticut now allocates 10% of its budget to pay down unfunded pension liabilities that more than doubled in size over the past decade. Chicago’s $20 billion pension-funding hole prompted its credit rating to tumble to junk, a rare low mark for an economically diverse city.
A reminder of how long-term fortunes have turned came last week as two pension bellwethers reported their worst results since the 2008-09 financial crisis.
Weak annual gains for the California Public Employees’ Retirement System and California State Teachers’ Retirement System dropped their 20-year returns below 7.5% investment targets, to 7.03% and 7.1%, respectively. The two funds, known as Calpers and Calstrs, are the largest public pensions in the U.S. by assets and oversee a combined $484 billion for 2.6 million public workers and retirees.
The drop in 20-year annualized returns is significant because officials who oversee retirements for police officers, firefighters, teachers and government workers have long said one bad year or two isn’t as important as the long-term average, and they would earn enough money over decades to pay for retiree obligations.
…
What do you think of this for Palm Beach County?
“Home sales for May 2016 were down 73% compared with the previous month, and down 61% compared with a year ago.”
http://www.realtytrac.com/statsandtrends/fl/palm-beach-county/?address=Palm%20Beach%20county%2C%20FL&parsed=1&cn=palm%20beach%20county&stc=fl
It’s not just Miami Beach anymore.
“There are currently 4,157 properties in West Palm Beach, FL that are in some stage of foreclosure (default, auction or bank owned) while the number of homes listed for sale on RealtyTrac is 2,479.”
=============================================
MY QUESTION: why have the banks been holding on to so many properties when they are in such financial distress? Why aren’t they selling them at DISTRESSED LEVELS?
————————————————————–
http://www.realtytrac.com/statsandtrends/fl/palm-beach-county/west-palm-beach/?address=West%20Palm%20Beach%2C%20FL%20&parsed=1&ct=west%20palm%20beach&cn=palm%20beach%20county&stc=fl
“There are currently 4,157 properties in West Palm Beach, FL that are in some stage of foreclosure (default, auction or bank owned) while the number of homes listed for sale on RealtyTrac is 2,479.”
—————————————————————–
And please take note…that is for the city of West Palm Beach with a population of a little over 200,000. That is NOT referring to the whole Palm Beach County!
Again, why are the banks holding on to these properties when they are clearly under ‘financial crisis’?
Key West, FL Housing Prices Plunge 11% YoY As Flippers Flood Market
http://www.zillow.com/key-west-fl/home-values/
“Facebook Building Apartments”
http://gizmodo.com/facebook-is-building-apartments-anyone-can-rent-but-the-1784309208