August 17, 2017

People Are Less Willing To Go Crazy And Pay Anything

A report from the Globe and Mail in Canada. “A sharp drop in the number of luxury sales in the Greater Toronto Area pulled down housing prices nationally last month as the country’s largest real estate market cools off and braces for higher interest rates. The slowdown marked the fourth consecutive time that sales volume fell month over month in Canada. Economists say a new tax in Ontario has crimped demand in the GTA while the housing supply crunch has eased. ‘Further monthly declines – albeit more modest – are likely in the near term,’ Royal Bank of Canada senior economist Robert Hogue said in a research note. ‘Market psychology clearly has changed since April in the region. Gone is the earlier frenzy.’”

From Better Dwelling. “Toronto’s detached real estate is having another rough month. Numbers from the Toronto Real Estate Board (TREB) show that buyer indecision provided substantial downward pressure to the detached segment in July. One of the city’s most affluent neighbourhoods, Bayview Village/Hillcrest Village, saw the greatest declines. The benchmark price for a detached in that neighbourhood fell to $1,532,100, a $205,200 decline from the month before. Sales showed large declines, posting the worst number for July in at least 5 years. TREB saw 2,434 sales, a 47.4% decline from the same time last year.”

The Toronto Star in Canada. “Broker Gurinder Sandhu says he is cautiously optimistic that the psychological pause homebuyers have exercised since the provincial housing announcement, which included a 15 per cent foreign buyers tax and expanded rent controls, will end in the fall and the market will return to normal. ‘We haven’t had a normal market in a long time,’ said the executive officer/owner of Re/MAX Realty Services.”

“The return to equilibrium is better for buyers and sellers, but those listing their homes need help recalibrating their expectations, he said. ‘We are not in the market we had in the first four months of the year. That was a fantasyland. That was short-lived but now we’re back to a market where houses are not going to sell in a matter of hours,’ said Sandhu.”

The Business News Network. “The real estate industry is ‘holding its breath’ as regulators look to extend tough mortgage rules in the face of a sharp slowdown in the country’s largest market. Canada’s banking regulator, the Office of the Superintendent of Financial Institutions, is taking aim at the uninsured mortgage market – where homeowners make a down payment of 20 per cent or more. OSFI is proposing stringent stress tests for those borrowers, in line with what’s already happening in the insured market.”

“The period for public comment on the proposal - formally known as Guideline B-20 - ends on Thursday, but the industry is already sounding the alarm over the potential fallout. ‘We need to question whether regulators want to add momentum to this slowdown,’ James Laird, co-founder or RateHub and president of Canwise Financial, told BNN in email.”

“‘If this stress test goes through as it currently reads, it would cause a large number of current borrowers and buyers to be pushed into alternative and subprime mortgages,’ Bruce Joseph, principal broker at Anthem Mortgage, told BNN via email. Still, Joseph says Guideline B-20 is the kind of tough medicine the housing market needs. ‘This sector typically has much looser standards, and a large scale push towards more prudent lending at this point - although negative for home prices - is a move towards long-term stabilization in the financial system,’ said Joseph. ‘If they were in place prior, it would have prevented many of the structural economic issues we now face.’”

From CBC News. “As the Hamilton housing market’s fever continues to break, ‘reduced price’ and ‘new price’ listings are popping up from realtors around Hamilton. A listing for a house a block from Locke Street South in the Kirkendall neighbourhood screams, ‘JUST REDUCED!!’”

“Realtors tend to be an always-sunny lot, and not all who’ve dropped asking prices were willing to talk to a reporter about it. But the ones who did all agree that the era is gone of blind bidding, paying more than $100,000 over asking price and forgoing all conditions in Hamilton’s housing market. There’s less competition by buyers in general, but especially for fixer-uppers that might have still attracted a fistful of generous offers back in the frenzy days.”

“‘The market has changed; the landscape has changed,’ Doug Tunis, the broker and manager of more than 300 realtors at of Royal LePage State Realty. Tunis said the learning curve a couple of years ago was for buyers – agents would take them through a couple of unsuccessful bidding wars and they would realize how competitive it was. Now, he said, the learning curve is for sellers, who think their realtor’s price is way off-base – on the low side.”

“‘They’re saying, ‘My friends, my neighbour, he had 17 offers and he was listed at $899,000 and now you want to list mine at $799,000 and test the market?!’ Tunis said. But if that friend listed six or even three months ago, things have changed since then, he said.”

“‘We have a bit of a adjustment to make coming off of this frothy market,’ said Donna Bacher, past president of the local realtors association. ‘There’s less competition for the fixer-uppers,’ she said. ‘People are less willing to go crazy and pay anything for that. (Buyers) are able to put in conditions, and sellers aren’t being rewarded for deferred maintenance – which we were seeing a lot of.’”

The Barrie Examiner. “To get a firm grasp on the last six months of the central Ontario real estate market, Toronto Real Estate Board’s Stratus System punched out some numbers based on homes sold and inventory available in July 2017 versus when the market was hot in March, and compared them to this time last year. In Barrie, there are currently 685 active listings. Slightly more than 200 homes were sold in July at an average selling price of $471,822.”

“However, in the height of the real-estate storm in March, 272 homes sold but there was very little inventory with only 294 homes for sale at an average sale price of $570,199. One year earlier, there were 260 homes for sale and 208 sold in July at an average price of $433,147. While year-over-year average house price is up about 8%, the average sale price has dropped since March by 17%.”

“Peggy Hill, with Keller Williams Experience Realty, said the over-heated market had already started cooling before the provincial government stepped in. One in every four real estate offers had problems, she said, adding at the height of the storm, in one evening they had 33 offers on the same home. ‘I think buyers were tired of fighting and just backed off on their own,’ Hill said.”

From Insauga. “This, it seems, is good news. According to CREA, a national sales-to-new listings ratio of between 40 and 60 percent is generally consistent with balanced national housing market, with readings below and above this range indicating buyers’ and sellers’ markets respectively. ‘Based on a comparison of the sales-to-new listings ratio with its long-term average, more than 60% of all local markets are in balanced market territory,’ CREA writes. ‘In the Greater Golden Horseshoe region, housing markets that recently favoured sellers have become more balanced, with some beginning to tilt toward buyers’ market territory.’”

“Could it be? Could we really be swinging back towards a buyers’ market after months of wild over-asking offers and bidding wars and open houses packed with hundreds of desperate prospective homeowners? As far as prices go, data indicates that the frenzy is indeed over.”

From Global News. “Is a lack of supply really behind sky high prices in the Toronto market? New analysis by Bloomberg using data from the 2016 Canadian Census suggests that may not be the case. The report found that Toronto grew by 146,200 households between 2011 and 2016, but that over the same time period 175,825 new homes were built. That suggests a surplus of nearly 30,000 homes.”

“The other big question is whether a supply glut could actually prompt a correction. Half of young adults in Toronto live with their parents — the highest ratio in Canada — which according to bank economists is actually slowing household formation.”

August 16, 2017

Huge Gluts Of Overpriced Homes

A report from MarketWatch. “Housing starts ran at a 1.16 million seasonally adjusted annual rate, the Commerce Department said Wednesday. That’s 4.8% below June’s pace, and 5.6% lower compared to a year ago. It also missed the MarketWatch consensus forecast of a 1.23 million rate. ‘The economics of building, with fixed costs associated with permitting and environmental requirements rising steeply, favored the high-end of the market for much of this expansion (it is easier to get those fixed costs back on a $500,000 home than a $300,000 home),’ wrote Stephen Stanley, chief economist for Amherst Pierpont Securities, in a note out Wednesday.”

“‘Anecdotal reports point to a widening chasm between the entry-level market, which is red-hot with inadequate supply, and the luxury market, where there are huge gluts of overpriced homes in many areas. Builders will have to figure out how to make money building starter homes to balance that equation, and that seems to be where we are headed,’ Stanley added.”

From National Real Estate Investor. “In a few overbuilt downtowns, apartment rents are starting to fall. But experts claim that demand for apartment units continues to be so strong, the trend won’t last for long. In Houston, rents dropped by 1.6 percent on average over the past year, according to RealPage. In the top ‘urban core’ neighborhoods where developers have opened the most new apartments, rents have fallen by more than 10.0 percent. ‘There is still some pain immediately ahead for Houston, mainly reflecting that another 22,000 or so apartments will be delivered in the coming few months,’ says Greg Willett, chief economist for RealPage.”

“Developers are expected to open 20,000 new apartments in New York City this year, according to RealPage. That’s about 25 percent up from the year before. ‘Some further rent cuts are possible,’ says Willett. ‘Queens will join Manhattan and Brooklyn among the areas struggling to digest sizable new supply.’”

“Developers are now opening new apartments in Nashville at a rate of nearly 8,000 a year. That’s about double the rate of completions in 2016 and 2015, according to RealPage. ‘And the downtown submarket—where construction is heaviest—is suffering sizable rent cuts,’ says Willett.”

From Real Estate Business Online. “The multifamily market in South Florida is gaining strength but not sales velocity due to converging market and demographic forces. It’s clear the current upcycle will continue beyond the usual period as immense demand from investors is causing an incredible scarcity of Class A product, and the lifestyle preferences of millennials are intersecting with the luxury condo boom. Most condos under construction in South Florida are high-end properties that only a small percentage of the population can afford. That impacts the new blood in the marketplace: millennials. Research shows that they don’t want to own homes and can’t afford them. Millennials are comfortable paying higher rents, as much as 55 percent of their income in Fort Lauderdale.”

“Going forward, a mix of investors will buttress the multifamily market. We’ll have the traditional international sources of capital: Latin America, Canada and Europe, plus new money from Russia, the Middle East and Asia. Add to them out-of-market property owners within the United States. To complete a 1031 exchange, a New York investor that just sold at a 1.5 to 2 percent cap rate will outbid locals on a Miami deal with a 5 percent cap rate.”

The Daily Emerald in Oregon. “A lot has changed at the University of Oregon since the early 1990s. ‘Much of the grounds and feel is still the same,’ 1990 grad and Eugene mortgage company owner Eric Lundberg wrote in an email. However, off-campus neighborhoods have had a much more abrupt transition. ‘Housing around the U of O has changed dramatically,’ Lundberg wrote. ‘The amount and scale of recent student housing near the U of O is staggering.’”

“A combination of increased demand for luxury housing and tax breaks offered by the city of Eugene has led to a housing boom in the last 10 years, and changed the way students live off campus. Today, many UO students live in luxurious, pre-furnished apartments where the amenities make college life very comfortable. The kitchens are stainless steel, residents soak in poolside Jacuzzis, and the gyms are always open.”

“As the Eugene and UO community grows, so does the need for housing. ‘We did have a major student housing shortage for many years,’ Lundberg wrote. Now, there is anything but a shortage of housing. A student housing construction boom began around 2008, and changed the shape of campus-area neighborhoods. Since then, numerous large housing complexes have opened. Lundberg pointed to some of the conditions that have led to the housing boom, most of which has been financed by out-of-state developers.”

“To incentivize new construction in the downtown area, the city gave tax exemptions to builders of new and renovated multi-unit properties. The Eugene Multi-Unit Tax Exemption, or MUPTE, helped many new apartment buildings develop around the downtown area. For instance, 13th and Olive, the largest student housing complex at 1,300 beds, is exempt from property tax until 2024, totaling $8.5 million in savings. An investment firm from Singapore bought the 13th and Olive complex this year for $104 million — an example of big, out-of-state investors getting involved with the Eugene housing market.”

“Although the city has recently excluded student housing from the MUPTE, Jim Walsh, vice president of sales at Rosboro, a Springfield lumber company, believes the tax exemption existed too long. The housing shortage of the ’80s and ’90s is long gone, as new apartment complexes have struggled to fill up and often offer deals to students in an attempt to get leases signed. ‘Talking to people around town, they may have overbuilt,’ Walsh said, as many buildings maintain empty rooms.”

“Although construction projects have slowed recently, the development spree isn’t over. In April, a Houston-based company purchased the property on Franklin Boulevard near The Hub. The company is planning to build a new 12-story apartment tower, roughly the same size as The Hub. In the oversaturated campus housing market, a new building of that size might struggle to find renters.”

From Crain’s New York Business. “A judge delayed a decision in State Supreme Court yesterday on whether an under-construction Billionaire’s Row apartment tower should go into foreclosure. Judge Eileen Bransten postponed a preliminary ruling that could determine the fate of the high-profile Steinway Tower project at 111 West 57th Street until Monday. Ambase Corp., a part owner of the property, is seeking a preliminary injunction to hold off a foreclosure by mezzanine lender, Spruce Capital.”

“Ambase’s attorney, Stephen Meister, alleges that the other partners in the project, developers Michael Stern and Kevin Maloney, are conspiring to eliminate Ambase’s $66 million stake by agreeing to the seizure by Spruce. If Meister succeeds in delaying the strict foreclosure in court, it would preserve Ambase’s stake in the project for the time being. Spruce Capital, whose $25 million loan on the property is currently in default, could move to hold a standard foreclosure auction for the property, but that process could take several weeks or months. Meister said a conventional foreclosure would potentially allow Ambase to recoup at least some of its investment.”

August 15, 2017

Everybody Thinks They Are Rich Priced Off The Top Bid

A report from the News Tribune in Washington. “What goes up will — eventually — come down, bubble or no bubble. A recent national survey by ValueInsured, which sells policies to guard against falling home values, put the spotlight on our red-hot housing market and the question, ‘Are we approaching a housing bubble?’ Washington topped the list of those worried about that question, at 71 percent, closely followed by New York at 68 percent. Also in the top 5 of concerned states: Florida, California and Texas. Dick Beeson, principal managing broker with Re/Max Professionals responded via email to questions seeking his view of what’s happening on this side of the county line, away from King County’s meteoric rise in median home prices, up more than $100,000 in one year.”

“‘This survey is a good example of how a small sampling of people, whose opinions are based on personal beliefs, extrapolates into a fearful and fretful story of eminent doom in the housing market,’ he said. Beeson says, hang on. ‘There will be a slowdown in price increases; nothing lasts forever. I think price increases will continue to rise through 2018 throughout Pierce County. The pace will be half of the 12 percent we’ve experienced in the last 3 years. After that, we’ll probably see a reduction in the rate of price increases.’”

From CNBC. “It feels like deja vu in mortgage land all over again. In the past 12 months, 1.5 million borrowers bought their homes with down payments of less than 10 percent, marking a seven-year high, according to Black Knight Financial Services. ‘The increase is primarily a function of the overall growth in purchase lending, but, after nearly four consecutive years of declines, low down payment loans have ticked upward in market share over the past 18 months as well,’ said Ben Graboske, executive vice president at Black Knight Data & Analytics. ‘In fact, they now account for nearly 40 percent of all purchase lending.’”

“The growth in this sector is likely due to new programs offered by Fannie Mae and Freddie Mac that are actually gaining market share from the FHA, which was the only low down payment game in town during the recession. The government-sponsored enterprises brought back 3 percent down payment loans in late 2014.”

From Bloomberg. “After deleveraging in the aftermath of the last U.S. recession, Americans once again have taken on record debt loads that risk holding back the world’s largest economy. Household debt outstanding — everything from mortgages to credit cards to car loans — reached $12.7 trillion in the first quarter, surpassing the previous peak in 2008 before the effects of the housing market collapse took its toll, Federal Reserve Bank of New York data show. To put the borrowing in perspective, it’s more than the size of China’s economy or almost four times that of Germany’s.”

“People are borrowing more not necessarily because they’re confident about their financial prospects. They’re doing it for necessities like education or transportation and, in many cases, just to get by. On the surface, liabilities at an all-time high aren’t alarming when the assets side of ledger is taken into account. Household net worth stands at a record $94.8 trillion, thanks to rebounding home values and soaring stock portfolios. But that increase has primarily benefited the nation’s wealthiest, said Lance Roberts, chief investment strategist at Clarity Financial LLC in Houston.”

“For most Americans, whose median household income, adjusted for inflation, is lower than it was at its peak in 1999, borrowing has been the answer to maintaining their standard of living. ‘When you look at net worth, it’s heavily skewed by the top 10 percent,’ Roberts said. ‘The average family of four is living paycheck to paycheck.’”

From Curbed San Francisco in California. “Blaming a ’severe lack of homes for sale and high demand,’ the California Association of Realtors (CAR) claims in a report released last week that it now takes almost double the income to qualify to buy a home in California as it did in 2012. The situation is even worse in the Bay Area. CAR now recommends ‘“a minimum annual income of $110,890′ (before taxes) in order to purchase a single-family home in California selling for the median price of $533,260, based on a $2,770/month mortgage payment after 20 percent down and an interest rate of just over four percent.”

“That is if buyers stick to the time-honored (but for many unreachable goal) of only paying 30 percent of monthly income to housing. In the Bay Area, the association recommends bringing in $179,390/year, which would come out to nearly $15,000/month.”

“To put that amazing sum in perspective, computer programmers in the Bay Area are averaging only $106,710/year, according to the Occupational Employment and Wage Estimates from the Bureau of Labor Statistics from May 2016. Software developers are bringing in about $133,500/year. Cops somewhere around $105,540. And teachers $43,340.”

From KRIS TV in Texas. “Take a drive around Corpus Christi, and you will see plenty of ‘for sale’ signs. Right now there is a peak in housing inventory. There have not been this many houses on the local market in years. That means it is a buyers market right now. Dr. Jim Lee, Professor of Economics at Texas A&M Corpus Christi, says housing prices have not yet dropped, but if this trend continues he expects they will. ‘The local housing market is overheated,’ Dr. Lee said.”

“This June there were 3,331 active listings on the market, according to a Coastal Bend Economic Briefing study. That’s up 19 percent from June of 2016. Dr. Lee says supply and demand in the housing market is tied to the oil industry. ‘A lot of homeowners who benefited from the last oil boom are selling their houses because they want to downsize,’ he said. ‘It’s not we’re lacking demand, but we have a lot of supply.’”

“It is the first time the market has seen a surge like this in years. ‘It’s a record in seven years. The last time was 2011,’ Dr. Lee said.”

The Real Deal on New York. “Barry Sternlicht sees doomsday waiting at the end of Billionaires’ Row. And that could be a good thing for him. Speaking on a second-quarter Starwood Property Trust earnings call, Sternlicht called the development of the high-end residential strip on West 57th Street an impending ‘debacle.’ He noted the out-of-balance mezzanine loan at JDS Development and Property Markets Group’s 111 West 57th Street project and predicted more distress in the luxury residential market, including at 53 W 53, a supertall condo being developed next to the Museum of Modern Art by Hines, Pontiac Land Group and Goldman Sachs.”

“‘We are beginning to see the cracks of the high-end residential market in Manhattan,’ he said. ‘The building on 57th Street just went through it’s B-lender. Those deals, and the building going up next to MoMA, those deals are going to be a disaster. So high-end resi in New York really is in trouble.’”

“Sternlicht, who was quick to point out that Starwood is not exposed to that market, said it won’t be banks licking their wounds in the event of a luxury condo slump. Rather, it’s the hedge funds, private equity firms and alternative lenders chasing high returns who backed projects asking prices of $7,000 to $10,000 a foot.”

“‘There’s a hedge fund that made $1 billion mortgages against some of these properties out of Europe and we will see how that fares,’ said Sternlicht, appearing to refer to the Children’s Investment Fund, which has backed the likes of 432 Park Avenue and 76 Eleventh Avenue. ‘Maybe they like the return, but they will lose capital. They can’t get paid off and they find out their basis is accreting because they are not getting paid currently, obviously….That is not going to end well.’”

“Sternlicht also said there’s concern among commercial real estate investors about foreign investors leaving the market amid turbulence in Washington. Property sales have declined and the gulf between asking and selling prices has widened, he said.”

“Those foreign investors, particularly those from Asia, bid up the price of assets dramatically and affected underwriting. ‘All the markets price off the top bid and the top bid has been an Asian bid, whether it was the sale of the Waldorf or the bailouts of a Strategic Hotel deal. Everybody thinks they are rich when the guy pays the 2 percent cap for an asset, or a 1 percent cap. If there are six bids at $1 billion and one guy is at $1.5 billion, I would ask you to tell me where the loan-to-value is of the loan, right?’”

August 14, 2017

The Cost Of Housing Is Too Much

A report from KTNV in Nevada. “Rob Maes recently moved to Las Vegas to pursue a new career. On Sunday, the 23-year-old purchased his very first home. ‘Definitely excited,’ he said, ‘it still kind of really hasn’t sunk in.’ Maes’s new home, in a gated community near Elkhorn Road and Durango Drive, was listed as $218,000. However, his offer was more than $3,000 over the asking price. That’s a good move, according to GLVAR President David J. Tina. Tina tells 13 Action News buyers need to be aggressive in this current market. ‘You find the house,’ he said. ‘You’ve got to put a ring on it.’”

From My Northwest in Washington. “First-time buyers looking to purchase a home in King County may be cringing at the news of prices jumping by $100,000 in one year. The average home price in the county, according to Northwest Real Estate, is now $658,000. But a planning commissioner and advocate for expanding housing stock in San Francisco — another city that’s seen tremendous growth over the past decade — says it’s a good thing, up to a point. ‘The Seattle market is doing a lot of things that are good,’ Christine Johnson told KIRO Radio’s Ron and Don. ‘The big thing to remember is that this is a good problem to have.’”

From KFYR TV in North Dakota. “Across the country we’re seeing reports of housing shortages and skyrocketing home prices that are keeping new buyers out, but in Bismarck that’s not the trend. Unlike a couple of years ago when it was hard to find a new home, Bis-man is experiencing a housing surplus. While many areas of the country are experiencing a housing shortage, there are more than 800 listings in the Bismarck-Mandan area. ‘In our local market, however, we have a very abundant inventory right now which is a change from what things were like during more of the oil boom times,’ said Nancy Diechert, Executive Director of the Bismarck Mandan Board of Realtors.”

The New Orleans Advocate in Louisiana. “For the first time in eight years, home sale prices in New Orleans showed signs of cooling in the first half of 2017, actually dropping by a few percentage points on average — a development that some real estate experts reacted to with little surprise after years of steady price increases. ‘We’ve had this long run, and we’ve driven up prices to where they’re really getting quite high in relation to people’s income,’ said Wade Ragas, a local real estate consultant who compiled the numbers. ‘The way a market corrects that is the buyer stops paying full price and they start offering less, and then eventually enough of them do it that prices come down.’”

The Houston Chronicle in Texas. “Houston-area home prices were flat last month and the supply of houses for sale reached a five-year high. While experts say Houston housing is still in good shape, some neighborhoods where housing activity was once red hot are cooling. In The Woodlands, it’s a ‘buyer’s market’ for properties priced at more than $500,000, a report from Ken Brand, sales manager of Better Homes and Gardens Real Estate Better Homes Gary Greene, concluded.”

“Inventory in the master-planned suburb is up 9.4 percent over last year and half of the listings have had at least one price reduction. William Elser, who is renting a single-family house inside Loop 610 for his family of four said his rental house is worth about $800,000 but he’s paying a lot less than what he estimates it would take to pay the mortgage on it, along with taxes, insurance, maintenance and other costs. When his family and friends tell him he’s throwing money away on rent, he politely disagrees. He’s investing some of the money he’s not putting into home ownership.”

“‘The investment I’m getting with that money is roughly equal to or better than my house would have otherwise appreciated,” Elser said. ‘The cost of housing is too much.’”

From Mansion Global on New York. “A slow summer continues to dog Manhattan luxury real estate, according to a weekly report from Olshan Realty. Donna Olshan, president of Olshan Realty, attributed the slowdown to a lack of activity among new developments. ‘One reason for the persistently low totals: the paucity of sales by developers,’ Ms. Olshan wrote.”

“Developers found buyers for only four new condo units, including the most expensive unit last week. A five-bedroom unit at the new Skidmore, Owings & Merrill building at 252 East 57th St. went into contract with an asking price of $14.65 million. The nearly 5,000-square-foot home in Sutton Place has views over Central Park and the East River, as well as a library, large living room with a balcony and 10.5-foot ceilings. Since the unit first hit the market in 2015, the price has dropped by about 23%, from $19 million—something developers are loathe to do.”

From Marketplace on California. “President Donald Trump campaigned on a promise to ramp up immigration enforcement. From February through June, an average of 13,085 undocumented immigrants were arrested each month, according to U.S. Immigration and Customs Enforcement. That compares to an average of 9,134 arrests per month during the last three months of 2016. The economic ripple effects of arrests – and eventual deportations – are wide-ranging. But one little noticed consequence is their effect on the housing market.”

“Research shows that deportations lead to higher rates of foreclosure among Latino communities. That’s because the loss of an income for families – especially if it is the breadwinner who is detained – can make it harder for remaining family members to make mortgage payments. That reality is what spurred Maria, an undocumented immigrant who runs a Quinceañera shop in Los Angeles, to recently transfer the title of her house to her 22-year-old daughter, a U.S. citizen.”

“‘I refinanced it and took the money because if they come up and deport us, we have that money put away,’ Maria said in Spanish.”

“Maria is among the 31 percent of undocumented immigrants in the U.S. who own a home, according to the Migration Policy Institute. Without social security numbers, many undocumented immigrants are able to take out loans by using their Taxpayer Identification Number. The link between deportations and foreclosures is something Jacob Rugh, an assistant professor of sociology at Brigham Young University, has studied extensively. ‘Even in expensive markets, you could see that immigrants were pooling their resources across legal statuses, across families, to make the American dream possible,’ Rugh explained.”

August 13, 2017

Building For Customers Who Don’t Exist

A report from Bloomberg on New York. “For Manhattan landlords, Christmas usually comes in July, a month when demand for apartments surges and rents go up. Not this year. Leasing costs in the borough dropped 1.9 percent from July 2016, the first decline for the month in at least five years, according to a report by appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. As the market contends with an unrelenting wave of new supply, owners are using the summer as way to get ahead of the competition. They’re offering rent discounts and deal sweeteners in a rush to fill their units before the slower, cooler months set in. ‘The last thing anyone wants to do, especially now, is rack up vacancies,’ said Gary Malin, president of brokerage Citi Habitats, which released its own report on the rental market. ‘If you rack them up now, going into a slower time, its going to be even harder to achieve your price.’”

From Bisnow on California. “San Francisco, Oakland and San Jose are ideal markets to sell multifamily assets, according to the latest findings from Ten-X. These major Bay Area markets have received additional supply, which has pushed up vacancies. Rents also may have peaked, leaving multifamily assets vulnerable for diminished returns. In San Francisco, multifamily completions have outpaced absorption since 2014. Vacancies have risen and rent growth started to weaken last year. Employment growth has slowed from upper 4% in early 2016 to about 2% in 2017 related to a slowdown in the city’s critical information sector. Ten-X expects the region will face net operating income declines of about 4.7% through 2020.”

“San Jose can expect similar prospects. New supply hitting the city is pushing vacancies up to the 4% range. Overall job growth has cooled slightly despite a robust information sector, and slow population growth is limiting potential expansion. Rents are expected to contract in 2018 and vacancies are expected to climb above 7%. Ten-X expects annual net operating income to decline 3% from 2017 to 2020.”

From LA Weekly on California. “Construction cranes dot the skylines of Hollywood and downtown. And statewide, more new housing units were built last year than in any recent year. But that progress may be about to stall in Los Angeles. A report by the Building Industry Association of Southern California, or BIA, says that applications for new housing units in Los Angeles have fallen dramatically this year. ‘The San Fernando Valley has projects that are no longer moving forward,’ says Stuart Waldman, president of the Valley Industry Commerce Association. ‘They just couldn’t pencil out anymore.’”

The Denver Post on Colorado. “Denver is poised to have a glut of luxury apartments and Denver hopes to buy down rents for low income residents. Denver Mayor Michael Hancock announced Tuesday that the city is close to scoring a major corporate partner to help launch a pilot program to buy down rents for as many as 400 apartments in Denver. Residents making between 40 percent and 80 percent of area median income would be eligible to apply for the vouchers that could pay down their rents. The goal would be for the rent to not exceed 35 percent of the individual’s income.”

“Here’s the brilliant part of the plan, however. Those individuals would be putting 5 percent of their rent into an escrow account, so at the end of two years, in theory, the voucher recipients could have saved the beginnings of a down payment for a home.”

“Former Denver Post reporter Emilie Rusch reported that Denver is likely to have a glut of luxury apartments in coming years. Rusch found the good news was that 13,370 apartment units are online to open in Denver by the end of the year, but the really bad news is the majority of those will be at the top end of the rental market in prices. As those units sit empty, prices should come down.”

“It’d be a shame if this voucher program rewarded the bad behavior of developers building for customers who don’t exist in a fantasy world where on-demand yoga, tanning beds and dog groomers aren’t luxuries beyond the financial means of most.”

From KRIS TV in Texas. “It was supposed to be the center piece for revitalization of downtown Corpus Christi, but four years after construction began, The Cosmopolitan still sits empty. The luxury apartment complex is located in the heart of downtown. The ownership group most recently said tenants could begin moving in on April 1st of this year. However, that was just one of multiple promised grand opening dates that never happened.”

“‘We offer a host of property amenities, such as a resort style pool, with a resident operated swim up bar and cabanas,’ a voice message for The Cosmopolitan states. A website features colorful artist renderings that depict a selection of floor plans, and a street level state-of-the-art fitness center and retail shops. Marketing encourages Corpus Christi residents to ‘Live, Work, Play’ and ‘Live downtown for real.’”

“‘It is a huge letdown,’ said former downtown business owner Matt Scott. The Corpus Christi native lobbied for The Cosmopolitan back in 2012. ‘I remember going to City Council meetings in support of it,’ he said. ‘It just completely backfired.’”

“Construction also stalled in March of last year, when the rising cost of construction and other factors left The Cosmopolitan short on cash to pay its contractors. Eight liens on the property were filed at the Nueces County Courthouse by unpaid contractors. An email currently being sent out to interested renters once again promises an opening date by the end of the month. ‘You are getting in touch with us at a great time, as we anticipate having units available for tours in the upcoming weeks, and currently have move in reservation dates Late August and September,’ the email reads.”

From the Los Angeles Times. “Los Angeles and New York City top the list of U.S. cities with the most poor people laboring under heavy rent burdens, living in substandard housing, or both, according to a U.S. Department of Housing and Urban Affairs study. More than half of Los Angeles’ 1 million very poor households, or 567,000, spent more than half their income on rent or resorted to undesirable housing in 2015, the study said.”

“In New York City, 44% of the very poor also struggled to afford housing, but because there were more of them — 1.8 million — the number falling into what the study called the ‘worst-case housing needs’ category was higher, 815,000. More than half of very low-income people in Miami, Phoenix and Riverside also struggled to pay the rent, the study said.”

“Rising rents have been linked to Los Angeles’ explosive homelessness problem, which grew 23% last year, to 58,000 people countywide, officials reported based on a January street and shelter count. A report by Zillow found that 2,000 more people would be pushed into homelessness by a 5% rent hike — just over the 4.5% jump the company forecasts for L.A. next year. The company said rent increases are closely tied to burgeoning homelessness in cities including Los Angeles, Seattle and New York City, where there is little low-income housing for those priced out of rapidly gentrifying neighborhoods to go to.”

“Nationwide, HUD reported that the number of households with worst-case housing needs ballooned 66% since 2001, with record increases between 2007 and 2011.”

August 12, 2017

All Signs Pointing Toward Dollar Signs

A weekend topic on public perceptions, media coverage, and ramifications of a housing bubble. From Mortgage Professional America, “Americans are becoming increasingly concerned about the housing market with many expecting a price correction. The Modern Homebuyer Survey from ValueInsured reveals that 58% are expecting a housing bubble and price correction within the next two years, a rise of 12 percentgage points since April. Those in Washington (71%), New York (68%), Florida (63%), California (59%) and Texas (58%) are the most concerned.”

“Unsurprisingly given these figures, 83% of owners think that now is a good time to sell while 63% of potential homebuyers are concerned that they might be buying high if they do so now. This rises to 72% among millennial buyers. More than half of homeowners nationwide believe that homes in their area are overvalued and consider prices unsustainable, rising to 65% among urban homeowners.”

From ABC 4 Utah. “It’s official–homes on the Wasatch Front cost more than ever before. The Salt Lake Board of Realtors sent out numbers this week that show staggering growth and a staggering home shortage. Troy Peterson is the President of the Salt Lake Board of Realtors. He says, ‘I’ve been selling real estate for 22 years and I’ve never seen anything like this. What’s driving the numbers is there’s no inventory.’”

“Some are worried about a ‘bubble effect’ like we saw in 2007 and 2008, but realtors are confident that we have a few more years of stability. They say without enough inventory, a bursting bubble is nearly impossible.”

From WUNC in North Carolina. “The Cotton Mill is emblematic of the entire Raleigh housing market, says Ann-Cabell Baum, who works with Wood at the Glenwood Agency, a real estate agency. Houses are on market for hours, not weeks. In rare cases, buyers make unsolicited offers on houses not yet on the market. ‘To describe the Raleigh housing market right now, 2017, would be, ‘Oh my goodness!’ Baum said. ‘We have seen some accelerated home prices.’”

“With all signs pointing toward dollar signs, it’s only natural for people to remember the last time the housing market went gangbusters. Even if the Raleigh housing market is more than a bubble, agents say they still deal with another hurdle: that of high expectations. Homeowners in the $600,000 market and above market see big increases and begin to dream about early retirement.”

From CNBC titled, ‘Luxury home prices soar as sellers come back down to earth’. “The slump in the swankiest sector of the housing market appears to be over, and, ironically, it may be due to a dose of reality among sellers. While some point to the recent runup in the stock market, the real reason for the luxury recovery may be a shift in the mind of sellers. They were asking too much, and now that they’re asking less, there is more action in the market, in turn boosting prices again.”

“Jonathan Miller, CEO of Miller Samuel, a real estate appraisal and consulting firm, points to a recent $15 million sale of a Brooklyn, New York, home. While the closing price was high, it sold at a 40 percent discount to its original list price, and the home took seven years to sell. The sales surge has caused a decline in the supply of luxury homes. ‘The housing shortage is now affecting the top of the housing market,’ said Redfin’s chief economist, Nela Richardson. ‘Yet despite the strong uptick in prices, the luxury market is not nearly as competitive as the rest of the market. Only 1 in 50 luxury homes sold above list price in the second quarter, compared to more than 1 in 4 homes in the bottom 95 percent.’”

“The same is true in Aspen, Colorado, where a surge in sales is overpowering supply. Single-family sales more than tripled in the second quarter of this year compared with a year ago, and condo sales nearly doubled. Sellers are meeting the reality of the market. ‘The buyers are in the driver’s seat,’ added Miller.”

From CBC News in Canada. “The cost of homes in Regina may be about to fall. Housing sales in Regina were down in the month of June. Meanwhile, listings were at a 10-year high. ‘That means there’s excess supply hanging around — not enough demand,’ said University of British Columbia business professor Thomas Davidoff. ‘Usually, that is a precursor to a decline in prices.’”

From the Telegram in Canada. “The Canada Mortgage and Housing Corp. recently released its third-quarter housing market assessment for St. John’s, and while there’s little change from the first half of the year, there are some small signs of strength. Chris Janes, senior market analyst in this province, says year-to-date housing starts in the St. John’s area are down 35 per cent from this time last year and the market as a whole is down 60 per cent from its peak in 2014. ‘That’s a big pull back, but if builders had continued to build, then we’d be in a massive oversupply situation as well and we’d see a lot more downside pressure on new home prices.’”

“Buyers are also much more patient and shopping around more than they were in the past, Janes says. ‘People have a lot of inventory to choose from, in a lot of cases high-quality homes, where they may have been looking for a bit of a fixer-upper and getting in at a lower price point and doing some renovations,’ he says. ‘The cycle from start to finish is longer between thinking about buying, intentions to buy and actually buying.’”

From ABC News in Australia. “Australia’s economy holds the world record for the longest recession-free run thanks, in large part, to a record home-building boom that offset the pain of the mining bust. But that boom is already past its peak and there is much worse to come, according to the latest Building in Australia forecast from BIS Oxford Economics. ‘As we move into 2018, particularly as those big high-rise apartment projects come off — commencements have been falling for nearly 12 months in Brisbane and they’ll start falling in Sydney and Melbourne — 12 months down the track, the level of work being undertaken will decline significantly,’ said the economic forecasting firm’s managing director, Robert Mellor.”

“BIS Oxford is forecasting the number of dwelling starts will decline from a peak above 230,000 to a trough around 160,000 within three years — a 31 per cent slump. The news is far worse in the high-rise apartment sector, which is predicted to face a 50 per cent collapse nationally, with falls in new building of up to 70 per cent in Brisbane and 60 per cent in Melbourne.”

“The steep declines are a direct result of the record construction boom, which has wiped out housing undersupply nationally, leaving only pockets of shortage in Sydney and Melbourne. ‘The underlying level of demand for dwellings, based on population growth [and] the level of household formation, is probably about 184,000 dwellings per annum,’ he observed. ‘So we’re basically overbuilding in a long-term sense.’”

“That means that Australia also faces a serious oversupply of construction workers, with the mining boom gone and the residential building boom set to fade fast. Mr Mellor said tens of thousands could find themselves unemployed. ‘If you’re seeing a decline in the order of the peak of 230,000-plus dwellings to a trough somewhere between 160-170,000 dwelling commencements that’s a pretty significant decline in the required level of employment,’ he warned.”

“He said the downside risk to BIS Oxford’s forecast is the danger of a downward spiral that this decline in employment could trigger through increased mortgage defaults, falling home prices and further cuts to development plans. Another risk is the reliance on investors to underwrite the current apartment boom. ‘Overseas investors are now facing significantly higher taxes as well as maybe there’s still restrictions upon funds being able to come into the country from overseas, or overseas investors being able to get local funds,’ he said. ‘Coupled with that, you’ve got local investors finding it harder and paying significantly higher interest rates, particularly for interest-only loans.’”

August 11, 2017

One Word That Comes Up More Than Any Other

It’s Friday desk clearing time for this blogger. “Changes in the mortgage industry are afoot, with the goal of loosening some of the strict standards established after the subprime crisis — rules some blame for impeding sales. Government-controlled mortgage giants Fannie Mae and Freddie Mac are paving the way by rolling out new programs to encourage home ownership. Also, lenders are moving to relax some standards partly because they fear losing business as home prices and mortgage rates rise, said Guy Cecala, publisher of Inside Mortgage Finance. ‘If your business is going to drop 20 percent,’ he said, ‘you need to come up with ways to offset that.’”

“The trend started in late 2014 when Fannie Mae and Freddie Mac announced new programs that allowed loans with as little as 3 percent down. But many large banks still reeling from the housing bust that cost them billions were skeptical. Bank of America Chief Executive Brian Moynihan said his company was unlikely to participate. But less than two years later, the bank started offering 3 percent down loans through a partnership with Freddie Mac. Wells Fargo, the nation’s largest mortgage lender, also jumped in last year, partnering with Fannie Mae. JPMorgan Chase now offers 3 percent down loans as well.”

“The 3 percent down loans through Fannie or Freddie are capped at $424,100 in most of the country. ‘We are seeing more and more lenders adopting it every day,’ said Danny Gardner, Freddie Mac’s vice president of affordable lending and access to credit.”

“Pilot programs with Guild Mortgage of San Diego and United Wholesale Mortgage of Michigan require the borrower to put down 1 percent of their own money. A pilot through Movement Mortgage allows a borrower to put down nothing. David Battany, Guild’s executive vice president of capital markets, said it launched its 1 percent down program to ‘address the down payment challenge, especially in California,’ where real estate prices are particularly high. It was also struggling to compete with lenders that had previously launched very low down payment options. ‘We were losing business,’ Battany said.”

“If there’s one word that comes up more than any other in the Seattle-area housing market, it’s probably ‘bubble.’ A new survey found 71 percent of Washington adults think a housing bubble is coming. New York, Florida and California residents were the next most likely to fear a housing bubble. George Moorhead, owner of Bentley Properties in Bothell, said the b-word comes up with just about every buyer he represents. ‘They’re getting very wary about a bubble,’ Moorhead said. ‘It is very much a huge concern. The perception is: how long can this go?’”

“It may not be good for his business, but Joshua Hunt, the CEO of local real estate brokerage Trelora, says that for a significant number of people in Denver, including many of those who’ve just moved to the Mile High City, renting makes more sense than buying. ‘We’re already seeing rents drop at higher-end apartments because of the massive increase of available units that have hit the market in the last ninety days or so — and that will continue over the next sixty to ninety days,’ he maintains. Waiting to purchase could be particularly key now, given the boom-and-bust history of Denver’s housing market. ‘Over the past 21 years, I’ve seen it happen twice, and a third time is coming,’ Hunt says.”

“Those woried about chronically stalled luxury property sales at the high end of the Westchester residential market finally have a reason to exhale, thanks to Douglas Elliman’s second-quarter report. Of course, all this movement does come at a price. TRD’s ranking of active listings with the biggest price cuts indicates that brokers are slashing asking amounts by as much as nearly 80 percent in the hopes of luring luxury buyers. ‘Buyers are looking for good value, particularly at the upper end of the luxury market, where we have a larger proportion of inventory,’ said Jim Gricar, general sales manager for Houlihan Lawrence, headquartered in Rye Brook. ‘That proportion of inventory has increased relatively dramatically in the last couple of years.’”

“Toronto in mid-August feels like a city waiting with bated breath. Sales of existing houses in the Greater Toronto Area plunged 40 per cent in July compared with the same month last year, with detached houses leading the decline. ‘Sensing a top, sellers have flooded the previously parched landscape with listings, shifting the market balance toward buyers,’ says Sal Guatieri, senior economist with Bank of Montreal.”

“After months of decline in the London housing market, largely due to prime properties in the center of the city, prices in England’s southeast had their worst performance since 2011, the Royal Institution of Chartered Surveyors said in a survey. ‘Sales activity in the housing market has been slipping in the recent months and the most worrying aspect of the latest survey is the suggestion that this could continue for some time to come,’ said Simon Rubinsohn, RICS chief economist.”

“It was only four years ago that Africa’s richest square mile became the destination of choice for SA’s major financial firms, sparking the largest commercial property development boom of the decade. However, the story is different today. High-end developers are not reaping rewards, as sales of apartments in Sandton have slowed amid falling demand from prospective buyers and investors. ‘Things have changed dramatically. Savvy investors are sitting on their hands at the moment,’ said Kent Gush, MD of Kent Gush Properties.”

“Another problem for high-end developers is faltering off-plan apartment sales. Marc Wachsberger, ‎MD at The Capital Hotel Group, which manages hotel and luxury apartment buildings The Capital 20 West and Empire in Sandton, said off-plan apartment sales have ‘ground to a halt.’”

“The cost of buying property in Sydney has never been higher, but for foreign buyers the sums involved are even more exorbitant with a recently introduced extra 4 per cent stamp duty surcharge and additional land tax. Adding insult to the mounting costs is the the 1 per cent Foreign Investment Review Board application fee introduced in July 2016 that has hit the rarefied trophy market of the eastern suburbs, according to Bill Malouf, of LJ Hooker Double Bay.”

“McGrath’s Michael Coombs said while foreign buyer demand remains strong, he had two deals in the $10 million to $20 million range fall over in recent weeks after the buyers calculated the extra costs of buying in Australia. ‘In both cases they’re reassessing if they want to buy in Australia or take their money elsewhere,’ he said.”

“Has the crash finally started? Barfoot and Thompson’s July sales report showed the average sale price for an Auckland Eastern suburbs home was $1.117 million in July, compared to $1.193m in July last year. In the North Shore the average price was down from $1.3m to $1.06m. In South Auckland, it was down from $824,069 to $708,069. Is China’s crackdown on money leaving the People’s Republic causing the crunch? Are anti-money laundering laws finally working? Have the Reserve Bank’s high deposit-for-investor rules knocked them out of the game?”

“Whatever the reasons, some people who bought recently now own homes worth less than they paid for them. A tragic few may even be in negative equity, when the value of their home minus the cost of selling it (real estate fees, advertising, lawyers, etc) is less than is needed to repay the mortgage. Large numbers of Britons have had to learn to live with negative equity after a boom was followed by a lasting bust. If prices keep falling some Aucklanders may find themselves in a similar boat.”

“Negative equity is depressing for a homeowner. It means they have gone backwards. In the short term, negative equity only really becomes a problem for a homeowner if they have to sell, remortgage, or want to borrow more. Banks don’t want new borrowers with negative equity. Even people with less than 20 per cent equity aren’t prime borrower to a bank. And (economists shudder) small business loans are secured against home equity.”

“Long-term negative equity is a personal nightmare for homeowners. It traps them, and is a rankling symbol of how they are a victim of failed markets, failed government policies, and other people’s profiteering. Ironically, that’s exactly how many renters feel.”

August 9, 2017

A Little Bit More Supply Than Demand

A report from the Denver Post in Colorado. “The Denver area’s apartment building frenzy will slow next year as demand for new high-end developments wanes and financing for new projects gets tighter, say economists and industry leaders. Those in the industry agree that Denver’s high-end apartment market is oversaturated. ‘The reality is that (the industry is) building high-end apartments, and that is not where the majority of people moving to Denver can afford to move,’ said Tim Walsh, CEO and founder of Confluence Companies, a real estate development company.”

The Dallas Morning News in Texas. “Seems like every year someone predicts a slowdown in North Texas apartment building. And every year, the number of rental units on the way in the Dallas-Fort Worth area grows. But when one of the country’s biggest apartment builders says he thinks the construction cycle in D-FW has topped out, it pays to listen.”

“At midyear, more than 50,000 apartments were being built in the area — one of the largest numbers of new units on the way in any market in the country. ‘Supply has peaked,’ says Steve Bancroft, senior managing director of Dallas-based Trammell Crow Residential. ‘There is a little bit more supply than demand today.’”

The Real Deal on New York. “According to this week’s market reports, Manhattan had the nation’s biggest residential rent decrease. Manhattan tied with the city of Lubbock, Texas, for the biggest rent decrease in the nation in July, registering a 3.1 percent year-over-year slide to $4,054 per month. Brooklyn came in at No. 7, with a 1.6 percent decrease to $2,712.”

The Press and Sun Bulletin in New York. “A former cigar factory in Binghamton’s First Ward will soon be home to 97 market-rate housing units and business space, turning the now vacant building into an industrial loft apartment complex, Broome County Executive Jason Garnar and Binghamton Mayor Richard David announced Monday. In 2016, Paulus Development began turning the former factory in Syracuse into an 89-unit apartment complex with commercial space on the first floor. That project, which received $900,000 in state funding through the REDC, is expected to open in August of this year.”

“Faced with a student housing glut, the city will no longer offer payment-in-lieu-of-taxes (PILOT) agreements to future student housing complexes, David has said in the past. ‘In the city, we have made a commitment to move away from big-box student housing projects,’ and toward market-rate buildings, David said.”

From Curbed Miami on Florida. “The gorgeous 321 Ocean penthouse in Miami Beach has returned to the market with a new price tag of one dollar under $35 million. It initially listed for $53 million in December 2015, six months after its owners purchased the five-bedroom unit for $20 million. In January, it received an extensive chop, getting reduced to $39.5 million.”

The Milwaukee Biz in Wisconsin. “In June, Capri Communities LLC filed plans with the Village of Menomonee Falls to build a 226-unit senior living facility. The development is in addition to the 321 units Brookfield-based Capri announced it would be adding in Germantown, Port Washington and the East Side of Milwaukee since January. But the company is not alone. Senior living operators across southeastern Wisconsin and the country are ramping up their expansion efforts as the oldest baby boomers are just beginning to need the services their companies can provide.”

“And many of the facilities elderly people are moving into today have far more amenities than the nursing home your grandparents lived in. The idea of giving seniors more than a bed and three square meals a day has resonated with Capri Communities founder James Tarantino and other operators. Today’s senior living complexes are a hybrid of luxury apartment, four-star hotel and health care facility. Amenities offered in new developments include wine rooms, heated therapy pools, salons and spas, bocce ball courts, putting greens and common areas where residents can host holiday parties and book clubs.”

“‘That will be a 20-year run of higher demand that has not even taken off yet,’ said Milo Pinkerton, founder of the largest senior living provider in the state. ‘I don’t think we’ve overbuilt the market. Twenty years from now, maybe we’ll be overbuilt like the apartment market is today.’”

August 8, 2017

Clinging Like A Spurned Lover To The Old Market

A report from the Illawarra Mercury in Australia. “Unaffordable housing has surged to the top of the list of undecided voters’ concerns in western Sydney, according to new focus group research. And while the problem angered younger voters unable to buy a home, it also troubled an older generation who feared for their children’s future. ‘I live in drive-by shooting territory and a dump costs a million dollars - are you joking?’ said an older female voter in a western Sydney focus group. Another added: ‘It used to be a dream, a million dollars. Now it’s nothing.’ A third said: ‘My daughter has to wait ’til I cark it to buy a house.’”

From Korea Joongang Daily. “The Ministry of Land, Infrastructure and Transport and other parts of the government announced curbs on mortgage lending and regulations on the real-estate market to crack down on speculation. Kim Hyo-jin, an analyst at SK Securities, said the policies will help stabilize the market in the short term. But he doesn’t agree that housing prices are too high. ‘I don’t think there is a big bubble in the Korean housing market and expect the prices will continue to rise, especially in the Seoul region, following many reconstruction projects,’ he said.”

From The Edge Malaysia. “‘It’s very quiet these days, I hardly have any clients now,’ says a lawyer who specialises in real estate transactions. He and property agents now have time on their hands. The empty commercial blocks and unlit units in high-rise condominiums — which have mushroomed in recent years, especially in the Klang Valley — confirm their negative sentiment.”

“Looking back at the property boom that peaked in 2011 to 2012, some blame the slowdown on macro prudential measures imposed on the market. Yet, there is no denying that property prices have risen above what the average Malaysian can comfortably afford.”

From The Times of Oman. “Muscat landlords are taking hits in rent prices in order to keep their tenants from moving out, in a market that has dipped, according to experts. One landlady said: ‘I sent every tenant a new contract with a OMR50 a month reduction, without them even asking, because I want to keep the building fully occupied. The location is nice and two years ago there was no issue and I was asking OMR700 or OMR800 for a two-bedroom apartment. Now some apartments lay empty for a long time and I’ve reduced the rental to OMR450 a month. I know of villas in Qurum that were on the market for OMR2,000 two years ago and are now lying empty, even though the rent has been cut to OMR1,000.’”

From STV News in Scotland. “One of Donald Trump’s closest Scottish allies urged the billionaire’s sons ‘not to spend another penny’ in Aberdeen. Hotelier Stewart Spence tried to persuade Eric and Donald Jr to delay investing while the city rides out the oil downturn. They were handed control of Trump’s Scottish golf interests when their father became US president, although he still owns the courses.”

“‘Because there is such a downturn in Aberdeen… I just couldn’t see them getting a return on investing more money than they’ve already invested,’ said Mr Spence, who owns Aberdeen’s five-star Marcliffe Hotel. ‘The property register has 5000 houses for sale, why do you want to build more houses?’”

From AFP on Brazil. “Plagued by violence, white elephant sports facilities and corruption scandals, Rio de Janeiro today is unrecognizable from the feel-good city greeting the world at the Olympics exactly a year ago. As soon as the athletes packed their bags and cameras stopped rolling, barely hidden problems erupted. Taxi driver Iran Oliveira, 41, pointed to cracks and damp in the walls and a bathroom where nearly all the tiling has come off. He was assured that he’d have title to the new apartment. However, under the details that he only understood later, he will not have the right to sell the property until the city has finished making payments on the property of 90,000 reais ($30,000).”

“That’s meant to be complete in 10 years but due to the economic crisis payments are already in arrears. ‘We were ripped off,’ said Ze Riveiro, another evicted resident of Vila Autodromo.”

“Meanwhile, the nearby athletes’ village — a brand new tower complex that was planned to be sold after the Games as luxury apartments — sits virtually unused. Just 10 percent of the apartments have sold, according to Brazilian media reports.”

From Business Review Canada. “Toronto’s housing market has been showing some alarming behaviour of late, as figures from the Toronto Real Estate Board reveal that the average cost of a home in the area fell $173,000 between April and July. However, although this 18.8% fall might be causing panic and confusion for some, the descent in house prices isn’t actually as surprising as it might first appear. Whilst an average price drop from $919,499 to $746,216 seems scary, it must be noted that Toronto’s house prices rose at an equally alarming rate previous to this.”

“With a significant amount of uncertainty about how long this 23% rise in house prices would last, listings surged in the previous month by 65.3%. However, whilst supply has increased, demand has dropped, as the Ontario government implemented measures to prevent a continual rapid house price rise in Toronto, including a 15% tax on foreign buyers. These things combined explain why there has been a 41.7% drop in housing sales in the Toronto Area in July.”

The Toronto Star in Canada. “The real estate industry is downplaying a third consecutive month-to-month decline in Toronto-area home prices that saw the average cost of a home drop $173,000 between April and July — from $919,449 to $746,216. The short-term price decline could make some owners ‘a little tense’ if they are thinking about selling, said Christopher Alexander, regional director at Re/MAX Integra.”

“But, he said, homeowners need to remember that, ‘Last year was a record year across the board.’ ‘Yes, sales are way down (but) prices have only fallen 5 per cent from June to July, which is exactly what we had last year, and listing inventory is only up 5 per cent. So I don’t see a flood of extra inventory to distract buyers from making quick decisions,’ said Alexander.”

“‘We’re now back to a normal summer,’ said Oakville agent Tracy Nursall of Sage Real Estate. But for buyers looking for more space, this is the move-up market they’ve been waiting for, she said. ‘If you lose 5 per cent on your townhouse and you’re going into a detached that has also lost 5 per cent, the dollar difference is significant. It’s just that people are still clinging like a spurned lover to the old March market,” said Nursall, referring to the first-quarter peak when home prices averaged $916,767.’”

August 7, 2017

The Neighborhood Has Changed

A report from Outside Online. “In the Mountain West—’God’s country, renter’s hell,’ as one alt-weekly tagged it—where towns are already chronically beset by housing shortages, traffic problems, and the invariable ambivalence about sharing one’s slice of heaven with the tourists who help sustain it, the entrance of Airbnbs and VRBOs and HomeAways has heightened the tension. Some places, including Boulder and Denver, have passed tough regulations that permit only primary residents to rent out their properties for short periods. Other towns have taken the opposite tack, changing laws to allow previously illegal renting that was already on the rise, as happened late last year in Missoula, Montana.”

“In Bozeman, in Ketchum, in Jackson, in just about every destination or gateway town, one hears a similar murmur: not only are short-term rentals squeezing the last drops out of the housing supply. STRs have soared. In 2016, HomeAway had more than 670,000 ‘room nights’ in Colorado alone, up 24 percent from 2015.”

“Early on, says Margaret Bowes, who directs the ­Colorado Association of Ski Towns, STRs ‘were mostly just excess inventory—­someone had an extra room, they weren’t going to rent it out long-term anyway.’ Now, she argues, ‘it’s reached such a point that people buy homes for the sole purpose of renting them.’”

The Miami Herald in Florida. “Here’s something you might not realize: Vacation rental companies, like Airbnb and HomeAway, directly affect the local housing market. As of June 4, there were 9,608 active Airbnb listings in Miami-Dade County, 81 percent of which were for ‘Entire Homes.’ Studies in San Francisco and New York City concluded that ‘Entire Homes’ on Airbnb are detrimental to housing affordability — especially when multiple ‘Entire Homes’ are tied to one owner.”

“The impact on housing affordability of a homeowner who advertises one room or unit at a time is minimal. The impact of commercial operators who advertise two, four, 10 or 20 homes at once is inescapable.”

From WWL TV in Louisiana. “Summers always take their toll on the New Orleans restaurant scene. Multiple eateries have closed their doors this summer, but owners say there are more factors at play than just rising rent. Ian McNulty, food critic for The New Orleans Advocate, says summer is the slow season and the time newer restaurants typically struggle. He also thinks the proliferation of short-term rentals in the Bywater might be playing a role as well, something Minish has also noticed. ‘The neighborhood has changed,’ Minish said. ‘A lot of Air BnB’s have come in.’”

“No matter what the reason, people who call the Bywater home hope they don’t have to say goodbye to anymore local restaurants.”

The Boston Globe in Massachusetts. “The Cambridge City Council is set to vote Monday evening on a measure to limit short-term rentals, capping a year of debate over legalizing a growing industry without threatening the community’s limited housing supply. The measure would require hosts to live in the unit where the rental is located, or in the same building, so long as it has fewer than five units.”

“Currently on Airbnb alone there are more than 1,600 active rentals in Cambridge, according to the research site Airdna. City rules require Cambridge homeowners to get permission to rent for less than a month, but few have secured such permits, said Craig Kelley, the city councilor who has been leading the regulatory push.”

“Nancy Ryan, president of the civic organization called Cambridge Residents Alliance, said she would still like to see the rentals limited to just those units occupied by the host. She believes that change would increase the supply of housing in the community. ‘We’ve been particularly worried, given the cost of real estate in Cambridge, that families can barely afford the rental market here,’ she said. ‘It’s harming our overall supply of rental units, and I think it’s pushing up rental prices.’”

“According to Airdna, 853 of the active Airbnb rentals in Cambridge are entire units; the rest are rooms within a unit or a shared room. The city has about 53,000 housing units, according to its website. Other platforms, including FlipKey and HomeAway, offer similar services to Airbnb’s and would also be affected by the legislation.”

The Toronto Star in Canada. “New research showing Toronto’s top Airbnb’s earners are big commercial players is further evidence of the need for regulations limiting short-term rentals to a person’s principal residence, a senior city staff member said Friday. A draft report by urban planning researchers at McGill University identified Toronto, Montreal and Vancouver’s biggest Airbnb earners as large, commercial hosts with multiple listings, not regular people sharing their homes.”

‘The report says these Airbnb listings are eating into Toronto’s already scarce long-term rental housing stock and an absence of regulatory intervention may threaten the loss of more rental housing units. The city, in its June staff report on the burgeoning short-term rental market, estimated that of the 10,800 properties listed on Airbnb in 2016, 3,200 were not in a principal residence, Carleton Grant, the city’s director of policy and strategic support, said Friday. Those 3,200 units would not be allowed under the city’s proposed regulatory regime, which is intended to protect the long-term rental market for people who live in Toronto, he said.”

“Airbnb disputed the McGill University report’s findings and insists ‘the vast majority of its hosts are middle-class Canadian families sharing their homes to earn a bit of additional income to pay the bills.’ Fairbnb, a coalition of groups pushing for regulation, says no one disputes that. ‘But the fact is that countless non-Airbnb commissioned studies using publicly available data, including ours, have shown that the real money made for Airbnb is made by a small percentage of multi-listing hosts who run ghost hotels,’ said Fairbnb spokesman Thorben Wiedtiz.”

The New York Post. “Beware, landlords who ignore city laws against Airbnb subleasing. In a first-of-its-kind decision, a Manhattan judge has ordered that an independent manager take over two Midtown properties where the owner has allegedly continued to let renters sublease apartments on Airbnb — flouting multiple citations and an injunction ordering him to stop. The state-court decision calls the two properties — at 334 W. 46th St. and 15 W. 55th St. — ‘public nuisances’ and orders that an independent manager be brought in as receiver.”

“Immediately after Monday’s decision, the properties’ owner, Salim Assa, marched his lawyers uptown to the state Appellate Division on Thursday, winning an emergency stay that will forestall any appointment of an independent manager until an appeal is hashed out.”

“In his decision, Justice d’Auguste wrote, ‘It appears that despite receiving over one hundred building and fire violations, criminal court summonses regarding the illegal use and occupancy of the properties, being sued by the City in the instant action, and being enjoined from using the properties as illegal short-term hotels pursuant to the preliminary injunction in place, the Owner Defendants have taken minimal steps to remedy the alleged illegal use and occupancy.’”

From The Guardian. “I’ve never found scrubbing other people’s fecal matter from my toilet seat particularly fun, nor does sharing my shower appeal, and yet this is my daily routine. I’m an Airbnb host. It’s not that I enjoy losing my spare bedroom and my privacy to entertain out of town visitors: I use the platform to be able to pay rent while I go through a difficult financial time. We live in an impoverished area of Los Angeles close to a large convention center and a university. It is not a tourist hub by any means, so demand for my area is not high.”

“If you think that most hosts fit my profile, you should think again. A sizeable chunk of Airbnb’s revenue has not come from the people featured in the company’s promotional videos. Instead, a big part of its revenue has historically been driven by commercial property owners and landlords with multiple properties who rent out everything from luxurious mansions to rent-fixed units intended for long-term residents.”

“Scott Shatford was the first person to be convicted in the city of Santa Monica for snapping up leases on singles and one-bedrooms in extremely desirable locations. At the height of his rental empire, Shatford managed seven properties on Airbnb – none of which he owned, all of which had been intended for long-term residents. After he failed to respond to cease-and-desist letters from the city (he claims he did not receive them), he was finally convicted when the city itself rented four nights in one of his properties – and took him to court.”

“Shatford no longer rents out properties and has moved to Denver with his wife, Julia. He now runs a data analytics company, AirDNA, which scrapes data from Airbnb in order to provide investment information to those who wish to purchase or lease properties specifically for the short-term housing market.”

“, a site run by Murray Cox and Tom Slee, also scrapes data from Airbnb. Their site rose to prominence after they discovered that Airbnb had wiped more than a thousand listings from their site just days before releasing data which they claimed supported their defense that their site was used primarily for home sharing, predominantly by ethnically diverse lower middle class and working class professionals.”

“Property owners illegally listing multiple properties have started to face legal consequences. In June 2016, the city attorney filed a suit which listed a number of Venice Beach properties, most of them rent-fixed, allegedly being used as illegal Airbnb short term rentals after evicting long term tenants. Airbnb is not solely responsible for the short term-housing crisis, but it is a factor. At the back of my mind is the question: if Airbnb didn’t exist, would my rent even be this high?”

August 6, 2017

A Great Opportunity For Someone Burdened With Debt

A weekend topic starting with Mortgage News Daily. “Federal Housing Finance Agency Director Melvin L. Watt focused much of his speech to the National Association of Real Estate Brokers on its five-year goal of creating two million new Black homeowners. There were ‘The unsavory practices that set the stage for our homeownership rates to get worse, especially subprime and predatory lending that disproportionately targeted minorities with mortgages that were designed to fail,’ and the generally irresponsible practices in the real estate and mortgage finance sector that ultimately led to the meltdown.”

“Efforts to increase credit access are underway and some have borne fruit. Fannie Mae has made several changes to calculating student loan debt in DTI ratios and both GSEs are considering how to better verify income for self-employed applicants and people who take part in the so-called gig economy.”

“Watt said FHFA and the GSEs have also worked to assess the role of debt-to-income (DTI) ratios and creditworthiness. The Dodd-Frank Act ‘ability to repay’ rule which gave rise to the qualified mortgage or QM standards established a regulation which lenders can meet in part with loans that have DTIs that do not exceed 43 percent. However, the GSEs, while they remain in conservatorship, can purchase loans with higher DTIs and do so for otherwise creditworthy borrowers with DTI rations up to 50 percent.”

From Fox 10 Phoenix in Arizona. “Getting a mortgage loan isn’t the easiest thing, especially for those student loan debt. Changes coming to mortgage loans, however, may make the process easier. For many millennials like Tyler McKirgan, home ownership is that American dream they just can’t reach just yet. The culprit? Student loans. ‘It definitely is a big burden, because millennial wages are low, and student loans are high,’ said McKirgan.”

“Mortgage lender company Fannie Mae, however, is revising their loan requirements, which could ease the burden of debt. As of now, the threshold for debt-to-income ratio is 45%, and if an applicant is over that threshold, they’re not likely to qualify for a conventional loan. For McKirgan, who is a recent grad school graduate, he knows that feeling of potential rejection all too well.”

“‘I’m at 46% right now, so on Saturday, I’m gonna be jumping for joy,’ said McKirgan. Saturday is the day when that threshold will be raised to 50%. ‘I think its great opportunity for someone who felt like they can’t buy a home, because they’re so burdened with debt, especially student loan debt.’”

From KPBS in California. “If you applied for a mortgage last month and didn’t quite qualify, you might want to try again this month. Some lending standards have been eased to allow more people to get into the market. Government controlled mortgage giant Fannie Mae is allowing borrowers to have higher levels of debt and still qualify for a home loan. Previously, the debt-to-income ratio was capped at 45 percent. Now it’s at 50 percent, making room for a larger house payment.”

“For example, for a household making approximately $7,000 in gross income a month, with a few hundred dollars in debt payments, it could mean a significant loan increase, said Mark Goldman, senior loan officer with C2 Financial Corporation and real estate instructor at San Diego State University.”

“‘Their ability to afford a home with 10 percent down went from about $455,000 up to about $540,000,’ Goldman said.”

From WTOP in Washington DC. “The D.C. region is one of four metro areas real estate firm CoreLogic Inc. now considers ‘overvalued,’ based on its analysis that includes disposable incomes and median prices. ‘The Washington area overall is a very high-cost market, and prices have risen much more over the last few years than incomes for regular families,’ CoreLogic chief economist Frank Nothaft told WTOP.”

“He says it is a simple mathematical equation. ‘Just over the last year in the Washington, D.C. area, home prices have risen an average of 5 percent over the last year, and mortgage rates are up a half percentage point over the last 12 months. That means to buy the same house with the same down payment today compared to 12 months ago, the homebuyer is looking at a monthly mortgage payment that is about 12 percent more than it was just a year ago,’ Nothaft said.”

From The National. “The biggest financial crisis for 80 years started 10 years ago when the French investment bank BNP Paribas, citing the ‘evaporisation of liquidity in certain sections of the US securitization market,’ froze withdrawals from three of its funds which had substantial holdings of American mortgage-backed securities. The funds were relatively small - less than US$2 billion - but it was the bank’s accompanying statement that terrified the markets.”

“BNP said it found it ‘impossible to value certain assets fairly, regardless of their quality or credit rating,’ which meant that no bank or fund in the world could know the value of the trillions of dollars of mortgage-backed securities they held on their balance sheets.”

“The real carnage, which turned the market rout into an economic recession, was in the global credit markets, or interbank lending market where banks extend credit to each other on a daily basis. Mortgage securities hardly moved - the market simply froze, with trading in many securities halted. The sub-prime crisis, which had been building since the US housing bubble had burst in the summer of 2006, had begun. The rest is history.”

“A decade on the world has still not fully recovered. On Monday this week Eurostat announced that unemployment across the euro zone fell to 9.1 per cent in June, the lowest since February 2009, but still below its pre-crisis levels. Unemployment, particularly in the 18 to 24-year-old “youth” category, in countries such as Spain, Portugal and Greece, is still above 30 per cent. Ireland, which took a huge 17 per cent hit in GDP post-crisis, has only recently got back to where it was after a full decade of lost growth.”

“Could it happen again? Yes, although probably not in the same form. Generals always fight the last war and the threat this time around may come from a different direction. On Monday Moody’s warned that UK household debts are rising to worrying levels at a time of economic uncertainty. The same trend is appearing in the United States where the Fed looks certain to raise interest rates. China, worried about its level of consumer debts, has put the brakes on and may be heading for a hard landing. An economic downturn, all too possible given the political chaos in the US and Britain, could tip many households over the edge. A lot of lessons have been learned in 10 years. They just may be the wrong lessons.”

August 5, 2017

The Market Was On A (Seemingly) Unstoppable Upswing

A weekend topic starting with Eurasian Review By Doug French. “Sin City’s projected 5,000 new apartment units for this year makes no noise nationally in the latest real estate craze. I’ve written before about the high-rise crane craze in Seattle, but that’s nothing compared to New York and Dallas, that are adding 27,000 and 25,000 units, respectively. Chicago is adding 7,800 units despite a shrinking population and rents decreasing 19 percent. Not surprisingly, Fannie Mae and Freddie Mac are financing this rental housing boom. I wrote recently, the GSEs made 53% of all apartment loans in 2016, down from their combined 68% market share in 2012. ‘So, their conservator, The Federal Housing Finance Agency (FHFA), recently eased the GSE’s lending caps so they can crank out even more loans.’”

“Mary Salmonsen writes for, ‘Currently, Fannie and Freddie are particularly dominant in garden apartments [and] in student housing, with 62% and 61% shares, respectively. The two remain the largest mid-/high-rise lenders but hold only 35% of the market.’”

From Costar Group. “By a number of measures, the multifamily sector continues to defy expectations of ‘cooling down’ over the second half of the year and loan origination projections for multifamily property is now projected to grow for the rest of 2017 and into 2018, according to new analysis from Freddie Mac and Kroll Bond Rating Agency analysis of Freddie Mac lending. The revised projection comes even as the number of multifamily construction projects is peaking between now and early 2018 and thus moderating overall growth.”

“That construction activity is pushing up vacancy rates and making absorption of new units take longer in some areas than in prior years, putting some downward pressure on rent growth, especially in certain larger metropolitan areas such as San Francisco, New York City, Washington DC and Miami. Separately, in analyzing Freddie Mac loan securitizations, Kroll Bond Rating Agency is finding a similar strong performance but with some softening. The cyclically high levels of construction are impacting Class A properties more than classes B and C, where construction remains fairly muted, the firm said. ”

The Times Free Press in Tennessee. “One of the biggest deals ever for an apartment complex in Hamilton County has closed for $40.5 million as the Chattanooga area real estate market continues to ride a wave of investor interest. The deal for The Havens is the equivalent of $127,358 per unit. Marcus Lyons of Berkadia Real Estate Advisors in Chattanooga said he expects the interest by investors in apartments to continue ‘for the time being.’ ‘There’s access to cheap money,’ he added about the number of deals involving apartments.”

From Bisnow on Colorado. “Denver’s continued construction boom has led to a glut of Class-A multifamily properties, but rent growth for the asset has slowed as residents search for more affordable housing options. Quasi-government lenders Fannie Mae and Freddie Mac offer widely available funds and aggressive loan pricing for properties that fall within the multifamily midmarket. The Denver midmarket has also seen an increasing number of 1031 exchanges, said JLL Multifamily Capital Markets Group Vice President Craig Kalman. Individuals are unlikely to purchase a property above $30M, and midmarket multifamily offers an ideal place to park equity and defer paying taxes, he said. Institutional players tend to make fewer 1031 exchanges.”

“‘With institutional players, they have all these funds, and sell off all the assets in a fund at the end of its life span. They usually are not doing a 1031 with the proceeds, they are returning equity to investors or redeploying that capital into other funds,’ he said. ‘There are a lot more 1031 buyers in the midmarket, and they get more aggressive with pricing.’”

The Real Deal on Florida. “Three new apartment buildings are scheduled to open within two blocks of each other in downtown West Palm Beach over the next year or so, adding over 800 units to the market in a move that local real estate insiders bet will put downward pressure on rents. At the moment, the downtown West Palm Beach market has a little over 6,700 condominium and rental units, city estimates show, and average rents hover at about $2.25 per square foot, according to Jeff Greene, a real estate investor and developer who has made a number of big bets on the area.”

“The new buildings would increase the area’s inventory by about 12 percent. Unless demand suddenly leaps, that means a drop in rents. ‘Unless there is a sudden surge in high-paying jobs that I’m not aware of or a surge of movement into downtown West Palm Beach of retirees, I don’t see where the demand is for 800-plus new luxury rental units,’ Greene said.”

“Even if rents soften in the short-term, some remain bullish on the area. ‘The West Palm Beach location keeps on getting better,’ said Neil Kozokoff, a principal at Parkland Companies, who just opened an apartment building north of downtown. ‘Whatever glut there is of new product will ultimately be offset by increased demand.’”

The Real Deal on New York. “Three years after the condo boom swept through New York, developers citywide are sitting on unsold units. In 2017’s second quarter, condo inventory in the borough stood at around 5,900 — up 35 percent year over year, according to Halstead Property Development Marketing. And prices for new condos are significantly down amid a slowdown in luxury sales. For developers who already have skin in the game, the numbers are alarming, particularly since many penciled out their projects several years ago, when the market was on a (seemingly) unstoppable upswing.”

“While there are no public numbers quantifying the outstanding (and soon-to-be-due) debt on New York condo projects, it’s undoubtedly in the billions. Nikki Field of Sotheby’s International Realty said the pressure from lenders has ramped up in the past 18 months as the market has struggled to absorb a glut of new units. ‘The banks are calling in, and developers have got to deliver. They have deadlines to hit for signed contracts, they have pressure,’ she said. ‘The longer [a project] goes, the more it costs developers. There’s a real sense of urgency to move product.’”

“Manhattan-based real estate attorney Terry Oved agreed. ‘The clock is ticking,’ he said. ‘You have bank obligations.’”

“And it’s not just banks turning up the heat. The private equity funds that ramped up lending when traditional banks pulled back are also under the gun, because their funds have strict timelines that cannot be extended. ‘Remember that a lot of this equity is high-octane equity — they have to give them back the money with a return,’ added one developer.”

“Behind closed doors, this new reality has led to something of a standoff between developers and their lenders — who may have competing interests. On the one side are lenders, whose top priority is getting paid back (with interest) on time. On the other side are developers who often want to hold out for higher prices to maximize profits. David Blatt, CEO of investment banking firm CapStack Partners, said both sides are more anxious than they were a year ago. ‘What is unsettling is that we’ve been in such a long bull run relative to history,’ he said. ‘Inevitably, the music has to stop.’”

The South China Morning Post by Nicholas Spiro. “Alan Greenspan, the former chairman of the Federal Reserve, is not ideally placed to opine on the threat posed by asset bubbles in financial markets. This is, after all, the central banker who is widely blamed for having sewn the seeds of the 2008 global financial crisis by refusing to prick the US housing bubble which triggered the crash. Yet Greenspan’s words still carry a lot of weight with market commentators and investors. So when he warned in an interview on Tuesday that ‘we are experiencing a bubble, not in stock prices, but in bond prices’ which ‘is not discounted in the marketplace,’ it received a lot of attention.”

“The ‘hunt for yield,’ which has intensified since the yields on a large portion of the stock of government debt in Europe and Japan turned negative due to aggressive programmes of quantitative easing, has become one of the most conspicuous trends in markets over the past several years, and one that is setting off alarm bells.”

“What is particularly troubling is that there is no indication that the hunt for yield is likely to abate – indeed, quite the opposite. Given ultra-low borrowing costs in developed markets – almost a fifth of the stock of global sovereign debt is negative-yielding, with nearly 30 per cent of eurozone bond yields in negative territory, according to JPMorgan – investors have little choice but to move into riskier asset classes in order to generate adequate returns.”

“Yet the fiercer the hunt, the larger the bubbles and the greater the risk of a sharp and disorderly correction in bond markets if investors get spooked by the removal of monetary stimulus.”