July 22, 2017

A Glut Few Can Afford

A weekend topic starting with CNBC. “If the speculation bears out and the White House’s chief economic advisor, Gary Cohn, a Goldman Sachs alum, were to become the next Federal Reserve chairman, the Trump administration would be gaining a steady hand at the central bank, but perhaps losing support from one of Wall Street’s most influential firms, veteran banking analyst Chris Whalen told CNBC. Regardless of how Goldman would feel if Cohn were to leave the White House for the Fed, ‘I’m one of those who believes that there’s nothing wrong with having bankers, people from industry on the Fed board,’ Whalen said. ‘We have been dominated by academic economists. And you know what, they’ve gotten it wrong.’”

“Whalen said nobody should be surprised that inflation has yet to rise to the Fed’s 2 percent target level. ‘Low interest rates [and] quantitative easing are deflationary. So, of course, we haven’t hit our inflation targets. But nobody at the Fed understands that.’”

From Property Guru on China. “With luxury condos in Shanghai selling at rates comparable to London or Manhattan, it is small wonder that the Chinese residential market is a source of endless speculation. ‘It’s a high-growth market. You can see prices grow by 30 or 40 percent in a year,’ says James Macdonald, head of research for China at Savills. ‘That is the primary appeal: to be able to make quite a lot of money in a short amount of time.’”

The Weekly Times on Australia. “Homeowners in parts of Melbourne are making as much as $1200 a day just by holding on to their houses, new research shows. Figures reveal northeastern fringe suburb Kinglake West recorded massive 51.6 per cent median house price growth in the year to June 30, to $580,000. Ray White Carrum Downs’ Maggie Raad said Frankston North offered similar lures for first-home buyers and investors, including rare 600sq m blocks: ‘Eight months ago, the average house cost $400,000. Now we’re getting another $100,000 on top.’”

The Orangeville Citizen in Canada. “While a much-documented drop in the national housing market in recent months has left potential investors across the province in a frenzy, one local realtor has poured cold water on the suggestion the proverbial bubble could be set to burst in Orangeville. And while prices appear to be down pretty much across the board – the $504,458 average sale price in June is a near ten percent drop from the $559,317 average price posted in April – values appear to be going only one way in Orangeville. John Walkinshaw of Royal LePage RCR Realty did however offer some hope to those in the community looking to invest or finally purchase their first home.”

“‘I would say that the market here is stabilizing right now in the respect that the hype is no longer in the market. It’s still a very active and a very solid market, but the hype, in my opinion has gone. The days of people paying ridiculous amounts of money over value, getting into bidding wars with other interested parties, has come and gone for the most part,’ Mr. Walkinshaw said.”

From Bloomberg on the UK. “You don’t have to spend much time looking in the windows of estate agents to see Britain’s housing market has an affordability problem. Homes in England cost eight times workers’ wages; 13 times in London; and 30 times in the capital’s poshest neighborhood, according to the Office for National Statistics. Construction of new homes in London rose 42 percent in the second quarter, according to a report by Molior London. But the stock of unsold units still under construction reached the highest level since Molior started collecting data in 2009.”

“That supports estimates by Savills that although London will see a record number of new homes in 2017, more of those homes won’t have found buyers by the time they’re completed than at any point in the past decade. And luxury house prices are showing signs of suffering. Data released by Lonres on Thursday showed sales values per square foot of properties priced between 2 million pounds and 5 million pounds fell by 8.4 percent in the second quarter.”

“It appears that the real problem in the market isn’t so much a shortage of supply, but a glut of luxury homes few can afford.”

The Los Angeles Times in California. “California’s economic engine quieted in June as employers reduced their payrolls by 1,400, according to a report by the state’s Employment Development Department. It was the second month this year that the state lost jobs. ‘These numbers are problematic, I think this is a wakeup call for everybody,’ said Chris Thornberg, co-founder of consulting firm Beacon Economics.”

“On the surface, California’s economy seems healthy enough; the jobless rate is rock bottom and wages are growing much faster here than in the rest of the country. But most sectors in the state have either lost jobs in the first half of the year or are growing more slowly than they had been. Economists say that’s largely because businesses cannot find applicants to fill open jobs, because rank-and-file workers can’t afford to live in the Golden State.”

“The trouble for California is that the slowdown appears to be touching almost every corner of the economy. ‘I have to assume this is housing,’ Thornberg said. ‘Where do you put bodies? We don’t have houses. The state has run out of labor supply.’”

July 21, 2017

So How Is It A Buyers Market?

It’s Friday desk clearing time for this blogger. “Barbara L. Pearce, president of the North Haven-based real estate firm Pearce Co., said the oversupply of luxury-priced homes in Fairfield County has a negative impact on similarly priced homes in the New Haven area. ‘It’s hard to predict which homes are priced well and will go quickly and which will linger on the market,’ Pearce said. ‘There’s a lot of demand for luxury homes in East Rock (section of New Haven) but the price is pretty much capped at $850,000.’”

“Affordable luxury homes continue to dominate the market in South Florida, with less expensive areas inland and north of Miami seeing strong activity, according to Douglas Elliman. It’s a different tale on Miami Beach and barrier islands. The median price of a luxury condo on Miami Beach fell to $2.283 million, a nearly 20% drop from a year ago—though the number of luxury sales are as strong as they were then. ‘The market still remains softest at the top,’ said Jonathan Miller, chief executive of Miller Samuel.”

“Despite a steady wave of indicators that suggest Calgary’s economy is on the mend after a bruising recession, data shows the city is dealing with a glut of housing that hasn’t been so big in two decades, perhaps longer. City hall reported in its latest census that nearly 23,600 housing units are vacant, up by 2,700 over last year’s levels. ‘Every indicator is showing that things have bottomed and bounced off the bottom,’ said Bob Dhillon, chief executive of the western Canadian landlord Mainstreet Equities. ‘The challenge is, how long will it take to absorb the vacant units?’”

“A slump in super-prime home values in London is rippling down the luxury-property market. Sales values per square foot for houses priced between 2 million pounds ($2.6 million) and 5 million pounds fell by 8.4 percent in the second quarter from a year earlier as political uncertainly deterred potential buyers, according to researcher Lonres. Selling prices for super-prime properties — those over 5 million pounds — fell 3.2 percent. ‘There is a lack of urgency in the market which, combined with considerable buying costs, means many who would have transacted have stayed in their current properties instead,’ said Marcus Dixon, head of research and data analysis. While sales across the prime central London market are similar to 2016, they’re down 40 percent from three years ago, he said.”

“It’s a buyers’ market. Or so say analysts tracking the real estate market. Reams and reams have been written about how anyone planning to buy a house can pick and choose from the large stock of unsold inventory and pay lower than what was the price a few years back. But Delhi resident Simi Mohan isn’t convinced. ‘I don’t want to book a flat in any upcoming project because I don’t know when I will get it. And the prices of the already built flats are not in the affordable range for me. So how is it a buyers’ market?’ asks the 32-year-old paramedic.”

“Mohan has a point. The unsold inventory is piling up, developers are sitting on unfinished projects and the consumer is nowhere in sight.”

“At Bogyoke Market in the centre of Yangon, commerce proceeds very much as it has since the times of British colonialism. But it is a very different situation when it comes to residential developments. A glut of high-end properties now sit either unfinished or empty as the envisioned influx of wealthy foreigners expected to rent them has failed to materialise. The Colliers report notes that the total completed condominium stock is estimated to have exceeded 6,000 units at the end of 2016 with more than 10,000 units in the pipeline.”

“However, the report warns that ‘inadequate sales take-up along with the rising number of defaults from buyers could mean delays in completion or even the possibility of project cancellation.’ David Ney, managing partner at York Road Realty in Yangon says that high-end rents have fallen by around a third. ‘Properties that were renting for USD5,000 per month are now going for USD3,000 or even USD2,000.’”

“A property downturn could dent the big banks and Australia’s financial stability because home loan customers could not quickly funnel cash out of other investments, economists say. Australian Securities and Investments chairman Greg Medcraft this week described hybrid securities as ‘ridiculous’ products for retail investors. University of Melbourne ­finance professor Kevin Davis said the securities could prove problematic in the event an Australian bank was in financial difficulty.”

“While they looked on the surface ‘like a really good idea, in practice they’d be an absolute nightmare,’ he said. The complexity of hybrids was also a concern, he said. ‘With the global financial crisis 10 years ago, one of the problems was too many ­complex instruments being sold to investors. What have we got now? Really complex ­financial instruments that people can’t value being sold to ­retail investors.’”

“The downturn in the residential property market that began in Auckland late last year has now spread throughout the country, shaving $100 million from real estate agency commissions in the second quarter of this year. The Auckland market has borne the brunt of the downturn, with the number of sales in the region down by just over a third, dropping from 8731 in the second quarter of last year to 5756 in the second quarter of this year, a decline of 2975 (-34%). But the downturn has spread well beyond Auckland with sales throughout the country well down in the second quarter of this year compared to the same period of last year.”

“Average sales rates at the major Auckland auctions are still running at less than half of what they were during last year’s peak. And there are increasing signs that vendors are accepting that the market has softened and are starting to be more realistic in their price expectations, which will help expedite sales. However buyers are increasingly prepared to play hardball on price, and some investors who over-extended themselves and took on high levels of debt during the boom will be starting to feel squeezed. Others that aren’t feeling the pressure yet are likely to be getting nervous.”

July 20, 2017

Few Realized Just How Big The Gulf Is Getting

A report from the Arizona Republic. “The Valley needs a lot more apartments to keep up with its expected growth, according to a new study. Anyone who has been around downtown Phoenix, Scottsdale or Tempe, where thousands of apartments have recently gone up or are under construction, will probably find this hard to believe. I did. More than 10,000 new apartments are underway or have recently opened to renters, mainly in those areas. Rents are a great gauge to whether an area has too many apartments. After jumping nearly 15 percent since 2015, rental rates are dipping in parts of the Valley with the most new apartments. And developers at new complexes are beginning to offer deals on longer leases.”

“A little overbuilding can be good news for renters when their monthly payment dips, but too much is a bad thing for home values, the real-estate market and the economy.”

The Dallas Morning News. “The run up in Dallas-area apartment rents may be easing. During June Dallas-area rents were just 2.4 percent ahead of where they were a year ago, according to apartment researcher Axiometrics. That’s the smallest annual increase in the Dallas area in seven years and the first time in recently that the rise in Dallas rents was less than the national average. ‘The influx of Dallas supply is finally affecting market performance,’ said Jay Denton, vice president of analytics for Axiometrics. ‘Demand is still high, but it will take a while to fill all the new properties in the market.’”

“Almost 29,000 new apartments are set to open in North Texas this year. Currently there are over 50,000 apartments being built in North Texas.”

The News Tribune in Washington. “The regional apartment market might be softening just a bit, which would be welcome news for renters who have seen double-digit rent increases compared to last year. Apartment vacancy rates in Pierce and Thurston counties are climbing, according to Seattle research firm Apartment Insights. Plus, Pierce County is seeing record levels of apartment construction. Apartment vacancy rates in Pierce County in the second quarter of 2017 was 4.21 percent, up from 3.34 percent the year before, according to Apartment Insights, which studies apartment complexes with 50 or more units.”

“Apartment Insights says 4,004 apartments are under construction or have completed permitting in the three-county area, most in Pierce County. Another 4,251 are at earlier stages of permitting and review. Rents in newer buildings, which have luxury finishes and amenities, can cost north of $2,000 for a two-bedroom, two-bath unit. A family living there would need to earn $72,000 a year to even get in the door. Tacoma’s median household income is $60,000 a year, Census data show. About 40 percent of Tacoma households earn less than $50,000 a year.”

“That’s probably the fill-in from the Seattle market,’ said Raelene Rogers, a partner at McCament and Rogers LLC, a Gig Harbor consulting firm that specializes in urban development, of those who can afford that kind of apartment.”

From Multi-Housing News on California. “After several years of heightened growth, multifamily rents in San Francisco have tempered. Rents have reached a point where even highly paid workers can’t afford the premium prices. Transaction activity has slowed in 2017, with only $300 million in properties trading in the first five months of the year. This comes after last year’s cycle high, when more than $3 billion in assets changed hands, reflecting investor caution amid escalating prices and macroeconomic uncertainty. With more than 15,000 units under construction, Yardi Matrix forecasts rents will remain flat in 2017.”

From The Tennessean. “The average rent for a one-bedroom apartment in the Nashville area fell 3.1 percent a month during the first half of this year, the third biggest drop among cities nationwide. After years of growth, monthly rents are leveling off at the swanky, new apartments that dot the Nashville skyline with developers and landlords now offering concessions and other perks to lure renters. ‘The new have come online quicker than they’ve been absorbed, so there’s been a little indigestion for everything to get back in balance,’ said Woody McLaughlin, a member of the statistics committee of the Greater Nashville Apartment Association trade group.”

“Abodo’s apartment analysis of rents didn’t take concessions into account. But a separate tracking by research firm CoStar Group shows most newly delivered projects in the Nashville area offering two months free rents on 14-month terms and a month free on 13-month terms, waiver of fees and deposits and perks such as gift cards and TVs. ‘It’s only the properties that have really slowed down in leasing or are still pre-leasing while under construction that are offering these types of concessions on a 12-month lease,’ said Elinor Avant, a CoStar market analyst. ‘Discounted rent is still pretty rare, but is becoming more common as the competition rises. $500 and $1,000 upfront is really common on all lease terms.’”

“Currently, 16,000 apartment units are under construction in the Nashville area with 10,000 more units in various planning stages, according to the Greater Nashville Apartment Association. For the first quarter, Nashville’s apartment occupancy rate fell 2.76 percent to 92.69 percent, reflecting increased supply including completion of 1,786 new units during that three-month period. McLaughlin expects a more challenging environment for apartment owners/developers as inventory continues to grow. ‘The consumer can continue to expect concessions on the high-end product to compete with more renovations of older apartments that can compete price-wise,’ he added.”

From Bisnow on Pennsylvania. “Philadelphia has benefited from an increased national profile in the past few years among residents and investors alike, but those who may wish it to grow as fast as its Northeast neighbors may be playing a dangerous game. The large majority of incoming multifamily construction is in Center City, which does provide some optimism that surrounding areas could remain fertile for new apartments. But firms that count Philly among a multi-market portfolio do not see much runway in the market. ‘There looks like there could be a slight lapse and softness in 2017-18,’ LEM Capital partner David Lazarus said.”

“While it is commonly accepted that new construction needs to charge a certain rent in order to recoup high construction costs, perhaps few realized just how big the gulf is getting. Lazarus said only 178 new Class-B apartments were delivered across the country last year. ‘We’re all focused on these new Class-A units and where the tenants are coming from, but what’s really going on is that there’s an affordability crisis in this country,’ Lazarus said.”

July 19, 2017

Prices Down And Crickets Echoing Through Open Houses

A report from Bloomberg on Canada. “Canada’s hottest housing market is definitely cooling down. Total home sales in Greater Toronto dropped to 5,977 in June, the lowest level since 2010 and down 15.1 percent from the month prior, data from the Canadian Real Estate Association show. Average prices are down 14.2 percent since March — the fastest 3-month decline in the history of the data back to 1988 — while the ratio of sales to new listings sits at its lowest level since 2009. Prices and sales also fell in nearby regions such as Hamilton-Burlington and Kitchener-Waterloo, CREA data show.”

“Sales also fell 4 percent from the previous month in Vancouver, the country’s other hot real estate market, to 3,047 residential units. Greater Vancouver remains Canada’s most expensive market with an average price of C$1.04 million, down 3.2 percent from May. Sales fell most sharply in Regina, which was down 27.3 percent. ‘The Canadian housing market is chock full of unique stories, both positive and negative,’ Bank of Montreal economists Doug Porter and Robert Kavcic wrote in a research note. Ontario’s changes ‘have worked to alter market psychology — and that is a positive outcome given the speculative dynamics in place a few months ago.’”

From Global News. “Sales of existing homes fell by over 15 per cent in Toronto, the second straight double-digit decline, with resale activity now down by a whopping 42 per cent from its March peak, TD economist Diana Petramala wrote in a brief note to clients. The ratio of sales compared to new home listings fell below 40 per cent in Toronto, the statistics show. In March, by comparison, the ratio stood at 86 per cent, meaning homes were being snatched up pretty much as soon as the ‘for sale’ sign went up. ‘According to this metric, Toronto has now fully moved from sellers’ territory (ratio above 60 per cent) to buyers’ territory (ratio under 40 per cent),’ Petramala wrote.”

“‘The higher end of the Toronto market (call it $1.5 million plus, for argument’s sake) has gone stone cold, with prices now edging down and crickets echoing through open houses,’ BMO economist Robert Kavcic noted in a different email to clients.”

July 17, 2017

A Reason As Simple As The Law Of Gravity

A report from National Real Estate Investor. “Earlier this year it seemed like student housing properties were immune from the slowdown in investment sales. Sales for other property types had slowed dramatically compared to 2016. But the volume of single-asset student housing properties bought and sold in the first months of 2017 matched the beginning of 2016, which proved to be a record year for the sector. No longer. ‘That story about student housing outperforming on sales volume does not hold water anymore,’ says James Costello, senior vice president with Real Capital Analytics. ‘It was the case through 2016 even as the apartment market faltered. Now though, deal activity is falling for student housing was well.’”

“The reason for slow sales may be as simple as the law of gravity—what goes up must come down, at least a little. ‘Not surprisingly, sometime after the better yields on offer went away, so eventually did the stronger growth in deal volume,’ says Costello.”

From The Oregonian. “The housing sector has garnered the most headlines in Portland due to skyrocketing prices for renters and buyers, and rock-bottom vacancy rates for apartment-seekers. But that growth is showing signs of slowing, especially at the high end. More Portland apartment buildings are offering incentives to fill up expensive units. Killian Pacific, developer of the high-profile Goat Blocks apartment complex in Portland’s inner eastside, has leased 104 of the 247 units in five months. The company reluctantly began offering one month’s free rent to lure tenants. ‘It definitely was slower than we expected in April and May,’ said Jeremy McPherson, Killian Pacific’s vice president of development.”

The Citizen Times in North Carolina. “It’s not your imagination. A lot of apartments have been going up in the Asheville area over the past five years or so. And by a lot, we’re talking thousands. While multiple companies have had a hand in building apartments over the past half-decade, no one entity has put up more than Southwood Realty out of Gastonia. Vice President Will Ratchford said they’re done for now in Buncombe County. ‘I think the market is going to be saturated for a while,’ Ratchford said. ‘We’ve started to get some negativity about apartments.’”

The Arizona Republic. “A tax break that cities use to entice development has led to legal woes in Tempe. Basically, Tempe became the owner of a luxury apartment complexalong Tempe Town Lake this year to give the developer, OliverMcMillan, a break on its property taxes. The project, previously known as the Lofts at Hayden Ferry, is now called Salt and is slated to open this year, according to the company’s website. However, nine builders claim San Diego-based OliverMcMillan hasn’t paid them, and they have placed liens against the property.”

“Since Tempe is the property owner, AP Southwest LLC and other contractors filed a notice of claim, which is often a precursor to a lawsuit, with the city to obtain the $5.6 million they claim they are owed. ‘It would be funny if it wasn’t so horrible,’ said Jim Manley, a senior attorney at the Goldwater Institute, which has long opposed these types of tax breaks.”

From Curbed on Colorado. “Most major U.S. cities are experiencing housing shortages, which are driving up rents and forcing residents out of their homes. But few have tackled their housing challenges as voraciously as Denver, which has built a record-breaking number of units over the last year. Now the city is trying a new approach to make its existing housing more accessible: a pilot program that would rent 400 vacant apartments to people who could otherwise not afford them.”

“In his state of the city address earlier this week, Denver Mayor Michael Hancock announced a rent “buy-down” program that will take empty high-end apartments and subsidize their rents so families that make 40 to 80 percent of the city’s median income can move in. The glut of so-called ‘luxury housing’ is also an issue that many cities are facing. Affordability advocates claim developers are trying to maximize their profits by building too many of these high-end units, and selling them to foreign or anonymous buyers that leverage them as investments but may not fill them with residents.”

“The New York Times recently tracked the acquisitions of these ’shell companies’ which led to some legislative reform and a Treasury Department investigation of all-cash purchases in Manhattan and Miami.”

From Curbed San Francisco. on California. “Does San Francisco seem slightly less terrifyingly expensive today than it did four weeks ago? According to rental site Abodo, it should. In Abodo’s midyear rent report rounding up trends in apartment prices for the first six months of the year in major cities, on average San Francisco rents declined 1.2 percent per month (on Abodo, that is) since the beginning of 2017. Abodo spokesperson Sam Radbil tells Curbed SF that the rental platform can only report the figures it has, and suggests that if homes aren’t getting more affordable it’s an infrastructure issue, not a data analysis one.”

“‘We are confident that it all starts with development,’ Radbil says. ‘I don’t need to explain supply and demand to anyone. The price on new buildings is going to drive up the average and median, but at the same time as you get more apartments, landlords have less leverage and the price on more affordable places will decline.’”

From The Oklahoman. “Oil patch? What oil patch? Three years of volatile crude oil prices — at less than half the most recent peak — never spilled over into apartment occupancy or the multifamily investment market in Oklahoma City. ‘First month free’ and other rent concessions are due to another factor: Construction that never missed a beat, causing overbuilding in some pockets of the metro area. That’s the highlight of Commercial Realty Resources Co.’s midyear apartment report by broker-owner Mike Buhl: Whatever jobs have been lost to declined oil prices have been made up by other economic sectors.”

“He said there are signs of uncertainty — the banners advertising specials at the newest apartment complexes struggling to fill, especially downtown, in the Quail Springs area along Memorial Road and in parts of south Oklahoma City ‘When you drive around town, you see more of those (rent concession) signs on properties, but I think that’s just more of an effect of more inventory coming on the market, as opposed to any effects of the oil industry,’ he said.”

“‘While it comes down to what is being built and where it is being built, speculation remains that developers will keep building product and adding inventory,’ he said. ‘What I expected at this time last year was that developers would start to tap the brakes a bit on a number of construction projects. But that really didn’t happen. The amount of new construction coming to the market without some kind of slowdown does seem a bit aggressive.’”

“The Reserve on Stinson Apartments, to be renamed State on Campus Norman, 730 Stinson, Norman: 204 student-oriented units built in 2005 near the University of Oklahoma campus; sold in May for $17.6 million, a 42-percent drop from its original sale price of $30.5 million in December 2006. That was a surprise, Buhl said, considering continued strong investment in general. ‘I don’t know if that indicates any kind of trend. Probably not,’ he said.”

July 16, 2017

Memo To The Fed: Please Stop Helping

A topic around some articles and comments recently. I posted this Thursday: “Since 2000, Alexandria has lost 90 percent of its affordable housing. There are now fewer than 2,000 affordable apartments.”

“According to new research by Harvard University, almost 40 million Americans cannot afford to pay for housing. Since most of the new units being built are at the high end, “the number of modestly priced units available for under $800 declined by 261,000 between 2005 and 2015, while the number renting for $2,000 or more jumped by 1.5 million.”

‘NBC News sums up the findings this way: “Over 38 million American households can’t afford their housing, an increase of 146 percent in the past 16 years.”

One replied, “Totally amazing numbers. Yet all of us hoping for an end to the madness (ie a recession) are the monsters. Total job losses due to 2001 + 2008 recessions: 2.2 million + 8.8 million = 11 million.”

“Total impoverished thanks to the boom (that 146% increase in people who can’t afford housing since 2000): 22 million.”

Yesterday a reader posted this, “JULY 13, 2017. U.S. Fed buys $5.7 billion of mortgage bonds, sells none

“The Federal Reserve bought $5.656 billion of agency mortgage-backed securities in the week from Jul. 6 to Jul. 12, compared with $3.683 billion purchased the previous week, the New York Federal Reserve Bank said on Thursday.”

“In a move to help the housing market begun in October 2011, the U.S. central bank has been using funds from principal payments on the agency debt and agency mortgage-backed securities, or MBS, it holds to reinvest in agency MBS.”

“The New York Fed said on its website the Fed sold no mortgage securities guaranteed by Fannie Mae, Freddie Mac or the Government National Mortgage Association, or Ginnie Mae, in the latest week. It sold none the prior week.”

Another reader replied with some quotes from this article, my post and a comment. “In a move to help the housing market begun in October 2011…”

“Five years ago, you could snatch up a median-priced condo in Orange and Los Angeles counties for about $280,000, 76 percent less than today’s prices.”

‘Mission f%^#ing accomplished. Memo to the Fed: please stop helping.’

July 15, 2017

The Market Has Moderated From Unsustainable Increases

A weekend topic on where we are starting with the Press Telegram in California. “For 62 straight months, Southern California home prices have gone in one direction. Up. Five years ago, you could snatch up a median-priced condo in Orange and Los Angeles counties for about $280,000, 76 percent less than today’s prices. A median-priced house cost $323,000 in L.A. County five years ago and $495,000 in O.C., about $260,000 less than today’s prices in both counties. Are we at the peak? Not one of the economists we interviewed thinks we are, at least not for entry-level homes. Luxury homes, priced at $2 million and up, may have reached a price peak and are facing an oversupply of listings, analysts said.”

“How much longer prices rise depends on what happens to the overall economy. ‘At some point, there’s going to be a correction, but I don’t see it on the horizon,’ said Pat Veling, president of Brea-based Real Data Strategies. ‘Sellers want more than sellers got six months ago.’”

“Oscar Wei, a senior economist for the California Association of Realtors, predicted mortgage rates will go up half a percentage point this year and half a percentage point next year. ‘You’re most likely seeing an increase of 10 percent or 12 percent in your mortgage payment’ if you wait, Wei said. Southern California home prices for deals signed in December averaged 3 percent less than deals signed the preceding spring, CoreLogic figures show. In Orange County, prices averaged 2.5 percent less. ‘If you see something you are interested in and you can afford it — maybe not a single-family home, but a condo or a town home — (buy it) and start building equity,’ Wei said. ‘I wouldn’t wait.’”

From The Oregonian. “More houses came into the Portland-area market in June. The month’ saw more newly listed houses than any June since 2008, according to the Regional Multiple Listing Service. Buyers are getting choosier, said Brian Houston, principal managing broker at Coldwell Banker Bain in Portland. As a result, some overpriced homes are sitting on the market. ‘The sellers that have recently come on the market are overpricing because they’ve been able to get away with it up to this point,’ Houston said. ‘I think buyers are saying, ‘I’m a little tired of this.’”

“It’s not clear what might come next. The cooling off, combined with an expected increase in mortgage rates, could help slow growth in home prices to a more sustainable level. But even the recent uptick in new listings doesn’t suggest a road to a totally balanced market. ‘We don’t see enough inventory coming on to think that we’re going to do a pendulum swing to the other side,’ said Israel Hill, a managing broker with John L. Scott Real Estate in Northeast Portland. ‘We’re still going to go into next spring with a shortage of inventory.’”

From Maui News in Hawaii. “Median single-family home prices in Maui County hit $700,000 or more for the third time this year in June when the midpoint price at which homes sold was $740,000, according to the Realtors Association of Maui. Median home prices topped $700,000 only one month last year (in December, when the price was $700,500). And, before that, Maui County median home prices had not gone north of $700,000 since September 2006, the association’s historic data show.”

“‘There is strong demand for homebuying, emphasized by higher prices and multiple offers on homes for sale in many submarkets,’ the association’s commentary on June statistics says. ‘As has been the case for month after month — and now year after year — low inventory is the primary culprit for any sales malaise, rather than lack of offers.’”

“Of the 1,089 homes sold in the immediate past 12 months, 9.7 percent were short sales or foreclosures; and of the 1,377 condos sold, 5.6 percent were similarly distressed.”

From CBC News in Canada. “Whether you are buying or selling a home in the Greater Toronto Area, you might be saying the same thing: what a difference a year makes. Accordng to Phil Soper, president and CEO of Royal LePage, since April the GTA housing market has moderated from unsustainable increases in prices from the first quarter. ‘It has and will continue to be for the rest of the year, a much much better market for buyers,’ said Soper. ‘It’s not that homes have suddenly gone on sale, that’s a misconception. Home prices continue to rise.’ But Soper says there’s ‘no longer a lineup of 15 or 10 people all bidding on the same property.’”

“Cindy Sampson. 39, and her husband had been looking for a house for more than a year and were about to throw in the towel. Then, last week they found a place that was within their reach, made an offer and found themselves on their way to home ownership. ‘The overbidding wasn’t crazy and out of control. We jumped,’ she said.”

“Those selling their homes have noticed a big difference too. Sampson says she can see it because she has friends who are trying to sell right now. ‘They put their house on the market and haven’t had an offer,’ she said.”

From Radio New Zealand. “Gareth Kiernan, chief forecaster of the economic consultancy Infometrics, is cautioning political parties about the economic cost of a sharp reduction in immigration. He said the economy has needed and been able to absorb the more than 70,000 immigrants who had settled here in the past 12 months to fill skills shortages. Mr Kiernan accepted that the high numbers of immigrants had put pressure on housing and infrastructure, and could have been better managed, but said without them the economy would face some big negatives such as rising labour costs and inflation, which would trigger higher interest rates.”

“‘Given the slowdown already occurring in sales activity and house price growth, this potential cocktail of rising interest rates mixed with a government clampdown on migration would be lethal,’ said Mr Kiernan. ‘Faster lifts in mortgage rates and debt-servicing costs would threaten a jump in forced house sales, hastening a correction in the housing market and hammering consumer confidence.’”

From Fairfax Media in New Zealand. “More houses have resold at a loss in Christchurch than other centres in the aftermath of the region’s building boom, while rents are reducing. Data released from property analytics company CoreLogic said 7.9 per cent of sellers in Canterbury sold for less than they bought in the first three months of the year. That was a slight increase from 6.9 per cent in the previous quarter. Dunedin had the second highest proportion of resale losses (2.7 per cent), while in Auckland and Wellington it was 1.3 per cent.”

“Housing affordability commentator Hugh Pavletich said Christchurch’s slowing market was likely to be followed by Auckland where the housing bubble was shutting more people out of the market. Christchurch’s market was cooling, but it still required nearly six times annual household income to buy a property while in Auckland it was 10 times, Pavletich said. ‘It will affect other centres. The longer the bubble goes on, the worse it is when it deflates,’ Pavletich said.”

“Canterbury president of the Property Investors Federation, Stephen East, said he was unaware of a surge in loss-making house sales by investors and he questioned the size of the CoreLogic survey sample. ‘But there’s a housing over supply. Look at all the building to the west and north of Christchurch. Who is going to buy and live in them? It’s flowing through to falling rents,’ East said.”

“CoreLogic head of research Nick Goodall said the picture was uneven at a regional level. ‘Some regions as well as apartment owners and property investors are more likely to face a loss,’ Goodall said.”

July 14, 2017

A Financial Precarity Hiding Behind Glossy Aspirations

It’s Friday desk clearing time for this blogger. “If you haven’t looked lately, you may not have noticed he real estate market in Franklin and Gulf counties is on the rebound. Gloria Salinard, director of the Realtors Association of Franklin and Gulf Counties, said the picture seems to include a growing number of fulltime residents, as well as some ‘flippers.’ ‘As soon as it becomes a buyers market, as prices start going up, you’ll have buyers who will buy it as an investment and turn around and sell it immediately,’ Salinard said. ‘In the heyday, when the market was so hot, speculators were putting in developments in hopes of selling the land, and several sold several times over. Unfortunately the bottom fell out of the market and some individuals who bought high are holding on. Unfortunately there they sit.’”

“Home sales were up heading into summer compared to last year in Oklahoma City, but as usual, activity varied depending on price range. Sellers at $300,000 and up still have challenges and ‘are still needing a Realtor with a strong marketing approach,’ said Michele Corral of Crossland Real Estate. ‘Those holding out for the highest price in the neighborhood are still holding.’”

“With The Woodlands moving closer to residential build-out, new trends have emerged in the area’s real estate market in recent years. Between 2005 and 2015, the median sales price for homes in The Woodlands more than doubled from $252,055 to $562,000, a 122 percent surge, according to The Woodlands Development Company. Median annual household income during the same period increased by 32 percent, from $136,000 to $180,000, according to the data.”

“Somer Padilla, a real estate agent at Beth Ferester & Company, said builders are hurting, because insufficient buyer demand has led to an oversupply of houses recently built around The Woodlands. ‘The surrounding area is overbuilt, and there are not enough buyers,’ she said.”

“Is the recent downturn in the Greater Toronto Area’s real estate market a blip or the start of a severe correction? John Andrew, a professor at Queen’s University and executive director of the Queen’s Real Estate Roundtable warns that a series of rate hikes in Canada would put pressure on a lot of households – especially in Toronto and Vancouver, where many people hold massive mortgages. ‘What a quick transition we’ve seen from a very strong sellers’ market to a very strong buyers’ market,’ Prof. Andrew says of the abrupt decline in sales.”

“He figures if the central bank were to raise rates two or three times, housing markets across the country would slump. ‘By about the second increase, the response will be ‘the gravy train has stopped.’ I think we would see a decline in house prices right across the board,’ Andrew said. Rather than be out of pocket every month while hoping the unit rises in value, the investor is more likely to sell and take any gains from the appreciation above the purchase price. ‘A lot of investors will do the math at the same time and they’ll dump them,’ he said.”

“The more China tries to rein in its roaring housing market, the more obsessed people get about buying. An article of faith is that the Communist Party won’t allow housing prices to collapse. ‘The government will spare no effort to make sure there are no big swings in the property market,’ says Ni Pengfei, a housing expert at the Chinese Academy of Social Sciences, a government think tank.”

“In Shenzhen, the average home sells for 45 times average annual household income, compared with around 12 times for homes in New York City, according to Zhang Ming, a senior economist at the Chinese Academy of Social Sciences. The boom in Foshan hasn’t cooled things off in Guangzhou. Zhang Ying, a 27-year-old web designer who makes about $1,500 a month, bought a two-bedroom apartment in another development in January. Her mortgage payments amount to nearly 80% of her income. ‘I’m essentially a slave to this property now,’ she says.”

“The prospects for upmarket properties in Penang look uncertain. Checks showed that there are several luxury properties in George Town sitting in the market for more than a year now. Property agent Danny Khor said the increased difficulty in obtaining bank loans is a cause of concern as property transactions are declining. He sighted a case where at least eight potential home buyers had their loans rejected in the past six months. A majority of them had applied for housing loans of not more than RM400,000 each.”

“‘They feel that once their application is rejected by one bank, there is no point in applying from other banks. When this happens, the house is put back in the market for selling,’ he said.”

“The prospect of a ‘reasonable correction’ in Auckland house prices ‘grows by the day,’ according to BNZ economists. BNZ senior economist Craig Ebert said that, importantly, the recent decline in Auckland house prices was now getting significant media coverage. ‘This can be self-fulfilling to the extent that folk fearful that a market might correct are more likely to withdraw from it (buyers that is) and sellers will either delist their properties, simply not sell or, if under pressure, accept lower prices than might otherwise be the case. Certainly, there is already anecdotal evidence of speculators looking to exit the market for fear of getting burnt. All of this can lead to a sentiment-driven price correction over and above what market fundamentals might dictate.’”

“Reader, I solemnly regret to inform you that America is indeed back on that bullshit. The McMansion is back. A recent article by Ana Swanson in The Washington Post states that after the recession and the general evacuation of Pleasantville following the financial crisis, ‘Americans have started to flip houses again,’ which means they’ve started to flip McMansions, which has resulted in this: ‘Since 2009, construction of these homes has steadily trended upward, data from Zillow shows.’ Have we learned nothing? Why are we doing this again?”

“Economist David Harvey lays out the pre-crash thinking like this: ‘I buy a house for $300,000 and three years later its value has appreciated to $400,000. I can then capitalise upon the extra value by refinancing for $400,000 and walk away with the extra $100,000, which I can use as I wish. The enhanced exchange value [Marxist for 'a commodity’s worth on the market'] of housing becomes a hot item. The house becomes a convenient cash cow, a personal ATM machine, thus boosting aggregate demand, including, of course, the further demand for housing.’”

“The proof is in the pudding: the housing crash resulted in 4 million people losing their hopes. ‘The pursuit of exchange value,’ Harvey writes, ‘destroyed access to housing.’ And almost ended the world economy. Let’s not forget that part. So this whole pursuit has a level of financial precarity hiding behind its glossy aspirations. Whatever the dream promises in terms of security, financial and domestic, is a false promise.”

July 13, 2017

It Is Quite Possible To Overbuild

A report from Boise Weekly in Idaho. “Currently in Boise it is good to be a landlord, and great to be a developer: There are more than a dozen new or in-development housing units in the downtown core alone. More than 1,300 units have been recently completed or are under construction. JPM owner/manager Don Johnson said he’s reserving judgment on how the influx of new rental units will affect the market, but 1,300 new units is a drop in the bucket compared to how many rentals are currently under construction all across Ada County, many of them outside the Boise city limits. ‘I keep track of a list from the Ada County Assessor’s office. Take a look at this,’ Johnson said as he pulled out a stack of papers. ‘Here we have a list of all the units that are in some form of the process of being built. It’s 5,500.’ He looked up, took a deep breath and repeated, ‘It’s 5,500.’”

From the National Real Estate Investor. “Vacancy rates for rental apartments remain low in the top six U.S. markets, despite an influx of new development, though certain neighborhoods arguably have too many new super-luxury apartments all leasing at the same time. Developers have opened about twice as many new apartments as usual in the top six coastal markets over the past four to five years, according to RealPage. In San Francisco and Seattle, developers have opened a little more than twice the historical average number of apartments.”

“Despite low vacancy rates, property managers have cut down rents in San Francisco and New York in 2016. Many apartment managers now regularly offer concessions of one or more months of free rent to attract renters to new luxury towers in New York—a once unheard-of practice in the city. ‘It’s probably impossible to overbuild New York or San Francisco at large,’ says John Affleck, a research strategist with the CoStar Group. ‘But it is quite possible to overbuild the high-end of the market, and weak rents and rising concessions suggest that developers may have succeeded.’”

The Real Deal on New York. “The Brooklyn rental market continues to weaken, with the borough’s prices falling for the second month in a row. ‘Brooklyn continues to be the weaker of the three boroughs, in the general sense,’ said Jonathan Miller, the CEO of appraisal firm Miller Samuel, and author of the report. ‘Rental inventory keeps coming into the market. It’s the 22nd month in a row of rising inventory.’”

From Dow Jones Newswire. “A handful of startups are betting they can help apartment-building owners convert empty units into hotel rooms, a controversial practice that could help landlords generate more revenue. The services are sprouting up just as the red-hot U.S. apartment market is beginning to cool. In all, there are roughly 29 million apartment units in the U.S., according to the National Multifamily Housing Council. Nearly 800,000 new units have been built since the beginning of 2014, according to CoStar Group Inc.”

“But the vacancy rate for apartments in downtown markets rose to 8.1% in the first quarter from 6.8% a year ago, according to CoStar. Some 45% of buildings completed in the first quarter of 2016 were more than 10% vacant after a year, compared with 38% for those built in the first quarter of 2015, suggesting properties are taking longer to lease. Brian Ferdinand, YouRent’s chief operating officer, said the company is hoping to take advantage of the glut of luxury apartment inventory at the moment and demand for hotel rooms in hip urban cores. The company is expanding in Miami, Austin and Nashville and plans to fan out to San Diego, Denver and Boston.”

The News Press in Florida. “Florida Gulf Coast University is anticipating that the revenue it generates from students living in its housing facilities will drop by more than $1 million in two years. The school estimates the revenues will decline each of the next three school years. There are two reasons, according to the university, for the projected decrease: Competitors building apartments, marketing them to students and luring the students away from FGCU. A decline in first-time college students being admitted.”

“Brian Fisher, director of housing at FGCU, said he wonders if too many apartments are being built. ‘It happens a lot in college markets where things get overbuilt and things struggle thereafter,’ he said. ‘We will have to wait and see if that happens.’”

July 12, 2017

Exuberance Infers Frivolity

A report from King 5. “San Francisco, one of the nation’s hottest real estate markets is becoming one of the coolest, and that’s concerning some experts who wonder if that trend could spread to cities like Seattle. The Bay Area is seeing many buyers no longer interested in chasing overly inflated home prices. Jon Bye, with Jon Bye & Associates, is a broker who has tailored his business to help families navigate through such a competitive housing market. He also agrees that the market still has a long runway of growth ahead, because he still sees so much demand. ‘All of the loans right now are real loans with real people and real money,’ said Bye. ‘That’s what our market is built on. But that being said, you’ve got to plateau sometime.’”

From Mansion Global on California. “San Francisco’s luxury market was burning hot during the housing market recovery between 2012 and 2015. But a confluence of global and local economic and political events—from a drop in start-up IPOs to wealth constraints in China—cooled the market for high-end homes in the Bay Area starting in 2016. Despite the record number of condo sales in the second quarter, there are pockets in the city where condo resales have plunged due to a flood of new development.”

“There’s been a dramatic drop, nearly 50% year-over-year, in luxury condo sales reported to the multiple listing service in greater South Beach, South of Market and the Yerba Buena district. ‘This is the area where large, very expensive, high-rise projects continue to come on market, and, to some degree, they may be cannibalizing MLS sales in the resale market,’ wrote Paragon’s chief market analyst Patrick Carlisle in a breakout report on the luxury market.”

From Dow Jones Newswire. “A labor shortage that has hampered the construction industry for most of the housing market’s five-year recovery is showing signs of easing. The decline in open jobs suggests employers are having a slightly easier time finding workers to hire. It could also be partly the result of a slowdown in multifamily construction activity as the apartment market becomes saturated. Developers have been pulling back on starting new projects, although there is still a fairly high volume of projects in later stages of construction.”

“Robert Dietz, chief economist at the National Association of Home Builders noted the decrease also could be a sign that some builders have put projects on hold. ‘You can have job openings fall because some employers have simply given up,’ he said.”

The Port Townsend Leader in Washington. “Where have all those housing plans gone? Earlier this year, more than 700 housing units were proposed to be moving forward in the Port Townsend area. Now, one project has been scaled back, and others are not moving as fast as some had thought they would. The largest of the proposals that city staff had been contemplating in January was a 500-unit housing development that consisted of three different properties near the intersection of Discovery Road and Rainier Street.”

“Suzanne Tyler of Chimacum, who was behind the proposal, said July 5 that the proposal had not been canceled, but had been scaled back for now. ‘After doing some research, we decided that a project of that size would have too long of an absorption time. In other words, you can only sell so many houses in Port Townsend in a year,’ Tyler said.”

The News Observer in North Carolina. “Good news for homeowners: The average sales price of Triangle homes continues to show healthy gains from a year ago. A continued shortage of inventory is helping to drive the increased sales prices. But that inventory shortage isn’t across the board. Homes priced below $400,000 are in short supply, while there’s an oversupply of houses priced above $700,000, said Stacey Anfindsen, a Cary appraiser who analyzes the MLS data.”

“When it came to pending listings during June, the average list price fell 6 percent while the average price per square foot declined 2 percent. Although that can be a leading indicator of future sales prices, Anfindsen is assuming for now that the June declines were an anomaly. ‘It’s almost economically impossible when you have an undersupply’ for sales prices to go down, Anfindsen said.”

From Miami Community Newspapers in Florida. “If you drive around Pinecrest, you’ll see lots of FOR SALE signs enticing passersby to dream of their next home purchase. The somewhat sad story of today’s market is that there are far too many signs up. In industry terms, we talk about inventory levels. This is done by looking at the number of homes currently on the market in an area and then dividing it by the number of homes that went under contract in the last 30 days. The result is a number that estimates how many months it would take for all homes currently on the market to be sold. In Pinecrest for $1M+ homes, the answer is 18 months. Not good for Sellers!”

The Washington Post. “Home flipping has slowed across the country, but it’s booming in the District and Maryland. The District had the highest number of home flips in the nation in the first quarter, according to ATTOM Data Solutions. Maryland ranked fifth. In the District they were up 10.7 percent from the previous quarter and up a whopping 32 percent year-over-year. Only Hawaii with its 36 percent jump had a bigger annual increase. Home flips in Maryland were up 8.5 percent from the previous quarter.”

“Daren Blomquist, senior vice president at ATTOM, says the uptick in foreclosure activity in both jurisdictions is leading to the increased number of home flips. ‘I believe in both areas it’s remnants of the last crisis,’ he said. ‘It’s not a new crisis. In the District, where there were all these delays, we’ve in the last year been seeing dramatic increases in foreclosure activity.’”

The Forsyth Herald in Georgia. “Since I’m a mortgage banker, people are asking me more and more if we are in a housing bubble. Values have risen sharply over the last six years, but it’s hard for me to see that we are in a bubble. The actions that led to the dramatic rise in home values leading up to the financial crisis of 2008 were born of greed and the lust for easy money. Today’s rise in home values, while dramatic, are based more on sound economic principles: high demand, low supply.”

“Exuberance infers frivolity. To buy a house under $400,000 these days requires grit determination. Inventory is as low as it has ever been in the metro area in that market. And those who want houses in that price-range are fighting off multiple bidders to win the deals. If you go over $500,000, however, you see the opposite. It’s a buyer’s market. There could be some vulnerability there should the bottom of the economy fall out.”

“If a recession came and demand for homes dried up, inventory levels would have a long way to go before we got to a place where there were too many homes on the market. That is at least true for the under-$400,000 market. The above $500,000 market is a different story. When people lose their jobs and need to sell their homes, they downsize. The over-$500,000 range already has too much inventory. If a recession arose, you might see those homeowners try to sell.”

July 11, 2017

The Easy Rise-And-Rise Days Are Over

A report from York Region in Canada. “What went way up just had to come way down. Lauren Haw, CEO of Zoocasa, who crunched York Region’s real estate numbers, said the biggest story is the steep drop from April 2017 through June 2017. ‘Over that period, we saw a 55.5 per cent decline in sales for detached homes and a 19.3 per cent decline in condo sales, as well as an 11.7 per cent decline in house prices and a 19.3 per cent decline in condo prices.’”

“Veteran realtor Darryl King said the reason for the drop was simple: a huge glut in housing supply on the market compared to earlier in the year and late last year. ‘The supply increased by 47 per cent. Everybody was waiting and wanted to cash out but some waited too long. Where before you only had one house, now you’ve got 10 on the market and now you can’t sell that house,’ said King.”

From Bloomberg on Israel. “Housing prices in Israel have been rising for so long that many residents don’t remember what it’s like when they fall. They may be about to find out. Signs are growing that Israel’s housing boom is sputtering, with fewer investors snapping up homes as mortgage rates rise. It costs about $920,000 on average to buy a three-bedroom apartment in Tel Aviv — more than in London or Amsterdam — and more than double the nominal cost a decade ago. That has priced many people out of the market in a country where the average salary is about $35,000 per year.”

“‘At some point, something’s gotta give,’ said Rafi Gozlan, chief economist at Israel Brokerage & Investments Ltd. ‘We’re now seeing the first signs of a market that’s starting to digest that prices can’t go up forever.’”

From The Hindu on India. “The National Capital Region was one of the worst-hit real estate markets in the country in the first half of 2017, with new launches, sales as well as prices seeing a sharp contraction, realty consultancy Knight Frank said. The overall inventory in the NCR could take over four years to liquidate, while this typically used to be just two years. Coinciding with a 20% correction in residential property prices in the NCR over the past 18 months, the current situation doesn’t make much sense for prospective real estate investors, as Gulam Zia, Knight Frank’s executive director said he is still not sure if things have ‘bottomed out’.”

“NCR prices are seeing lower growth rates than retail inflation, so effectively real estate in the region is giving negative returns, he said.”

The Epoch Times on China. “When the economy started to cool in the beginning of 2016, China opened up the debt spigots again to stimulate the economy. After the failed initiative with the stock market in 2015, Chinese central planners chose residential real estate again. And it worked. As mortgages made up 40.5 percent of new bank loans in 2016, house prices were rising at more than 10 percent year over year for most of 2016 and the beginning of 2017. Overall, they got so expensive that the average Chinese would have had to spend more than 160 times his annual income to purchase an average housing unit at the end of 2016.”

“Research by TS Lombard now suggests the housing bubble may have burst for the second time after 2014. ‘First- and second-tier cities have enacted such draconian measures that it is nigh impossible to buy or sell a property,’ states the report. ‘Unlike 10 years ago, when most Chinese households made a 50 to 70 percent down payment to buy a new apartment, more than 80 percent of borrowers in the past two years have put down 30 percent or less. With reduced mortgage funding availability, we believe it is unlikely that households will be able to finance their purchase through savings.’”

The New Zealand Herald. “Wow, what a day for property news - a one-two punch to the Auckland market. Just as QV data was confirming that the Auckland market is well and truly stalled, along come the Barfoot & Thompson statistics showing the average sales price in June dropped 3.1 per cent on the average for the previous three months, and was only 0.6 per cent higher than it was 12 months ago.”

“Boom, Auckland house sales have hit the canvas. When our optimistic friends in the real estate industry start to acknowledge a trend, we can be sure it has become an unavoidable reality. Most Aucklanders have been well aware of the change for a few months now. To use a slightly unscientific term, the vibe had changed. The conversation around central Auckland sports fields and dinner parties still gravitates to property because someone is always selling a house or knows someone who is.”

“Those property stories are now tinged with seller panic. The Barfoot & Thompson data confirmed the anecdotes. Peter Thompson’s commentary was clear and insightful. The slump in sales numbers has finally translated into prices. In other words, people who needed to sell were holding on, hoping that buyers would return to the market. They haven’t and now prices are falling.”

From News.com.au in Australia. “From Chinese billionaires through millionaires down to everyday workers trying to build a pot for their futures, the choice of investment had been expanded from apartments in Beijing and Shanghai to property in Melbourne and Sydney — and London and New York, Vancouver and Toronto, etc etc. Now, it seems property prices in some of those places have turned down: so, is the global property boom over and will ours be dragged down with it?”

“There is no easy answer to what is really a very complicated question but there’s a really easy way to start. To a real estate agent or a speculator, the ‘norm’ — indeed, the very expectation as a right — of not just prices going up every year, but the certainty they will. That is over. But that does not mean that instead of prices going up by, say, 10 per cent every year, they will now fall by 10 per cent every year. They could well go sideways for an extended period. To a speculator that would seem like a total bust — especially if the interest rate on their borrowings rose.”

“Oversupply in new apartments and cuts to the tax savings on off-the-plan buying could see apartment prices fall. But demand-supply dynamics should mean established property prices go sideways at worst. What happens in those — linked — overseas markets and inside China will be even more significant over the longer term. If prices plunge in, say, Vancouver or Auckland, their property will become more attractive to foreign investors. If the Aussie dollar plunges, an unchanged Aussie dollar price is suddenly discounted to a Chinese buyer. Bottom line: the easy rise-and-rise days are over. It’s become more ‘complicated.’”

July 10, 2017

We Were All In It To Win It

A report from the Orange Country Register in California. “Apartment buildings are a hot commodity in Southern California these days, with transactions tripling since the recession and sale prices steadily climbing. In many cases, new ownership can be a blessing, bringing upgrades, renovations and new amenities, like fitness centers, storage, dog parks and barbecues. But often, they’re a curse, with rents tending to go up once a complex changes hands. ‘On a risk-adjusted basis, (the apartment sector) is the best asset in real estate,’ Douglas Bibby, president of the National Multifamily Housing Council, said during a break at the state builders conference in San Diego last month.”

“With higher prices come lower returns. To offset that, investors are looking for buildings with a significant upside — called a ‘value add’ in industry parlance. ‘When you’re buying today, and you pay (today’s) prices and your tax rates go up, then … you have to raise rents,’said Tyler Leeson, a broker with Marcus & Millichap’s Irvine office. Leeson said he has closed 41 apartment transactions this year so far. ‘It’s like any investment,’ Leeson said. ‘Very few people invest in anything that won’t go up.’”

The Miami Herald in Florida. “Since so much of the new construction — from Wynwood’s upcoming micro-units to fancy rentals in Midtown and Brickell — is being priced at market rates, there is concern that the rental market could end up mirroring the overstocked luxury condo market, with prices too high for the average household to afford. Research analyst Elizabeth La Jeunesse, who authored the study, says Miami ranks third in the nation in lowest percentage of rental units under $800 a month — only 16 percent — and saw a loss of 20,000 rentals in that price range over the past 10 years, or a total decline of 13 percent.”

“The supply of high-cost rentals ($2,000 and up) more than doubled, with more than 50,000 units coming to market — an increase of 148 percent over the past decade. Meanwhile, the median household income in Miami-Dade remains flat at $41,913 — one of the lowest in the U.S. ‘You have a lot of developers who came out with condo projects and converted them into rentals because they saw the sales market was softening,’ said Jerome Hollo, executive VP of Florida East Coast Realty.”

The Press Herald in Maine. “The developer behind a 63-unit housing project in Portland has changed course, deciding to sell the units as condominiums rather than rent them as apartments. Vincent Veroneau, president and chief executive officer of J.B. Brown & Sons, said the decision to redirect the project at High and York streets was made mostly because other apartment projects have absorbed some of the pent-up demand.”

“It’s the latest example of aborted plans to add rental housing units in Portland, and suggests the city’s rental construction boom may be slowing after an infusion of apartments aimed mostly at the high end of the market. ‘We sort of felt the market-rate housing has been somewhat satisfied with other projects,’ Veroneau said.”

The Houston Chronicle in Texas. “Apartment rents in Houston and several other area cities declined in June compared with the same month a year earlier, moving in the opposite direction of rents in Texas and nationwide, according to Apartment List. Seven of the largest 10 area cities tracked by Apartment List saw year-over-year drops in rent in June, with Conroe falling by 3.7 percent and Spring showing a 3.6 percent drop.”

From D Magazine in Texas. “With over 50,000 apartment units currently under construction in North Texas, the multifamily market is heating up like Texas summer temperatures. Renters now have more choices than ever and apartment communities are having to rethink their approach to sales and marketing. With the immense amount of data available, we’re able to paint a detailed picture of our residents’ lifestyles: their preferences, where they go, and sometimes even their coffee order. You have all the information you need to engage in a reciprocal conversation. Yet, with all this information, I still see the industry telling audiences what to do (’Lease now! Get your first month free!’).”

The Dallas Morning News. “As black-coated waiters hurried about, Richard Tettamant sat near the head of a long table inside the Park City Club, where Dallas elites gather to talk business. The luncheon had drawn a couple of dozen consultants and money managers who, over plates of corned beef and roasted ham, heard about the real estate outlook for 2017. An executive of Ethika Investments, for whom Tettamant now worked as an adviser, gave the presentation.”

“At 65, Tettamant was in his element. For two decades, he’d served as the administrator of the Dallas Police and Fire Pension System and mingled with power brokers at events just like this. He billed himself as a visionary investment strategist for whom average returns would never be good enough. But today, after the public disclosure of a federal grand jury probe into the pension’s investments, Tettamant is deflecting blame and recasting his role as an official with little real authority, who simply carried out the instructions of a powerful board.”

“There is plenty of blame to go around for the pension’s near implosion. Board members whose votes determined the final say. Police officers and firefighters who elected them. City Council members who sat on the board but often missed meetings. Outside investment managers, consultants and auditors who gorged on fees while enabling bad decisions.”

“For many years, he succeeded. In 2003, the pension had an investment return of 31 percent, ranking it best performer among similar funds. During the next few years, in the frenzy of the housing bubble, the fund embarked on a massive expansion of its real estate holdings. It invested in thousands of acres of raw land in Idaho, a resort and vineyard near Napa, ultra-luxury houses in Hawaii.”

“‘The way they have demonized Richard, I think that’s completely unfair,’ said retired police Sgt. Rector McCollum, a former pension board member. ‘We were all in it to win it. We did great for years.’ The housing crisis, he said, ‘pulled the bottom out of the country, much less the Dallas police and fire pension.’”