February 20, 2017

A Form Of Denial

A report from the Dallas Morning News in Texas. “Vacancy rates for almost every North Texas real estate sector are staying near recent lows. Less than 4 percent of Dallas-Fort Worth apartments are empty, even with several years of extensive building. The shopping center market is less than 8 percent vacant. And office space in the area sits at about 15 percent vacancy — pretty good for that business. Since we are more than five years into this property cycle, you can’t blame me for being nervous and keeping an eye on those vacancy rates. Dallas isn’t the only property market where things are in good shape.”

“‘At the national level, we feel like there is good balance right now,’ said Kenneth McCarthy, principal economist with Cushman & Wakefield Inc. ‘We are starting to see the amount of construction in the pipeline pick up. But it’s not anywhere near historic highs.’”

The Detroit Free Press in Michigan. “After several years of apartment scarcity in and around downtown Detroit, supply is starting to catch up with demand, prompting some building owners to offer rent deals and to shorten waiting lists. Hundreds of new market-rate rentals have opened in the city’s downtown and Midtown since last fall with hundreds more planned to open this spring. Local development experts point to the average 98% occupancy rate last year for residential buildings in greater downtown and say the inventory deluge doesn’t mean that the housing market is getting saturated or that the surge in new construction since 2013 was all a bubble.”

“For apartment-seekers, the recent flood of new apartments means they have more choices than ever in leasing rates and locations and more buildings offering a wide array of amenities, which some say Detroit has been lacking. It also could lead to more for-sale condos, which are still in scarce supply. ‘I think Detroit has been slow to build the type of product with all of these amenities that you might see in markets like Boston,’ said Sue Mosey, executive director of Midtown Detroit Inc.”

From Bloomberg on New York. “Luxury developer Toll Brothers Inc. has a deal for those shopping for a condo in Manhattan: buy something soon, and we’ll pay the taxes on your purchase. The publicly traded homebuilder is offering to pay the city transfer tax and the New York state ‘mansion tax’ — an effective discount totaling almost 2.5 percent — on deals made at three of its developments by Feb. 20, the company said in a statement. Toll’s offer comes as Manhattan developers contend with a market brimming with costly condos and buyers tepid about committing.”

“Builders hoping to boost sales in their projects are doing what they can to attract interest without officially lowering their prices — everything from offering gift cards and upfront commission to brokers, as well as payment of transfer taxes that, in a healthier market, are passed on to buyers, said Joshua Stein, a Manhattan real estate lawyer. ‘Developers like to pretend that values haven’t gone down,’ said Stein, who’s not involved in the Toll Brothers projects. ‘Eventually you’ll see discounting off the face price. But this is a form of denial.’”

The Minot Daily News in North Dakota. “The Minot-area real estate market has settled into calmer times as it moves away from the frenzied activity spurred by a flood and energy development. It’s meant a somewhat slower pace of sales and a leveling off of property prices. The number of homes being sold is down about a third from its peak but prices have seen only a small decline. If there’s a negative, it’s the impact the current market is having on homeowners who had purchased during the peak of the boom and now are needing to sell only a few years later, said Cindy Harvey, Realtor with Elite Real Estate and past president of the North Dakota Association of Realtors.”

“‘They are having a hard time walking away with a profit. I have seen people have to bring money to the table now,’ she said.”

February 19, 2017

A Stuck-In-The-Headlights Situation

A report from Globes on Israel. “Bank of Israel figures show that the average interest rate on index-linked mortgages rose from 3.84% in January to 3.85% in February, completing a rise of almost 2% in 18 months. Causes of the increase included expectations of a rise in the Consumer Price Index; a slackening of competition between the banks; bond market fluctuations, which affect the mortgage market; expectations that the Bank of Israel will raise its interest rate; and, above all, continued demand for housing, despite reports of a slowdown. The upward trend extended to all mortgage periods. The figure published means that the effective mortgage interest rate (taking index-linkage into account) is nearing 6%: the Bank of Israel itself sets the annual inflation target at 1-3%.”

“While it is true that this target has not been achieved in recent years (the CPI has gone down in the recent years), the expectation is that inflation will resume in the near future. In such a scenario, people who take index-linked mortgages will discover that their mortgage payments are significantly increasing. If we assume that the CPI will increase by 2%, the effective interest rate will be around 6%, which is high.”

The Sunday Times on the UK. “Homeowners are waiting up to ten months to sell their properties as inflated asking prices and economic uncertainty cause the housing market to stall. The slowdown is particularly affecting areas of southern England where prices have risen rapidly in recent years, including London, Oxford, Bristol and Cambridge. This has left many sellers trapped in homes that they would rather leave, creating a block in the market.”

“Nina Harrison, of Haringtons, a property buying agency, said: ‘It is a stuck-in-the-headlights situation. Neither party [buyer or seller] dares to move.’”

The China Post on Taiwan. “Taipei’s luxury home market thawed over the past few months but prices for The Palace — one of the most coveted residential complexes — remain uncertain after two of its units failed to sell at separate auctions. The price set for the TFASC auction was still too high to attract buyers, while the unit in the court auction comes with an existing tenant, which deterred potential bidders, the agents said.”

“The TFASC set the bottom price for the unit at NT$750 million, or almost NT$2.789 million per ping (3.3 square meters). Xinyi Realty researcher Tseng Ching-der noted that at the peak of Taiwan’s property market in recent years, price-per-ping for a unit of The Palace — located at the junction of Jianguo South and Renai Roads — reached as high as NT$2.982 million, and the average stood at about NT$2.7 million, according to the Central News Agency. For the unit in the court auction, the bottom price was set at NT$265 million, or about NT$2.36 million per ping. Jessica Hsu, an executive from the HB Housing, said it was no surprise that the auctions failed because the deals did not seem profitable.”

From Bloomberg on China. “The strength or otherwise of the Chinese property market is set to have far-reaching implications for the global economy this year. Rather than relying solely on official statistics, however, those looking for an indication of the performance of the Chinese construction sector might want to direct their attention to the world’s steelmakers. Construction accounts for the biggest part of steel demand in the top consumer markets, according to Bloomberg Intelligence. China’s home prices have shown signs of slowing as local governments and banks follow Beijing’s orders to tighten the market and rein in asset bubbles.”

“Stockpiles of iron ore at China’s ports have expanded at an ‘unprecedented’ pace since the start of this year, noted Ivan Szpakowski, chief investment officer at Academia Capital LLC. Iron ore inventory at China’s ports rose to a record 127 million tonnes last week, according to Shanghai Steelhome Information Technology Co., while stockpiles of reinforcement bar used in construction surged to 8.2 million tonnes, the highest since April 2014.”

“‘We’re much more leveraged now than we’ve been in two years, in terms of inventory throughout the whole supply chain, whether it’s traders or steel mills, or whether it’s iron ore or steel,’ said Ivan Szpakowski, chief investment officer at Academia Capital LLC.”

The Courier Mail on Australia. “The building industry is getting tougher every day. ASX-listed Onterran, which owns Brisbane-based Bloomer Constructions, voluntarily suspended its shares pending an announcement about the ‘potential divestment of a subsidiary and trading update.’ It is not clear what is going on, but we hear Bloomer has been struggling in an increasingly tough property market.”

“Onterran, which acquired Bloomer in 2015, warned last year that its subsidiary had been ‘working through a difficult period’ with significant increases in contractor and raw material costs. Onterran did not return calls yesterday but we hear there are quite a few nervous subbies out there.”

“Creditors of the collapsed Cullen Group Australia have appointed a new Melbourne-based liquidator Michael Caspaney, of Menzies Advisory, to replace Brisbane’s Mark Pearce. Cullen closed its doors just before Christmas, owing creditors an estimated $18 million and capping a horror year for the building industry that faces a glut of inner city apartments and tighter bank lending.”

“Caspaney was not available yesterday to explain why he was given the job, but we hear he has his work cut out for him unravelling the financial mess. The industry regulator, the Queensland Building and Construction Commission, has come under fire for not acting sooner to shut Cullen down.”

February 18, 2017

Spawning A Cycle Of Speculation And Correction

A weekend topic starting with the Dallas Morning News. “For Valentine’s Day, Danielle DiMartino Booth sent Janet Yellen and the ruling cohort at the nation’s central bank a caustic forget-me-not. DiMartino Booth, who advised Richard Fisher about the financial markets during her nine years at the Federal Reserve Bank of Dallas, has written ‘Fed Up: An Insider’s Take on Why the Federal Reserve is Bad for America.’ The book is a scathing dissection of what she says led up to the financial crisis of 2008 and the ensuing easy money policies that she believes still threaten the country’s economic future.”

“‘This is not a wonkish Ph.D. dissertation,’ says DiMartino Booth, the 46-year-old founder and president of Money Strong LLC in Dallas. ‘The last chapter provides a blueprint of how we can go about fixing the Fed so that it’s an institution that doesn’t just benefit Wall Street but also Main Street and everybody in between.’”

“One of her main criticisms about the Fed is that it’s run by a bloated pack of 1,000 economists. A spokeswoman for the Federal Reserve Board says the actual numbers are 300 economists at the board level and 300-plus at the regional banks.”

“Shortly after 9/11, she made her way to Dallas to be with her boyfriend and now husband, John Booth. She became a daily financial columnist under her maiden name for The Dallas Morning News, where she sounded early and repeated warnings of an impending disastrous housing debt debacle. Some thought she was Chicken Little.”

“One point of departure is DiMartino Booth’s highly critical view of Yellen as a free-spending ‘Keynesian on steroids’ who lacks the experience to oversee the nation’s banking system.”

“In the last chapter of Fed Up, Danielle DiMartino Booth gives her strategy for retooling and rearming the Federal Reserve. Among her bullet points: Congress should allow the Fed to focus solely on price stability and inflation and not worry about maximizing employment. Permanent monetary policy voting rights should be given to all district bank presidents, not just the New York Fed. The Fed’s century-old map of districts should be redrawn to better reflect the economic engine of the West, including Texas.”

“Set more realistic term limits (currently at 14 years) for Fed governors. Cut the number of Ph.D’s among the leadership and staff to make way for more business people on the receiving end of Fed policy and to hire brilliant supervisors and examiners to keep Wall Street giant investment firms in check. Weak financial institutions should be allowed to naturally self-destruct.”

From MarketWatch. “Danielle DiMartino Booth, author of ‘Fed Up: An Insider’s Take on Why the Federal Reserve is Bad for America,’ attacks the culture of the Fed, starting from the bottom up. She takes on the research staffs of elite, Ph.D. economists — ‘the MIT mafia’ — who are married to their mathematical models and focused on publishing in peer-reviewed journals. She exposes the institutional groupthink — ‘groupstink,’ she calls it — and disdain for dissenting views. And she reserves her most strident criticism for those at the very top.”

“The author arrived at the Dallas Fed in 2006 after a tour on Wall Street and a stint as a financial columnist for the Dallas Morning News. In her columns, DiMartino Booth had warned about lax mortgage-lending standards, a housing bubble and escalating systemic risk. Once ensconced at the Fed, she was left to wonder why so many ‘highly educated and well-paid economists’ were ‘oblivious as the worst financial crisis since the Great Depression was about to break over their heads.’ (One of the main reasons is the Fed’s reliance on econometric models that don’t include anything related to the financial system, such as debt or credit.)”

“It wasn’t just the staff economists who were blind to what was going on in the real world. Neither former Fed chairman Alan Greenspan, who can boast of two bubbles on his watch, nor his successor Ben Bernanke saw the train wreck coming.”

“Janet Yellen, the current Fed chairwoman, is subject to withering criticism in the book. From 2004-2010, Yellen was president of the San Francisco Fed, whose district encompasses nine Western states and was ground zero for the housing bubble and subsequent bust. DiMartino Booth portrays Yellen as an uber-dove and devout Keynesian, someone who was ‘oblivious as the housing market in her region imploded on multiple fronts.’”

“The author advocates greater diversity at the Fed: specifically, more staffers with actual business experience and fewer ivory-tower types. She would like to see an increased focus on systemic risk. And she wants Congress to release the Fed from its dual mandate — stable prices and maximum employment — so it can focus solely on price stability.”

“Bernanke arrived at the Fed as an advocate of inflation targeting. He used to say that price stability was an end in itself and a means to an end (maximum employment). The Fed even adopted an explicit 2% inflation target on his watch.”

“The nation learned the hard way that price stability is a necessary but not a sufficient condition for economic and financial stability. The U.S. experienced back-to-back asset bubbles — in technology stocks and in residential real estate — during a period referred to as the ‘Great Moderation.’ So price stability alone is no guarantee of Nirvana.”

“Specific policy recommendations comprise a few pages at the end of ‘Fed Up.’ The issues themselves, such as whether the Fed is spawning a ‘never-ending, self-reinforcing cycle of speculation and correction’ with its unconventional policies, form the basis for the book. And hopefully the basis for self-reflection and change at the Fed.”

February 17, 2017

No One Seems Able To Stop This Gadarene Rush

It’s Friday desk clearing time for this blogger. “Federal Housing Administration mortgage delinquencies jumped in the fourth quarter for the first time since 2006, the Mortgage Bankers Association reported Wednesday. The FHA insures low down-payment loans and is a favorite among first-time homebuyers. The seasonally adjusted FHA delinquency rate increased to 9.02 percent in the fourth quarter from 8.3 percent in the third quarter, MBA data show. The jump, which followed the lowest delinquency rate since 1997, was driven by loans made since 2014 and early-stage delinquencies, those just 30 days past due.”

“There were, however, signs as recently as last fall that FHA loans were beginning to fail at a higher rate. In October, ATTOM Data Solutions, a foreclosure sales and analytics company, reported the biggest jump in foreclosure activity since 2007, with FHA loans behind the surge. ‘While some states are still slogging through the remnants of the last housing crisis, the foreclosure activity increases in states such as Arizona, Colorado and Georgia are more heavily tied to loans originated since 2009 — after most of the risky lending fueling the last housing boom had stopped,’ said Daren Blomquist, senior vice president at Attom Data Solutions.”

“Since the start of 2017, Bridgeport Neighborhood Trust has seen an uptick in the number of people walking through its doors looking for help. The nonprofit provides foreclosure prevention services in a city where year after year foreclosures occur in higher numbers than elsewhere in the state. In 2016, the Park City reported 261 foreclosure deed filings, which transfer the deed to a lender after a mortgage is foreclosed, slightly higher than its 2015 total of 246 filings.”

“The fact that home prices dropped post-recession has also affected homeowners, said Doris Latorre, BNT’s director of foreclosure prevention. ‘Most of the folks we see in trouble in Bridgeport, their houses are upside down — they owe more than it is worth,’ she said.”

“The good news for renters: After several years of unbridled rent spikes across the City of Atlanta, data from 2016 suggest that trend might finally be cooling off, broadly speaking. The roughly 5,000 new units that hit the market in 2016 had a softening effect. Traditionally high-priced areas of Atlanta—the Buckhead and Peachtree Hills areas—actually recorded declines of up to 2.2 percent last year. That’s not a significant downturn, especially for high-roller renters, but it’s a jolting reversal of post-recession trends.”

“If you’re looking for a deal on a brand new apartment in downtown Chicago, it’s getting easier to find one. Amid a historic building boom, the downtown apartment market is tilting in favor of tenants, who have endured big rent hikes for several years. ‘We’re looking at a lot of giveaways,’ said Ron DeVries, vice president of Appraisal Research Counselors, a Chicago-based consulting firm.”

“Houston’s low inventory of homes for sale may give the impression that the market leans in favor of sellers, but a new report shows that buyers may have the upper hand. Houston ranks as the nation’s fifth-best market for home buyers, according to Zillow. The company looked at the percentage of listings with a price cut and how long listing typically stay on the market. In the Houston region, 11 percent of listings have had price cuts. By comparison, 5.4 percent of listings in San Francisco — considered the best market for sellers — had price cuts. ‘A number of markets nationwide continue to struggle with slower job growth, weaker home value appreciation and higher rates of negative equity, giving buyers more negotiating power,’ Zillow chief economist Svenja Gudell said.”

“Online agent HouseSimple reckons a third of properties for sale in the UK have had their asking prices reduced since they were first marketed, based on listing data. The agent looked at 100 large towns and cities across the UK and found that in eight the percentage of homes reduced was in excess of 40%. Of the three largest cities in the UK, London has the highest percentage of properties currently being marketed (30%) that have had a price reduction since they were initially listed. HouseSimple says this ’suggests that estate agents in the Capital are finding it harder to secure a sale and are having to drop asking prices to attract buyers.’”

“With low demand and oversupply of residential units in the market, real estate companies would be forced to reduce the rents by up to 30 percent in the near future, say industry experts. Instead of reducing the rents, several leading real estate companies have come out with attractive packages such as free occupancy up to six months in a bid to survive in the market. ‘Supply of housing units has surpassed the demand,’ Khalifa Al Maslamani, a Qatari real estate expert said in a talk-show on Qatar TV. ‘Owners of the buildings would have to reduce the rents by 20 to 30 percent due to low demand,’ he added.”

“In the summer of 2016, outside the office of a Cairo real estate company called Mountain View, a crush of hundreds of people had gathered, and they were in a frenzy. The crowd of men and women were there to reserve spaces in a new desert compound at a bargain price, hoping to sell it on a few weeks later for a big profit. Walid Salah-Ahmed, a real estate developer himself, ended up having to pull a woman out of the crowd after she fainted. He splashed water on her face, she came to, and got up and plunged right back into the crowd in the hopes of closing on an apartment.”

“But after authorities decided to float the Egyptian pound, and let the free market dictate the exchange rate, the boom days of real estate are probably over. ‘I think there’s a tremendous slowdown in the real estate sector,’ Salah-Ahmed said. ‘If this was a normal country, they would call this a crash.’”

“Malta’s landscape is today covered by cranes and many developers have been buying up derelict properties (or in some cases perfectly good residences) and converting them to apartment blocks. But we already have a huge stick of uninhabited buildings around and this spate of construction will surely increase the stock. The stock of uninhabited buildings is already unsustainable, let alone what will there be at the end of all his construction.”

“This is the real bubble that the construction sector is experiencing - not a bubble that threatens the banking system but a bubble that threatens the social fabric both of the would-be buyers and also of the would-be developers. No one seems able to stop or at least slow this Gadarene rush, but people are warned the consequences will be very painful.”

February 15, 2017

Driven By Unpredictable Investor Mania

A report from the Business News Network in Canada. “After months, if not years of hand-wringing about Canada’s hot housing markets, BMO is calling it: Toronto’s housing market is in a bubble. ‘Let’s drop the pretence. The Toronto housing market — and the many cities surrounding it — are in a housing bubble,’ BMO Chief Economist Doug Porter wrote in a note to clients. Housing prices in Toronto and the surrounding area have become ‘dangerously detached’ from economic fundamentals and are rising simply on the belief that prices will continue to soar higher, according to Porter.”

“‘Prices in Greater Toronto are now up a fiery 22.6 per cent from a year ago, the fastest increase since the late 1980s—a period pretty much everyone can agree was a true bubble — and a cool 21 percentage points faster than inflation and/or wage growth,’ he wrote.”

“The often-cited mantra that Toronto’s real estate market is being driven largely by a lack of supply is wearing thin, he argues. Housing starts in Toronto and Vancouver recently hit an all-time high of 70,000 units per year and overall Canadian starts are above demographic demand at 200,000 units in the past year, according to BMO.”

“Meanwhile, Toronto condo prices are posting double-digit gains despite plenty of supply, according to Porter. ‘No, the massive price gains are being driven first and foremost by sizzling hot demand, whether from ultra-low interest rates (negative in real terms), robust population growth, or non-resident investor demand,’ he said.”

The Financial Post. “Those booming housing markets may make some homeowners rich and provide a short-term boost to the economy, but a Canadian economist is warning about the long-term impact on the country. David Madani, of Capital Economics, said in a report that while the housing boom supported the economy through the oil shock in 2016, a further deterioration in housing affordability will cost the economy over time.”

“‘The abrupt slowdown in Vancouver’s housing market serves as a warning shot. As things stand now, the performance of the economy this year could hinge on the direction of the much larger overheated Toronto housing market,’ Madani writes. ‘The new foreign buyer tax announced by British Columbia’s government in July doesn’t tell the full story either. We simply think the housing bubble has burst. Housing bubbles are, of course, inherently unstable because they are largely driven by unpredictable investor mania.’”

From MetroNews. “The number of empty homes in Metro Vancouver continues to rise, according to population growth data from the 2016 Census. Between 2011 and 2016, the percentage of homes left vacant or not permanently lived in in the City of Vancouver rose from 7.7 per cent to 8.2 per cent, according to an analyses of Census data by Andy Yan, an urban planner and director of Simon Fraser University’s City Program.”

“During the same period the number of such properties jumped by 15 per cent, from 22,169 to 25,502, in Vancouver. Coal Harbour continues to have a high percentage of empty units, at 22 per cent. But Joyce-Collingwood in East Vancouver has now overtaken Coal Harbour, with 24 per cent of homes unoccupied. Some of those may be land-assembled single family homes awaiting development, Yan said, or units purchased by investors in new condo developments in the neighbourhood.”

From Bloomberg. “Vancouver’s multimillion-dollar homes are increasingly out of reach for Vancouverites. And nothing speaks to the Canadian city’s affordability crisis more than its empty houses. Vacant or temporarily occupied dwellings have more than doubled since 2001 to 66,719 last year as neighborhoods are hollowing out, said Andy Yan, director of Simon Fraser University’s City Program.”

“Vancouver introduced a new tax on empty homes last month aimed at boosting the supply of rentals in a city facing a near-zero vacancy rate. The province also imposed a 15 percent tax on foreign buyers last August after discovering more than C$1 billion ($761 million) of global cash had flowed into local properties over a five-week period. ‘It’s unacceptable for so much housing to be treated as a commodity,’ Vancouver Mayor Gregor Robertson said in a statement.”

The North Shore News. “Sales of single-family homes continued to tumble throughout Metro Vancouver last month, with January sales below long-term averages, according to the Real Estate Board of Greater Vancouver. On the North Shore, those trends were even more pronounced. Only 20 detached homes sold in West Vancouver in January, bringing its sales-to-listings ratio down to 12 per cent. Sales of detached homes between November and January are down 67 per cent over the same time last year.”

“West Vancouver Realtor Allan Angell, who specializes in the high-end luxury market, calls the situation in that market ‘almost tied for the worst of all time.’ Realtor Brent Eilers of Remax Masters Realty in West Vancouver, has examined statistics dating back over the past three decades, and shares that assessment. ‘It’s one of the most significant slowdowns we’ve had,’ he said.”

“Prices are also beginning to fall. The real estate board put the ‘benchmark’ price of a West Vancouver house at $2.9 million in January – down 13 per cent from six months ago. But Eilers said median prices of homes sold are down farther than that and ‘many have had to go through multiple price reductions to get sold.’”

The CTV News. “At the peak of the last oil boom, there were so many people living in the southeastern Saskatchewan city of Estevan that there was nowhere to stay. ‘We had people sleeping in trailers — sleeping in vehicles, if you can believe that,’ recalled Estevan Mayor Roy Ludwig.”

“Then oil prices fell, drilling activity slowed to a crawl and Ludwig figures the community lost about 2,000 people, mostly transient workers. By last fall, Estevan had a vacancy rate of 27.6 per cent, according to the Canada Mortgage and Housing Corporation. It’s much the same situation in Alberta, where big-city vacancy rates were in the single digits five years ago. These days, about 37 per cent of rental houses and condominiums are sitting empty in Calgary, and the comparable rate in Edmonton is about 27 per cent, said Shamon Kureshi, CEO of Calgary-based Hope Street Real Estate Corp.”

“And what to make of those towering vacancy rates? It’s probably got more to do with all the extra housing capacity that was built when the good times were at their peak. ‘There’s been a huge building boom — particularly in Saskatchewan, but in Western Canada in general — and these builders are working on all eight cylinders or all 12 cylinders,’ said Kureshi. ‘But one of the things that’s happening and causing this sort of tidal wave of rental property, is that the new homes and the new condos and the highrises that these builders are constructing, aren’t selling because there’s just no money and no people to take them.’”

A Sense Of A Bubble

A report from the Chicago Tribune in Illinois. “The massive apartment construction boom in downtown Chicago is starting to show signs of saturation, and rents will likely start to decline by fall, Appraisal Research Counselors reported Tuesday. Rents fell about 14.7 percent during the fourth quarter to $2.89 a square foot for the top-quality, or Class A, apartments and to $2.52 for the Class B apartments that are considered to be the next rung down. So far developers have been reluctant to lower rents for new apartments even though the number of empty units has increased slightly, but ‘record supply and occupancy have tamped rents down a little,’ said Ron DeVries, vice present of Appraisal Research.

“DeVries said 2018 could represent a peak in Chicago’s apartment market, however. The supply of rental units ‘will exceed demand and keep rents in check,’ he said. By the first quarter of 2018, DeVries expects ‘a lot of angst in the market’ as there is a sense of ‘a bubble.’”

“As the opportunity to fill new rentals declines, developers will consider whether it will be best to build more rentals or condominiums. That analysis already is occurring, although few developers have been able to find ways to make new condo construction profitable enough because of skyrocketing construction costs, taxes, limited available land and lenders often requiring developers to pre-sell many units — frequently 50 percent — before being willing to provide construction loans, according to the report. ‘When the easy money stopped, condo construction went away,’ said Steve Fifield, chief executive of Fifield Cos.”

From Richmond Biz Sense in Virginia. “After nine months and no presales, a high-end condo tower envisioned for the end of Tobacco Row has been scrapped. Developers David Johannas, Jerry Peters and Howard Kellman have pulled the plug on One Shiplock, an 11-story, 15-unit building planned at 2723 E. Cary St. The project, which was valued at $10 million, did not secure one buyer since floor plans hit the market last June. The highest-priced units were listed at $1.55 million.”

“Peters, a veteran Richmond developer, said they were surprised by the lack of interest. The project had received a special-use permit from the city and had the support of the Shockoe Bottom and Church Hill neighborhood associations. ‘It’s really surprising to us, and very disappointing, obviously,’ Peters said. ‘There’s just no market that materialized.’”

The Real Deal on Florida. “Home buyers in Miami have the upper hand, and now a new report from Zillow backs that up. Miami ranked as the second best buyer’s market in the country behind Baltimore, according to the report. Sellers are longing for the days of bidding wars in Miami, where 11.5 percent of listings now have a price cut. South Florida homes also spent about 108 days on the market before selling.”

“Last year, Zillow released a report that nearly half of Miami’s home shoppers were looking outside the city for a new house, citing affordable concerns. Recent studies show a growing divide between stagnant salaries and rising home prices in South Florida. After Baltimore and Miami, Philadelphia, Chicago and Houston were also top markets for home buyers.”

The Philadelphia Inquirer in Pennsylvania. “Throughout most of last year, it seemed as if Philadelphia’s median home-sale price could move in one direction only: up. After three consecutive quarters of consistent — and record-breaking — growth in 2016, however, Philadelphia’s housing market finally cooled off a bit in the fourth quarter. For the first time in a year, the median sale price for single-family homes — that is, excluding condo sales — within the city limits declined in the October-through-December period, dropping 6 percent to $140,000, from $149,000 in third-quarter 2016.”

“Combined with a dramatic decline in the number of home sales — only 3,835 homes changed hands from independent owner to independent owner (so-called arm’s length transactions) in the fourth quarter, a 28 percent plunge from the previous quarter — the pause in price appreciation reflected by his index could indicate that buyers have begun to say no, said Kevin Gillen, senior research fellow at Drexel University’s Lindy Institute for Urban Innovation.”

“For the city, the double-digit jump in home appreciation in the last year underscores just how complex changes in the real estate market can be. On one hand, the significant growth in value indicates the increasing attractiveness of Philadelphia as a place to work and live, Gillen said. But at the same time, that same rapid growth also introduces concerns of affordability in the poorest big city in America. ‘This is falling especially hard on young, first-time home buyers. … The spread between city house prices and city incomes is currently close to an all-time high,’ he said.”

From KXAN in Texas. “As the housing market continues to flourish in Central Texas, the number of families willing to spend hundreds of thousands of dollars to custom-build their dream home is rising. Joel and Tracey Lackovich had been saving for years to build their dream home for their growing family of six. What was supposed to become their dream quickly became the couple’s personal nightmare of an experience when they signed a contract with Bella Vita Custom Homes, LLC to build their home in the private, gated community of Spanish Oaks in Lakeway. As KXAN started looking into the couple’s story, it became apparent that their experience wasn’t an isolated incident.”

“It wasn’t until the couple was sued by a subcontractor, alongside Bella Vita Custom Homes as defendants, for failing to make payments for services provided on their home, that the Lackovichs’ say they realized the extent of the issue. The Lackovichs’ say the company was taking their money, but failed to pay their subcontractors.”

“‘Things that we’ve paid for—that we paid Bella Vita to pay—they never paid,’ the couple said. ‘We gave Bella Vita $300,000 and we didn’t have $300,000 worth of work done.’”

“Lisa Brankin’s story is one of an investor. ‘When it started we were really excited because it seemed like such a win-win,’ Brankin explained of her Spanish Oaks home. ‘They were supposed to build us a house at ‘their cost’ and then we signed a profit agreement with them that basically said they would build us a house at a set price and once the house was finished, we would split any profits 50/50.’”

“Brankin says that’s not how it ended. ‘Now, we have a house that’s sitting, not quite totally framed, and we’re looking at having to undo a bunch of things to fix it because it’s been sitting in the weather for five or six months.’ While Brankin has not filed suit against Bella Vita, she says it’s with good reason. ‘It not only keeps costing money with attorneys, [and] our house isn’t finished. So now we have to pre-qualify for another loan. We have to get another $330,000 to finish the house.’”

February 13, 2017

Fear Of An Overheated Market Hitting The Wall

A report from the Winthrop Transcript in Massachusetts. “The real estate market showed median home sale prices go up anywhere from 8-21 percent in the Revere, Winthrop, Chelsea, East Boston, Everett and Lynn. Jim Polino of Highland Real Estate in Winthrop agreed that East Boston is hot. The public is coming around to realize that East Boston is part of the city. The spillover to Winthrop and Revere is part of the Boston boom. ‘The millennial are buying heavily,’ Polino said. ‘High income and low downpayment. It’s all a function of the economy.’”

The Boston Globe in Massachusetts. “The apartment building boom looks to be taking a break in the Boston suburbs. After a surge of construction earlier this decade, the number of permits issued for multifamily housing in the cities and towns that ring Boston dropped off steeply in 2016. In the 29 municipalities that ring Boston, permits for multifamily buildings — those with at least five units — dropped an estimated 53 percent in 2016 over the previous year, according to an analysis of US Census data by the Boston Foundation. Most cities and towns in and around the Route 128 corridor, where demand is greatest, experienced significant decreases, compared to 2015.”

“‘I’m not quite sure I’d call it a downturn quite yet,’ said Marc Draisen, executive director of the Metropolitan Area Planning Council. ‘Our production numbers are not bad; our permit numbers are not bad, historically, but I’m worried that we’re at the top [of the market] and we’re going to start slowing down production before we have met demand.’”

The Tennessean. “The pace of commercial development in Nashville has been challenging to keep up with. Some worry the pace of development has outrun the momentum of demand. There is fear of an overheated real estate market hitting the wall as Nashville becomes overbuilt. The number of new apartments built or being built in Nashville is stunning. As of late last year, there were some 12,000 apartment units under construction both in the urban core and in suburban areas. With that many units set to be delivered in a compact time frame, we can’t avoid some level of temporary oversupply. That will lead to some short-term softness in the market.”

“We’re already seeing this play out as some newly constructed apartment projects are offering concessions like three months free rent to attract new residents. I don’t believe our real estate market is at the bubble stage getting ready to burst. It’s more likely to gently contract.”

The Washington City Paper. “In a competitive housing market like D.C.’s, lease incentives such as one month’s free rent or a reduced security deposit can entice potential tenants to commit to a building. But at a new 45-unit, light-filled development in Trinidad, the owner is offering different kinds of carrots: $1,000 to a tenant’s charity of choice—plus a complimentary trip to Cuba—when a person signs a lease. Until March 1 and while apartments are available, that is.”

“Ditto Residential officially opened Hendrix, a multifamily project filled mostly with two bedrooms earlier this month. As of Wednesday, according to a spokeswoman for the firm, four leases had been executed at the property. Prices range from $1,515 a month for a studio to more than $3,315 a month for a three bedroom. Nicola Y. Whiteman, senior vice president of government affairs at the Apartment and Building Association of Metropolitan Washington, says the swath of luxury real estate in the District is leading developers to be creative. ‘We are likely to see more of these offers surrounding the amenity-rich housing to which millennials are attracted, and this is the same demographic that so many developers are competing for,’ Whiteman continues.”

The News Review in Oregon. “Driving through Roseburg’s Mill-Pine District, it seems like every other house has boarded-up windows, lawns overrun with weeds and sinking roofs layered with moss. The historic Mill-Pine District is nestled between downtown Roseburg and the South Umpqua River. Most of its homes were built in the early 1900s and are distinctively American Craftsman: low-pitched gable roofs, spacious porches, tapered columns. The types of homes people in Portland are scrambling to snatch up for hundreds of thousands of dollars, cash in hand.”

“Abandoned properties, sometimes called ‘zombie homes,’ make the Mill-Pine District less appealing. They sit vacant for months, sometimes years. These abandoned homes and many others peppered around the county and state are lingering ghosts of the nation’s 2007 financial crisis. ‘At one point, in about 2010, there were so many that (banks) started withholding some homes from the market,’ said Victoria Hawks, a Roseburg Realtor. ‘And that’s why we ended up with problems further down the road.’”

“Douglas County is not alone in the vacant and abandoned home issue. Portland City Council decided to speed up the foreclosure process for five homes last year, after it voted to use eminent domain to foreclose on them, reads an Associated Press article from June 2016. The mayor has his eye on another 25 to 30 houses.”

“Hawks, who was a Roseburg city councilor until last month, said there might be some unintended consequences if Roseburg used a similar tactic. ‘I don’t think they would want us to flood the market again with less desirable homes at cheaper prices, which then turn around and make other homes worth less,’ she said.”

“The county’s abandoned homes, no matter how derelict they become, will eventually get on the market and they will get multiple offers, she said. That’s because the housing market is tight, even in rural Douglas County. ‘They aren’t just left forever, it just feels like forever those first few years,’ Hawks said.”

February 12, 2017

The Enormous Boom Has Saturated The Market

A report from CBS 8 in California. “San Diego apartment rental prices continue to go up, up, up with the average price of a two bedroom apartment now around $2,200. But, there may be some good news on the horizon. The good news is vacancy rates are starting to creep up in San Diego County, mainly in the North County, Chula Vista and East County, said San Diego County Apartment Association spokesperson Molly Kirkland. ‘All the new stock coming to market tends to be higher end,’ said Devin O’Brien who works at Zumper, one of the largest rental web sites nationwide. ‘We’ve seen pretty much most of California go crazy.’”

The Colorado Real Estate Journal. “Entering 2017, the rapid acceleration of Denver’s multifamily market seems to be cooling. Yet, it’s not doom and gloom but, rather, a settling back onto familiar ground. In mid-January, the Apartment Association of Metro Denver announced that rents across metro Denver decreased by the largest dollar amount in the 36-year history of the report, and it was the second quarter in a row that the average cost of renting an apartment in Denver decreased.”

“Downtown Denver, which witnessed more than half of the new multifamily development in the past few years, may see negative or flat rent growth. ‘There’s just no way around it, because you’re going to deliver all these units,’ said Shane Ozment with ARA Newmark.”

“Massive supply has some experts concerned,’ said Mark Williams with the Apartment Association of Metro Denver. ‘There were nearly 25,000 new apartments build in the last three years and another 25,000 are currently under construction. Prior to this recent development boom, it took from 2002 to 2012 to build that many units.’”

The Chicagoist in Illinois. “If you think Chicago rent is Too Damn High, we have potentially good news—rents could fall soon, because the number of rental units on the market is going to skyrocket this year. Due to a controversial construction boom, the city will get 33 new buildings and roughly 6,600 new apartments in 2017, according to Luxury Living Chicago Realty. If Luxury Living’s estimates are borne out, Chicago will get more new apartments this year than in 2015 and 2016 combined, Curbed reports.”

The Mountain Xpress in North Carolina. “During last year’s fourth quarter, the rental vacancy rate in Buncombe, Haywood and Henderson counties stood at 7 percent, says economist Barbara Byrne Denham of Reis, a real estate research firm. That’s slightly higher than the 6.8 percent vacancy rate Reis reported during the third quarter of 2016. Developer William Ratchford cautions that actual vacancy rates are probably higher than what property managers report.”

“‘People lie about them,’ he explains. ‘Banks start asking questions if the occupancy rate falls below 90 percent.’ Ratchford, whose companies have built several rental developments in the Asheville area, says, ‘We’re starting to worry that the market is becoming oversaturated. Now is the time that rents actually are going to start to come down.’”

From Delmarva Now in Delaware. “A decade ago, city officials cracked down on nuisances to address issues with the rental market –– mainly in the Camden neighborhood near Salisbury University. In Camden, homes once occupied by owners were converted to rentals. A student housing building boom relieved the pressure off Camden. But that has created another problem, Councilman Jim Ireton said. Many of those rental homes now sit empty because their rent prices remain too high for families to afford. ‘I can take you on a tour and show you 500 of them,’ he said.”

The Gothamist in New York. “This is a great time to be alive—if you’ve been spending a ton of money on rent for an apartment in a not-luxury building and have been dreaming of spending a similarly large amount of money for an apartment in a luxury building. According to online real estate firm RentHop, the higher end of New York’s rental market, particularly the Manhattan market, has softened to the extent that one-bedroom rents in luxury buildings are often approaching parity with those of commoner buildings. In some areas, like glamorously desolate DUMBO, RentHop found median non-luxury unit rents now actually exceed rents for comparable luxury units.”

“The enormous boom in luxury units (defined as units in a building with a doorman or gym—rather generous categories, I know) over the past few years has saturated the market in many neighborhoods, and real estate watchers have been reporting since this past summer that the tide has started to turn toward renters. Landlords are cutting rents and offering one and two months free rent and other similar teasers to lure folks in, whereas a few years ago they would have asked you to put down your first born as a security deposit.”

From Michigan Live. “The state’s pension fund lost millions of dollars taking a chance on a private development deal in Ann Arbor. The Michigan Department of Treasury confirmed this week the State of Michigan Retirement Systems lost about half its original $20 million investment in the failed Broadway Village project with the recent sale of the property to a new development team that is planning an entirely new project now. About a decade ago, the SMRS made a $20 million equity investment to become a limited partner in a $172 million redevelopment project on Broadway Street.”

“Ron Leix, a spokesman for the treasury department, said the Great Recession froze bank financing options and stalled the previous development project. Going back more than a decade, the Strathmore Development Co. had plans to build 185 upscale apartments, 138,275 square feet of retail space, 152,689 square feet of office space and a 760-space parking structure. No activity has occurred on the site since 2009 after the existing buildings were demolished by the developer.”

“‘As the real estate market has improved, the general partner recently sold the property, resulting in a loss of approximately half the initial SMRS investment,’ Leix confirmed this week. That’s about a $10 million loss.”

Believing That Something Plentiful Is Scarce

A weekend topic on this New York Times article by Conor Dougherty. “Suppose there were a way to pump up the economy, reduce inequality and put an end to destructive housing bubbles like the one that contributed to the Great Recession. The idea would be simple, but not easy, requiring a wholesale reframing of the United States economy and housing market. The solution: Americans, together and all at once, would have to stop thinking about their homes as an investment.”

“The virtues of homeownership are so ingrained in the American psyche that we often forget that housing is also a source of economic stress. Rising milk prices are regarded as a household tragedy for some, and spiking gas prices stoke national outrage. But whenever home prices go up, it’s ‘a recovery,’ even though that recovery also means millions of people can no longer afford to buy.”

“So instead of looking at homes as investments, what if we regarded them like a TV or a car or any other consumer good? People might expect home prices to go down instead of up. Homebuilders would probably spend more time talking about technology and design than financing options. Politicians might start talking about their plans to lower home prices further, as they often do with fuel prices.”

“There was a time, a few decades ago, when the cost of living did not vary all that much from city to city.”

“Finally, if housing were plentiful and cheap, we would probably stop having big housing bubbles. One good way of describing a speculative bubble is a moment when society deludes itself into believing that something plentiful is scarce, or will soon be. Housing is particularly prone to bubbles because, in contrast with other products, we seem to want it more when it is expensive and less when it is cheap. And no matter how many times we look out an airplane window to see vast acres of emptiness, we somehow still believe that land is a great investment because nobody is making more of it.”

“Homes would still hold a lot of value; they still might appreciate, if more slowly; and desirable neighborhoods would still seem relatively expensive. But there would probably be fewer manias in which people expect home prices to double in just a few years.”

“Just as we don’t expect to make a profit selling our cars, if we stopped thinking of our homes as big moneymakers, we would probably start focusing on building them faster and less expensively.”

February 11, 2017

A Multiyear Slump Brought On By A Glut

A report from the Wall Street Journal. “The Farm Belt is hurtling toward a milestone: Soon there will be fewer than two million farms in America for the first time since pioneers moved westward after the Louisiana Purchase. Across the heartland, a multiyear slump in prices for corn, wheat and other farm commodities brought on by a glut of grain world-wide is pushing many farmers further into debt. Some are shutting down, raising concerns that the next few years could bring the biggest wave of farm closures since the 1980s. A decade ago, a U.S. biofuel boom and China’s growing middle class lifted prices for crops like corn and soybeans. Many American growers spent the windfall buying land and half-million-dollar equipment.”

“The boom also encouraged farmers in other countries to ramp up production. Farmers world-wide put nearly 180 million new acres into cultivation over the past decade. Corn and wheat output has never been higher, and never has so much grain been bunkered away.”

“In Great Bend, 80 miles east of Ransom, Les Hopkins recently sold his John Deere dealership after sales all but stopped. He is owed about $100,000 by farmers who financed machinery purchases they haven’t paid off. He has tried tracking them down by calling from cellphone numbers they won’t recognize. ‘That money is gone,’ he said.”

“The motor on David Radenberg ’s tractor gave out last fall as he sowed wheat on his family’s 2,400 acre farm in Claflin, 90 miles east of Ransom. He didn’t have the money to fix it. ‘You want to cry when you find out how much it costs,’ he said. He decided to sell the tractor for $10,500 and rely on an older model. If grain prices remain weak, the farm could be next. After 30 years farming, this crop could be his last: ‘Do I go work at Wal-Mart as a greeter or as a parts man at the mechanics shop?’”

From Southeast AgNET. “Farmland values continued to wane in the fourth quarter, according to the Tenth District Survey of Agricultural Credit Conditions. On average, nonirrigated and irrigated farmland values dropped 6 percent, and ranchland values fell 7 percent from the same period last year. These downgrades were the largest since the Great Recession of 2007-09 but were relatively small compared to declines in the 1980s. The largest changes in District states occurred in Kansas and Nebraska. The value of nonirrigated farmland fell 13 percent in Kansas, and irrigated farmland in Nebraska was 8 percent lower. Decreases in ranchland values in Kansas, Nebraska and Missouri were the largest since 2002.”

“After falling steadily for several quarters, cash rents in the fourth quarter were down sharply from their peak values. In the Mountain States, for example, cash rents on non-irrigated cropland have fallen 40 percent from their peak in the fourth quarter of 2012 to the fourth quarter of 2016.”

“Farm income also weakened in the fourth quarter. In fact, farm income fell for the fifteenth consecutive quarter, the longest such streak in survey history. Moreover, 70 percent of bankers expected the downward trend to continue in the first quarter of 2017. Capital and household spending extended declines to 15 and 10 consecutive quarters, respectively.”

The Tama News-Herald. “The trend to lower land prices across Iowa and in Tama County continued for the third year running in the 2016 Iowa State University Farmland Value Survey. The survey showed an average value of $7,455 per acre average in 2016, down from $7,985 or a drop of 6.64 percent. State-wide, the average price in 2016 was found to be $7,183, a 5.89 percent drop. The survey notes the amount is based upon low, medium and high priced ground.”

“Over the years, Tama County land values have increased 54 in the past 66 years. Farm ground price has risen in Tama County every year since 1999 except in 2009 and the past two. It hit a peak in 2013 at $9,145 per acre.”

From Ag Week. “Farmland values and cash rents declined moderately in the fourth quarter of 2016, according to the Federal Reserve Bank of Kansas City’s Agricultural Credit Survey. Credit conditions also weakened alongside lower farm income, and bankers have adopted some risk prevention measures in response. For example, variable and fixed interest rates increased for all types of farm loans. More than 30 percent of bankers also reported an increase in collateral requirements, the largest share in survey history.”

From the Independent. “More than 77 percent of Nebraska producers are concerned that they may not be able to obtain operating capital in 2017, according to the 2016 Farm Financial Health Survey conducted by the University of Nebraska-Lincoln’s Department of Agricultural Economics. ‘Demand is on the rise for operating loans, which is leading to some difficult conversations between producers and their bankers,’ said Jessica Groskopf, assistant extension educator with Nebraska Extension.”

“She said low commodity prices have resulted in the fourth consecutive year of declining net farm income, or the return that farmers and ranchers get for their input of labor, management and capital. The decline has forced producers to use cash reserves to service debt and pay for non-farm expenses such as family living that now exceed earnings. This reduces the operation’s ability to make debt payments, which makes it more difficult for banks to approve operating loans.”

“According to Nathan Kauffman, assistant vice president and Omaha Federal Reserve Branch executive, and Matt Clark, assistant economist at Kansas City’s Federal Reserve Bank, farm lending activity at commercial banks slowed significantly in the fourth quarter as lenders and borrowers assessed economic prospects for 2017. Despite persistent increases in the level of outstanding farm debt and ongoing demand for loan renewals, they said new loan originations dropped sharply.”

“Because the outlook for farm income has remained weak and farmland values continue to decline, both lenders and borrowers may have been more apprehensive about adding new debt heading into 2017, they said. The sharp reduction in the volume of new farm loans at commercial banks occurred during a prolonged decline in farm revenue, Kauffman and Clark said.”

“In 2016, prices for most agricultural commodities continued to fall, building on the declines of previous years, with soybeans being a notable exception. A 30-percent, year-over-year drop in the price of feeder cattle helped reduce the cost of purchasing the animals and likely contributed to the sharp reduction in loan volumes in the livestock sector.”

February 10, 2017

The Catalyst For Overdue Price Reductions

It’s Friday desk clearing time for this blogger. “Khaki is turning the Moore County real estate market red-hot right now. Buyers who can tap into the home-loan program offered by the U.S. Department of Veterans Affairs are fueling a construction and buying binge the likes of which have never been seen. What is happening in this area is right on trend with what is going on nationally. Last year, the VA loan program guaranteed 707,107 home mortgages — setting a new all-time high — representing a 12 percent uptick from the previous year. Significantly, last year’s volume was nearly double the number of home mortgages the agency handled five years ago, and is nearly four times the volume from a decade ago. VA loans are so attractive that many military families end up owning multiple homes, said Angie Medlin, a mortgage specialist with New Penn Financial. ‘I’ve always done a lot of VA loans but I have seen an explosion in Moore,’ said Medlinl.”

“‘The VA offers the best rate out there. If you qualify for it, you can’t beat it,’ Medlin said. ‘In essence, they are encouraging them to purchase instead of rent. It is a great way to acquire property and they can purchase a home as an investment.’”

“Four consecutive years of rising home prices in Anchorage came to an end in 2016 as a weakened economy caused prices to stall out, according to the Multiple Listing Service. And what does the small decline in prices say about the market as a whole? ‘Certainly a decline of only a quarter-percent is not in itself any proof of a real estate calamity. But it very well could signal the beginning of a trend that promises better shopping opportunities in 2017 and beyond,’ said Niel Thomas, a realtor who provided the MLS data to Alaska Dispatch News.”

“Developer Mark Hunt’s $35 million acquisition of two downtown Aspen buildings has collapsed. Some tenants at the building once poised for demolition previously expressed concerns about the project at public hearings. One of them, Frank Heger, who has owned the Aspen Goldsmith jewelry and watch store for more than two decades, said he was relieved the transaction didn’t materialize. ‘If people keep tearing down these buildings and building new ones, at today’s costs of labor, who’s going to rent these places?’ he said. ‘You’re talking about $300 a square foot. Maybe if you’re selling reefer or heroin you can make it, but if you’re selling regular stuff, you won’t be able to make money.’”

“A coal mine in Grande Cache is bankrupt, delivering another setback to the town northwest of Edmonton that once relied heavily on the steelmaking coal producer as its economic engine. ‘We’ve seen some people move out of the community; housing prices have declined,’ said town councillor Yvonne Rempel, adding she expects the total value of real estate is sliding, putting a major dent in the town’s budget. ‘We also have some businesses closing.’”

“Home values in the Bayswater district fell 14 percent in the 12 months through January, the biggest drop in central London’s best neighborhoods, as sellers cut their asking prices in the wake of the Brexit vote. Values dropped by an average of 6.7 percent across the capital’s best districts as successive sales-tax increases damped demand, Knight Frank LLP said in a report. The Chelsea neighborhood saw a price drop of 13.3 percent, the second most among the districts Knight Frank defines as prime central London. Kensington was next with a drop of 11.9 percent.”

“More owners are accepting the need for discount to make up for the higher transaction costs that buyers face, narrowing the gap with what purchasers are willing to pay, Tom Bill, head of London residential research at Knight Frank, wrote in the report. ‘In some instances the EU referendum was the catalyst for overdue price reductions.’”

“While tenants in some parts of New Zealand scramble for housing, Christchurch is a tenant’s market, local property managers say. Ray White Shelleys Property Management director Shelley Scott said she had to teach several property owners about realistic weekly rents over the last year. Scott, a landlord herself, said there was an over-saturation of fully-furnished properties in particular. ‘In some cases I have had to reduce a couple of my furnished ones by $100 a week, which is quite a lot.’”

“The Central Bank yesterday said it remains vigilant over a possible creation of a construction bubble due to the runaway credit growth. Total private credit extended had reached an all-time high in 2016 exceeding Rs.750 billion. ‘The biggest, in terms of sectoral distribution of credit, is construction. That is something we’re looking into whether there’s a possibility of a bubble. We’re studying that very carefully,’ Central Bank Governor Dr. Indrajit Coomaraswamy said.”

“The real estate sector experts too have recently said that there is a real estate bubble in Colombo, which would remain until the apartment trend subsides and have blamed the government for warping prices by selling land in Colombo for high prices to foreign developers. There are some concerns that luxury apartments are not being sold, creating a glut in the market.”

“If solitude and silence are part of high living, then some Sentosa Cove residents are getting more than they bargained for. When The Sunday Times visited the Cove, many units of the private estates there were dark. At The Residences at W, a 228-unit development completed about five years ago, an online search shows 209 units are up for rent. Sentosa Cove had a poor 2016 - 15 out of the 21 resale transactions last year ended up in the red, with the 15 transactions making an average loss of $1.35 million, according to data from property portal SRX.”

“A unit at Sentosa Cove condo Turquoise went for $3.8 million last year. The seller had bought it at $7.16 million in 2007. Another apartment at Seascape was resold at $6.35 million last October. That owner had paid $11 million in 2011.”

“Mastering the art of riding a camel through the Gobi Desert while presenting a television show wasn’t exactly something Grace Brown imagined she would do in her lifetime. ‘My friends thought (moving to Mongolia) was crazy, but I’ve convinced a few to visit,’ the freelance video journalist said. Housing, though, is expensive. Brown said two-bedroom apartments with western-style finishes in downtown Ulaanbaatar were generally about $US2000 a month to rent, but supply far outstrips demand. ‘There are many luxury apartment blocks standing empty or half finished, while affordable apartments remain scant; you could say there’s a property bubble here.’”

“Beijing’s focus on deflating China’s asset bubbles and eliminating financial risks is hurting one of its key growth drivers, the property sector, analysts said. Property attracts nearly one fifth of China’s fixed-asset investment and directly contributed to 6.5 per cent of last year’s gross domestic product, and is seen as one of the key drivers of last year’s economic stabilisation. However, it could also become a victim of the central bank’s 10 basis-point increase in interbank money rates on Friday.”

“‘Mortgage rates face the risk of a large increase,’ Jiang Chao, the chief macro analyst at Shanghai-based Haitong Securities, wrote in a research report. ‘It, together with purchase restrictions in tier 1 and tier 2 cities, may lead to a continuous fall in property sales and a winter [for the] property market.’”

“Price chops in the city’s ultra-luxury market are showing no signs of slowing down. In total, 15 properties in the over-$10 million market saw a discount of more than 5 percent in the period between Jan. 31 and Feb 6, according to StreetEasy. The biggest reduction was at One Madison Park where a two-floor condominium had its asking price slashed by a whopping $5.5 million, or 17 percent.”

“151 East 58th Street, 47A: The owner of this One Beacon Court condo is Scott Kurnit. But if this recent discount is anything to go by, he may be keeping this 3,000-square-foot home. Kurnit put the pad up for sale last November with a $13.9 million asking price. Last week, $2 million, or 14 percent, was lopped off the asking price. The Vornado Realty Trust-developed building is also home to another notable price reduction. Billionaire hedge funder Steven Cohen has been trying to find a buyer for his apartment there since 2013. Its asking price has been dropped from $115 million down to $72 million over the years.”

February 9, 2017

A Future Spike In Demand That Has Yet To Materialize

A report from the Chico Enterprise-Record in California. “Dozens of apartment buildings will be popping up across the city the next few years, many geared toward student living. This year, at least 758 apartments and about 275 single-family homes will begin construction. Developer Kevin Kramer said there is a lot of apartment activity and it’s a ‘head scratcher’ as to whether all of it is going to get filled. Now all the builders are deciding to invest in apartments. At some point, the market for multi-family building, much like the brick-and-mortar retail market, could get saturated, he said, and vacancies could go up. ‘It’s a pendulum that swings back and forth,’ he said. ‘But I think right now we’re OK.’”

“Meriam Park developer and business owner Dan Gonzales said his primary focus is on jobs. Meriam Park is a live-work development designed to appeal to the millennial generation, which he believes is changing the look and function of multi-family housing. ‘That’s my biggest concern about the amount of housing,’ Gonzales said. ‘I don’t see the job growth happening to sustain it into the future.’”

The Loveland Reporter-Herald in Colorado. “Loveland’s average rent costs are among the highest in Colorado, according to a report released by the Colorado Division of Housing. However, Loveland’s vacancy rate has gone up to 8.7 percent from a vacancy rate of 8.4 percent in the third quarter. For perspective, Loveland’s vacancy rate in the fourth quarter of 2010 was 3.6 percent. City of Loveland Community Partnership Office administrator Alison Hade said she wasn’t expecting the results for Loveland, especially with rent costs at some of the highest in the state.”

“‘I am very interested in watching it over time,’ Hade said. ‘I’m thinking with a vacancy rate that is that high, I would hope to see some pressure relieved in our rents,’ she said.”

The Duncan Banner in Oklahoma. “College students want to live near campus, but the proliferation of large-scale student housing in core Norman has city leaders concerned. They recently enacted a six-month moratorium, and preliminary discussions to update the R-3 multi-family zoning ordinance began Thursday. Since November 2015, the city has known Norman’s student housing market is becoming oversaturated, based on a report by RKG Associates Inc.”

“Mike Buhl of Commercial Realty Resources Co. (CRRC) also sees a soft market ahead for Norman’s student housing as other factors continue to drive the building and the buying and selling of apartments. ‘Strong investor demand, low interest rates and falling capitalization rates were once again the trends that made 2016 so busy in the multi-family sector,’ Buhl said. Buhl, a Norman resident, and Tulsa associate Darla Knight recently released CRRC’s 2016 Apartment Report. Buhl believes the low interest rate ‘has been the single biggest factor in helping to fuel apartment acquisitions.’”

In addition to building new apartments, investors are buying older apartments with the intention of upgrading them. ‘This year was very active in terms of apartment sell,’ Buhl said. ‘We’re seeing a lot of new construction on the conventional and the student side. There’s about 4,000 bedrooms that are being added to the market.’”

“University enrollment numbers indicate the student population is not increasing at that same pace as investors are building new apartments. ‘In order for those new properties to fill up, they’re going to have to get more occupants from other places,’ Buhl said. The Monnett Garden apartment complex is in the Boyd corridor, where many R-3, super-sized duplexes have been built. ‘They’re going after the same market,’ Buhl said. ‘They’re going after a student who is going to rent the bedroom. Norman probably hasn’t quite felt the effects of all the new per-bedroom, multi-family housing that has come online. They’ve added a lot of those, in addition to the new apartments.’”

The Real Deal on New York. “Leaner times may be coming for doormen and pet groomers. New York’s rental market is in the doldrums and the luxury market has taken the worst of it, new research shows. Luxury rents have fallen or stagnated in most neighborhoods while non-luxury rents continued to rise, causing the price gap between them to shrink. In recent years, developers have been flooding the market with high-end rental buildings targeted towards yuppies and equipped with amenities like gyms, game rooms, and pet spas. But the supply surge means renters now have a wealth of options to choose from, and landlords can’t expect to command the same premiums they could just a year ago.”

“On a neighborhood level, some of the biggest decreases in the price gap between luxury and non-luxury were recorded in West Harlem and Astoria. Shane Leese, a data scientist at RentHop, said developers in these neighborhoods have been building luxury rentals in anticipation of a future spike in demand that has yet to materialize. ‘People are willing to to stay in their non-luxe apartments, and pay the 7 to 10 percent increase, for now,’ he said.”

The Houston Chronicle in Texas. “Houston’s apartment market is facing a sluggish year as demand struggles to keep up with a growing supply, panelists said Wednesday morning to members of the Houston Apartment Association. The markets most concerning to multifamily analyst Bruce McClenny include Montrose, the Galleria, the Texas Medical Center area, downtown and Tomball/Spring. Rents were down last year near the Galleria, the Medical Center and Montrose, an Inner Loop neighborhood where more renters moved out of apartments than moved in.”

“Rents for high-end apartments will continue to soften this year as the supply grows. Overall occupancy is expected to be at 88 percent by year-end, data shows. ‘2017 in Houston is going to be a lot of hand-to-hand combat,’ Camden Property Trust’s Keith Oden said Wednesday during the company’s fourth-quarter earnings call. He called Houston’s apartment market ‘vastly oversupplied.’”

“Merchant builders, who sell developments after constructing them rather than holding them for the long term, are offering as many as three months of free rent to lure tenants. As many as 12,000 new apartments are expected to open this year, while job growth is expected to be modest at best.”