October 24, 2016

As A Construction Boom Plays Out, Appetite Has Dimmed

A report from the Guardian in the UK. “A surge in the supply of rental properties on the books of letting agents is forcing landlords to peg back rent rises, according to an industry body. The proportion of landlords implementing increases fell to 24%, its lowest level this year, said the Association of Residential Letting Agents, while the number of unlet flats on agency books rose to the highest level for 18 months. David Cox, managing director of Arla, said: ‘This month’s findings paint a really positive picture for renters. The supply of rental stock has risen astronomically.’”

From Reuters. “High-end property developers in London are restricting the supply of homes to prevent further price falls by selling entire apartment blocks to funds for rental, according to agents and investment managers. Growing numbers of flats will come up for sale in coming years as a construction boom plays out, but appetite from individual buyers for British real estate has dimmed. Sales of unbuilt and completed projects are being struck at a 10-15 percent discount to their expected market values, industry consultants said, as housebuilders strip out the cost of marketing to individual buyers and taking debt to build the projects.”

“APG Asset Management, Europe’s largest pension fund manager, is in talks with developers who seem more open to deals as they contend with the risk of not being able to sell everything in the current climate,’ said Martijn Vos, APG’s senior real estate portfolio manager. ‘If the market remains as it currently is, I feel there will be more such deals to come,’ he said.”

The International Business Times. “The number of homes sold for £1m or more in England and Wales has collapsed by 62.5% in just two years as the property market feels the effects of tax hikes, global economic turmoil, and uncertainty surrounding the Brexit referendum. ‘There will be few tears shed for estate agents or their millionaire clients struggling to sell their homes but don’t put away the man-size too fast,’ said Henry Pryor, a buying agent. ‘In fact the problems affecting the top rungs of the housing ladder could and probably will infect the lower priced properties.’”

The Evening Standard. “Some of London’s luxury house developers are showering homebuyers with drastically more extravagant gifts in the wake of the Brexit vote. Amazon Property partner Chris Lanitis says: ‘If a purchaser bought an apartment from us and liked a particular piece of art which is bespoke to the apartment, then — depending on price — the piece would either be gifted as a moving-in present or, if the art work was one of the rarer and more valuable pieces, we would liaise with the art gallery to help arrange a preferential price for our purchaser.’”

“But methods to boost sales are not limited to art, says Michael Ferris, a director at JR Capital, which buys properties for Middle Eastern investors. He reveals that one of his Saudi Arabian clients was told that £200,000 of furniture from a showroom apartment would be thrown in if he bought one of the £2.5 million-plus flats in a new zone one scheme on the river. ‘This is because the development has a large supply of high-value unsold flats and is nearing practical completion,’ he explains.”

This Sense That’s Something’s About To Flip

A report from the Register Guard in Oregon. “The city of Eugene is reporting a 1,600-unit deficit in multifamily housing and is identifying policy changes that would create more capacity. Based on an analysis of actual development in Eugene, however, it appears that there is no deficit — instead, a surplus of capacity exists. I have been working with Lloyd Helikson, who has collected data on all the multifamily developments that have occurred since July 1, 2012 — the official start date of the 20-year planning time-frame for the Envision Eugene process. The remarkable findings show that actual development is greatly exceeding projections.”

“Five thousand, two hundred and five units of multifamily housing are already built or planned for the five-year period for which we have data (2012-17). Envision Eugene forecasts a need for a total of 6,797 units of multifamily housing in the entire 20-year planning period. Thus, we have already achieved 77 percent of the needed development, with 15 years left to go! Oddly, the city does not collect and report information on multifamily development in Eugene. In fact, the city’s permit reporting system is underreporting the number of dwelling units, with some large projects reporting zero dwelling units. During the past five years, it appears that the city may have reported 1,857 fewer multifamily dwelling units than have actually been built.”

The Daily Camera in Colorado. “The tide might be turning in Boulder’s crazy rental market, as vacancy rates hit highs not seen since the Great Recession and property managers say apartments are sitting empty through several price drops. Boulder’s vacancy rate (not including the university area) rose to 7.2 percent in the past three months in the city, according to the Apartment Association of Metro Denver. The last time it was that high was 2009. In fact it’s only been over 7 percent twice in the past decade: third quarter ’09 and today.”

“‘We’ve started noticing properties sitting longer than usual, and actually needing some lower rental rates in order to attract tenants,’ said Simon Heart, owner of All County Boulder Property Management. ‘We target to lease properties within 30 days, but within the last month or two, there are properties that have been sitting for 30-60 days that we’ve had to lower the rent several times’ to fill.”

“‘None of my clients have had more than a couple-day vacancy,” said Chrissy Smiley, who owns rental agency Smiley & Associates. But, like others in her industry, she did note having a ‘harder time’ renting properties that, in the past few years, would have been snapped up immediately. ‘I just feel there is some kind of sea change happening with the rental market,’ she said. ‘Part of it is that rents are going up and people’s incomes aren’t going up at the same rate. I get this sense that’s something’s about to flip.’”

The Crookston Times in Minnesota. “When the City of Crookston and CHEDA agreed to invest some dollars a bit more than two years ago on a comprehensive housing study of the community, more than one person around the city council and CHEDA board of directors table said it would be critical to not let the study, once completed, sit on a shelf and gather dust. Board member Lee Meier, who runs the Northwest Minnesota Multi-County Housing and Redevelopment Authority in Mentor, endorsed the strategy of not going immediately all-in on meeting the exact recommendation in the housing study for market rate rental units.”

“‘It’s not an exact science; just because it says 89 units doesn’t mean we need 90 actual units,’ Meier said. ‘Other communities around us have overbuilt recently due to perceived demand and now have some vacancies.’”

“‘We want to make sure landlords see good returns on their investment,’ added CHEDA Executive Director Craig Hoiseth. ‘We don’t want to push rents down too much.’”

WWNYTV on New York. “Three houses in the city of Watertown are set to be demolished. The former apartment buildings on the corner of Washington Street and East Flower Avenue will be torn down. The owner of the buildings, Hedy Cirrincione, says the over-saturated rental market in the city and the location of the buildings is why she is having them taken down.”

October 23, 2016

The Boom-Bust Cycle Has Expanded Across The Globe

A two part series from Farm Futures. “About every year, Ron Pierson tries to trade one of his larger Case IH tractors for a new one. He did not this year because the dealer was reluctant to add another expensive piece of used equipment to the big supply already on the lot. Shorty Kulhanek, a custom harvester based in Colby, Kan., had the same problem with his combines. Each year he typically trades his three Gleaners for new ones, but this year the dealer still had the ones he traded the previous two years. ‘I normally had a one-year turnover in the combines, but I didn’t this year because the dealer had too many used combines,’ he says. ‘I am glad I waited. I’ll trade for the 2017 models when they will be eager to deal.’”

“The glut of machinery came about after several years of farmers upgrading fleets with new equipment when the farm economy was strong and crop prices were high. Manufacturers responded by ramping up production. Now, farmers have not been in a rush to upgrade because of their newer fleets and the downturn in crop prices. That slowed demand for new equipment. Meanwhile, the used pieces they traded remain on the lots. In addition, the weak farm economy has farmers selling used equipment to raise capital.”

“Another reason to move slowly is dealers expect a lot of leased equipment will come onto the market and will need to be sold. ‘We have to remarket those to our dealers as used machines, and they will have to sell some of those instead of selling new machines,’ says Jim Walker, vice president of Case IH North America. ‘Lease returns have hurt both John Deere and us in the high-horsepower tractor business.’”

The Journal Star. “Cash rent prices for Peoria County farmland have generally followed property sale and commodity prices downward in 2016 in a market highly dependent on broader economic conditions and individual relationships. A recent University of Illinois report indicated the average cost of rent per acre in Peoria County was $221 this year, down from $238 in 2014, the last year for which data was available. The 2016 price still represents a significantly higher premium than several years earlier, when rent prices began climbing along with commodity rates.”

“Cash rent prices tend to increase at a slower pace than commodity prices and similarly decline at a rate just behind that of grain, said Patrick Kirchhofer, manager of the Peoria County Farm Bureau. ‘Cash rents will continue to come down if crop prices remain where they’re at,’ Kirchhofer said.”

The Erie Times-News. “Dean and Suzanne Curtis paid a price in sweat, 14- and 16-hour workdays, scraped knuckles and vacations they never took. But together, the Venango Township couple built something. They own 515 acres, a herd of 150 dairy cows and the buildings and equipment needed to produce thousands of gallon of milk each year. In 2009, they were just months from having all of it paid off. Then came the recession and a historic tumble in the price of milk.”

“Today, two refinanced mortgages and seven years of unreliable milk prices later, the idea of being debt-free seems like a distant memory, said Dean Curtis, who has been farming for 50 of his 64 years. Curtis said he and his wife have far less debt than many dairy farmers, but worry that some fellow farmers might not survive a pattern of low prices that has persisted through 2015 and most of this year.”

“Some of those who remain appear to be in trouble. Curtis, president of the Erie Crawford Cooperative, a farmer-owned feed mill, sees it in the growing list of farmers who are delinquent in paying their feed bills. ‘It’s ridiculous,’ he said. ‘I’m not angry at the farmers at all. It’s the whole farm economy that is ridiculous and what farmers are expected to live on.’”

“As recently as 2014, dairy farmers were collecting some of the highest prices in history, said James Dunn, professor of agricultural economics at Pennsylvania State University. Farmers, who sell milk not in gallons, but in 100-pound increments, were collecting an average of $25.64 per hundred pounds or the equivalent of about $2.98 a gallon in 2014, Dunn said. In 2015, that fell to $18.48 per hundred pounds or $2.14 a gallon. For the first six months of this year, he said, the price fell to $16.45 per hundred pounds, about $1.91 a gallon.”

“There’s little agreement about how much farmers need to break even. ‘There are people who have all different costs of production,’ Dunn said. ‘It has a lot to do with when they bought things, how well their crops worked out and the decisions they made over time.’ What Dunn can say is this: ‘Somebody who expanded in 2014 thinking that (price) was the new normal has been severely disappointed.’”

From Grub Street. “It’s never easy being a farmer, but it’s particularly tough right now. Supermarket prices fell for the tenth straight month in September, down 2.2 percent from last year. This makes the 2016 decline in food prices, as analysts predicted would happen, the worst since 1960. A number of factors have contributed to the price plummet. After years of high prices and insufficient resources, there’s now an oversupply of meat and grains, including a record corn crop of 15 billion bushels forecasted. Demand from China has declined, and the global economy isn’t exactly running on all cylinders. Meanwhile, farmers are expected to produce 212 pounds per capita of beef, poultry, and pork.”

“The price declines are significant. Last month, a pound of ground beef was down to $3.66 from $4.13 last year; bacon fell to $5.48 a pound from $5.73; and the cost of a dozen eggs fell more than 100 percent to $1.47 from $2.97. Some of the worst-hit by the decline have been pig farmers: The National Pork Board says that pigs are selling for $97 each, down from an all-time high of $280, in 2014.”

“While pig farmers can reduce their herds, there’s little crop farmers who are paying rent on the land they farm can. Supermarkets, too, are suffering: Grocery chain Supervalu says second-quarter revenue fell 4.8 percent, while Kroger lowered expectations and plans to cut capital investments by $500 million this year and next.”

From Bloomberg. “It was advertised as Brazil’s ‘new frontier,’ the vast savanna running alongside the Amazon jungle that would help meet China’s insatiable demand for food. The farmers of Brazil heeded that call, razing trees, plowing virgin land and planting soybeans at a frenetic pace for much of the past decade. Now, soybean demand from China has slowed and the world supply has increased amid a record U.S. crop, denting international prices. In parts of northeastern Brazil, so little rain has fallen in the last four years that farmers find themselves stuck in what is the worst agriculture crisis to hit the country in a decade.”

“Vanguarda Agro SA, Brazil’s second-largest farming group, has been gradually moving out of Matopiba since 2014 and won’t plant a single hectare in the region this year, said CEO Arlindo Moura. Moura said the investment needed to transform scrubland into farmland is no longer feasible following the decline in soybean prices over the past few years. ‘When the soybean price was at $15 a bushel, every piece of land was good for planting,’ Moura said. ‘With soybeans under $10, you have to produce more than 50 bags per hectare (44.6 bushels per acre).’”

The Wall Street Journal. “Harvests are under way of what are projected to be the largest corn and soybean crops in U.S. history, which soon will hit a global market already sitting on the largest-ever grain stockpiles. Indeed, some farmers are hoping for a weather hiccup somewhere in the world to curb yields and breathe life into crop prices that recently hit multiyear lows. They may be waiting a long time.”

“It is a dramatic turnaround from four years ago, when prices for many commodities were soaring to the highest levels U.S. producers had seen in their lives. The boom-bust cycle of commodity production in America has expanded across the globe in recent years, as crop and livestock farmers in South America, China and the Black Sea region have adopted farming practices that largely mirror those in the U.S. breadbasket. That has raised the potential risks and rewards for producers looking to sell, as weather, currency swings and policy changes in far-off countries have a greater impact on U.S. food prices than ever before.”

“‘The world is still expanding production area, and because of that, this cycle could go on awhile,’ says Dan Basse, president of Chicago-based commodities firm AgResource Co., who notes that farmers world-wide have added nearly 180 million acres to cultivation in the past decade, about as much as the combined acreage of the entire U.S. Grain Belt.”

“The barnyard-wide glut stems from decisions made globally to plant more row-crop acres and to raise bigger herds in response to new demand and high prices during the most recent shortage. ‘There’s an old industry adage that money makes milk, and more money makes more milk,’ says Chuck Nicholson, a professor of supply chain and information systems at Pennsylvania State University, who focuses on agricultural markets. The current glut has ‘a lot to do with the decisions that farmers make in aggregate—producers can turn on the milk spigot relatively quickly and tend to be more reluctant to turn it off.’”

“To make space for crops like corn after a massive wheat harvest last summer, Frank Riedl, general manager at Great Bend Co-op, a Kansas grain elevator and farm supplier, bought and leased extra land on which to build bunkers the size of football fields where he can heap millions of bushels of overflow grain. ‘There’s an abundance of corn out here in the country and we don’t have the storage base for it,’ he says. ‘Farmers are trying to find any place they can to dump their crops.’”

The Carnival Is Over

A report from the Sydney Morning Herald in Australia. “Wayne Byres, chair of the Australian Prudential Regulation Authority, was on Thursday asked by Greens senator Peter Whish-Wilson about a report from UBS that last month ranked Sydney fourth in a global ‘bubble index’ that sought to measure the risk of a real estate bubble. Mr Byres, who oversees a banking sector with almost $1.5 trillion in mortgages, stressed the risks in the property market but said the ‘B word’ was not helpful. ‘I deliberately avoid using the B word. I think it sort of simplifies the debate somewhat,’ Mr Byres said. ‘It leads people to either, we are, in which case we’re all ruined, or we’re not, in which case, she’ll be right. And in fact the situation is far more nuanced than that.’”

“Sydney prices have risen by about half since 2012, the UBS index said, and APRA has in recent years clamped down on poor lending by banks in the housing market, and curbed lending to investors.”

From Domain News. “National Australia Bank has compiled a confidential borrowers’ blacklist of more than 600 towns and suburbs where it has capped lending to property buyers because of growing risks in the housing market. Buyers in any of the 120 postcodes across the nation will need a deposit of as much as 30 per cent to be eligible for a loan ‘to ensure that we are lending responsibly and sustainably,’ according to internal documents used by the bank to explain its change in strategy to mortgage brokers.”

“Lenders have also responded to pressure from the Reserve Bank of Australia, ASIC and APRA to reduce lending to higher risk investment borrowers, particularly for apartment markets in central Melbourne and Sydney, by cutting back on interest-only loans and increasing deposits to about 40 per cent of the asking price. For example, earlier this year AMP placed apartments in 140 suburbs on a blacklist because of growing concerns about oversupply, off-the-plan sales, and, in some areas, falling prices. Lenders also slammed the brakes on foreign borrowers.”

The Australian. “Australia’s residential market is set to split in two, with first home buyers finally getting a shot at owning inner city apartments, while relatively strong rental yields mean that seasoned investors will look towards investments in houses. Discounting is expected to be most common among high-rise ‘clusters’ where there have ­already been rising levels of ’settlement difficulties.’ But the outstanding opportunity in the market will be for first-home buyers, especially in 2017-18 when a flood of new apartments are expected to hit the market.”

“‘We are looking at a market where you will see pressure on prices, and you may also see some rental yield decline … I think both markets are vulnerable,’ said Nigel Stapledon, a research fellow at UNSW Business School. ‘On the upside, it becomes a buyer’s market and also a renter’s market.’”

From Smart Property Investment. “The six regions across the country worst affected by the mining downturn have been uncovered by a new report. The report, ‘The carnival is over: house prices in mining towns now the boom is gone,’ compiled by Propell National Valuers, said recent figures and stories of investors’ suffering ‘beg the question of why anyone would take the risk’ of buying into these regions. ‘Price increases of 10 per cent per annum, 20 per cent per annum or more have been replaced by falls in the past two years of up to 38 per cent per annum.’”

The Brisbane Times. “Dozens of expectant Perth homeowners have been left in limbo after the collapse of national building company, Collier Homes. Nearly 30 homes across Perth sit unfinished and subcontractors are owed thousands after liquidators moved in on parent company, Homes Australia, owned by Family First Senator, Bob Day. The multi-million dollar collapse has also left around 20 staff members at Collier Homes’ Osborne Park office out of a job, without any notice. Mr Day resigned from Federal Parliament after announcing the the collapse.”

“Sub-contractor, Ron Van Zoelen and wife, Tracey, fronted the politician’s South Australian electorate office shortly after learning of the closure, claiming they were owed more than $25,000. ‘We’re just shocked and devastated, this is our livelihood, this is our income, and we’ve got family to support, bills to pay, mortgage to pay, it’s really quite upsetting,’ Ms Van Zoelen told Nine News.”

From News.com.au. “A ruling by the tax office could offer a glimmer of hope to locals wanting to buy an off-the plan apartment by putting them off-limits to overseas investors. Under Australian law, foreign investors can purchase only new properties. If an off-the-plan sale falls through, the property will be considered second-hand, The Australian reports. This means thousands of potential foreign buyers will be stopped from buying the properties and potentially lowering the resale price.”

“Confirmation on the ruling comes amid reports of a growing number of Chinese buyers walking away from off-the-plan apartment sales, forcing them to sell. ‘Under subsections 15(4) and (5) of the Foreign Acquisitions and Takeovers Act 1975, a dwelling is considered to be sold when an agreement becomes binding,’ a spokeswoman for the Australian Taxation Office said. ‘If the property is onsold after the date upon which the contract becomes binding, and prior to settlement, then this is considered to be an established dwelling.’”

“LJ Hooker chief executive Grant Harrod told The Australian the real estate agency was starting to see apartments coming onto the secondary market, particularly in Brisbane and Melbourne. ‘We have seen some developers come to us with buildings that have been completed but the owners have been unable to close,’ Mr Harrod said. ‘The original owners who bought off the plan are finding it challenging to raise capital because the banks have raised the loan-to-valuation requirements. There is going to be a real issue if we start to see construction projects not being completed and developers getting into trouble.’”

“Last month, billionaire property developer Harry Triguboff, founder of Australia’s largest apartment builder Meriton, said a ‘very significant’ number of Chinese buyers were failing to settle their purchases.”

October 22, 2016

Sellers Now Realize Word Is Out

A report from The Independent in California. “Livermore is on track to meet the goals and objectives of its housing element. Staff noted that at the current rate of development, Livermore would exceed the projected housing need under the current Regional Housing Need Allocation (RHNA), for years 2015-2022, by approximately 28 percent. In 2015, the city issued building permits for 436 units. The number was well above the average of 128 building permits issued annually during the previous eight years.”

“The maximum home price that a moderate income-household of four could afford is about $394,000. The starting prices for the new townhouse/condo units in Livermore range from the mid-500’s to the low-600’s. For the single family detached houses, starting prices range from the mid-600’s to about one million. While the townhouse/condo units are priced about $100,000 less than the new single family-detached units, all of these units are considered affordable only to above moderate-income households.”

“City Manager Marc Roberts stated that extremely low and low income housing requires outside funding. The affordability piece is challenging. ‘We are in compliance.’ In response to a comment that low income in Livermore for a family of four would be $72,000, Roberts said, ‘You have to be very rich to be poor in Livermore.’”

The Washingtonian. “It’s been almost two years since Washington got word that a $10.5-million condo had hit the market. The unprecedented price was all the more surprising because of where the building was going up—not somewhere predictably luxe like the West End or Georgetown’s waterfront, but downtown Bethesda. The listing was the ultimate symbol of a trend that real-estate watchers had been nearly uniformly predicting: Increasing numbers of wealthy baby boomers would trade their 10,000-square-foot Potomac spreads for a downsized lifestyle in walkable, urbanized (but not too urbanized) Bethesda. But making the swap for upscale condos hasn’t been so easy.”

“‘I have a new listing coming on this week in the $2-million range, in Potomac, and that’s where the owners want to go: to a condo in Bethesda,’ says Washington Fine Properties agent Lori Leasure. The catch? ‘They tried to sell the house this spring with a different Realtor, and it didn’t work, so I’m the second one in. Potomac is just so quiet right now.’”

“Other Montgomery County agents tell versions of the same story. ‘The whole ‘live urban’ trend means buyers for Potomac have all but disappeared, unless the deal is really, really good,’ says Coldwell Banker’s Jane Fairweather.”

“And that’s a problem for Bethesda’s supply of new multimillion-dollar condos. The median sold price of condos in downtown Bethesda’s 20814 Zip code has dropped by more than 9 percent this year, according to RealEstate Business Intelligence, the authority on local data. Meanwhile, homes in Potomac are sitting on the market for an average of 75 days, a 19-percent increase. The most expensive tend to linger much longer—such as an $11-million, ten-acre estate listed for nine months or a 25,000-square-footer for $9.25 million, on the market nearly two years.”

“The Darcy began selling in 2013 while the building was under construction. Agents say that two or three years ago, sellers in Potomac were more willing to risk putting contracts on condos without first offloading their houses. ‘Now they realize word is out and their home is not going to be an easy sell,’ says Compass agent Gretchen Koitz.”

The Sun Sentinel in Florida. “South Florida home sales sputtered in September, but that didn’t hurt prices, data from local Realtor boards show. Larry Revier, a real estate agent in east Fort Lauderdale, said he’s seeing a ‘massive difference’ in the number of buyers this year compared to last year. ‘We just don’t have buyers lining up and saying, ‘I’ll take it,’ Revier said. ‘Every transaction is very difficult because buyers are less motivated than they were before.’”

From Tulsa World in Oklahoma. “According to data released this month by the Greater Tulsa Association of Realtors, home sales in September grew by close to 9 percent over the same month last year. Pete Galbraith urges sellers to consult with their real estate professional for correct market trends. ‘The market is very, very time-sensitive,’ said Galbraith, president-elect of the Oklahoma Association of Realtors. ‘Although there may have been a great comp four months ago that justified a certain price for a listing, there subsequently may have been two or three sales close by that have shown a decline.’”

“Sellers this time of year also usually have to sell, be it for work or family. So buyers shouldn’t be shy about haggling. ‘The whole goal of every home seller is not necessarily money-driven,’ Galbraith said. ‘In a lot of cases, it’s time-driven: ‘I’ve already bought a house and I need to sell my house in 30 days.’ A lot of people will price their house accordingly.’”

The Houston Chronicle in Texas. “Sales of Houston’s most expensive homes fell 7.9 percent during the first eight months of 2016 compared with the same time last year, a new report shows. The decline corresponds with a significant loss in high-paying energy jobs. In fact, Houston was the only major metro area in the state with a decline in so-called luxury housing — homes that sold for at least $1 million, according to the Texas Association of Realtors’ Texas Luxury Home Sales report.”

“Buyers closed on 974 luxury homes in the Houston area at a median price of about $1.4 million. The median was down 2.9 percent from a year earlier, according to the report. ‘New construction in the luxury housing market can easily reach $500 or $600 per square foot, particularly among high-rise condominiums in urban centers,’ Leslie Rouda Smith, the association’s chair, said in a report, noting higher overall home prices and steeper development costs.”

“The report noted the slowdown in other ways: The number of luxury homes on the market as of August was 1,449, a 29 percent spike from a year earlier. Luxury homes spent an average of 85 days on the market, an increase of 11.8 percent over last year. Bill Baldwin, of Boulevard Realty in the Heights, said the first six months of 2015 were record-setting in Houston real estate, so ‘comparing this year is difficult.’ ‘Overall, I think we’re doing fine,’ he said.”

October 21, 2016

The Beginning Stages Of Being Oversaturated

A report from the News Tribune in Washington. “Tacoma apartment rents have increased for the 11th straight month, according to Axiometrics, a research firm that tracks apartment rentals. Seattle-Bellevue-Everett’s average rent prices in September dropped to $1,777 from August’s $1,799, possibly fueled by an increase in the number of apartments available, said Axiometrics’ senior vice president of analytics Jay Denton. ‘Seattle is still among the top-performing metros in the nation, but deliveries of new units accelerated in the third quarter and the pace is expected to quicken through the second quarter of 2017,’ Denton said in a news release.”

The Boston Globe in Massachusetts. “Rents in Boston are climbing at their slowest rate in more than two years as a surge of new apartments hits the market. A new report out Wednesday from data firm Axiometrics found that the average rent in Greater Boston fell slightly from August to September. It’s the latest sign that the wave of building in the region is having an impact on rents.”

“‘The Boston apartment market may be seeing the effects of the new supply delivered in the past six months,’ said Stephanie McCleskey, vice president of research for Axiometrics. ‘Job growth picked up in the third quarter, but the low rates earlier this year combined with the new construction provide a foundation for lower rent growth.’”

“There are signs that may continue. More than 3,000 new apartments have come on the market in the last six months, Axiometrics said, with another 1,344 slated by year’s end, and about 6,000 expected to open in 2017.”

The DA Online in West Virginia. “The term ’student housing’ at WVU has been redefined. The phrase now refers to more than standard, quiet dorm units and extends to University Apartments, like Vandalia, College Park, University Place and University Park—the latter two being the brightly lit residence/shopping complexes that sprouted up in Sunnyside and Evansdale over the past two years. These apartments combined hold 2,205 beds students can rent (not including the dorm units in University Park), but 35 percent of these remain unfilled as of Fall 2016, according to FOIA documents obtained by The DA.”

“‘A lot of people just can’t afford them,’ said David Kelly, owner and operator of Kelly Rentals in Morgantown. The biggest problem, Kelly said, is that with all the University operated apartments, corporate housing complexes (Campus Evolution, The Ridge, Copper Beech, etc) and private housing in Morgantown, there are more beds available throughout town than there are students to fill them.”

The Duluth News Tribune in Minnesota. “According to a study done by the City of Duluth in March 2012 called the Higher Education Small Area Plan, the estimated student population in Duluth is about 20,000 between UMD, CSS and Lake Superior College, with 16,000 of those students seeking off-campus housing. The problem for many students is the available housing close to campus may not be overly affordable for them, said Mike Peller, owner of Gables & Ivy Real Estate in Duluth.”

“Peller said he rents about 40 properties near UMD and CSS. The price of real estate increases the closer the property is to campus, he said, making monthly rent more expensive. Mark Lambert, owner of Campus Park Townhomes and Villas, Boulder Ridge Luxury Apartments, Summit Ridge Luxury Apartments and BlueStone Lofts and Flats, said he thinks the housing market is in the beginning stages of being oversaturated.”

“While there may have been student-housing issues in the past, Lambert said, there is a delicate balance between providing enough housing and too much. ‘This year is the first year we’ve had some vacancy issues,’ Lambert said, adding that Campus Park is 20 percent vacant.”

The Silicon Valley Business Journal in California. “Believe it or not, rents can go down in Silicon Valley. In Santa Clara County, the average asking rent in Q3 for all unit types was $2,619, a 1.3 percent decrease from the prior quarter and 0.2 percent drop from Q3 2015, according to data from Novato-based Real Answers. The slight decline in rents over the last 12 months stands in sharp contrast the nearly 11 percent year-over-year increases seen in the third quarters of 2015 and 2014.”

“A quick note on the data used: Real Answers uses average asking rents from complexes with 50 or more units, meaning smaller complexes are not represented.”

DNA Info on NewYork. “Temporary walls are this season’s hottest luxury rental amenity. Developers know that many renters need roommates to afford New York City living, and — with a glut of rentals hitting Manhattan’s market and pushing prices down — they understand that squeezing roommates in is one of the best ways to keep prices up and vacancy rates down. That means more landlords are letting renters know, whether explicitly or tacitly, that they can indeed carve out extra bedrooms with temporary walls.”

“At the Grayson, a 17-story rental on East 28th Street, a unit is listed on Streeteasy for $5,500 a month as a three-bedroom though its floor plan shows it as a two-bedroom. The description states, ‘This apt easily converts to a 3 bedroom. Full walls allowed.’ A $4,100 a month one-bedroom in the same building, states, ‘This apt easily converts to a 2 bedroom.’”

“‘We’re seeing walls and dividers in a lot of new development. There are a lot of buildings showing them in their marketing materials,’ said Karla Saladino, of Mirador, the exclusive rental agent for more than 100 buildings across the city. ‘A lot of the stuff in Murray Hill has to be convertible or people can’t afford to be there,’ she added. ‘There are only so many people who want to live in one-bedrooms in the neighborhood.’”

“Donny Zanger, founder of All Week Walls, said his business installing temporary walls dipped after the 2010 Times article about illegal walls, but recently things have been on the upswing again. Developers need the walls since they ‘put a lot of money into their buildings’ and have to command high enough rents and low enough vacancies to see returns on their investment, Zanger said.”

“Since landlords typically require a renter earn 40 times the monthly rent, that means renters for half of the one-bedrooms on the market would need to earn more than $135,800 a year. ‘You can have someone working at Morgan Stanley, and if their rent increases 10 percent and wages increase 2 percent,’ Zanger said, ‘the only way you can balance it out is by the walls.’”

October 20, 2016

Spending Money Like They’re Printing It

It’s Friday desk clearing time for this blogger. “Earlier this year, Mr. and Mrs. Cai, a couple from Shanghai, decided to end their marriage. The rationale wasn’t irreconcilable differences or even mild disagreements; rather, it was a property market bubble in China’s financial hub. The pair, who operate a clothing shop, wanted to buy an apartment for 3.5 million yuan ($519,000), adding to a couple of places they already owned. But the local government had begun, among other bubble-fighting measures, to limit purchases by existing property holders. So, in February, the couple divorced. ‘Why would we worry about divorce? We’ve been married for so long,’ says Mr. Cai. (He requested that the couple’s full names be withheld to avoid potential legal difficulties.) ‘If we don’t buy this apartment, we’ll miss the chance to get rich.’”

“‘The only thing I know is that buying property won’t turn out to be a loss,’ says Mr. Cai. ‘Just take a look at the past two decades. … From several thousand yuan a square meter to more than a hundred thousand yuan. Did it ever fall? Nope.’”

“Finding tenants for her four investment properties never used to be much of an issue for Singapore investor Jenny Yang, but those days of easy money are long gone. Two of her units - a studio apartment in Novena and a two-bedroom unit near Lavender MRT station - remain vacant after the tenants, both foreigners, returned home in recent months. ‘In the past, before one tenant moved out, I would get another offer, especially for the Lavender unit… now it’s slower. The offers are too low as well,’ she told The Straits Times.”

“Landlords like accountant Eunice Lim have been more flexible in view of the weaker demand. Ms Lim recently rented out a one-bedder in Balestier for $1,700 a month. ‘That’s a 30 per cent drop in rent… I was prepared to offer a discount. High rents in this market will not materialise. We have to be realistic,’ she said.”

“From giving discounts of Rs 2 to Rs 5 lakh to sops such as gold coins, cars, scooties and even white goods, developers are going all out to woo customers this season, especially in areas where the unsold inventory is huge. In Delhi NCR, Prateek Group is giving away Hyundai Grand i10 cars, scooties and refrigerators. A real estate group active in Kundli, Sonepat region, is offering discounts of around 15% on the basic sales price for their project in TDI City, Kundli. ‘The current unsold inventory across India today stands at 10 lakh units. The unsold inventory in Mumbai is around 2.56 lakh units and Delhi NCR it is around 3 lakh units,’ says Pankaj Kapoor, managing director of Liases Foras, a consultancy firm.”

“A realtor is offering a free Mercedes with purchase of apartments on Auckland’s North Shore. James Law Realty, which is marketing Chelsea Bay Residences in Birkenhead, is including a Mercedes-Benz A-Class A180 - valued at around $51,000 on the road - to buyers of its ‘premium’ apartments.’ Premium residences at the 56-apartment development on Rawene Rd are priced upwards of $900,000. Massey University Chinese marketing specialist Henry Chung said the promotion was an ‘innovative and bold move’ by the agency, where seven out of 10 of its clients are Asian, mainly Chinese.”

“‘Mercedes is traditionally seen as the most luxurious car brand among the Chinese, and this brand is associated with prestige,’ Chung said.”

“The number of Australians falling behind on their mortgage repayments has hit the highest level in three years and is expected to rise, despite record low interest rates. Suburban areas such as Kingston, south of Brisbane, Moorina, north of that city, and Paralowie in northern Adelaide are high on the list of postcodes showing mortgage stress. But ratings agency Moody’s found Western Australia has the most home loans that are at least 30 days in arrears, blaming the end of the mining boom and a slowing state economy.”

“The levels of delinquencies in Western Australia, Tasmania and the Northern Territory are at the highest rates since Moody’s began collecting home-loan data in 2005. ‘The increase (in delinquencies) raises the risk of mortgage defaults,’ said Moody’s vice-president Alena Chen. ‘The regions and postcodes exposed to the resource and mining sectors dominates the list of areas with the highest mortgage delinquencies.’”

“Billionaires are shunning the London luxury property market, with sales of ’super prime’ £10m-plus homes in the capital collapsing by 86% over the past year. The average price paid also fell steeply, from £22m to £16.3m, said property group London Central Portfolio, which carried out the analysis. Newbuild sales have slumped in particular, said LCP. No super-prime newbuild units were sold over the three-month period, compared with last year where they made up 23% of sales.”

“Naomi Heaton of LCP said: ‘A price correction was inevitable and is widely reflected in reports of price discounting. Whilst the long term outlook remains compelling, the luxury market is likely to experience continued instability especially in the face of the forthcoming ‘look through’ non-dom inheritance tax … it may take some years before growth returns.’”

“British investors may have disappeared from the New York City real estate market, but Chinese buyers are stepping in to fill the gap, according to real estate heavyweight Barbara Corcoran. Corcoran said there is huge interest from Chinese buyers across the United States. ‘We’ve totally lost all of our buyers from England,’ Corcoran told Bloomberg Radio. ‘We don’t see any more buyers at all. It was a real black eye for us in the New York City market.’”

“Corcoran said Chinese buyers are ‘coming in droves,’ and are ’spending money like they’re printing it.’”

“As the luxury market struggles, condo projects are dropping like flies. Argentine developer Alan Faena confirmed Tuesday he was ‘pausing’ a planned two-tower condo complex in Miami Beach. Developers across South Florida have pumped the brakes on condo high-rises as a strong dollar and weak economies abroad cripple the buying power of foreign investors. ‘In all of my business dealings, from Buenos Aires to Miami, I have always trusted my sense of the market and successfully read its cycles,’ Faena said in a statement. ‘The best business decision at this time is to pause Faena Mar as we evaluate various options.’”

“Unless central bankers stop sowing discord by inflating a bubble with make-believe money, the world’s top central banks will find their independence challenged, former Conservative Party leader William Hague was quoted as saying. ‘Central banks collectively have now indeed lost the plot,’ Hague, a former foreign minister, said in an article in the Daily Telegraph newspaper. ‘They are blowing up a bubble of make-believe money to avoid immediate pain, except for penalising the poor and the prudent.’”

“‘Like doctors keeping their patients on a drip many years after an operation, they are losing credibility and producing very dangerous side effects,’ Hague said in an article titled ‘Central bankers have collectively lost the plot. They must raise interest rates or face their doom.’”

“Hague said the impact of current central bank policies was that savers found it hard to earn any return on their money, asset prices inflated the wealth of the rich, pension funds had poor returns and ‘zombie companies’ stayed in business because they could borrow cheaply. Unless central bankers - including at the Bank of England - stopped, then their independence will be challenged, Hague said.”

If You’re Selling It’s Time For A Reality Check

A report from the Desert Sun in California. “Madelaine LaVoie greets visitors with hugs and brownies at her Yucca Valley real estate office. LaVoie points to a little black cabin, with a mid-century slanted roofline and a wooden pergola, on the horizon. ‘That one just closed escrow for $400,000,’ LaVoie says, adding that it’s a one-bedroom, one-bathroom house. ‘There’s only a few of them up here, and they’re coveted… they all want this, and they pay through the nose to have this kind of a look.’ ‘They,’ LaVoie said, are a stream of out-of-area homebuyers flooding into the high desert, particularly Joshua Tree, in the last two years. In the last year, these buyers have driven the high-desert hamlet’s prices up by more than 30 percent.”

The Lakeland Times in Wisconsin. “According to data released by the Northwoods Association of Realtors (NAR), real estate sales over the past quarter - July through Sept. - have continued their positive outlook. In Oneida County, off-water home and condo sales increased from 96 to 116 over last year, however the average price of home sales only increased by $1,500. ‘The number of sales have increased but prices have stayed kind of flat,’ NAR member Bonnie Byrnes said. ‘I think that’s indicative of the fact we still had a decent amount of inventory to work through.’”

“‘Probably the one sector that still seems to be struggling is vacant land, both waterfront and off-water,’ Byrnes said. ‘Mostly because there are still such good deals out there for existing homes, to build new, you might not come out ahead. You get what you want but you might have a better value in an existing home.’ Vilas County’s vacant land sales are likewise all over the board with off-water lot and land prices decreasing by an average of $4,250 but increasing by one in the number of sales. On-water lots and land however decreased in both average price - by half - and number sales.”

From ABC Action News in Florida. “In real estate timing is just as important as location and right now the timing is getting better for buyers. Price reductions are becoming more common all over Tampa Bay. A quick search of homes in the $400 thousand range and you’ll find reductions of $50 even $100 thousand dollars. Real Estate Agent Vince Arcuri says price reductions in the Tampa are starting to pick up, but he says the reason has less to do with election anxiety and more to do with supply and demand.”

“The summer is over, the rush of buyers has subsided, and inventory is up. ‘Which means as a seller you have to get a little bit more aggressive on price,’ says Arcuri. This is a smart time to buy a home. And if you’re selling Arcuri says it’s time for a reality check. ‘If your home hasn’t sold and it has been on the market for a couple of months, it’s a wise move to reduce your price , because of the time of year we are in.’”

The Greenwich Sentinel in Connecticut. “The strong market under $2 million has continued all year and into September. Over $3 million the high-end sales slump continues with seven fewer sales this September compared to last September. Our inventory for $2 – 3 million is down 15 houses and contracts are up 3 houses. As a result, our months of supply in that category are down by two months from 14 months to 12 months. So while it’s still very much of a buyers’ market the market is getting better.”

“Now you would think with all the inventory that we have at the high-end that everyone could find what they want, but there has been a real sea change in what people are looking for in this price range. A classic example of a house that the owners did a great job of redoing for today’s market is 5 Lindsay Drive. It’s beautifully decorated and cool grays, white carpets even down to the master bath. It will be interesting to see what happens to any of the really beautiful houses that we have that don’t fit what many of the US buyers in this category are looking for. ”

“After an interesting start with some high inventories at all levels, the year has settled down and is actually doing better than last year all the way up to $3M. Over that amount the market is not dead it’s just slower than last year with somewhat higher inventory and sales down a little.”

The Eurasian Review. “We’ve seen this movie before. Next time you crane your neck up into the neon lights of New York City, you just might be looking up at a vacant apartment. Nearly 5,300 apartments in Manhattan are listed for resale end of September 2016. Buyers are playing a waiting game, sellers want to cash out. Year on year apartment sales in Manhattan are down 20 percent for September. This trend is not limited to New York City, though.”

“A three bedroom single family home in Springfield, New Jersey is up for sale at $700,000 and lying vacant for five months; a three bed, three bath plus basement townhome in a Columbia MD cul de sac in one of America’s best school districts was advertised for $450,000 and sold for $400,000 this summer.”

“Exactly ten years after the first cracks appeared in what would become the great crash of 2008, prices are cooling off in America’s housing markets that were red hot for five years on the trot. The five-year surge in real estate demand across the West is starting to take its toll in some areas as buyers become more reluctant to purchase a home that would eat up a large chunk of their monthly earnings. Rents are falling too. Lower rents and higher supply of apartments are making more people wait out the home buying decision.”

“Cheap debt and the decades old packaging of home ownership as a wealth accumulation tool (never mind the debt) in American culture mean that housing crises are a routine blot in America’s economy. The way America does home loan business has not changed. Every home loan is bundled into a bond, guaranteed by the government and sold to buyers worldwide.”

“The mechanics are far more complicated, but it’s not far off the mark to say that a New Yorker’s thirty year mortgage may well be a bond held by a Chinese investor living on the other side of the planet. At least $7 trillion of America’s housing market — the world’s largest asset class — is held exactly like this in the hands of investors worldwide. On the regulatory side, while banks have tightened processes, the fizz is slowly going out for home sellers. After years of nonstop price spiral, buyers are getting price fatigue.”

“In the past five years, home values have soared seventy one percent in Denver, sixty six percent in San Francisco and fifty four percent in Austin, Zillow data show. Nationwide, the gain was twenty two percent. Western cities — especially San Francisco, San Diego, Los Angeles and others like Austin, Texas — which led America out of the Great Recession with a job boom mainly in technology are showing signs of cool off.”

“The same study says buying a roughly 700 square-foot apartment is out of reach for most ‘highly skilled’ people earning an ‘average’ annual income. Surplus high end units in ritzy neighbourhoods and slower growth in high income jobs mean that home prices that are at the tippy top like they were in 2006 than they’ve ever been may get no takers for months — pushing prices down.”

“Almost 200,000 units have come into the rental market in America in the past twelve months and 2016 will set records for construction figures or break them. Lenders are getting more selective about the projects they fund. In a line, if you’re putting money into a house in America, bargain hard and rent while you wait it out. In both cases, you’ll be better off than you’ve been in the last five years. Prices may fall back to earth.”

October 19, 2016

It Looks Like Nobody’s Home, Because They Aren’t

A report from Biznow on Washington, DC. “Multifamily developers across the country have being trying to outdo each other with greater amenities in what has become a full-out arms race to attract tenants. But Kettler CEO Bob Kettler (founder of DC’s largest multifamily firm, in terms of units under construction) says the next big shift is developers being more selective about their amenity offerings. ‘They’ve put in every conceivable amenity,’ Bob says. ‘We went out and have tried to buy properties where we see people that overshot and over-programmed their amenities,’ Bob says, such as fitness facilities, dog parks and rooftop courtyards. But he warns about other amenities that can take up valuable square footage and are relatively underutilized. ‘The issue with these areas is that they are not generating revenue.’”

“With DC apartment rents already sky-high, Bob says adding amenities that force developers to raise rents can price more people out of the market than they attract to the building. ‘If you look at where Class-A rents are coming out when you look at new projects, only a small percentage of the population in this market can afford those,’ Bob says. ‘That’s one of the reasons we have sort of transitioned into repurposing buildings and looking at other marketplaces in states people are moving because they can’t afford to live in DC.’”

From Bloomberg on New York. “Manhattan rents decreased in September, marking only the second time since February 2014 that median rents for the borough fell from a year earlier. That’s great if you’re single and earning $100,000 a year, or part of a household that spends $100,000 a year on rent. The same trend has played out in San Francisco, where landlords targeting the top of the market have reported that rents are softening. In Atlanta, Boston, Los Angeles, among other cities, high-end neighborhoods have proven the most likely to see rent-growth slow.”

“The theory goes that adding new units at the top of the market should eventually translate to lower rents for older apartments. ‘If the market is like a layer cake and the top is melting, does it melt from layer to layer?’ said Jonathan Miller, Miller Samuel’s CEO. ‘My answer is eventually, but it will be slower than it would have been, because there’s such a big space between the luxury product and the rest of the market.’”

The Palm Beach Post in Florida. “Developer Nader Salour is thinking about taking a break from building more apartments in West Palm Beach. Salour said he’s iffy about the economy’s fortunes in the near future, after several years of growth. ‘We’re certainly due for some sort of pullback,’ Salour said. ‘How big a pullback is it going to be?’”

“Salour isn’t alone in hesitating to bring more more luxury apartments to the downtown. Billionaire investor Jeff Greene is, too. The hesitancy is no surprise to longtime market experts. ‘The temperament has changed to wait and see a little,’ said Peter Reed, managing principal of Commercial Florida Realty Services in Boca Raton. Reed said the region and the nation are at the end of an extended up cycle. Apartments have outperformed other types of commercial real estate, but the good times can’t last forever.”

The Denver Post in Colorado. “Average metro Denver apartment rents declined last quarter for the first time since 2013, according to the Denver Metro Area Apartment Vacancy and Rent Report. Rents rarely drop during the third quarter — it’s happened only four times in the last 29 years, most recently in 2007, when the average decreased a little more than $5, said Apartment Association of Metro Denver spokesman Christopher Dean. In the third quarter, average rents decreased to $1,368 per month — kept artificially high by a surge of luxury apartment construction.”

“The slight decline in average rents is attributed to the delivery of thousands of new apartments to the market this year, a pace that is expected to continue through 2018, when the majority of projects in the pipeline wrap up. ‘We’ve seen more apartment units built in the last three years than in the 11 years prior to that combined,’ said Mark Williams, executive vice president of the Apartment Association of Metro Denver.”

The Bay Area Newsgroup on California. “At long last, the Bay Area rental market is cooling. That’s the takeaway from a new report by Novato-based RealFacts showing that third-quarter rents for the nine-county region have barely budged — they’re up 1 percent from a year ago — and in some cities have even fallen. ‘I can almost feel a change in the air,’ said Ron Stern, CEO of Bay Rentals, a housing relocation service. Landlords are more willing to chip a couple of hundred bucks off the monthly rent to fill a vacant unit, he said, predicting that ‘rents are going to go down even more next year.’”

“‘Instead of renters being at such a disadvantage and having little choice and having to take whatever landlords said they wanted,’ said Sarah Bridge of RealFacts. She attributed the change to the thousands of newly constructed units that have come online around the region, opening up ‘more choice’ for renters and tipping the supply-demand ratio in their direction.”

City Pages on Minnesota. “Lake Street in Minneapolis is hopping with activity on a mild Monday morning, as the city wakes up and starts heading back to work. Yet few lights are on inside the Lake Residences, the uber-pricey new high rise on the north end of Lake Calhoun, where monthly rents in excess of $6,000 aren’t uncommon. It looks like nobody’s home. That’s because they aren’t. According to the building’s website, only 11 of its 90 units have been rented thus far.”

“Sam Radbil of the rental website Adobo isn’t willing to say the tepid response to the Lakes means the Twin Cities hit its rental price ceiling. Though the building’s rents do come as a sticker shock to Radbil, he believes the renters will come, eventually. ‘Whether it’s Minneapolis or Atlanta or Denver,’ says Radbil, ‘what we’ve seen in all of these markets is there’s an unmet luxury market. Now, I don’t know if the market will react quickly in Minneapolis to fill that building. But I’ve got to think the developers didn’t build it without first doing the research that shows there is a market.’”

The Houston Chronicle in Texas. “Houston developers are expected to build 27,600 apartments this year, a historical high and one that’s coming at a time of slumping demand for rentals, a new report shows. ‘The apartment market for the next five years is going to look like the office market did in the ’80s,’ said Patrick Jankowski, an economist at the Greater Houston Partnership said recently.”

“He noted downtown specifically. Thousands of units are under way in that market, exacerbating concerns about a multifamily glut. Plus, two major sources of tenants — Exxon Mobil and Shell — have left or will soon leave downtown. ‘People just haven’t appreciated the potential for how bad things can be in the luxury market,’ Jankowski said.”

October 18, 2016

We’re Sort Of Running Out Of Customers

A report from MarketWatch. “Ever since the shock of the financial crisis ebbed and buyers began to return to the housing market, one truth has dominated: mortgage lending is tight. But is it? So much lending to people with higher credit scores and so little to those on the lower end of the spectrum has shifted the average FICO score up about 40 points since before the bubble burst. But measured in another way, lending is shockingly loose. And, according to one economist, that tells us a lot not just about the housing market, but about the economy as a whole.”

“The 20% down payment may linger in Americans’ imagination, but it’s even less real today than Jimmy Stewart’s small-town banker from 1946. American homeowners, particularly those at the lower end of the market, are increasingly leveraged to pay for their houses, says Sam Khater, deputy chief economist at data provider CoreLogic. In fact, owners of entry-level homes, those in the $150,000 to $300,000 range — have more debt and less equity now than they did in 2005, at the height of mortgage mania.”

“For Khater, that says less about credit markets and more about another defining feature of the post-recession housing market — its lack of affordability. ‘We have our eye on the wrong ball,’ he told MarketWatch. ‘What I worry about is the leverage not from a default perspective but from an affordability perspective. Demand for credit has been weak. But the much bigger issue is the supply of housing, not supply of credit.’”

“Home builders are selling fewer and fewer homes in the lower-end categories as the recovery drags on. They built more than four times as many homes in the $750,000 and above price range in the first half of this year than those priced under $125,000.”

“While it’s impossible to say where we are in the housing market cycle, it’s certainly not the beginning, and prices in several metros have long since surpassed the highs they first set 10 years ago. ‘It’s one thing to be leveraged at the beginning of a run-up in home prices. It bears more risk when you’re at the top of pricing,’ he said. ‘I don’t know where we are but I do worry that if we have this much leverage at this part of the real estate cycle that we might be setting up for turbulence in the near future.’”

“Khater also thinks the affordability hump will serve as a speed bump for the entire housing market. ‘As home prices continue to move up, there are fewer and fewer borrowers who are able to participate in the market,’ he said. Sales have begun to falter – but price growth marches on. ‘At some level, we’re sort of running out of customers,’ Khater said.”

The Alaska Journal. “The 2016 Anchorage residential market could best be described as having had a minor fender bender, not the fatal crash so many naysayers predicted for the housing market. There are, however, some minor dents in the market. Homes that are 30 years old and in need of maintenance and remodeling are not appreciating and in some instances, depreciating in value from their original purchase price from five or 10 years ago.”

“Two of Anchorage’s most expensive areas, downtown Anchorage and DeArmoun/Potter Marsh, have seen a modest decline in average sales price while the rest of the market has remained flat with virtually no appreciation in the average sales price of $362,000 from a year ago. But, what has increased is inventory. Buyers have a much wider selection than they did at the beginning of the year. September had 999 active listings compared to 569 in January. More inventory doesn’t mean more buyers. Quite the contrary. There is definitely emerging a hesitancy in the market place.”

The Tampa Bay Times in Florida. “with 87 homes sold in a single three-month period this year, Waterset is the fastest-growing new-home community in Tampa Bay. When finished it could potentially have as many as 5,000 single-family homes. That’s in addition to the hundreds of houses going up in other parts of south Hillsborough. Is the area in danger of being overbuilt?”

“Ron Balseiro, a veteran appraiser familiar with SouthShore, sees a potential downside to buying a new home in one of the many new communities that are springing up. ‘If the builder is still building and if you need to sell in a year or two, what people don’t understand is that it’s hard to sell your house because you are competing with the builder,’ he said. ‘It’s okay now because values are still going up but if interest rates go up, builders will be forced to lower their prices.’”

The Atlanta Journal Constitution in Georgia. “Nearly a decade after buying her home, Jennifer Dewan feels trapped in it. The first-grade teacher paid about $175,000 for her Fairburn home during the housing boom and then, when the bubble burst, watched powerlessly as values plunged below what she owed on her mortgage. She stuck it out and kept up with her monthly payments, but the rebound in values since then has yet to undo the damage.”

“Dewan is one of the tens of thousands of metro Atlanta homeowners or families still ‘underwater,’ or owing more than their home is worth, in the wake of the housing bust that still scars the region. Dewan, 59, said she’d still have to bring a lot of cash to the closing to pay off her mortgage. ‘The homes in the area are selling for $145,000 to $150,000. Sure I’d sell and try to buy something else in a nicer neighborhood if I could. I feel very trapped.’”

“Dewan recently became one of more than 5,000 people who have applied so far to a program offering one-time cash boosts to get underwater homeowners closer to the surface. Phyllis Atchison, 63, will likely not qualify. Neither will her mother, 85. Both own underwater homes in Southwest Atlanta. Each of the women owns an investment property in the area as well, and they too are underwater, Atchison said.”

“‘They tell me my house is worth only about $75,000. The balance on the mortgage is $100,000,’ Atchison said. ‘I refinanced in 2007 and took cash out to buy the rental property.’ She figured she would make a lot of money selling it in a few years, but her timing was unlucky. ‘I tried to sell right before the market fell and I had an offer for $320,000 but it fell through,’ she said.”

“Jacqueline Atterberry, 51, had her townhouse built in 2007 in the Cascade area of south Atlanta and moved in the following spring. ‘I was so excited, the first in my family to be a homeowner,’ she said. ‘And of course, everything went bust a month or two later.’”

“With prices dropping, homes around her falling to foreclosures and her interest rate climbing, Atterberry negotiated a loan modification to cut her payments. Despite losing a job, she kept making those payments. But she still owes $110,000 — about twice the current home value. The state’s new program holds out hope, she said. ‘I really like my home. I can’t imagine walking away.’”

Investors Have Taken A Bath

A report from Domain News in Australia. “Sydney’s hot property prices and tight rental market have been described as a tenant’s nightmare. But in some suburbs, landlords are reducing their rents to secure a tenant. Sixty kilometres south-west of Sydney CBD, one landlord recently dropped the advertised rent on a three-bedroom house in Narellan. Rented out in 2013 for $430 a week, 22 Mowatt Street was re-advertised last month for $420 a week, Inglis Property Macarthur senior property manager Fia Foglia said. ‘We had no inquiry, no one at the open homes, where six months ago we usually had people queuing up … for a nice, clean rental like this,’ Ms Foglia said. It finally rented after just one person applied.’”

“‘We’ve got another [rental] that has been vacant for six weeks in Oran Park at $550 a week,’ she said. ‘It’s a hard pill for landlords to swallow that they have to drop their rent from $550 to $500.’”

“The weakening of the rental market wasn’t isolated to the south-west, with the outer ring suburbs more broadly seeing rental declines, statistics from the Real Estate Institute of Australia show. It could be a result of high levels of investor activity, which typically occurs in the cheaper outer rings where rental yields are more attractive. The ‘new completions bought in the investor rush of last year’” were starting to hit the market and could be skewing the rental market very quickly, said Real Estate Institute of NSW president John Cunningham.”

The Australian. “Melbourne developer Golden Age will put a 20 per cent cap on the ratio of overseas buyers — mostly Chinese — in its latest Sydney apartment project in a bid to lessen the risk of buyers not ­settling. The company, founded by Chinese born Jeff Xu, released the first stage of its Park One apartments at Macquarie Park in Sydney’s northwest over the weekend and the project’s 230 apartments sold out on the first day.”

“Although the company has only seen a default rate below two per cent in its Melbourne projects, settlement risk is mounting in some pockets of the market, Mr Xu said. ‘Since the banks shut lending to overseas buyers, the apartment market has receded indeed,’ Mr Xu said. ‘Particularly in areas such as Melbourne’s Southbank and Docklands, Sydney’s west, settlement risk will be probably much higher than other areas.’”

“With settlement default potentially transferring risk to ­developers, it would be a very challenging time for those companies to cope if they hadn’t controlled risk in the first place, Mr Xu said. ‘That’s why you will see many companies just sitting there and doing nothing. The market is very different now from a couple of years ago,’ he said. ‘It’s not that easy to launch a new project now. You will have to prepare your display suite quite well now, while for the past few years you might not need it at all to sell apartments.’”

The Gold Coast Bulletin. “A group that was one of the earlier major Chinese investors in the Gold Coast property market has taken a lakeside bath. Huidong appears to have lost $5 million or more on a 2010 investment in a parcel of land within the Hope Island Resort. As is often the case, where there’s a loser there’s a winner and in this case it’s another Chinese group — the owner of the resort’s golf club, Golden Horse. It’s picked up Huidong’s site, which can provide 46 housing lots, but is in no rush to come out of the development starting gates.”

“If the Hope Island buy was merely an Australian entree, it eventually didn’t suit Huidong’s investment tastebuds. It stopped civil works after around $3 million had been spent in an exercise that included moving 36,000 cubic metres of pre-load material on to the site. Later Chinese property agents from Melbourne started quietly touting the land around the market.”

“Golden Horse cantered in with a $10.12 million offer, Huidong accepted it, and the money’s been paid. The restaurateur’s losses include $880,000 on the land, $3 million on earthworks on its raw site, and probably well north of $1 million on body corporate fees and other holding costs.”

From Smart Property Investment. “After experiencing phenomenal price growth of 97 per cent at the height of the mining boom, the fortunes of one formerly popular investment region have well and truly turned. The Isaac LGA in Queensland, including the smaller towns of Dysart and Moranbah, had a 97 per cent rise in median house prices between December 2007 and March 2012 – but this has since declined by 83 per cent, according to QBE’s recently released Housing Outlook 2016-19 report.”

“At the start of the upturn in December 2007, the median price in the Isaac LGA was $335,000, with 451 sales over the previous year. By the cycle’s peak in March 2012, prices were up to $660,000 with 658 sales. Prices now sit well below even their starting point, at just $110,000 with 93 sales over the year to June 2016, the report said.”

“The contrast between boom and bust has been stark. ‘Median house prices climbed rapidly through the early boom period as the influence of mining investment led to job creation, population growth and demand for housing. As the mining investment wound down, median house prices fell sharply while unemployment rates grew rapidly and population left,’ the report said.”

“The report noted sales volumes in all mining centres fell significantly in 2015/16. ‘It is likely that many owners would rather hold onto their property than sell at a loss, with a large proportion of sales likely to be forced sales, thereby placing further downward pressure on the median price.’”

October 17, 2016

Unsustainable Prices Prompt A Steep Decline

A report from Newjersey.com. “Gabe Pasquale’s pitch was four words long. ‘Look at that view!’ he said. Pasquale is a senior vice president for East Coast sales with the California-based real estate developer Landsea. He was giving a tour of the sales office and busy construction site for the company’s 184-unit condominium complex in Weehawken known as Avora, a rhetorical amalgam intended to convey the project’s luxurious location along River Road, the main drag along the Weehawken stretch of Hudson County’s ever-more exclusive Gold Coast. ‘Ora is gold, and avenue, so, Avora!’ Pasquale explained.”

“Avora opened its sales office three weeks ago. With square footage ranging from just over 600 to 2,700, Pasquale said prices range from $800,000-plus for a one-bedroom unit, to $4 million for each of the four penthouse duplexes on the building’s 10th and 11th floors. As of last week, he said, close to 40 units had been sold. After breaking ground in early spring, the building is still little more than concrete pilings with slab floors poured for the first and second stories. But Mayor Richard Turner was just as impressed at how fast units were selling even before the building’s exterior had taken shape. ‘That’s an amazing statement by itself,’ Turner said.”

The Los Angeles Times in California. “Could ultra-luxury home demand possibly be slowing down? We’re not reporting on one house priced at more than $100 million this week. To answer our own question: No. Hollywood stars and entertainment moguls are still very active in the real estate market. But as the often slower holiday season approaches, we are seeing some tried-and-true ‘get it sold’ strategies, such as price chops, and some more serious efforts at selling, including putting heretofore ‘whisper’ offerings into the Multiple Listing Service.”

The Tampa Bay Times in Florida. “During the boom years of the early 2000s, the dream of home ownership lured hundreds of buyers to a new community called Kings Lake. They could get mortgages with little or nothing down. No worry — prices were quickly heading up, doubling in a couple of years. Until the market crashed. On one short stretch of Kings Lake Drive, five out of six houses went back to the banks, including the place Michael Sloan bought at the peak.”

“‘My plan was, I was going to turn over the house in the first year and if the market goes the way it was supposed to go, I’d make a couple of dollars,’ he says. ‘But the bottom fell out.’”

“Now, a decade after the crash, Kings Lake remains a cautionary tale of Florida’s boom-bust economy. Prices are rising again, though they aren’t back to pre-2006 levels. Most of the houses are occupied, although dozens are now owned by giant investment firms and filled by renters. Crime is down, but security patrols still cruise the streets to keep away burglars and drug dealers.”

“And even as Kings Lake is still recovering, hundreds of new houses are going up in south Hillsborough County, some directly across Big Bend Road in the fastest growing new-home community in all of Tampa Bay. Some of the houses are being bought with little money down — one of the factors that contributed to the last housing crash.”

“Michael Sloan rented an apartment in Ruskin and declared bankruptcy. Although now 79 and living on Social Security, he has thought about buying again: ‘I can get a VA mortgage tomorrow, but I’m not sold on the way the economy is going now.’ He says he would never return to Kings Lake.”

The Wyoming Business Report. “When Landis Benson, president of the Wyoming Association of Realtors was asked if he thought there a Wyoming real estate bubble — when market prices rise rapidly due to high demand (as they did in the state during the energy boom in the early part of the decade) until they reach unsustainable levels, prompting a steep decline — Benson said that while prices have declined ‘a bit’ in the areas hardest hit by the energy bust, they have otherwise remained fairly steady.”

“But all that could change if an anticipated surge in foreclosures hits harder than expected. In general, many analysts say there is anywhere from a six- to 24-month gap between when an economic downturn occurs and when foreclosures start to go up as workers are unable to find new jobs — or settle for lesser-paying positions — and their savings and unemployment benefits run out. A wave of energy layoffs, most notably in the coalfields of the Powder River Basin, hit the state this spring — around six months ago.”

“The concern is that a wave of foreclosures will force the banks to reduce the prices on the homes they take over to the point where it pulls the entire market down, leaving many homeowners with houses worth far less than what they paid for them. ‘We are still going to have some downward pressure in areas, because we are expecting a wave of foreclosures in the hardest hit areas and that will certainly have an impact on local values,’ Benson said.”

“Earlier this year, a report by Arch Mortgage Insurance, a California-based firm specializing in mortgage credit default protection, said the national housing market was strong nationally, but was slumping in big energy-producing states like Wyoming where ‘total employment continues to weaken, even as home prices continue to rise.’ ‘The jobs are leaving, and if an area gets depopulated, they can’t take the houses with them and that’s dangerous for the housing market,’ said Ralph DeFranco, director of risk analytics at Arch. DeFranco said Wyoming is facing some of the biggest risks of falling home prices.”