May 26, 2018

Investors Opted To Push Already High Values Up

A report from My Northwest in Washington. “Earlier this month, The Seattle Times reported that in 2017, nearly 90 percent of new housing in the city was built in 18 percent of land zoned for residential. The median price of a single-family home is now pushing $820,000. But there are steps being taken. In an effort to address the lack of affordable housing, Seattle Mayor Jenny Durkan announced a streamlined process to build backyard cottages — an effort that has long been stalled at city hall. Additionally, people who cannot afford a home may be relieved to hear apartments are being overbuilt and rent may soon be on the decline. In fact, Matthew Gardner, chief economist at Windermere Real Estate says the city is already seeing that. ‘We went from supply-demand balance to actually being oversupplied,’ he said.”

From KMBC News in Missouri. “A downtown Kansas City developer will soon learn if its proposed ‘Three Light’ project in downtown Kansas City will get another round of tax breaks. The Cordish Cos. is asking for a 25-year tax incentive to build its new 300-unit luxury high-rise apartment building. ‘If we are able to move forward on Wednesday, we plan to start the $130 million Three Light building in early 2019, bringing us to a total of more than 900 apartment units in the Power and Light district,’ said Nick Benjamin, Vice President of Development for The Cordish Companies. ‘Without incentive, new construction high-rise apartment buildings aren’t feasible in downtown Kansas City, even with substantial rent growth.’”

From WHO TV in Iowa. “Higher rise living space is planned for downtown Des Moines, including more than 500 rental units. The city says 200 of those should be available by 2022, but some residents say that’s a lot of homes to fill. ‘I think it’s crazy. I just don’t think there is any need for it, but that’s just my opinion,’ Des Moines resident Jodi Aldini-Zepeda said. ‘The apartments they do have, are they vacant or filled?’”

“According to Zillow, there are currently more than 200 units listed as vacant downtown.”

From News 5 Cleveland in Ohio. “The cost of new construction in the City of Cleveland continues to rise with several current projects advertising townhomes and brownstones for well over $400,000. This is in stark contrast to the average annual income of a family in the Cleveland-metro area, which the U.S. Census Bureau places at just over $52,000. ‘What we’re seeing here in the City of Cleveland in terms of new residential construction is the majority of the focus is on the very, very high end,’ said William Mahnic is an associate professor in the Business and Finance Department at Case Western Reserve University.”

From NBC Bay Area in California. “A couple turned their home into an illegal hotel where a party held by guests last year ended in a shootout that sent partygoers fleeing from rooftop to rooftop and terrified neighbors, a San Francisco official said. A lawsuit filed by City Attorney Dennis Herrera alleges Erik M. Rogers and his wife, Anshu Singh, unlawfully rented their Bernal Heights home through short-term rental websites for at least 319 nights between June 2016 and October 2017, sometimes charging more than $800 a night.”

“The couple, who spends most of the time in Bali, Indonesia, also illegally converted the home into two units, Herrera said. Police were called to the home in October 2017 after a party ended in a gunfight that left one person wounded and more than a dozen homes and cars pierced by bullets in the quiet, residential neighborhood. Neighbors told police the gunfire sent dozens of partygoers fleeing through rooftops and backyards.”

“‘In the middle of a housing crisis you have a couple who aren’t even living in the country turning a house into an illegal hotel for tourists and partiers,’ Herrera said. ‘This could have been a home that kept one more family in San Francisco. Instead, it brought a deluge of gunfire to a quiet neighborhood.’”

From AM New York. “As the city looks to build its way out of the costly housing market, one stretch on the western side of Manhattan — from 14th Street in Chelsea to Columbus Circle — has been the epicenter of this effort. That community district has added about 28,000 units of housing — double the number of new digs in any other neighborhood — between 2000 to 2016, according to a report. Yet the cranes seem to be largely catering to the highest earners — renters in new buildings in 2016 had median incomes almost one-third higher than all renters citywide, the report found.”

“And amid an era of great demand for more affordable accommodations, Chelsea and Hell’s Kitchen have seen more of their apartments go unused: the rental vacancy rate increased from 3.9 percent in 2010 to 6.6 percent in 2016, the report found.Jonathan Miller, president of the Miller Samuel appraising firm, said in the wake of the 2008 financial crisis, more investors opted to put money into real estate development — pushing already high land values up. That environment makes it difficult for projects to profit without targeting the more affluent end of the market, Miller said.”

“He described the city’s efforts as well-intentioned, but likely to add to the glut of luxury housing rising across the city without adding a significant amount of affordable homes. ‘Trickle-down housing policy doesn’t work,’ said Emily Goldstein, senior campaign organizer at the Association for Neighborhood and Housing Development advocacy group. ‘What we have in New York City at this point is a glut at the top end of the market that has not resulted in rents coming down or burdens being alleviated at the lower ends of the market. It’s resulted in high-vacancy at the top end of the market.’”

From the Democrat and Chronicle in New York. “The investigation into possible illegal acts within developer Robert Morgan’s real estate portfolio has moved quickly, leading to criminal charges alleging fraud to obtain $167.5 million in loans over six years, federal authorities said. But the indictment of four men — including the son and nephew of developer Robert ‘Bob’ Morgan — does not mean that the investigation is over, U.S. Attorney James P. Kennedy Jr. said at a news conference in Buffalo.”

“‘In this case, we noticed irregularities in the manner mortgages were obtained,’ Kennedy said. ‘That led to this investigation. We’re looking at everything.’ The criminal charges focus on seven properties in Buffalo, Syracuse, Avon, and Pennsylvania. ‘These seven properties are where we started and we’ll continue to investigate their properties,’ Kennedy said.”

“Todd and Kevin Morgan and two business associates — Frank Giacobbe and Patrick Ogiony — are accused of bank and wire fraud. Giacobbe and Ogiony are part of the Buffalo-based mortgage broker, Aurora Capital Advisors LLC. The charges allege that the foursome — Todd Morgan, 29, of Rochester and Kevin Morgan, 42, of Pittsford, along with Giacobbe, 43, of East Amherst, and Ogiony, 34, of Buffalo — conspired to provide lenders with falsified income data to help secure loans. They also allegedly staged vacant apartment units to dupe inspectors into thinking they were occupied.”

“They are accused in a 62-count indictment of conspiracy to commit wire fraud and bank fraud; wire fraud; and bank fraud. The alleged acts took place between March 2011 and June 2017 following an investigation that has been underway for the last 18 months, Kennedy said.”

“In a written statement released Wednesday afternoon, Robert Morgan said that ‘in light of recent events,’ his nephew and his son had been suspended from the company without pay. ‘Morgan Communities continues to cooperate with a federal investigation related to federally backed loans placed to several developers through a specific mortgage broker,’ the statement said. ‘We have been and continue to be current on all loan obligations.’”

“Federal authorities noted that the mortgages, some backed by federal lending entities Freddie Mac and Fannie Mae, were packaged into bundles and sold to investors — a practice that was central to the 2008 housing crash. The indictment alleges out-and-out fakery was involved when a Morgan limited liability company was seeking to refinance the project in the fall of 2014. A refinance of this sort typically involves combining several smaller loans into a single, larger obligation.”

“Giacobbe and possibly others created a fictitious $1.37 million loan and allegedly persuaded their lender, Arbor Commercial Mortgage, to roll that sum into the amount the Morgan company was refinancing, the indictment alleges. The indictment said Giacobbe ‘created and conspired to create’ paperwork related to the non-existent loan. Giacobbe is accused of pocketing $63,000 in broker’s fees from the $6.3 million transaction with Arbor. The indictment does not say what happened to the extra $1.37 million that Morgan company borrowed.”

“Other overt acts alleged in the 32-page indictment include faking paperwork and submitting inflated property appraisals to persuade lenders to provide bigger-than-needed loans, and at least one other instance in which a mortgage was allegedly fabricated to plump up a refinance.”

“Whether the indictment signals that lenders are falling down in their ability to spot fakery remains to be seen. It also remains to be seen if there are other instances in which investigators find evidence of exaggerated values and inflated loan amounts in Morgan’s property empire. There are plentiful examples of Morgan projects in which a property’s apparent market value is dwarfed by the size of the loans secured by that property.”

“The Democrat and Chronicle has examined public records for 31 Morgan developments in Monroe County. In all but one of those projects, mortgage loans exceed the assessed value of the property and are often 1½ to 2 times greater. Why loans exceed the apparent property value in so many cases is not clear.”




May 25, 2018

Investors Suddenly Struggling To Hang On

It’s Friday desk clearing time for this blogger. “In his corner of American finance, where hard selling meets hard luck, Angelo Christian is a star. Each time Christian sells a home loan, the company he works for, American Financial Network Inc., takes as much as 5 percent. Many of Christian’s customers have no savings, poor credit, or low income—sometimes all three. Some are like Joseph Taylor, a corrections officer who saw Christian’s roadside billboard touting zero-down mortgages. Taylor had recently filed for bankruptcy because of his $25,000 in credit card debt. But he just bought his first home for $120,000 with a zero-down loan from Christian’s company. Monthly debt payments now eat up half his take-home pay. ‘If he can help me, he can help anyone,’ Taylor says. ‘My credit history was just horrible.’”

“Christian can do this kind of deal because he is, in effect, making the loan on behalf of the federal government through its most important affordable housing program. It’s a sweet deal: He gets his nearly risk-free commission. Taylor puts no money down. If things go south, the government ultimately bears the risk. Many borrowers ‘are living paycheck to paycheck and, if they lose their jobs, they go into default immediately,’ says John Burns, a housing consultant.”

“One reason more borrowers may be stretching: Real estate prices are soaring again.”

“Far south of Orlando, the city of St. Cloud has had a lot of room to expand outward and attract developers. St. Cloud has no shortage of land, but it doesn’t have enough local jobs. About 90 percent of the residents who work commute out of the city to get to their jobs. Builders are ‘going crazy’ buying up residential lots and creating a housing bubble, said Craig Shadrix, Ocoee’s assistant city manager. ‘If you had asked me 10 years ago if we would be seeing housing prices from $400,000 to $500,000 up there on a routine basis, I would have laughed, but that’s what’s happening now,’ he said.”

“The City of Trees is getting noticed. The limited run Fixer Upper-style show on HGTV is helping put the spotlight on the booming Boise area in yet another way. The concept is simple: the pair buy a house, make improvements (usually drastic) and work to resell the homes for a profit. Two of the homes on the show with the highest price tags have sat on the market unsold, despite a tidy wrap-up at the end of each episode. A home along the rim at Kathryn Albertson Park was purchased for $350,000 - with another $350,000 into renovation costs.”

“Toward the end of the episode, Robertson tells the camera they have a deal in hand. But the home didn’t sell until well after the episode was produced and the show was aired. The home was removed from the market just Sunday after a price reduction from $989,700 down to $974,900. Another home in Boise’s North End was said to have sold ‘above asking’ during the show, but is still listed for sale - listed since March 10th at $897,700.”

“Nestled into the side of Mt. Soledad about a half-mile from the coast sits the residence dubbed ‘Essencia.’ In more recent years, the group has fallen on harder times — a home on Plum Street in Point Loma sat unfinished for years before falling into foreclosure, eventually netting a handful of misdemeanor charges for Concepto principal Francisco Mendiola. La Jolla’s ‘Essencia’ suffered a similar fate — the property appears to have bounced between a series of investor-owners since it was built, with ten documents related to foreclosure proceedings having been filed against the property between 2008 and 2014.”

“A handful of attempts have been made to sell the property, none publicly successful. In 2007 a listing at $18-20 million failed to attract a buyer, same with a 2008 attempt that ranged from $19.5 down to $14.95 million. A six-month stint on the market for $17.9 million in late 2015 did not result in a sale, nor did 2016 attempts at $16,750,000 and $14,600,000. An attempt to rent the mansion for $20,000 per month also met no takers. The property sat off-market for more than a year before it was re-listed in April, this time carrying an asking price of $14,500,000, the lowest reported to date.”

“Southern California home prices notched yet another record in April, with the median price hitting $520,000. Still, there’s been a shift this year as the number of homes on the market increases slightly and buyers become more price sensitive, market watchers say. ‘We’re still seeing multiple offers on well-priced homes, (but) we’re seeing price reductions on higher-priced homes,’ added Mike Cocos, general manager for ERA North Orange County in Yorba Linda. ‘Now that we have the inventory, buyers are going to take a little longer to pick and choose. … (Buyers) are a little more selective than they were last year.’”

“A group of Montreal condominium buyers fear they’ve lost both their deposits and their condos after the unfinished building they were to move into in Saint-Henri was sold to another developer. It may be a case of buyer beware: real estate experts and commercial lawyers say buying into a new condo development often doesn’t work out as planned. ‘I feel kind of scammed,’ said Ying Zhang, one of 14 buyers taking both of the developers to court in the hope of either getting their condos or their money back. ‘How can you pay a down payment and now have nothing?’”

“It was an ambitious plan: Donna Pirie offered to give away her £1.7m Aberdeenshire mansion in a competition, but she wanted to sell £3.75m worth of tickets to do so and give £1m to charity. In the end, she sold just 10,000 tickets at £25 each – totalling £250,000 – despite national newspaper coverage, so she ended up with a net loss of £31,500. Pirie is one of a growing number of people who are trying to sell their homes through ‘win a house’ schemes. The slowdown in the property market over the past year has led to an explosion in the number of properties being offered as prizes, particularly by homeowners who fail to achieve the asking price they want.”

“Sam Mitchell of online estate agents House Simple thinks sellers simply need to lower their prices. ‘If you are finding it difficult to sell your property, rather than resorting to desperate measures, take a step back and find out why it might not be selling,’ he says.”

“Guo Qirui says it’s a lonely journey when he goes home to his rented luxury condominium in Phnom Penh, where the Chinese retail executive has lived for nearly half a decade. The majority of the homes, sales agents and residents say, are sold to absent Chinese landlords. ‘Probably half of the completed units have been handed over but every night it’s all dark. Not one light is switched on,’ Guo told Reuters.”

“‘In terms of the high-end segment there is oversupply,’ said Ross Wheble, Cambodia country head at property consultancy Knight Frank. ‘This is a question that everyone’s asking in terms of sustainability. With Chinese investors buying these units, are they actually going to be occupied?’”

“The hype is such that some like Beijing native Jiang Zheming bought a unit last month despite having never visited Cambodia before. Another Chinese buyer who asked to only identified as Alex, said he bought more than 100 flats. CBRE and Knight Frank said there were already signs the market was softening. The frequency of new launches has fallen while landlords were reducing their asking rents, they said.”

“Chrek Soknim, chief executive of Cambodian property agency Century21 Mekong, said he did not think a market slowdown would be bad for locals given that these apartment owners were mostly Chinese. ‘If they can’t sell, it’s not a problem for us.’”

“Mortgage revaluations of second-hand homes in inner Brisbane are between 20 per cent and 30 per cent lower than the prices they originally exchanged for, one more sign of falling demand and over-supply in the Queensland capital, according to private property lender Development Finance Partners (DFP). DFP, which provides commercial loans to residential developers, has discovered that not only are the values of new dwellings being pushed down, but secondary apartments and townhouses have been swept up in the downward slide.”

“The large number of newly completed apartments – about 8300 – expected to hit the city in 2017-18 will only worsen the problem DFP says, quoting the latest residential data from property research group BIS Oxford Economics. An additional 5000 units are in the pipeline for 2019.”

“‘It’s a shock and it pressures those owners who do not have substantial equity,’ DFP director Matthew Royal said. ‘The new, shiny, state-of-the-art properties are easier to let and those owners, keen to get cash flow, may set a rental that is lower than rentals applying for nearby, older, properties. Making things worse is that, in a new development a large number of rental properties emerge at once, flooding the market.’”

“Adding to the woes of lower rents, banks are refraining from refinancing interest-only loans, forcing many borrowers to repay both principal and interest. ‘Lower rents push down a property’s value, reduced cash flow arrives as principal and interest needs to be paid and an investor, financially comfortable up until then, is suddenly struggling to ‘hang on’, Mr Royal said. ‘Unfortunately I am predicting more pain than gain for the most exposed assets this time next year.’”

“Financial bubble are not accidents. Our asset-backed banking system creates bubbles by design—they’re an inevitability. Imagine a homeowner who owns a $1 million house free and clear. The owner goes to a bank and borrows $800,000 against the house. This credit money springs into existence as an accounting entry of a private bank. The borrower goes out into the market and starts purchasing other assets: stocks or a weekend house. The new money drives prices higher, including the assets that form the collateral of the banking system.”

“Since collateral values now have increased, the banking system is happy to increase its loans to borrowers, which pushes prices yet higher, and so on, in a positive feedback loop. The Chicago Tribune reported in June last year: ‘Several major lenders are offering 1 percent down payment loans, and now a large national mortgage company has gone all the way, requiring absolutely nothing down.’”

“It looks like the lessons from the 2008 housing crash have been erased completely: a quasi-government agency, which operates under federal conservatorship, is guaranteeing loans made by reckless institutions to shaky borrowers. The difference is that the reckless institutions are not banks but non-bank lenders. If we follow all of the credit tributaries back to their source, we see that this system is more malignant than ever. The banks are, in fact, still funding mortgages, just surreptitiously. In the new normal mortgage transaction, the non-bank lender funds its loan to the borrower by in turn borrowing ‘warehouse loans’ from a bank.”

“These banks loans are secured by the new mortgages and are extremely short-term, generally for only 15 days, which is the time needed for the non-bank lender to flip the mortgage to one of the government-sponsored enterprises or Ginnie Mae. These GSE then securitize the incoming mortgages into mortgage-backed securities (MBS) and guarantee the payments ‘to increase affordable, sustainable lending,’ Fannie Mae claims. And who owns most of the $7 trillion of outstanding MBS? The Federal Reserve owns 25 percent and banks another 27 percent.”




May 24, 2018

The Party Is Over And The Hangover Is Just Beginning

A report from the Toronto Star in Canada. “New construction home sales hit the lowest number for April in over 20 years, says the association that represents home builders. Newly built single-family home prices dropped 5 per cent year over year to $1.15 million, down from about $1.2 million in March. There were 65 per cent fewer houses and condos sold last month compared to April 2017. That put the sales of single-family homes — detached, semi-detached and townhouses — 70 per cent below the 10-year average. Condos were 38 per cent below that average, according to the Building and Land Development Association.”

“Although new home data by Altus Group goes back only as far as 2000, BILD said previous data shows 1995-1996 was the last time April sales were as low as the 1,727 last month. The new construction home industry is being affected by many of the same factors that have led to a sluggish 2018 in re-sale real estate in the Toronto area, said BILD CEO David Wilkes. Part of the slowdown is seasonal, he said. There is a lull in the housing market compounded by interventions from government and new mortgage stress test rules introduced by Canada’s banking regulator. ‘We’re in a bit of a pause right now,’ said Wilkes. ‘People are reassessing and part of that reassessment, no doubt, stems from the affordability issue we need to address within the GTA.’”

From Bloomberg on the UK. “Lance Paul put his home in West London on the market last May with a 1.5 million-pound (US$2 million) price tag. A year on, the retired animator is asking 1.1 million pounds and still hasn’t found a buyer. Now, after dozens of viewings that came to nothing and a few low-ball bids, the 71-year-old has an offer that’s agonizingly close to the floor he promised himself he would never go below. He just might accept it. ‘The fear from my point of view is because things are volatile, it could go down even further,’ Paul said.”

“Similar deliberations are playing out across London as sellers weigh whether to take what they can get in a falling market or sit tight in the hope the slump will be short-lived. ‘The party is over for the London housing market and the hangover is just beginning,’ said Neal Hudson, founder of research firm Residential Analysts.”

From the Sofia News Agency on Bulgaria. “The luxury property market in Bulgaria is moderately high during the first quarter of 2018, according to an analysis by Unique Estates. Activity during the first three months was mainly in the lower price segment - up to 300-350,000 euros. Buyers are mainly people with free capital who are interested in homes which they can renovate, and resell them at a later price. ‘In recent years, this type of purchase has gained popularity among people looking for a lucrative investment. Recently, however, this kind of offers are rarer and this limits the potential for deals,’ commented Galina Grodova, senior partner at Unique Estates.”

“In the middle price segment of the luxury market - 500-800,000 euros, transactions in the first quarter were significantly less. The increased supply of rental properties has led to a drop in prices over the last year. Then there was a growing interest, especially in apartments in the center of Sofia, because of the EU Presidency. Many homes have been rented in advance, and this has led to high activity in the market, which continued until the autumn of 2017. In recent months, however, the demand has fallen to its usual levels. At the same time, the peak of investment purchases led to a further oversupply of the rental market, so prices in many areas went down.”

From the Daily Star on India. “Kaniz Fatima Binte Alam, a doctor, took Tk 48.50 lakh home loan at 8.5 percent interest in October last year from a lender with expertise in financing homes. Within six months, Fatima was astonished to get the lender’s notification that the interest rate has been revised to 12.5 percent, nearly 50 percent hike, effective from March this year. ‘Now it has become very difficult for me to repay the loan,’ she said.”

“It is not only home loans, interest rates have been increased for all loan products, be it industrial, SMEs or trade financing, jacking up their cost of doing business. The increase is by two to four percentage points, according to data of a number of banks. Interest rate for industrial loans has gone up as high as 16 percent, which was 12 percent a year ago. No bank is offering SME loans under 15 percent interest. Even at that high rates, many banks cannot lend because of liquidity crisis.”

“‘We are collecting term deposits at 10.5 percent now from seven percent last year,’ said Arif Khan, managing director of IDLC. Even though authorities concerned are pressing lenders to bring down the interest rate to single digits, it is not possible for them because of high cost of deposits, he said, blaming high-interest saving instruments. Like bankers, he does not see any possibility of lending interest rates going down in the near future. ‘Bad loans are another factor that makes new loans expensive,’ Arif said.”

From the Vietnam Bridge. “Investors continue pouring money into the high-end apartment market segment, even though there is a sufficient supply. With the selling price of VND45 million per square meter at minimum, the number of target customers is not high. By the end of the first quarter of 2017, nearly 30,000 apartments of this kind had been marketed in the eastern part of HCM City alone. Buyers from Hanoi could partially ease the oversupply, but it is still not enough.”

“There is no official report about the number of apartments sold to those who have real demand for apartments. However, the figure is estimated at roughly 30 percent. The government in early 2018 showed its determination to obtain a GDP growth rate of 6.5-6.7 percent this year. Analysts warn that the high GDP growth rate may lead to a ‘real estate bubble’ like the one in 2007 and 2010. The bubble was created by a high GDP growth rate and loose credit policy.”

“GDP in 2007 grew sharply by 8.48 percent, while HCM City gained an impressive 12.6 percent growth rate, the highest level in 10 years. Currently, real estate credit accounts for 10.8 percent of total outstanding loans in HCM City. Nguyen Van Duc, deputy director of Dat Lanh Real Estate, said the real estate market is ‘fragile’. Negative signs in the market appeared after the fire at Carina apartment block. After the accident, speculators rushed to sell products. However, despite the price decreases, there have been few transactions.”

From Stuff New Zealand. “A bankrupt businessman’s Auckland housing development is up for mortgagee sale as creditors chase millions of dollars in unpaid bills. The housing development in the North Shore suburb of Birkenhead sits near the site of a major landslide that swallowed an Auckland Council-owned carpark in October last year. Chelsea View Estate Trust sole director Stephen Robert Kelly was made bankrupt in October 2017 - his second time being bankrupt since 2011. Kelly said: ‘It’s got nothing to do with me, mate,’ before hanging up on Stuff.”

“Kelly was first made bankrupt in 2008 with personal debts of more than $28 million. His ‘hopeless financial position’ arose from his interest in a number of significant property developments that stalled or faced considerable problems, Justice Raynor Asher said at the time.”

From Domain News on Australia. “There is no doubt that Brisbane’s apartment market has suffered over the past few years. Amid the alarming headlines of plummeting approvals and collapsed developments, the impact on sales and prices is very real. Data from the Domain Group shows Brisbane’s median unit price has fallen every quarter since June 2016 and is now sitting at a four-year low. The latest figures show prices dropped by nearly 3 per cent in the 12 months leading up to March this year and, looking further afield to include Greater Brisbane, the figures are even more glum: units fell by 4.3 per cent in the three months to March 2018 alone.”

“Across town, prices are (often reluctantly) being reduced to meet the market. Recently it was reported a Brisbane unit development had resorted to huge price cuts to move the last of its units – prices for Belise apartments in Fortitude Valley were slashed nearly 25 per cent. In Kelvin Grove, units in the Urban Village that were valued at $450,000 two years ago are now going for $399,000.”

“LJ Hooker New Farm agent Pauline Karatau says she is contacted every week by unit owners desperate for her to sell their property. ‘There are a lot of people hurting. I get emails from them every week,’ she says. ‘You know they paid well over the odds and it’s hard.’”




May 23, 2018

You’ll Find Money, It Falls From The Sky

A report from WMUR in New Hampshire. “New Hampshire is in the midst of a record-breaking housing market. Real estate experts said sellers can often get above their asking prices, while buyers must battle in a bidding war. More than 17,000 homes were sold in the state last year, the most ever in one year. The median price was $266,000. The only time the median price was higher was in 2005, before the market crashed, when it was $270,000. Realtors recommended that if you’re going to buy, be prepared to act quickly. ‘You have to use all your tricks,’ said Realtor Ofe Polack of Coldwell Banker. ‘This is a race. You have to be ready like you are for any race.’”

“Polack said houses that are furnished nicely, priced right and in a good location are selling in 24 hours. She recommended that buyers have a preapproval letter on hand, be ready to stretch their budgets and consider distinguishing themselves from the pack by writing a letter to the homeowners. As the housing market continues to improve, so, too, does the economy. ‘In general, we’re just paying more for housing, and that’s good for banks, because banks are getting larger loans at higher interest rates,’ said Michael Tasto, professor of economics at Southern New Hampshire University.”

From Fox 4 Kansas City. “It looks so easy on those HGTV home improvement shows. It’s no secret that Johnson County, Kansas, is enjoying its hottest real estate market ever. The high demand for quality housing in Kansas’ most-populated county has house-flippers competing for homes at the same rate as families and realtors. What looks like an old house to you looks like a goldmine to others. Drive down most any street in Overland Park, Prairie Village or Leawood, and you’ll see the mobile dumpsters and hear power tools working in the distance. The sound of people working rings like a cash register in this industry.”

“The race to purchase distressed houses still includes flippers who don’t have experience. John and Melanie Zahner said it’s been three years since they attended a seminar on house rehabbing they heard advertised on the radio. ‘They were saying, ‘You’ll find money. It falls from the sky,’ Melanie Zahner laughed.”

The Cullman Times in Alabama. “Cullman has garnered plenty of accolades for its expanding economy and low unemployment, but during this burgeoning economic drive the population has grown at a slow pace. The Cullman Area Chamber of Commerce has launched a housing study that will seek to verify one that is already suspected — a lack of housing. ‘One point that stands out is that since 2014, the number of housing units sold has increased but the inventory of housing has decreased,’ said Chamber of Commerce CEO Leah Bolin. ‘Marshall County has grown more population while Cullman has enjoyed tremendous economic growth. We think it comes back to housing. While this has occurred, the average price has increased and affected affordability.’”

From KGW 8 in Oregon. “The housing market has slowed a little in Portland. The real estate website Zillow even says it’s a buyer’s market right now. But prices are still high. According to Zillow, the median home price is just under $460,000. One developer, Eli Spevak, is using some city incentives to get a few more affordable homes on the market. It comes as Portland city planners are trying to re-zone areas to fit more people into established neighborhoods. Instead of high-rise apartments, or McMansions, the new zoning will allow for more duplexes, triplexes or multi-family structures.”

“Asking price for those 3-bedroom, affordable townhomes is $219,000. The rest of the units will be market rate priced, $300,000 to $500,000. ‘That way I know there’ll be some legacy, so if prices go through the roof again, some homes will stay affordable,’ Spevak said.”

“A lot of developers in Portland are hated; seen as bulldozing perfectly good or historic homes, or building ugly, overpriced ones.”

The Houston Chronicle in Texas. “A half-dozen flooded houses mostly in Meyerland will hit the auction block next month, a process expected to help set the value of Harvey-damaged properties in the area. Meyerland was one of the hardest hit neighborhoods during Hurricane Harvey and previous storms. It now has a glut of properties for sale. A recent count of listings by real estate agents came to 147. ‘Sellers have been hit by all these low-ball offers. They just don’t know how to act or react,’ said Houston real estate broker Paul Lynn, who is handling the auction. ‘Here’s another way to get it sold, to get confirmation of what the value is. Meyerland is really soft and there are a lot of for-sale-by-owners that are out there, too.’”

The Democrat and Chronicle in New York. “A federal grand jury has indicted the son and nephew of Rochester real estate mogul Robert ‘Bob’ Morgan on fraud charges. Todd and Kevin Morgan are named in a 62-count, 32-page indictment along with business associates Frank Giacobbe and Patrick Ogiony, each of Aurora Capital Advisors LLC, a Buffalo-based mortgage broker. They are charged with conspiracy to commit wire fraud and bank fraud; wire fraud; and bank fraud.”

“The charges involve seven properties, including apartment complexes in Buffalo, Syracuse and Avon. ‘The defendants are charged with fraudulently obtaining over $167.5 million worth of loans relating to seven residential apartment complexes located here in New York and in Pennsylvania,’ U.S. Attorney James P. Kennedy said in a news release, also including properties in the Pittsburgh, Pennsylvania area that were the subject of a recent search warrant that was mistakenly unsealed last week.”

“Kennedy continued: ‘As a result of the fraudulent conduct alleged in this indictment, defendants’ conduct not only unjustly enriched them but threatened to undercut the very foundations upon which our mortgage banking and investment systems are based.’”

“Between March 2011 and June 2017, the Morgans, Ogiony, and Giacobbe allegedly defrauded financial institutions such as Arbor Commercial Mortgage LLC and Berkadia Commercial Mortgage and government-backed enterprises like the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal National Mortgage Association (Fannie Mae).”

“Authorities allege the Morgans received inflated loans to pay off debt that didn’t exist. Prosecutors said the four acted in a variety of manners to persuade mortgage lenders to issue loans for residential apartment complexes for ‘greater amounts than they would have issued had they known the truth’ and ‘that the lenders would not have issued at the time of issuance had they known the truth.’”

“They allegedly inflated the rent rolls, the records that showed how many people were residing in their properties, and with higher rent rates than were actually being charged. They also allegedly ‘conspired to inflate income for storage units’ at one of the properties. In an email, Giacobbe asked Kevin and Todd where an extra $72,000 in storage unit income came from, and Kevin replied, ‘Magic.’ Prosecutors allege the defendants provided lenders with ‘fraudulently altered leases.’”

“At one apartment building in Pennsylvania during a lender-required inspection for Freddie Mac in January 2015, the Morgans allegedly tried to make some of the apartments appear occupied by turning on the radio and placing mats with shoes outside the apartments. Giacobbe also allegedly arranged for a woman to ’stage an apartment’ to make it appear occupied and to tell inspectors that her boyfriend was asleep in the bedroom.”




May 22, 2018

A Veritable Avalanche Of New Supply

A report from the Richmond Times-Dispatch in Virginia. “The Richmond area has been in an apartment building boom in recent years and that continues, with more than two dozen apartment complexes near completion or under construction. In all, more than 3,000 apartment units are on tap to come onto the rental market in the Richmond area this year and in 2019 and 2020, and hundreds more apartment units are in the development pipeline. Since 2000, more than 17,400 apartment units have been added in the Richmond region. ‘We’ve gone through a period where a lot of the headlines are around the amount of supply being built. It raises the question of too much supply or not enough,’ said Max Peker, a market analyst for real estate research firm CoStar Group. ‘Certainly we need the housing units coming in, but what is coming in and what is being built is at the top end of the market.’”

“Andrew R. Little, an investment banker and a principal a Richmond-based real estate investment firm, said the apartment market here ‘is pretty much still on fire.’ ‘There are older apartments that are trading at valuations that are surprising,’ he said. ‘The price per unit on some of those trades versus what it costs to build new apartments, the difference would appear not to be great enough to buy the older assets. Just build the new assets.’”

From National Real Estate Investor. “Apartment landlords can no longer raise rents like they used to. So many new apartment units are opening that the percentage that vacancy is inching higher across the country. The number of new apartments opening has been trending higher than the number of apartments absorbed. Developers are expected to open a little more than 300,000 new units a year through 2019, matching the current high level of production, according to RealPage.”

“All the new development is putting stress on the apartment sector. ‘Vacancies have been rising since late 2016 as a veritable avalanche of new supply (a record high for some areas) works as a counterbalancing force,’ says Victor Calanog, chief economist of data firm Reis Inc.”

From Bisnow on Colorado. “The 20,000 apartment units under construction in metro Denver represent a 10% increase in the region’s inventory, CoStar market analyst David Pierce said. ‘That’s one of the top five highest amount of construction we’re seeing in the country, in terms of percentage,’ Pierce said. ‘Rents have grown by 1% a year in downtown for the last two years. For the higher-end stuff, rent growth is barely positive.’”

“Because there are so many new buildings to choose from — and 6,000 more units under construction — it is also the neighborhood that offers the most concessions, Pierce said. ‘There have been at least 10 properties in the lease-up stage since the end of 2013,’ Pierce said. ‘It’s not a leasing environment that’s conducive to asking someone for a 5% rent hike. If you’re looking for a deal — maybe a month or two free rent — you can find that.’”

The Rochester Business Journal in New York. “There are 1,700 new housing units in the works that, when occupied, will bring Rochester’s downtown population to 10,000 by 2021, according to the Rochester Downtown Development Corp. Why the resurgence and revival of downtown living? Developers aren’t exactly sure, other than it may be nothing more than Rochester riding the wave of a continuing national trend. ‘I can’t tell you why, all I know is it’s real,’ said Andy Crossed, managing partner with Rochester-based Park Grove Realty. ‘People are moving back to urban areas.’”

From the Democrat and Chronicle in New York. “A prominent downtown Rochester developer is facing a $38 million foreclosure action in Buffalo, having allegedly defaulted on loans for a student housing complex. Developer Tom Masaschi and DHD Ventures also are named in Rochester lawsuits by contractors that worked on 88 Elm St., an upscale housing tower adjacent the Midtown block. The Buffalo property in question is called Monarch 716, a 10-building complex with a clubhouse located near the State University College at Buffalo campus. Opened last fall, Monarch soon was put up for sale and began collecting liens and lawsuits shortly thereafter.”

From WGCU on Florida. “The seas are rising, frequently flooding the streets even when no storms are on the horizon. But that hasn’t stopped foreign investors from shelling out big dollars for Miami real estate. Many are in it for the relatively short-term investment, then they’ll try to sell before climate change takes its toll, observers of the local market say.”

“Broker Peter Zalewski is one of Miami’s most consulted condo specialists, especially by foreign buyers. ‘Many of the people I deal with — I’m not dealing with a family of four and a dog, I’m dealing with the investor — they’re going to be in and out,’ he says. ‘Their horizon is typically three, five, seven years they’re in and out. It’s kind of an issue if you’re worried about 10 or 20 years from now. It’s not an issue if you’re looking to capitalize on current market trends. It’s a trader mentality.’”

From The Real Deal on Florida. “During a period when banks across Florida were hesitant about lending on large construction projects, Bank of the Ozarks was on a tear: With just over $22 billion in assets on its books, it provided more than $1.2 billion in construction loans in the Miami metropolitan area from 2013 through 2017, according to the company’s annual reports. In Miami-Dade alone, the bank was the largest condo construction lender for the county’s biggest projects, responsible for 26.5 percent of the total dollar volume of loans issued to the 25 biggest projects during the last five years, an analysis by The Real Deal shows.”

“While some believe that Ozarks is a disciplined lender that’s merely filling a big void in lending activity, others question if it is overly exposed to one of the country’s most speculative real estate markets. Its critics draw comparisons to Corus Bank, a Chicago-based lender that aggressively financed condo construction in South Florida and was seized by regulators in 2009 after the condo market collapsed.”

“Charles Penan of Miami-based debt brokerage Aztec Group, noted the bank has the ability to make very large loans and offer non-recourse financing, which is unusual in the development lending business today. ‘They are not the cheapest bank in town, but they are offering non-recourse and a lot of borrowers are offering to pay for non-recourse,’ he said.”

“A spokesperson for the bank said that the real estate group’s ‘focus is on building a loan portfolio with the lowest credit and interest rate risks utilizing discipline and expertise.’ Some, however, have questioned whether its strategy is sustainable. Carson Block, a well-known short seller who made a name for himself exposing fraud in Chinese companies, warned in a presentation in 2016 that Ozarks is overexposed to commercial real estate and construction lending in particular. He said the bank had too many unfunded balance sheet commitments, meaning it will need to continue to make acquisitions in order to fund its lending.”




May 21, 2018

Prices Go Up Just To See Where That Ceiling Is

A report from Builder Online. “The Realtors, in Washington this week for the annual 2018 REALTORS® Legislative Meetings & Trade Expo, got an earful Friday. The message was for home builders, and it was ‘Build more.’ The session focused on rapidly rising home prices, tight home inventories and whether or not the country is in the middle of a bubble. All three of the panelists agreed that more new home construction is necessary to meet rising demand from increasing household formation and curtail the affordability crisis. However, the panelists were quick to point out that just because we are not currently in a bubble does not mean we won’t enter one. If supply and demand continues to become more and more out of balance, it could trigger a fast price growth said NAR Chief Economist Lawrence Yun.”

“‘A best-case scenario is largely dependent on new home construction. An increase in inventory will provide some much-needed release,’ he said.”

From Growella. “Mortgage guidelines are loosening, lenders tell us. But, consumers haven’t seen the memo. According to the Federal Reserve’s Senior Loan Officer Survey on Bank Lending Practices, a quarterly questionnaire sent to the Fed’s member banks, lenders are reducing their hurdles for mortgage loan qualification. As compared to last quarter: Conforming loans: 98% loosened or made no change to guidelines. FHA and VA loans: 100% loosened or made no change to guidelines. Jumbo loans: 100% loosened or made no change to guidelines.”

“In aggregate, fewer than 1 percent of mortgage lenders are working with tighter mortgage guidelines as compared to the start of year and that’s excellent news for today’s buyers of homes. Buyers aren’t getting the message, though. In Fannie Mae’s monthly National Housing Survey, a survey of 1,000 consumers nationwide and their feelings toward housing and home loans, the number of respondents who said ‘it would be difficult to get a mortgage today’ spiked, adding six percentage points from the month prior. There’s a disconnect somewhere.”

From Port City Daily in North Carolina. “It’s slim pickings for the locals and a steal for out-of-towners. The Cape Fear region’s real estate is moving off the shelves faster than its inventory can be restocked. ‘It’s like a frenzy market,’ said Patrick LaJeunesse, who dissects real estate numbers every day at Cape Fear REALTORS. Last month, the median days on the market was 37. The last time houses were moving that quickly was in Jan. 2007.”

“‘We’re consistently eating up more and more inventory,’ LaJenusse said. ‘The appetite seems to be getting stronger.’ The biggest difference? ‘We’re not going to dive down,’ LaJenusse said.”

“According to Tim Milam, the president of Coldwell Banker Sea Coast Advantage, lending requirements have tightened up, buyers have grown more conscious of their susceptibility to bad loans and the market–for the most part–has stabilized. Still, appreciating costs can elicit déja vu. ‘We have a lot of people asking, are we at the top of the market again?’ Milam said. ‘Are we there?’”

“Particularly in the upper-tiers of the housing market, LaJeunesse said out-of-towners are getting a deal. ‘These aren’t local people buying these properties,’ LaJeunesse said. From New Jersey to New York to California, LaJeunesse said people are flocking to the southern coast and away from higher property taxes. ‘They’re selling their properties at discount price and coming down here,’ LaJeunesse said. ‘It’s almost like buying at a discount rack price. The question is on more of affordability issues and greed. You’re going to start seeing people and prices go up just to see where that ceiling is.’”

The Chicago Sun Times in Illinois. “A week or so ago, retired Chicago Public Schools teacher Josephine Sennet received a letter from the Cook County assessor’s office, and what she read floored her. In the space of a year, the estimated market value of her home in the Lakewood Balmoral neighborhood had shot up about 51 percent, likely meaning a huge increase in future property taxes. Reactions have been similar across this North Side enclave of handsome, historic homes.”

“‘I haven’t added on anything,’ said Sennet, 78, who has lived in her home since 1972. ‘I don’t have a grand, glorious kitchen. All the bathroom fixtures are what came with the house.’”

“But several real estate agents the Chicago Sun-Times spoke to agreed the reassessments seem unusually high, even with an improving economy. One veteran agent who specializes in North Side properties said home prices actually appear to be falling. ‘What’s happening, unfortunately, over the last year — and at a rapidly accelerating pace — is people not having confidence in the real estate market, and we’re noticing a big slowdown in sales,’ said Realtor India Tougne. ‘Although the inventory is low, the prices are not going up in a corresponding fashion.’”

“One client, Tougne said, had an offer of about $1,325,000 for a home back in 2016 in Lakewood Balmoral but hesitated long enough for the buyer to back out. The owner then made some improvements and put the home back on the market last year. ‘We just finally sold it after almost a whole year for $1,000,050,’ Tougne said. ‘Boy, was she kicking herself.’”

From the Houston Business Times in Texas. “The price has been lowered again at a well-known mansion in The Woodlands. The listing price is now $7 million, down from $7.95 million in December 2016, according to Nan & Co. Properties’ website, which has the listing. The Carlton Woods home belongs to Houston socialite Theresa Roemer and Lamar Roemer, who first listed the home in 2015 for $12.9 million before lowering the price to $9 million in July 2016.”

“Platinum Luxury Auctions was planning to auction off the 17,300-square-foot home located on a 2-acre estate in the summer of 2016. But the auction was delayed due to a softening in the luxury housing market.”

The News Tribune in Washington. “I am a small property developer. For the past many years, I have purchased homes and rehabilitated them with the intent to re-sell them. In 2010, I purchased two houses in Tacoma. One was on the Hilltop, the other close to Point Defiance. Both were in deplorable condition, but I gutted them and completely rebuilt them. When they were complete, market conditions made them impossible to sell at a profit, so I put them in the rental market.”

“This spring I decided that the market had improved, and I decided to sell them. The Hilltop house was the smaller of the two, about 1,100 square feet with no garage or fenced yard. After considerable research and rumination, I elected to price it at $194,000. The larger house, which measures a little over 1,800 square feet, I priced at $370,000. These prices are very comparable to the similar houses in the respective neighborhoods.”

“The larger house has been on the market for over a month. I have received no offers. The smaller house I placed on the market last Friday evening. By Monday, I had 11 signed offers ranging between $200,000 and $243,000. With the offers, I received several touching letters from prospective buyers telling me that they were offering everything they had, and to please consider them because they were desperate to buy a house for their family to live in.”

“Every one of the buyers was prequalified, and every one of them was employed. All had good credit. They were all offering the maximum amount they could qualify for, based on their income. I realized that I was looking at a sample of middle America and the housing dilemma it’s facing. Most middle-class Americans simply cannot afford a house that costs in excess of $250,000.”

“So, what’s a person to do? My advice for all those people trying to buy a single-family home at below $250,000 is to bide your time and save all you can. I know it’s hard, but the key to buying something during the next recession will be cash. Now is the time to prepare for the next downturn. It’s coming in the next few years. Save as though your life depends on it, and a house you can afford will be your reward.”




May 20, 2018

Buyers Lose Their Herd Urgency

A report from Global News in Canada. “If you’re thinking about selling your home in Saskatoon but don’t have to, you might want to hang tight. The number of home sales recorded across the country dropped by 2.9 per cent in the month of April to the lowest level seen in more than five years. According to the Canadian Real Estate Association, the number of homes sold across the country also fell by 14 per cent from March to April of this year. Dustin Ratzlaff’s home sold in two months but he admits he and his wife listed it for lower than they were expecting to and didn’t get their asking price of $379,000. ‘It definitely is a buyers’ market right now, working through that was a big challenge for my wife and I and resetting our expectations.’”

“Kent Braaten, the couple’s realtor, says it could have been sold a lot sooner. ‘We had an offer on it three weeks in but the problem was the buyers couldn’t sell their home.’ A situation not uncommon to our market these days with Braaten adding that there’s no urgency for buyers when it comes to putting in an offer and that they’re shopping around. On the seller side, they’re left between a rock and a hard place and facing some difficult decisions ahead. ‘I think any of us that own a home, we always want to sell it for more than we paid for it but in not every case is that possible,’ said Jason Yochim, CEO of Saskatoon Region Association of REALTORS®. Condos, for example, he said are selling for a lot less than they were four to five years ago.”

From CBC News in Canada. “Seems new condo projects are popping up everywhere in Calgary: city centre, inner-city and suburbs. Is there really a market for all of these condos? Who is going to buy them? Isn’t Calgary supposed to be in a recession, with slow growth and high unemployment? Aren’t people fleeing Calgary? Turns out there are some solid reasons behind the condo boom. Developers are not building for today, but for future demand.”

“Add it all up, and there’s a whopping total of 88 sites entailing 6,522 homes currently under construction. That’s room for about 13,000 people — roughly the number of people who live in Brooks. In addition to all this shovel-in-the-ground stuff, there are another 128 condo projects that have the necessary permits, but construction hasn’t started yet. That’s a lot of condos. ‘Yes, we have a glut of condos on the market in Calgary today,’ said Calvin Buss, president of Buss Marketing. ‘And yes, it will take time to absorb them all. But they will get absorbed.’”

From the Canadian Press. “Lynne Kent says owning a home in Vancouver that’s valued at $4 million isn’t the blessing it may appear to be. She and her husband are among a small group of homeowners in British Columbia facing a tax bump on homes assessed at over $3 million who say they simply can’t afford it — a claim that some are questioning. ‘I think the whole property value escalation is more of an albatross than a benefit, and have seen it that way because this whole escalation is really pushing us out of our home,’ said Kent, 71.”

“For the Kents, that would mean an extra $2,000 annually. Kent and her husband bought their three-bedroom bungalow in the Kitsilano neighbourhood in 1972 or 1973 for about $40,000, which was their household income at the time. They renovated the 1923 home in 1982, themselves. As retirees, they live on Canada Pension Plan and Old-Age Security payments, plus some savings, she said.”

“Kris Sims, B.C. director of the Canadian Taxpayers Federation, says it could represent a slippery slope to an extension of the tax to less expensive homes. And she pointed to families not unlike the Kents, who have children and want to pass their homes on to the next generation, which may not be able to afford the taxes on them. From Sims’ view, it doesn’t matter if a home is assessed at $8 million. The homeowners don’t deserve a ’surprise’ $16,000 new tax each year, she said. ‘On paper, their homes have ballooned in assessed value,’ Sims said. ‘That is why this is really unfair, because it’s based on assessed value, not (price) when it’s sold.’”

From the Australian Financial Review. “Sydney’s auction clearance rate fell to 50 per cent at the weekend, and housing market economists have predicted further ‘gradual’ price corrections over the quieter winter months. ‘This is consistent with continuing gradual falls in prices,’ said AMP Capital chief economist Shane Oliver. ‘Sales volumes are also continuing to decline on a year ago.”

“Sydney detached house prices have fallen more than 5 per cent over the past 12 months, according to CoreLogic. Listed estate agents McGrath recorded a 55 per cent clearance rate in Sydney, selling 39 from 71. However 17 homes sold prior to auction – an indication of vendor nervousness – and five properties were passed in with no bids.”

From New Daily in Australia. “The inner Sydney apartment of The Block judge Neale Whitaker has failed to sell at weekend auction. It was passed in on a vendor bid and now comes with a $1.65 million asking price. The apartment was bought for $1,705,000 in 2016 when inner city market conditions were stronger.”

From Domain News in Australia. “The Melbourne auction clearance rate was stuck in the low 60 per cent range at the weekend for the third week in a row, prompting market watchers to urge buyers to apply ‘more strategy’ to their purchasing. The trend to pass-in negotiated results has shone a spotlight on the ample leverage held by prospective buyers. ‘The market has certainly turned into a buyer’s market, so you can negotiate and not just on price,’ said executive chairman of the WBP Property Group, Greville Pabst.”

“Mr Pabst said it was unwise for a buyer to accept an agent’s invitation to ‘go inside’ a property after a pass-in and be contained in a room. It was better, he said, to stay outside on the street where you could see and evaluate any remaining competition.”

“Other buyer’s advocates reported a large number of pass-ins around Melbourne on Saturday, particularly for properties priced from $2 million to $4 million. Woledge Hatt director Adam Woledge said Camberwell’s family home market between $2 million and $3 million was soft: ‘There are a lot of offerings in the Camberwell market and they are not really going anywhere.’”

“Nelson Alexander sales director Arch Staver said a number of people in the present market had made purchasing decisions last spring but postponed selling an existing home: ‘They intended to sell in six months’ time, but the reality is that six months is a long time in the real estate market. Things change. Banks freeze up on lending and buyers lose their herd urgency.’”

From News.com.au in Australia. “Home sellers will need to consider new strategies to entice buyers if they want to offload their properties for a top price in Sydney’s changing housing market, experts have advised. This has followed a major shift in the supply and demand balance across much of the market, which has put buyers in a stronger position to negotiate more favourable purchasing terms. Figures from SQM Research showed there were 33,000-34,000 homes for sale in April and March — 34 per cent more than at the same time last year and the highest number since 2011.”

“The listing jump corresponded with a drop in buyer demand, with additional data from realestate.com.au revealing there were nearly a fifth less people actively searching Sydney listings compared to a year ago. The biggest impact of the change was that sellers could no longer expect to list their homes for hundreds of thousands more than what comparable properties sold for only months ago and still expect to attract a buyer, said SQM Research director Louis Christopher.”

“Sellers in areas where large numbers of new homes were being released for sale such as Sydney Olympic Park and Putney in the northwest typically had to slash the most off their original asking prices to make a sale. ‘Vendors have to price their properties more competitively in this market,’ he said. ‘There is a risk in listing too high.’”

The Sydney Morning Herald in Australia. “If you want a sense of how intense the pressure is for apartment development in Sydney, talk to the manager of the landmark Tennis Ranch at Gladesville. Therese McCabe said the owner of the land on Victoria Road fielded ‘a couple of offers a week’ to sell. And her customers, who have seen how quickly apartment blocks have sprung up in the City of Ryde, keep asking if they will be closing. ‘Hopefully not yet,’ she answers.”

“Mrs McCabe was speaking after the state government froze new planning proposals for residential development in Ryde, conceding that rapid growth in apartments was outpacing infrastructure. It also suspended in both the City of Ryde and City of Canterbury Bankstown new planning rules that make it easier for residents to convert their blocks into medium-density homes.”

“Mrs McCabe believes new residential developments have generated too much traffic in Gladesville and questions how many apartments are vacant, either because they have not sold or are owned by investors. ‘I really do think it’s gone from ‘a little’ to ‘too much’ in a short space of time,’ she said. Ms Hall pointed to one apartment block she thought was fine, with a retail area below, but others were just too tall and many units were unoccupied.”




May 19, 2018

The Exuberance May Be Waning

A report from National Real Estate Investor. “Last year was a record year for commercial and multifamily mortgage originations at $530 billion. ‘We’re anticipating that 2018 will be down just a little bit from 2017, but we are still expecting a strong year,’ says Jamie Woodwell, vice president in the MBA’s Research and Economics group. Some of the headwinds that will create a drag on originations are rising interest rates and slowing NOI growth, notes Woodwell. ‘We’ve enjoyed roughly a decade of the trifecta—low interest rates, declining cap rates and strong fundamentals, which has been responsible for driving continually-higher prices and financing opportunities,’ says Hilary Provinse, executive vice president and head of mortgage banking at Berkadia.”

“Now interest rates are increasing and cap rates are steadying, leaving only NOI growth to support prices, she says. NOI growth has continued across property types and a few measures indicate that prices are continuing to increase, albeit more slowly. ‘While the market may not accelerate as quickly, it also doesn’t seem likely to go too far in reverse at this point,’ she adds.”

From Globest. “Multifamily has certainly been the favored asset class this cycle, but the exuberance may be waning. At RealShare Southern California, Kitty Wallace, EVP at Colliers International, said that properties are staying on the market longer, and in some cases for months. She spoke on the Multifamily—Overcoming the Affordability Crisis panel, and touched on the multifamily investment activity.”

“While properties are taking longer to trade, Wallace said that everyone is still a buyer in the market, and the demand remains strong. ‘Everyone is a buyer,’ she said on the panel. ‘The market isn’t like it was three or four years ago when you could put properties on the market and get multiple offers. Today, overpriced properties aren’t moving, because the market isn’t what it used to be.’”

From The State in South Carolina. “Private developers have their eyes on a pair of new student apartment projects in Columbia, possibly extending a recent student housing building boom in the city, but prompting some tensions among residents, developers and local leaders. Looking at the 908 Group and Reign plans, City Councilman Howard Duvall and others have raised the same question of whether Columbia’s student housing bubble is headed for a bust. ‘I think we are overbuilt now, and the type of dormitories they’re building for these students are not easily converted into usable housing once the students decide they don’t want to live there anymore,’ Duvall said.”

From KGW 8 News in Oregon. “After nine years of economic expansion and job growth in the Portland metro area, economic and population growth are both beginning to slow down, according to a new report from Portland State University. Portland’s red-hot housing market is starting to cool down, Potiowsky said. The consequence of that, he believes, is a lack of affordable housing.

Affordability is a big factor for renters, as well. The study shows many people are moving away from the city to find better prices. At the same time, rents in the area are starting to plateau, according to Tom Potiowsky, Director of the PSU center. One reason for that is more options for renters. ‘We finally have more multi-family housing available in the area. A lot of building happened,’ he said. ‘At the same time, the rents were going up very rapidly, and so I think with that greater supply, with the affordability aspect, that starts to put a lid on where rents can go. So we’ve seen that rise of rents really slow down.’”

From The Real Deal on Florida. “Three condo buyers are suing the developer of the Ritz-Carlton Residences, Miami Beach over the project’s construction delays, seeking to get their deposits refunded. The three lawsuits — one brought by a Dallas-based couple, one from a Miami-Dade resident and another from a Mexico-based entity — all claim to have entered into purchase agreements and put down deposits for condo units between 2014 and 2015. Their units ranged in price from $3 million to $4.8 million.”

“The plaintiffs allege that the developer stated in its contracts that the project would be substantially completed by June 30, 2017, which meant that the unit would be ‘physically habitable and usable for the purpose’ for which it was purchased, according to one complaint.”

“But the project is still under construction and the prospective owners allege that the developer has not begun construction of their units. As a result, the plaintiffs allege that the developer has breached its sales agreement. They are seeking a return of their deposits and to have their attorney fees covered.”

The Stamford Advocate in Connecticut. “Stamford has a bad, and well deserved, reputation for razing its history. Now it has a chance to correct — or at least improve upon — not one but three of those past mistakes. The city’s zoning board earlier this week approved an application to let a developer level one of the three St. John’s Towers, the silo-like downtown apartment buildings that are the arterial plaque of the heart that is our rapidly upscaling downtown.”

“In place of the St. John tower, which has been abandoned for three years now, Miami-based homebuilder Lennar wants to build — and you’ll never see this coming — 400 luxury apartments and street-level retail. Stamford needs more luxury apartments like it needs more potholes.”

The Buffalo News in New York. “The lender behind the Monarch 716 student-housing complex on Buffalo’s West Side has started foreclosure proceedings against developer DHD Ventures of Rochester, seeking to seize the troubled property and even go after DHD’s two principals personally. Acres Capital, which acts as an agent and adviser for three insurance companies, filed the first foreclosure paperwork Tuesday in State Supreme Court in Erie County, claiming it is owed more than $38 million and demanding payment.”

“The court documents list as defendants Buffalo State Ventures - the DHD entity that owns the property at 100 Forest Ave. - as well as partners Thomas Masaschi of Rochester and Jason Teller of North Carolina. It also cites various other contractors and vendors that have filed their own liens against DHD for failing to fully pay them for their work.”

“By raiding the headquarters of Morgan Communities, the FBI confirmed Monday that there’s a cloud around developer Robert C. Morgan’s companies. ‘It’s a very debilitating thing,’ said Dennis C. Penman, who spent a career developing properties, mostly for M.J. Peterson and Ciminelli Real Estate, and knows Morgan casually.”

“The existence of the FBI investigation shouldn’t affect the thousands of tenants in Morgan properties around Buffalo, and tens of thousands of tenants in other states, Penman said. But it could affect Morgan’s ability to proceed with other projects and purchases on the drawing board. ‘One would assume that lenders would be cautious at this point,’ Penman said. ‘It would concern me deeply.’”

“Morgan’s companies own some 36,000 units spread across 14 states, mostly east of the Mississippi. Morgan, who started out in Rochester, is a significant player in Western New York, too. His companies have come to own or manage 3,500 Buffalo-area apartments, and in October he spoke of plans to develop 1,000 more.”

“Morgan built his vast portfolio by, among other things, buying existing apartment complexes, fixing them up and then raising the rents. But in some purchases examined by The News, Morgan’s limited liability companies appeared in public records to borrow more than the purchases price. Lenders typically insist buyers use their own money for 20 percent of a purchase, and the loan covers the remaining 80 percent, to ensure that borrowers have a stake in the property and the risk.”

“Observers told The News they worry about the debt he has taken on and the amounts he borrows. ‘It makes me very, very, very incredulous as to how these things get done,’ Joseph Janowski, a long-standing local broker in the financing of real estate, especially commercial real estate and multifamily housing, told The News last year. ‘I don’t know how you pull it off.’”

“Morgan has previously told The News: ‘I borrow money the same way everyone else does in the U.S. There’s no hidden secrets. There’s no story to tell.’ But he also told The News his companies sometimes make special arrangements with sellers to ‘avoid showing full price’ on publicly available real estate documents. By doing so, tax assessors don’t see the full value and and the property tax bills ‘don’t go through the roof,’ Morgan told The News. His explanation raised concerns among others in the real estate industry.”

“Morgan explained then that sometimes his companies borrow enough to both buy and renovate the units. These ‘value-added loans,’ as the industry calls them, explain why a company might appear to borrow more than an apartment complex’s stated price, Morgan explained last year.

“Two sources told The News that FBI agents were examining, among other things, the purchase of a Syracuse apartment complex known as Rugby Square. Morgan and Buffalo’s Fitzpatrick formed a limited liability company that borrowed $5.56 million to buy the apartment complex in a distress sale in 2012.”

“Ten months later, however, the LLC told a new lender that Rugby Square had, in less than a year, experienced a turnaround, and it qualified for a new $9 million loan. The company’s documents, provided to the data-collection service Trepp, indicate Rugby Square’s appraised value had nearly tripled, from $4.75 million in early 2012 to $13 million by year’s end.”

“Industry sources contacted by The News were unable to remember any multifamily project that had tripled in value in such a short time. ‘It’s not something that never happens. Normally, it takes longer,’ Manus Clancy, the senior managing director of Trepp, has previously told The News.”




May 18, 2018

From A Boom To Bust And Then It All Crashed

It’s Friday desk clearing time for this blogger. “The Federal Reserve is watching asset prices closely, but sees no sign of a housing bubble, said Minneapolis Fed President Neel Kashkari, on Thursday. ‘We don’t think there is a new housing bubble the way there was in 2006,’ Kashkari said in a talk at the Minnesota Housing Finance Agency in St. Paul, Minn. Kashkari said the lack of affordable housing was widespread across his region, which includes Minnesota, Montana, North and South Dakota, and parts of Wisconsin and Michigan. This indicates ’something is broken’ in the market, he said.”

“Let’s jump in the time machine and head back to 2005. Nevada’s economy was the second-fastest growing in the country. The median price for a single-family home in Reno was $350,000. Unemployment was low, at 4.1 percent. And housing was hard to come by, with available inventory far below demand. Stop me if this sounds familiar. The median sales price of a single-family home in Reno is now higher than it was during the peak of the housing boom just before the Great Recession. This surge in pricing is reminding many in the region of the thriving market of the mid-2000s, as well as the devastation the ensuing crash caused to Northern Nevada.”

“If you’re house hunting in Memphis, you already know why experts say this is the hottest market we’ve seen in decades. You’re competing with investors from all over the globe who see Memphis as one of the best cities in the country to buy a house. County property records show California investors have bought the most properties here, but investors from the East Coast and down to Florida also are snatching up properties. Even foreign investors are in on it: from Asia, Australia and Europe.”

“‘We’re seeing things in this market, we have never seen before,’ said investor Michael Stansbury. Stansbury buys, renovates, and then sells homes in Memphis. He is also mentoring people on how to flip homes. Alaina Vanaman is one of Stansbury’s students. She’s renovating a house in Bartlett. Vanaman wants to ‘fix and flip.’ She stays busy being a mom and house flipper. ‘Gotta get things done. When my kids are at school, try to knock out my big projects,’ said Vanaman.”

“The summer months are peak home buying season in Bryan and College Station. The number of homes for sale has started to grow in recent months. Jen Zweiacker with Zweiacker and Associates Real Estate said inventory has increased significantly. It’s almost double from January 2016. ‘You know we’ve got your $150,000, which is kind of rare now, into the kind of $250,000 mark. Anything above that is moving a little bit slower though because we have some over-saturation,’ said Amy DuBose, with the Bryan / College Station Regional Association of Realtors.”

“It’s tough to make a profit if you bought a Manhattan condo at the height of Midtown’s luxury frenzy. Consider the top apartment to go into contract last week: a four-bedroom condo at the Baccarat Hotel & Residences on West 53rd Street that found a buyer after 388 days on the market, according to Olshan Realty Inc. The asking price at the time of the contract was $18.75 million, after a reduction in January. The seller bought it in 2015 for $20.6 million. A townhouse also listed at $18.75 million tied the Baccarat condo for top deal of the week. The sellers of that property didn’t do any better. They bought it in October 2014 for $22.5 million, according to the report.”

“‘The increasing negotiability is the single biggest factor in motivating buyers off the sidelines,’ Olshan Realty said in the report. ‘It all comes down to price.’”

“Home prices in Connecticut have yet to rise above their peak more than 10 years ago. Local media reports only 12 of the state’s 169 municipalities have reached or gone above the annual median sale price in 2007. Data shows the median sale price of a single-family home was at $248,000 in March — 15 percent below the peak of $295,000 in 2007. Fairfield County fared the worst, with home prices down 24 percent compared to its peak. Hartford County has recovered the most, but it is still 11.5 percent below 2007 levels. Longtime real estate agent Joanne Breen says this is the worst housing downturn she has seen ‘by far.’”

“The average price of a Canadian home declined by more than 11 per cent in the 12 months up to April, the Canadian Real Estate Association said. The realtor group said the number of sales plunged by 13.9 per cent compared with the previous year’s level, and fell to the lowest April showing since 2011. ‘This was a disappointing report,’ TD Bank economist Rishi Sondhi said after the numbers came out. ‘Sales fell during April while revisions to March painted a weaker picture of activity than originally thought.’”

“New data from London Central Portfolio has shown that annual new build sales have fallen 13.8% in Prime Central London with quarterly transactions plummeting to 88. LCP found that average prices in prime London have fallen by 12.7%. Naomi Heaton, CEO of London Central Portfolio, comments: ‘The fact that 30% of new tower starts are for the rental market compared with zero four years ago is also encouraging for the burgeoning generation of renters.’”

“Under the new plan, Hainan’s development is expected to be driven by tourism, modern services and high-tech sectors, shifting away from the previous model’s reliance on the property industry. Huang Qionghua, general manager at local housing developer Youcaihua, told the Global Times that thousands of people in his industry have lost their jobs following the housing purchase restrictions last month. Some of them have resorted to selling fruit or other food to make a living.”

“‘Maybe the local government, while rolling out new policies, also needs to find a solution for those who become unemployed,’ he said.”

“Back in the boom days of 2013-2014 – the heady period following then Myanmar President Thein Sein’s economic and political reforms – Sakura Tower was asking and getting Manhattan-level rents. ‘The prices at Sakura Tower were about US$110 per square meter,’ recalled Dan Davies, managing director of Colliers International/Myanmar. Nowadays, Sakura’s rents have dropped to about US$35 per square meter. ‘We don’t like to say ‘crashing.’ They are just ‘correcting,’ Davies said of the rent free-fall, which in turn has had a contagion effect on falling land prices in the capital and nationwide.”

“For many cities, a sign of success is how many cranes dot the skyline. Sydney and Melbourne are a sea of cranes as residential and commercial towers shoot up, fuelled by a multi-billion dollar infrastructure boom. But a new report has warned that this very symbol of success could be harming Australia’s economy and, with it, a million jobs. Sydney, in particular, could be heading from a construction boom to a building bust. ‘When markets get heated like this there’s a threshold that’s reached where projects stop preceding. They might get as far as the development stage and then they are put on hold while they wait for the price to drop,’ said Arcadis’ Matt Mackey. And that means work in the industry can start to dry up. ‘That’s boom and bust, with the bust being a correction in the market.’”

“Brisbane’s laggard position was an acknowledgment that a forest of recently built residential apartment has created a glut in the market. Nearly one-in-five flats are empty, prices are tumbling and projects are stalled. Mr Mackey was at pains to say that simply being in a boom didn’t mean a bust was inevitable. But if Sydney wanted a lesson in what not to do, it only needed to look west. ‘In Western Australia, during the resources boom it was like ‘let’s build everything now’ and then in three or four years it all crashed.’”

“Erez Cohen, former head of the Israeli Appraisal Association, told The Jerusalem Post that the loss of interest by foreign builders and a sharp decline in overall construction will put Israel at risk of suffering a recession in the real estate industry. ‘Foreign investors – mostly Jews from Europe – are running away from the market and taking their projects elsewhere in the world,’ Cohen said.”

“He added that ‘what (Finance Minister Moshe) Kahlon is doing is focusing on the mass production of cheap and subsidized apartments in the periphery that nobody wants. But the reality is that the market is in crisis and that many construction companies have been backing out of projects due to instability in the market and in the government.’”

“However, Kahlon sees the overall drop reflected in the CBS report as a victory for young couples searching for an opportunity to own a home in Israel. Kahlon said: ‘At first everyone said that this was impossible – the housing market was in flames and there was no chance that anything could improve – but we did it. This isn’t my victory or anyone else’s – this is a victory for young couples, who after so many years are finally able to afford a home of their own,’ he said. ‘And to all of the skeptics who attacked us for the past three years and said this couldn’t be achieved, I suggest you come to terms with this new reality – the housing market has relaxed and prices will continue to fall,’ concluded Kahlon.”




May 17, 2018

Detecting Fake News Of Demand

A report from Builder Online. “We heard repeatedly over the two-and-a-half days of the just-concluded Housing Leadership Summit that although times are good now, and demand is solid for whatever builders can deliver to an inventory-starved market, clouds of uncertainty have begun roiling up on the not-too-distant horizon. Although the onset of the last downturn–the Great Recession that took down housing–is more than a decade hence, home builders, their investment partners, and their associated business ecosystem remember one aspect of it as if it were yesterday. They remember that their early-warning systems failed, and they remember that the models to detect what was really going on versus what was ‘fake news’ of demand were broken.”

From Local Memphis in Tennessee. “House hunting this spring? Good luck!! The Memphis housing market is hot! Karen Dzubuk and her partner Osvaldo Lungo know firsthand how difficult the process can be. They have looked at house after house. They have put in one bid after another and they’ve lost time and time again. The sixth time was the charm, they finally got a contract on a house in Cordova. Are you ready for this? They put in their bid sight unseen!!”

“‘He was telling me this morning ‘you’re crazy. You just bought a house and never walked into the house.’ I said, ‘I guess so,’ said Dzubuk. Dzubuk’ s advice to house hunters, remain patient. ‘We hit the jackpot we did.’”

From CAL Matters on California. “The median price of a California single family home is now well over half a million dollars. That’s more than double what the average house costs in the rest of the U.S. Put a more nauseating way, you could buy two ‘average’ non-California houses for the price of one California house. It’s also not a surprise that with unliveable wrecks selling for that much, residents are starting to look for other places to live. According to data from the California Department of Finance, Santa Clara County lost 17,000 more residents to other parts of the state or country than they gained last year. That’s the second biggest net domestic migration loss of any county in the state.”

“Prices are getting prohibitively expensive in and around L.A.’s downtown core. Los Angeles real estate agent Jenn Cahill specializes in neighborhoods east of downtown Los Angeles like Boyle Heights. She says she gets approached by young families with budgets of $500,000 all the time. Which means a lot of her role is adjusting expectations. ‘You walk into a bedroom, and they immediately think it’s a closet,’ says Cahill. ‘And you’re like, no, no ,no, it’s a bedroom, with a little shoebox closet in the corner.’”

From Bloomberg. “Riskier U.S. mortgages are creeping back into the bond market again. They’re being made to people with lower credit scores and with more debt relative to their income. And in separate transactions tied to rental homes, Wall Street banks are putting together securities with fewer safeguards for investors — a potentially worrying sign of complacency. ‘Underwriting starts out very strict and as time goes on, it’s kind of the proverbial frog in the pot of boiling water,’ said John Kerschner, head of securitized products at Janus Henderson Group Plc, which manages $372 billion. ‘The heat keeps going up and up and then you realize, oh, this is really not good.’”

From The Oregonian. “Oregon’s total employment fell by 2,900 jobs in April, the first monthly decline since December 2016, according to state jobs data. In a study released last week, Oregon regional labor economist Pat O’Connor found state ‘wage growth slowing to a grinding halt’ beginning last summer. The slowdown coincided with the weakening job market, according to O’Connor. Portland State University economist Tom Potiowsky wrote that the region is in its ninth year of expansion – one of the longest stretches on record.”

“Signs of slowing population growth, and a cooler housing market, are reflective of a more mature economic expansion without any immediate signs of trouble. ‘As such, we see growth continuing in the Portland (area) at a slower rate but no recession on the horizon – at the very least, not in 2018,’ Potiowsky wrote.”

From NBC DFW in Texas. “Home builders across Dallas-Fort Worth are turning their attention to so-called starter homes with a renewed focus on adding homes under $300,000 back into the market. While the DFW housing market has cooled slightly, real estate experts still point to a seller’s market where inventory’s lower than demand. According to Metrostudy, the median new home price in DFW is down 2.4 percent from last year. It’s expected to continue to drop or at least remain flat, which experts said will help extend this current real estate cycle DFW is in.”

“‘Really, affordability is finding land that’s affordable. It’s finding locations that allow us to get a land price that’s cheaper that we can pass on that cost,’ said Vice President of Construction Greg McGriff. While McGriff said they build anywhere from $200,000 to $500,000 homes, the community currently under construction in Red Oak will focus on those below $300,000.”

“But when they start with land at a lower price point, they can build small, minimize amenities and source materials locally to create homes that appeal to the majority of current buyers who don’t want to exceed $400,000. They’re homes that appeal to buyers like David Taylor who’s looking to relocate from Colorado for retirement. ‘Most definitely the pricing on a new build is a better value to me,’ said Taylor. It’s also an option he feels gives him plenty of options in a red-hot real estate market.”

From Sparefoot on Colorado. “These days, it feels like the self-storage supply in Denver, CO, is at least a mile high. And that could lead to a rocky future for self-storage operators and developers in the region. A report from Marcus & Millichap indicates that among the top 50 U.S. metro areas, the self-storage inventory in the Denver market grew by the second highest level — 36.4 percent — from 2013 to 2018. Only one market, Raleigh, NC, had a higher rate of inventory growth.”

“In light of that potential danger, Joan Lucas, a Denver self-storage broker affiliated with the Aurora, CO-based Self Storage Sales Network, is urging self-storage developers to think twice about building more facilities in the Denver market. ‘Simply stated, the market cannot absorb one more project,’ Lucas said. ‘I believe the Denver market is oversupplied, and it will take some time for the housing market to catch up with all of the self-storage development.’”

“The wariness of operators like Public Storage about the Denver market ‘makes it bad for everyone, because the major institutions drive the cap rates and pricing,’ Lucas said. ‘If they stop looking at Denver as a great place to park their money, we will all be hurt.’”

From the Times Ledger on New York. “The Center for New York City Neighborhoods released a report from its Policy Research Manager Leo Goldberg and Data Manager John Baker in late April detailing the dangerous effects of real estate speculation in Queens and the other boroughs. The April 23 report, ‘How Real Estate Speculators are Targeting New York City’s Most Affordable Neighborho­ods,’ depicted which neighborhoods throughout the city and Queens were most affected by flippings and foreclosures in 2016 to 2017 due to the speculation.”

“Homeowners who want to buy affordable homes can’t because investors are buying them and then selling at prices up to 50 percent higher than similar non-flipped homes, according to Cristian Salazar, a spokesman for CNYCN. Typically, a property flip involved an individual or real estate investor buying a house, fixing it up first and then selling it for significant amount, according to representatives of Federal Bureau of Investigations, who are investigating illegal property schemes.”

“The FBI has noticed that con artists are trying to cash-in on flipping by buying homes at low prices, paying an appraiser to submit false paperwork saying there was work done on the house, therefore, justifying the high price of the home and then they get a friend or family member to take out a loan on the house from a bank as a buyer, according to the agency. The bank would unwittingly give out a high loan to the buyer and the con artist will pay the buyer a small fee and make a profit from the sale. The bank ends up taking a huge loss after the property ends up getting foreclosed on.”

From NBC Miami in Florida. “Forty-five percent of home sales in Miami-Dade in 2017 were cash deals, according to ATTOM Data Solutions. Real estate agents like Alicia Cervera de la Madrid, a member of the Miami Association of Realtors, love this cash market. ‘It’s a more stable market and it’s a healthier market. So that’s a good thing,’ says Cervera.”

“But some of the cash raises the suspicion of John Tobon, deputy special agent with Homeland Security Investigations. And he says the dirty money makes everyone pay higher housing prices. ‘A lot of that money comes from illicit sources,’ says Tobon. ‘The initial response to all of this influx of money is, ‘Oh this is great,’ but I think we are starting to see why this is bad,’ says Tobon. ‘It is bad because unless you can come up with $600 or $700 thousand cash, you cannot buy or legitimately compete for a home in the greater part of Miami-Dade, Broward and Palm Beach.’”

“Nobody knows how many properties have been bought with dirty money but Tobon says there’s a lot of money available from black markets around the world such as Russia, Colombia, and Venezuela. ‘The amount of money–its hundreds of billions,’ says Tobon.

“To combat dirty money the Treasury Department now requires title companies in South Florida and other hot real estate markets to share more information on buyers who make transactions of $1 million or more. Those buyers can stay private using a perfectly legal process of making the purchase through a limited liability company or LLC. Separating good buyers from bad ones isn’t easy as many people use LLCs to buy properties.”

“The NBC 6 Investigators reviewed local property records and found that in 2017 in Miami-Dade, at least 11,690 residential properties in Miami-Dade were purchased by or transferred to an LLC. That number has almost doubled in last five years. The Treasury found nationally nearly one in three of the $1 million plus purchases involved a person or company that had been the subject of a previous suspicious activity report.”




May 16, 2018

A Huge Oversupply Of Over-Commoditised New Boxes

A report from the Financial Post in Canada. “The president of Toronto’s real estate board warned leaders of the Ontario Real Estate Association, headed by a former Progressive Conservative leader, to ’stay in their lane’ in an emphatic letter that relays his concerns that the provincial group is stoking fears about the housing market and becoming too political. In his letter, tim Syrianos detailed concerns about the recently launched OREA ad campaign, called ‘Keep the Dream Alive,’ saying it is far too negative and suggests that the dream of home ownership is dying — pointing out it will have a particularly negative effect on the Toronto market.”

“‘The negative tone reflected in the recently released commercial could have psychological consequences for consumers and could provoke further unwarranted negative government intervention,’ he wrote. The campaign comes at a particularly troubling time for TREB, which has estimated there were 32 per cent fewer home sales in the Toronto- area in April compared to the record highs recorded in same month last year. Home prices took a 12 per cent hit compared to the same month a year ago. That’s bad news for realtors, who earn commission from every sale.”

From CBC News in Canada. “Canada’s mortgage stress test is reinforcing the migration of home buyers from Toronto to Hamilton in search of deals. And that is adding to the already competitive market created by the stress test, which is cutting the buying power of house hunters in Hamilton. Realtors Association of Hamilton-Burlington CEO George O’Neill said the average price for all property types dropped 8.9 per cent last month, compared to the same period last year — from $609,664 to $555,661. Meanwhile, he said, the buying power of people looking to purchase a home has plummeted an estimated 15 per cent since the new mortgage rules were put in place on Jan. 1.”

“The stress test was introduced by the Office of the Superintendent of Financial Institution as a tool try to cool the country’s hot housing market. Now, in order to get a loan from a federally regulated lender, home buyers have to prove they would be able to pay their loan if interest rates became higher than they are today. That means a buyer who in the past would have qualified for a 3.09 per cent loan now has to qualify at a rate of 5.14 per cent, according to a recent report from real estate company Royal Lepage. So, the same buyer who qualified for a $486,674 home at the old percentage has been bumped down to a residence worth $406,479.”

From the Guardian in the UK. “Construction of luxury flats in central London dropped by a quarter last year, with apartments housed in developments dubbed ‘posh ghost towers’ struggling to sell. New-build starts in the capital in 2017 dropped by 25.4% compared with 2016, according to a report. Naomi Heaton, the chief executive of LCP, said developers were scaling back their ambitions after realising there was ‘a huge oversupply of over-commoditised new-build boxes’ in London.”

“‘An awful lot of what was built was generic and overpriced and they struggled to sell it,’ she said. ‘Historically, a lot of properties would have been bought by overseas investors in the assumption that they could flip it and sell it on at a huge profit, but now there is huge nervousness following increases in stamp duty and the the impact of Brexit.’”

From Globes on Israel. “Home prices have fallen 2.15% over the past five months and will continue declining says market analyst Moshe Kashi. The carry trade cash flow has become negative. This is where investors enter the picture. In 2017 the average mortgage interest rate was once more higher than the return obtained from a leveraged purchase and renting out of an apartment. The result is that a leveraged housing purchase now generates a negative monthly cash flow for an investor. This means that buying a housing unit for investment requires additional capital investment beyond the initial capital, with the investor expecting future capital gains when the property is sold.”

“This situation is restraining demand in the investment housing market, reflected for the past year in a decrease in the proportion of housing units purchased for investment purposes. In 2008-2011, the period of the big boom in housing prices, the number of supply months was less than 10 months, and even reached seven months in late 2010. As of January 2018, the number of housing supply months was 13.4, which is likely to generate pressure on developers to reduce their inventory of housing units by compromising on the price. This is already being reflected in the housing prices index.”

From The National on Dubai. “Residential sales and rental prices in Dubai continued to decline in the first quarter, and the trend is expected to persist throughout the rest of 2018, the third year in a row of a market slump, according to Core Savills. For apartment sales, Downtown Dubai and Dubai Marina saw the sharpest year-on-year price declines in the first quarter of of the year, at 7.5 per cent and 6.6 per cent, due to a large number of new launches in those areas, which shifted demand to off-plan stock.”

“‘The cascading effect of new stock impacting secondary sales prices, either within the community or in the adjoining areas, is one of the strongest reasons causing a delay in sales price recovery,’ said Edward Macura, partner at Core Savills.”

From the Westside Eldos in South Africa. “Incomplete RDP houses are being occupied by individuals who have been waiting for housing for a few years now. According to a few illegal occupants who moved into the Klipspruit Extension 11 RDP houses, the half-finished houses have been vacant for over a year now. ‘We decided to move in because these houses have been empty for too long, and nyaope boys were stealing the roofs and door frames,’ said one the illegal invaders.”

From Shine.cn on China. “Shanghai’s new housing market lost steam for another week despite a major rebound in supply, the latest industry data showed. The area of new residential properties sold, excluding government-subsidized affordable housing, fell 13 percent to 120,300 square meters during the seven-day period ending on Sunday, Shanghai Centaline Property Consultants Co said in a report. On the supply side, some 179,100 square meters of new houses spanning five projects were launched into the market, a surge of 648 percent from the previous seven-day period.”

“‘The best-selling project of last week registered sales of less than 100 units, which is often seen as a proof for slack sentiment among home buyers,’ said Lu Wenxi, senior manager of research at Centaline.”

From Stuff.com on New Zealand. “Ghost houses can be blamed on the previous government’s policies that have allowed rampant capital gain. That’s the message from Housing and Urban Development Minister Phil Twyford in response to the Stuff story on the proliferation of empty houses and land banking by speculators. The Minister acknowledged that while there is no clear data, it does seem there are a lot of houses deliberately left empty in some areas by their owners.”

“‘The rampant levels of capital gain over the past nine years have encouraged some speculators to just park their money in these properties, not bothered with renting them to tenants,’ he said. ‘This was highlighted by Gareth Morgan who said he didn’t want to rent out his properties because the tenants would ‘make the carpets dirty’. These ghosts houses are a symptom of the national housing crisis created by the former government.’”

“Questioned about whether the Government would reconsider its decision not to follow Vancouver’s example and introduce an empty house tax, the Minister said: ‘Some overseas jurisdictions have tried to regulate to stop this practice but there is no evidence this has been successful.’ The Government instead will be replying on its new policies. ‘Our Government has a bold, ambitious and comprehensive plan to tackle the housing crisis by banning foreign buyers, cracking down on speculators and increasing housing supply. We are very unlikely to see the levels of capital gain that have encouraged ghost houses continue.’”

From ABC News in Australia. “Many Australians struggle to save a deposit for a home, let alone pay for a property in full. So how did then 22-year-old Ngouth Oth Mai manage to buy a $1.5 million property in Melbourne upfront in 2014 when he had only ever earned welfare payments and lived in housing commission? That is the question he must now answer in the County Court of Victoria, where the AFP launched civil action under the Proceeds of Crime Act (but not criminal charges).”

“According to the document, an initial deposit of $155,171 was wired from a bank account belonging to Hoid Establishments, a development company in Uganda, directly into the trust account registered to the Melbourne-based real estate agent that handled the sale in June 2014. John Chevis, who spent 12 years working on fraud and corruption cases for the AFP and is now an adviser on money laundering for the United Nations, said the transaction should have been the first red flag.”

“‘The real estate agents involved in the sale of the house in Australia should have conducted their own due diligence on the source of the funds, although Australia’s anti-money laundering laws do not currently require it,’ he said. ‘They should possibly have noticed that the funds travelled a circuitous route for which there is no apparent commercial reason. Having identified these transactions as unusual, the banks should then have sought further information on the source of the funds and then, assuming they identified the source as illegitimate, rejected the transactions.’”

“A recent real estate advertisement revealed what some might call the bargain of a lifetime — a northern Brisbane apartment selling for almost 40 per cent below its 2010 purchase price. The two-bedroom unit in Chermside is what property analyst firm SQM Research call a ‘distressed property’ — bought for $522,000 and now on the market for $315,000.”

“SQM Research managing director Louis Christopher said large price falls have become the new norm for Brisbane apartment owners looking to sell in a saturated market. ‘We have seen some heavy discounting before, but this is probably one of the biggest ones I’ve ever actually seen,’ he said. ‘It’s fair to say this is not normal in the market. Nevertheless, there has been an oversupply of properties — we see it through the rental market in the Brisbane CBD where we are recording rental vacancy rates of 5 per cent. We are noticing the vacancies in Brisbane are still elevated in the CBD and in the inner city market.’”




May 15, 2018

The Zombie Houses Are Everywhere

A report from Q Fox 13 in Washington. “Even though the average price of a house is about $800,000 in King County, real estate brokers say spring and summer may offer a window of opportunity for homebuyers. ‘There’s a little bit of a dip, but if we’re at a 10 now, it’ll be an 8.5 or a 9 during the summer months,’ said Michael Ackerman, real estate agent for Coldwell Banker Bain. On the Eastside, ‘I am noticing that,’ said Nelya Calev, a real estate agent with John L. Scott. She agrees with Ackerman that the market may slow slightly in the summer, but it may impact sellers more than buyers. ‘I don’t know if I would call it a slowdown, instead of seeing 15-20 offers, as a seller you may get two or three offers, which is still great,’ said Calev.”

The Herald Tribune in Florida. “Home prices cooled in the Sarasota-Manatee region during the opening months of 2018, failing to keep pace with statewide gains. Sarasota-Manatee posted the second-lowest price gain among the 22 metro areas covered in the report. Only Cape Coral-Fort Myers was lower. ‘Buyers in the market for mid- to upper-tier single-family homes are having a much easier time of it, as they’re facing less competition, and there’s a relative abundance of both new construction and re-sale inventory available,’ said Brad O’Connor, chief economist at Florida Realtors.”

From Boise Dev in Idaho. “Bob Piazza has spent all of his 74 years living in California - married for 53 of those, and operator of a business for 46. His roots in the Sonoma Valley north of San Francisco are as deep as those of the nearby grape vines that define surrounding wine country. But soon, Piazza, his wife and many of his employees will pull up those roots and transplant to the Treasure Valley. This November, Price Pump will move to a new facility in Caldwell. And in a surprise to Piazza, half of his California-based employees will come along.”

“‘Six months ago when we made this decision I thought we’d only get one to go - and that one is me. We got 18,’ he said. One employee had worked for the company for 46 years, and at 66 will be one of the new Idahoans. ‘He said ‘I looked at finances living in California, I can’t afford to live here. At 66 I’m not going to find another house. I’m going to have to sell my house and move… Boise is just as good as any.’”

From The Real Deal on New York. “Manhattan’s luxury residential market recorded 24 contracts at $4 million and above last week, according to Olshan Realty’s luxury market report. But discounts are driving deal activity, and the week’s top two deals went into contract for less than the sellers originally paid for their properties. Two deals were tied for the week’s priciest contract, both with an asking price of $18.75 million.”

“At the Baccarat Hotel and Residences, condominium unit 44A’s asking price was nine percent lower than the $20.62 million the seller paid for the 4,545-square-foot home in May 2015. The mystery buyer of the building’s penthouse earlier this year listed the home for $40 million, less than the $43 million the buyer paid in June 2016.”

“And for the townhouse at 39 East 67th Street, the $18.75 million asking price was nearly 17 percent lower than the $22.5 million it last sold for in 2014. The five-story, 11,455-square-foot home had an asking price of $31 million when it hit the market two years ago. Luxury homes spent an average of 289 days on the market, with an average discount of 11 percent from the original asking price to the final asking price.”

From News 5 Cleveland in Ohio. “Thousands of homes around the City of Cleveland are falling apart. These abandoned buildings are more than just eyesores – they’re safety hazards that breed crime and destabilize neighborhoods. To reduce the distress they bring to communities, the city encourages residents to call 311 to alert them when they see open, vacant or vandalized properties. There have been 4,600 people who have called 311 about vacant and abandoned homes since 2016, according to city data.”

“Cleveland resident Debbie Gordon said she called and complained several times to the city about the abandoned home on 8016 Whitehorn Avenue. ‘It’s just disgusting,’ Gordon said. The house on Whitehorn Avenue is just one of many properties 5 On Your Side Investigators visually inspected as part of our investigation into how long it takes for a home to be boarded up after a 311 complaint is filed.”

“From the 4,600 total calls, we selected a sample of homes in the city’s data and checked the status of those calls. We inspected all 42 properties categorized as open, vacant, and/or vandalized (OVV) that residents called about in February of 2018. During our team’s inspections in April, we found 14 — or one-third — of the properties were not completely boarded up. Close to a decade after the crisis, the latest estimates show there are approximately 7,159 vacant homes in Cleveland.”

“Ward 12 Councilman Tony Brancatelli acknowledged the system has flaws, but said it has worked for him, especially considering the scope of the problem. ‘We have been doing a great job of keeping up with the freaking mess of the foreclosure crisis,’ he said.”

From WBGO in New Jersey. “Over forty years ago the New Jersey Supreme Court’s Mount Laurel decision was hailed nationally. It proclaimed it was unconstitutional for local zoning to exclude housing for its poor and working class. Yet, decades later New Jersey is in a full blown affordable housing crisis and leads the nation in foreclosures. And despite the scarcity of affordable housing there are tens of thousands of vacant homes just wasting away.”

“For Tim Johnson, his life was upended when his father came down with pancreatic cancer and in just a few months died. His mother fell behind on the mortgage payments. ‘I had a similar story with foreclosure too my mother was foreclosed in 2002,’ he said. ‘When my father passed away our house was foreclosed. She had to sell it before it was foreclosed.’”

“Johnson’s mom’s home in Middletown is still listed as vacant. It is one of close to 40,000 empty homes throughout New Jersey. In places like Newark and Atlantic City the crisis is so acute vacant homes threaten public safety and depress property values. Activists are pushing for a moratorium on foreclosures which can leave families homeless and their homes vacant.”

“Carolyn Bailey, know on line as the ‘hurting homeowner’ has been working with the Citizens Coalition. She has been fighting to hold on to her Cliff Street home in Newark. ‘My husband bought the house,’ she said. ‘My children were raised there so it home. That is the connection. I have been there now over twenty-five years.’”

“Bailey sees what’s happened in New Jersey’s poorer neighborhoods is a manifestation of systemic racism continuing to play out. ‘So, the urban area has been cratered out. The zombie houses are everywhere,’ said Bailey. She has been fighting her foreclosure pro se in the courts since 2006. She says for many African-American homeowners their current foreclosure problems were the consequence of underlying predatory lending practices that go back decades.”

“‘There was red lining long before there was the Great Recession,’ she said. ‘And so, in the urban communities if you managed to get a house you paid a higher price. You paid a higher percentage on the mortgage. You got terms from the beginning from the closing where you were being gouged. So, you started out behind the eight ball and you never really caught up. So, this took us over the edge and has left us just swimming out in the ocean. But we will survive. We are a people that have survived.’”