September 22, 2017

The Period Of Joyous, Abundant Business Is Over

It’s Friday desk clearing time for this blogger. “That chill in the air? It’s called fall…as in falling number of houses sold. ‘With pricing on the rise you might think that’s a little bit of a concern but we’ve got int rates that are unheard of and it’s been that way for some time so we’ve actually seen a little bit of a drop in interest rates so for buyers now is the time for them to be thinking of making a purchase because we’re in a little bit of a lull,’ said Kath Hammerseng, the incoming President of the Minneapolis Area Association of Realtors.”

“Okay…so it’s a buyers market. ‘On the other hand sellers are in a great place. Overall our marketplace has 2.5 months of inventory right now so it should be very much in favor of sellers and in some areas in some segments of the market it is that,’ Hammerseng said. Nevermind…still a seller’s market, right? ‘It is a little bit confusing. There’s a lot of data here. We’ve got some areas where people are receiving multiple offers for their property in certain price points we also have some areas where it’s very difficult,’ Hammerseng said.”

“It took eight years and a nearly $13.5 million in price cuts to sell an the home at 81 Briar Patch Road in East Hampton. The 12,000-square-foot, seven-bed, nine-bath home was listed in 2009 for $39.5 million, and the sale closed this year for $25.925 million. The 10,500-square-foot home at 356 Wickapogue Road in Southampton got a nearly 18 percent price cut this week after sitting on the market for two years. Originally listed at $19.5 million, the three-acre property is now for sale at $16 million.”

“Some luxurious apartment buildings in the part of Los Angeles known to locals as ‘DTLA’ might feel more ghost town than downtown right now. Renters simply aren’t shelling out (or can’t afford) to live in DTLA’s slew of new luxury high rises. All things considered, CoStar Group’s Steve Basham says investments in DTLA will be profitable if developers are willing to stick with it; don’t count on any quick rewards right now, but expect a good return in 10 to 20 years, he said.”

“A Toronto-area family who decided to walk away from a new house they agreed to buy says they are shocked to find out they still have to pay real estate commissions, even though the deal never went through. Marcello and Anita Mastroianni decided this past spring to sell their semi-detached home in Vaughan, Ont., north of Toronto to buy a larger house for their growing family. They say their agent told them their house would fetch at least $1 million once they listed it, so they made an offer to purchase another home nearby for $1.3 million.”

“But within weeks of signing the paperwork, the real estate market in the Greater Toronto Area began to cool sharply and both homes dropped in value. The Mastroiannis decided to walk away and not close the home purchase. They knew they would lose their deposit, but they didn’t realize they would be on the hook for so much more. They received a notice from their real estate agent, Vince Tarasca, which stated he was going to pursue them for the commissions that he lost.”

“He said of the Mastroiannis: ‘…they refused to close, stringing sellers, agents, mortgage brokers and lawyers along the way… This is a case of a client taking advantage of the current situation of the housing market due to buyer’s remorse.’”

“Turkish Deputy Prime Minister Ali Babacan sounded the alarm in 2014: Industrial investment was in decline while a construction boom was luring entrepreneurs to build shopping malls and luxury housing projects with the promise of quick profits. He stressed the need to encourage investment in industry, warning, ‘Or else we are becoming an economy that builds very luxurious buildings, spending its money on stone and concrete, without producing.’”

“Tekin Acar, head of a leading cosmetics chain, told one media outlet that his company has canceled contracts with 10 new shopping malls. ‘People are going bankrupt one after another, and this is going to continue,’ he said. According to Abdullah Kigili, owner of a long-established clothing brand, the party is over for the shopping malls. ‘The period of joyous, abundant business is over,’ he said.”

“Anxious vendors are turning to social media as well as traditional listings websites in the hope of selling their homes as the housing market softens. Off-the-plan resale apartments and suburban houses are being listed with labels of ­’urgent’ and ‘huge discount,’ particularly in Melbourne and Brisbane where concerns have been raised over the volume of apartment supply. The listings come amid a regulatory clampdown on investor lending aimed at cooling housing prices while the Reserve Bank ­recently again singled out the Brisbane apartment market as cranes dot the skyline.”

“Brisbane listings on the website include a Bowen Hills apartment ‘lower than original contract price’ and ‘totally negotiable’ along with house and land packages. Even in the heated Sydney market, a ‘charming’ Bankstown two-bedroom ‘needs to be sold ASAP.’”

“In the hopes of avoiding hefty agent commissions while still ­attracting buyers, Melbourne-based accounting and finance graduate Wenhai Zhang has listed an apartment for off-the-plan resale on Gumtree. He is helping to find a buyer for his friend who moved from China to study in Australia and bought the home, then found it difficult to get finance after ­restrictions on lending to offshore buyers were introduced. Other Chinese buyers are in a similar position and trying to sell their apartments, he told The Weekend Australian.”

“‘I did contact some Chinese agents, so they have a lot of apartments off the plan on their hands,’ said the 23-year-old, who is also from China.”

“Act Party leader and Epsom MP David Seymour says he can’t afford to buy his house in Auckland. Seymour earns about $190,000 a year as an MP (plus benefits). When asked if he didn’t think his statement was offensive to New Zealanders who are truly struggling, he said it wasn’t offensive because ‘it’s actually true.’”

“‘I rent a house with a couple of flatmates that cost $2.2 million last time it sold.’ Seymour points out that $2.2 million is ‘10 times’ his income. ‘The money I get after tax would give me $1000 a year left over after I paid the mortgage. That’s not enough for the rates.’ The interviewer pointed out that maybe Seymour just had his heart set on a ‘really expensive house.’ ‘It makes the point, doesn’t it?’ Seymour replied. ‘If someone earning $190k is having trouble, then clearly the market is stuffed for everybody.’”




September 21, 2017

When You Can’t Fill Units, The Price Has To Drop

A report from City Lab. “If renters paid just what they could afford in rent, the average household would have $6,200 a year more in their pocket to spend on groceries, childcare, medical care, and education—things one in five households have been skimping on to make rent. Collectively, that would amount to $124 billion that can help fuel economic growth.”

“These estimates of the 100 most populous U.S. cities come from a new analysis by the National Equity Atlas—a joint project by PolicyLink and the USC Program for Environmental and Regional Equity. ‘Renters are the lifeblood of cities,’ said Angela Glover Blackwell, CEO of PolicyLink. ‘If rents were affordable, renters could meet their basic needs like transportation, food, and child care and contribute even more to thriving communities. This would have a positive ripple effect throughout their regions.’”

The Mercury News in California. “The Bay Area’s brutal spikes in home prices have spurred more than half of its residents to dream of escaping from the expensive region, and the urge to flee is strongest among millennials, according to new poll results. The new Berkeley Institute of Governmental Studies Poll determined that 65 percent of the Bay Area’s registered voters and 48 percent of voters in California describe the issue of housing affordability as an ‘extremely serious’ problem.”

“‘The only folks who are cheering our region’s astronomical housing costs are the folks at U-Haul who are helping residents move right out of the state,’ said Carl Guardino, president of the Silicon Valley Leadership Group.”

The Salt Lake Tribune in Utah. “Real estate agent Kip Paul gets the question all the time: ‘Are apartments being overbuilt?’ With all the big apartment buildings going up in downtown Salt Lake City and Sugar House, it seems like a logical concern. Governments around the Salt Lake Valley issued 4,500 permits for new apartment units in 2016, the most since 1984. As of July, nearly 6,600 units were under construction in 35 complexes, and another 6,400 were in various stages of approval.”

“This scenario is good for owners of apartments and the contractors who build them, Paul said. As for renters, ‘if you can afford that top-line project, and you want something new and contemporary and are willing to pay for it, there are a lot of fantastic choices in Salt Lake with amenities you can’t believe,’ he said. ‘But if you’re a moderate or low-income person, these rising rents are hurting you.’”

“Because of the high demand, only 22 percent of the apartment communities surveyed by Cushman & Wakefield were offering incentives to entice people to sign leases. But more could be in the offing. With 13,000 apartment units projected to hit the market in the next four years, the report said, “the supply of new rental units could exceed demand by as much as 1,000 units by 2020 … which could result in a vacancy rate near 6 percent by year-end 2018.”

From AZ Big Media in Arizona. “Arizona’s housing market is getting more competitive leaving those at the lower end of the market struggling to compete, and many developers opting to build luxury homes and projects instead. Rental housing may be the next housing bubble to burst. ‘The problem is in renting, because people do not go through the underwriting process like they do when they are applying for a mortgage loan,’ said Mark Stapp, a real estate professor at Arizona State University’s W.P. Carey School of Business. ‘This leads to people getting in over their heads with rents they cannot afford.’”

“Landlords may be realizing they have outpriced many tenants, Stapp said. ‘When you can’t fill units, the price of rent has to drop,’ Stapp said.”

From Montana Kaimin. “One thing comes to mind when thinking of college houses and dorm rooms: Luxury. Affordability is of little concern to students at UM. More than half of renters spend over 30 percent of their income on housing, which the Missoula Organization of Realtors considers an ‘inadvisable’ amount. But since when were college students considered advisable?”

“But do not fear. If budget cuts force you to drop out, you can still live at ROAM, despite being touted unexceptionally across its website as student housing. According to the site’s frequently asked question of ‘Do I have to be a student to live here?,’ the answer is simply, ‘No, you do not.’ So don’t sign any extended leases on that overpriced shit hole you’re in now, because this time next year you could be the proud new tenant of a private, luxury, student (not limited to students) housing unit.”

The Daily Illini in Illinois. “Just last semester we celebrated a big anniversary for our University; it’s been 150 years of truly impacting the two cities which we span. With this in mind, realize how many ‘luxury’ student housing complexes have opened in the last decade. This summer, two new ‘luxury’ apartments were completed in time for Fall 2017 move-in, both within a block of each other.”

“But many are planned and operated by the same realtors, doing the most to make sure your money is in their pockets — even if that means using questionable construction practices to make sure their properties are built as quickly as possible before the next ‘hot property’ comes along. I am not calling out HERE apartments, but then again, their elevators never work and last year the elevator inspection sheets hung up were months out-of-date.”

“In fact, the ‘luxury’ apartment buildings are housing so many students that it is leaving many houses in ’senior land’ and Urbana vacant. The vacant houses in these areas go down in rent. Of course, I enjoy the amazing view, staring right at another apartment building through my window (ha). But I know I will do my best to convince my friends to live with me in a cute Champaign house next year because, if anything, I am never waiting 13 minutes (I timed it once) for an elevator at 8:00 a.m. on this campus ever again.”

From Bisnow on Illinois. “Conventional wisdom dictates the multifamily construction boom in Chicago will not last forever. So do the numbers: over 12,000 new apartments are being added to downtown Chicago’s inventory through 2019. A tipping point may be near in this development cycle. Fifield Cos. CEO Steve Fifield compared the growing confluence of factors to the apartment boom of the 1970s and ’80s. Developers believed that boom period would go on forever, but then the Cook County Assessor reclassified apartment complexes as commercial properties, which sent real estate tax bills skyrocketing 2.5 times overnight. ‘We’re taking for granted that this period will continue,’ Fifield said.”

“The problem is that those rent increases get passed down to tenants, who are already struggling to pay their monthly notes. Another indicator that a reckoning is coming is in the percentage of renewed leases. Fifield said retention rates at his firm’s apartments last winter fell for the first time in five years. Golub Executive Vice President Lee Golub said that with abatements on new lease-ups, like one month free rent, apartments have become a transient business for the renter. Golub has seen retention rates decline at some of his firm’s developments over the past two years, and said sometimes 35% to 45% renewal rates are seen as strong. With a growing inventory of new apartments, renters have opportunities to seek out favorable abatements to keep their costs down, and shop the market. ‘A real renter does not care where they are,’ Golub said.”

“JRG Capital Partners principal Harry Huzenis said the length of the development cycle and changes to the ARO are negatively affecting land pricing. He believes Chicago is in the late innings of the cycle, judging from the number of apartments in the pipeline, flat downtown rent increases, and vacancies in submarkets where there were waiting lists a couple of years ago. ‘You cannot get bigger units rented,’ Huzenis said.”

The Milwaukee Business Times in Wisconsin. “It was surprising to hear the recent announcement that Bartolotta Restaurant Group will end its partnership with Phoenix Hospitality Group for four restaurants at The Mayfair Collection development in Wauwatosa. The first of those restaurants, Osgood’s, opened less than two years ago. The move raises an interesting question. After several years of a boom of new restaurants in the Milwaukee area, is the market now oversaturated? Several new restaurants have opened in the area in recent years, and a slew of additional new restaurants are on the way.”

“Speaking of closures, Associated Banc-Corp recently revealed that 36 bank branches will be closed and their operations consolidated with nearby branches in its acquisition of Bank Mutual Corp. Brick-and-mortar branches are becoming a smaller part of the banking business. So who is going to make use of the 15 vacated branch buildings? It is going to be hard to find banks to absorb all of them. Restaurants are another option but, again, how many more of them can the market support?”

“Another sector showing signs of oversupply in the area: hotels. Several new hotels have been built in recent years downtown and in the suburbs, and more are under construction or being planned. Occupancy rates have dipped this year. Case in point, the Park East Hotel near downtown Milwaukee was recently sold to developers who plan to convert it into an apartment building. But apartments are another sector that has been built up in recent years, especially downtown. Two of the area’s largest multi-family apartment developers have indicated they are tapping the brakes on additional downtown projects, for now.”




September 20, 2017

At The Same Time, There’s A Shortage And Overabundance

A report from Mortgage Orb. “There’s been a lot of speculation in the mortgage industry lately about how hurricanes Harvey and Irma might effect delinquencies and defaults in Texas and Florida – not to mention mortgage originations and home sales. A high percentage of the homes in the area were already underwater in terms of loan-to-value. A report from ATTOM Data Solutions shows that the rate of foreclosure was on the rise in the Houston area before Harvey even hit. According to the firm’s Foreclosure Market Report, foreclosure starts in the Houston area had increased 28%, year over year, as of August. During that period, nearly 5,000 Houston-area homes started the foreclosure process, according to the report.”

“States that saw year-over-year increases in foreclosure activity in August included Alaska (up 100%); Wyoming (up 79%); DC (up 67%); Louisiana (up 59%); Vermont (up 12%); and Mississippi (up 9%). ‘The 14 percent month-over-month increase nationwide this August is more than twice the average six percent seasonal increase in August over the previous 10 years – the highest in fact since a 37 percent month-over-month increase in August 2007,’ says Daren Blomquist, senior vice president at ATTOM Data Solutions. ‘While this seasonal increase is certainly not enough to set off alarm bells nationwide, especially given that foreclosure activity was down annually for the 23rd consecutive month in August, there is cause for concern in a few local markets where foreclosure activity has consistently been trending higher on an annual basis this year.’”

The Star Tribune in Minnesota. “The market always slows at the end of summer, but there are some complications this year. The most important is the ongoing shortage of entry-level priced houses to satisfy demand. At the same time, there’s an overabundance of upper-bracket houses on the market. ‘The well-priced and staged homes may sell in days while homes that are not may languish on the market for 100-plus days,’ said Kath Hammerseng, president-elect of MAAR. She said that, despite some indications that sellers are in the driver’s seat, the market feels more balanced than the numbers suggest. ­’Neither buyers nor sellers are getting everything they want.’”

From Fox 40 in California. “An economic slowdown could be on the horizon for the Sacramento region, according to a new economic report from Sacramento State. The report’s author, Sacramento State economy professor Sanjay Varshney, said the post-recession recovery could be entering its later stages. ‘If the data stays persistent, what I mean by that is if truly the weakness sets in, this might be the first signs of a recession down the road,’ Varshney said.”

“The most recent midyear report showed one critical industry slowing down in the Central Valley. ‘We saw the goods producing sector, the non-service sector, actually go negative,’ Varshney said. Also troubling, Varshney said construction jobs, one of the biggest drivers of the labor market in the region, for the first time in 7 years went negative. ‘When the construction sector goes negative for the first time in 7 years, it does get our attention,’ the professor said.”

The New York Post. “While a disgraced Nigerian oil-trading billionaire is on the run from authorities, his posh West 57th Street pad is back on the market — at the wholesale price of $39 million. Kola Aluko bought the sprawling 79th floor penthouse for $51.9 million in 2014 — but owed taxes and lenders. ‘The home was in foreclosure, but it is now being sold by a third party as an alternative to foreclosure,” said a source close to the property.”

“‘MOTIVATED SELLER!!!’ notes the listing. ‘A once in a lifetime investment opportunity to purchase the last remaining full floor residence at Manhattan’s New Crown Jewel, One 57 Condominium, for a great value!’”

“Aluko, who is under investigation for alleged money-laundering crimes in Nigeria and Europe, couldn’t be reached for comment. A Nigerian court tried to freeze his assets, including the penthouse, in 2014 — but couldn’t find him to serve papers. While One57 is home to the city’s first and only $100 million condo sale, it never sold out.”

“This is the second financially troubled unit in the building to have been slated for foreclosure. As global law enforcement catches up with more folks from foreign countries who allegedly laundered their ill-gotten gains by scooping up homes for cash in New York City trophy buildings, more foreclosures may be on the way, real-estate experts tell the Post.”

From 6sqft in New York. “New Yorkers know that taking on a mortgage in the city is no easy feat. But a recent map shows that, compared to the rest of the country, we’ll spend many more years than most everyone else (except San Franciscans) in our attempts to pay it off. This map, which measures ‘mortgage magnitude,’ looked at the median local income and median local home value to show the relative affordability of property in each US county. The value of the average property was then expressed in the number of years salary it costs.”

“In some counties, a house will only set you back a total of one year’s pay. But as you move out toward coastal cities like New York, that number gets dramatically higher. The income to housing ratio starts to get pricer in Hawaii, much of California, the scenic portions of Colorado, and some metropolitan counties in the east. Buying here will take between six and eight years.”

“Now we’re hitting the ten year mark—homes that will take a full decade of income to pull off. Many areas of coastal California, including Los Angeles, as well as the island of Nantucket are included here. And New York City makes its first appearance, with the inclusion of Queens County. ‘Many of the scattered counties are characterized by costly vacation homes far out of reach of the resident population,’ according to the mapper.”

“Here’s the moment New Yorkers on the hunt for an affordable home have dreaded—we have now surpassed the 1:10 ratio of mortgage magnitude, the end of the line. The median home in these counties costs up to 13 solid years of income, and the counties that comprise New York City make this list. New York is joined by its expensive west coast counterpart, San Francisco County. The other places that these two insanely expensive cities? San Juan, Washington, Teton County, Wyoming (comprised of Jackson Hole and much of Yellowstone), and Dukes County, Massachusetts, aka the island of Martha’s Vineyard.”




September 19, 2017

It Was Gruesome Watching People Not Make Much Money

A report from the Washington Post. “London: They are not hard to spot, if you know where to look, especially at night - the floors of swanky, new apartments, most of the windows dark, almost all the time. The zombie flats. Owned, but empty. There’s enough empty property here to be given a name in the British news media: the ‘ghost mansions’ of ‘lights-out London,’ the streets where it is alleged that 7 in 10 addresses are second - or third or fourth - homes. The blight of conspicuous empty homeownership is a big story in London - and around the globe. The ‘empty home’ phenomenon has gone viral in hot postal codes around the world - and it is especially visible in cities such as Miami, Hong Kong, Vancouver, B.C., Dubai, Singapore, San Francisco and Sydney, where foreign buyers and their shell companies gobble up units as investment properties and piggy banks.”

“In Manhattan, the New Yorker had a look at Census Bureau numbers, which revealed that in midtown - from 49th to 70th streets, between Fifth and Park avenues - nearly 1 in 3 residences are unoccupied at least 10 months a year. Newsweek estimated in Paris ‘one apartment in four sits empty most of the time.’ In Jerusalem, the deputy mayor said the number of ghost flats is triple the official estimate - and bemoaned the impact on young families searching for a bit of living space.”

From Better Dwellings in Canada. “Toronto real estate inventory has been increasing over the past few months, and we wanted to see what kind of sellers we’re looking at. An analysis of properties listed for sale in the City of Toronto show that over 6% were bought less than 18 months ago. While some have ask prices that might prove profitable, we estimate 1 in 3 of these listings are currently looking at a loss.”

From Bloomberg/Dubai. “Dubai residential property prices and rents are set to fall further as losses of high-paying jobs and dwindling household incomes boost vacancies across the city, according to Phidar Advisory. ‘The false start of early 2017 is over and the cracks are starting to show,’ Jesse Downs, managing director at Phidar, an advisory firm specialising in real estate, wrote in a report. ‘Sales volumes of completed properties are at a six-year low and vacancies are rising across the city.’”

The Vanguard in Nigeria. “In spite of the cheering news that the country is getting out of economic recession, the bleak outlook of the housing sector of the nation’s economy will remain a major cause for concern for real estate developers and the survival of their businesses in the country. This is because developers have been churning out housing units in different parts of the country without corresponding demand for them. This has subsequently led to the astronomical increase in the number of unsold housing units across Nigeria.”

From Reuters on Brazil. “A Brazilian land developer controlled by U.S. buyout firm Carlyle Group LP investment vehicles has appointed turnaround specialist Ivix Value Creation to help it reverse mounting client lawsuits and avoid filing for bankruptcy protection. The move is intended to help Urbplan find a way to avoid restructuring a pool of asset-backed securities and credit worth 450 million reais ($144 million) and recover from a period of weak housing activity, they said.”

“Their first task, they told Reuters, will be reviving confidence among creditors that Urbplan will repay them. ‘We are not here to carry out an autopsy of the company, which means we’ll do whatever it takes to avert Urbplan’s bankruptcy protection,’ said partner Nelson Bastos.”

From The Australian. “Mortgage belt suburbs in western Sydney are starting to show signs of stress, topping a list of areas across the state where homeowners are having the most difficulty keeping up with their loan repayments as the housing boom starts to slow. The worst performing postcode in NSW is Ashcroft, 29km southwest of Sydney’s CBD, according to a ranking by ratings agency Moody’s of suburbs where homeowners are more than 30 days behind in their mortgage payments.”

“Carnes Hill in the city’s southwest was ranked third, Fairfield was eighth and Bidwill in Sydney’s northwest was ninth. The ranking follows a five-year bull run in the housing markets of Australia’s east coast capitals, where dwelling prices had soared on average about 80 per cent in Sydney, according to CoreLogic.”

“The western Sydney mortgage belt suburbs were home to a noticeable proportion of first-home buyers who often bought in house and land communities being developed in the city’s growth corridors, said Savills Australia head of residential research Sophie Chick. ‘You’re seeing people moving into new homes so you don’t have that existing equity. So when you have a look at the distribution of people there (in these new communities) they’re all new buyers to the area, so they’re more likely to be taking out mortgages,’ Ms Chick said.”

Fromm Stuff New Zealand. “Former Block Australia contestant Carlene Duffy, who walked away with just $10,000 from her auction, said it will take the losing Block NZ contestants ‘months to get over the shock and devastation’ of falling short at auction. ‘I would just give it time, because it probably took us a few months,’ Duffy said. ‘This whole experience, you sort of feel like you are in a bubble and it’s very insular, but if give yourself time and once the shock wears off, you can re-evaluate where you go from here.’”

“Carlene and her husband Michael Duffy were fan favourites of The Block Australia’s 2014 ‘Glasshouse’ season, which saw an abandoned 1980s office building transformed into multi-million dollar apartments, but were gutted when 14 weeks of renovations yielded them just $10,000 at auction.”

From The Spinoff. “For the last six years The Block NZ has been both New Zealand’s most successful reality franchise, and the most illuminating cultural artefact of this era. The show features four teams racing to complete a renovation or build of adjacent houses, with each retaining the profit from the sale, while those who get the largest profit also get a $100,000 cash prize.”

“For five years the show rode the surging Auckland housing market ever higher. Back in 2012 houses in bourgie Takapuna went for between $789,000 and $961,000 – figures which seem almost quaint today. Gradually the median lifted: it was $983,000 the following year, rocketing to $1,429,000 on moving to Pt Chev in 2014, before posting $1,327,500 and $1,425,000 in Sandringham and Meadowbank respectively.”

“Every year the show’s contestants profits grew a little fatter, rising like the market from a little over $300,000 combined in year one to peak last year with the four teams splitting a Lotto-like $1,081,000. And, for mystifying reasons which can be known only to the contestants, Mediaworks, the IRD and our legislators, all that money was tax-free.”

“Which is to say that The Block NZ functioned as a perfect advertisement for our housing market: vastly expensive but only going up; everyone made tonnes of money; no one paid tax. Truly, this reality TV captured our era better than any big budget drama could ever dream of doing. Until, last night, it all broke down. We’ve been told the market will crash or stall since before 2012, but last night we watched it happen on live TV. It was gruesome viewing. Auctioneers in bright yellow ties, coated in sweat looking out at motionless audiences. We watched three-part tragedies unfolding before our eyes.”

“It was wrenching television, watching ‘people not make much money,’ as host Shelley Ferguson put it, and no one on screen was in any mood to celebrate. Worse than the timing was the constant push to bigger and bigger houses, which mirrors that of the market as a whole. Our house-size has risen over the past few decades from around 100sqm to closer to 200sqm. But the bigger and richer they are, the less liquid, as we saw last night.”




September 18, 2017

Becoming Collector Items

A report from the Boulder Daily Camera in Colorado. “More than 1,000 apartments and rooms for rent are sitting empty in Boulder right now, either too expensive or too old or just too inconveniently located for someone to claim. Renters have never had more choices, as reflected in the 7.9 percent vacancy rate — a 10-year high watermark. ‘We cringe every time we see a new complex approved,’ said Gary Epperson, of Longmont’s PMP Realty, which manages hundreds of for-rent rooms and homes in Longmont. He admitted there is always a chance of oversupply as financial backers of such projects, reacting to a stated need, overindulge on the promise of a healthy return.”

“The picture is much the same across the region. From 2011-2016, 56 percent of all new housing units in Boulder County were multi-family, the projects more likely to be rented than owned. And active development in the two biggest cities, Boulder and Longmont, is even more skewed: For every single-family unit under construction or in the permitting process, there are three planned multi-family dwellings.”

“The demand for houses to buy is strong as well, as indicated by double-digit price growth. But other barriers stand in the way of single-family building: the scarcity and high cost of land limit what can be built affordably enough to guarantee that someone can buy it. ‘Unless the zoning laws are changed, there’s just not that many more single family homes that can be built in the county,’ said Jay Kalinski, of Re/Max of Boulder. ‘Single-family homes are becoming like collector items.’”

From NBC Bay Area in California. “High housing costs are nothing new to the Bay Area, but one recent sale has even the locals scratching their heads. A home in Sunnyvale recently went for nearly $800,000 over the asking price of $1.7 million. True story. Listing agent Dave Clark said it’s certainly a desirable location, and that’s why he priced it aggressively.”

“‘We did not overpay for it; we paid market value,’ said Mini Kalkat of the Troyer Group, the agent for the buyers. ‘These are smart, sophisticated buyers buying in a very cosmopolitan area that’s now competing against London and Manhattan and all the places we never thought we’d compete against.’”

“Some neighbors see the surging prices and want to sell. Others are looking to double down on the neighborhood. ‘When our son graduates from high school, we’re thinking of renting our house because we don’t want to give up or sell the property,’ homeowner Rosemary Brooks said. ‘It’s just too valuable.’”

From News Hub in New Zealand. “Real estate agents insist a fall in profits in this year’s finale of The Block NZ is proof the Auckland housing bubble has burst. Winners Andy and Nate claimed the highest profit of $31,000 in last night’s dramatic episode, as well as $100,000 in prize money. That’s just a fraction of the profits made in previous years last year’s winners made $380,000, not including the $100,000 bonus.”

“‘We’re feeling pretty sorry for the other teams,’ says Andy. ‘Everyone is trying to celebrate and then you’ve got teams who are walking away with $1000, teams that thought they won two minutes before and then [have it] stolen away. It was a real double-edged sword.’”

“‘It feels great that we’ve gotten the money, but ripped off at the same time, because you can’t really celebrate,’ adds Nate.”

“Jeremy O’Hanlon from Homes.co.nz says what viewers saw last night is also happening in auction rooms across the city. ‘It shows that there’s a bit of a slowdown in the market. It’s harder to get buyers into the room at the moment.’ Real estate agents told Newshub they were impressed The Block NZ homes managed to sell at all, as buyers are taking a wait-and-see approach.”

From Pramit Bhattacharya. “Ten years ago, in August 2007, the French investment bank BNP Paribas SA told those investors that it was suspending redemptions because the bank’s fund managers were no longer sure what those mortgages were worth. Ripples of panic spread across financial markets, and the resulting financial contagion led to a global credit freeze. The global financial crisis has also morphed into a social and political crisis, producing mass discontent, and challenging the global neoliberal consensus forged after the collapse of the Soviet system between 1989 and 1991.”

“Given the pivotal role of economists in forging that consensus, the cracks in the consensus have created a crisis for the discipline of economics itself. The problem with economists is not that they make assumptions. After all, any theory or model will have to rely on simplifying assumptions. But when critical assumptions are made just to circumvent well-identified complexities in the quest to build elegant theories, such theories will simply end up being elegant fantasies.”

“Just before the collapse of Lehman in 2008, former International Monetary Fund (IMF) chief Olivier Blanchard wrote a paper extolling the virtues of the neoliberal consensus, claiming that the convergence of views and methodologies in the discipline showed that the ‘state of macro-economics is good’. It is only several years after the crisis that a senior economist from the Fund dared to wonder out aloud if neoliberalism had been oversold.”

“One way in which economists could have compensated for the lack of engagement with other social sciences is by studying economic history. But economic history has been relegated to the margins over the past several years, and many graduate students remain unacquainted with the subject still.”




September 17, 2017

Something More Troubling Than Stucco

A weekend topic starting with Jacobin Magazine. “Richard Florida, one of the most influential thinkers about cities in postwar America, wants you to know that he got almost everything about cities wrong. If you live in an urban center in North America, the United Kingdom, or Australia, you are living in Richard Florida’s world. Fifteen years ago, he argued that an influx of what he called the ‘creative classes’ — artists, hipsters, tech workers — were sparking economic growth in places like the Bay Area. Their tolerance, flexibility, and eccentricity dissolved the rigid structures of industrial production and replaced them with the kinds of workplaces and neighborhoods that attracted more young people and, importantly, more investment.”

“His observations quickly formed the basis of a set of breezy technical solutions. Eventually, the mysterious alchemy of the creative economy would build a new and prosperous urban core. Today, even Florida recognizes that he was wrong. The rise of the creative class in places like New York, London, and San Francisco created economic growth only for the already rich, displacing the poor and working classes. The problems that once plagued inner cities have moved to the suburbs.”

“After fifteen years of development plans tailored to the creative classes, Florida surveys an urban landscape in ruins. The story of London is the story of Austin, the Bay Area, Chicago, New York, Toronto, and Sydney. When the rich, the young, and the (mostly) white rediscovered the city, they created rampant property speculation, soaring home prices, and mass displacement. The “creative class” were just the rich all along, or at least the college-educated children of the rich.”

“His latest book, The New Urban Crisis, represents the culmination of this long mea culpa. Though he stops just short of saying it, he all but admits that he was wrong. He argues that the creative classes have grabbed hold of many of the world’s great cities and choked them to death. As a result, the fifty largest metropolitan areas house just 7 percent of the world’s population but generate 40 percent of its growth. These ’superstar’ cities are becoming gated communities, their vibrancy replaced with deracinated streets full of Airbnbs and empty summer homes.”

“Meanwhile, drug addiction and gang violence have spread to the suburbs. ‘Much more than a crisis of cities,’ he writes, ‘the New Urban Crisis is the central crisis of our time’ — ‘a crisis of the suburbs, of urbanization itself and of contemporary capitalism writ large.’”

From The New York Times. “Three years ago, Soo K. Chan, an architect well known in Singapore but new to the Manhattan luxury condo scene, posed a question to jaded New Yorkers: How about a pool in the living room? Well, why not? It was a hit overseas, where Mr. Chan had designed pools for luxury apartments in Southeast Asia, and at the time the New York City condo market was on fire.”

“So Soori High Line, the new 31-unit luxury mid-rise in West Chelsea that Mr. Chan designed and developed, will have four-foot-deep saltwater pools in more than half of its apartments. The 24-foot-long pools, surrounded by a glass enclosure, are heated and partially open to the outdoors, enticing residents to swim even during a snowstorm. The apartments — which range in price from about $3 million for a two-bedroom to $22.5 million for the five-bedroom, triplex penthouse — have ceilings as high as 18 feet, heated limestone floors, gas fireplaces and doorknobs wrapped in hand-stitched leather.”

“But with only a few months left until the building’s completion, just 15 of the 31 units are under contract or reserved, eight of them with private pools, although sales began in 2014. Since then, the developer has hired three different real estate brokerages to handle sales; the most expensive unit under contract so far is a $10.9 million duplex. ‘The expectation was that there are so many billionaires in the world, they’re a dime a dozen – and that’s not what happened,’ said Jonathan J. Miller, a New York real estate appraiser.”

From D Magazine in Texas. “While not as headline-grabbing as reminders of the Confederacy, Dallas’ older apartment stock has been under siege for years and is a more palpable threat to lower-income Dallasites who are increasingly being priced out of their longtime neighborhoods. Assuming you‘ve not been under a rock for the past few years, you’ve noticed the staggering amount of apartments being built in Dallas (and, well, nationwide, if we’re being honest). A good number of them are cheaply constructed, short-term buildings meant to squeeze every penny possible in rent before the glue holding the sawdust together gives way.”

“Most of these apartments are thunderously expensive. I looked at a building on McKinney Avenue and the cost for a 800-ish square foot apartment was about what I paid in mortgage, taxes, utilities, cable TV, internet and HOA dues on a 1,900 square foot high-rise condo. But as much ink and zings have been spilled about these Millennial pickpocket apartments, the city has remained largely mum about what was there before these new buildings. But if you scratch the surface you’ll see something more troubling than stucco.”

“Dallas was chockablock with modestly sized apartment complexes scattered on generous lots. Many were built in the 1950s and 1960s. It’s these older apartment buildings, often constructed with better materials than today’s quick-builds, that tell a story of neighborhood displacement. As the concept of condominiums took off and developers wanted to cash out, many complexes around the nation converted to condo beginning in the 1970s.”

“Flash forward to the current hyper-apartment building cycle we remain in. Developers have approached a number of these older complexes because of their low density, which result in larger, buildable lots. Taking down 30 condos on an acre or two makes economic sense when you replace it with 200 apartments. Current owners take the windfall of likely double the condos’ market value and run.”

“Sometimes selling is the right answer. Often, it’s not. As any homeowner will tell you in the frantic market of the past few years, the question isn’t selling, it’s where do you go next? Selling a $150,000 condo for $300,000 still doesn’t net you a lot of options. Certainly not nearby single-family or even townhome options. For all a seller’s newfound wealth, they’re probably don’t have the income to rent in the building that replaces their home.”

“But if you remain, what’s left of your neighborhood? Older two-story buildings are demolished and replaced with extremely dense, three- and four-story buildings. Gone are the old-growth trees that lined the streets. Gone are the generous setbacks and well-spaced buildings.”

“In the case of apartments being renovated, new rents likely rise in excess of many tenants’ ability to pay. However, while they cost more, increases are nowhere near the magnitude of new-build complexes. This wholesale affordability issue is problematic at most income levels, but nowhere more acute than in the lower-income brackets disproportionally comprised of minorities. While we can debate the merits of Confederate symbols in public spaces, Dallas needs to get off its high-horse in housing all its citizens.”




September 16, 2017

The ‘If’ That Has Entered The Room

A report from Southern California Public Radio. “With downtown Los Angeles seeing a vacancy rate that’s three times higher than the rest of the city, landlords are ratcheting up the competition for tenants. Nina Hu and her husband ended up going with a one-bedroom loft at G-12 Apartments, which opened this spring in the South Park district. Between six weeks of free rent and a year of free parking, they’ve saved more than $4,500. Move-in specials, though, have not enticed enough people to fill the new apartment building, which Hu said sits more than half empty. ‘Everyone that I know loves downtown, but I still don’t see that many people rushing downtown to fill up all these spaces,’ Hu said.”

“Thanks to a wave of market-rate rental construction, supply has outpaced demand downtown since 2014. The vacancy rate now hovers around 12 percent — the highest recorded by real estate research firm CoStar Group since 2000. The result has been thousands more luxury apartments than there are renters. CoStar senior market analyst Steve Basham said that in the last several years, landlords have been ramping up concessions to lure tenants. Basham said the high rents are why apartments aren’t filling up faster. ‘The stuff that’s being built right now is really targeting the very top of the renter’s pool,’ Basham said. ‘The majority of the renters in L.A. are not going to be able to afford that.’”

“Basham said vacancies could keep growing next year, while rents could slow — and even drop —as more than 4,000 new apartments come online.”

From Bloomberg on New York. “Manhattan’s construction boom has crowded the borough with so many apartments that even in a month where leasing hit a record, the vacancy rate climbed. ‘It really does show just how much inventory there is out there,’ said Hal Gavzie, who oversees leasing at Douglas Elliman. ‘Yes, we have so many leases being signed — and yet, you still have so many options for customers out there.’”

“With builders still churning out new apartment towers, and condo investors listing their units for rent, there’s more than enough for renters to choose from. Manhattan had 7,497 apartments listed for rent at the end of August, or 31 percent more than the monthly average since Miller Samuel and Douglas Elliman starting keeping the data in January 2008. ‘We’re going to see prices come down a bit as these landlords get concerned about filling the vacancies before the winter,’ Gavzie said. ‘Nobody wants their apartments vacant in November.’”

From Curbed New York. “In Brooklyn, more than 20 percent of all leases had some kind of concession, leading the net effective median rent to drop for the fourth consecutive month. In Queens, the landlord concessions market share was five—yes, five!—times higher than last year, rising from 8.7 percent to 44.7 percent. Inventory was also up 12 percent over the same time last year, with year-over-year increases for the 22nd time in 24 months. And yes, those two things are related: ‘Because 43 percent of all activity is new development, the crush of new supply requires significant concessions,’ explains Douglas Elliman, numbers whiz Jonathan Miller.”

From Chicago Magazine in Illinois. “The 94-story skyscraper, one of the most ambitious residential developments in Chicago since the housing bust, has it all: 21 multimillion-dollar penthouses, a huge foreign investment, and a design by starchitect Jeanne Gang. It’s also got a Chinese developer with an uncertain financial future. The main developer’s Chinese parent, Dalian Wanda Group, has been doing a lot of restructuring. What’s that all about?”

“The Chinese government seems to be pressuring large conglomerates to reduce debt and trim foreign investments perceived as risky. Dalian Wanda, a giant, has the kinds of bets on real estate and entertainment the government appears to be checking. The company sold off billions of dollars in assets this summer, including most of its hotels. And in August, it flipped control of Vista Tower from a publicly listed company to a private one, meaning that potential condo buyers in Chicago will have a harder time divining the developer’s financial strength.”

“The Chinese government has been pressuring banks to decrease lending for big overseas property investments. Vista Tower has a $700 million construction loan from a midtier Chinese bank that has a portfolio heavy with nonperforming debt. If Vista’s loan falters or the Chinese government compels the bank to scale back, the project or its bank might be forced to find a new lender to keep money flowing to contractors. That could cause delays.”

“Linda Greenberg, a prospective buyer from Chicago who toured Vista Tower, says an agent told her that many of the upper floors are reserved for wealthy Chinese buyers. Magellan reports that 38 percent of the residential units are under contract, as of August. It also says that around one-third of the buyers are foreign and 10 are Chinese—but that number could be misleading. Often, foreigners purchase in the United States through shell companies in other countries, such as the Cayman Islands. It is also impossible to know how many Chinese buyers are in for multiple units.”

From KUON in Washington. “Until last week, Seattle’s growth looked endless and predictable. Amazon was hiring at a fierce pace, and planners were struggling with housing and transit needs that are a consequence of all the new jobs. But with Amazon’s announcement that it will build a second headquarters elsewhere, bets about the future of Seattle’s growth are off. Because we lack sufficient housing for the people who have already moved here, says Diane Sugimura who was head of Seattle’s planning and development department until she retired last year, Amazon’s plan to grow somewhere else will not take rents and prices down soon.”

“‘I think it’s still going to be awhile because there are so few houses for sale. And there’s still a gap in terms of those housing units, and my guess is developers will probably try to get that next project done before things start slowing down. If they do,’ Sugimura said. It’s that ‘if’ that has entered the room, where before it wasn’t there.”




September 15, 2017

The Attractive Easy Returns Are Under Threat

It’s Friday desk clearing time for this blogger. “About that house in Sunnyvale — you know, the one that just sold for $782,000 over its listing price? In Cupertino, 10 houses sold for $200,000 or more above the asking price. One sold for — get this — $507,000 over the listing price. The young couple who spent $507,000 above the asking price ‘wanted to start in a good school district, planning the future for their family,’ said agent Mary Tan, who listed the property. They work in tech ‘and wanted a good location — just for the appreciation.’”

“News reports about homes selling for well over the asking price – like one in Sunnyvale that sold for $800,000 more than was needed – may seem like a dream come true, but the trend is making things difficult for both buyers and sellers. Realtor Lynsie Gridley doesn’t think the housing bubble will burst. ‘We don’t see that happening,’ Gridley said. ‘All the economists are looking at the job market and all of our growth around here and though it seems unsustainable, we don’t foresee it coming down.’”

“A money manager who was among the few to predict a housing bust a couple of years before it happened now sees disturbing signs that history is about to repeat itself. James Stack, president of Stack Financial Management, has dusted off the same Housing Bellwether Barometer that raised red flags more than a decade ago. That barometer, Stack explained, is an index of ‘the most sensitive stocks in the housing industry’. Over the past 12 months, Stack said in an interview, it ’started to go up like a rocket ship again, similar to what it did back in 2004-2005.’”

“That tracks the anecdotal evidence he’s seen of frantic bidding wars in some of the nation’s hottest markets. ‘It’s that kind of nuttiness that defines the psychology of a bubble,’ he said.”

“It was once the city’s priciest listing asking $120 million, but a 12,000-square-foot co-op at 834 Fifth Avenue is back on the market with a significantly reduced price tag of $76 million. Susan Gutfreund listed unit 7/8a in April 2016. She sliced the price back to $96 million five months later but, even with that discount, one broker described that price tag as ‘absurd.’”

“HOAs are foreclosing on a record number of homeowners for as little as $1,200 in missed maintenance payments, according to an Arizona Republic investigation. And homeowners who thought only their mortgage lender could seize property are losing their houses at sheriff’s auctions, sometimes for just $100 more than they owe. Cynthia Levine, 65, is facing foreclosure on a Maricopa home that she bought in 2006. She owes at least $24,000 in back payments, interest and legal fees to the Cobblestone Farms HOA.”

“Levine remains in her home, waiting for the outcome of her bankruptcy. ‘The HOA is heartless,’ she said. ‘Literally I’m going to be homeless.’”

“Purchases of Toronto homes by foreign buyers dropped over the summer after a new tax in Ontario began targeting international property investment. At the time the tax was introduced, the region’s housing market looked to be overheating as average home prices soared to nearly $1-million. Catherine To, a real estate agent specializing in the suburbs of Markham and Richmond Hill, where sales have plummeted since the tax was implemented, said the levy took away home buyers’ confidence in the market, causing many to retreat because they expected future bargains.”

“‘This is purely psychological,’ said Ms. To, who called the government’s decision to introduce the tax ‘irresponsible.’”

“The national housing market remains in the doldrums, weighed down by Brexit-related uncertainty and stamp duty increases, according to the latest report from surveyors. The reading for London is well in negative territory and hit its weakest level since 2008. ‘Brexit uncertainties [are] not helping [the] market, also stamp duty levels not helping,’ said Robert Ikin of surveyors Wright Marshall in Cheshire.”

“As widely expected, the introduction of higher stamp duty rates for foreign investors and the Australian Prudential Regulation Authority’s tightening of bank lending regulations on investment loans have reduced new investor housing demand especially for apartments. Market reports suggest that apartment prices have fallen by 10 per cent or more in several locations with growing concern about the impact on prices from projects yet to be completed.”

“Depending on whether and, if so, how quickly property prices fall, the prospect of future tax changes adds to the attractions of purchasing new investment properties before the next election. Even then, there’s the risk that major tax changes could kill the goose that laid the golden egg for many past investors by reducing the long run attractions of residential property investments.”

“The clear message is that the attractive easy returns from residential property investments are under threat from apartment oversupply and proposed major tax changes.”

“The number of houses being sold has dropped a whopping 20 percent compared to this time last year - and it’s also not just in Auckland - the slump is happening all over the country. Southland led the way down, 37 percent. Northland is down almost 30 percent, and Taranaki and Waikato both down 25 percent. Sales in our biggest market, Auckland, are also off by 21 percent.”

“BNZ Bank’s economist Tony Alexander believes sales volumes will continue to fall so he has a message for real estate agents. ‘Maybe for some of them - start looking for alternative job in the next few years,’ he says.”




September 14, 2017

Blinded By A State Of Euphoria

A report from the Sydney Morning Herald in Australia. “I have a ‘liar loan’ – a mortgage based on less than absolutely factual information. I’ve pretty much always had liar loans. And I recently obtained a ‘liar credit card.’ So what? Given readers’ (and therefore the media’s) love of stories that combine housing and doomsday scenarios, investment bank UBS received saturation coverage with its idea that $500 billion in ‘liar loans’ are a hanging over the Australian housing market, set to come crashing down on the economy at the first hint of trouble and damn us all to hell.”

“How many people want to do the work to supply detailed financial information about their mortgage application and, apparently, admit they lied? Something isn’t adding up. And there’s the particular case of the ANZ which received the worst result: ‘Of those who took out loans with ANZ in 2017 (directly or through a broker), 55 per cent of respondents stated their application was completely factual and accurate (implying 45 per cent of customers misstated their application), down from 66 per cent in 2016.’”

“The most obvious point is, when applying directly to your bank, the bank should know more about your finances than you do anyway. For my ‘liar loans,’ all my income and spending washes through the bank cheque account. I’m Australian – near enough is good enough.”

From The Herald. “Soaring house prices have lifted the wealth of the average Sydney household to $1.3 million, but hundreds of thousands of families in the city have been left ‘over-indebted.’ The Bureau of Statistics’ latest survey of income and wealth has classified 407,000 Sydney households with property loans as over-indebted, meaning they owe at least three times more than they earn in year. The typical over-indebted household in Sydney is carrying a hefty $765,400 in total property debt.”

“‘Growth in debt has outpaced income and asset growth since 2003-04,’ the bureau said. ‘Rising property values, low interest rates and a growing appetite for larger debts have all contributed to increased over-indebtedness.’ Nationally, average household debt has almost doubled since 2003-04.”

The Australian Financial Review. “Scott Morrison made a rare appearance at the Council of Financial Regulators’ meeting in March, and he had housing investors in his sights. Property price growth in Sydney and Melbourne had accelerated into double digits over the first two months of the year, exposing the federal Treasurer to Labor’s demands for a crackdown on property tax breaks.”

“Back in 2015, Treasury secretary John Fraser had already called out a housing price bubble. By early 2017, loans that required the investor to repay only interest costs had rocketed to a disturbing 40 per cent of lending. APRA fired off a round: lenders would have to rein this back to 30 per cent. It’s the byproduct of a long period of bank misconduct and scandals. These climaxed with last month’s explosive charges against the Commonwealth Bank of Australia by the anti-money-laundering agency AUSTRAC, the other financial regulator on the rise.”

The West Australian. “The liquidators of Diploma Group say they are likely to urge creditors to reject a rescue plan proposed by the family behind the failed builder-developer. The insolvency specialists from Grant Thornton are nevertheless seeking a Federal Court order allowing their appointment as administrators of the listed Diploma entity so a vote can be held. The liquidators estimated the revised Deed of Company Arrangement would see a return to unsecured creditors of between zero and 3.31¢ in the dollar. Under a liquidation scenario, it was between zero and 11.6¢.”

From The Australian. “The slowdown in the apartment market is worsening and will have a severe impact on the economy if it is not arrested, according to the country’s biggest apartment builder, billionaire Harry Triguboff. The number of new apartments sold had dropped and prices had fallen about 10 per cent over the past six months, the founder of Meriton Group told The Australian. ‘The falling prices will have a big impact on the economy,’ said Mr Triguboff. ‘The big question is whether the government will allow prices and volumes to go down before they start helping. Australians could lose an enormous amount of wealth.’”

“China’s continued restrictions on capital flowing out of the country, the local banking crackdown limiting finance for investors and sluggish domestic wages growth had combined with government policies causing a perfect storm for apartment construction. At the same time, Reserve Bank governor Philip Lowe last week said he was watching the Brisbane property market carefully, particularly given the pressure on prices from the large rise in the supply of new apartments in that city.”

From Domain News. “In an effort to sell off enough apartments to allow construction to go ahead, one Brisbane developer has slashed prices by 12 per cent, and halved the upfront costs on two-bedroom units in a Cannon Hill development. The third tower of Lime Living is nearing its scheduled construction date, without enough apartments sold to commence. Project marketers Colliers International have taken the opportunity to target first-home buyers, offering a 5 per cent upfront deposit for those looking to take their first step into the property market.”

“Associate director for residential Rachel Hutson said it wasn’t common for a developer to be willing to slash prices and take a lower deposit on an off-the-plan apartment. ‘It’s very rare,’ she said. ‘The only other projects that have offered close to 12 per cent is where the original buyers have defaulted.’”

“Settlement risk and lowered investor appetite was another reason why Colliers wanted to target owner-occupiers rather than investors. ‘There are investors who have bought in there,’ Ms Hutson said.”

From the University of Melbourne. “Amid sky rocketing house prices in Sydney and Melbourne, record low interest rates, and a tax system that works in favour of investors - those who entered the housing market at the right time are reaping the benefits. But after 25 years of unprecedented economic growth in Australia, are we still in a boom or are we blinded by a state of euphoria?”

“Melbourne University Economist Dr Matthew Greenwood-Nimmo sees some alarming parallels between the Australian housing market and the evolution of asset prices in the run-up to the Global Financial Crisis of 2008, which was a famous example of a so-called ‘Minsky moment’. A ‘Minsky moment’ is named after the Polish economist Hyman Minsky, whose work focused on boom-times and the transition from boom to crash.”

“‘An easy way to envisage a Minsky moment is to think of a timeline,’ says Dr Greenwood-Nimmo. ‘To illustrate the idea, let’s start when the economy comes out of a recession. After a recession growth is generally quite quick and there are lots of profit opportunities if you’re a lender. You can make a lot of money and there’s not a lot of risk because the economy is growing fast. If that boom phase continues for a long time, people get complacent. It’s this complacency that can turn into a Minsky moment.’”

“‘After 25 years of growth, it could be that a euphoric sentiment has taken hold in the housing market,’ he warns. ‘The good times have been going on so long, people start thinking they will go on forever. In a euphoric market, safety margins get eroded. By that, I mean that banks become increasingly willing to make large loans based on small deposits and borrowers become increasingly willing to take on a large debt burden. As long as house prices continue to rise, this strategy can work but it only takes a small shock to put you underwater on your mortgage.’”

“‘A Minsky moment occurs when the euphoria ends, prices slump and those euphoric investors suddenly realise that they’re high and dry. The greater the proportion of investors that were swept up in the euphoria, the worse the overall outcome for the economy at large.’ he said.”




September 13, 2017

The Question Of The Market Over-Building

A report from the Deseret News in Utah. “For the eighth straight year, vacancy rates for rental apartments in the Salt Lake metro area have declined — down to the lowest rates ever. ‘This low vacancy is fueling a record-breaking level of construction of new apartment buildings,’ said Kip Paul, executive director of investment sales at Cushman & Wakefield’s Salt Lake office. ‘This begs the question of whether the market is over-building. The data shows that even with previously unmatched levels of development, the demand is such that there is no sign of oversupply in the foreseeable future and property investment, particularly in midsize communities, is particularly attractive to buyers.’”

“‘In my experience, this (market cycle) is quite unique because of the extended duration of this (high) phase of the cycle,’ said Dan Lofgren, CEO of Cowboy Properties. He said a full cycle can take between seven and 10 years to go from a high demand peak down to a low point, then return to the next cyclical peak. That has not been the case in this current cycle, he noted. ‘We have been at this high part of the cycle for six or seven years,’ he said.”

From AZ Big Media in Arizona. “The Phoenix apartment market has notched a strong two years, as occupancy has remained essentially full and rent growth levels have trended well above national norms. A total of 13,356 units were under construction at the end of 2nd quarter 2017, the fourth straight quarter in which construction volumes topped the 13,000-unit mark. Those levels are in line with the ongoing construction highs seen in the previous cycle’s peak in 2007 and 2008.”

“Meanwhile, building activity is still sparse in the western suburbs, which are traditionally weaker-performing areas. But those areas should be watched for near-term starts. Permitting volumes remain elevated in the metro, and big blocks of product emerging on the west side historically have been a signal that the metro is overheating.”

The Dallas Morning News in Texas. “The long-predicted slowdown in North Texas apartment construction may finally be in the works. With over 50,000 rental units under construction, Dallas-Fort Worth has been the top apartment building market in the country in recent years. But a significant slowdown in permits for new apartments this year may herald a decline in building cranes on our horizon. Apartment analysts have been forecasting a slowdown in North Texas building starts to let the market catch up with several years of dramatic construction.”

“‘It only took me three or four years of saying ‘this is the peak’ to be right,’ said RealPage economist Greg Willett. ‘While the permit volumes can move around quite a bit from one month to the next, the slide in the most recent stats is big enough to look like the inflection point in building activity. Now that we’re seeing rent growth cool or even flatten in the urban core and Frisco, where completions are heaviest, some capital sources are beginning to take a wait-and-see attitude before placing more money in the apartment sector.’”

“But that doesn’t mean North Texas won’t have plenty of new apartments. Almost 30,000 units are opening their doors in the area this year. ‘With around 50,000 units under construction, we’re still going to be delivering lots of apartments for at least another couple years,’ Willett said.”

From National Real Estate Investor. “This summer, for the first time in several years, student housings beds were not leasing as quickly as the year before. ‘The student housing market moderated this year,’ says Taylor Gunn, student housing analytics lead for data firm Axiometrics. ‘This was anticipated to occur at some point after several consecutive years of record performance. The space is becoming more competitive with new operators and investors, more supply and universities revitalizing their housing. A lot of these factors can be expected with a growing industry, but can prove to be a challenge for some going forward.’”

“Developers were expected to deliver 46,000 new student housing beds for the fall 2017 semester, though some of those bed have surely been delayed, potentially into 2018, according to Axiometrics. That’s roughly the same number of beds developers opened in 2015 and 2016. ‘Oversupply at the top end of the market is also something we’re closely monitoring,’ says JJ Smith, president of CA Student Living.”

From Minnesota Daily. “Hundreds of college students spill from the fraternity houses lining University Avenue on Friday nights. During the week, the houses are emptier than normal. Despite the fact 11 percent of the University of Minnesota’s students participate in Greek life, some Greek houses struggle to attract members to fill their rooms. The development of multiple luxury apartment complexes around campus may keep members from living in fraternity houses, said Chi Psi President Dylan Marvel and Phi Sigma Kappa President Garrett Caddes in an email.”

“‘Frat houses are older and do not typically have the same amenities as some of the new apartments popping up around campus,’ Caddes said. Other apartments scattering the borders of the University campus are often the first choice for students, pushing fraternities to adjust their prices to stay competitive, Caddes said.”

“‘Really, if you don’t have a good number of live-ins, that can really cause your house to flop,’ Marvel said.”

The Real Deal on New York. “Price chopping this week was through the roof. The very roof some of these owners are trying hard to escape. Reductions on the city’s most expensive homes’ price tags slowed over the summer. But last week, more than 20 pads in the over-$10 million market were discounted by more than 5 percent, according to data from StreetEasy. 151 East 58th Street, 47A. Previous Price: $14 million. Current Price: $11.8 million ($3,858 per square foot). Percentage Drop: 16 percent. It hit the market for $14 million last October and has been steadily trending down since. Its price was reduced earlier this year.”

“Compass’ Victoria Shtainer and Gabriel Zapata have the listing. ‘I had a long conversation with my owner,’ Shtainer said. ‘We feel that $11.8 million is where the market is today.’”

The San Diego Reader in California. “Is the demand for housing suitable to fill the thousands of rental units that have sprung up in downtown’s East Village since the mid-2000s, and enough to sustain even more units currently under construction or in the planning phases? If so, some longtime business owners wonder where their customers have gone, and residents of new projects are confused as to why so many of the units in their buildings are offered on the short-term rental market to vacationers or other travelers.”

“Gina Rodriguez, one of the first tenants to move into the Form 15 mid-rise in October of 2014. She and her husband began having problems when Essex Apartments took over as the property manager. ‘Once the new management team took over, [Airbnb-style listings] started popping up as soon as leases were up, it seemed,’ Rodriguez continued. She says that by the time she moved out last September (breaking her lease to do so), at least 20 units in the building were being used full-time as short-term rentals.”

“‘They would treat the building like a hotel and use it to host loud parties, take over the amenities, and generally trash the place. It was always the same known Airbnb apartments that would receive complaints and nothing was ever done to address the issue. I think the most aggravating part was that management not only did nothing about it, but they were the ones orchestrating it!’ she said.”

“Walking the neighborhood, even while residential upper floors show signs of life, a number of vacant street-level storefronts stand out. Across the street from the mostly unoccupied ground level of Form 15 lies the building that once housed Salazar’s Fine Mexican Food, a business Marta Radcliffe and her family operated for 45 years until it was shuttered in late July.”

“‘It was a sad, slow, kind of drawn-out death,’ Radcliffe says. ‘The business has just died over the last ten years or so. A lot of high-rises went in, and they’re all empty. Historically we had a lot of small local businesses — our breakfast and lunch were our strong times. But as they built all the high-rises, we lost our breakfast and lunch business because all the local workers were gone. It’s like a ghost town down there now,’ Radcliffe continues. ‘There are a lot of homeless people nearby; they’re about the only ones we’d see the last few years.’”




September 12, 2017

The ‘Myth’ And This Overpriced Madness

A report from the Bonner County Daily Bee in Idaho. “It’s important to have myths in life. A myth contains elements of truth wrapped into hopeful aspirations. They’re more than fairy tales, but less than scientific fact. Why do we create and believe in myths then? Take ‘affordable housing’ for example. The sale price of homes has increased about 6 percent each year for the past several years, while real wages in North Idaho have not kept up with that pace. At the same time, the number of listings for existing homes under $250,000 has gradually been shrinking as the low-lying fruit (i.e. the least expensive homes) have been getting picked off.”

“The issue of affordability here in North Idaho may yet morph into a hard intractable fact. The ‘myth’ is that we care, that this is on our radar as something important, that somebody is doing something about it.”

The San Gabriel Valley Tribune in California. “California’s political leaders, having ignored and even abetted our housing shortage, now pretend that they will ’solve it.’ Don’t bet on it. Longtime San Francisco journalist Tim Redmond points out that luxury apartments tend to replace the often more affordable older buildings in urban neighborhoods. There’s been a gusher of high-rises built in places like San Francisco or Los Angeles, but these are generally very expensive, and have not discernibly lowered prices.”

“When will the so-called progressives address the real needs of middle- and working-class families? Their current, and proposed, policies will result not in greater opportunity, but rather in expanded poverty. This state already suffers the highest poverty rate in the nation, when adjusted for the cost of living, which is dominated by housing costs.”

The University of Massachusetts Media. “To all developers, urban planners, housing authorities, and mayors in and around the city of Boston: You have failed this city. What’s clear is that nobody in this city, adorned with the power and equipped with the voice, has truly tried to put a stop to this overpriced madness. There are so many brand new and beautifully built residential spaces that are outlandishly priced. I’ve lost count and I’m sure you have as well.”

“Numbers like $3,443 for a 1 bedroom, $4,245 for a 2 bedroom, and $5,072 for a 3 bedroom scatter real estate offices all over Boston. What calculator are these people that set the prices using? And, more importantly, who is willing to pay these prices? I wish I could have a word with both sides because I cannot, for the life of me, understand why a studio is worth that much money. I just can’t.”

“According to a recent article on BostonMagazine.com, in order to own a home in avaricious Boston, residents need to have a salary of approximately $98,518.71. I’ll let that sink in.”

The Real Deal on New York. “According to this week’s market reports, rents are down by 2 percent in Manhattan, and TAMI tenants made up 27 percent of Downtown Manhattan office leases in 2017. The price difference between condos and new-development condos narrowed for the fourth consecutive month, to $314 per square foot, and price per-square-foot in new developments dropped 18 percent year-over-year to $2,074.”

The Business News Network in Canada. “The head of Canada’s largest bank thinks it’s time regulators sit back and digest how higher rates and a myriad of new rules flow through the country’s housing markets and the broader economy. With the Bank of Canada’s quarter-point rate increase on Wednesday already starting to pass through to consumers as chartered banks boost their prime lending rates, Royal Bank of Canada Chief Executive Dave McKay argues it’s time to take stock.”

“‘We do have to be cautious to keep layering on change on top of change until we see the full manifestation,’ McKay told BNN in an interview in downtown Toronto. ‘It’s hard to predict how these new [housing] policy moves are going to affect borrower psychology, investment psychology, and asset prices in an economy.’”

“Canadian regulators at various levels have brought in measures to take some heat out of housing markets, including new lending standards and taxes on foreign buyers in Vancouver and Toronto. On the latter, McKay said RBC welcomes the recent slowdown in the Greater Toronto Area’s housing market, where prices are 20.5 per cent below April peak levels.”




September 11, 2017

There Is No ‘Typical’ In This Market Anymore

A report from Quartz. “Yale economics professor Robert Shiller won the Nobel prize for his work on bubbles. As Shiller sees it, ‘big things happen if someone invents the right story and promulgates it.’ Quartz spoke with him about some of the frothiest assets today, from bitcoin to tech stocks. Quartz: What are the best examples now of irrational exuberance or speculative bubbles? Shiller: The best example right now is bitcoin. And I think that has to do with the motivating quality of the bitcoin story. And I’ve seen it in my students at Yale. You start talking about bitcoin and they’re excited! And I think, what’s so exciting?”

“Quartz: Hasn’t the internet democratized information? Someone can promote their views widely without getting buy-in from editors or other gatekeepers? That’s what Trump has done with Twitter.”

“Shiller: One really important thing that’s happened is that reputations don’t seem to matter as much at this point in history. You’re asking about bubbles. These are the stories that drive the bubble. Trump speaks to these things, and he seems to be saying things that nobody else will say but maybe you’re thinking.”

“He also legitimizes wealth. It wasn’t that long ago that we held rich people in contempt. We have a billionaire president, and he’s kind of welcoming: You can be rich, too. The Trump story helps inflate all kinds of bubbles, not just bitcoin. I think there are aspects of a housing bubble, and a stock market bubble right now.”

From The Daily News in Washington. “Cowlitz County home prices dipped slightly in August as more homes were listed on the market, helping to ease some pressure on the tight housing supply. Yet supply still isn’t keeping pace with demand and the market is still tilted heavily in the seller’s favor. Median home prices dropped to $216,000 in August, down from $231,000 the previous month, according to Northwest Multiple Listing Services.”

“Typically the housing market cools down in the fall and winter, but realtors say the busy market could continue longer than expected this year. ‘There is no ‘typical’ in this market anymore,’ said Sheri Evald, a broker with Keller-Williams in Longview.”

The Desert Sun in California. “A Coachella Valley lender is trying to entice buyers with the promise of getting into a home with a tiny down payment — or none at all. They’re not the kind of zero-down loans lenders offered in the years leading up to the housing market’s 2008 crash. But with clever stacking of programs, they allow people to buy houses without putting down much, if any, cash.”

“Mark Stewart, sales manager for Axia Home Loans, a lender that recently opened an office in Palm Desert, explained that first-time homebuyers can qualify for FHA loans, which only require them to pay 3 percent of the home’s purchase price up front. Then, they can get a ‘non-repayable grant’ from the Golden State Finance Authority or the California Housing Finance Agency, state agencies that support residents trying to buy homes, for as much as 5 percent of the loan amount — enough to cover the remainder of the down payment and most if not all closing costs.”

“‘A lot of times (people think) you’ve got to save $10,000 before you can get into a home,’ Stewart said. He asks realtors, ‘Do you have any borrowers that just don’t have enough of a down payment to buy a house? Do you have borrowers waiting to save up for a down payment? … In this case they don’t have to.’”

“‘Yeah, there’s always risk,’ Stewart said. ‘The likelihood of you (walking) away from something you never put your money into is greater, I agree with that, but I think the people buying these homes want to buy. I don’t think there’s a problem with zero down if you’re paying attention to the borrower. I think right now, in this period of time, the zero down’s not going to hurt anybody.’”