March 27, 2017

Worries Became Reality

A report from the Washington Examiner. “In a little-noticed statement, the Treasury bureau responsible for investigating financial crimes shared a remarkable money laundering statistic last month. Thirty percent of the cash purchases of high-end real estate by shell companies in six major cities involved a suspicious buyer, according to an investigation conducted by the Financial Crimes Enforcement Network to find out who was behind the deals.”

“In some neighborhoods, the condos may be sold out — but empty. In Manhattan, for example, the blocks between Lenox Hill and Central Park, between 63rd and 70th Streets, are nearly 40 percent unoccupied, according to the Census Bureau. On the Upper East Side’s most exclusive tract, along Fifth Avenue, more than a quarter of properties are vacant.”

“The reality is similar in other exclusive neighborhoods throughout the country. More than half of the beachfront properties in the neighborhoods at the ends of Miami Beach, Bal Harbour and the southern tip of South Beach are unoccupied. Because of unoccupied downtown condos, the South Beach neighborhood of San Francisco is one-fifth unoccupied, in the middle of one of the tightest housing markets in U.S. history.”

“In certain neighborhoods overlooking the beach in Los Angeles and San Diego, the story is the same — a third of properties in Malibu are vacant, as are half of the homes in San Diego’s Oceanside neighborhood.”

The Real Deal. “Late last year, Steven Ho saw alarm bells on social media: The Chinese government was gearing up for a major crackdown on foreign investment, and on messaging platforms such as WeChat and Line, Ho’s friends told him they were concerned that money would be tighter. In January, those worries became reality, as the government imposed exacting new capital controls that required Chinese citizens to disclose the purpose of their foreign investments.”

“In the days that followed, numerous callers told Ho, a senior loan officer at Queens-based Quontic Bank, that they were unable to get their money out of China to finance real estate investments in New York. ‘They’re saying, ‘What’s the max I can borrow?’ and they’ll figure out other means [for repayment] later,’ Ho said.”

“Since the January regulations, local banks are seeing a wave of interest from buyers who want to invest in New York real estate, but whose funds are stuck in mainland China. Cindy Morin, marketing director for Xin Development, an arm of Chinese builder Xinyuan Real Estate, said one buyer recently backed out of a deal for a $1.4 million apartment at the developer’s Oosten condominium in Williamsburg. ‘They couldn’t get the down payment out,’ she said.”




March 26, 2017

A Glittering Monument To Oversupply

A report from the Journal Sentinel in Wisconsin. “On a recent Friday, Shorewest Realtor Beth Jaworski listed a three-bedroom, 1½-bathroom Dutch colonial house with a single-car garage in a popular Wauwatosa neighborhood for $289,900. By Sunday night that same weekend, the house had five offers from buyers. It sold for $315,000. ‘I’ve never seen it quite like this,’ said Jaworski, who has been selling residential real estate for almost 25 years. ‘You can put a property on the market, and literally within hours, you’ll have 15 to 25 showings scheduled.’”

“That seller’s market deal in Wauwatosa — and many others like it — shows how hot the metro Milwaukee climate for existing home sales has become. ‘It’s definitely a starving market, meaning that there’s so little inventory,’ said Bob Larson, a broker First Weber Realtors. ‘I’ve been in the business quite some time and I’ve seen a lot of buyer’s markets and I’ve seen seller’s markets. I’ve never seen one quite like this.’”

The Herald Leader on Kentucky. “Did you hear the one about the woman selling a $140,000 home in Kenwick who was besieged with home hunters wanting to see her house? Or about home sellers who are getting offers before their house has shown up on the Multiple Listing Service of real estate for sale? These Anecdotes are not just being heard in Lexington. In Versailles, Realtor Jeri Hartley said that in a recent four-day period, she put three houses on the market, and they all sold in the first 12 hours. ‘They go extremely quickly,’ Hartley said. ‘There are a lot of buyers from last year, … waiting to pounce just as soon as one comes on the market.’”

“Susan Speckert, executive director of the Fayette Alliance, said Lexington’s low housing inventory is not unique. The alliance supports sustainable growth in Lexington through land-use advocacy. ‘Though this is a nationwide phenomenon, there are some who will try to use low inventory as an argument to expand our urban services boundary to build more houses,’ Speckert said via email. ‘This is an illogical argument that ignores the facts. There are over 5,600 acres of vacant land and thousands more acres of underutilized land available for development inside the urban service boundary. Lack of available land is not the cause of the current housing inventory.’”

The Stockton Record in California. “The cities of Manteca, Tracy, Lathrop and Mountain House are seeing revived homebuilding. Not Stockton. All those cities are closer to the Bay Area. So regional trends may explain the disparity. John Beckman, head of a developer’s group, says Stockton has an ‘acute’ shortage of 9,890 homes — his figure — and there’s no way to build subdivisions big enough without bringing more acreage into the city.”

“Eric Parfrey, the Sierra Club litigant, says there is no housing shortage. The city already approved 19,000 yet-to-be built homes, at least. Assuming a growth rate of 500 homes a year, that is enough for 38 years of growth, or 15 years beyond the General Plan’s 2040 horizon.”

“‘I think that there is a substantial amount of housing that can be built within the limits of Stockton as they exist now,’ said Tom Pace, Stockton’s Deputy Community Development director, ‘traditional infill — a vacant lot downtown — as well as large-scale master-planned communities annexed into the city not yet constructed.’”

The New Canaan Advertiser in Connecticut. “Anyone who follows New Canaan’s real estate market could tell you when it comes to single family homes, the $1-million to $3-million range is where most of the activity happens in town. But with signs of a strong 2017 spring market, observers have noted the year kicked off with strong January numbers in the below $1-million range. Mary Higgins, a realtor with Halstead Property in New Canaan who offered the latest figures, attributes the uptick to signs of a turn-around after a slow 2016.”

“‘There were a number of price corrections in 2016, said Higgins. Many sellers started to get a more realistic view of what their home would sell for and dropped their price. Those adjustments are paying off.”

“A realtor for 40 years (36 in New Canaan), Kathy Tanner is seeing buyers getting smarter and savvier. Instead of offering a lower bid and going through a lot of negotiations to get a better price on a house, they are waiting for the price to come down and jumping in. ‘I think people are more realistic,’ said Tanner of sellers. ‘Some of the houses were priced higher in the market last fall and they have reduced them.’”

The Miami New Times in Florida. “Miami real-estate analyst Andrew Stearns releases a report about the health of the city’s condominium market four times per year. In the past year, Stearns’ predictions for the city’s ‘preconstruction’ condo market have gone from bad to worse to, as of yesterday, apocalyptic. Stearns has warned for close to 12 months that Miami property brokers can’t sell all the new condos that developers are building. But in a new report issued yesterday, Stearns officially labels Miami’s units for sale that haven’t yet been built as ‘distressed.’”

“‘The preconstruction condo resale market will likely continue to weaken as more units are delivered into the distressed market,’ Stearns writes. ‘Building inventory and declining sales usually result in downside pricing pressure. Preconstruction condo developers, flippers, and existing condo resellers should expect pricing pressure to accelerate.’”

“Stearns includes a gulp-inducing chart in his report, which shows condo sales have slumped like a black-diamond ski slope, right as inventory has hit an all-time high. Now buildings are sitting on the market for months or years with empty units. The Crimson Miami in Edgewater, for example, is still 34 percent empty despite the fact that construction ended in December 2015. Rise at Brickell City Centre is still 54 percent empty. Construction was completed there in September 2016.”

“Brickell, which has been so rapidly infused with condo buildings postrecession that the towers now blot out the sun at ground level, seems to be getting hit the hardest in terms of unsold inventory. The neighborhood is a glittering monument to oversupply.”

“‘Developers may resort to mark-down liquidations or bulk sales of unsold condo units as the cycle progresses, and time will tell how doing so will affect the preconstruction or existing resale market,’ Stearns writes. ‘The built-in, developer-owned inventories, which are expected to increase as we get deeper into this cycle, come at a time with massive increase in existing condo inventories and slumping sales in the overall Miami-Dade condo market.’”




March 25, 2017

Less Than Clueless Of The Risks

A weekend topic starting with Imbibe.com. “Ever had a feeling that perhaps you missed the peak time to sell something? That by holding out for a better offer or chancing your arm a bit you ended up costing yourself money? Well if so, you can only imagine how the team at Ed’s Easy Diner feel. In 2015 the business was on the market for £90m. Just over a year later, in October 2016, after a spell in administration it was offloaded to Giraffe for just shy of £9m. Have we, after half a dozen years of solid – and occasionally frenetic – growth, reached Peak Restaurant? ‘I think so,’ says Charlie Young of the Vinoteca group of wine bars. ‘It’s not that it’s going to break – it’s actually breaking. We’re starting to see casualties.’”

The Lincoln Journal Star. “Nebraska’s land auctions still attract a crowd — farmers in co-op hats, curious neighbors, keen-eyed investors. ‘The crowds are about the same,’ said Travis Augustin, an auctioneer and managing broker with Hastings-based Ruhter Auction & Realty. But the bidders, he said, are raising their hands a little slower and less often than they did when farming was more profitable.”

“The University of Nebraska’s land-market survey, shows slower bids and land sales that have translated into a 10 percent decline in Nebraska’s average farmland value over the past year. It marks the third consecutive year Nebraska’s weighted average price for farmland has declined. The average, as of Feb. 1, was $2,805 per acre this year, which is 15 percent lower than the state’s 2014 peak of $3,315 per acre.”

From Realtytrac. “Housing prices may be appreciating at a seemingly unsustainable rate once again in some markets around the country, but Christopher Thornberg believes the nation’s economic fundamentals will continue to be much more sound in 2017 than when the market began to implode back in 2005.”

“‘There’s no housing bubble. Not even close,’ assures Thornberg, Founding Partner of Beacon Economics LLC in Los Angeles. ‘There are three basic worry indicators and all three were very scary in 2005 and all three today suggest, if anything, that the housing market is still in the process of recovery instead of being near a new bubble.’”

From USA Today. “According to Foreign Affairs magazine, Americans reject the advice of experts so as ‘to insulate their fragile egos from ever being told they’re wrong.’ That’s in support of a book by Tom Nichols called The Death of Expertise, which essentially advances that thesis. But it also seems pretty plausible that Americans might look back on the last 50 years and say, ‘What have experts done for us lately?’ Not only have the experts failed to deliver on the moon bases and flying cars they promised back in the day, but their track record in general is looking a lot spottier than it was in, say, 1965.”

“It was experts who brought us the housing bubble and the subprime crisis. It was experts who botched the Obamacare rollout. And, of course, the experts didn’t see Brexit coming, and seem to have responded mostly with injured pride and assaults on the intelligence of the electorate, rather than with constructive solutions.”

“As Nassim Taleb recently observed: ‘With psychology papers replicating less than 40%, dietary advice reversing after 30 years of fatphobia, macroeconomic analysis working worse than astrology, the appointment of Bernanke who was less than clueless of the risks, and pharmaceutical trials replicating at best only 1/3 of the time, people are perfectly entitled to rely on their own ancestral instinct and listen to their grandmothers.’”

“Then there’s the problem that, somehow, over the past half-century or so the educated classes that make up the ‘expert’ demographic seem to have been doing pretty well, even as so many ordinary folks, in America and throughout the West, have seen their fortunes decaying. Is it any surprise that claims to authority in the form of ‘expertise’ don’t carry the same weight that they once did?”

“If experts want to reclaim a position of authority, they need to make a few changes. First, they should make sure they know what they’re talking about, and they shouldn’t talk about things where their knowledge isn’t solid. Second, they should be appropriately modest in their claims of authority. And, third, they should check their egos. It doesn’t matter what your SAT scores were, voters are under no obligation to listen to you unless they find what you say persuasive.”

“And you know what makes you less persuasive? The kind of contempt displayed by Foreign Affairs. If expertise is dead, it’s because those who claimed it overplayed their hands. It’s not the death of expertise, so much as a suicide.”




March 24, 2017

Not All Houses Are Sold Immediately Regardless Of Price

It’s Friday desk clearing time for this blogger. “Mortgage giant Freddie Mac today announced a new program that will allow lenders to give mortgages to buyers without credit scores. While the program may remind some observers of housing bubble loans, Freddie Mac says the program is a ‘responsible’ way to enable unconventional buyers to purchase homes. ‘We’re committed to supporting responsible lending and improving access to credit for all borrowers, including first-time home buyers, low- and moderate-income buyers and underserved populations,’ said David Lowman, executive vice president of Freddie Mac’s Single-Family Business.”

“With the combined inventory of single-family homes and condos in Manatee and Sarasota reaching its highest point in nearly five years, it’s no surprise the two-county area bucked the national trend and saw a significant increase in sales last month. There were more than 8,500 properties on the market in February, the most in the two-county area since April 2012. ‘With more active listings on the market, buyers are able to take time to view and compare more properties, and are not under pressure to jump on the first property they see,’ RASM president Xena Vallone said. ‘We are seeing this translate into longer time on the market.’”

“The unprecedented growth in Long Island City is evident to anyone in western Queens with views of the rapidly changing skyline. A new real-estate market report released by the Long Island City Partnership shows the residential sector is exploding with nearly 9,000 new units slated to come on line in 2017, which would be the most in a single year in the neighborhood’s history and almost double the area’s existing inventory.”

“This will bring the total number of residential units built in Long Island City since 2006 to more than 20,000. The study shows 1,573 units are planned to come on line in 2018 with another 11,532 units planned for 2019 and beyond.”

“When Brandywine Realty Trust won a high-stakes bidding war in 2011 for one of the last substantial pieces of untouched land in Center City, it seemed as if the Philadelphia housing market could only work in its favor. Yet the Center City rental market is far more competitive than it was back when Brandywine set its plan in motion. When the project was announced in 2012, just 844 apartment units had been delivered in the five years prior, according to the Center City District. By the time 1919 Market opened for business, that number had nearly tripled in 2014 and 2015 alone.”

“With so much new supply and more to come in the near future, regional observers have begun to ask a big question: Can all these Philadelphia apartments actually be filled? ‘We’ve been offering concessions since we opened,’ said Lauren DeMezza, property manager at 1919 Market. ‘Of course, there will be some cooling off,’ said Paul Levy, CEO of the Center City District. ‘A lot of supply has come onto the market. … And if you are a lender of a builder coming late to the market, you may have some concerns.’”

“The Bay Area may be losing a bit of its luster. After years of being overrun by new residents drawn by a red-hot economy, the number of people moving out has begun to catch up with the number moving in, new census data show. In fact, in some parts of the Bay Area — including Santa Clara, San Mateo and Marin counties — already more people are leaving than arriving, according to the estimates. For Redwood City resident Lolly Mitchell, 29, the scales have tipped on the side of cost. ‘I moved up here because there was more work for my husband,’ said Mitchell, who came from Southern California. ‘We’ve been working hard to be financially secure here. But we don’t want to live paycheck to paycheck. We just don’t want to be at risk for the amount of money we’d have to pay’ for a new home.”

“The rapid growth of housing prices in the Norwegian capital may be about to end, Real Estate Norway Chief Executive Christian Dreyer told Reuters. ‘We have seen signs of a change in character in the housing market in Oslo, with fewer people showing up to see houses for sale, and also less people bidding,’ he said. ‘Houses are still being sold, but we are about to return to a more normal situation in which not all houses are sold immediately regardless of price.’”

“Lenders and developers are offering property investors lucrative incentives ranging from annual commission payments of $100,000, loan discounts of more than 100 basis points and cash incentives, a review of top deals reveals. Developers are also offering generous discounts and special offers.Independent research by valuation group Herron Todd White (Melbourne) has uncovered evidence of market manipulation by developers attending to maintain the market price. It typically arises where off the plan purchases cannot complete a deal and threaten to sell the apartment at a lower price, which would lower the average price for the block. In these cases, developers are known to buy back the property, which artificially inflates the price, its research involves.”

“Rcihard Houston, Fintrack’s chief executive, said demand for high rise central business district apartments had fallen by about 50 per cent in the past three months.”

“Recent government regulations have created ‘unprecedented levels of uncertainty’ for the high-end home market heading into the key spring buying season, Sotheby’s International Realty Canada said in a report. Sales of homes for over $1 million in Vancouver fell to 531 units in January and February of this year, down 45 per cent from a year ago, Sotheby’s said. The luxury segment of the Vancouver market — defined as homes worth over $4 million — was even more dramatically affected, plunging 68 per cent from a year ago to 43 units, according to the report.”

“Bounced cheques are increasing across Oman as residents facing pay freezes struggle to make ends meet. The economic downturn in Oman has led to lay-offs, delays in salary payments and a freeze on housing, flights allowances and expenses. ‘It is totally a tenants’ market now, with most buildings half empty and looking for tenants. Payments are coming late and cheques have started bouncing as people are finding it hard to sustain,’ Country Operations Manager of Eqarat, Salman Jalil said. ‘In every building there are one or two cases. Earlier there were no cases. Initially, we try to give them more time but if it happens regularly, we hand over it to our legal department,’ he said. Eqarat manages more than 1,000 units in Oman.”

“Economist Gan Li and his researchers at Chengdu’s Southwestern University of Finance and Economics are gearing up for their national survey of Chinese households. The now much anticipated project almost suffered a premature death in 2012 after it exposed how Chinese society had become one of the most unequal in the world. Gan has been on a mission to depoliticize statistics. ‘The problem is not just the gray areas,’ he says. ‘In China, lots of things are completely dark.’”

“Gan’s research on China’s housing sector has also made waves. He figures that 70 percent of total household wealth is made up of the value of apartments. About 50 million already-sold units sit empty, much more than some investment banks had estimated. (The government doesn’t release national data on empty apartments.) China has a vacancy rate of 18 percent, compared with 13 percent in the U.S., Gan says.”

“Although his data were at first contested by property developers, now they are more widely accepted. That’s one reason officials are reducing housing inventory. ‘With policymakers mainly in Beijing, a city with rising housing prices, they assumed that China needed more apartments,’ Gan says. ‘Now the policy has almost 180 degrees turned.’”




March 23, 2017

The Roll Developers Have Been On Is Starting To Change

A report from Business Den in Colorado. “A 400-unit apartment complex in the Ballpark neighborhood sold this week for $126 million. Greenwood Village-based Griffis Residential bought Skye 2905 just north of Coors Field on Monday, city records show. Monogram Residential Trust, a Texas firm, was the seller. Jim DiRienzo, Griffis Residential’s VP of investment, said the company isn’t worried about a glut of residential units flooding the Union Station/Ballpark neighborhood. Long term, he said, people and businesses will keep moving in. ‘Our view of the Union Station neighborhood is that it’s sort of at its infancy,’ he said. ‘We think we can make it through the cycles.’”

“The 7-year-old complex sold for $315,000 per residential unit. The sale also includes the storefront of a ground-floor liquor store. The property last traded in April 2008 for $21 million, according to city records. Griffis Residential is funding its purchase in part with an $81.9 million loan from Teachers Insurance and Annuity Association of America.”

The Charlotte Observer in North Carolina. “Think you’re paying too much in rent? Chances are, you’re right. The Observer found the average rent for a two-bedroom place in Mecklenburg County increased $250 since 2011, making the payments a financial burden for more than 100,000 people. In some neighborhoods, the cost is much higher, effectively eliminating the areas from thousands of would-be renters. A study released last year by Abodo, an apartment-tracking firm, found 48 percent of renters in Charlotte met the definition of ‘cost-burdened.’”

“Igor Gorlatov and his wife and son, almost 3, recently upgraded from a one to a two-bedroom apartment in the McAlpine Creek area, to get ready for a baby on the way. His current rent, $1,035, is close to what he expected. But rent eats up about 60 percent of his monthly earnings as founder of a consulting startup. That’s twice the percentage of income that housing experts say households should spend on rent. ‘It is a big chunk of our expenses, of course,’ said Gorlatov, who runs Successful Negotiators Club. ‘It was a challenge to find the right place, and find a place that would accept not a regular income that your employer would give you, but my entrepreneurial status.’”

The Philadelphia Inquirer in Pennsylvania. “Philly rent has been climbing but the latest data from two major rental firms, Abodo and Zumper, show numbers falling locally in their March reports. According to Abodo, local monthly rents fell so precipitously last month, Philadelphia is at the top of its biggest decrease list. As usual, we can all breathe a sigh of relief that we don’t live in San Francisco or New York, where rental prices – which are down about 9 and 11 percent respectively from this time last year – are still about $3,000 a month.”

“With that said, it’s still worth mentioning that local rental rates remain north of the national average this month – no matter whose report you reference.”

From SF Curbed in California. “Rental site Zumper on Wednesday ranked Bay Area cities to see where median apartment prices had dropped the most year over year. Where things got interesting was the year-over-year comparison. Earliest this month, Zumper reported that they saw a huge nine percent decline in San Francisco prices since 2016. It turns out this was a region-wide trend: Median rents on Zumper are down 15 percent in Redwood City, Burlingame, and Emeryville, 13 percent in Santa Clara, 12 percent in South San Francisco, ten percent in Fremont, and nine percent in Mountain View.”

From Tulsa World in Oklahoma. “Steve Ganzkow, co-founder of Tulsa-based American Residential Group, was among the panelists who spoke at the 2017 Greater Tulsa Commercial Market Update. Among ARG’s most recent developments is The Edge at East Village, a downtown apartment community that opened last year. ‘The important thing is that people want that 24-hour lifestyle,’ Ganzkow said. ‘When they come home, they want to be able to walk out that door and go do something, whether it’s cultural or sit at a bar. … That’s where these things and these new thoughts and new plans and new ways of doing things are being done.’”

“Such housing, however, needs to become less costly, he said. The Edge’s price point is about $1.65 per square foot, Ganzkow said. Compared with projects in south Tulsa, developments downtown typically run 25 percent more, he said. ‘We have to create a product that is more affordable,” Ganzkow said. ‘I think the answer is going to be a public-private partnership. I know that Fannie Mae and Freddie Mac — that’s one of their goals. If they are going to stay in business, they have to figure out a way to provide a more affordable product for the developers to do that. It’s not just cut back on amenities. It’s going to be a whole capital-structure approach.’”

“He said the ‘roll’ the city has been on the past five to six years, however, is starting to change. ‘We’re currently experiencing a slowdown on a combination of job losses and increases in the supply of newly constructed apartments and renovated projects,’ Ganzkow said.”

From Multi-Housing News on Texas. “Houston’s multifamily market is still reeling from the oil price collapse in 2015, which resulted in thousands of job cuts and slowing investment activity. The outlook for multifamily is not favorable, since the development pipeline includes 58,000 units and the local economy remains unstable. With very low rent growth and an occupancy rate that lags the national average, absorption of the 18,700 apartments added in 2016 will be slow.”

“Transactions remain widespread across the metro, while upcoming development is focused on the West End/Downtown submarket—with 4,800 units under construction.”




March 22, 2017

The Markets That Have Recovered Too Much

A report from the Denver Post in Colorado. “There were 25 percent more starter homes available in metro Denver at the start of 2017 than at the start of 2016, and about a fifth more trade-up homes, according to Trulia. Something may be changing in the market. The starter-home inventory has seen annual increases for four straight quarters, and with each passing quarter, the percentage change is getting larger and larger.”

“Trulia’s chief economist Ralph McLaughlin puts Denver in the category of markets that have recovered ‘too much’ — along with cities like Seattle and San Francisco. If home-price gains outstrip income gains by too wide a margin, or if the price gaps between each tier are too large, it can make it harder for a housing market to function. ‘If it is difficult to afford your next house, you may be more inclined to stay put and renovate your existing home. It won’t ever go on the market,’ he said. That depresses inventory, further driving up prices.”

“For the bottom-third of earners, adjusted to exclude renters, affording the median-priced starter home would consume 41.1 percent of income. Most lenders would reject that loan, absent a very large down payment to bring that ratio down.”

“That might offer one explanation for the rise in the starter home inventory — more would-be buyers of starter homes are now priced out of the market. Another explanation comes on the supply side. The Denver Metro Association of Realtors found a large 19.2 jump in the inventory of condos available for sale last month, which it linked to more mom-and-pop landlords, who snapped up bargain properties during the downturn, now taking advantage of higher prices to cash in.”

The Union Tribune in California. “The San Diego County median home price dropped 1 percent in February to $492,000, CoreLogic said. Typically one of the slowest months of the year, the February median price has increased on average just 1.4 percent from January since 2000. San Diego’s median hit $507,500 in October but has been under half a million dollars since. It is still below the nominal 2005 peak of $517,500 (or $644,487 in 2016 dollars). There were 2,605 home sales in February, down 405 homes from its average since 2000. Chris Thornberg, economist and founding partner of Beacon Economics, said three factors may impact buying as the year goes on — higher mortgage interest rates, economic uncertainty with Trump administration policies and a possible slowdown of American home purchases by foreigners.”

“‘Any of those could be a realistic reason for slowing activity,’ he said, ‘and any of these reasons could say to us this summer won’t be as good as last summer from a sales and price perspective.’”

“The February resale home median price in San Diego County was $535,000. The newly built home price in February, $565,000, was at one of the lowest points in the last two years, likely the result of few single-family homes being built. There were just 170 newly built homes sold in February — roughly half of what was sold in the summer.”

From Bloomberg on New York. “In Manhattan’s East Village, buying an apartment beats renting within four years. In the Soho area just a few blocks away, it would take 31 years before owning makes more financial sense. That analysis of the so-called tipping point—the amount of time it would take for the cost of renting to equal or exceed the cost of buying a comparable home—is based on Bloomberg’s new exclusive, interactive map of real estate prices by neighborhood in Manhattan and Brooklyn, using fourth-quarter data from StreetEasy.”

“In a market weighed down by a glut of new luxury developments and resale listings that continue to pile up at ambitious prices, buyers have more choices and negotiating power. The leasing market too is facing a supply surge, and as landlords offer concessions and cut prices to keep vacancies in check, renters looking to buy have added reason to delay a purchase—or bargain harder.”

“In midtown Manhattan, sales in the three months that ended Dec. 31 carried median discounts of 8.3 percent from their initial asking price—the biggest reductions in the borough. Buyers in the West Village got median reductions of 5 percent. In Chelsea, sellers whittled a median of 4.6 percent from their asking prices to strike a deal. In many of Manhattan’s established neighborhoods, more than 40 percent of sales listings in the quarter got a price cut. On the Upper West Side, 42 percent of listings were discounted, and on the Upper East Side, the portion was 45 percent. The Lenox Hill area had the highest share, with 51 percent.”

The Miami Herald in Florida. “The middle of the South Florida home sales market is hot while the rest of the market is not. this mid-market boom comes as sales of existing single-family homes and condos each decreased 10 percent year over year, from a total of 2,039 to 1,835. Inventory increased for condos and decreased in the single-family category. Single-family homes have a 5.9-month supply, which indicates the top end of a seller’s market. Condo supply grew to 13.7 months, which indicates a strong buyer’s market.”




March 21, 2017

Normalization Follows Years Of Red-Hot And Record-Breaking

A report from the American Statesman in Texas. “Home sales in Pflugerville in January and February are less than half of what were sold in the same period last year. But Brandy Guthrie, president of the Austin Board of Realtors, said that dip does not indicate a weak market. Instead, she said, it is more indicative of a market moving toward normalization. That normalization follows two years of a ‘red-hot’ and ‘record-breaking’ real estate market in Central Texas, she said, which still remains robust this year. She noted the median price of homes rising from about $240,000 in January to $250,000 in February as homes continue to sell quickly and regularly receive multiple offers.”

“Guthrie said a continuing stream of new homes in Pflugerville will continue contributing to a robust Central Texas market. But with demand still high, it will remain a seller’s market. ‘Right now we have a housing shortage,’ she said. ‘Until we can get additional supply for the region, prices will continue to increase.’”

The North Bay Business Journal in California. “2016 was a strong year for apartment sales in Marin County, with multiple offers the norm for both five-plus-unit complexes and smaller, two- to four-unit properties. Both categories saw year-over-year price increases, with some southern Marin prime apartment properties selling at over $500,000 per unit. In central and northern Marin cities, prices are now $201,000–$409,000 per unit, depending on location and amenities. The majority of central Marin prices is currently around $300,000 per unit.”

“Smaller properties also received price increases in 2016. Southern Marin fourplexes sold for as high as $3.55 million. Duplexes in both Tiburon and Sausalito are now selling for $1.8 million–$2.3 million. Just two years ago, the same-sized duplexes were selling for $1.4 million–$2.0 million. Capitalization rates for five-plus-unit properties ranged from 2.69 percent for complexes with 30 percent upside in rents to around 4 percent for apartment properties that sold with rents near or at current market rents.”

“At the same time apartment sales were strong, southern Marin apartment rental rates continued to soften as more new apartments and condos came to market in San Francisco. Southern Marin two-bedroom luxury apartments that were renting for over $4,000 per month in the past two years are now renting for around $3,400–$3,600.”

From Arlington Now in Virginia. “Question: I’ve been renting my unit at the 1800 Wilson condos in the Rosslyn/Courthouse area for the last five years and am wondering why I used to get more rent five years ago than I do today, despite keeping the unit in great condition for each renter. Any ideas? Answer: You may have heard that over the last five to six years, the rental market has hit all-time highs across the country, so it makes sense that you’d expect your rental income to increase. However, the increased rental demand and previously undersupplied luxury rental market in Rosslyn got the attention of some major developers, who recently built larger luxury rental buildings nearby.”

“Don’t expect a huge jump because rental supply is substantially higher now and Central Place, above the Rosslyn Metro station, just started leasing 377 luxury units. However, many of these apartments are in the ultra-luxury market.”

From The Real Deal. “Criminal charges are looming for scandal-plagued Malaysian businessman Jho Low, who has been accused of stealing billions of dollars from a state development fund. Prosecutors’ plans involve charges of wire fraud and money laundering against Low and others, according to the Wall Street Journal, characterizing the scheme to siphon money from the 1Malaysia Development Bhd. as one of the largest-ever cases of financial fraud.”

“In addition to criminal charges, the Department of Justice is looking to seize additional assets from Low, including his $165 million, 300-foot yacht. It is also looking to seize a luxury apartment in Paris and a penthouse in London. Separate from the criminal investigation, the DOJ filed civil lawsuits this past summer, seeking to seize more than $1 billion in assets, including art and luxury real estate in New York City.”

From Crain’s New York Business. “Brookfield Properties has seized control of the Brill Building by foreclosing on a mezzanine loan it held against the Times Square property that had slipped into default in recent months. Real estate investment firms Brickman & Associates and Allied Partners had purchased the building for $185.5 million in 2013, then sold a minority share to additional partners last summer in a deal that valued the property at $310 million but also heaped on debt, according to reports at the time.”

“The takeover took place after the building’s owners couldn’t execute on a plan to lease its roughly 40,000 square feet of retail space for sufficient rents to make their investment pay off. ‘We made an investment four years ago that was predicated on certain retail rents, and instead those rents dropped tremendously, and we couldn’t generate the cash flow we expected,’ said Steven Friedman, Brickman’s chief investment officer, who confirmed his firm and its partners turned the property over to Brookfield. ‘Across the spectrum you’re seeing retail just getting creamed for a variety of reasons, and this is an unfortunate result of those problems.’”

“When it comes to retail, Brickman is far from alone. Urban Outfitters CEO Richard Hayne recently compared the challenges facing retailers to the housing bust during the Great Recession. ‘Thousands of new doors opened, and rents soared,’ Hayne said of the rapid increases in retail capacity that marked the 1990s and early 2000s. ‘This created a bubble, and like housing, that bubble has now burst.’”




March 20, 2017

The Housing Market Is Bubbly

A report from The Age in Australia. “A senior Chinese policeman has been jailed for 17 years for embezzling money to buy two Australian homes for his two daughters. The Australian real estate purchases were among a huge property portfolio, with no obvious legitimate source of funding, Chinese prosecutors said. Wang Jun Ren, 59, was the police chief of Guta District of Jinzhou City in Liaoning province, when he began asking a local property developer for millions of Chinese yuan to pay for the Australian real estate purchases for his family.”

“Wang was convicted of corruptly taking 174million yuan by himself, and another 24,800 yuan with his wife, taking bribes of 680million yuan, and having a huge amount of property of unknown source. That trial was held in December. The jail sentence comprised of four years for corruption, 12 years for bribe taking, and four years for the unknown funding source of a huge number of properties.”

The Domain News. “Rob and Ruth Peters don’t see themselves as criminals. She is the mother of two home-schooled children and Rob is best known in his Canadian home town as the high-profile oil and gas entrepreneur. But it seemed fitting to depict the family of four as criminals wearing striped prison garb in a caricature on their recent farewell party invitation given the way they feel the government has portrayed them and other foreigners caught up in the crackdown on foreign property buyers.”

“Despite appeals by their local MP, Tony Abbott to Treasurer Scott Morrison on their behalf, the Peters family are being forced to sell their Manly home of the past 14 years because they unknowingly bought it in contravention of the rules on foreign investment.”

“‘We appreciate what the government is trying to do but they’ve missed the boat on this issue,’ Mrs Peters said. ‘They’ve made it very easy for foreigners to buy as much real estate as they want as long as they have paid for a $5 million [Significant Investment] Visa, even if the buyers are never living here and leave the house empty, but we are living here and contributing to the community we live in, and yet we are being forced out.’”

From Bloomberg. “Australia is facing a period of ‘heightened risk’ in the housing market, the nation’s top banking regulator said, amid rising speculation further lending curbs may be imposed to cool runaway housing prices. Australian Prudential Regulation Authority Chairman Wayne Byres said that while he refused to ever use the ‘B-word’ — referring to a bubble — ‘if everyone isn’t careful, the risk in the system is going to rise.’”

“APRA’s role is to ‘dampen’ lenders’ enthusiasm and ensure finance providers are exercising a ‘higher degree of caution than unusual,’ he said. Earlier, Australian Securities & Investments Commission Chairman Greg Medcraft told the conference the housing market is ‘bubbly’ and he is ‘really concerned consumers don’t put themselves in above their head.’”

The Sydney Morning Herald. “Hundreds of new home owners have been left in limbo after the collapse of a land developer in Melbourne’s outer north-west. Developer Land Source Australia was placed in administration last year leaving residents of Waterford Estate unsure if key features of the estate – parks, ovals and shopping centres promised by the developers – will be delivered.”

“Waterford is the second developer in as many months to go into administration. Home builder Watersun, a company founded by high-profile developer Benni Aroni, was placed in voluntary administration leaving a cloud over 200 home owners.”

“Adrian Swinge, who has lived on the estate with his wife and three children for four years, said he had been led to believe a school would be built by the time his four-year-old son turned five. ‘We’ve invested in this estate and we’re left with no course of action. It’s blown up in our face. This was our future, this house,’ he said.”

From ABC News. “Debts run up by collapsed Victorian construction firm Watersun Homes are likely to hit $20 million, double the original estimates, the administrators say. The hundreds of homebuyers affected by the collapse were told they should find out within a matter of weeks if other building firms are willing to complete about 300 unfinished homes. In all there are 800 creditors — including 90 employees who have lost their jobs.”

“One employee, who did not want to be named, said she knew there were problems and warned of a ‘ripple effect’ across the industry. ‘They were good at sales, but bad at management,’ she said.”

From Reuters. “Australia’s quarter-century run of uninterrupted economic growth has made its property market one of the world’s most expensive, but mortgage pain in towns hit by a commodities downturn is beginning to be felt in parts of the financial system. While most Australians are able to pay their debts, alarm bells have sounded around pockets of distress in the mining-heavy states, raising warnings from policymakers, ratings agencies and the Organisation for Economic Co-operation and Development.”

“In the remote mining town of Karratha in Western Australia, 61-year-old Peter Lynch received a letter advising him that his bank was going to repossess his house at the end of the March. Two decades ago, Lynch borrowed money to buy a five-bedroom house in the town, thinking his job as a railway maintenance worker at Rio Tinto would last until he retired. But the end of a one-in-a-century mining boom changed all that. He now owes A$222,000 ($168,764) and earns A$42,000 a year as a cleaner, or roughly half his pay at the mine.”

“‘My property in 2010 was worth A$905,000, today it’s worth A$260,000,’ Lynch said, estimating that seven out of 20 homes on his suburban street were for sale.”




March 19, 2017

Too Many Expensive Houses That Just Aren’t Selling

A report from the Commercial Appeal in Tennessee. “Among cities where at least 250 homes were flipped last year, Memphis ranks No. 1 for the portion — 11.7 percent — of all metro area home sales that involved a flip. Thomas Byrd generally sees house flipping as bad for Memphis. Flips and out-of-town investors inflate the price of houses for working Memphis families, which helps keep them in rental housing, said Byrd, a broker with ERA Legacy Realty who heads the local chapter of black real estate agents. ‘In some cases you may see a house in Frayser and you look for comps and you see it’s $124,000,’ Byrd said. ‘And you say, ‘Whoa, where did that price come from?’ You see the same agent working the deal and he may be selling it to somebody in California or Australia.’”

The Orange County Register in Florida. “Southern California isn’t exactly flipping over real estate. New data from Attom shows flips were on the upswing nationally in 2016 while declining locally. ‘Many local flippers are being priced out of the Southern California market and are either going further inland or to other states to flip, or not flipping at all,’ Attom’s Daren Blomquist says. ‘One flipper I talked to in Norwalk who has been doing this for 25 years said he has completely stopped buying and even compared the market to what he was seeing in 2008.’”

From Space Coast Daily in Florida. “There are now 247 single-family homes, condos and town homes built in 2017 for sale in Brevard County, according to the BrevardMLS.com. Last year, 233 properties sold that were built in 2016. ‘New home sales have continued to be strong for Adams Homes across the Southeast. Although hard cost increases have pushed home prices up, historically low interest rates have kept buyer excitement high’ says Elizabeth Porter, Regional Manager for Adams Homes. ‘Adams Homes has made a strong investment in lots to prepare for continued growth and we’re optimistic about the future.’”

The Greensboro News and Review in North Carolina. “The irony is rich. Residents incorporated northwest Guilford County’s three towns — Oak Ridge, Stokesdale and Summerfield — from 1989 through 1999 as protection from Greensboro’s annexation and the taxes and eventual crowding that come with that. But now Summerfield finds its quiet way of life challenged from, of all places, within. Some Realtors and residents say the town has too many expensive houses that just aren’t selling. Their solution: a new type of zoning called Planned Development that would allow developers to build less expensive, more concentrated housing on large tracts.”

“Churchill Brown has lived here for 17 years. The SunTrust real estate banker says he has no vested interest in any development. Still, as a homeowner he understands the need — the town is filled with mostly expensive homes. Summerfield has scores of smaller, older houses in subdivisions built before the town incorporated, but new construction has kept the median home price high — $336,000 in 2014, according to officials.”

“‘Ultimately what happens over time, if people want to make a move, they lose money,’ Brown said. ‘I’ve seen it play out on my street.’”

“Veteran Greensboro real estate executive Betty Smith said there’s simply an oversupply of big lots. Statistics show hundreds of large lots and houses are going unsold in northwestern Guilford County. In Summerfield, Stokesdale and Oak Ridge, up to 1,900 developed and undeveloped lots were available in January, according to research provided by Smith. That research shows the average new home price in the Summerfield/Oak Ridge area was $528,973 and $392,336 in the Stokesdale area. ‘We have a large number of lots already on the ground and there’s not a lot of buyers,’ she said.”

From The Real Deal on New York. “From name dropping to price chopping. One of the biggest price reductions in the city’s luxury market last week was a West Village townhouse that boasts an impressive guest list. In total, 12 properties asking more than $10 million received price reductions greater than 5 percent in the period between Monday March 6 through Tuesday, March 14, according to data from StreetEasy. The nearly 5,900-square-foot penthouse at Zeckendorf Development’s 50 UN Plaza hit the market in December, asking $25.25 million. Last week, $5.3 million was shaved off the price tag, a discount of 21 percent.”

“215 Sullivan Street: This six-bedroom, seven bathroom townhouse at Broad Street Development’s condo conversion sold for $17.4 million in March last year. The buyer, who used an LLC, is hoping to make some quick cash — and put it back on the market for $22.5 million in December. Last week, the seller downgraded expectations and dropped the price by 11 percent. It’s now on the market for $20 million.”




March 18, 2017

The Way Government Entities Think About Affordability

A weekend topic starting with a CNN opinion piece by William Poole. “Today, the Fed is again ignoring the GSEs and their potential contribution to future instability. According to Freddie’s 2016 annual report, ‘Expanding access to affordable mortgage credit will continue to be a top priority in 2017.’ Fannie/Freddie have redefined ’subprime’ to a credit rating of below 620; previously, these firms and banking regulators had used 660 as the dividing line that defined a subprime borrower. Now by using the lower number, they may be buying even weaker mortgages than before the financial crisis.”

“The GSEs are wrapping new sub-subprime mortgages into the mortgage-backed securities they sell to the market. Fannie and Freddie guarantee these securities, and because the federal government stands behind the GSEs, there is little market discipline. Think about that: With regard to subprime mortgages we may now be in worse shape than we were before the crisis.”

“According to the Fannie/Freddie annual reports for 2016, it is surely the case that subprime mortgage issuance is one force driving house prices once again — up by about 30% over the past four years and now about back to the elevated peak in 2006. Why isn’t the Fed talking about this matter? Someone please convince me that ‘this time is different.’”

From Arizona Big Media. “‘You can never have too much of a good thing,’ or so the saying goes. But that’s not true when it comes to residential real estate in Metro Phoenix. ‘Arizona continues to have a shortage of listing inventory, especially less than $300,000,’ says Trudy Moore, designated broker at HomeSmart. ‘First-time home buyers make up a large sector of the market and there are just not enough listings to fulfill the need. If a property is listed under $300,000 and it is in good condition, it will probably have multiple offers within a few days.’”

“‘Our projection is for 16 percent more new home demand in 2017 and significant appreciation — 7 percent to 9 percent,’ says Jim Belfiore, owner of Belfiore Real Estate Consulting. ‘The rise in demand is already underway. The appreciation is due to inflation, and while we project this growth in home prices, the question is whether or not it will actually take hold?’”

“What is more clear, Belfiore says, is that builders need appreciation to cover the cost of new land, lots and higher building costs.”

The Coloradoan. “New home construction in some parts of Northern Colorado leveled off in 2016 due in part to a lack of affordable and available building lots. But that doesn’t mean there’s a dearth of building activity on both sides of Interstate 25 as area communities struggle to keep up with housing demand.”

“In some communities like Windsor, developers hit the gas last year and show no sign of letting in 2017. The town issued 690 single-family building permits last year, more than doubling the permits issued by the town in 2015 and 2014 and exceeding the number of permits issued by much larger Fort Collins and Loveland.”

“A lack of affordable and available lots is driving all new residential construction, said Eric Holsapple of LC Real Estate Group, which is developing homes in Loveland and Fort Collins. The company is building out its Spring Creek and Story Book projects in Fort Collins and 48 lots at Mariana Butte golf course in Loveland.”

“‘It’s really hot, but we’re looking where the next place to go is and it’s slim pickings,’ Holsapple said. ‘It’s either hundreds of acres that take a lot of infrastructure’ or lots that are slow to be brought to market. As inventory wanes, the cost of new lots, including water, continues to rise.”

“The next round of lots are selling for $100,000, up from about $60,000 to $75,000, fueled by soaring water costs.”

“LC Real Estate has found 36 acres east of Interstate 25 and south of Mulberry Street that it intends to buy from Fort Collins developer Les Kaplan, who abandoned plans to build Fox Grove. Holsapple said he anticipates building about 75 homes on the site, including some two-story projects. ‘With the cost of land, we have to go to a little bigger home,’ he said.”

The Daily Camera in Colorado. “There’s no affordable homes left in Boulder County. Looking to head east to the Carbon Valley? There’s nothing left there, either, according to a new affordability study out of Longmont. In the last three years, the number of single family homes for sale under $250,000 has dropped 72 percent, and the number of attached dwellings for less than $150,000 declined by 87 percent.”

“The report extends past Boulder County and into Weld and Larimer counties, covering Boulder, Longmont, Lafayette, Louisville, Superior, Erie, Loveland, Berthoud, Firestone, Frederick, Mead and Dacono.”

“Not one of the 12 towns has an average home price under $250,000, the study’s threshold for entry-level affordability. Dacono is the closest, with a $265,363 average cost. For attached dwellings, only Mead was under the $150,000 threshold, with a $128,633 average — data that came from three sales last year.”

“‘Our conclusion from the information presented here is that there are no entry level housing options,’ reads the report. ‘The lines we drew in the sand as reasonably priced in both categories will soon be obsolete.’”

“In a recently released affordabilty report, NAR Chief Economist Lawrence Yun said, ‘Home prices have ascended far past wage growth in much of the country in recent years because not enough homeowners are selling and homebuilders have not boosted production enough to meet rising demand.’”

“Without the addition of lower-priced condos to the local market, Kyle Snyder of Land Title Guarantee Company predicts prices will go nowhere but up. ‘The bidding wars, the short days on market — I don’t think it’s going to slow down,’ he said. ‘The demand is just too high.’”

“Aside from the obviously devastating effect to potential buyers in lower income groups, the ever-rising prices could change the way real estate professionals and government entities think about affordability. ‘Our measuring stick is about to become obsolete,’ Snyder said.”




March 17, 2017

There’s A Reason That Fantasy Isn’t Reality

It’s Friday desk clearing time for this blogger. “The Trump administration’s budget plan for 2018 includes cuts to federal agencies that are so large, some economists say it would drive down federal employment and make a noticeable dent in housing prices in Washington, DC, Virginia and Maryland. But President Trump’s budget director, Mick Mulvaney, told reporters that the budget wasn’t written to help prop up DC-area housing prices that have been the envy of other parts of the country for decades. ‘I can assure you that we did not write this budget with an eye toward what it would do to the value of your condo,’ he said.”

“Central Texas home sales retreated in February, with sales increasing less than 1 percent year-over-year, the latest figures show. ‘We’ve started off to what looks like will be another strong market, though not as insanely robust as years past,’ said Austin broker Eric Bramlett. ‘The result is a healthy market that’s appreciating at a normal 5 percent to 7 percent rate. Comparative to years past, this feels like a slowdown, but we’re really seeing a return to normal price appreciation that a world-class city like Austin tends to take for granted.’”

“David and Diane Charlton own the kind of home others fantasize about: a European-influenced country estate set back from major roads. A sprawling 34 acres surrounded by protected Chester County land. Yet there’s a reason that fantasy isn’t reality. Despite the amenities, the land, and a strong school district, the house can’t seem to sell. The slowdown has spelled trouble for iconic, sprawling estates. In Gladwyne, the famed Linden Hill has been on the market since 2013. But it was listed at $24.5 million four years ago. And on the market it has sat. Over time, the price has been slashed by nearly $8 million.”

“‘Linden Hill is an absolute treasure,’ said Lisa Yakulis, the Kurfiss Sotheby’s agent for the property. ‘It’s just harder to find that buyer.’”

“Miami’s luxury condo market may be soft, but it’s not quite at the point where investors are scrambling to pick up property at big discounts. Real opportunity in Miami will come ‘when the weak start yelling uncle,’ New York-based developer Richard LeFrak told Bloomberg.”

“Investors are buying fewer apartments in Israel and selling more of them, according to a report by the Finance Ministry. Sales were particularly noticeable among investors who owned three or more properties, the report said. The figures coincide with an article in the latest issue of the Economist magazine, which said that property prices in Israel soared by 82.1% between 2006 and 2016 in inflation-adjusted terms, representing the biggest increase in the world second only to Hong Kong.”

“Chinese businesses went on a global shopping frenzy last year, buying assets ranging from property to entertainment studios worth hundreds of billions of dollars. This year, however, foreign executives are unlikely to see Chinese buyers lining up at their doors. Outbound investments and projects are being called off as Beijing’s recent restrictions make it increasingly hard to transfer funds overseas.”

“Chinese companies are taking a hit. The latest involves real estate developer Country Garden, which has closed showrooms in China for its flagship $40 billion Forest City housing project in Malaysia. ‘Some people [invested offshore] blindly and were in a rush to do so,’ said Chinese central bank governor Zhou Xiaochuan. ‘Some of this outbound investment was not in line with our own policies and had no real gain for China.’”

“Confidence in the housing market has collapsed, with the number of Australians describing property as the wisest place to put their savings falling to its lowest level in more than 40 years. As recently as September 2015 more than 28 per cent of those surveyed nominated real estate as the safest place for savings - more than any other asset class. Confidence has fallen near-continuously since then to an all time low of 11.6 per cent in the latest survey.”

“Assistant Reserve Bank Governor Michele Bullock on the prospect of a big downturn in prices: Hopefully households and banks ‘can withstand that sort of thing if it happened.’ ‘We are watching it because investors can be the first ones to get out if things turn down,’ she said, warning that a rush for the doors could make a slump ‘much bigger than it would otherwise be.’ Australian Bureau of Statistics figures show investors now account for more than half of money borrowed for housing, making the market vulnerable to a sell-off should prices begin to turn down.”

“Two big banks are waving red flags about Toronto housing prices, calling them ’simply unsustainable’ and a ‘bubble’ in separate reports. The Canadian Real Estate Association said this week that average house prices across the Greater Toronto Area hit $727,300 in February, a figure that has risen by more than 23 per cent in the past year. The group said hot activity in and around Canada’s largest city is ‘without precedent.’”

“Doug Porter expanded on that notion with some hard numbers to show just how ‘other worldly’ prices have become. Porter tells the story of a hypothetical couple: successful young high-earners looking to start climbing the property ladder. Factoring in the cost of that mortgage insurance and estimating basic costs such as utilities and property taxes, Porter tabulates that the Dorights could afford a house of just over $987,000. The Dorights exemplify a sobering reality: even people near the top one per cent of all income earners in Canada ‘are at best able to afford a semi-detached home on the fringes of Toronto, or maybe a low-end detached home verging on teardown status,’ Porter said. ‘Now just imagine the predicament a more typical couple of more modest means faces in the current market environment.’”

“If you were looking for an apartment in the Bay Area 18 months ago, realtors recommended you took your checkbook to viewings and were prepared to fork out for the deposit and first month’s rent – that’s $8,000 to $10,000 for a two-bedroom place in San Francisco – on the spot. Today, rents are still expensive, but the market has plateaued after years of painful increases. It’s part of a broader trend in the Bay Area: Silicon Valley’s technology bubble has had some of its wind knocked out – not bursting, but fizzling – with VCs making fewer investments, startup valuations falling, and recruitment slowing.”

“‘We’re starting to get a lot of résumés from [software engineers at] companies where the business model isn’t working and they can’t get funding, so they are closing down or cutting back,’ said Mark Dinan, a software recruiter based in the Bay Area, who keeps track of companies’ hirings and firings. ‘Silicon Valley has not had a major success in terms of IPO before Snap for years – and Snap is in LA.’”

“How does this moment compare to the time leading up to the dotcom crash? ‘I got here in 97 and it was like it is now – incredibly packed, impossible to commute, high apartment costs,’ Dinan said. ‘We’re seeing over-valued companies, funded based on hopes and dreams and aspirations and not good business models. Companies counting users and eyeballs rather than profits. There are a lot of similarities.’”

“‘The [dotcom crash] happened very suddenly and without any warning,’ said Aswath Damodaran, a professor of finance at the Stern School of Business. ‘When it does happen everyone says they saw it coming. If you saw it coming then why didn’t you get out of it?’”




March 16, 2017

The Onetime Kings Of Impossible Prices

A report from Bloomberg. “Apartment rents in cities such as New York and San Francisco will need to fall as much as 15 percent for a glut of high-end developments to be absorbed, according to billionaire real estate investor Richard LeFrak. New York landlords are already feeling the pinch as renters take advantage of a flood of new buildings to negotiate concessions and price cuts. Rents fell last month for Manhattan apartments of all sizes, the first across-the-board decline in at least four years, as property owners compromised to keep units from going empty. ‘We built a lot of new product at the high end, anticipating incomes that don’t exist in the market now,’ said LeFrak, chief executive officer of the LeFrak Organization.”

From SF Curbed in California. “For the first time this year, San Francisco no longer has America’s most expensive median rent, at least by one measure. The site RENTCafe reports that San Francisco has slipped back down to the number two spot in their rankings, behind onetime king of impossible home prices, New York City. The really significant takeaway from this is that the city was neither the most expensive city in the report nor in the US.”

From Insider Louisville in Kentucky. “An out-of-town developer may back out of plans to build a $56 million luxury apartment complex in NuLu, according to the developer’s attorney, Jeffrey McKenzie, of Bingham Greenebaum Doll. ‘Flournoy Cos. is frankly not able to go forward,’ McKenzie said when addressing members of the Louisville Metro Council’s Labor and Economic Development Committee. The council was set to vote on a tax incentive agreement between the city and Flournoy Cos. but instead tabled it.”

“Flournoy Cos. previously agreed to rent 18 of its one-bedroom apartments at $947 per month, whereas a regular one-bedroom unit would go for $1,300 a month. However, when McKenzie addressed the council committee, he stated that the project can’t move forward if Flournoy Cos. is required to have the 18 cheaper apartments. Either that requirement would need to be eliminated, or the property owner must agree to sell the properties on Main and Clay streets at a lower price.”

“Without tax incentives, McKenzie asserted that Louisville would not be able to pull the large luxury apartment developments that were in development or under construction currently. Financing for apartment projects is tightening and costs are rising, which could cool the multifamily residential market.”

From The State in South Carolina. “Copper Beech Townhomes, one of the first in the current wave of private student housing complexes in Columbia, was sold at auction last week in a foreclosure sale, Richland County court officials said. The 1,002-bedroom complex was purchased by Southern Drive LLC for $22 million, according to Joseph P. Strickland, Richland County Master in Equity. Southern Drive, a Delaware-based company, sued the previous owners, Copper Beech Townhome Communities Twenty-Five LLC, for nonpayment, court records show.”

“The complex, which opened in 2007, will remain open and rebrand itself, according to its new management company, Southern Management Partners. Designed to appeal to college students, the complex is spacious and features a large swimming pool.”

“But occupancy rates have struggled at the complex as new student housing offerings closer to the city have continued to be erected since 2007. Last year in August, Copper Beech had a 40 percent occupancy rate, management officials there said. The previous year, in 2015, the occupancy rate was 100 percent, the company reported. Several housing developments aimed at college and young professionals have gone up in town nearer to USC and the downtown since 2007, with construction continuing.”