June 25, 2016

Sellers Won’t See As Many Offers As Peak Frenzy

A weekend topic on some markets I missed in the excitement yesterday, the American Statesman in Texas. “Austin-area home sales and prices surged in May, the latest figures show, but some real estate agents says competition is easing a bit as buyers become more cautious with their bids. ‘Buyers are now more cautious and mindful about escalating prices, and aren’t as willing to get into bidding wars,’ said Yvette Evans, an agent in Austin with Redfin. ‘If a home is overpriced, the seller won’t see as many offers as they may have in March or April when the Austin housing market was at peak frenzy.’”

“Andrew Vallejo, an agent with Redfin, also is seeing competition soften slightly, ‘as buyers realize that not every home is necessarily worth 10 percent over list price.’ ‘One of my buyers recently made an offer on a home that six months ago would have received four or five competing bids, but we were the only ones to make an offer,’ Vallejo said.”

The Marin Independent Journal in California. “The median price of a Marin home jumped to a record high $1.2 million last month, up 8 percent from the previous May, according to CoreLogic. While this might seem like great news for Marin, some local real estate agents painted a different picture. ‘I think what you have is a lag effect,’ said Peter Richmond, a Pacific Union agent. ‘What you are seeing is homes that closed in May. Those homes probably went on the market in April or earlier. But houses that went on the market in May and June — even if they are holding the price, they are not moving as quickly,’ the agent said. ‘I’ve seen cases where multiple offers are not happening as often as they were and people are taking more time,’ Richmond said.”

“Agent Marilyn Rich said, ‘Luxury prices have not gone up at the same rate that lower-priced homes have. There have been a lot of price reductions and houses back on the market in the luxury market.’”

The Real Deal in Florida. “It might not be the bloodbath seen when Miami-Dade County’s housing market crashed in 2008, but many in the real estate community are likely feeling the pressure. As previously pointed out by market analysts like Jonathan Miller, pricing trends can lag behind sales by as much as 15 months. Others are saying sellers might have to face reality sooner than that. Researcher Anthony Graziano of Integra Realty Resources said at a recent panel discussion that many homeowners are still listing their properties at ‘aspirational’ prices, which means those homes end up staying on the market for longer.”

“That buildup of inventory is starting to show: May saw 14,107 active condos and townhomes on the market, a figure that’s surged 16.8 percent from the year before. All those units translate to 11.2 months of inventory.”

The Philadelphia Inquirer in Pennsylvania. “Philadelphia banks are worried about a couple of things, writes veteran bank analyst Frank Schiraldi in a report to clients of Sandler O’Neill + Partners: Too many apartments are being built for the ‘frothy’ Philadelphia market; ‘Irrational’ loan pricing is making it tougher to profit from loans.”

WNCT in North Carolina. “With a new class of ECU Pirates scheduled to move to Greenville in less than two months, one student apartment complex is going into foreclosure. Captain’s Quarters filed for foreclosure on June 17. Court records show the complex hadn’t made payments since November 2015, and owes more than $26.2 million. Occupancy rates are rumored to be around 13 percent, so low that the complex is offering free cruises for students who sign with them.”

“The foreclosure has led some Greenville leaders to question whether or not this is just a sign of things to come. Councilmen McLean Godley and P.J. Connelly both point at the student living marketplace being over-saturated in Greenville. In a statement, Godley said the foreclosure, ‘is a result of councils’ of years past who rubber stamped student housing requests while not taking their time to foresee their effects on our community.’”

From Prairie Business in North Dakota. “In a quarterly housing market analysis of 400 U.S. cities, Bismarck, N.D., ranked the worst overall and Grand Forks, N.D., had the third-largest decline in the past year. Ben Ayers, senior economist with Nationwide, which issues the report, attributes the poor markets in both North Dakota cities to the oil slump. It’s not surprising, he says, as the slowdown has affected many other industries and job sectors. ‘The whole story is the oil decline.’ Texas and Wyoming host many of the lowest-ranked housing markets, also, both feeling the pinch of their oil sector problems, Ayers adds.”

“House price growth is flat in Bismarck, as sellers are having trouble finding buyers, while in Grand Forks, employment growth is flat. Both factors translate into fewer people looking to invest in homes, Ayers says. Grand Forks also is seeing increased delinquency rates on home mortgage payments.”

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June 24, 2016

The Problems Of Having A High Proportion Of Investors

It’s Friday desk clearing time for this blogger. “San Francisco Realtor Brendon Kearney said there is some weakening in the San Francisco market. ‘It’s definitely not as hot as usual’ for this time of year, he said. ‘I have had buyers pay 30 percent over asking to get the condo they wanted. I have had condos sitting 20 days on the market with no activity.’ As for those micromarkets, ‘we are definitely seeing softening in the $3 million-plus market,’ said Kearney, who is with Vanguard Properties. A home in that price range that used to take 14 days to sell is now taking 28 to 35 days, often after price reductions. Kearney said there is less demand for homes that need cosmetic fixing and for condos in and near the South of Market area. ‘They are not moving as fast as they were at the price point we would expect. It’s a very first-time home-buyer market, a very tech-driven market. With a shift in VC funding, we are seeing less activity there.’”

“Patrick Carlisle, chief market analyst with Paragon Real Estate Group noted ‘a significant shift in Bay Area employment numbers.’ He said that employment in San Francisco, San Mateo, Alameda and Contra Costa counties fell between December and May by a total of 5,000 jobs. This is the first time since 2009 that employment in these counties declined in the first five months of the year. ‘Changes in employment figures, up or down, typically affect the rental market relatively quickly and dramatically — more so than the real-estate purchase market — and that certainly appears to be the case in San Francisco, where softening demand and rents have been widely reported,’ Carlisle wrote.”

“The housing market has slowed down from and its 2015 rush, and according to some analysts, it’s sellers that are responsible. B.E.A.R., the real estate trade association which covers the Bonita Springs and Estero areas, reported that sales have dropped by 13 percent over the past year, and an 18 percent drop in pending sales. ‘Sellers have not yet come to understand the shift in the market,’ stated D. Michael Burke, 2016 B.E.A.R. President. ‘This shift requires lowering prices to real market value to generate sales activity, but many sellers have not realized this yet.’”

“A year ago, the area had just nine weeks’ worth of inventory on hand. Today, that’s nearly doubled. As many sellers see dollar signs in the sold listings around them and just into the market, realtors are struggling to get buyers to bite on prices they believe are too high. In its report, B.E.A.R. reported that open house activity has slowed to a near halt, ‘as they know that the most powerful marketing is useless if the price is not marketable.’”

“A mid-year report from the Greater Houston Partnership indicates apartment occupancy is at about 90 percent. Rates below 90 tip the balance in favor of renters, and occupancy is expected to fall into the mid-80’s. This is as developers are adding 25,000 more units over the next two years. ‘Job growth was, I guess in 2014 it was around 100,000 jobs and all of a sudden in 2015 it fell off the table,’ said Bruce McClenney with ApartmentData.com. ‘We got caught in a development stage and the job growth kind of ran out on us. So there’s more supply than demand right now, which would be a definition of overbuild.’”

“The inventory of single-family homes for rent has increased over the past year, and especially in the past 30 to 60 days. The market is forcing property owners to absorb increased property taxes and insurance costs. ‘So we definitely have a pressure on the rent from the market, and the pressure is to keep the rent — it must stay low, despite the fact that the taxes have gone up and insurance rates have gone up as well,’ said Wojciech Kic with ManageRentHouses.com. ‘Property owners have to absorb the difference between what the expectations were, perhaps, and where the market is today.’”

“The highest number of contracts this year were signed last week at $4 million and above in Manhattan — but only after many sellers agreed to hefty price cuts. According to Olshan Realty’s weekly snapshot of Manhattan’s luxury market, this was only achieved after desperate sellers, whose properties were languishing on the market, were forced to cut prices by an average of 11% from the original asking price amid a glut of luxury homes for sale. The average property was on the market for a lengthy 311 days.”

“‘The luxury market is bloated and choking with a lot of over-priced inventory, but once sellers capitulate and adjust to realistic price levels, the market moves. Not coincidentally, the May and June weeks that showed the strongest activity of the year were also those that saw prices slashed,’ said Donnan Olshan, president at Olshan.”

“A troubling trend has been gaining traction in one of the country’s most overheated residential real estate markets: condo developers in Vancouver privately offering their most affordable units to particular realtors as well as family and friends, prior to the sale dates of these units, thus revealed The Globe and Mail reporter Kathy Tomlinson. ‘I think we are being deceived,’ realtor Steve Saretsky argued, going on to say that most of the buyers who are granted exclusive access to these insider trades are speculators that do not plan on residing in the purchased units. ‘I think it’s giving local people a false hope – that if we keep building and building and building, it’s going to help them to find a home.’”

“In some suburbs across Australia almost all the homes are investment properties, including some of Sydney and Melbourne’s inner-most property hotspots, new research shows. ‘While investors have generally derived strong capital gains from their properties over recent years, growth in rental income has been comparatively soft. Investment is currently ensuring that there is ample rental accommodation and subsequently easing rental price pressures,’ said CoreLogic head of research Tim Lawless. Many of the areas with high proportions of investors are ‘renter’s, rather than landlord’s, markets,’ he said.”

“One of the problems of having a high proportion of investors in one area is more volatility in the market, said BIS Shrapnel senior manager of residential Angie Zigomanis​. ‘Investment properties are a discretionary purchase to some extent, and if times got harder they’re the properties that would be the first to go,’ Mr Zigomanis said. ‘It’s a risky proposition if you are forced to sell at the wrong time.’”

“For the past two years, Swadeep Sharma was on the lookout for a house in Noida. Last year, he zeroed-in on a house, in one of the newly-completed projects on the Noida Expressway. However, he was unable come up with the finance for the house that cost Rs 5,600 per sq ft. After sorting out his funding issues, he recently went to the same location, anticipating that he would need to shell out more money. He was surprised to find that an apartment in the same society, was now available at Rs 4,800 per sq ft.”

“‘Initially, I thought that it was a distress sale. On further examination, I realised that this was the prevalent rate in the locality. However, none of the developers in the region had reduced their prices. The first owner revealed that he had bought the house, when it was launched six years ago, at Rs 3,000 per sq ft,’ Sharma explained. The price of the property that Sharma had seen, had appreciated by 60% over six years, indicating that property was not the best investment instrument, in this case.”

“Moreover, the decrease in prices in the secondary market, by 10% to 20%, suggests that developers will have to keep waiting for buyers. Requesting anonymity, a Ghaziabad-based developer admits that transactions in the secondary market, indicate a sharp correction. In spite of this, he maintains that developers cannot reduce prices, due to high input and overhead costs and blames retail investors, for ruining the market. ‘Today, we are paying the price for selling our inventory to investors. They don’t have the patience to wait. Reports of price corrections are making them nervous and they are resorting to what can be described as distress sales,’ the developer explains.”

“Hong Kong property prices have plummeted in recent months as a consequence of weaker demand, with values dropping by an average of 11% since late last year. Many property developers in Hong Kong are now offering significant price reductions to help offload a high volume of new build housing stock in the city. Wheelock Properties recently sold a luxury home in Hong Kong’s exclusive Peak neighbourhood for around £73m which was 25% lower than estimates by some analysts. ‘I am very surprised [at the sale price],’ said Danny Leung at Centaline Property Agency.”

“Whether you are a buy-to-let landlord or a private residential owner, you may well feel as though there is a pressing need to sell your house in the current climate. Most recently, we have witnessed the collapse of Scotland’s very own property boom town: Aberdeen. After seven years of relentless growth, the average price of property in Aberdeen has fallen to £186,200. This represents quite a decline, especially for a location that up until recently was renowned as the energy capital of Europe.”

“At the peak of its growth, Aberdeen boasted more millionaires per 100,000 residents than London, which underlines just how far the town has fallen in the last two years. To make matters worse it is now officially ranked as the least attractive location for property investors with a score of -40. Given the size of London and the level of inflated growth that has defined the market during the last 18 months, and economic collapse could cause values to plummet and leave thousands in significant debt.”

“Almost immediately, you can see the similarities between Aberdeen and London and the portents for the capital. While the former towns’ decline was triggered by the decline of a specific industry, London could be even harder hit by a widespread economic collapse in 2016.”

“A few weeks ago we published a piece on the global property bubble – its causes and its consequences. This week has brought news of another one of its symptoms: two Australian states have announced that they are toin an attempt to deal with fast-rising house prices (there has been a wave of Chinese money hitting the market over the last few years).”

“New South Wales is to have a new stamp duty of 4% for foreign buyers and Queensland is to have one of 3%. New South Wales is also planning to charge a 0.75% land value tax on real estate investors. The news comes hot on the heels of a government decision earlier in the year to block the sale of S Kidman & Co, a company that holds nearly 1% of Australia’s land mass (25 million acres and 2.5% of its agricultural land), to a consortium of Chinese buyers on the basis that the sale would not be in the national interest.”

“The problem here is obvious – the latest wave of globalisation has made money movement international. But politics is still (quite rightly) pretty local. That means that politicians feel obliged to come up with local solutions to block the perceived problems of globalisation – and that those solutions are often (rightly or wrongly) protectionist.”

June 23, 2016

It’s Astounding How Universal It Seems To Be

Insider Louisville reports from Kentucky. “Ok, pop quiz! (applause) First question: In what month were Louisville homes selling the fastest? You guessed it, May! Second: What month had the lowest absorption rate in Louisville real estate history? Yes, again it’s May! How about a trick question? Since January 2006, which month had the highest median home sale price? Drat! You guys are smart. The answer here is also May 2016. Can you believe this stuff? If you walk up to the next real estate professional you see and ask them, ‘How’s the market?’ you’ll likely be met with a pregnant pause while they gather their thoughts, stridently searching for words to accurately describe what in the world is going on right now.”

The Seattle Times in Washington. “The building boom sweeping downtown Seattle is hard to miss, between the jostling cranes, giant holes in the ground and construction crews closing down streets. But new data shows just how intense things have gotten — and how much more is still yet to come. There are currently 65 major buildings under construction across downtown, South Lake Union and surrounding neighborhoods, more than at any point since the figures were first tracked in 2005, the Downtown Seattle Association said in a new report. The previous midyear high was 50 buildings under construction in 2014 and 49 last year.”

“And the frenzy isn’t set to end anytime soon: Most of the structures will take until next year to finish, and there are dozens more in the pipeline set to start in the next year and a half. About two-thirds of the project are residential. The number of housing units under construction downtown has also hit a new high since 2005. ‘There is a ton of development on all fronts,’ said Don Blakeney, a vice president for the downtown group.”

The Washington Post on Virginia. “Arlington County, which last year approved construction of a record 3,747 rental apartments or condominiums, has given the green light to build about 1,900 more so far in 2016. David Howell, executive vice president and chief information officer at the real estate firm Mc­Enearney Associates, said he sees no indication that residential units are being overbuilt in Arlington and other close-in communities. ‘I don’t think we’re there yet,’ he said. ‘Millennials are slowly coming out of mom and dad’s basement, and the first rental or purchase tends to be in these apartments and condos. There’s an enormous pent-up demand.’”

The Charlotte Business Journal in North Carolina. “One Charlotte City Council member stopped just short of mentioning an apartment moratorium during the public hearing portion of Monday’s zoning meeting. Though pausing new multifamily development in Charlotte wasn’t the focus of her comments, LaWana Mayfield, who represents District 3, said council and city staff needed to more closely examine the repercussions of proposed multifamily projects.”

“Tens of thousands of apartments are being developed or planned across Charlotte. But while demand is high, with low vacancy and high absorption rates, many have wondered when the boom will end. ‘If you notice where this project is located, it’s almost diagonal from Brookhill,’ Mayfield said. ‘You have a community that has been predominately lower-income (and) minority.’ In the wake of new development, she added, lower-income residents are ‘continuously being displaced.’”

The Wall Street Journal. “An annual report from Harvard University’s Joint Center for Housing Studies, the State of the Nation’s Housing, reveals that even while the housing market begins to recover and regain solid footing, large parts of the country are being left behind. Middle-income families are increasingly losing ground, facing housing affordability challenges that were once largely limited to the poor. One reason middle-income renters are struggling to find an affordable apartment: Developers are catering to a growing number of affluent renters.”

“While newer rentals have always commanded higher prices than older units, the premium for new apartments has risen sharply, the Harvard report finds. The median asking rent for new apartments built in 2015 was $1,381 per month, more than 70% higher than the overall median rent. The rent premium for new studio apartments was even more stark, at 90% above the overall price for a studio. ‘It is just astounding how universal it seems to be’ that the majority of new rental apartments in cities across the country are at the high end, said Chris Herbert, managing director of the Joint Center for Housing Studies.”

From National Real Estate Investor. “Tens of thousands of new apartments are now opening in central business districts (CBDs) around the country. Some will have a hard time finding residents. ‘There’s a lot of angst about downtown apartments right now,’ says Jay Parsons, vice president for apartment market intelligence firm MPF Research. ‘The real challenges will come in the next 12-18 months as supply further accelerates in downtown sub-markets across the country. Anyone who subscribes to the idea that downtown sub-markets offer a higher barrier to entry is holding onto outdated conventional wisdom. It hasn’t been true for a decade.’”

“In downtown sub-markets, the number of apartments is growing at a furious rate of 5.0 percent a year, on average. ‘That’s a huge number—particularly given that downtown areas are, by definition, smaller and more confined areas,’ says Parsons. ‘That means you have new apartments within walking distance of a ton more new apartments.’”

“Prices for apartment properties in CBDs have risen much more strongly than prices for suburban apartments, which helps explain why developers are eager to build downtown. Prices for downtown properties rose nearly 450.0 percent from 2000 to the end of 2015.”

“Prices also rose for suburban properties, but not nearly as much. And the more suburban locations resembled a downtown, the more price growth they experienced. Prices rose nearly 300.0 percent for suburban apartments in ‘highly walkable’ areas, close to 250.0 percent in ’somewhat walkable’ areas and just 200.0 percent in ‘car-dependent’ suburban areas, according to MPF.”

The Miami Herald in Florida. “It’s a trend that can’t last forever: Home sales in Miami-Dade County are falling, but prices are still going up. Total existing home sales slid to 2,435 in May, down 10.4 percent annually, according to data from the Miami Association of Realtors. Single-family homes — down 7.2 percent — fared better than condos, which fell 13.3 percent. (Existing condos are competing with a glut of new luxury construction.)”

“That makes sense, experts say. For now. ‘Historically, even after there has been a noticeable change in the market, home prices continue to increase for six to 12 months despite the shift in supply and demand,’ said Jack McCabe, a real estate analyst. ‘If you see a big change in the real estate market, it takes a long time to sell. It’s not like stocks or commodities.’”

“Sellers are already starting to respond, especially in the luxury market, said Ron Shuffield, president of EWM Realty International. About 37 percent of Miami-Dade listings over a million dollars have seen price reductions since Jan. 1, according to research conducted by EWM. ‘We’re seeing a lot of people reducing prices as inventory goes up and sales go down,’ Shuffield said.

June 22, 2016

Their Wager Might Be Shakier Than They Thought

WZTV reports from Tennessee. “To rent or to buy — that’s a tough question as Nashville’s ‘it city’ status drives an estimated 65 people to Music City each day. The continued boom means prices for both homes and apartments are rising, with builders working to keep up with demand. After years of paying rent, Travers Xanthos is now paying a mortgage. This millennial bought a house in Nashville’s Nations neighborhood after securing a sweet deal. ‘It’s three bedroom two and a half bath masters on the first floor, I paid $380,000 for it, but I only had to put three percent down,’ Xanthos said. ‘I really think it’s throwing your money away, especially if you’re going to be in an apartment downtown, you’re going to be paying $2,000 a month for a one bedroom a two grand mortgage would get a three bedroom house in the Nations.’”

“But with more apartment buildings going up, some others say renting gives you better flexibility. While all these new apartments being built may exceed the demand for them, it doesn’t mean rental prices will be coming down.”

The Wall Street Journal. “The largest U.S. apartment landlords are betting that hordes of millennials streaming into cities will keep pushing rents sky-high. But an expected spike in new supply in some key markets suggests their wager might be shakier than they thought. In 25 of the largest U.S. cities, multifamily permits in urban areas were up 39% in 2015 compared with a year earlier, according to a study by housing-research firm Zelman & Associates.”

“New York, for example, is poised to see 2.6 times more apartments come online in the next year than the historical average, according to the analysis. Boston is likely to see 2.5 times as much supply growth as usual, while Philadelphia is bracing for twice the usual supply increase. After the recession, ‘everyone rushed into the cities, land prices got bid up, construction got more expensive, so what you’re seeing is a lot of new supply coming on at the high end,’ said Alexander Goldfarb, an analyst at Sandler O’Neill + Partners. ‘You throw on a bunch more supply and the market really feels it.’”

“The slowdown already is beginning to be reflected in company results. According to Zelman & Associates, new apartment completions in the neighborhoods where Equity Residential’s portfolio is concentrated, such as Manhattan’s Midtown West, are forecast to increase 57% in 2016 compared with 2015. AvalonBay is likely to see a 50% increase in new supply in the neighborhoods where it has the strongest presence.”

“‘You can lean on the millennial argument…you can spin a story of how demand will absorb all of this,’ said Dennis McGill, director of research at Zelman & Associates. ‘Demand is not going to change by 50% in a year.’”

From Westside Today. “The average sale price of United States luxury homes fell 1.1 percent for the first quarter of 2016 according to internet real estate brokerage site Redfin. The definition of ‘luxury market’ for Redfin’s study is the highest 5 percent of homes sold in a particular quarter. Redfin reports that the ‘luxury home price decline was felt in cities across the country, including Miami Beach (-13.7 percent); Austin (-11.8 percent); Boston (-11.8 percent); Houston ( -5.1 percent); San Francisco (-4.7 percent); Washington (-4.2 percent); and Los Angeles (-1.3 percent).’ Except for Miami Beach, Redfin found these cities only fell at the high-end, with the bottom 95 percent seeing year over year price gains.”

“The explanation for prices going down at the high end but not the bottom 95 percent is that the global economic volatility caused luxury buyers to put the brakes on in the face of the volatility in asset prices including the oil and stock markets. The result was that the volume of inventory of homes priced above $5 million jumped up 13.2 percent from the prior year. Redfin explained that its numbers may understate the increased volume of inventory which may not include homes being built by speculators that are not yet officially on the market.”

“The Chief economist for Redfin explained further that, ‘instead of cheering rock bottom mortgage rates, luxury buyers recoiled from high–end spending in the face of volatile asset prices. Luxury demand, especially for vacation and investment properties, has been more fragile this year, causing prices to slump.’”

The Business Observer on Florida. “Coldwell Banker real estate agent Lynne Koy, specializing on Longboat Key and waterfront properties, had a golden week in early June, when she had three closings that totaled $6 million in sales. But the stellar week might not foretell a continuation in the housing market rebound. ‘I’m seeing a reduction in prices,’ Koy tells Coffee Talk. ‘We aren’t seeing the appreciation we saw in prices even a year ago.’”

“Koy says that reduction, even on sought-after waterfront properties, makes the science of how to price the listing even more of a priority. That was the case with one of her three recent closes, on Mistletoe Lane on Longboat Key. Koy actively watched the listing when it hit the market, first priced at $1,795,000. She reached out to the sellers when it didn’t move. Koy persuaded the sellers to relist with her at a lower price, $1,495,000. The 3,216-square-foot waterfront property, with four bedrooms and three and a half bathrooms, sold for $1.45 million 13 days after Koy knocked $300,000 of the list price.”

“‘Buyers are sophisticated shoppers,’ she says. ‘They will not be fooled into over-paying for properties, no matter how beautiful the view may be.’”

June 21, 2016

The Problem Is The Market Always Goes Down

CBC News reports from Canada. “The population of Grande Cache was 4,319 in 2011 according to the latest census but has reduced significantly in the past two years after nearly a third of the town’s jobs were lost. Housing values have dropped by nearly half in the last year. Coun. Shawn Moulun’s home was appraised at $282,000 this year but he predicts it will be worth $140,000 by the end of the year. Though Moulun has lived in Grande Cache his whole life he is thinking about leaving. ‘I’ve always loved Grande Cache but because of the outlook right now… yeah I would like to get out because my kids are turning college age too,’ he said. ‘But there’s no way to get out.’”

“So for now, he’ll stay. ‘I would love to sell my house because of the way Grande Cache is right now, but there’s no way I’m going to lose my $140,000. So I’m going to stick it out for the long haul here, until hopefully the coal mine returns.’”

The Guardian on the UK. “Flatpack furniture, stamp duty payments and three years of free tube travel are among the sweeteners being offered to buyers of luxury flats in London as developers scramble to revive a waning market. Jonathan Hopper, the managing director of Garrington, which finds homes for wealthy clients, said it had ‘been a few years in the making, but luxury property developers are now in the midst of a perfect storm.’”

“‘The challenges are particularly acute in the new build sector, with global economic turbulence curtailing demand from the overseas buyers who for years inflated the market in the mistaken belief that any luxury property with a London postcode would automatically turn to gold,’ Hopper said. ‘With so many luxury developments now being built, there’s suddenly a danger of oversupply – and some developers fear being left with unsold stock on their hands. As a result, there are some incredible offers out there and the dynamic has shifted firmly to a buyer’s, rather than a seller’s, market.’”

The West Australian. “Perth renters are demanding landlords cut rents and buy new furniture to woo them as the number of properties on the market hits an all-time high. Emboldened by a flood of new rental stock and WA’s slowing economy, agents say renters who would have queued for a property two years ago are now negotiating for a better deal or threatening to walk away. The speed of the market shift, particularly at the more expensive end of the market, has caught some landlords by surprise.”

“Corporate City leasing consultant Luke Lee said the market was at its weakest since 2008-09 in the wake of the global financial crisis. He said some renters were asking agents to drop prices to compete with similar properties advertised for less. A two-bedroom apartment that would have been rented for $1200 a week four years ago or $1000 two years ago now had agents ‘desperately trying to rent one for $650.’”

“REIWA president Hayden Groves said 10,800 properties on the rental market was ‘unprecedented.’ He said tenants had caught on and were bargaining for better deals, particularly if they saw apartments in their complex advertised for less than they were paying. ‘As soon as their leases come up they’re asking for a rent reduction and the smart landlords are taking it,’ he said.”

The Property Observer. “Australia’s richest man, Meriton boss Harry Triguboff, has slammed the NSW government for its plans to impose higher taxes on foreign buyers of residential property. ‘It is very bad. Without the Chinese nothing would ever get built,’ Mr Triguboff told The Australian Financial Review. ‘Never mind the bullsh– stories, sales volumes have already dropped and prices are coming down steadily. The Chinese buyers are already disappearing. This is not a joke. Chinese real estate agents are already sacking staff,’ he advised.”

“Mr Triguboff labelled the new taxes ‘very dangerous,’ coming as they did on top of moves by the banks to tighten up lending to foreign buyers. He also urged caution in light of the decline of the mining sector. ‘We have nothing else except real estate. We have to be very careful,’ Mr Triguboff told the AFR.”

From Shanghai Daily on Hong Kong. “Home foreclosures in Hong Kong have been rising and are likely to pick up pace as more owners default on high-interest loans from unregulated lenders in a weak economy, according to specialists in distressed property. For a city that relies on property-related businesses for about a fifth of its economy, any major distress in the apartment market would be a body blow. Buyers have in recent years got around the bank rules by taking out loans from these other sources and borrowing up to 90 or 95 percent of the value of the property. In some cases, they are even being offered the chance to borrow over 100 percent of the value.”

“That is fine when prices are rising but it doesn’t take much of a decline to put these borrowers underwater — which has been happening as the Hong Kong economy has struggled and home prices have dropped 11 percent from a September 2015 high. The situation is made worse by the repeated use of apartments for collateral in other unregulated transactions, including loans for stock trading. ‘More people (are) using their properties as collateral,’ said AA Property Services Managing Director Tsang Kit-chun, who auctions foreclosed properties. ‘Those who suffer a loss from the stock market are unable to pay back the mortgages.’”

From Eastday. “Real estate may be the most highly regulated and taxed asset class in the US and is considerably more regulated and taxed than in China, which can be challenging even to the most sophisticated and experienced investor, Alan Pomerantz, a senior counsel with Pillsbury Winthrop Shaw Pittman LLP, recently told a panel on Chinese investment in US real estate in San Francisco.”

“‘One of the barriers to entry in doing business in the United States for Chinese investors is failure to understand the nature of the laws of the United States when things turn not so good,’ he said. ‘The problem is the market always goes down, it always has and it will again,’ said Pomerantz. ‘When it goes down what happens in China is banks and borrowers sit down and talk about it. In the United States, not only do they not do that, the law prohibits them from doing that.’”

“‘Chinese people do not use lawyers the way US people use lawyers,’ he added. ‘We’d like to say that in China the negotiation starts after the deal is signed; in the US, it’s exactly the opposite.’ It would be a ‘big, big surprise’ for Chinese investors and their US partners, US construction companies and US banks if they were not aware of when there’s a hiccup in the real estate market, Pomerantz said.”

“When making decisions, Chinese investors tend to rely on trust, according to Zhengyu Huang, chairman and founder of ImmCaptial, a Chinese immigration capital service firm. When asked why they made the investment, the Chinese investors would say ’someone I trust invested there and told me to invest,’ he said.”

“‘I’ve seen a lot of deals. I’ve never seen a projection that didn’t make money, but not every deal makes money,’ said Pomerantz. ‘It’s easy to give your money to somebody to buy something. The barrier is how to make money and how when things don’t turn out exactly the way the projection shows, which is almost always the case.’”

June 20, 2016

The Frantic Pace Of Sales Has Abated

The Greeley Tribune reports from Colorado. “Weld County housing prices hit another milestone in May as the median sales price for the county shot up over the $250,000 landmark. During the past two years, the median price for single-family homes has risen 50.5 percent, from $172,700 to $260,000. But as housing prices continue to climb across the Front Range, wages remain stagnant, posing the question of affordability for those who live in the area. Mike Ramstack, a longtime broker and owner of Pro Realty, said he is nervous another housing bubble burst is on its way because people won’t be able to afford their homes. ‘I think we’re heading toward a big correction,’ he said. ‘We have people moving into the area, but from what I can see, wages haven’t risen that much to offset the increase in prices.’”

“Having so little inventory, or available houses, is causing a lot of the problem. He said some people are bidding $15,000-$20,000 more than the asking price and they’re still not getting the house. ‘People are getting what I call ‘auction fever,’ Ramstack said. ‘They’ve got to get it, and they overbid.’”

The News & Observer in North Carolina. “Triangle home sales rose 10 percent in May compared with the same period a year ago. The inventory shortage is particularly acute for homes priced under $300,000, as rising land costs have made it difficult for homebuilders to offer new product priced in that range. ‘It’s insane,’ said Van Fletcher, a real estate agent with Allen Tate, who has sold or put under contract 48 homes this year. ‘Every single one that I’ve put under contract, whether I represent the buyer or seller, is a multiple offer.’”

“Stacey Anfindsen, a Cary appraiser who analyzes MLS data, said the Triangle remains very much a bifurcated market. While demand is far outstripping supply at lower price points, it’s a different story at the upper end of the market. Sellers above $500,000 in many areas of the Triangle are having a much harder time selling their home. Anfindsen said a wave of new construction in the Falls Lake area is expected to make it even more challenging. ‘The re-sale market for $700,000 to $800,000 and above is going to get worse in the next six months to a year because there’s really nothing they can do to compete with new construction but lower the price,’ he said.”

The Naples Daily News in Florida. “A flood of new supply cooled sales of existing homes in the Naples area in May, though prices continued to inch forward. A report by the Naples Area Board of Realtors comparing May to the same month a year earlier showed inventory levels of resale homes and condos jumped 37 percent, to 5,207 from 3,800. That’s a boon to buyers, said Jeff Jones, managing broker at the Naples-Park Shore office of Coldwell Banker, in the report. ‘As more properties come on the market, buyers will have more options and won’t be forced to make aggressive offers,’ he noted.”

“Supply grew by more than 50 percent in the $1 million-and-above price range. But those who have been most squeezed by the housing shortage — buyers in the $300,000-and-below range — also found some relief. Supply in that segment jumped 29 percent in May over the year, to 1,391 from 1,076. Single-family home supply jumped 27 percent, to 2,744 from 2,168, while condo inventory increased 51 percent, to 2,463 from 1,632. With more to choose from and less pressure to buy immediately, the frantic pace of sales of last year has abated. Following a downward trend that began during season, overall closed sales dropped 17 percent, to 838 from 1,010.”

“‘The properties that are selling now are homes by owners who have priced their homes realistically,’ said Brenda Fioretti, managing broker at Berkshire Hathaway Home Services Florida Realty, in the report.”

Richmond Biz Sense in Virginia. “After dodging a foreclosure auction and weeks of negotiations with would-be residents, the developer of a stalled West End condo project has entered Chapter 11 bankruptcy. Tiber Partners LLC, the embattled ownership group behind the delayed Tiber condos at Libbie and Guthrie avenues, was ordered to enter bankruptcy protection. The ruling comes less than two months after three couples who put down deposits to purchase condos at the stalled development sought to force Tiber Partners into Chapter 7 bankruptcy.”

“In 2013, George’s John K. George & Company broke ground on the 15-unit condo development with units ranging from $575,000 to $1.2 million. Planned to be delivered to residents in 2015, the project remains unfinished with the delays coming to a head when John K. George & Co. and Tiber’s developers argued in court over completion of the project. While they traded allegations in court, people who put down deposits on the unfinished condos filed liens and lawsuits of their own.”

The Forum News Service on North Dakota. “Residential lots that Halliburton purchased for employee housing in Williston will soon be auctioned off to the highest bidder. The oilfield service company is selling 21 residential lots in Williston’s Harvest Hills neighborhood through a live auction June 30. The residential lots, as well as two commercial lots in Williston, will sell without a minimum bid, said Fontana Fitzwilson, executive VP of sales for Williams and Williams Real Estate Auctions, which is handling the sale. ‘They want buyers to know they’re committed to selling these,’ Fitzwilson said.”

“New home construction in Williston has significantly slowed with the drop in oil prices. Williston had issued four building permits for single family homes this year, according to numbers updated through the end of May. In 2015, Williston issued 76 building permits for new homes, the lowest number in six years. Williams County listed the value of the residential lots as between $50,000 and $70,000 in 2015.”

The Calaveras Enterprise in California. “Oak Canyon Ranch near Copperopolis, once planned as the largest golf course resort and housing development in Calaveras County, will instead remain as grazing land and could soon be permanently preserved through a conservation easement. The Calaveras County Board of Supervisors opened the door for that conservation easement by voting unanimously to give its blessing to the proposal. At a later date, the board will also have to rescind the development plans that were approved in 2003 for the 3,171-acre ranch.”

“The board acted at the request of members of the Airola family, who have leased the land and raised cattle on it for 60 years. Airola and his wife Deloris, 58, said that the family suffered through some glum years after the massive development was approved, never knowing when their lease might be canceled so that bulldozers could move in and construction begin. But larger market forces kept that from happening. After the housing crash of 2008, the demand for golf course homes in the Mother Lode stalled. Land prices came down until, last year, the Airolas were able to purchase the land.”

“Bill Airola is now retired from his veterinary practice, so he and Deloris have the time to run the ranch with a little help from their four sons. ‘Ever since we’ve been able to purchase it, it has been like a dream come true,’ Bill Airola said. ‘I have to pinch myself every once in a while about this.’”

“The project approved in 2003 would have allowed two golf courses, 2,675 single-family homes and a village center with a 300,000-square-foot commercial area, including 1,200 apartments and an 800-room hotel. ‘Unfortunately, the timing was not good for this project and it went belly-up,’ said Planning Director Peter Maurer. ‘The property owners have no intention of developing the property. This will continue the productive use of that property as a cattle-ranching operation.’”

June 18, 2016

A Lot Of Speculation Out There

A look at supply and demand in a housing bubble, starting with Radio New Zealand. “Reserve Bank measures have had little success in reining in the market, with house price growth in New Zealand’s largest city starting to accelerate again. According to figures from QV, the market has increased 15.4 percent year on year and 3.3 percent over the past three months - pushing the average house price to $955,793 in May. Prime Minister John Key told Morning Report the Reserve Bank still had options open to it to curb the city’s over-heated property market. ‘I know people are sick of it but all roads lead back to supply - you have to build enough housing. But my simple point would be if you want to do more around borrowing in that area, and the capacity for those people to access that market, the easiest road home there is through the Reserve Bank’s actions.’”

“Mr Key said he would potentially support Finance Minister Bill English’s loan-to-income ratio idea, and the bank could consider a range of actions. Martin Hawes said negative equity - when a home is worth less than the money owed on it, was a distinct possibility if the trend continued. Mr Hawes said, as an investor, he would not buy property in Auckland at the moment. He said the high value of the rental market and the easy availability of credit were signs the city was in a housing bubble.”

“‘There’s a loss of touch with intrinsic value, that is, the market becomes so highly valued that the income from the market, in this case in terms of rents, becomes quite different,’ he said. ‘Second, there’s almost always easy credit when a bubble inflates. My concern is that every day Auckland house prices continue to inflate, the chance of a violent end and a very unhappy ending to the whole market increases.’”

The New Zealand Herald. “More than 33,000 Auckland dwellings are officially classified empty as the city grapples with a crisis of affordable housing and homelessness. Auckland’s 6.6 per cent vacancy rate is higher than either Sydney (5.2 per cent) or Melbourne (4.8 per cent), where there has been an uproar over ‘ghost houses’ deliberately left empty by speculators trading on a soaring market.”

“Labour’s Housing spokesman Phil Twyford said it was not surprising that the super-rich were happy to leave houses empty when Auckland prices were rising so fast. ‘It’s madness, and says a lot about the housing crisis, that we’ve got thousands of homes deliberately left vacant by their owners while in South Auckland there are kids sleeping under bushes.’”

“Chris Haturini of Mt Albert said her family had suffered for two years living alongside a ‘ghost house,’ which she said was owned by an overseas-based investor. It had been infested with rats and occupied by squatters and drug users who left used syringes lying about. Ms Haturini, who is in the property management and now home staging business, said she had heard up to 35,000 residences in the city could be empty. ‘People are afraid to talk about this … But it’s just nuts.’”

News 1130 in Canada. “The Bank of Canada believes rising prices in Vancouver’s real estate market are not sustainable, but there seems to be two schools of thought on what is fueling them. One local academic says addressing foreign ownership, and not a lack of supply, is what will really calm things down. SFU Assistant Professor of Public Policy Josh Gordon says we keep building and so prices will keep rising and he thinks that’s enough evidence that pumping in supply will not slow the market down.”

“Gordon thinks government should address foreign ownership first. ‘[With] Some form of tax. I also think simply cracking down on money laundering and enforcing those provisions a bit more strictly.’ He’s concerned adding too much supply will worsen any correction down the road leading to unsellable condos. ‘There is this attempt to shift the blame and say it’s all about supply even when it obviously isn’t. This is really damaging and it’s upsetting to a lot of people. People in Vancouver just aren’t buying it anymore,’ adds Gordon.”

The Province in Canada. “A Vancouver west-side house that changed hands five times in just over two years shows prices are being pushed up by speculators, says a Vancouver real estate agent. The house at 6712 Adera St. first sold in March 2014 for $3.2 million, and last sold in May, for $7.6 million, said Steve Saretsky on his blog headlined: Vancouver Real Estate Speculation Runs Rampant.”

“He said the house’s final sale was among 179 west-side house sales in that month. Of those, 28 houses — or almost one a day — had been sold at least once in the previous 12 months, said Saretsky, who went through the tax histories of each of the sales to come up with the number. That works out to 16 per cent of all May sales, he said. ‘It’s like a lot of speculation out there,’ said Saretsky, who works for Sutton West Coast Broadway Realty. ‘It is happening. They (buyers) are hanging on to it like stock and then selling’ it at a profit.”

“The Adera property sold in July 2015 for $6.4 million before being sold for $7.6 million 10 months later, a $1.2-million profit. The buyer made a gross profit of $120,000 a month or $4,000 a day. Saretsky acknowledged there is ‘nothing illegal at all’ about homeowners selling properties held for a short period of time, and speculation is risky if the market crashes. But ‘it’s adding to the problem’ of unaffordable housing, he said. The rising prices ‘aren’t all about supply and demand.’”

The Tennessee Ledger. “It’s easy to watch a renovation show on HGTV or the DIY Network, see how much money can be made and think, ‘Hey, I can do that.’ And with a housing market as hot as Nashville’s, what could possibly go wrong? Turns out, many things can go wrong if you don’t have experience. One expert even suggests Nashville is getting close to ‘flipping out,’ reaching a peak at which house prices are so high that not everyone, especially less experienced or new flippers, can make a profit.”

“But it’s the hope that things will go very right – like $100,000-profit-on-a-flip right – that makes it so appealing for those already lining up financing in their mind while watching at home with a bowl of popcorn and a glass of wine. Nashville’s Troy Dean Shafer happens to be one of those creative contractors you’ve likely seen renovating old homes for a profit on TV. His show, ‘Nashville Flipped,’ premiered in April on DIY Network.”

“One of the homes Shafer flipped on his show was in Madison, a property he bought for $78,000, put $45,000 into and then sold for $169,000 the first day it went on the market. He’ll take profits like that all day. ‘It wasn’t like a grand slam as far as a ton of money coming in after Realtors and everything, but as far as an ROI, to only be into it for $125,000 and then to clear $25,000, that was a good ROI,’ he says. ‘I’m always thinking, ‘What’s next? What’s the next big area? Is it Madison? Is it Buena Vista? Is it Bellevue? Is it Hendersonville?’”

“‘What we’re seeing in the data is that basically Nashville is approaching its peak flipping point, which occurred back in 2006,’ says Ralph McLaughlin, chief economist with Trulia. ‘In 2006, about nearly 12 percent of all transactions were flips, and just in the last quarter of 2015, it was 8.3 percent, so it’s getting close to flipping out, so to speak, in that it’s approaching the peak level of flipping that was occurring before the crash.’”

“The big question is whether or not that is indicative of a bubble because a rise in house flipping can be considered a sign of an overheated housing market. But McLaughlin says they are not concerned about Nashville or any other hot flipping markets experiencing a bubble. ‘There was a sharp increase in flipping activity in Nashville since the recovery started,’ McLaughlin points out. ‘It looks like things are flattening out, so it doesn’t look like Nashville will totally flip out.’”

“David McKinney says the value of property has gone up so rapidly all over that it makes it difficult to find a flip property that is worth the return on investment. ‘Now the land’s more valuable than the house and property were just a short time ago, so that’s why so many of them are being torn down and two to four are being built in their place,’ he says. ‘The people who’ve been there are a long time, some of them are asking amounts for their property that they don’t necessarily think they’ll get and, lo and behold, someone ponies up the paycheck for it. It’s causing the property values to go up exponentially.’”

June 17, 2016

Time and Time Again, It Ends Badly

It’s Friday desk clearing time for this blogger. “The U.S. housing market accelerated to its fastest pace on record in May, according to Redfin. ‘After almost a decade of undersupplied housing stock, competition is fierce,’ said Redfin chief economist Nela Richardson. ‘What’s new in 2016 is that we’re seeing the intensity of fast sales and bidding wars even in affordable markets like Grand Rapids and Omaha, where the typical home sold within two weeks last month.’”

“In Michigan, Detroit and Grand Rapids saw the number of homes sold surge by more than 50 percent from last year. ‘We’re seeing an influx of buyers from places like San Francisco, Southern California, Seattle and Washington, D.C. Most new residents are lured by tech jobs and opportunities to work remotely,’ said local Redfin agent Kent Selders. ‘Locals are watching prices rise, and many realize if they don’t buy soon, they’ll miss out while homes are still affordable. The result is incredible demand and rapid sales. Nothing like this has ever happened in Grand Rapids.’”

“According to Douglas Elliman’s May 2016 report, average Manhattan rents are down 1.6 percent, year over year, while inventory, marketing time, and negotiability are all up. Karla Saladino, managing partner with Mirador Real Estate, suggested landlords are more often using incentives less out of strict necessity than a desire to goose their buildings’ values. ‘We are seeing more concessions because the landlords want to hit certain rent rolls, and the secret is out that you can do that with concessions,’ she said.”

“She said, ‘In new developments a lot of times [owners] were promising investors certain [rent] levels, so they will incentivize sort of non-stop.’ But wait, who do they think they’re fooling? Surely an investor can do the math and figure out that 12 months at $5,000 isn’t actually $60,000 a year if you’re giving away a month free, right? ‘That’s not always disclosed,’” Saladino said. ‘I’ve seen marketing contracts that put incentives into the marketing costs, and sometimes investors look at the marketing costs and don’t realize that’s in there.’”

“She cited the example of one project she looked into on behalf of an investor where tenants were allowed to move in months before their lease technically started. ‘It was like, ‘Well, we’ll let you live here under this rider [in your lease], but your lease actually starts on this date.’ So you see that, well, the lease started in March for $4,000 a month, but that person was actually allowed to move in four months prior. That is untraceable unless you look really, really deeply,’ she said. ‘And when you work with a REIT or a national pension fund or somebody like that, they aren’t going to the building making phone calls to the [marketing] person who worked there six months ago or really digging deep into the renewals.’”

“Those realtors who spoke with the New Canaan Advertiser this week said a number of homes currently listed are priced too high for the current market. Buyers, of which about one-third are from New York City or the West Coast according to agents, are looking to buy. The difference is that they aren’t willing to settle. ‘[Buyers] know the amount of inventory. They know know the trends and they think they should be able to get a bargain,’ said John Engel, realtor with Halstead Property. ‘Sellers are saying, ‘Nobody said we are in a recession. Nobody said the bottom fell out of the market. Why should I reduce my house 25% when we’re not in trouble and I’m not desperate.’”

“Las Vegas’ housing bubble reached its most bloated point 10 years ago this month, at least by one gauge: resale prices hit their peak. A total of 28 previously owned single-family homes were purchased for $315,000 in June 2006, according to a VEGAS INC analysis of Clark County property records. Among those, 18 were lost to foreclosure, including one home twice; four homes still are owned by the June 2006 buyers; and 23 homes were sold again, almost always in the $100,000 range. (Those sales do not include foreclosure auctions.)”

“A one-story, 1,725-square-foot house on Valley Regal Way in North Las Vegas was one of the few that sold at the peak of the bubble and didn’t change hands over the next decade — until lenders seized it through foreclosure in April. A neighbor said people come by about once a month to clear the weeds, but the house has been vacant for some time. ‘We’ve only been here for a year and a half, and it’s been empty ever since,’ she said.”

“The Kingdom’s construction boom will slow down in the next five years, according to government estimates, due to a glut of building space in the capital Phnom Penh and falling demand for new properties. ‘There is a current oversupply of properties,’ Kim Heang, president of the Cambodian Valuers and Estate Agents Association pointed out. ‘The rich have bought houses and condominiums as residences and for investment purposes, the middle class, too, have their own places ‒ some with investment properties. So there is a glut now,’ he said. ‘It’s the poor who cannot afford to buy any property that are left out. And no developer seems to be catering to them.’”

“Brisbane Lord Mayor Graham Quirk recently acknowledged in a national newspaper that ‘the booming apartment market is coming to an end.’ Does it all seem too little, too late? You warn the boom is over with 15,000 apartments still in the pipeline? Anyone with any brains knows a glut is coming, with crashing prices the likely result. A longtime housing investor said to me: ‘How in god’s name did this council approve so many apartment ­towers? Their job is to look over the horizon and predict what will be needed. That’s why they are called bloody planners – to plan.’”

“He has a point. Yet, has Brisbane and Queensland ever met a developer it didn’t like? It falls in love with big men with white shoes and too much money, time and time again, no matter how many times it ends badly. He advises: ‘If I owned an apartment and was thinking of selling it, I’d put it on the market right now for a sensible price.’”

“China’s use of administrative measures to control property prices can have painful repercussions for its swelling ranks of homeowners. Just ask Shanghai resident Yi Miaowen. Yi had to cut the price of the apartment he was selling by at least 8 percent after local authorities in March restricted purchases by non-residents, causing two prospective buyers to pull out. ‘I needed the money ready within two months to pay for a larger apartment I just bought,’ said the 42-year-old engineer, who sold his apartment for 5.31 million yuan ($808,502). ‘The buyers spotted my weakness and then asked for lower prices.’”

“Britain is a nation obsessed with bricks and mortar but experts have warned those thinking of investing in buy-to-let are facing headwinds that will only get worse. From next year landlords will see tax relief on their mortgage payments cut each year until 2021 - putting pressure on profits and potentially forcing them to raise rents. Coupled with the pending removal of a ‘wear and tear’ allowance and a 3 per cent stamp duty surcharge slapped on any buy-to-let purchase made after April this year, many landlords’ finances are suddenly looking like they might not stack up.”

“Graphic evidence emerged yesterday that landlords, both current and prospective, are seeing the writing on the wall: figures from the Council of Mortgage Lenders revealed a spectacular drop in the number of buy-to-let property purchases in April. Dominik Lipnicki, director of mortgage broker Your Mortgage Decisions, said: ‘If I could give one piece of advice to anyone thinking about becoming a landlord it’s no wishful thinking. Subsidising the mortgage by £2,000 a year if the capital growth is £10,000 can make sense to many but what if that growth stops or worse, tumbles? The mortgage will still need to be paid.’”

“A growing number of economists seem convinced that the US, the European Union and China are all headed for a prolonged period of sluggish growth. A parallel would seem to be 1990s Japan. There, too, the bursting of debt-funded asset price bubbles gave way to multiple rounds of fiscal stimulus, massive monetary easing and rock-bottom interest rates. Rescue efforts stabilized conditions but couldn’t spark a sustainable recovery, leaving the economy mired in low growth, low inflation and high debt.”

“When Japan entered its downturn, however, the country had several advantages that nations today don’t. For many, a Japan-style slump may be the best-case scenario. The political polarization and resistance to austerity policies evident in Europe and elsewhere underscores just how messy a prolonged economic downturn is likely to be. Japan’s experience is instructive, not predictive. Unfortunately, as Brazilian writer Paulo Coelho once observed, ‘Every time we repeat the same mistake, the price goes up.’”

June 16, 2016

This Is Happening Across The Entire Country

The Dallas Morning News reports from Texas. “With home prices spiking in many markets and fierce competition for houses from first-time buyers, investors are getting shoved to the side in many cities. High prices have also cut into investor profits from home rentals. Most of the slowdown has come from institutional investors that grabbed hundreds of houses in some U.S. cities. ‘All the hedge funds have gone away,’ said Don Hicks, co president of Dallas-based HomeVestors. ‘They are mostly out of the market.’”

“HomeVestors is a 20-year-old company that has franchises for investors around the country who buy and sell houses. About 800 of the company’s buys last year were in the Dallas-Fort Worth area. Hicks worries that some investors are paying ‘crazy prices.’ ‘We see average investors paying way too much for the houses they are buying,’ he said. ‘It does not look like in a short term they will have a cash flow.’”

The Real Deal on California. “For a while, it seemed like a new luxury high-rise, complete with an obligatory infinity pool and sky-high rents, was announced in Downtown Los Angeles every week. Then came the cranes. Now, Downtown’s multifamily market risks becoming oversupplied, especially on the luxury end, Steve Basham, senior market analyst at CoStar Group, said in a recent report on the submarket. The rising vacancy is hardly deterring investors. More than 10 percent of inventory — more than 2,000 units — changed hands in the past four quarters.”

“Carmel Partner’s 700-unit Eighth & Grand project, however, was only about 25 percent occupied five months after opening, with 60 percent of the available units leased while the rest of the project was being completed. ‘This [Eighth & Grand] development was highly anticipated as its ground floor is home to Downtown’s first Whole Foods, but the $3.65 [a square foot] average asking rents are near the top of the rent spectrum,’ Basham said. ‘The dense concentration of luxury development Downtown is leading to increased competition for renters, and the resulting concessions will weigh on effective rent growth.’”

“At Eighth & Grand, tenants were offered the option of two months free rent or a year of free parking at the end of the first quarter. Similar concessions are a rarity in other pockets of the L.A. market. But then again, there isn’t another pocket of L.A. seeing as much construction of high-rent properties.”

The Star News in North Carolina. “‘For Sale’ signs staked in the front yards of area luxury properties are sticking around longer as the high-end market struggles to find buyers. While the sun, sand and Cape Fear River provide plenty of incentive to purchase in the area, the luxury market in New Hanover is backed up with inventory. In the past 12 months, 86 luxury-level homes were sold in the county. To sell all of New Hanover County’s homes, Chris Livengood, Intracoastal Realty VP of sales said it would take 20 months. In Brunswick, the stock is up to 32 months (based on 90 homes on the market) and in Pender, it’s 60 months (based on 10 homes).”

“Steve Harney, founder of Keeping Current Matters, a New York-based company that tracks market trends, said in a teleconference that the problem is not unique to Wilmington. ‘I don’t want people asking, ‘What is wrong with Wilmington,’ he said. ‘There’s nothing wrong with Wilmington … This is happening across the entire country.’”

The Advocate in Louisiana. “Lafayette Parish homebuilders are feeling the financial pinch of the energy downturn, with sales of new homes from January to May this year falling significantly compared with 2015, a seasoned home seller said. ‘What we have clearly seen at this point is that demand is down,’ Bill Bacque, CEO of Lafayette real estate company Van Eaton & Romero, told members of the Acadian Home Builders Association. ‘New construction has taken the brunt of the decline.’ Why the market has hit the new home market much harder than that of existing homes, Bacque said, ‘I really don’t have a clue.’”

“Bacque said the problem is that most builders kept constructing homes that sold pretty well in the boom years — those priced $300,000 and above — and not enough of the homes that are priced in the market’s sweet spot. According to the report, homes selling for $550,000 to $599,999 have been the hardest to sell, sitting on the market for more than three years before selling.”

KTUU in Alaska. “Alaska has shed a lot of oil industry jobs in the last year, roughly 2,300 according to the State Department of Labor but the Anchorage housing market appears to be holding strong. Alaska Multiple Listing Service reports a larger inventory of homes on the market over last year, but Bob Winn with RMG Real Estate Experts says they’re selling faster. ‘The one area we’ve seen a little bit of a slowdown in is the million dollar homes,’ said Winn.”

“Michael Droege with Century 21 Realty Solutions says consumers have generally been in a panic mode, ‘While on the surface it might seem that the oil industry is melting down and the state of Alaska is going into a crisis and that we’re going to return to the 80’s that’s not likely to happen any time soon,’ said Droege. He points to the $300,000 to $450,000 market and the average sale price is down close to 1.2% but homes are still selling quickly. ‘There are some things that are changing and there are some oil executives leaving and there are some doctors coming in to replace them so it’s not all doom and gloom,’ said Droege.”

5 NBC Chicago in Illinois. “Time is running out for two federal programs designed to help homeowners who are facing foreclosure. The programs have already helped thousands of families in the Chicago area modify or refinance their mortgages, but the relief is scheduled to expire December 31. Theresa Raborn of Midlothian said she will be certainly looking into options like NHS as she fights to save her home, which also serves as a homeschool for her three daughters.”

“Raborn said she and her husband spent twelve months correcting an issue with their home’s escrow. She said since they met their obligation, the lender has put some of her recent house payments in an unapplied account, where partial payments are held until they can be applied later. Raborn said she is being unnecessarily charged late fees. ‘There was plenty of money in that unapplied (account) to make a full payment,’ Raborn said. ‘This has snowballed to the point to where we’re behind on everything.’”

“Raborn said she is spending so much time dealing with the lender, she has had to limit her homeschool teaching. She also said her family now relies on a food bank. Freedom Mortgage said it graciously accommodated its customer and responded with a viable solution when the Raborns made additional requests. However, Raborn rejected the terms, including, she said, a provision that would have required her to keep the matter private. ‘I’m willing to be open to anything that they bring before me but I will not sign away my rights to speak and to associate in order to get a resolution,’ Raborn said.”

June 15, 2016

The Fear That There Is An Oversupply

The Saskatoon Star Phoenix reports from Canada. “It took Dennis Wells almost a year to sell his Forest Grove condominium. When he sealed the deal a few days ago, the two-bedroom unit went for $165,000 — more than $25,000 less than the asking price. ‘The market’s not there now … I mean, you can buy a brand-new one now for $170,000,’ said Wells, who bought the ground-floor apartment for about $56,000 in the early 1980s and spent thousands more renovating it last year.”

“Wells’ experience is likely reflective of the city’s real estate market. ‘Basically, you’ve got a ton of condo conversions that were sold, maybe to speculators, during the boom times, and some of those are being unloaded now,’ said Norm Fisher, a veteran real estate agent and owner-broker at Royal LePage Vidorra. ‘Combine that with maybe an overenthusiastic construction market that has really sort of overbuilt apartment-style condos the last few years, and that adds up to lots of inventory.’”

ABC News in Australia. “NICAD Developments, which builds blocks of up to 20 units, mostly in Brisbane’s inner-north, said concerns about a potential unit glut had scared off some buyers, who were worried their purchases could be worth significantly less in just a few years. ‘There’s definitely fear,’ said Adam Nicolo, who runs the company. ‘In particular, I’ve had two units signed and contracts crashed, based on the fear that there is an oversupply in Brisbane. There’s a lot of stock on the market; we’ve had a boom in construction, and the proof in the pudding so far is how quickly people are buying up or selling their stock.’”

“Brett Evans owns two investment units in close proximity to Brisbane’s CBD, and is unfazed by speculation about a fall in apartment values and rents over the next few years. ‘I bought these units with all the intention that if I have to drop the rent to $200 a week to put someone in it, I’ll do it,’ he said.”

“But Mr Nicolo said owner occupiers were taking a much more cautious approach. ‘Before, when things were hot, they didn’t have much time to think about their purchase,’ he said. ‘Now, we’ve gone back to a more normal market, where there’s a lot of choice and there’s not as much pressure on the potential buyers to buy something straight away. They’ve got time to assess things, come back, and there’s no urgency for them to buy.’”

From Macau Business Daily. “A group of Macau homebuyers in Zhuhai are seeking help from the MSAR government for what they consider to be a fraudulent development plan of a high-end property, called Hills Beyond Sea in Zhuhai. About 200 Macau residents, who bought properties in Hills Beyond Sea, signed a petition letter, complaining about the ‘false promotional plan on the property they bought.’ In addition, the property developer offered the buyers the ‘most expensive price for the property in the district in Zhuhai,’ when it ‘is not worth the high price,’ the group complains. One square meter in the property cost about RMB10,000 (US$1,522), the highest selling price in that district.”

“About 200 units were sold to Macau residents, accounting for about 25 per cent of the total residents at Hills Beyond Sea, including some 120 units that were bought by Macau residents for investment purposes. The entire property contains about 900 units in total. The residents have all reached out to the Zhuhai government and different departments of the government, including the property developer, for help since August last year. However, the property problems continue. ‘Some of the residents even sold their properties in Macau in order to buy a unit in Zhuhai, but they are now facing the uncertainty of not having a home to live in, both in Macau and Zhuhai.’”

The Bangkok Post in Thailand. “The government should help home buyers to get mortgage loans more easily as tough loan approval criteria are obstructing housing demand Anant Asavabhokhin, chairman of developer Land & Houses Plc, said. Peerapong Jaroon-ek, chief executive of SET-listed developer Origin Property Plc said banks should classify home buyers and market segments when applying strict lending rules. ‘Banks should not apply stricter lending rules for all customers, or the whole segment, as not everyone has a problem of financial discipline,’ he said.”

“For SME developers, market surveys and research are a must to survive, said Mr Peerapong. ‘Small-and medium-sized developers should apply a customer-centric approach. They should study demand as land prices today are so high that just any property development is not feasible,’ he added.”

“Kwanchai Yingcharoenthawornchai, managing director of new property developer Alternative Asset Plc, said property investment for individual investors would change this year as the market had changed. He added investment in condos for rent in the inner city was also sluggish as rents were not rising. In some locations where yield had been as high as 8%, it had dropped to only 3-4%. ‘In the past four years, speculation and short-term investment was very good. Many speculators could make a profit from selling a presale condo during a downpayment period. But this year it will be not that good due to the sluggish economy,’ he said.”

The Nation Online on Nigeria. “The real estate sector has been badly hit by current economic realities as several houses have been built without tenants to rent them. Tenants, who were meeting their rental obligations have resorted to either moving out of their apartments or defaulting in payment. Former President of the Nigeria Institution of Estate Surveyors & Valuers (NIESV), Mr. Bode Adediji said: ‘Landlords have exotic houses, but with no effective demand from tenants; with the series of retrenchments in the banking, oil and information technology (IT) sectors, which were the toast of landlords as tenants, landlords have become the first casualties with high rental defaults.’”

“Vice Chairman, NIESV Lagos Branch, Mr. Orimalade Olurogba said 80 per cent of all properties under his management now had defaulting tenants who were previously meeting their obligations. He said: ‘What is most worrisome about it is that the sectors, which were termed to be secure, such as the oil and gas industry, are now the jobs that are most insecure. Some are even moving to cheaper accommodation; the ‘ideal and choice tenants’ that most landlords look forward to occupying their properties are currently defaulting because of the uncertainties in the economy.’”

The Manchester Evening News in the UK. “Since splitting from Oasis back in 2009 Noel Gallagher has gone on to forge a successful solo career, but one decision which has proven rather costly was his venture into the property market. The rock n’ roll star, 48, bought this end-of-terrace house in London’s Little Venice in 2010. Situated on the banks of Regent’s Canal, he is now looking for £11.5m for the house. But the singer is struggling to find a buyer for the property since putting it on the market last year and with no sign of a buyer coming in, it looks like he’s gonna have to just roll with it.”

“Some might say it’s surprising to see such a fantastic home stagnate on the market for so long but Henry Pryor, an independent property buyer isn’t shocked at all by Noel’s situation and sees it as being very much the norm in the current climate. He said: ‘Even celebrities aren’t immune to the changing London housing market. The most expensive homes are now 10%-15% lower than they were a year ago as sales volumes have fallen by a half. A blue plague or a celebrity connection may help you to get noticed but it doesn’t seem to add much to the price todays buyers will pay. The biggest worry for high profile sellers is if the market has further to fall and the prospect that some may find that they can’t sell at all.’”

June 14, 2016

Some Aren’t Worth What Buyers Are Offering To Pay

WFAA reports from Texas. “North Texas is home to one of the hottest housing markets in the country. Real estate agent Beth Groenewald, says if you’re looking in this market, you either buy it or say goodbye to it. ‘Jump on it, because it is not going to be here five minutes from now. It’s gone,’ she said. ‘You don’t have to love it; just like it.’ Demand is crazy, and home sale stories like this one told by Groenewald are becoming common: ‘It went on the market Friday night, and I had four offers in my inbox Saturday before 8 a.m. — and we hadn’t had any showings.’”

“New homes are being erected here at the fastest pace in almost a decade. Added together, builders here are on track to put up about 29,000 new homes in the area this year alone. ‘I like having this much demand,’ said Kevin Egan, president of American Legend Homes. Egan’s company is actually turning away some homebuyers there just to pace themselves. ‘Our sales people don’t like it,’ he said, but undoubtedly they do like that as demand and prices go up.”

The Columbus Dispatch in Ohio. “A growing number of deals in central Ohio’s high-flying housing market are being shot down by appraisers. In their reports to lenders, appraisers are concluding that some homes simply aren’t worth what buyers are offering to pay. The findings are forcing deals to be renegotiated and, in some cases, killed. Agents and others say they started noticing problems a year or so ago as central Ohio’s housing market fired up, with homes selling above asking price in a day or two, sometimes in bidding wars.”

“Lenders and appraisers acknowledge that determining value can be difficult in a rapidly changing market, but they say there are ways to account for rising prices. ‘It’s such a dynamic market, if you hold onto just the historic data, you stand a good stand of missing the market,’ said Scott Robinson, a North Carolina appraiser who is president of the Appraisal Institute, a Chicago-based trade association.”

“They also can adjust for the sale date of the comps. ‘Let’s say home prices have gone up 12 percent a year, so if you have a house that sold three months ago, that’s a 3 percent adjustment,’ said Ralph Berger, owner of R.F. Berger & Associates appraisal firm and chairman of Columbus Realtors appraisal committee. ‘Our job is to reflect the market.’”

The Greater Baton Rouge Business Report in Louisiana. “Decreased demand for the high-quality pine timber that is so abundant in south Louisiana is causing a hardship for the area’s timber farmers. Behind the decreased demand for timber is a slowdown in the housing market. Though new home construction has recovered somewhat in recent years from the recession of 2008 and 2009, housing starts are still half of what they were before the recession.”

“The problem has gotten so bad Warren Peters, owner of Peters Forest Resources, and other industry leaders met last week to brainstorm potential solutions to help timber farmers. Buck Vandersteen, executive director of the Louisiana Forestry Association led the meeting and says there aren’t any immediate answers. ‘Ideally, what we need is another mill that could take some of this product,’ Vandersteen says. ‘But there’s not demand for another mill right now. You can’t encourage someone to build something when there’s an oversupply.’”

The Washington Post. “The law of supply and demand generally dictates that when the supply of a resource is low and demand is high, the price will be high. That’s not the case in the D.C. region’s housing market where inventory is tight and sales are up, yet prices are down. Even though sales volume has been higher in each of the past eight months, the median price has fallen in six of those months.”

“Arlington County was among the jurisdictions that suffered declines. Its median price dropped to $535,000, from $560,000. The median price in Frederick County, Md., fell to $270,990, from $281,000. Fairfax City and Falls Church City each saw steep declines in their median prices, but their low number of sales tends to exaggerate price swings. Fairfax City’s median price plummeted to $400,000 from $520,500. Falls Church City’s median price tumbled to $625,000, from $708,750.”

The Aspen Times in Colorado. “Property sales in Aspen continue to slump this year. That’s according to the city’s most recent tax report issued last week. In May, the city’s collection of real estate transfer taxes were down 53 percent for the affordable-housing segment and 52 percent for the Wheeler Opera House portion. In his monthly newsletter issued last week, broker Tim Estin noted that the first five months of this year mark the ‘third-worst performing period’ in the past 10 years in the Aspen-Snowmass real estate market.”

“‘Savvy sellers might consider getting ahead of this dismal news and price with a reality-based mentality,’ Estin reported. ‘Buyers may wish to consider the opportunity here to enter the Aspen market finding better values than last year. The summer selling season will let us know.’”

The Jacksonville Business Journal in Florida. “Lender-mediated residential properties accounted for 17 percent of sales in May, according to the Northeast Florida Association of Realtors. The association highlighted this fact in its monthly report on home sales in the area, but noted that bank-owned properties are playing ‘a sharply reduced role’ in the housing market with the remaining lender-mediated properties accounting for 8.7 percent of listings.”

“Jon Singleton, a Jacksonville Realtor with about 15 years of experience in the area, said that after the economic crash in 2007, the number of bank-owned properties ballooned. Singleton said that while the number of bank-owned properties is lower than in years past, there’s still a large ’shadow inventory’ owned by banks that isn’t being actively sold. He said that while the shadow inventory worries a lot of residential real estate professionals, the number of distressed properties sold off last month is a good sign. ‘That’s a much more balanced number than we have had in years past,’ he said.”