May 26, 2017

Desperate To Sell In A Supposedly Hot Market

It’s Friday desk clearing time for this blogger. “On the cusp of the summer season and with housing sales overall on a steady upswing, homes at the lower end of the market on Martha’s Vineyard are being snapped up at a record clip. Real estate broker Doug Reece added that sellers now appear to be testing the upper limits of the market. As one indication, he noted that while the median price of properties sold has risen slightly since last year, the figure doubles to $1.65 million when looking at all homes currently on the market. ‘Everybody likes to take advantage of an up-market,’ he said. ‘And that’s okay. But when you see the median price being double what the median price sold is, you wonder where the market’s going to go. You’ve got to wonder at what point a buyer is going to say, no, we’re not going there. So this is going to be an interesting year coming up.’”

“Owners of Manhattan luxury homes are waking up to a simple reality: If you want your place to sell, drop your price. For high-end homes that found buyers in 2017, the median asking price was the lowest in at least five years, according to data from luxury brokerage Olshan Realty Inc. Perhaps sellers got tired of waiting. The homes that found takers this year lingered on the market for an average of 389 days, a record in data going back five years, according to the brokerage. ‘People are thinking harder about price cuts sooner,’ said Donna Olshan, president of the brokerage.”

“Sellers need to be mindful, not of their fabulous floorplans or views, but what a competitor with a similar apartment is seeking for their unit, she said. ‘The most important thing for sellers is to see who’s swimming in the lane next to you,’ Olshan said.”

“There is a construction frenzy across the South Bay. However, the U.S. Commerce Department noticed a hiccup last month. New home sales in the West dropped 26 percent, the largest drop in over six years. ‘I think we’re about to see a shift in the marketplace, and the new home sales may be the leading indicator of that,’ real estate broker Quincy Virgilio said. He’s starting to see a softening of the market. ‘Where I used to get 10 to 12 officers on a property, now I get two or three and where it used to be $100,000 over asking, it’d be $20,000 or $30,000.’”

“The median priced home in San Jose has gone from $800,000 to $1 million, but the number of buyers who can afford to buy that home is at a tipping point. ‘Right now, it’s about 20 percent. Meaning 1 in 5 people, 1 in 5 families, can afford to buy the median-priced home. If that number falls below 20 percent, which it did in 2006 and 2007, typically we see a slowing in the marketplace,’ Virgilio said. No one is predicting a bubble bursting, but change could be in the wind.”

“When a 59-year-old accountant in Shanghai wanted to invest for her looming retirement, she bought two cheap apartments — on the other side of the country. ‘When friends told me about a chance to buy properties in Xishuangbanna, I thought ‘why not?’ said Yuan Junxi, talking of the steamy, subtropical region in Yunnan province, bordering Laos and Myanmar. ‘No buying limits; cheap, easy mortgages; and maybe property prices will jump over there too.’”

“‘The current surge in sales in third- and fourth-tier cities is fueled largely by expectations of a future price rally, not by asset yields, and that’s exactly a sign of a bubble,’ said Zhao Yang, Hong Kong-based chief China economist at Nomura Holdings Inc.”

“Chinese investors are pulling out of Melbourne’s apartment market, prompting a downturn. In the past, they helped drive the inner-city apartment market to new heights. However, around 80 per cent of Chinese buyers will not be able to settle because of trouble getting finance, according to Ming Li, a real estate agent in Melbourne’s eastern suburbs who specialises in selling Australian property to Chinese investors.”

“He said many of his clients had either forfeited their deposits or sold their apartments at a loss. ‘The Melbourne apartment market is cooling down,’ he said. ‘It is kind of the oversupplied market, and the Chinese investors are losing their interest in buying an apartment in Melbourne. ‘The capital gains return is so low.’”

“According to economist Philip Soos: ‘There certainly is a housing bubble in Australia. Since 1996, we’ve seen housing prices inflate above all known fundamentals, such as GDP, inflation, income, rents and population growth. Australia has accumulated the world’s second highest household debt to GDP ratio at 123 per cent and rising,’ Mr Soos added. “All countries that have a ratio above 100 per cent have experienced or are currently experiencing a housing bubble.’”

“After a decade of being able to command high prices, London property sellers are having to offer discounts in order to secure deals, according to real estate listings website Zoopla, which indicates that the price cuts are getting larger in outer London boroughs. Affordability is the main factor. The average London salary is £34,000 while the average property price is £600 000 – far beyond the reach of most city workers. Even with the discounts of at least 20%, homes in many areas with easy commuting access to the city centre still look very expensive.”

“‘Peripheral areas, which buyers turned to when inner London became too expensive, have seen considerable inflation recently and reached a point where affordability is stretched,’ said Neal Hudson, founder of researcher Residential Analysts Ltd. ‘Before, people got around it with longer-term mortgages, but the limit has been reached.’”

“Less than two months ago, Toronto’s housing market was roaring. Just a single new listing on the market, especially of single-detached homes, would send buyers into a feeding frenzy, clamouring over each other to view properties and upping their bids by as much as 30 to 40 percent in some cases. Then in late April, in a move that some say was unnecessary and politically-motivated, the Ontario government intervened to cool the housing market.”

“‘There were 140-plus listings in the downtown core alone earlier this week. I’ve never ever seen a surge like this before,’ said David Fleming, a Toronto-based realtor with Bosley Real Estate. ‘April was a weird month too — we suddenly started seeing all this inventory creep onto the market.’”

“‘I think there’s a change in the psychology of home buyers and sellers, ever since the government intervened,’ Bruce Joseph of Anthem Mortgages told VICE Money. ‘Perhaps the big cash out is at play now, people listing their homes and wanting to sell because they think prices are going to go down.’”

“Buyers too, seem to think prices are may taper off. One buyer, Oakville resident Vijayalakshmi Govindasamy was surprised to see that open houses in her neighbourhood were deserted. ‘I went to view three properties in Oakville over the weekend. In the first house, there were only two other people. In the second and third houses, I was the only interested buyer.’ Govindasamy says that she was told by one of the realtors present to make an offer for ‘even just $1 million,’ despite the fact that the said home, a single-detached house, was being listed for $1.4 million. ‘Why are people desperate to sell in a supposedly hot market?’”

“Joseph, a mortgage broker in Barrie, Ontario, has long believed that Toronto and its surrounding towns never had a supply problem. ‘That’s just what real estate players want you to believe. Our home ownership rate is one of the highest in the world. If you just go on Kijiji, you’ll see that there is no lack of places for people to live in.’”

May 25, 2017

Vulnerable To Financial Ruins In A Minor Correction

A report from Bloomberg on Canada. “Toronto’s hot housing market has entered a new phase: jittery. After a double whammy of government intervention and the near-collapse of Home Capital Group Inc., sellers are rushing to list their homes to avoid missing out on the recent price gains. The new dynamic has buyers rethinking purchases and sellers asking why they aren’t attracting the bidding wars their neighbors saw just a few weeks ago in Canada’s largest city.”

“‘We are seeing people who paid those crazy prices over the last few months walking away from their deposits,’ said Carissa Turnbull, a Royal LePage broker in the Toronto suburb of Oakville, who didn’t get a single visitor to an open house on the weekend. ‘They don’t want to close anymore.’”

The Globe and Mail. “Have you heard the one about how supply is going to solve the great Canadian housing crisis? If you’ve listened to the real estate industry or our political leaders, you likely have. Just build more condo towers and presto, problem solved. Well, they’re building them in Metro Vancouver and Greater Toronto – lots of them. Here is the other brutal reality about the great supply argument: vast swaths of these units are being built and presold to foreign purchasers. These buyers, in turn, are either flipping the properties for a profit before they are even finished or hanging on to them as safe investments and renting them out.”

“No, the great supply argument is a myth, a dodge. It is not solving anything.”

The Drayton Valley Western Review. “If you are looking at putting your house up in the market, take into consideration these tips provided by local realtors Tammie Sharpe and Lorinda Gustafson. According to them, it is important to ask for a realtor’s advice as to what needs to be improved in a home before putting it out in the market. If a seller decides to make home renovations, Sharpe advised to do it right the first time and get a professional to do the work.”

“‘Most buyers will get an inspector to come in and inspect the house and if you have done a whole lot of work but not properly, the inspectors are going to find it so the buyers are going to know and they will either back away from making an offer or they are going to drop their price especially now that it is a buyers market and there are a lot of houses for buyers to choose from,’ she said.”

From Better Dwellings. “Vancouver real estate may be showing signs of exhaustion. According to the Bank of Canada (BoC) and the Ministry of Finance (MoF), the quality of mortgages are showing increasing signs of quality deterioration. Over the past year this trend has accelerated, leaving more homeowners vulnerable to financial ruins in the event of a minor correction.”

“A high-ratio mortgage is one where less than 20% is placed as a down payment, and the owner has as little as 5% equity in the home. Chances of these mortgages going underwater (i.e. the owner ending up with negative equity in the home) are already pretty high. The BoC and the MoF data shows that the quality of high-ratio loans in Vancouver is quickly deteriorating. The fiscal year ending in 3Q of 2016 saw high-ratio mortgages with an average LTI higher than 350%, in more than 75% of postal codes in Vancouver. This is an 11% increase from the period prior.”

“These subprime loans are actually getting worse in Vancouver. 36% of postal codes saw the average loan-to-income ratio increase from the year prior. V5X, known to humans as South Vancouver, saw the largest increase. The ratio jumped from insignificant numbers, to an average high-ratio loan-to-income of over 450% – the highest measure the BoC gives.”

“The BoC’s concerns are not just limited to Vancouver, they previously noted that Canadians across the country are increasingly stretching themselves thin to pursue homeownership.”

From The Province. “The Fraser Valley Real Estate board (FVREB) has warned managing brokers that offshore investors have apparently been asking realtors to complete illegal transactions that would break money-laundering and tax-evasion laws. A May 18 memo titled ‘Important notice’ was sent out to hundreds of broker-managers who were told to distribute it to realtor employees.”

“‘It has come to our attention that overseas clients may be asking realtors to allow money to be transferred to their personal accounts, so that the realtors can arrange a bank draft to give to the sellers/developers for their purchase,’ the May 18 notice states. ‘It’s important everyone understands that this violates federal income-tax laws, Fintrac laws and the Real Estate Services Act.’”

“In an interview, board president Gopal Sahota said his board isn’t aware of specific cases where realtors have completed such transactions, but the board acted on information gathered by its members. ‘It is a strongly worded notice,’ Sahota said. ‘We want our members to know lots of laws could be broken. Money has to be legitimate or you have the money-laundering and illegal aspects coming into (transactions) … You can’t be handling suitcases of cash.’”

May 24, 2017

Genuine Sellers And Speculators Alike High And Dry

A report from Bloomberg on Canada. “Home Capital’s troubles started with ‘unlucky’ brokers. That’s what Canadian banks and insurers call the mortgage merchants who get caught submitting fraudulent loan documents. Yet the brokers, whose names are now on databases maintained by lenders and mortgage insurers, can still win business since they haven’t been prosecuted for fraud. The failure to stop such practices is exposing cracks in Canada’s vaunted regulatory structure, drawing parallels to the U.S. a decade ago. ‘The early days of growth in the subprime market in the U.S. were like this — then it got out of hand,’ said Jim MacGee, an associate professor of economics at Western University in London, Ontario. ‘At some point, you’re going to have people who take short cuts. When people are facing pressure to get into a house, you have brokers who are facing pressure to get them in there. They just hear, ‘How can you get me in there?’”

From AOL Money on the UK. “A house price crash is notoriously difficult to predict. At the time, we all merrily carry on buying and selling, oblivious to the fact that disaster is lurking just around the corner. It’s only after the fact that we can see the glaring signs that change was coming. The signs are there, however, if you look closely, and should be ringing alarm bells for us all. House prices have reached a record of 7.6 times earnings, which has pushed them out of reach of a huge number of buyers. In some parts of the country, they have hit more than ten times average earnings.”

“A third of properties on the market at the moment are discounted by an average of £25,000. Prices have fallen over the past month, and the past three months. In the pricier parts of London, the falls are even more marked. Prices here peaked some time ago, and in many cases have dropped significantly since. The number of buyers registering with estate agents is falling too. In March, the number of buyers per branch dropped to 397 - down from 425 in February. It means that despite the fact that there are very few homes for sale - sellers are still struggling.”

The National on Dubai. “‘Why do you still recommend Dubai property as an investment?’ asked an old friend worn out by an onerous refurbishment project and annoyed at the recent fall of rents in the city. Landlords have seen the capital value of their units fall in value by 25-30 per cent in the past three years since the government acted to prick what looked like another housing bubble in formation back at the end of 2013.”

“You have to look at the downside risk in stocks and note that hey, it looks an awful lot bigger than the upside. Dubai property by contrast looks to be at the bottom of a classic three-year real estate down cycle. As I have remarked in this column before, this summer is likely the bottom. Note that my picks are completed and not off-plan property. I am weary of anything that smacks of flipping property after watching the implosion of the last Dubai bubble in 2009. The rental yield of a villa or apartment yet to be delivered is zero, and negative really if you have to keep your money tied up in it for much longer than originally promised.”

“One final reason to pick real estate over stocks and bonds is so obvious people often forget it – the leverage of a mortgage.”

The Japan Times. “Apartment construction is booming as the wealthy rush to invest in rental housing as a way to reduce inheritance tax and banks hand out easy mortgages, but concerns are mounting that excessive supply paired with a shrinking population could soon lead to the bursting of the bubble. Many are investing in apartments to take advantage of a discount that applies to land with rental housing on it. Banks have been only too happy to accommodate them with mortgages.”

“The rapid expansion of housing supply has left landlords in areas other than Tokyo and Osaka struggling to fill units. A realtor at a major company warned that the market is ‘in dangerous territory where landlords are struggling to pay the bills.’”

The Vietnam Bridge. “Tien Phong has quoted analysts warning about a ‘bubble’ in the high-end apartment market segment, with more and more apartment projects put up for sale recently. From central business to new districts, investors and brokers are struggling to boost sales. High-end apartments are in a two-year slump. ‘Hanoi doesn’t have more low-cost apartment projects, while there are very few new house and villa projects,’ explained Nguyen Van Dinh, deputy chair of the Vietnam Real Estate Brokers Association.”

From The Australian. “Rents for Brisbane apartments have fallen by as much as 17 per cent over the past six months amid an unprecedented flood of unit ­developments on to the city’s market, according to one of Queensland’s biggest property managers. Prominent agency owner Andrew Coronis, managing director of Coronis, which operates 23 offices across southeast Queensland, said tenants were moving more readily to get better deals, forcing existing unit stock and ‘investor-style’ apartment owners to cut prices.”

“Brisbane’s market has suffered a sharp turnaround with a collapse in off-the-plan apartments to one-third of the level compared to last year and strain in the construction industry resulting in builder CMF Projects going into admin­istration. ‘We’re seeing a 17 per cent drop in rents and it is happening right now,’ Mr Coronis said. ‘It is between 10 (per cent) and 17 (per cent). Everybody is scrambling to lock tenants down.’”

The China Economic Review. “Struggling to control a housing bubble, the city government announced measures on March 26 that effectively closed loopholes that had allowed new commercial buildings to be turned into homes and sold to individual buyers. The new measures have purchasers of such homes scrambling for a way out, Caixin reports. In desperation, dozens of buyers trapped in other commercial housing developments appealed to the city government for help The restrictions have also sent the commercial real-estate market in China’s biggest cities into a tailspin, leaving genuine sellers and speculators alike high and dry, and forcing developers to change their business models.”

From Shanghai Daily in China. “About one month ago, Janet Li moved into a two-bedroom apartment with her husband in the Huangpu District. In what was a bit of a surprise, the couple was able to find a rental in just over a week. The landlord, whose flat has been vacant for three months, was so happy when the property agent brought Li and her husband to view the apartment, that she reduced the rent by 1,000 yuan (US$144) a month, about a 7 percent discount.”

“Many factors play into the decline. Migrant workers are going home as metropolitan life becomes too expensive and job prospects in the hinterland hometowns improve. People investing in rental properties have increased, causing a glut of homes to let. And people who can’t sell homes in an increasingly regulated market are sometimes forced to rent them out instead.”

“‘I’ve heard so many times from work colleagues and friends that rents have been soaring in Shanghai in the past few years,’ Li said. ‘I hardly expected a landlord to give us discount and even without any haggling. This will give us time to look around for an apartment to purchase and will help cut commute time for me and my husband.’”

May 23, 2017

A Disconnect Between Economics And Reality

A report from the Seattle Times in Washington. “As Seattle summers keep getting hotter and hotter, a once-unthinkable perk for renters here has become more commonplace: air conditioning. Traditionally, there hasn’t been much of a point for local developers to spend the extra money to install A/C and new construction was rare enough that new buildings didn’t need extras — they stood out just for being new. But now the record apartment construction boom sweeping the city has created what some in the industry have called an ‘amenities arms race’ to attract tenants. Things like rooftop decks, gyms and dog play areas are a dime a dozen. Now A/C has become a way for landlords to stand out in a sea of apartment ads.”

“‘I don’t think it’s a fad, I think it’s probably going to be a new normal, because it is getting warmer,’ said Megan Murphy, a senior manager at one of the biggest developers in town, Paul Allen’s Vulcan Real Estate. ‘Now it’s becoming more competitive, as well — it’s not just about being the new kid on the block, it’s about being the new kid on the block with all the extras.’”

From the Denver Post in Colorado. “Metro Denver landlords are cutting their advertised rents at one of the highest rates in the country, according to Trulia. Nationally, rent increases have plateaued and more landlords are starting to realize that rent hikes year-after-year aren’t a given, noted Felipe Chacón, author of the report.”

“Compounding the problem, many of the apartments and homes built are on the more expensive end of the market, while the jobs created in metro Denver are mostly on the lower-end of the wage scale, said Mark Vitner, a senior economist with Wells Fargo Securities. ‘There is a real affordability issue in Denver,’ Vitner said, adding that could be contributing to a recent slow down in in-bound migration and job growth.”

From Construction Dive. “On a national basis, rental hikes are finally easing, with about one in 10 listings experiencing a rate cut year-over-year, and the national median rent dropping by 2.9%, Trulia reported. Of the 100 largest metro areas, 83 saw a growth in price cuts this year as compared with the previous year. The Texas cities of Dallas, Austin, Houston and Fort Worth had the highest proportion of increases in rent reductions. When it comes to price reductions of for-sale listings, Dallas and Austin topped the list in year-over-year increases, followed by San Antonio, TX, San Jose, CA, Camden, NJ, and San Francisco.”

The Norman Transcript in Oklahoma. “Rent charged on multi-family properties in Norman is on the decline, according to recent studies. City leaders approved a moratorium in January for a wide swath of central Norman in reaction to R-3 zoning, which allowed large, multi-family structures to be built alongside historic bungalows. That six-month moratorium on new construction is set to expire soon, but the multi-family rental market is already experiencing the effects of a soft market, according to some experts.”

“‘What’s happening is we are starting to see more concessions in the market,’ said Mike Buhl of Commercial Realty Resources Co. in Norman. ‘If you just drive around town, you see signs up at apartments like ‘$99 Move In’ and I saw one that said ‘Two Months Free.’ When you see signs like that for concessions, lower rents are a result. All of that is adding inventory, and I’m not sure there’s full demand for that inventory.’”

“Buhl said many investors bought older apartment properties thinking they could do some improvements and raise rents on those properties. ‘That may be much more difficult when the market is showing signs of softness,’ he said.”

The Sun Sentinel in Florida. “If you want to rent in the lap of luxury atop downtown Fort Lauderdale’s tallest building, you’ll have to pay eye-popping prices. Penthouses in the new 45-story Icon Las Olas apartment tower that offer panoramic water views will command $7,000 a month and up. A one-bedroom, 960-square-foot unit will rent for a more accessible $2,500 a month. Originally planned as a condo tower, the $200 million project at 500 E. Las Olas Blvd. is now best suited as a rental, says developer Jorge Perez, though he isn’t ruling out a conversion to condominiums at some point.”

“Lewis Goodkin, a longtime South Florida housing analyst, agrees that Perez’s best bet now is to cater to the rental market. He cited a softening condo market and challenges in acquiring financing. Apartments are safer investments, and Goodkin said the superb downtown location means Icon Las Olas won’t have trouble renting the more modest-sized units. But he’s less sure about demand for the priciest digs.”

“‘When you’re talking about $7,000 a month, the market thins out a lot,’ Goodkin said. ‘People who can afford that are pretty fussy about where they are.’”

From Multi-Housing News. “Jay Rollins, managing principal & co-founder of JCR Capital, talked to Multi-Housing News about the next stage in the cycle. MHN: Could you give us some details on a particular market where this theory could apply? Rollins: Many markets are overbuilt—such as Denver, L.A. and Tampa—and rents will fall, but lenders have been conservative in their underwriting, and they will be fine. It will be equity and mezzanine lenders who will be disappointed.”

“MHN: What are your predictions in connection to the multifamily market’s future? What is the next stage of this cycle going to look like? Rollins: Not very different, except you will not see much more new construction of Class A multifamily in urban markets for a while.”

From Forbes. “In the last 10 years, Treetop Development has become one of the major and more sophisticated multifamily housing players throughout the greater New York City area. The company, founded by Azi Mandel and Adam Mermelstein, now owns and manages about 8,500 apartments. However, at its peak, it had over 10,000 units. Over the last two years, Treetop sold a number of projects, specifically in northern Manhattan.”

“Omri Barzilay, Contributor: The markets are rallying for more than eight years. Do you think that’s something that can continue?”

“Mandel: Pointing to history, the real estate market has experienced a downturn every seven to 10 years, and some of the fundamentals that have forced market downturns in the past are in place right now. There are signs that demonstrate a disconnect between economics and reality. For example, apartment rents are going down while building prices are not, which is typically indicative of a bubble.”

May 22, 2017

The Crux Of The Problem Is Oversupply

A report from Fox News. “Top Republican lawmakers have expressed concerns about the cuts President Trump plans to make for the 2018 budget year, which is due out Tuesday. The blueprint is certain to include a wave of cuts to benefit programs such as Medicaid, food stamps, federal employee pensions and farm subsidies. ‘We think it’s wrongheaded,’ Rep. Mike Conaway, R-Texas, chairman of the House Agriculture Committee, said about the looming cuts to farm programs. ‘Production agriculture is in the worst slump since the depression — 50 percent drop in the net income for producers. They need this safety net.’”

From Iowa Public Radio. “Don Batie farms in Dawson County. Batie is 58-years-old and says that makes him one of the younger farmers around. He and his wife farm about 1,500 acres of mostly corn and soybeans. They’re raising more grain than ever before, but it’s not paying off right now. ‘We’ll probably end up losing money for the year,’ Batie says. ‘Unfortunately that’s kind of the way agriculture goes, we have boom and bust.’”

The Des Moines Register in Iowa. “When his 31-row planter broke down while sowing soybeans earlier this month, Michael Fritch and his dad patched it up as best they could, after deciding to put off buying new equipment for a while. It’s one more way to cut costs when commodity prices are dismally low and a farming downturn is now in its fourth year. ‘There’s no question, you stress about it,’ said Fritch, 39, who farms near Mitchellville.”

“This year could be pivotal for many Iowa farmers, battling to turn a profit as they plant 23.4 million corn and soybean acres across the state. Delinquency rates are rising from record lows to around historic averages, said Chad Hart, an Iowa State University agricultural economist. Record corn and soybean production last year helped blunt the financial drag, but farmers are paying for it this year as the glut of grain depresses prices, he said. Iowa farmland values have fallen about 18 percent to $7,183 an acre from a 2013 record high, according to ISU land surveys. ‘There could be a wave of financial issues still coming in the farm sector as we continue to see low prices and the erosion of the farm financial sheet,’ Hart said.”

The Lincoln Journal Star. “Total agricultural land property values across Nebraska dropped for the first time since at least the early 1990s, based on the Department of Revenue preliminary valuation report for 2017. Commodity prices have declined to about half of what they were in 2013-14. We are entering the fourth consecutive year of a downturn in the ag economy since the near record incomes of 2013, said Nathan Kauffman, assistant vice president with the Federal Reserve Bank of Kansas City.”

“Commodity prices have a lot to do it, said Hall of the ag land valuation decrease. ‘Cash rents are down, too. So if someone is buying land to make a living, it is going to be less,’ he said.”

From Kansas Farmer. “If you are hoping for a turnaround in the free fall of the ag economy over the past couple of years, you’ll be disheartened by what USDA Chief Economist Rob Johansson had to say to the North American Ag Journalists when he addressed them in Washington, D.C. If his read on market signals is accurate, farmers will be facing a decade of prices very close to what they are seeing today.”

“The crux of the problem, he said, is oversupply. U.S. farmers produce far more corn, soybeans, wheat, cotton, beef, pork and dairy products than the U.S. can consume. Johansson said commodity prices are already down between 50% and 70% even as production is increasing, creating the likelihood that prices will stay depressed. ‘Right now, it looks like record crops of corn and beans will be coming out of South America, and that will continue the downward pressure,’ he told the journalists.”

The Tennessean. “Members of the Rollins family were looking to diversify their real estate portfolio beyond industrial properties that house their Nashville Wire Products Co. when they stumbled upon the concept of investing in farmland. ‘Unless people are burning down forests to create more arable land, it’s pretty much a fixed thing,’ said Steve Rollins, third-generation president of shelving products maker Nashville Wire Products.”

“Investing in farmland is seeing growth as a vehicle for taking advantage of the long-term need to feed a growing world population. More wealthy individuals, pension funds and other institutions also see that emerging asset class as a way to reduce risk in their portfolios. Randy Dickhut, senior vice president of real estate operations for Omaha, Neb.-based farm and ranch management and real estate company Farmers National Co., sees direction of interest rates and effects of grain and livestock prices impacting land prices and values. He also cites risk factors such as projections of global population growth and food and fiber demand falling short and expectations of slow improvement in farm incomes, which means farmland values might not rise as much in the near term.”

“Dickhut cautions investors to seek help from people who understand variations in the quality of land, which can determine the rate of appreciation in value and income for the farmland owner. ‘When people invest in farmland and don’t know everything they need to know and engage the right experts for help, it ends up being a poor investment because farmland is a long-term investment,’ he said.”

May 21, 2017

Tremendous Velocity That Is Not Normal In Any Market

Expanding on the previous weekend topic with the Amarillo Globe News in Texas. “Housing demand keeps rising in Amarillo, and the supply isn’t keeping up. Local real estate agents say first-time buyers, retirees seeking medical care and country folk moving into town have crowded the housing market and caused prices to rise, especially in the city’s most expensive neighborhoods. A similar imbalance persists in cities across the country. Oklahoma City saw an 8.6 percent drop in houses on the market from March 2016 to March 2017, per The Oklahoman. In Westchester, N.Y., a real estate agent told how he showed a house to 26 prospective buyers on one Sunday afternoon in April.”

“Listing prices are skyrocketing in Amarillo’s most expensive neighborhoods. According to Amarillo Multiple Listing Service (MLS), the average asking price for a home in Eagle Tree jumped by about $180,000 (50.8 percent) in the last year, La Paloma/Tascosa Estates homes on the market increased by about $130,000 (33 percent), and other neighborhoods are seeing significant increases in average asking price as well. The average listing in the Puckett neighborhood went from $161,353 to $249,035, a 54.3 percent increase.”

“Amarillo Triangle Realty co-founder Jamie Haynes doesn’t expect the trend to slow down any time soon. ‘I think we’re in a growth spurt, and Amarillo just hit this mystical, magical number (of 200,000 residents) where it started to boom,’ she said. ‘We’re going to see that see all the way down to Canyon.’”

The Waco Tribune-Herald in Texas. “It’s hard to be too surprised about rising tax appraisals when the superlatives about Waco real estate keep piling up. Waco-area ZIP codes last year topped the list for most popular searches on, thanks in part to a certain television show. In the first quarter of 2017, the city of Waco saw a record 151 housing permits issued. And local real estate agents are seeing things they’ve never seen in Waco, such as bidding wars over coveted homes.”

“The most obvious change has been the phenomenal success of the HGTV show ‘Fixer Upper,’ which has driven national attention to the bargain home prices here. ‘In 37 years, this is the strongest seller’s market I’ve seen,’ said Kathy Schroeder, vice president of residential property at Coldwell Banker Jim Stewart Realtors. She said the media coverage has brought in out-of-town investors who are willing to put far more money into older homes than was once thought prudent.”

“‘We’ve had a good diversity of buyers,’ Schroeder said. ‘We’ve seen some investor-speculators, some Baylor-related, but also a lot of people who have been renting property who can now qualify for a loan.’”

From The Oklahoman. “Ian Colgan was a real buzz buster at the otherwise celebratory Mayor’s Development Roundtable last week, presenting a sobering but necessary housing reality check on all the good Oklahoma City has going for it. Housing affordability has been a key strength of the city’s renaissance, but we’re losing it.”

“Rising costs are hitting the working poor hard, and rising rents and house payments are eating away at the stats that earned the city its reputation as a great place for first-time homebuyers and renters, said Colgan, assistant executive director of the Oklahoma City Housing Authority. Of the 50 biggest cities in the country, he said, Oklahoma City is the 32nd most expensive for homeownership and the 43rd most expensive for renting. So far, so good.”

“‘No Midwestern, Southern or Mountain West city’s rental market grew faster than that of Oklahoma City, including Texas,’ Colgan said. ‘Only Austin and Fort Worth (Texas) had faster growth rates for non-coastal cities. In Oklahoma City, Colgan said, more than 20,000 households pay more than half of their gross income for rent, which makes them ’severely’ cost-burdened. ‘The less income, the more burden. The estimate is that about 20 percent of city households making between 30 to 50 percent of area median income, and about 60 percent of households making 30 percent or less of median income, are severely burdened,’ he said.”

“‘Whether this is gentrification, this trend is worrisome,’ he said, referring to investing and renovating housing in poor areas to levels that attract higher-income renters who can pay the higher rents, shutting out poorer residents. Stagnant wages, in the face of rising home values and costs, also are taking a toll and creeping up the income scale. New apartments are almost all market rate, not aimed at the affordable market. Of 2,546 apartment units under construction or in planning in the city during the 2014-2015 research period, just 238 were affordable.”

The Real Deal on Florida. “While Miami’s residential market has hit the downside of the cycle, fears of a potential crash are largely unfounded, according to real estate professionals who spoke at Keyes Company’s 2017 South Florida New Development Showcase. Anthony Graziano, chairman of Integra Realty Resources who joined Pappas onstage, said the biggest problem facing brokers is convincing sellers to readjust their prices in a buyer’s market. ‘We cannot expect Miami to go back to 2013 and 2014 when Brazil was flush with petroleum dollars and Venezuela was not in the middle of civil unrest,’ Graziano said, referring to the record-setting boom years of the most recent cycle.”

“Reza Parsiani also said any comparisons to the boom years of the cycle are unfair. ‘We have seen tremendous velocity and movement that is not normal in any market,’ he said. ‘In 2015, I did 17 transactions a day. That is extraordinary. Now, we are just normalizing.’”

The New Zealand Herald. “It is remarkable the extent to which the tone of conversations about property has changed in Auckland. The slowdown started as far back as July last year when there were signs that the rate of growth had peaked. But it was hard to be sure, at least until April, because the same kind of slowdown occurred in late 2015. This time around growth appears to have stalled good and proper.”

“What got me was how quickly the tone of the conversation has changed at social events in Auckland over the past few weeks. The stories are told by those who are trying to sell, or have close friends or family trying to sell. And they all suggest it’s taking longer than they’d like. Open homes aren’t packed, auctions aren’t happening. Fear and worry are starting to take hold among sellers and their real estate agents. The lawyers and the bankers are getting antsy.”

“The difference between nine potential buyers or 10 turning up at your open home isn’t much at all. But one buyer instead of two makes a huge difference to the price you can command. No buyers, compared to one, and it doesn’t take long for the panic to set in.”

“In theory, with immigration still at record levels and supply slow to catch up, prices can’t fall far. But if immigration has been such a big driver of growth, why has Auckland growth hit the wall while longterm visitor arrivals continue to hit new records?”

May 20, 2017

More Of An Intended Feature Than A Flaw

A report from the New York Times by Robert Shiller. “There is still no consensus on why the last housing boom and bust happened. That is troubling, because that violent housing cycle helped to produce the Great Recession and financial crisis of 2007 to 2009. But the explanations for what happened in housing are not, I think, to be found in the conventional data favored by economists but rather in sociologically important narratives — like tales of getting rich through ‘flipping’ houses and shares of initial public offerings — that constitute the shifting mentality of the era. Consider the data for a moment. It shows us that extreme changes took place but doesn’t tell us why.”

“Real home prices rose 75 percent from February 1997 to December 2005, according to the S&P/Case-Shiller National Home Price Index, corrected for inflation by the Consumer Price Index. And then, from 2005 to 2012, real prices reversed course, falling to just 12 percent above their 1997 level. In the years since 2012, they have climbed 29 percent, about halfway back to their 2005 peak. This is a roller coaster in national home prices — it has been even scarier in some more volatile cities — yet we have no clarity on why it happened.”

“One thing is clear: The prevalent narratives of 1997 to 2005 did not include the concept of a housing bubble, not at first. A computer search using ProQuest or Google Ngrams shows that the phrase ‘housing bubble’ was hardly used until 2005, the end of the boom. Instead, during the 1997 to 2005 boom there were multitudes of narratives about smart investors who were bold enough to take a position in the market. To single out one strand, recall the stories of flippers who would buy a house, fix it up, and resell it within months at a huge profit.”

“This generated buzz. When renters and speculators flipped their purchase contracts at a big profit, sometimes using borrowed money for down payments to flip multiple units without actually even closing on the condos, it was thrilling. It seemed that anyone with energy and initiative could get rich doing this. These narratives are still potent and could easily spur further spirals in the housing market.”

The Sun Sentinel in Florida. “In the head-spinning world of ultra-luxury real estate, slapping a price tag on a mansion sometimes is less about market value than it is about what one agent calls ‘crazy math.’ Singer Celine Dion reportedly sold her Jupiter Island digs for close to the $38.5 million asking price — but the home originally was listed in 2013 for $72.5 million. Farther down the coast, oceanfront mega mansions in Manalapan and Hillsboro Beach once for sale at more than $150 million each have been pulled off the market in recent weeks.”

“The two listings had drawn skepticism from real estate agents, who said the eye-popping prices are more appropriate for the bright lights of New York or the majestic foothills of California than South Florida. ‘Owners, developers and agents have been overpricing uber-luxury properties in South Florida for as long as I can remember,’ said Jack McCabe, a housing analyst in Deerfield Beach. ‘Sometimes I think people are pulling these numbers out of dark places. Chances are, these listing prices are never going to fly.’”

From Bloomberg on Canada. “Canadian government officials delivered a vote of confidence in the country’s housing sector and banking system, telling lawmakers that Vancouver and Toronto’s real estate markets are supported by fundamentals that leave risks well-contained. The core message from the officials was Canada’s market was stable and, despite some risks, policy makers’ measures are taking effect.”

“‘We don’t think there’s any systemic risk across the country,’ said Phil King, a director at the economic and fiscal policy branch at Finance Canada. ‘There are specific pockets of concern, which seem to have ameliorated somewhat in the very-near term but we’re keeping a very close eye on those.’ Vancouver and Toronto have ‘very, very strong fundamentals’ supporting prices including immigration, strong job creation, strong income gains and high wealth, he said.”

The Globe and Mail in Canada. “After holding on to their rapidly appreciating asset for so long, some sellers in the Greater Toronto Area appear to be rushing headlong to cash in. Buyers who lamented that there were so few listings now seem incapacitated by the amount of choice. ‘I think they’re overwhelmed – there are so many houses to look at,’ says Toronto real estate agent Davelle Morrison. ‘No matter what neighbourhood they want to be in, there are so many houses to look at.’”

“In another harbinger of change, Ms. Morrison has also started receiving phone calls that are strange to her ears: Listing agents are pleading for her to bring her house hunting clients to their properties. Ms. Morrison recently listed a duplex for sale in the posh enclave of Moore Park. It’s the kind of property that appeals to both investors and those who want to live in half of the house while renting out the rest. ‘No agents booked showings,’ she says.”

“Ms. Morrison listed a duplex for sale in downtown Toronto with an asking price of $1.26-million. When it didn’t sell within days, buyers began to wonder what’s wrong with the house. They were interested in the location and the property, she says, but they became wary when there wasn’t a bidding frenzy. ‘How often do you get houses that are walking distance to the St. Lawrence Market?’ she says in disbelief.”

“She recently generated a new round of showings when she cut the asking price to $1.199-million. Sellers, she believes, figure the time is right to take some profits after a stunning run-up in prices over several years. But some sellers have waited too long, she believes. Those who might have received eight offers earlier in the year may now get only two. ‘Some of the sellers are greedy and they just want more and more and more,’ she says. ‘We’re in a new market now – you can’t expect the moon.’”

From Tropic Now in Australia. “The current state of Cairns real estate is confounding the public and the data is at odds with the anecdotal evidence. Tourism, investment and economic confidence are all on the rise but median house prices remain decidedly flat, and that’s despite our enviable level of housing affordability relative to capital city markets. To confuse matters even further, a disconnect is developing between the median house price and the top end of the market, which is flying high.”

“Gone are the rollercoaster days of the past 20 years. Today, we’re seeing a much steadier, more sustainable growth pattern. In an attempt to cut a clear path through various reports and statistics, Tropic looks back at where the local real estate market has come from before we look ahead, to get a handle on where it’s all going over the next few years. Those who were here at the time call them the ‘golden years,’ a champagne period of extraordinary growth that fuelled prosperity in the Tropical North for a decade leading up to the Global Financial Crisis of 2007-08.”

“Buoyed by out-of-town investors grabbing residential property bargains, price rises were running at between 10 and 30 per cent in different areas of Cairns from 2000 to 2004. The market was so lucrative back then that some local real estate agents were able to retire years before the rest of us are meant to. Agents of a certain vintage remember the days of selling a $60,000 Queenslander near the Esplanade or Cairns North one year and $400,000 just five or so years later.”

The Los Angeles Daily News. “Total household debt reached $12.73 trillion as of March 31, eclipsing the previous record of $12.68 trillion set during the third quarter of 2008, the Federal Reserve Bank of New York revealed. Among the major debt categories, mortgage balances accounted for $8.63 trillion, followed by $1.34 trillion in student loan debt, $1.17 trillion in auto loan debt, $764 billion in credit card balances and $456 billion in home equity lines of credit.”

“While the debt bubbles began to reinflate after the aftermath of the Great Recession, the composition of that debt has changed, with mortgage debt making up a smaller share and debt from auto loans, and especially student loans, much higher. Among a selection of 11 states, including the most populous states, California had the highest debt balance per capita of $68,460, nearly 44 percent higher than the national average of $47,650. In fact, as further evidence of California’s high housing prices and affordability problems, the state’s mortgage debt alone surpassed the total debt national average (and the total debt of all other states presented except New Jersey), with a per capita burden of $53,250.”

“This expansion in debt ‘is more of an intended feature than a flaw of the Fed’s monetary policy since the housing bubble popped,’ Mises Institute fellow Jonathan Newman maintained in a post after the New York Fed’s previous quarterly report. ‘Expansionary monetary policy can only replace bubbles with new bubbles. Malinvestments are not totally liquidated, but shift from one sector to another. Consumer debt is not directly paid off, but transferred from one type to another. The redirection is mostly guided by new government interference in markets.’”

“The easy money and credit expansion party can only last so long, as we rudely discovered just a decade ago. With the increase in household debt, people pouring money into stocks that are at record highs and the national debt now up to about $20 trillion, it seems we still haven’t learned this lesson.”

May 19, 2017

The Sound Of The Pincer Grip

It’s Friday desk clearing time for this blogger. “Low inventory has caused home prices to rise and forced prospective homebuyers into bidding wars, which in some cases has produced another side effect: appraisals that come in lower the contracted sales price, according to Allison Bartholomew, president of the Greater Louisville Association of Realtors. ‘The prices have increased so much and so quickly that the appraisers are having a hard time justifying the sale prices,’ Bartholomew said. ‘It’s not that the houses aren’t worth it,’ but it does create a problem for homebuyers.”

“The homebuyer’s options are to come up with cash to pay the difference, renegotiate the sale price, make a compelling case for why the appraiser’s valuation is wrong, or walk away. On a single day this year, she said, 38 houses that had been pending came back on the market. ‘It’s sort of a conundrum,’ Bartholomew said.”

“It’s clear from up here that downtown San Jose is ascendant, with activity in all directions: cranes swinging, bulldozers digging. Now, as developers build more high-rise housing with luxury amenities — the most downtown has ever seen — they expect the well-heeled residents moving in will lure more restaurants and coveted retailers. Downtown San Jose’s luxury housing generally gets built in response to new jobs. But while Silicon Valley’s job market has enjoyed a strong recovery from the recession, the area’s job growth has been up and down these last few months. ‘The party can’t go on forever,’ Mike Kim, chief investment officer for Simeon Properties observes with a shrug.”

“Maria Sicola, the CEO of Integrity Data Solutions, says Portland is in the midst of a real estate boom, but approaching the end. ‘I think we’ll see a slowdown in 2019, but I don’t think that we are in a position economically to have the great recession or anything like the great recession that we saw in 08 and 09,’ Sicola says.”

“Christopher Lee, President of CEL & Associates, has predicted the previous two housing cycles, and says that if you think of this real estate boom as a baseball game, we’re probably in the 7th or 8th inning. ‘We’re in a place where we’ve got a little more oversupply, we have not enough demand for that supply, and so we’re gonna slow down,’ Lee says.”

“Areas north of Tallahassee are seeing fast sales, while properties south of the city aren’t seeing the same amount of traffic. Realtor Joe Manausa he believes there are more sellers than buyers, especially in the median price range, and that specifically is causing property values to drop at the high end. Manausa said that homes below $350,000 are in a sellers’ market, which means there are more buyers than sellers. But once the price goes over $500,000, there becomes a ‘glut of supply.’”

“In New York City, first-quarter property sales plummeted 58 percent, to $4.3 billion, compared with a year earlier, according to data from brokerage Cushman & Wakefield Inc. It marked the lowest quarterly sales volume in six years. Nationwide, the picture wasn’t much better. Sales dropped 18 percent, research firm Real Capital Analytics Inc. found.”

“As sales of existing properties languish, developers are mired in a glut of hotels, condos and apartment complexes following a construction boom. Landlords are cutting rents and prices, and spooked lenders are holding back. In Manhattan, even the biggest names in real estate are scrambling. Concern is mounting that real estate prices have peaked following six years of record-shattering growth, and there are signs of overbuilding in large cities such as New York and San Francisco—the biggest beneficiaries of the recent boom. ‘People are just not making decisions quickly at all,’ said Robert Verrone, a principal at Iron Hound Management Co. ‘Everything in real estate is taking longer.’”

“Tick. Tick. Tick. That’s the sound of the inner-city apartment market. There are 15,000 brand-spanking-new apartments due to settle before June 30 this year. Many of these apartments won’t settle … because the buyers can’t come up with the balance of their money after paying a deposit. This week I caught up with Li Ming, a co-director of Aussiehome, who specialises in selling Aussie property to Chinese investors. Ming: ‘The Melbourne off-the-plan apartment market is the worst I have seen in the past 10 years.’”

“Ming believes that about 80 per cent of Chinese buyers won’t be able to settle on their Australian apartments. Here’s a real-life example of one of Ming’s clients: Three years ago his client bought a yet-to-be-built, off-the-plan, two-bedroom apartment in Southbank for $750,000. They put down a $75,000 deposit (10 per cent) and planned to organise a loan for $675,000 (90 per cent) in three years’ time when the apartment was built.”

“Because of the oversupply of inner-city apartments, the Aussie banks are now being cautious about how much they’ll lend (and they’re also charging investors a higher interest rate for their loans). They told Ming’s client they wouldn’t stump up 90 per cent of the purchase price — only 80 per cent. Bottom line: he was $75,000 out of pocket.”

“So where does he find the extra money? Well, that’s the second part of the pincer grip: the Chinese Government. For the past year, the Chinese Government has been clamping down on investors taking money out of this communist country. Investors used to be able to take out $US50,000 per person per year … yet now many state-owned banks are lowering the amount, or outright blocking the money going overseas.”

“‘So what did your clients do?’ I asked Ming. ‘They had no choice. They walked away … and lost their $75,000 deposit.’”

“Ming told me he has other clients who flat-out couldn’t get finance from the banks. ‘They managed to negotiate to flip their apartment for a 7 per cent loss … but even that is getting harder to do. Everyone is getting desperate,’ he said.”

May 17, 2017

Well In Excess Of The Desired Equilibrium

A report from CNBC. “The largest generation is finally starting to buy houses. The trouble is, there aren’t enough houses for sale to feed their appetite, at least not enough they can afford. Enter the nation’s recovering homebuilders. They may want to play to this great big audience, but doing that will hurt their bottom lines. First-time buyers, however, are not necessarily starter homebuyers. Millennials waited longer to get married, have children and buy homes, due to the recession and other social factors. Since they are older, they can afford more, even though it may be their first home.”

“‘There are a lot of first-time buyers in their early 30’s in good locations, buying,’ said John Burns, CEO of John Burns Real Estate Consulting. ‘It’s somebody’s first house, but they both went to college, and they’re making $200,000 each.’”

From My San Antonio in Texas. “The local housing market is finally showing signs of cooling after growing at a rapid clip over the last five years. ‘The market is probably slowing down a little bit,’ said Jim Gaines, chief economist at the Texas A&M Real Estate Center. ‘Last year was phenomenally good. You’re still seeing a good market, just not phenomenally good.’”

From The Advertiser in Louisiana. “Acadiana’s housing market is making some measured recovery in 2017. Report compiler Bill Bacque, president of Van Eaton & Romero, said market slowdown exacerbated by the oil and gas industry downturn ‘is at best over or at worst stabilizing.’ Sales of more expensive homes — $300,000 and up — have declined about 8.5 percent, year over year in Lafayette Parish. Only two homes have sold for more than $1 million this year; 26 are listed. No homes in the $900,000 to $999,999 price range have sold in Lafayette Parish in 2017.”

“Bacque said the supply of homes in that $300,000-and-up range is about 11.6 months, ‘well in excess of the desired equilibrium.’”

The Victor Valley Daily Press in California. “A Lancaster man who owns a house in Barstow has started a petition in an effort to change laws to prevent other homeowners from having to deal with any headaches or nightmares associated with trespassers and squatters. While paying his electricity bill for his houses in Lancaster and Barstow on April 28, Alan Frey noticed service was ‘canceled’ at the Barstow location. The confusion prompted him to drive to Barstow. ‘There was a camper out front, pit bulls, mattresses, trash and windows open,’ he said.”

“I called the police. They went in and knocked on the door and the people presented a fake rental agreement with my name on it. … There was no signature on the form. They even claimed they were paying $1,800 a month for rent.’ With the help of police, Frey and the trespassers came to an agreement for them to leave the property by May 1. But after the squatters left later that day, Frey said he was left with a disaster.”

“Frey said he purchased the home June 2001. He expects to pay off the mortgage in June. He said he now intends to sell the house to avoid future headaches.”

The Real Deal on Florida. “Developers sold only 212 units — or less than 1 percent of the pipeline — during the first quarter of this year, as the supply of preconstruction condos slowly gets absorbed, according to a new ISG Miami Report. The majority of developments reported slight increases or no new sales by April compared to ISG’s November report. In the Brickell/Miami River submarket, for example, Rise at Brickell City Centre sold about 20 units during the five-month span. Brickell Ten, Echo Brickell and Cassa Brickell reported stagnant sales.”

“And One River Point, which wouldn’t provide a sales figure in the winter, said it is 15 percent presold. In Miami Beach, Lionheart Capital’s Ritz-Carlton Residences reported the same 60 percent in presales.”

From WOSU Public Media in Ohio. “It’s been 10 years since foreclosures reached a peak in Cuyahoga County. From 2007 to 2015, mortgage foreclosure numbers fell around 63 percent countywide, according to figures compiled by the Thriving Communities Institute. But despite this good news, there are Northeast Ohioans still feeling the aftermath of the crash and the financial instability it caused.”

“About a dozen years ago, Fred Brooks was taking care of his ailing mother. His mother had refinanced her home in Glenville with Argent, one of the biggest subprime lenders in the county. Argent sold her mortgage to Wells Fargo. After she died, the bank foreclosed. But Wells Fargo couldn’t find a buyer at sheriff’s sale. ‘That’s when it got really rough on my end, being that I was unemployed, really didn’t have a way to make property tax payment arrangements,’ he said.”

“The next to foreclose was Cuyahoga County in 2009, a peak year for county tax foreclosures. The county sold his mother’s house. In 2012, the new owner filed to evict him. The attorney he hired to help him has since died. The home is currently valued at $23,100, a bit more than one fourth the size of his late mother’s mortgage. Brooks said he’s stable now, but still wants his mother’s house back.”

“‘Because if I could have found some sort of halfway decent employment, I could have made arrangements to keep it,’ he said. ‘Yes, I would have been broke all the time with paying bills, but it’s a moral value, from where we come from. Like I grew up in that house.’”

May 16, 2017

About To Suffer From Years Of Accelerated Improvement

A report from the Union Tribune in California. “In the first quarter of this year, local residential building permits were at their lowest since the Great Recession — largely because of a drop-off in apartment construction, said data from the Construction Industry Research Board. Builders and analysts point to about 3,000 new apartments in San Diego County this year already in the pipeline, dissuading builders — at least for now — from starting projects.”

“Builder Wermers Companies said the market has slowed following a surge in new-apartment construction over the past several years and as lenders have tightened credit for real estate loans. Tom Wermers said lenders are skittish about all the new apartments being built and may be concerned rent growth will not be as high as originally thought. Borre Winckel, CEO of the San Diego Building Industry Association, said builders have chased high-end buyers and renters, but there are only so many wealthy people.”

“‘That demographic that can can afford the top tier is thinning out,’ he said. ‘We don’t have the middle market happening anymore.’”

From Bisnow on North Carolina. “There will not be a slump in Charlotte multifamily any time soon, even in new development or investment sales, speakers at Bisnow’s Charlotte Multifamily Growth & Expansion event said. But a slowdown is possible, even likely, for Class-A product — which now includes some amenities hardly dreamed of before this cycle. Top-end development that manages to break ground in the near future is going to have to compete very hard on amenities.”

“More than one speaker predicted a softening of the market, for a variety of reasons. For developers, it will be land and construction prices, and an increasing reluctance on the part of lenders to finance Class-A in particular. For owners, higher rents will be harder to sustain. There are a lot of new jobs in the market, but that will not sustain massive rent growth as it has in recent years because wage growth still lags.”

“Even so, renters now expect much more in the way of amenities than ever before. As more supply comes online, owners need to offer those kinds of amenities to be competitive, such as rooftop pools or massage rooms or workout space with high-end equipment in common areas, and foyers and laundry rooms (as opposed to closets) in the units.”

From Multi-Housing News on Colorado. “The Mile-High City has gone through something of a Renaissance as of late. However, with rents rising at a more pedestrian rate and development still in high gear, is Denver’s multifamily market about to suffer from its years of accelerated improvement?”

“Feeding on a firing-on-all-cylinders economy and rising demand due to its growing population, developers started adding apartment inventory at a frantic rate. Since 2014, roughly 28,000 new units have been added to the market, cementing a housing boom only matched by more established markets like San Francisco and Seattle.”

“Words like ‘bubble’ get thrown around often in similar situations, but the large volume of construction has yielded so much job growth in that sector alone that it has produced demand for market-rate units. Last year saw the creation of 12,400 construction jobs.”

“On the other hand, overbuilding is manifesting itself in the upscale segment, as developers, spurred by high returns, have continued to add projects to the pipeline. As of May 2017, roughly 53,000 units were in some stage of development, despite recent completions having already compressed occupancy to 94.4 percent, 140 basis points below what it was a year ago.”

The Real Deal on New York. “The Bronx has become a destination for investors seeking high returns – not only in new development, which is, by any measure booming, but also in the borough’s existing apartment building stock. From 2010 to 2016, city property records show that investors spent $9.2 billion snatching up Bronx apartment buildings. Deal flow has continued into this year. But even though some sellers have made a killing on their properties, the buildings aren’t generating nearly enough income to keep pace with the sales prices, according to an analysis conducted by The Real Deal.”

“In over half of apartment building transactions between 2009 and 2016, market prices grew at least three times faster than building net income – a disconnect pointing to investor speculation that the fundamental value of buildings will catch up to their sticker price as rent rolls in the borough increase. The assumption, though, may not pan out, and depending on the terms of investors’ debt, overpriced acquisitions may put investors in a difficult position.”

“Jonathan Miller, CEO of appraisal firm Miller Samuel, sees rising prices in the Bronx as being part of a larger trend. ‘There’s a flood of capital worldwide seeking a home,’ he said. ‘Sometimes the financials don’t always make sense.’”

“The increase between 2011 and 2015 is clear. The sale price per unit in multifamily apartment buildings has roughly doubled in this time, closing at nearly $150,000 per unit by the second half of 2015. ‘I think the prices are much too high,’ said Steve Finkelstein, whose firm invested roughly $180 million in Bronx apartment buildings from 2009 through 2014. ‘There are people out there still buying,’ he said. ‘I don’t agree with their valuation, so I’m kind of out of the market right now.’”

May 15, 2017

They’re Not Betting As Much As They Were

A report from Q 13 Fox in Washington. “When you think the housing market couldn’t get any hotter, it does and continues to set records. Chinese investors make up the majority of foreign buyers in our area. They have always been interested in the Puget Sound area but several local realtors are telling Q13 News they are buying up residential properties at a rate they never seen before. Among the competition are Chinese investors who many times overbid and pay in cash. Broker Gary Lu with John L. Scott specializes in the cash-bidding world. ‘I am their personal shopper,’ Lu said. In fact, Lu says some Chinese investors have never even set foot in the Emerald City. ‘Not just one client, many of my clients they have never even been to Seattle,’ Lu said.”

From Hawaii News now. “A developer whose permit has stalled in Honolulu City Council is threatening to organize a boycott of Hawaii if he doesn’t get his way. In a rambling letter to Councilman Ikaika Anderson, Johnson Fang, developer of the proposed 26-story Hawaii City Plaza high-rise on Sheridan Street, accused the Windward lawmaker of being biased. ‘We deem your racial remarks (have) violated federal law…and discriminated against Chinese-Americans,’ Fang said in the letter. ‘l will call on Chinese to not visit Hawaii… not to make investment or buy property in Hawaii.’”

“Fang is referring to comments by Anderson last week where he said, ‘If you’re looking to provide 25 rental units and then you’re going to take 130 units to market in China, sir, I’m not interested in that quite frankly.’ Anderson declined comment on Fang’s allegations on the advice of city attorneys. But he said he opposes the condo project — where units go for as much as $1.5 million — because it would do little to ease the housing crisis.”

From the Macomb Daily in Michigan. “The county’s top assessor worries about a repeat of a decade ago when rapidly rising housing prices created a real estate bubble that led to a crash and economic recession. But Macomb County Equalization Director Kristen Sieloff hopes, and other experts have assured, a crisis is less likely this time because of safeguards in place now that didn’t exist in 2008. She worries when she notices two gaps — one ‘bubble’ between taxable value and assessed value, and a second bubble between the inflation rate and rate of the housing price increase.”

“‘I am a little concerned about the bubble between taxable value and assessed value,’ she told county commissioners. ‘That’s kind of what happened in 2006 and 2007. It became a snowball effect.’”

“Sieloff prefers housing prices to rise two to three times the inflation rate, not the current situation of five to 10 times. The CPI last year was .3 percent and this year is .9 percent, she said. ‘To me as an assessor it makes me a little nervous because of what happened last time. I like to see a 2 to 3 percent increase, a little above the CPI (Consumer Price Index),’ Sieloff said. ‘When I see a big, wide gap like that, I hope we have enough safety measures in place. Hopefully people aren’t buying properties they can’t afford.’”

The Des Moines Register in Iowa. “Des Moines’ housing market has enjoyed several years of uninterrupted growth. And that’s starting to make some real estate professionals anxious. Many in the industry say the housing market — which has seen record home prices and a feeding frenzy for entry-level homes in recent years — is poised to continue growing thanks to the city’s solid economy and booming population. But some are beginning to wonder how much longer the ride can last.”

“Internal data from Keller Williams, which has nearly 160,000 agents nationwide, shows coastal markets started slowing down around September 2016, said Erin Rundall, a Keller Williams agent. During the last housing crash, the Des Moines market slowed down about 18 months after coastal markets. Some agents are already starting to cut expenses like advertising and overhead in anticipation of a market slowdown, said Brian Wentz, CEO of Keller Williams Realty Greater Des Moines. Others are going back and reviewing practices that helped them stay afloat following the 2007 housing collapse.”

“‘There is no question that in our industry we have the sense we are in the eighth inning,’ said Wentz. ‘At some point the market will become overheated and pull back.’”

The San Mateo Daily Journal in California. “Redwood City officials will broaden their perspectives on the city’s future to its role in the region and position in the face of an uncertain national economic climate following a sobering report on the city’s economic indicators presented to the City Council. Economist Jon Haveman predicted the city may experience the slowing employment growth already documented in the state and region, which could have a delayed effect on sales and property taxes, the city’s two largest sources of revenue in the city’s 2015-16 fiscal year. Though Haveman noted the city’s home prices are high by regional standards, he said a decline in the last year may bring relief to Redwood City residents.”

“Councilwoman Alicia Aguirre said she was encouraged by Haveman’s analysis of the city’s housing stock, which showed permits for the construction of new residential buildings had grown faster between 2014 and 2015 than nearby areas, while permits dropped in San Mateo County and the Bay Area as a whole during that time. ‘I’m happy to see that housing is adequate for the growth that is expected of us,’ she said. ‘Because rents are coming down, I’m hoping we’ll be able to keep more people here.’”

“But she said Haveman’s less rosy perspective on indicators such as the city’s employment growth rate, which he said would follow the Bay Area’s suit in falling to 3 percent from 4 percent, puts the city’s budget decisions in the context of regional, state and national policies. As a board member of the San Mateo County Transit District and Caltrain, Councilman Jeff Gee said he has seen similarly sobering sales tax revenue numbers as those agencies are working slowing tax revenue growth into their budgets. ‘They’re seeing the slowdown in the economy and they’re not betting as much as they were betting two years ago,’ he said.”

The Palm Beach Post in Florida. “The storied history of the north end waterfront project that once bore the name ‘Trump’ awaits its next chapter. In its most recent iteration, as a six-building, 1,000-condo and apartment complex, Marina Village was supposed to have come out of the ground late last year. But more than five months into this year, there’s no sign of activity and neither development partner will talk about it.”

“‘I drove by it this weekend,’ said Jonathan Gladstone, a developer who bought commercial property just to the north in Riviera Beach, thinking that the big Marina Village project would catalyze the market there. ‘I’m always looking for movement and nothing’s happened on the site.’”

“Others in the real estate industry point to a number of market factors affecting the development climate, from shallowness of demand, to rents too soft to support construction. Developer Jeff Greene, who has several West Palm Beach projects in the works, said that in recent months, an oversupply of projects in the pipeline has led to some being cancelled, and as a result, construction prices leveled off. Greene, who is bidding out work on his upcoming One West Palm, a $250 million, two-tower office/hotel/apartment project, said he has been told that contractor and subcontractor prices are dropping. ‘Basically I’m told it’s time to save money on your subs,’ he said.”

“On the other hand, apartment demand in West Palm Beach is steady but not bursting, he said. ‘This is a tough market,’ Greene said. His downtown buildings, for example, have vacancies, ‘not a lot but some,’ he said, but enough to make you think, ‘what happens when you have 800 more units being built? It hasn’t proven to be the dynamic real estate market where you have the support for the real estate development. People are nervous to go in here. I’m nervous, too.’”

May 14, 2017

They Almost Can’t Give It Away

A report from the Toronto Sun in Canada. “Bidding wars have slowed and traffic at open houses appears to be down across the GTA and Hamilton after the province introduced new measures to cool the red-hot real estate market. Tim Hudak, president of the Ontario Real Estate Association said he’s heard from hundreds of agents since the Liberal government introduced measures to cool the market on April 20. ‘The realtors I’ve heard from are telling me that there are fewer people in bidding wars,’ he said. ‘That’s not just in Toronto, but also other parts of the Golden Horseshoe, and there are fewer people coming to open houses.’”

From Bloomberg on the UK. “Jennifer Pickford, a 39-year-old owner of four London rental properties, is not only avoiding purchasing more — she’s considering selling the ones she has. She isn’t alone. ‘If I thought stamp duty was bad, the tax relief issue really was the nail in the coffin,’ Pickford, an accountant from Surrey, said in an interview. ‘It just makes the whole exercise unprofitable and pointless.’”

“‘Before, prices were rising fast enough to cover extra taxes and you could still make money,’ Spencer West, who owns two London properties, said in an interview. ‘Now, they have stagnated and there’s no profit to be made with mortgage repayments, repairs and extra taxes coming out.’ West said he may sell his rental properties and reinvest in his pension plan.”

The Malta Independent. “The last Census, carried out in 2011 – with results published in late 2014 – revealed that in the Maltese islands only 68.2 per cent of residential property is regularly occupied. The rest is either vacant (18.4 per cent or else used seasonally or for some secondary use (13.3 per cent). While all this built-up residential property is vacant or under-utilised, the building industry keeps building more – thereby adding to the glut. They call this progress and a significant contribution to the economy. Alternattiva Demokratika – the Green Party and the environment lobby in Malta has been vociferous about this over-development of the Maltese Islands. This state of affairs has been worsening, with neither the Labour Party nor the Nationalist Party giving a fig about the consequences.”

From CBC News on Japan. “Tucked away in his office in Japan’s most prestigious university, Hideki Koizumi is worried. The towering cranes dotting the Tokyo skyline outside his building suggest a booming city, but the decaying suburbs tell a different story. Dozens of condo buildings and hotels, and at least 45 skyscrapers are planned in central Tokyo in the coming three years, but the long-term view for the country’s housing market is depressingly flat.”

“Young people these days want to live in the centre of Tokyo and are fleeing the suburbs. Left behind are the elderly, who often struggle to maintain their homes. ‘And their physical situation will become worse. So if no one will live with them in the suburban areas, who will look after them?’ said Koizumi. Once the 2020 building boom triggered by the Tokyo Olympics is over, he warns, the problem will accelerate.”

“He says while prices for condos in the centre of Tokyo are now out of reach for many ordinary families, many more affordable ones are being sold in the city’s suburbs. The condo price difference is indeed huge. Central Tokyo apartments can sell for as much as roughly $120,000 per 3.3-square-metre block. In the suburbs, Noboru Takimoto, Tokyo’s senior manager of overseas residential sales at Jones Lang LaSalle K.K., says they’re selling for about a third of that.”

From TV New Zealand. “Chinese investors have shown a strong appetite for housing investments around the globe in recent years, including in cities like Sydney and Auckland. However Professor Chen Bo from Huazhong University of Science and Technology, who has advised the Chinese Government on trade and investment reforms, told 1NEWS Political Editor Corin Dann in Shanghai, that ‘what we are seeing now is the Chinese Government is not trying to facilitate investment abroad anymore like it was.’”

“Mr Chen believes over the last few years some Chinese investors have looked to real estate abroad, not because they look for profit opportunities in those countries, but because they are afraid that investment opportunities in China have gotten gloomy. But he says investment in property abroad is not considered to be healthy.”

“Mr Chen gives the example of an individual wanting to study in New Zealand or send remittance to relatives in New Zealand. He says where previously they could wire 50 thousand dollars US without application. Now he says ‘for any amount over 10 thousand dollars US you need to fill out a bunch of documents saying exactly what you are trying to do, which makes you feel very cumbersome.’ He says this is one of the signals from the government that it wants to tighten capital out flows ‘no matter whether it is a firm or individual.’”

The Guardian on Australia. “The calls to financial counsellors began about 18 months ago. Middle-aged, middle-class homeowners in Western Australia who had shifted their retirement nest egg from superannuation to property were suddenly unable to pay their mortgage. It typically started with an investment property, often in the Pilbara mining towns of Karratha, Port Hedland and Newman. Purchased for $750,000 in 2012, when the market was near its peak, the property was now worth $300,000 and falling. The rental return, which had been $1,600 a week, had fallen to $370. Not enough to cover repayments.”

“Then came the kicker: the massive mining projects whose construction had fuelled the biggest economic boom WA had ever seen were now completed and required considerably fewer employees. Property prices in the Pilbara’s two largest towns, Karratha and Port Hedland, have fallen 65% in the past five years. Newman, an inland town supported by BHP’s Mount Whaleback iron ore mine about 1,186km northeast of Perth, dropped 82% from a median house price of $850,000 in 2012 to $153,000 in 2016.”

“If property owners didn’t get out before the bubble burst, the president of the Real Estate Institute of Western Australia, Hayden Groves, said, ‘they almost can’t give it away. And when that’s all dried up they’ve sort of put everything on the line – their businesses, their family homes – and when that’s all dried up and they haven’t been able to sell the asset the bank’s come knocking and they’ve lost the lot. The speculators who take a punt on making a mint and if they don’t see it coming don’t get out, well, I think they’ve only got themselves to blame.’”

“The Midland Information Debt and Legal Advocacy Service is located in the middle of that mortgage belt. It has been ‘inundated’ in the past 12 months by people made redundant in the mining downturn who can’t make their repayments, its general manager, Justine Clarke, said. A number of those people also have an investment property, intended to fund their retirement, secured against their family home. They now face retirement with nothing, Clarke said.”

“One client was already retired and living frugally off the pension, living in a home that she owned outright. She was encouraged to borrow against her house to purchase several investment properties in a mining town during the boom, Clarke said, and had lost them one by one before losing her home. ‘Generally what’s happened is they have used the equity in their home to purchase the investment property,’ Gemma Mitchell, principal solicitor for the Consumer Credit Legal Service WA, told Guardian Australia. ‘So once the investment property goes into arrears or into negative equity, that has an effect on their homes.’”