December 17, 2017

Those Bubbles That Have Been Saved

A weekend topic starting with the Squamish Chief in Canada. “It is hard to imagine where we go from here, but we have to try. Squamish reached a real estate milestone last month with the benchmark price of a detached family home topping $1 million for the first time, clocking in at $1,013,000, according to the Real Estate Board of Greater Vancouver’s November figures. That is an increase of 105 per cent over five years ago. No other community in the Lower Mainland experienced that much of an increase over five years. It is possible the proverbial real estate bubble will burst and housing prices will go down, but it isn’t likely. The horse is out of the barn, so to speak.”

“Yes, it would be nice if we were still an inexpensive town with trails up to our doorsteps and no buildings over two stories. But either we accept those days are gone and try to accommodate ‘lower income’ earners, or we acknowledge we have become something else: a resort where only the upper middle class and wealthy live comfortably.”

From the Associated Press. “In the decade since the recession began, the nation as a whole has staged a heartening comeback. Yet the rebound has been uneven. It’s failed to narrow the country’s deep regional economic disparities and in fact has worsened them, according to data analyzed exclusively for The Associated Press. A few cities have grown much richer, thanks to their grip on an outsize share of lucrative tech jobs and soaring home prices. Others have thrived because of surging oil and gas production.”

“Max Versace, CEO of artificial intelligence startup Neurala, who arrived in Boston in 2001 from Italy, has watched the city transform itself into a boomtown, filled with innovative companies working on robotics, AI and self-driving cars. Boston enjoyed the 11th-best income gain in the past decade, Moody’s data shows. ‘I have never experienced a slowdown in Boston,’ said Versace, whose company is based in Boston’s Seaport neighborhood, a formerly rundown industrial area now crowded with startups and high-end restaurants. ‘Boston is one of those bubbles — good bubbles — that have been saved by the two locomotives of computer sciences and biotechnology.’”

From Chuck Jaffee. “It has been so long since Americans last suffered through a bear market that they can’t remember how it felt to go through such financial pain, and they’re uncertain how that downturn — the financial crisis of 2007-08 — actually affected their finances. And yet, a large group of those investors are still letting that downturn affect their financial lives and futures.”

“That is the stunning dichotomy of a recent survey from the Hartford Funds, which found that many Americans don’t believe the financial crisis had any impact on their life, and yet — a decade after the last big recession — they still don’t trust the stock market.”

“For the 40 percent of respondents in the Hartford Funds study who said the crisis had no impact in their life — and for everyone else who may not remember the depths of despair they likely were feeling — here’s a refresher: The Dow Jones industrial average peaked in October 2007 north of 14,000, before entering a bear market that saw it decline all the way to 6,600 by March of 2009.”

“Along the way, the housing bubble — fueled by subprime and predatory lending practices — burst; major financial players like Lehman Brothers were wiped out. Right now, according to the Hartford Funds study, it seems like people are disconnected from their senses, and maybe from reality.”

The Gainesville Times in Georgia. “Today, as Hall County seems to be thriving, with housing and retail growth springing up in all corners, ‘there were hard lessons learned … that a lot of small business owners still remember very vividly,’ said Tim Evans, vice president of economic development for the Greater Hall Chamber of Commerce. ‘One of the things we learned was how important it is to have a very diversified economy. Where we probably caught a bad cold, some other communities had severe flu.’”

“Not that a bad cold was an easy pass. ‘It was a tough few years, for sure,’ said Brian Daniel of Carroll Daniel Construction. His firm deals in commercial construction, a sector that typically lags behind residential building in terms of economic trends. ‘2008, at the time, was the best year we had ever had,’ Daniel recalled. ‘We’d go home every night and turn on the TV and know that (the recession) was coming.’”

“He remembers during that time that ‘people would say we would all be better off because of this (downturn). It got to the point I didn’t want to hear that … from one more person.’”

“Frank Norton Jr. of The Norton Agency said a longtime consultant told him in March 2007 that the recession on its way. ‘He was seeing some pretty ugly signs in California,’ he said. ‘Before it got here, we had downsized in the spring and summer of 2007 and (otherwise) battened down the hatches.’”

From Toronto Life in Canada. “Sale of the Week: The $5-million Forest Hill home that proves mansions aren’t selling for quite as much as they used to: Address: 8 Silverwood Avenue. Neighbourhood: Forest Hill. Previously sold for: $3,200,000, in 2011. The house spent a month on the market before finally attracting a lone offer, dramatically below the house’s list price. The sellers initially balked, but a week later they accepted $500,000 under asking. Their agent says it took time for them to adjust their expectations after the housing market’s downturn earlier this year.”

From Domain News in Australia. “While temperatures soared outside, the signs of Sydney’s cooling property market were evident for all to see at the auction of a Maroubra apartment on Saturday. It had all the makings of a hot Sydney auction: a prime beachfront setting, gorgeous views and apartment hunters keen to buy before Christmas. But that wasn’t enough to secure a new owner for the ground floor, two-bedroom apartment at 1/458 Maroubra Road.”

“Auctioneer Glenn Farah, of N G Farah, was greeted with silence when he called for an opening bid for the apartment, which records show last sold for $600,000 in 2002. ‘Let’s start it low and watch it go,’ he said, after a bidder eventually piped up with a $1 million offer. And go the bidding did, jumping up in $50,000 increments as three bidders — an investor and two owner-occupiers — battled for the keys.”

“But after hitting $1.2 million the bidding slowed. By $1.28 million, it had come to a halt and the property passed in more than $100,000 short of the reserve. It wasn’t a surprise to selling agent Martin Farah, also of N G Farah, given the current market. ‘The market has definitely been hit by a cooling effect,’ he said. ‘There’s also a lot of property for sale, buyers have a lot of choice, and the market is finding its own level between [the price expectations of] vendors and buyers.’”

“Listing numbers over spring and summer are up 20 per cent compared to the same period last year, and clearance rates have taken a hit. Last weekend, Sydney’s preliminary auction clearance rate dropped to a two-year low of 58.2 per cent. More than 100 vendors also got cold feet, meaning 13 per cent of auctions scheduled for December 9 were withdrawn.”

December 16, 2017

The Atmosphere Is Getting Very Thin

A report from CBS San Francisco in California. “The housing crunch in pricey Silicon Valley is not only hitting those who are barely scraping by. Even millionaires are not making money fast enough to keep up with the surging real estate market. In some cities, even having two or three million won’t be enough to get you in the door. Earlier this week, we reported that in Santa Clara and San Mateo counties, about one out of four people is at risk for hunger because many are spending almost all of their income on rent. ‘People are skipping meals, cutting back on meals or having to make less healthy choices, like having cereal for dinner,’ said Leslie Bacho with the Second Harvest Food Bank.”

From Bisnow on Massachusetts. “Boston’s housing shortage is perpetually painted as what makes the city so unaffordable. Many say that is simply because there are not enough homes to accommodate the city’s explosive growth. But in an era where even smaller micro-units, built as more affordable housing for millennials, fetch between $2K and $2,500/month in the Seaport, some say the response is not enough. Cost-effective solutions could mean Boston’s next wave of multifamily housing comes outside the Seaport.”

“‘The atmosphere is getting very thin,’ Mount Vernon Co. Chairman Bruce Percelay said. ‘There is a real question as to the direction of rents. We believe the luxury downtown Seaport product is, if not already overbuilt, on the verge of overbuilding. We would not touch high-end, super-luxury rentals.’”

The Real Deal on Florida. “Amid a continuing oversupply of inventory and shrinking buyer pool, Miami’s luxury home sellers are issuing increasingly substantial price reductions to move their properties, The Real Deal’s research shows. The increasing glut of luxury inventory isn’t helping sellers get their hoped-for sale prices. There was a staggering 53-month supply of luxury condos on the market in the third quarter, according to the latest Douglas Elliman report on the Miami coastal mainland. That’s up from a nearly 40-month supply at the same time last year.”

“And yet there’s even more inventory to come. Peter Zalewski, founder of, has started offering what he calls ‘condo correction tours,’ during which he takes prospective buyers through downtown Miami, pointing out all of the inventory that hasn’t yet hit the market. Zalewski said that as the Miami condo market continues to soften, investors are signing up for his tours with the eventual goal of buying as prices continue to drop. ”

“‘We’ve had almost 150 buildings delivered in coastal area, and we have another 100 buildings under construction,’ said Zalewski. ‘So really, what you are seeing is all of the early effort of the beginning of this cycle from 2011 starting to come to fruition, while at the same time you are seeing sellers start to realize the jig is up.’”

From Quartzy on New York. “If you’re in the market for a piece of ultra-luxury Big Apple real estate—you’re totally in luck. An unprecedented wave of deep discounts across the New York City region means that the city’s priciest pads are now available at lower—though not exactly low—prices. The market for deeply-discounted penthouses wasn’t always so robust. Nearly half-a-decade ago, there was a scarcity of new-build, ultra-luxury, super-premium condos in New York—particularly along what’s become known as ‘billionaires’ row,’ a broad swath of Midtown just below Central Park.”

“But the arrival of One57 to the area in 2014 super-charged the top end of NYC’s real estate market and spurred a bit of a pricing war. One57 offered penthouses close to the $100 million range—and suddenly, penthouses with eight—and even nine—digit price tags became the norm. The problem was, that many didn’t sell—causing owners and developers to begin seriously slashing prices. Indeed, a firestorm of cuts has emerged over the past year in both New York and nationwide—none more spectacular than a unit at One57 itself.”

“Industry insiders attribute much of this overpricing to one key transaction— the sale of an $88 million condo by former Citigroup chairman Sandy Weill to the 22-year-old daughter of a Russian Oligarch at 15 Central Park West in 2011.The sale was far above its asking price and sent shockwaves through the real estate industry.”

“But the sale was also highly unique. 15 Central Park West was in an established building that had already seen record prices; plus the buyer, it seems, may have used the purchase to try and hide assets from his estranged wife rather than actually secure a solid home at a solid price. Whatever the motivations, this single sale had very little to do with the true value of the overall market.”

“Nonetheless, other luxury sellers, seeing Weill’s success, began inflating prices to what Jonathan Miller, of real estate appraisal group Miller Samuel calls ‘aspirational prices.’ Sellers across the US were throwing $100 million price tags on $15 million properties, more or less to see what happens.”

“From 2013 going into 2016, record prices were seen across the country. This high powered buying period might have led to solid actual sales numbers if the homes and been truly priced to sell. But many weren’t—and many remain on the market to this day. Need proof? How about billionaire Jeff Greene’s palatial Palazzo di Amore in Beverly Hills, which was bought for $35,000,000 in 2007, and reintroduced to the market for $195,000,000 in 2014, since dropping down to $129,000,000.”

“If you’ve dreamed of scoring a luxury property, you’re in luck: despite the cuts, developers continue to build pricer pads than ever. Which means, most likely, even deeper discounts to come.”

December 15, 2017

How To Get Out Of A Housing-Fueled Debt Hole

It’s Friday desk clearing time for this blogger. “Buying a house in the East Bay is not for the faint of heart. The sellers set a listing price, but everyone understands that it is more of an opening bid than an actual sales price. So, a guessing game ensues, and buyers understand they may need to bid at least 20% — or sometimes 25-50% — over that price. Daniel Winkler of the Winkler Real Estate Group, listed a house at 5738 Clover Dr. in Oakland for $1.595 million on March 21. The seller, a developer, did not get the price he wanted, so the house was re-listed on a transparent basis at $1.995 million on April 5. It sold a few weeks later for $1.94 million. ‘We didn’t get what we wanted, but we made a deal,’ Winkler said.”

“‘Transparent pricing can be misunderstood by the buyer population, because the price appears high and buyers are already conditioned to overbid,’ said Laura Arechiga, an agent with Coldwell Banker. How do I know if I overpaid for my house? That is one mystery beyond even Berkeleyside’s ability to answer.”

“Mortgage broker Samantha Brookes is trying to figure out how to get one of her clients out of a housing-fueled debt hole. The couple, a 59-year-old Toronto city worker and her husband, 58, have so much debt that they stopped making payments on the $410,000 mortgage for their suburban home. They wanted to refinance but regulations imposed last year will disqualify them. In a few weeks, they won’t even qualify for an uninsured loan at an alternative lender as more rules come into effect.”

“They opted for a third route: adding a second mortgage with an interest rate of 10.5 per cent to pay off their debt. Their salvation came from a private unregulated lender, a move many other Canadians are making as the government tries to rein in a home-price surge that’s driven household debt to a record. ‘People need solutions — it could be temporary, but at least they have a home over their head,’ Brookes said.”

“Sweden’s housing slump deepened last month as the market struggles to absorb a supply glut and households lose confidence. The slump in Stockholm apartment prices is even more dramatic, according to Valueguard. The monthly drop of 4.2 percent is the steepest since October 2008, while the annual decline of 6.0 percent is the largest since June 2009. Greater supply ‘has resulted in buyers having more to choose from and taking longer before buying,’ Hans Flink, head of sales and business development at Maklarstatistik, said in a statement. ‘The sellers are therefore starting to adjust their prices to the tougher competition.’”

“The cost of renting apartments and villas around Dubai fell at a much faster rate in recent months, according to a review by Phidar Advisory. Accommodation costs across properties in the emirate posted the biggest quarterly decline in October since the slowdown started in the middle of 2014. The decline continued to hit many communities, including popular areas like Downtown Dubai. ‘Rent declines are escalating, largely driven by the combination of weak job growth, new supply handovers and reduced housing budgets,’ Jesse Downs, managing director of Phidar Advisory, told Gulf News. There are still some landlords out there who are hesitating about lowering their asking prices. Downs said this is leading to ‘long void periods and lost income.’”

“‘In many cases, it’s more rational to reduce the rent and fill the unit. Landlords often think their units in popular areas are immune, but nothing is fully immune now,’ he said.”

“Nigeria’s real estate sector is still going through tough time. According to latest New Telegraph investigation, most streets in Lagos and Abuja’s high brows are still filled with huge number of vacant houses. Managing Director, Jetobless Properties Limited, Mr Toluwa Jekede, a property agent in Lagos, blamed huge empty houses on absence of institutional and corporate investors/ buyers, who he said left the country due to uncertainties in the nation economy.”

He said the vacant houses most especially in Ikoyi, Ikeja GRA, Lekki have refused to go despite reduction in rent to attract tenants. According to him, most of the properties in his care for more than two years have been vacant without anyone asking for them for occupation. ‘I have some vacant houses in Ogba, Adeniyi Jones, Opebi and Ikeja GRA. They are just emptied for two years now. Accommodation seekers do not even have the money to rent some of these houses unlike before when it was based on who came first,’ he said.”

“Sydney apartments, townhouses and semi-detached homes fell 1.4 per cent in value in the September quarter, their biggest loss in almost six years, as investor credit curbs tightened and larger volumes of apartments settled. House prices also turned negative in the NSW capital in the three month period, with values falling 1.3 per cent from June, confirming a slowdown in a market that has thrown the brakes on price growth compared with its buoyant start to the year.”

“‘They have completely turned 180 [degrees],’ said Dan Tussie, a real estate agent with Kirribilli-based Deborah Richardson Real Estate. ‘”It’s not from the lack of viewers or the lack of enquiry. It’s the attitude that’s changed. It’s pretty severe. The vendors are still in gagaland. They still think they can price [their properties at the level of] eight months ago and they can’t.’”

“The weaker-than-expected overall figures confirmed the end of Australia’s housing boom, Capital Economics chief economist Paul Dales said. Housing prices were likely to be ‘broadly stable,’ next year, but could turn negative and this would hit overall economic growth, he said. ‘More up-to-date indicators suggest that prices fell further in the fourth quarter and may even decline next year,’ Mr Dales said. ‘That could make 2018 a challenging year for the wider economy.’”

December 14, 2017

People Thought Their Investments Could Only Go Up

A report from National Public Radio. “Ten years ago this month, you may not have noticed the cracking and crumbling under you. Federal Reserve policymakers were offering reasons for calm, saying they expected strong consumer spending. But the Fed was wrong: In December 2007, an economic earthquake already was convulsing the country. It marked the beginning of the Great Recession. A Federal Reserve Bank of San Francisco study concluded the recession grew out of ‘an enormous speculative housing bubble.’” That happened when low interest rates combined with ‘lax lending standards, ineffective mortgage regulation, and unchecked growth of loan securitization,’ it said.”

“On Wednesday, Fed policymakers nudged up interest rates for the third time in 2017. The federal funds rate is now up from near zero to 1.5 percent. That remains far below the pre-recession level of 5.25 percent, but it’s closer to ‘normal’ — just like the economy itself. ‘There’s less to lose sleep about now than has been true for quite some time,’ Fed Chair Janet Yellen said.”

From Vice Magazine. “Remember that guy who made news for buying two pizzas with Bitcoin back in 2010? Had he held onto the Bitcoin and shelled out regular cash, he’d be well over $100 million richer today. Predictably, this news and its attendant promise of easy money has made Americans go insane. As CNBC reported Monday, citing an Alabama securities regulator, people are actually taking out mortgages to invest in Bitcoin, perhaps hoping to turn $20,000 into their entire retirement fund.”

“How does what’s happening with Bitcoin hew to the classic definition of a speculative bubble? ‘Some of the hallmarks to me involve the FOMO idea—the fear of missing out and never being able to get in. People see other people making a lot of money and they just want in on it. The housing bubble is a good example of that. People thought another person would always want to buy their house from them at a higher price,’ said Angela Walch, a law professor at St. Mary’s University in Texas who studies cryptocurrency and financial stability.”

“People are allegedly starting to take out mortgages to buy Bitcoin. Can you explain to someone who might be thinking about doing this why it’s a really bad idea?”

“‘I saw that headline, and that really frightened me, because taking out debt to invest is how people end up getting into trouble. That was at the heart, in many ways, of the financial crisis. People thought their investments could only go up, and when they went down, they couldn’t pay back the debt. If enough people do that and can’t pay back their debt that they borrowed to buy Bitcoin, the lenders can eventually be affected by that, and it can just spiral through the system,’ Walch said.”

The Press Democrat in California. “Sonoma County’s fire-ravaged housing market last month posted the most sales for November in 13 years, even as the median price rose slightly to a new record high. November’s median increased 14 percent from a year earlier. ‘We’re seeing the market push it up 15 to 20 percent on some of these listings,’ said Lori Sacco, managing broker for Vanguard Properties in Sebastopol.”

“In making offers, Pacific Union International senior vice president Rick Laws said he has seen buyers exceed sellers’ asking prices by more than $100,000. ‘There’s been multiple offers on nearly everything that goes under contract,’ he said.”

From KIVI TV in Idaho. “Dozens of people across the Treasure Valley claim they’ve lost millions of dollars, in some cases their life savings in what their lawyer said is a shady real estate Ponzi scheme, and now they said they hope to warn others not to fall victim. For five years, Frank Preston invested in property deals set up by Nathan Pyles and his company Shiloh Management. ‘For the first five years it went extremely well,’ said Preston. ‘ Preston stands to lose his life savings. ‘One million and ninety seven thousand dollars,’ said Preston.”

“But Preston isn’t the only one who claims he lost everything. ‘I’m upside down with Shiloh Investments roughly 750 thousand dollars,’ said Roger Button. ‘We currently had three investments with him each at 200 thousand,’ said Janelle Nelson. A lawyer representing some of the victims said he believes there are 100 people or more who lost money with Piles. ‘I would say it’s a classic Ponzi scheme,’ explained attorney Gery Edson.”

From Greenwich Time in Connecticut. “Since September, four Greenwich estates have fetched sale prices above $20 million. That contrasts to zero homes sold above that benchmark last year, and just one closing for more than $20 million in 2015. What happened this fall to prompt the uptick in high-end home sales? According to some real estate professionals, the answer is simple: pricing and the economy.”

“At one extreme, there’s a home on Lake Avenue listed for $26.5 million in September 2013 that was snapped up a few days later for $25 million. At the other end of the spectrum, a backcountry property on Old Mill Road languished for nearly three years before selling for $24 million, which was $15.5 million below its asking price.”

“Typically, the properties sold for millions, and in some cases many millions, less than their list price. The latest example is last month’s sale of Greenwich’s largest estate in the backcountry gated community of Conyers Farm. Originally listed in 2015 for $65 million, the price was reduced several times until it finally closed more than two years later for $21 million. The seller, billionaire Thomas Peterffy, had paid $45 million for it in 2004.”

“Those steep discounts don’t necessarily mean the properties lost value, according to Jonathan Miller, a real estate appraiser and consultant who provides Greenwich market analysis for Douglas Elliman. ‘The pricing of a lot of these properties reflects a different time. It’s not reflecting the current market,’ he said. ‘The discounts are very large because they’re discounts from prices that were never close to what the market conditions actually were.’”

December 13, 2017

The Market Could Fall Like A House Of Cards

A report from the Denver Post in Colorado. “Metro Denver’s real estate boom may still have room to run, but developers behind several high-profile projects in the region said they are turning cautious. ‘People can’t make the deals pencil out,’ said Matt Joblon, CEO of BMC Investments. More are biding their time, but some developers are turning to riskier lending sources or accepting returns so low they have no margin of error if anything goes wrong. ‘We are being patient and waiting. There will be a comeuppance,’ predicts Andy Klein, founder of Westside Investment Partners in Denver.”

“Developers this decade have heavily focused on luxury apartment projects in Denver’s urban core. But even there, so much new supply is hitting the market that landlords have become more lax in qualifying tenants, which Joblon warned could lead to a steep jump in move-outs and tenants who leave without notice.”

From the Santa Cruz Sentinel in California. “Despite concerns about tax reform hurting California homeowners, Santa Cruz County buyers showed up, pushing the median price to a new record, $880,000, up from $787,500 a year ago, and boosting sales to 175, up from 136 sales a year ago, according to Gary Gangnes of Real Options Realty. Listings rose, breaking the shrinking inventory trend that has dominated for five years, but mostly higher-end properties are for sale. Of the 340 active listings the first week of November, half were priced at $1 million or higher.”

“Roger Berke, owner of Thunderbird Real Estate since 1989, said he worries the current market could fall ‘like a house of cards.’ He said he sees home buyers borrowing against stock options, taking advantage of the market boom and a record Dow Jones Industrial Average under President Trump, when the formerly aggressive federal consumer protection agency is being weakened. ‘It just doesn’t feel right,’ Berke said, noting proposals in Washington to cap the tax writeoff on mortgage interest for newly purchased homes and to cap deductions of state and local property taxes.”

“Dennis Norton did the redesign of a Depot Hill home, purchased by the seller in 2013 for $1.3 million. He stayed within the existing 1,800-square-foot footprint. Home values on historic Depot Hill have jumped $1 million, he said, estimating that two-thirds are empty, owned by buyers who live there part-time, and hope to retire there someday. But with so many second homes, few full-time residents are around to keep an eye on the neighborhood.”

The Herald Tribune in Florida. “Bucking the national trend, the number of Southwest Florida homeowners who were late on their mortgage payments unexpectedly shot up over the year. But analysts say it’s not a sign of new housing woes, but instead the temporary impact of Hurricane Irma. In the Sarasota-Manatee region, 4.9 percent of mortgages were at least 30 days overdue in September, up from 3.4 percent in August and from 4.2 percent one year earlier, CoreLogic reported.”

“Charlotte County also reported a 4.9 percent mortgage delinquency rate, also up from 3.4 percent the prior month and from 4.0 percent last year. Throughout Florida, the 30-day delinquent rate jumped from 6.3 percent to 7.5 percent in September. Nationally, the early stage delinquency rate — defined as 30 to 59 days late — rose by 0.3 percent, the largest gain since June 2009. ‘This does not reflect a deterioration in credit, but rather the impact of the hurricanes in Texas, Florida and Puerto Rico,’ said Frank Nothaft, chief economist at CoreLogic. ‘September’s early stage delinquency transition rate rose to 2.6 percent in Texas and it rose to 3.2 percent in Florida, which is higher than the 1 percent that’s typical for both states.’”

The Houston Chronicle in Texas. “More than three months after Hurricane Harvey,Houstonians eager to return home are stuck navigating an unfamiliar world of flood insurance policies, mortgage company procedures and contractor bills. Many face precarious financial futures as grace periods and forbearance programs come to an end, leaving borrowers with bills three times their monthly mortgage payments.”

“‘I’m seeing people cutting bait, saying, ‘I’m done,’ said Kevin Riles, a longtime Houston real estate broker. ‘They’re just trying to sell for what they owe or look at short sales.’”

“As financial pressure mount, foreclosures are looming. Foreclosure Information & Listing Service, a local foreclosure reporting firm founded in 1963, predicts the number of properties posted for foreclosure will reach as high as 2,000 by the end of 2018. That’s more than double what they were running earlier this year.”

“After Hurricane Katrina, nearly 55 percent of mortgage properties had a delinquency. ‘There are 1.18 million mortgaged properties in Harvey-related disaster areas, more than twice as many as were hit by Hurricane Katrina, with nearly four times the unpaid principal balance,’ said Ben Graboske, executive vice president of Black Knight Data & Analytics.”

“John Campbell was already behind on his mortgage when Harvey hit. His house wasn’t damaged by the storm, but his job was affected. Campbell is a mental health counselor and his wife also works in health care. They are both independent contractors and, like many others, were unable to work the week of the storm. In the following months, Campbell said, not as many people sought out counseling because of their own storm-related financial woes.”

“Campbell said he called his mortgage company and was told he could defer three months worth of mortgage payments until a later date. He figured he and his wife could get caught up on the two months that were past due and then resume normal payments. At the end of November, they called to make their past-due payment and were told they owed a whole lot more. ‘They told my wife, ‘No, you owe us five months,’ Campbell said. If the couple doesn’t make two mortgage payments each month through February their lender will foreclose. ‘I’m scared and I’m angry because we’ve got three kids and a 2-month-old baby,’ Campbell said.”

The Cohasset Mariner in Massachusetts. “After analyzing the most recent housing data for Norfolk County, Register of Deeds William P. O’Donnell expressed some concerns with regards to real estate sales and lending activity for the month of November 2017. ‘The average sale price of residential and commercial property for the month was $638,120, a 12 percent reduction year over year,’ said O’Donnell. ‘Also, total sales volume, again for both residential and commercial, was $619 million, a 9 percent decrease from November 2016. Clearly, the limited amount of available real estate inventory is having a drag on the real estate market in Norfolk County.’”

“The story gets more sobering when looking at the lending market numbers in Norfolk County. ‘As we have seen for the last few months, the number of mortgages recorded during the month of November decreased by a significant 28 percent,’ said O’Donnell. ‘Also, the total volume of mortgage financing, for both residential and commercial properties, came in at $1.1 billion, a 35 percent decrease year over year. There is no question consumers are being cautious when considering big ticket expenses. Furthermore, interest rates have crept up slightly, which have proven disconcerting to many homeowners interested in purchasing a home.’”

“A total of 125 Notice to Foreclose Mortgage documents, the first step in the foreclosure process, were recorded versus only 52 in November 2016. ‘Frankly, the Notice to Foreclose Mortgage numbers were disappointing,’ said O’Donnell. ‘We must continue to bear in mind that foreclosure activity has a human face, even during these seemingly decent economic times.’”

December 12, 2017

Many People Are Living In Fantasyland

A report from CNBC. “Bitcoin is in the ‘mania’ phase, with some people even borrowing money to get in on the action, securities regulator Joseph Borg told CNBC. ‘We’ve seen mortgages being taken out to buy bitcoin. … People do credit cards, equity lines,’ said Borg, president of the North American Securities Administrators Association, a voluntary organization devoted to investor protection. Borg is also director of the Alabama Securities Commission. ‘This is not something a guy who’s making $100,000 a year, who’s got a mortgage and two kids in college ought to be invested in.’”

From Reuters on Canada. “Canada’s two largest housing markets, Toronto and Vancouver, are being held aloft by booming condo markets as investors and developers stick to an asset they love, fueling charges that the market is geared toward building fortunes rather than homes. Data released on Friday showed urban construction starts for multiple-unit buildings, typically condos, surged 16.9 percent in November to 175,016 units, a record high even after a decades-long boom.”

“Beneath a skyline of cranes, the majority of condos being built are one-bedroom or studio apartments aimed mostly at buyers betting on price appreciation, along with some first-time buyers seeking a foothold, rather than families or so-called end users seeking a house that will grow with them. ‘Investors are looking for product that they can put the least amount of money down for and realize a profit when they resell it down the road,’ said Michael Ferreira, principal at consultancy Urban Analytics.”

The Orange County Register in California. “California doesn’t have a housing bubble — yet. But look out if mortgage interest rates go up, or if there’s an ‘economic shock,’ such as a major stock market correction. Those could be the ‘tipping points’ that ignite a market turnaround, ending a 68-month streak of steadily rising home prices, a recent California Association of Realtors report concluded.”

“The report, drafted by state Realtor economists, seeks to explore ‘the B word,’ addressing whether California is in another housing bubble. Bubble fears are a real issue after almost six years of steadily rising home prices, and after disastrous miscalculations a decade ago put the economy in a tailspin and led to 7.8 million U.S. foreclosures, according to CoreLogic.”

“‘Prices are rising rapidly in California, and both housing affordability and homeownership are trending downward at an alarming rate,’ said the report. ‘This … has led many to begin to question if home prices have reached a level that is no longer sustainable,’ the report added. ‘We’ve begun to hear the ‘B word’ again: Have home prices gotten out of whack again? Are we at the tipping point yet? How much longer can this go on?’”

“‘Incomes simply have not kept pace,’ the report said. ‘The current trend is worrisome from an affordability and, thus, a price sustainability standpoint.’ The Realtor association ‘does not believe we are at the tipping point for home prices yet,’ the report concluded. But, it added, ‘residents in the Bay Area and Orange County will be well served by keeping close tabs on broader economic conditions. … If prices do fall, they will hit those areas the hardest.’”

From Community Newspapers in Florida. “Would you go to a Toyota dealer advertising a Corolla for $85,000? How about a pizza joint with a $62 pie? Of course not! Which is why, as a real estate professional, it infuriates me to see homes priced well above their eventual sales price. Many in the media would lead you to believe Miami is a hot market. And, in certain neighborhoods, this is true. But in the vast majority of Miami-Dade County there is an over-supply of homes and unrealistic expectations. In short, if you are a seller in this market it’s time to put on your big-boy pants.”

“If you travel through Pinecrest and Palmetto Bay, you’ll see loads of FOR SALE signs, even on the shortest drive. And yes, most of them have been there long enough to start serving as landmarks. I am amazed by the conversations I have with people who (a) believe they magically know the market better than anyone else, (b) think their house is perfect and (c) feel they can outsmart the market and make a disproportionate amount of money. In short, many people are living in Fantasyland.”

From ABC News. “Richard Thaler does a good line in one-liners. Shortly after picking up the Nobel Prize for economics in Stockholm a few weeks back — for questioning whether we really behave rationally when it comes to self interest — the behavioural economics pioneer was asked how he would spend the $1.4 million cheque.”

“‘I will try to spend it as irrationally as possible,’ he quipped, much to the amusement of reporters and those in the Royal Swedish Academy of Sciences.”

“But on what? There’s so much to choose from when it comes to behaving badly or, if you’re looking for excuses, irrationally. From an investor viewpoint, perhaps Professor Thaler should look at bitcoin. For not since the dotcom boom, or our very own housing market, has there been a better opportunity to abandon any form of common sense.”

“So, what spurs us to part with our cash in this way? Human beings, far from being rational, instead are unpredictable and often, deeply flawed. Rather than examine all the evidence and carefully weigh it up, we often look for information that merely backs up our existing beliefs or, even worse, just react to the last thing we heard. And given we’re social animals, we herd. We’re sheep. If we’re not trying to outdo those around us, we’re desperately trying to be just like them.”

“So when everyone’s buying uber-expensive houses with oodles of cash borrowed at the lowest interest rates in the history of mankind, pushing prices even higher, we’re tempted to jump on board.”

December 11, 2017

A Mass Exodus Appears To Be Expanding The Glut

A report from CBC News in Canada. “Before oil prices tanked in 2014, Fort McMurray was a notoriously hot housing market. Realtor Lance Bussieres could barely keep a house on the market for a couple of hours before getting several offers. ‘It was very busy,” Bussieres, co-owner of ReMax Fort McMurray, said. ‘There were times where you would list a house and you would have two or three offers — if not that evening, the next day. People were literally leaving the house and writing offers in the driveway.’”

“Michael Mack has had a ‘for sale’ sign in the window of his three-bedroom trailer in the Fort McMurray subdivision of Waterways for about three weeks. He wasn’t happy when one realtor asked him and his wife to list their home for around $200,000. They bought it for about $370,000 in 2013 and were hoping to at least match that. ‘We’ve had two calls. Nothing serious,’ Mack said. ‘It would be nice to break even.’”

From Business in Vancouver in Canada. “It sounds like an unfathomable statistic within the realm of Lower Mainland real estate. The average single-family detached home in the Fraser Valley is now sitting on the market for more than a month before being sold. Long seen as an affordable alternative to Vancouver’s astronomically high prices for homes, the Fraser Valley housing market now seems out of reach for the average buyer as well. Anne McMullin, CEO of Vancouver-based non-profit Urban Development Institute, said she’s not surprised by the cooling of the market for single-family homes in the Fraser Valley because it’s also happening all over the Lower Mainland.”

“‘People want to blame everything else, but the housing market is still a local market,’ she said. ‘When you start to get over a million dollars [for a property] in the Fraser Valley, there’s very few people that can afford that.’”

“McMullin said the Fraser Valley appears to have hit its ‘threshold’ of how much people are willing to pay for a single-family home in the area. ‘You might say that on the North Shore [of Vancouver], that threshold is about $2 [million] or $2.5 million. And on the west side it’s about $3.5 million, and sure you’ll get a $16 million home sold every once in a while, but they don’t go much more than that.’”

“A mass exodus of gen-Xers and baby boomers appears to be expanding the glut of single-family homes for sale across the Lower Mainland, which could also signal some troubling financial trends on the horizon. According to a report titled The Future of B.C. Housing by Resonance Consultancy, 34% of Metro Vancouverites plan to sell their homes and downsize within the next five years. The report found that 60% of those surveyed also plan on using the sale of their houses to fund their retirements.”

From Domain News in Australia. “Sydney homeowners are losing confidence in the auction market, with the proportion of sellers withdrawing their properties from auction surging in November. Last month one in six sellers got cold feet and called off their auction – almost twice the rate of apprehensive homeowners during the same time last year. It’s the most deflated homeowners have been in at least three years.”

“Clearance rates have also been in decline over the year, with just over half of homes selling at auction in November – the lowest in two years, excluding January, which normally has a low volume of sales. It was 73 per cent during the same period last year, according to Domain Group data. AMP Capital chief economist Shane Oliver said buyers no longer had a ‘fear of missing out,’ which had been a big driver of the auction market.”

“‘I think the sentiment around the property market is a lot weaker than it was two years ago,’ he said. ‘Buyers can afford to take their time, they can be more considered about what they’re buying.’ Mr Oliver said low clearance rates also showed that APRA measures to slow the investor market were ’starting to bite.’”

From in Australia. “Next year’s banking royal commission could push the ­already slowing Sydney real estate market into a deeper spiral. Experts warn the inquiry, announced by Prime Minister Malcolm Turnbull would encourage banks to be even more cautious with their lending policies. Adding to the downward pressure on prices, the restrictive lending environment comes as developers are ­releasing a load of new properties on to the market.”

“AMP Capital economist Shane Oliver said the combination of rising supply and falling demand would push Sydney property prices down by an average of about 5 per cent over 2018. ‘Banks are already under a lot of pressure from regulators to reign in their lending, especially to investors, and the commission will encourage some banks to be even stricter,’ Mr Oliver said. ‘The risk is that the further tightening associated with the commission would accentuate the slowdown already under way.’”

“BIS Oxford Economics analyst Angie Zigomanis said banks’ lending policies to ­investors would have the most critical impact as investors ­accounted for nearly 60 per cent of Sydney homes purchased in 2016. Mr Zigomanis said investors triggered both the recent price boom and the slowdown that followed. ‘The market began to change when investors could no longer get interest-only loans,’ he said.”

“Research from investment bank UBS confirmed buyers were growing increasingly wary of the housing market. ‘The proportion of respondents saying that the ‘wisest place for saving’ is in ‘real estate’ has collapsed to a record low,’ the bank said in a note.”

December 10, 2017

The Biggest Effects In The More Expensive Markets

A weekend topic starting with the Dallas Observer in Texas. “To our regret or good fortune time only will tell, but Dallas is a great laboratory for viewing the forces roiling around American cities. We’ve got thunder overhead, rumblings in the basement and maybe a great day ahead. Nationally, the divide between cities and everybody else has been consuming ink in recent weeks. From the point of view of the people in Texas who despise cities, the problem with cities is that they all voted for Hillary Clinton. Cities are viewed as bastions of anti-Trumpian disloyalty while voters in the rest of Texas would be honored to deliver their first-born daughters to be officially groped. Second-born, in fact, if the first one’s already too long in the tooth.”

“Something else is growling round down there while we sit up here in the kitchen staring at each other. It’s related to another level and type of urban issue being bandied about nationally. That question is whether liberal ideas and policies on certain issues — zoning, density, the environment, labor law, including the minimum wage — operate against the poor. Conservatives seem to think they’ve stumbled on a devilishly clever new trope: insisting that restrictive city ordinances, especially in the area of real estate, are responsible for the high cost of housing and therefore to blame for most of the associated ills of poverty.”

“As someone who has covered real estate and land-use battles at the level of City Hall for about 100 years, I am here to tell you this idea is ancient and hoary, not new at all. The argument is that all restrictions are snobbish and the only justice for the poor is a free-for-all with no zoning or protection for established neighborhoods. Thank goodness people in cities are smarter than that. Most of us know there are two kinds of people who do not make cities work, who do not make sure the buses run on time or see to it that the garbage gets picked up the way it should: (1) really rich people and (2) really poor people. The people who make a city work the right way are the middle class.”

“We are invested in the dirt. We’re not going anywhere soon. The institutional arms of government need to work right for us, and they need to work right here, right now. Yes, we have standards. Those standards have to do with safety, efficiency and pleasantness. If those are snobbish standards, then OK. Call us the snobs.”

The Mercury News in California. “Emma Carroll, a UC Berkeley grad student, is thinking about taking out loans just to pay what could be a substantially higher tax bill. Jerry Pohorsky, an engineer in Santa Clara, might put off his plans to buy a new electric vehicle if a federal tax credit gets cut. And John Hansen, an attorney in Castro Valley, is considering moving to Georgia in part to avoid paying some California income and property tax he could no longer deduct from his federal bill.”

“As Republicans square the last details of President Donald Trump’s massive tax overhaul before a final vote in Congress, many Bay Area residents are running the numbers and worrying that they’ll end up paying more. California’s high taxes and the Bay Area’s high home prices will likely make our region one of the most adversely affected places in the country, and accountants and tax experts say there’s not much taxpayers can do to avoid it.”

“‘This doesn’t affect 95 percent of homeowners in the country, but it affects basically everybody here,’ said Joseph Salazar, a tax specialist and financial adviser in San Jose. ‘If you have a young couple looking to buy their first house, why would they want to move here?’”

“‘Looking at our situation, I think it’s going to be a better deal,’ said Bob Jackson, 65, a San Jose Democrat and retired mail carrier. He and his wife take the standard deduction and have no mortgage on their mobile home, which they rent a space for instead of paying property tax. ‘It’s good for people like us.’”

“There are many in the Bay Area like Jan Soule, a San Jose Republican retiree from the tech industry, who says the tax plan ‘makes sense.’ The house she and her husband have owned for decades is paid off, and they have relatively low property taxes thanks to California’s Proposition 13 — so they won’t miss many of the deductions. She doesn’t believe her party is using it to punish blue states. And if some Californians are angry about having to pay a higher tax bill, Soule said, ‘maybe they’ll wake up to the fact that our state taxes are out of control.’”

The Los Angeles Times in California. “If you were to stand near the corner of 57th Street and South Vermont Avenue, you might not see many great selling points. But if you were to stand there with Julio Ruiz, you’d get a different take. He’d point out the nearby transit options, which could get you to USC, downtown, and all the way to the beach. He’d tell you about all the people moving into the area and all the investors who want a piece of the action.”

“And he’d tell you this: ‘There is cheap housing in L.A. … The American dream is still affordable in Watts, Compton and all the forgotten ghettos. There’s a buzz all over here,’ he said. Houses are getting multiple offers, sometimes all cash, and some are selling above asking prices.”

“Ruiz represents a Koreatown couple interested in a $500,000 home in South L.A. because the price would be double that amount where they now live. And he handled one sale in which a white gay couple bought a rehabbed Craftsman near Slauson and Western avenues for just under $500,000. ‘One of our neighbors … said she was so happy the gays were moving in because property values would be going up,’ said Steven (last name withheld by request), who lives in the house with his partner.”

“As much as I admired Ruiz’s hustle and pluck, I had to point out that he’s riding a wave that will lift some people and drown others, particularly low-income minorities. He argued that he used to work for banks and had to clear squatters, gangs and drug dealers out of houses all over the South Side. Neighbors appreciated the improvements, he said.”

“‘There was an opportunity for people to fix up these houses and for first-time buyers to get in through FHA, VA or different types of loans. As these houses started getting rehabbed, I felt like South L.A. was getting cleaned up,’ Ruiz said.”

The Denver Post in Colorado. “Years of rapid home price appreciation along the northern Front Range will leave homeowners in the region more vulnerable to changes in the tax code now before Congress. Coloradans need to be aware of one change in particular that could have big implications for them when it comes time to sell — an extension in the time owners must occupy their homes to avoid paying capital-gains taxes.”

“‘Homeowners across the country should pay attention. You will find the biggest effects, however, in your biggest, more expensive markets,’ said Danielle Hale, chief economist with”

“Right now, owners must have lived in a home for at least two years within the last five years at the time of sale to avoid paying capital gains taxes on any increase in value up to $500,000 for joint filers, and $250,000 for single filers. For most homeowners, that means holding on to a home for at least two years is a good idea.”

“But Congress, looking for ways to generate more revenues to pay for cuts elsewhere, wants to extend that to five years within the last eight years. That would force most homeowners to wait five years or more to avoid a tax penalty that could reach into the tens of thousands of dollars.”

“According to, Denver is the country’s ‘most recovered’ large metro housing market, with a federal home price index 72.3 percent above the peak reached last decade before the housing crash. The median home price in Boulder was about $516,000, and $392,000 in metro Denver, as of August, according to the Black Knight home price index. Sellers in metro Denver had an average profit above their initial purchase price and other costs of $110,000, while those in Boulder pulled down profits of $150,000. Nationwide, the average gain on sale is around $80,000.”

“The National Association of Realtors (NAR) argues the loss of real-estate-related deductions could cost homeowners $1,000 more on average in taxes while providing renters a savings of $500. ‘The NAR is predicting home prices could fall from 7 percent to 11 percent (in Colorado) if both the mortgage interest and real estate taxes deductions are eliminated,’ said Steve Thayer, chairman of DMAR and owner of Keller Williams Action Realty in Castle Rock.”

“That would translate into the typical homeowner in Colorado losing home equity in the $24,000 to $36,000 range, Thayer said. The mortgage interest deduction on second homes, which account for about 5 percent of the state’s housing stock, is also on the chopping block. In some mountain resort counties, the share of vacation homes can run 30 percent to 40 percent higher.”

“Glen Weinberg, chief operating officer at Fairview Commercial Lending in Steamboat Springs, said on his daily lunchtime jog, he has noticed more vacation homes coming up for sale. People could be disappointed with the paltry snow or just making year-end financial moves. But the surge coincides with the Congressional wrangling over tax reforms. His take is that some owners are trying to get ahead of what they perceive as a downturn in the second home market, he said.”

“‘What does this mean for the second-home market? It will be fascinating to see what happens,’ he said.”

December 9, 2017

Mommy, Why Is That Stranger Puking In The Bushes?

A weekend topic starting with the OB Rag in California. “Editor’s Note: The following is an interview with an fictitious Airbnb host. I’m sitting down with an Airbnb host to discuss the dollars and sense of short term vacation rentals (STVRs). These have been a hotly debated issue in San Diego, and our 9 city councilmembers are gearing up for a vote on December 12th on how to regulate it. Q: What’s to stop you from just buying and converting more properties?”

“A: Well I have a day job, this is just a side thing. It’s easy work though. Without a doubt I could do this full time and make a killing. The income covers a new mortgage right off the bat. I’d just buy more properties until it reaches saturation, if there is such a thing. Is Mission Beach saturated? Airbnb even asked me to host other people’s properties for them. The state of limbo at the city is probably the only thing really keeping more investors on the sidelines.”

“Q: You don’t seem like a fan… A: Well I guess I see both sides of it. I have them on 3 sides of my place now and another 2 doors up. The guy behind me is running one out of his garage, the one next door has one in his granny flat. I don’t even know if that’s legal. I mean it’s not a nuisance really, most of the guests are quiet. They’re terrible at parking. But mostly it’s just unsettling to play Mr. Rogers with a different neighbor every few days. I’ve had them come knocking on my door late at night because they can’t find the rental next door. The shear quantity of them is getting out of hand in my neighborhood and I don’t know where it ends.”

From Voices of Monterey Bay in California. “It’s all a-clash when tossed into the housing blender: short-term rentals and the local rental market and Airbnb and property rights and neighborhood tranquility and making a quick buck and vacation rentals and the cool new gig economy and community standards and surviving in this day and age and affordable housing and mommy, why is that stranger puking in the bushes at the house next door?”

“Jenny McAdams, a vocal opponent to the city’s policy, says she supports owner-occupied short-term rentals. But she contends the city is inept at managing the program and that more than 80 percent of the homes being rented to vacationers live outside Pacific Grove. McAdams has spent considerable time in research on the issue of vacation rentals in Pacific Grove. She’s developed a spreadsheet identifying each of the homes used for legal short-term rentals in the city. The database seems to show that most of the vacation rental owners live elsewhere.”

“‘To me the numbers say the City of Pacific Grove is a bunch of suckers,’ McAdams said. ‘Clearly investment groups and out of town investors are swooping up our neighborhoods, laughing their way to the bank, and throwing their TOT crumbs to the city.’”

From CBS Local 2 in California. “The Palm Desert City Council has voted to phase out short term rentals in single family neighborhoods with R1 and R2 designations by Dec. 31, 2019. The vote came after a marathon of public comment, council discussion and failed motions.”

“Both sides made arguments that home values in the city would drop if the opposition has regulations go their way. ‘They cannot sell their home because a serious buyer will not buy a home if they know that a short-term rental is nearby,’ said Christel Prokay, founder of Protect Palm Desert Neighborhoods Group. ‘The values will decline. I think that the short term rentals are essential to the concept of the city and the economic viability of the city,’ said Lesley Miller a short-term rental owner.”

From The Tennessean. “Airbnb has created a multibillion-dollar business by bending, circumventing, or even breaking the existing laws on transient housing in many communities. Their objective has been to blur the lines between transient and long-term housing. This has allowed Airbnb to create housing for tourists, without having to invest in real estate or management costs. It gives them a competitive advantage against the traditional lodging industry. In the process, they have made housing less available and less affordable in many cities across not only the United States, but the world.”

“We don’t allow other commercial businesses to operate in our residential neighborhoods. We don’t allow recording studios, beauty parlors, lawyers offices, massage therapists, or any similar business to operate in our residential neighborhoods. So why ‘mini-hotels’?”

From the CTV Toronto in Canada. “Politicians in Toronto will be scrutinizing proposed rules for short-term rentals this week that could spell major changes for those who offer secondary residences for rent on platforms like Airbnb. Among the raft of regulations going before city councillors is a rule that would ban short-term rentals of homes that aren’t the landlord’s primary dwelling.”

“Fairbnb, a coalition founded by a Toronto-area hospitality workers’ union to advocate for Airbnb legislation, says city hall must ensure that rental units are preserved for long-term renters, not vacation rentals. ‘We have no problem with the typical Airbnb host,” spokesman Thorben Wieditz said. “We have a problem with those people that lease or buy properties as investments and turn them into ‘ghost hotels.’”

“Ajay Joshi, who hosts five Toronto condo units on Airbnb, said the proposed regulations would create more business for hotels because fewer Airbnbs would be available, while causing financial hardship for short-term rental landlords like him. ‘Many people have made legal investments in buildings (that allow) short term rentals,’ said Joshi. ‘Their livelihood is at stake, along with heavy investments in down-payments, paid land transfer taxes and furnishings.’”

December 8, 2017

The Adjustment Might Result In A Full-On Crash

It’s Friday desk clearing time for this blogger. “Back in August, the seven-bed, seven-bath Russian Hill triplex at 949 Lombard, once used to film the first San Francisco season of MTV’s The Real World, popped up for sale, asking a princely but contextually appropriate $6.99 million. Four months later the price has precipitously dropped, landing at $4.89 million in the latest offer.”

“In Stouffville and Keswick, where the houses tend to be newer and there’s not much to distinguish them from competing listings, sales are slow. Cameron Forbes, general manager of ReMax Realtron Realty Inc, points to the example of one Stouffville house listed for sale for about $1-million six weeks ago. At the time, it was the only property in the area around that price level. Since then, three or four very similar houses have arrived on the market. The agent cut the price to about $880,000 but still the buyers aren’t coming to a house that would have gone for $1.1-million in the spring.”

“‘Activity dropped to zero,’ he says of the number of potential buyers who requested showings.”

“Nordea Bank AB won’t keep up with growth in Sweden’s mortgage market as the biggest Nordic lender adopts a more cautious approach, Chief Executive Officer Casper von Koskull said.Sweden’s housing market has dominated economic headlines of late amid signs a price correction is under way. Concerns that the adjustment might result in a full-on crash have hit the currency, with the krona losing more than 5 percent against the euro since the end of August.”

“Stricter mortgage rules have coincided with a big increase in supply, and with households’ finances increasingly stretched, home prices have started to fall. ‘There is a cooling taking place in the Swedish housing market, no doubt,’ von Koskull said.”

“Capital values in Dubai’s residential property market have dropped to their lowest level in four years, according to Consultancy Cluttons. Comparing current unit prices to those at the peak of the market in the third quarter of 2008, it found that Burj Khalifa apartments had fallen in value by 71.2 percent, apartments in Discovery Gardens by 38.5 percent and in Jumeirah Lakes Towers by 31.4 percent. Prices in some districts have come under pressure recently because of the number of newer, cheaper units coming onto the market, Cluttons said.”

“On a recent Sunday morning in the sun-drenched Australian city of Brisbane, about 50 ‘property tourists’ boarded a bus tour with a difference. The group – all local Aussies looking to purchase their first homes – were shuttled to five new apartment projects where brochures promised they could ‘capitalize on international deposit defaults’ and snap up properties at sharp discounts. The homes were mostly being sold by Chinese investors unable to make settlement on their investments as Beijing cracks down on money flowing out of China and restrictions on Australian banks lending to foreign investors bite, the company behind the tour said.”

“‘Getting money out of China is very hard now. That’s a big factor for these discounts,’ said Property Direct founder David Beard, who sold some two-bedroom units on the bus tour at 15-20 percent lower than list prices. ‘Property sales have fallen because of that, and it has got progressively harder to get bank loans in Australia.’”

“While the rules were often flouted in the past, doing so now has become increasingly difficult, some money transfer agents told Reuters. At the same time, under pressure from regulators to douse risky lending in the real estate sector, Australia’s biggest banks stopped loaning money to foreigners. ‘It is almost impossible to send the full (settlement) amount from mainland China,’ said Felix Su, financial adviser at foreign exchange firm KVB Kunlun.”

“The red-hot population growth rate around Denver and Northern Colorado is cooling, and those who are leaving in increasing numbers say they were driven away by rising housing prices, jobs that don’t pay enough and traffic jams. ‘It’s kind of ironic because the reasons why I’m leaving Colorado are the same reasons why I left New Jersey — too much traffic, not making enough money and angry people,’ said Nicole Parkin. ‘The growth of our beautiful city has brought nothing but increased traffic, angry entitled transplants who have no respect, and a cost of living that is through the roof.’”

“Because the recession hit New Jersey homeowners particularly hard, the Garden State faces an abundance of short sale homes — homes that sell for less than the amount that the current owner owes on their mortgage. ‘We do have more inventory than Philadelphia,’ said Patricia Rohan, a broker at Weichert Realtors in Burlington County. ‘But the number of short sales on the market is probably throwing the number off. They sit longer on the market than regular homes that are not distressed. The short sales need permission from the bank to sell,’ Rohan said, so there is more ‘red tape.’ As a result, she said, some buyers will stay away — meaning the houses will linger.”

December 7, 2017

There’s Just Too Much Supply

A report from Bisnow. “Acquisition opportunities for multifamily investors in 2017 have been slim as a record amount of capital flowed into the debt and equity space. While our investors have their eye on value-add, Class-A multifamily may be in a bubble. ‘There’s just too much supply,’ AMLI Residential CEO Greg Mutz said. Of AMLI Residential’s nine markets, Chicago is the most oversupplied, Mutz said. That is most true downtown. Mutz said the company cannot make the numbers work with new development.”

From Berkleyside in California. “Two industry groups – Apartment List and Zumper – are reporting that median rents in Berkeley fell anywhere from 3.8% to 15.9% in 2017, and dropped from 10.9% to 15% in Oakland. After going up for years, rents started to decline in June and have dropped ever since. One manager of about 1,000 apartments in Berkeley and Oakland confirmed the gist of the industry reports, although he put the decline in rents at about 5.8%. Sam Sorokin of Premium Properties said he calculated that number by looking at people who first started renting in August 2016 and moved out in August 2017. His company had to lower rents to attract tenants, he said.”

“‘Something’s up,’ said Sorokin. ‘All the economic indicators are great: strong job market, good wages, we’re not in a recession. Things just aren’t renting for as much. In 2017, a tipping point has happened. The new construction has caused the rents to decline. There is no other reason I can think of.’”

“Since 2014, 910 units have been built across 11 projects, according to a ‘housing pipeline’ study prepared by Berkeley city staff. There are an additional 525 units being built, or which have active building permits, in nine projects. But now that so many of these units are available, the demand has dropped, Sorokin said. Units are sitting empty.”

The Union Tribune in California. “San Diego County is on track to build fewer homes than it did last year, said permit records released this week. Residential building permits for all homes — condos, apartments and single-family homes — are down 18 percent in the first nine months of 2017 compared to the same time last year, said the Real Estate Research Council of Southern California. The only county with slower building was Orange County, which had a 21 percent reduction.”

“The slowdown is led by a drop in permits for multifamily construction, down by 2,209 permits, or 40 percent, compared to the same time last year. Real estate analyst Russ Valone, president of MarketPointe Realty Advisors, said fewer new builders are coming to town because of land costs. He also noted that some lenders are wary of new projects because rent increases for high-end apartments has slowed.”

“‘As those newer projects’ rents push into the mid-$2,000 a month range, we started to see a slowdown in the rate of increases,’ he said. ‘I think you may have some lenders looking at the slowed increases and starting to take a cautious view of the marketplace.’”

The Charlotte Observer in North Carolina. “The booming Charlotte apartment market has been dominated by gleaming new towers and thousands of units packed onto small sites next to the light rail over the past few years, but that could be about to change. Developers in Charlotte are increasingly turning to bigger, more spread-out sites in the suburbs. Charles Dalton, president of Real Data, said markets such as South End and uptown that have been flooded with apartments now have much higher vacancy rates, as landlords compete to fill thousands of new units.”

“‘If you’re a developer or lender, they’re looking at those numbers and saying why are we building in a place that has a 15 or 20 percent vacancy rate, when we could be building in the suburbs that have a 5 percent vacancy rate?’ said Dalton. The trend was on display recently in Charlotte, where developers have filed rezoning plans to build 1,000 new apartments in the last month. None of them are planned in urban locations.”

From WPSU in Pennsylvania. “The Metropolitan is one of the new high-end developments in State College. For Penn State students looking for new, well-appointed apartments close to campus, the buildings are a plus. But for families and renters looking for affordable places to live, the boom in student housing is a mixed bag. The high rises also mean a change in the feel and appearance in parts of town.”

“Jim May, director of the Centre Regional Planning Agency, said the inventory of housing in the area had not improved in a while. But, over the past few years it has. Between 2 and 3,000 new student units have been proposed or are under construction in the past few years. May said a lot of that comes from large national developers attracted to the area.”

“For one thing, the vacancy rate — the number of empty apartments in a building — is still very low. Nationally, that number is about 8 to 10 percent. With Penn State students nearby, the rate in State College is closer to 4 or 5 percent. Eventually, the housing market in the area might max out, May said, but, that hasn’t happened yet.”

“‘There will come a time when the last person in is the one that probably loses money, but I don’t see that happening for quite a while,’ May said.”

From The Pitch on Kansas City. “‘A word you’ll hear me say a lot today is condos,’ said my tour guide, Troy, as we sailed past the Western Auto building on Grand, atop a double-decker bus. What a coincidence: I had been talking about condos just hours before. Or maybe I am just always talking about condos these days. Luxury housing is sprouting up everywhere in this city.”

“It bothers me. Maybe, as some smart people tell me, this influx of new housing will satisfy the market, make apartments less scarce, help stabilize rising rent prices across the city. Maybe. But when I stare at these boxy buildings and envision the 550-square-foot rooms inside them, renting for $1,700 a month, all I can think is that the best thing about Kansas City — that it’s cheap to live here — is slipping away before my eyes.”

“I got a short Americano in the Crossroads the other day and it was three dollars and some amount of cents. Do you know what that means? That means my coffee cost $5. I give the barista a dollar, and who knows what happens to that loose change. It’s never in the car when I need money to park. Five dollars! Call me Andy Rooney, but you know it’s true. I was hardly alone at the brewery the other night, where the cheapest beer was $8 and it came in a 10-ounce glass. Were some of you also wondering when you started getting less beer for more money? Do you really like this Whole Foods–ification of your city?”

“As Troy said at the outset, condos were indeed an inescapable component of the tour. So much of our history is now just housing. The old federal courthouse on Grand is now the Courthouse Lofts. Many buildings in the Garment District — which Troy told us was once second only to New York in terms of clothing production — have been converted into lofts. The Western Auto Building (originally built for Coca-Cola): lofts.”

“All these buildings that were once home to businesses that provided fair wages and pensions for workers are now condos for the upper-middle class, or cafés staffed by overeducated employees with crushing student-loan debt, unprotected by unions, with no chance for retirement. That the zombies of late capitalism have invaded Kansas City and are in the process of making this quiet place unlivable for the average person is horrifying. We should be enacting policies aimed at making life easier for ordinary Kansas Citians. Instead, we give massive tax breaks to developers, ignore our failing schools, and build a streetcar for people lucky enough to work or live along the increasingly expensive route along which it travels. And for tourists. Don’t forget the tourists.”

December 6, 2017

Despite The Big Price Drop, Making The Choice To Sell

A report from the Huffington Post. “Foreclosure starts have begun to edge up in some of the nation’s hottest housing markets. Nearly a quarter of the nation’s large metro areas saw upticks in foreclosure starts, the point when banks take the first step to foreclose on a delinquent home loan, in the third quarter of this year. That included a surprising number of some of the hottest inland housing markets, such as Denver, Austin, Dallas, Nashville and Columbus, Ohio. For some of the high-flying real estate markets in cities like Denver and Austin, the rare increases may be early warning signs of trouble to come if credit gets too loose, said Daren Blomquist, a vice president at ATTOM Data Solutions, which tracks foreclosure starts.”

“There’s a tendency for banks to lend too much when prices are rising and resale value is harder to predict, but ‘in a rising market, they’re going to be OK anyway,’ said James Gaines, chief economist at Texas A&M University’s Real Estate Center. The highest rates of foreclosure in Austin, Dallas, Denver, Nashville and Columbus are for mortgages that started in 2014, Blomquist said. That looser credit, meant to entice first-time buyers to the market, has added instability to the housing market because homeowners have less incentive to weather hard times and keep paying the mortgage, he said.”

“‘With lower down payments, the borrower has less skin in the game, and that’s just inherently more risky,’ he said. ‘It can take a few years for the chickens to come home to roost, and I think that’s what’s starting to happen.’”

From Kenneth Harney. “Here’s an important question for anyone hoping to buy a home next year but who isn’t quite confident about qualifying for a mortgage: Is it true that lenders have eased up on certain key requirements, making it simpler for first-time buyers and others who can’t pass all the strict tests to get approved? The good news answer is yes. A recent survey of banks and mortgage companies by giant investor Fannie Mae found that a record number of lenders report that they have relaxed at least some requirements for mortgage clients.”

“Debt-to-income changes top the list. Under previous rules, your total monthly debt load could not exceed 45 percent of your monthly household gross income. Under the new rules, your total monthly debt can now go to 50 percent. With Federal Housing Administration (FHA) loans, you can push it even higher — 55 percent or 56 percent — provided that other aspects of your application are strong.”

From Bizwest on Colorado. “If you’ve been tracking headlines on the business pages in recent months, perhaps you were caught off guard by the news that home prices declined in some Front Range communities. After all, isn’t the market still blazing hot? And haven’t Fort Collins and Greeley and Boulder and Denver been experiencing some of the fastest appreciating housing prices around the country?”

“The standard for a ‘balanced’ housing market is six months of inventory. Locally, the inventory for homes priced at $400,000 or less is at a fraction of that six-month standard. Fort Collins is at 1.89 months, Greeley at 2.47 months, and Loveland at 1.75 months. But if you look at homes priced at $700,000 or more, the inventory is ample — nine months in Fort Collins, 9.38 months in Greeley, and 6.97 months in Loveland.”

From ABC 30 in California. “For sale, signs are popping up in the Bay Area as many fire victims are forced to sell after the devastating fires in wine country earlier this year. There are empty lots where homes once stood across Santa Rosa. Officials with the North Bay Association of Realtors say they are going up for about 160,000 dollars instead of 500,000.”

“And despite the big price drop, many fire victims are making it the hard choice to sell what they once called home. Officials expect more people to put up their lots for sale but they say it is still too early to tell exactly how housing values will be impacted. But there is concern more victims will find themselves priced out.”