April 23, 2018

These Shiny New Buildings Have Everything But Tenants

A report from the Beacon Hill Times in Massachusetts. “Plaguing the commercial and residential districts throughout the city, empty storefronts and vacant apartments are making it seem that Boston is experiencing market failure, despite the strong economy, real estate values and low unemployment rate. In an effort to reverse the trend, Councilor Matt O’Malley of Jamaica Plain and West Roxbury wants to start looking at ways to prod landlords and building owners to rent the spaces out, with one solution being a vacancy fee. Often times luxury buildings over 50,000 square feet are purchased for investment and left empty or are only occasionally inhabited, challenging the city’s effort to create housing for a growing population.”

“‘You see the trickle down affect this has in increasing rents and increasing prices in our neighborhoods,’ said O’Malley. ‘When buildings stay vacant, small businesses can’t find places to rent for home or business and our communities remain less active and less vibrant. It is about affordability as much as it is activating our streets. As more people come to our city we should make sure we are using every tool and every empty property to keep the city affordable.’”

From Northern Public Radio on Pennsylvania. “There’s plenty to see in Pittsburgh’s East End. Another thing you can find: plenty of construction, mostly apartment buildings with signs touting amenities – pools, gyms, rooftop decks. A lot of these shiny new buildings have everything but tenants to fill them. ‘I have passed by apartments where the doors are open and like it’s empty. So I don’t think they’re full,’ said Yazmin Dalsimer.”

“After decades of population decline and stalled development, developers were eager to nab all these well-paid renters. And so began the amenities arms race. The vacancy rates for luxury apartments is around 11 percent. And there are thousands more units being built — many of them in neighborhoods where low-income residents are being pushed out. Those apartments could go empty because of another economic reality of the New Pittsburgh. It has a tech workforce without a tech real-estate market.”

“‘I think all of a sudden, the markets realize that the current housing stock wasn’t meeting what they were looking for,’ said Christopher Briem, a regional economist at the University of Pittsburgh.”

From the Grand Forks Herald in North Dakota. “Vacancy rates, after a years long rise, were at about 8 percent for Grand Forks’ private apartments during the first quarter — and at almost 13 percent across all apartments. John Colter, executive officer with the Greater Grand Forks Apartment Association, said that means landlords have to roll with some economic punches. ‘When you have a vacancy, you have to absorb it and try your best to fill it. (When) 10 percent of your business is lying vacant … it makes it tough to pay the bill on that. You can’t sustain that forever,’ Colter said.”

“The city is coming off the tail end of an apartment boom that saw a building surge, with more than 1,500 apartment units granted building permits in 2013 and 2014, according to city records. Mark Schill, an analyst with Praxis Strategy Group, said the answer to that question — does Grand Forks have ‘enough’ apartments — depends on who you ask. Where a landlord might see too many apartments, tenants might see lower rent, and others might see more disposable income spent in the community. ‘Vacancy has come up, to be sure, and we’re seeing more aggressive marketing of apartments,’ he said. ‘Does that mean with have ‘enough’? Well, that’s a different question.’”

From the Tennessean. “Opry Mills, the land and shopping center by the Cumberland River, was one of about 1,000 high-value commercial properties whose owners successfully appealed the 2017 Nashville reassessment. Those commercial properties accounted for more than 80 percent of the county’s total reduction in assessed value, according to a Tennessean analysis of assessment data. On average, commercial properties valued at more than $1 million, that won appeals, received a 20 percent reduction in assessed value, the analysis showed. These include some of the city’s biggest apartment complexes, hospitals, parking garages and shopping centers”

“The board gave a 22 percent reduction to the owners of Element Music Row, the luxury apartment complex at 1515 Demonbreun St. Element’s owners, a Charlotte, N.C.-based development company called Childress Klein, brought their own appraisal to the board, showing the property’s expected rental income. The board agreed to lower the county’s appraisal from $160.9 million to $125 million.”

From Multi-Housing News on Texas. “Sterling Real Estate Partners has acquired Spring Valley Apartments in Austin. The property, an 11-building, 230-unit apartment community, is the largest asset yet acquired by the partnership. According to RealPage, among the 50 largest U.S. apartment markets, Austin was the only one last year to see a drop in rents, which fell 0.7 percent compared with 2016. RealPage said that new supply in Austin was a factor, with developers completing more than 10,400 units last year, and adding 18 percent to the market’s apartment inventory over the last four years.”

“But the company posited that a stronger factor in pushing rents down might be that Class B and C rents have already gone up as much as the market can bear, climbing roughly 40 percent since 2010.”

From Fox 5 New York. “If you rent a home in New York City, you already know we have some of the highest rents in the country. Now, finally, some promising news: rents are starting to come down a little, according to a report by appraiser Miller Samuel Inc. and brokerage firm Douglas Elliman Real Estate. Manhattan rents dropped 3.8 percent. Brooklyn did even better—rents fell 6.3 percent. And Queens renters got the best deal—rents dropped 6.4 percent.”

“‘Right now is a great opportunity to find a good apartment at a reasonable price,’ said Janna Raskopf, a broker with Douglas Elliman. ‘Landlords are very open to conversations in a way that they hadn’t been historically. The prices are coming down a little bit but the incentives that are being given are what’s doing that and that’s what we call the ‘net effective number. You’re having a lot of owners who are deciding to give—whether it’s their existing tenant or prospective new tenants when the apartments are vacant—opportunities to get some sort of concession.’”

From The Real Deal on Florida. “Responding to the luxury market slowdown, Masoud Shojaee’s Shoma Group is scrapping plans for the multimillion-dollar townhome project Eleven on Lenox in South Beach, The Real Deal has learned. The developer will instead build lower-priced condominiums. He said it was brought on by a tough market, and by buyers demanding discounts on the luxury townhomes, whose prices he had raised from the original preconstruction level.”

“‘The market overall is not ready for $3 or $4 million — it doesn’t matter where it is,’ Shojaee said. ‘You will get a sale here or there on the water for $7 million or $8 million, but it’s very rare at this moment.’ He added that ‘everybody is looking for a bargain. If it’s $4 million, they want to pay $3 million. If it’s $3 million, they want to pay $2 million.’”

“Construction is expected to begin in January 2019 with completion expected by the end of the year. Eleven on Lenox, by contrast, was planned as 11 three-story townhomes, each with four bedrooms, a family room, two-car garage and rooftop deck with a pool and summer kitchen. Shojaee said he had tried raising prices on units from $2.9 million to $3.3 million, and from $3.5 million to $4 million. ‘The problem was they wanted to pay the original prices and we refused to do that,’ he said. He added, ‘I don’t want to give it away.’”

“The project is the latest in a series of South Florida developments to be changed, placed on hold, canceled or delayed amid the slowdown in the condo market.”

From WOSU Radio on Ohio. “Tyvek homewrap flaps over the unfinished wooden beams of the Luxe Belle, as a sign proclaims ‘Now Leasing.’” Another sign entices the first 20 renters with free Taco Bell for a year, a tie-in with the fast-food chain that will occupy the mixed-use development’s first floor. Right now, though, that first floor is just a large concrete atrium. Like four other luxury apartment complexes near The Ohio State University, this six-story development at North High and 8th Avenue is set to open next fall.”

“Local developers are building it–will students actually come? For junior Kiersten Ahrens, who’s still searching for housing for next year, the answer is a definitive ‘no.’ ‘I would love to live them. They’re in great locations,’ Ahrens says. ‘But it’s just so expensive, it’s not even worth it.’”

“Indeed, rents for the swanky complexes can top $1,500 for a one-bedroom. Managers like Tom Heilman, with Hometeam properties, still think the market is there. ‘Let’s just say they’re $1,000 beds when the market’s used to $500 a bed, but you’re getting High Street locations and views, you’re getting amenities, you’re getting granite countertops, flat screen TVs, low utilities, safety, workout areas, and all the other amenities,’ he says. ‘And it’s just a fun experience for students that may are gonna experience this for a year or two and the parents are more than happy to do that.’”

“Occupancy rates for Hometeam’s two new properties on Lane Avenue - Wilson Place and The Point - are just now reaching 50 percent for next year. Another developer, Edwards Communities Development Co., reports similar numbers for a tower under construction at 15th and High.”

“Student Kiersten Ahrens’ current place falls under the $600 cap she and her parents agreed on. ‘This place has everything I need,’ Ahrens says. ‘And yeah, it’d be nice to have a fitness center and a pool and stuff, but they literally say all the time, like, ‘You’re in college, you need the college experience, you don’t need to be living like that when you’re in college, you need to save up and do that later on.’”




April 22, 2018

The Result Of Excessive Exuberance And Relaxed Lending

A report from Drumheller Online in Canada. “With mixed national and provincial headines stating that the buyers market is not a place for new home owners, Don Rosgen with Century 21 in Drumheller said the local market is, in fact, a buyers market. ‘Right now, we’re in the buyers market. Normally we have(an amount of listings) in the 110 to 120 range. Total now, we have over 150,’ he continued. ‘It’s a supply and demand situation. The supply exceeds the demand right now. I think that’s where we are in Drumheller. ‘When you have excess market product. you’re then going to have to reduce your price if you want to get ahead in the market.’”

From the St. Albert Gazette in Canada. “Sales decreased overall across the entire Edmonton region. Year over year there was an 11.73 per cent decrease in sales across single family, condo and duplex/rowhouse housing sales. Darcy Torhjelm, chair of the Realtors Association of Edmonton, said he was surprised to see sales slump. ‘My assumption would be just that buyers are taking their time. I think there’s activity out there where people are looking at properties, but buyers are just not pulling the trigger on purchasing as quickly as they have in the past,’ he said.”

From Globes in Israel. “After a decade during which housing prices more than doubled, prices have finally halted their upward march, and have even changed direction. Anyone in Israel who has to sell a housing unit - a contractor who can get no more credit in money or time from a bank, or a family that has already bought its next housing unit and has to sell its old home, has to compromise on the price. It can be stated with certainty that the supply of housing for sale currently outstrips the demand - a situation that has not occurred in the Israeli market for many years.”

“Minister of Finance Moshe Kahlon, who ran in the elections on a single crucial promise - to lower the price of housing - can finally talk about a downtrend in prices, and no longer has to fear elections in this coming summer or winter. A cumulative 2.4% drop in prices in the past six months must, however, be assessed in the light of the 127% increase during the decade ending last August. The decline quite marginal - a further drop of 55% is needed merely to reach the level of prices in 2008.”

From The National on Dubai. “Keren Bobker advises a reader who wants to negotiate a lower interest rate on his mortgage for a Jumeirah Lake Towers property. Q: I bought a one-bedroom apartment in Jumeirah Lake Towers for Dh1.2 million in September 2008. The payments were initially Dh9,200 per month. Since the rental income was low, I asked the bank to give me a reduced mortgage payment of Dh5,000 per month. This continued for a period of two years and then I went back to the full mortgage payments. By this time I had accumulated Dh200,000 because of the reduced payments with interest.”

“I am now paying the mortgage in full, at a rate of Dh11,200 per month, with 60 per cent of that covered by the rent, and 40 per cent from my own pocket. I also pay the annual maintenance costs of Dh13,000 to Dh15,000 to the developer. What is the way forward with negative equity? I have approached the bank two times to refinance, but have been told the property to loan value needs to be 70 per cent, but it is currently around 100 per cent. If I sold the property, I would not make enough money, and would need to put in another Dh200,000 to fully repay. I cannot change banks, as no other bank is willing to take this on. Current mortgages are around 3 to 4 per cent, while I am paying 9 per cent. Is there anything I can do to get out of this situation legally? Can I just hand the property over to the bank? RM, Dubai.”

“A: It sounds as though the bank has previously been amenable as they have permitted RM to make reduced interest payments. The bank is not permitted to refinance the mortgage as under Central Bank of the UAE rules the maximum loan to value for any property with a value of up to Dh5m is 75 per cent and clearly no other bank can assist either. Banks do not permit borrowers to just hand over a property when monies are outstanding and RM is legally liable for all costs even if he sells the property. If the sale price is lower than the total outstanding then he must repay the bank in full before he is released from his liability.”

From the Korea Times. “Construction firms are increasingly concerned about the increasing number of unoccupied apartments in recent months as buyers face greater difficulties getting mortgages or finding tenants. With more owners delaying their payments to builders, this has begun adversely affecting the profitability of Samsung, GS, Hyundai, Daewoo, Daelim and other apartment builders. This phenomenon is particularly apparent in provincial areas in line with the increasingly unfavorable housing market amid interest rate hikes and the oversupply of new apartments.”

“GS and Daewoo each have nearly 20,000 apartments scheduled to receive residents in those areas this year. Their volume is almost twice that of Hyundai E&C with 10,000 apartments. Adding more concern, the outlook for the occupancy rate remains grim for this month too. The housing institution’s Housing Occupancy Survey Index for April stood at 70.4 points, down 3.4 points from a month earlier. A higher reading means builders are positive about occupancy. ‘The increase in the number of unlived-in apartments leads to builders’ financial difficulties,’ the construction firm official said. ‘And that can also deflate the entire housing market.’”

From Jing Travel on China. “China’s sharing economy is on the rise in a big way. However, arguably just as important is the growth of the real estate industry in China. Yang Changle, COO of China’s largest home-sharing company Tujia, noted that his company provides services for 130,000 landlords and operators. However, of that figure, 80,000 operate more than one shared home. Real estate prices in China have been soaring in recent years, although there is some speculation that the market is slowly ‘cooling.’”

“This has led to millions of vacant homes across the country and a seemingly endless rise in the price of homes, despite the fact that housing supply is largely on the rise. There is substantial debate over the exact number of ‘vacant’ homes and what constitutes such a property, although some estimates put this figure at well over 50 million. This, of course, has serious implications for the Chinese economy as a whole and arguably places an unfair burden on consumers, both renters and home buyers who are looking for affordable housing, while others are simply buying as much property as possible and inflating prices.”

From Edge Prop Malaysia. “The volume and value of small size, non-landed residential properties have escalated last year as oversupply looms. Data from AuctionGuru.com.my showed that there were 1,023 units of serviced apartments and serviced suites worth RM493 million put up for auction in 2017. The record-high figures were about two times the volume and value of the figures recorded in 2016 which saw 342 auction cases of such units worth RM146 million.”

“‘Unfortunately, there is an oversupply of this type of serviced apartments and serviced suites in the market which has pushed down rentals as their owners are rushing to rent them out. But some were forced to abandon their mortgage commitments when they failed to offload them on the market,’ says AuctionGuru executive director Gary Chia.”

“Chia says there is no quick solution to the rising number of foreclosure properties which was the result of the excessive exuberance in the property market and the more relaxed lending policy in the past. ‘We do not foresee any change to market conditions in the short term. Nonetheless, we view this trend positively as this is part of market adjustment which will put the property market in a better footing after this,’ he concludes.”

From News.com.au on Australia. “Straight-talking judge on The Block Neale Whitaker is set to make a loss on his luxury inner-Sydney pad. The interiors guru and his partner David Novak-Piper have listed their warehouse apartment in Alexandria for $1.6 million — $105,000 less than what they paid for it in 2016. The couple paid $55,000 over the asking price when they bought the apartment for $1,705,000 just over 18 months ago.”

From Your Mortgage on Australia. “There’s an oversupply of apartments in Melbourne, and this is creating plenty of opportunities for savvy buyers, according to numerous analysts. Buyers will soon be in a position to purchase units in medium and high-density buildings for below their replacement cost, according to Brian Capp, a professional buyer with Statewide Property Advocacy. He added that hundreds of apartments are listed for sale in Southbank, Docklands, Richmond, and other areas in inner Melbourne.”

“‘There will be some bargains to be found in the next six to 12 months in the high-rise buildings in the inner suburbs,’ Capp told the Domain Group. ‘Some of the second-hand two-bedroom apartments in the already established buildings, even though they are very small, are going to become an attractive buy because the replacement cost is greater than the price the owners are asking.’”




April 21, 2018

We’re Taking A Risk, But We’re Really Buying An Asset

A report from The Spectrum in Utah. “St. George-area housing prices keep climbing, interest rates are expected to jump again, and first-time homebuyers Giovanni and Jennifer Trumbo are feeling the pressure to buy while they can still afford it. The Trumbos, who are in their early 30s, are approaching their 10th wedding anniversary. Their second child just turned 7 months old. They’re currently renting a house where the rent has gone up $300 a month since they moved in. They’ve been dipping their toes in the murky real-estate market waters for months, but the longer they’ve waited, the more interest rates have ticked up and the more buying power they’ve lost, Giovanni Trumbo said. The couple recently decided to start putting in offers and jump into a mortgage.”

“‘We’re taking a risk, we know that. But we’re really buying a house,’ he said. ‘It’s ours. It’s an asset.’”

“The house they’re buying is a Bloomington Hills two-story with spectacular views of the city and its rugged desert surroundings. It was priced at $349,000. The mortgage payments will likely be higher than what they’ve been paying to rent their current home, but not by much, Giovanni Trumbo said. A midlevel manager at Wilson Electronics in St. George, Trumbo said he subsidizes his salary by operating his own business online. Jennifer Trumbo works from home as well. Combine those incomes, and it’s enough for the house, although Giovanni Trumbo said he didn’t think it would be possible on his regular salary alone.”

“Through the end of March, the median sale price for a single-family home was $296,520, up more than 16 percent from last year, according to multiple listing service data kept by the Washington County Board of Realtors. That’s an increase of more than $110,000 since March 2013. The average price tag for homes currently on the market is $512,629. In a county where the average weekly wage is less than $700, according to the Bureau of Labor Statistics, the problem is clear, say those in the industry.”

“It’s a trend that has been going for years, but it has escalated quickly over the past 12 months, said John Hook, an agent with Red Rock Real Estate who was helping the Trumbos with their housing search. A native Californian, he said he sees some similarities between the St. George region and famously high-priced real estate markets like San Diego and San Francisco, where the area’s attractiveness creates a demand for housing that prices out the typical working person.”

“‘I’ve seen it happen,’ he said. ‘If you look out there right now, it seems obvious.’”

From the Associated Press. “Higher mortgage rates are making the already challenging task of buying an affordable home even tougher for many Americans this spring. In metro areas, such as Denver, buyers are rushing to close a deal before mortgage rates get too high. In Dallas, some are embracing longer commutes to find homes they can afford. And in places such as Los Angeles, where the number of homes for sale is down sharply from a year ago, sellers routinely receive multiple offers.”

“A mere extra half percentage point or so can boost monthly payments and add tens of thousands of dollars extra in interest over the life of the typical 30-year loan. At a time when home prices are rising faster than incomes in many parts of the country, that could be enough to shut out some would-be buyers who make the median income in cities such as Seattle and Los Angeles.”

“Chad Zolman got a taste of that while looking for a home in Denver. The account manager made 11 offers since his search began in September, but lost out to rivals offering more money. As mortgage rates started rising, so did Zolman’s anxiety about being able to afford to buy. ‘The rates kept going up, and the more the rates kept going up, the less house you can buy,’ said Zolman, 41. ‘And the less house you can buy in this market, that’s not good. You have to be able to pony up the cash.’”

“Zolman eventually bought a newly built, three-bedroom townhome for $370,000. He got approved for a 30-year fixed-rate loan just under 4.7 percent. He’s not in the clear yet, however. He can’t lock in his rate until mid-May, within the 120-day window before construction on the house is completed. And if rates go higher by then? ‘It is what it is,’ Zolman said. ‘You just have to pay it.’”

From the Idaho Statesman. “So you think you want to buy a house in Boise? Where the region’s median home prices are at record highs, construction is still below precrash levels and West Coast ex-pats are flocking in, flush with cash and amazed at all the real estate ‘bargains’? Buckle your seat belt. And take a little hard-earned advice from Mike Daniels. He is 47, a blue-collar worker and Chicago native who fell in love with Boise, wanted to buy a house on a tree-lined street in the City of Trees and grow old here with his wife, Dee.”

“In June 2017, the middle of the Daniels’ home search, 35 percent of the houses sold in Ada County went for more than their list price. One in five was sold for cash. Houses were spending less time on the market than they had since 2006, the climax of the last housing boom. In Ada County, the median home price in March was $308,950, up more than $11,000 since February and 24 percent higher than the previous March. Only four houses countywide, all used, sold for less than $160,000 that month.”

“Daniels’ hard won advice for buying that dream house: ‘If you know that it’s in a neighborhood where there’s going to be full-price offers and it’s going to go to bidding, you’ve got to come in strong right off the bat. In today’s market, if you’re confident, and it’s what you want, spend the extra 10 percent.’”

“About six weeks after the Danielses lost out, they got a text and an email from their real estate agent. Another agent in her office was listing a house later that afternoon for $264,888, she told them at 10:02 a.m. on July 18. But they were back home in Chicago and couldn’t check it out. So she went on their behalf. At 12:47 p.m. she arrived at the modest bungalow. ‘There’s a line of people out here,’ she texted. ‘If you think it’s worth it, let’s offer an even 300k and we won’t ask for them to pay closing costs,’ Daniels responded. ‘That is a 13.25% offer over asking price.’”

“By 3:03 p.m., Daniels had sent earnest money to the agent. His wife had not yet seen the video. After two days of gyrations, Daniels received a congratulatory text. ‘Schedule the moving truck!’ the agent wrote. ‘You just bought a house :) congrats!!’”

“Realtor Tamara Rowe has more than a few million-dollar stories. There’s the 50-something client who sold her Colorado home for slightly over a seven figures, bought a brand new house in North Boise for $325,000 and plans to live comfortably on what’s left. ‘I just closed on a home Friday, all cash,’ said Rowe, an agent with Silvercreek Realty Group in Boise. ‘The couple is going to buy another house here for their son with the proceeds from their California sale. They’ll be able to purchase two homes for what they had in California.’”

From the Real Deal on California. “When Compass broker Stephen Kaseno was listing a home in Chatsworth a year ago, he got an enticing offer from a prospective buyer. The proposal was for an all-cash purchase on the $2 million property. But tempting as it was, something ‘didn’t feel right,’ Kaseno said. While examining the ‘Proof of Funds’ document from the buyer, he noticed the margins weren’t aligned and although it was typed, something was off. The document had been forged by the buyer to make it seem his funds were available and ready to go, when in fact, he did not. Instead, the buyer was hoping to secure a loan on the property once the home was already in escrow and the seller was at ease.”

“In an effort to compete in Los Angeles’ hot seller’s market, buyers are dangling all-cash offers before pulling back once the sale closes. While not illegal — excluding the forgery — industry pros say the practice could complicate the transaction should the loan get delayed or denied.”

“The phenomenon of the all-cash offer is a cyclical one, Hilton & Hyland’s Zach Goldsmith said. The most recent incarnation involves homes selling for under $3 million, where supply continues to outpace demand. But even as the all-cash deal helps some lucky homebuyers land their dream home, it could be contributing to a ‘false bottom of the market,’ Goldsmith said. ‘It’s over-inflating the market right now,’ he added. ‘If this trend continues, people are not going to be able to keep up so the market will fall a little bit.’”

From the Orange County Register in California. “Californians could be spending at least $50 billion more than they do dining out, going to the movies or shopping. But high housing costs are ‘crowding out’ personal consumption, with more cash going to landlords and lenders instead. If their housing costs weren’t so high, Californians would have enough dollars to buy 15 billion more Happy Meals than it does. They would have enough cash to buy 1.5 billion more Major League Baseball game tickets or 455 million tickets to Universal Studios Hollywood. And every man, woman and child in the state could buy tickets to see ‘Hamilton’ — six times.”

“That’s just one finding presented at a conference at Chapman University in Orange on how to fix California’s housing crisis. More than a dozen speakers from state and local government, think tanks, academia and housing advocacy groups examined the cause of the crisis and possible solutions. Their conclusions? Home building hasn’t been able to keep up with growth, and that’s costing us — big time.”

“‘We have just been fundamentally under-producing housing in California,’ said Mark Stivers, a state affordable housing official. ‘It’s gotten so bad that people making … (up to) $80,000 a year are having a hard time finding housing that they can afford.’”




April 20, 2018

To Question Whether Prices Can Go Up Forever

It’s Friday desk clearing time for this blogger. “The Reno-Sparks Association of Realtors says a rise in cost of 2 ½ to 5 percent would be comfortable for the market. From last year to now, the median home price is up four times that, rising 20 percent. Median home prices have hit the $400,000 mark in Reno for the first time ever. That’s up $70,000 from this time a year ago Which begs the question, are signs pointing to a housing bubble? These experts say it’s not a concern, as long as our job market stays strong. Some people are settling on location. ‘How far do I have to drive to get a house that I can afford, as an example, Fernley is still $100,000 less expensive for a home,’ said John Graham, former president with the Reno/Sparks Association of REALTORS.”

“A major Petaluma housing project is in limbo after a developer decided to sell the venture. It is the largest housing project in Petaluma currently under development. But construction of the first phase is on hold as builder Comstock Homes and its investment partner, Real Capital Solutions, are seeking to sell the project to ‘a national home builder,’ according to Troy Busse, director of purchasing for El Segundo-based Comstock Homes. ‘It’s not good news. The investment group decided to sell,’ he said. ‘They didn’t think it would bring in the returns they were hoping.’”

“A discussion originally scheduled for development standards turned into another debate about a controversial property when the Encinitas City Council voted April 18 in favor of removing the site from a housing proposal already sent to the Department of Housing and Community Development. Richard Boger, who is spearheading the neighborhood petition, said residents are concerned because of an oversaturation of affordable housing in the Quail Gardens Drive neighborhood. ‘We’re not trying to defeat the affordable housing,’ Boger said. ‘We’re just trying to have fairness. … It’s just way too much.’”

“‘Removing the property keeps the faith with the community character,’ said Council member Tony Kranz. ‘The idea that this property that we own has to be in the mix is just crazy.’”

“More than half of Dallas-area neighborhoods saw a decline in home purchases in early 2018 after years of rising sales. The largest decreases in sales came in high-priced neighborhoods in Colleyville (-30 percent), the Park Cities (-28 percent), Fairview (-26 percent) and Northeast Dallas including Lake Highlands (-20 percent). ‘We are definitely seeing a slowdown in appreciation at the higher end,’ said housing analyst Paige Shipp with Metrostudy Inc. “As mortgage rates are increasing they can’t buy quite as much home as they could before.’”

“In March there were about 1,400 more preowned houses on the market in North Texas than a year before. Some of the biggest year-over-year increases in the number of homes listed for sale in the first quarter were in Richardson (up 60 percent), McKinney (up 35 percent) and Wylie (up 28 percent). Jim Fite, president of Dallas’ Century 21 Judge Fite Co. Realtors, said competition from home investors is keeping the supply of affordable houses tight in many Dallas-area neighborhoods. ‘I get probably three to five calls or letters from investors every day,’ he said. ‘I think they are paying stupid prices that drives up the market.’”

“Developer CMC Group reports that 75% of Brickell Flatiron’s 549 units have been sold or are currently under hard contract. But for every story there is about a Brickell Flatiron there is also one about about a Boulevard 57—the canceled condo project in Miami’s MiMo/Upper East Side neighborhood that was eventually sold to 13th Floor Investments and Tricera Capital. This February the partners received permission from the city of Miami to develop a mixed-use, 448,000-square foot apartment building with retail.”

“‘There are buildings full of empty condos in Miami,’ Aaron Singer, CEO of Bulldog Adjusters, tells GlobeSt.com. ‘Contractors see the opportunity to build buildings, but the influx of new buildings is creating a surplus.’”

“The financial travails of the giant Chinese conglomerate HNA Group Co., which is currently trying to unload its overseas holdings, are casting a spotlight on a vast portfolio of luxury homes owned by executives of HNA and a U.S. company run by the brother of its chairman. HNA has racked up significant debt from a long international acquisition spree. While the company has been moving to sell a large chunk of commercial assets, executives at HNA and the U.S. company are sitting on nearly $200 million in luxury homes throughout the New York metro area, according to a review of property records by The Wall Street Journal.”

“Now isn’t the best time to be listing luxury real estate in Manhattan, New York-based agents say. If Chen Guoqing, Pacific American or Mr. Tan were to list their residential units, particularly at One57, they might have to be willing to sell at a loss. Units at the building have been trading at a significant discount to their original sales prices in recent months, according to property records, due in part to a glut of luxury inventory on the market in Manhattan. ‘If they’re priced right they’ll go, but it’s always better if you’re the only person swimming in the pool,’ said Donna Olshan, a luxury Manhattan broker. ‘It’s certainly not a scenario for pushing the prices up.’”

“A homeowner in a housing complex in London with Grenfell-type cladding has been told the value of her £475,000 home has collapsed and is now just £50,000. Galliard Homes, the developer of the 11-block complex in New Capital Quay in south-east London, is facing a £30m-£40m bill to replace the cladding and is locked in a legal dispute over who should pay. The dispute, which could take years to resolve, has left Cecile Langevin, 32, and potentially thousands of others up and down the country, with an unsellable flat.”

“‘It is like someone has taken away our life choices, our freedom,’ she said. ‘And nobody is doing anything about it,’ she added, in tears.”

“Apartments prices in Sweden dropped by 7% in the January-March period compared to the same period of the previous year, according to data from the Association of Swedish Real Estate Agents. In March, Swedish home prices fell by 4.5% on an annual basis. The apartment prices fell by 8.% year-on year, while single-family home prices were down 1.8%. Property prices have risen much more than wages over the last couple of decades and Swedish households are among the most indebted in Europe.”

“Sweden’s financial regulator has introduced a number of measures in recent years to cool the lean housing market, including mortgage-backed rules for large borrowers.”

“Throughout 2017, many Dubai tenants had been looking for cheaper places, and several were getting them at a high discount. This is a fact that applies to Abu Dhabi as well. The reason is that ‘There’s a lot of empty properties, in the UAE capital,’ said John Stevens, Managing Director of Asteco’s Abu Dhabi first quarter Real Estate Report 2018.”

“Cape Town’s Atlantic Seaboard is now in a buyers’ market phase, according to Seeff’s agents in the area. The latest Propstats data shows that the sectional title sector of the market is down year-on-year by about 34% in value, and 41% in volume terms up to April. A quick glance at Private Property shows that there are well over 1,200 sectional title property listings on the Atlantic seaboard while only 88 sales were recorded on Propstats for this year to early April. According to luxury sectional title specialists at Seeff, stock has increased notably, but sellers are still not motivated enough to drop their prices sufficiently to encourage buyers to put pen to paper.”

“The massive supply of new apartments in and around Seoul is pulling down ‘jeonse’ prices, adding to the concerns of housing investors who use deposits from tenants as leverage. Market watchers warn such leveraged investments will inevitably lead to financial losses for owners. According to real estate agents in Songpa-gu in southern Seoul, jeonse prices of Jamsil LLLs and Jamsil Recenz, which are among the most popular apartment complexes in the district, are falling steeply.”

“‘If the housing prices begin to fall, investors who leveraged on jeonse will face losses. They may put their homes up for sale at cheaper prices, further pulling down housing prices,” said Lee Mi-yun, an analyst at Real Estate 114. ‘Investors should be cautious about leveraged investments since there are negative factors such as the increasing supply of new housing, stricter regulation on mortgages and a property tax hike, which may snowball their losses.’”

“According to the Korea Housing Institute, 24.4 percent of new apartments recently built around the country are vacant. Forty-two percent of the owners of these vacant apartments said they failed to find tenants, while 23.2 percent said they can’t move into new housing as their old homes are not selling.”

“The area of new homes sold, excluding government-subsidized affordable housing, jumped 24.2 percent to about 84,000 square meters during the seven-day period ending on Sunday, Shanghai Centaline Property Consultants Co said in a report. But the average price of the new homes fell 6.3 percent week on week to 47,255 yuan (US$7,512) per square meter.”

“Lakeville, a development of Shui On Land, released 118 apartments last week at an average price of between 120,000 yuan and 190,000 yuan per square meter, according to Centaline data. The price range is almost equivalent to that of an earlier batch released in November 2015. The total new supply released to the market surged 50.7 percent week on week to 98,000 square meters last week. For the second half of this month, at least 11 projects with around 4,900 units will be launched for sale citywide, a separate report by Shanghai Homelink Real Estate Co said. These units will lift April’s total new home supply to over 6,500 units — the highest since 2017.”

“The most expensive homes in the country are becoming harder to sell as deep-pocketed buyers shy away from buying blue-chip properties in Australia. Sydney’s high-end property market bore the worst of the damage, with the value of blue-chip properties falling an eye-raising 5.7 percent over the last 12 months. To give that context, if Sydney’s most expensive home – the $70 million Point Piper Elaine Estate once owned by the Fairfax family – were to drop 5.7 percent, it would record a fall of almost $4 million.”

“It’s been one year since the Ontario Fair Housing Plan changed the rules of the real estate game in the Toronto region, and it’s a dramatically different market 12 months later. Some 40 per cent fewer homes are changing hands year-over-year, according to the Toronto Real Estate Board. And the average Greater Toronto Area home price has slumped 15 per cent from frenzied peak of April 2017. While the year-over-year figure is alarming, the price correction was actually quite swift. Average prices plunged 20 per cent from April to August of last year, from roughly $920,791 to $732,292.”

“LOSERS: ‘The roughly 37 per cent of people who already own a single-family home are watching their equity vaporize. That loss is particularly insidious for fixed-income retirees who depend on their equity for survival,’ said Rob McLister, founder, RateSpy.com. ‘The nearly 1,000 people (and possibly more) who had to back out of their transactions last year because of the rapid 20 per cent decline in house prices in just four months. Many of these buyers who bought at the peak and backed out of their purchases are getting sued by sellers for the decline in the sale price of their home,’ said John Pasalis, president of Realosphy.”

“Was Ontario’s Fair Housing Plan a case of too much government meddling in the housing market? ‘Definitely not… Buyers and sellers overreacted to the provincial foreign buyer tax. The biggest effect the Fair Housing Plan had over the past year was psychological. It caused sellers and buyers to question whether prices can go up forever,’ said Pasalis.”




April 19, 2018

The Glut Has Indeed Come To Pass

A report from the Charlotte Agenda in North Carolina. “For nearly a decade, Charlotte’s high-end apartment market has boomed. Developers bought up land in the city’s hottest neighborhoods and built luxury communities, each one fancier than the last. Rent continued to climb, and each new building filled up with the crush of young professionals moving to town. Could all that be nearing an end? Industry insiders have been watching for the peak of the market for several years now. There are signs that the peak is finally here — at least in some parts of the market. The latest development: New luxury apartments are increasingly turning to special offers, discounts and incentives to get people in the door.”

“Novel NoDa is offering $2,000 off rent, plus a smart home device. SkyHouse and Novel Stonewall Station are offering two free months rent on some of its units. The Abbey in Montford Park is giving new tenants a $1,000 gift card. And at least a half-dozen other apartments are offering a month of free rent. The apartment communities offering discounts tend to have a few things in common. They were built in the past year. They’re in markets with a lot of construction activity. They charge high prices — generally about $1,200 a month for a studio and $2,000 for a two-bedroom unit.”

“It’s just simply harder to find people who can afford to live there. To make any money on an apartment building in Uptown or South End or NoDa, developers must charge a luxury-priced rent. As we’re finding out, the demand for apartments in that price range has diminished. Fannie Mae recently estimated that the number of new apartment completions would hit a record high in another year or two.”

From Philly Mag in Pennsylvania. “Are you still stunned over Monday evening’s announcement that Dranoff Properties will sell all of its apartment buildings in the Philadelphia area to the Apartment Management and Investment Company of Denver for $445 million? Deep down inside, Carl Dranoff himself might be too, for he wasn’t looking to sell the properties even though the glut of apartments both he and your section editor saw coming last year has indeed come to pass.”

“‘I’m an outlier,’ Dranoff said. ‘I’m not like most developers who build a building, then turn it over to someone else to run. I’m a long-term steward of my properties, and I had no intent of selling them.’ But AIMCO was intent on expanding its presence in the Philadelphia market.”

From Urban Milwaukee in Wisconsin. “It’s obvious that downtown Milwaukee has grown in recent years, but by how much? By quite a bit, it turns out. Department of City Development Commissioner Rocky Marcoux told members of the Common Council that since Mayor Tom Barrett took office in 2004, 11,450 housing units have been constructed in what he calls the greater downtown area. Marcoux, who was presenting a status update on a number of downtown projects, told the committee that 1,487 additional units are ‘in the queue and we believe will be in the ground this year.’”

“Alderwoman Milele A. Coggs asked Marcoux if the housing market is overbuilt. Marcoux responded that he has seen some signs the market is softening, citing deals where tenants can get a month of free rent with a year lease. But overall, the commissioner said the city has a minimal risk even if the market is overbuilt. ‘We have not subsidized the downtown market. The market is acting as the market is going to act,’ Marcoux said.”

“The city will have to increase the supply of homes to increase the population. A recent U.S. Census Bureau report found that Milwaukee County’s population fell for the third straight year, falling to 952,085 residents. The population of the region as a whole has been stagnant in the same time period.”

From RE Business Online. “Developers of student housing properties have been holding steady volumes of new product on their books. According to CoStar Group, developers have added about 22,000 new units each year since 2010. Secondary markets are gradually beginning to see heavier waves of student housing development. In Texas, this trend appears to still be in its infancy. Lubbock and College Station have experienced huge building surges over the past few years, with the former in particular being a hotbed for development. The largest student housing property in the country, the 3,406-bed Park West, opened in College Station this past fall. Irving-based student housing firm Servitas developed that project.”

“‘College Station is moving toward being overbuilt,’ says Matt Myllykangas, senior vice president of development and construction for Servitas. ‘And housing projects seem to be moving further away from campus.’ Brent Little, CEO of student housing development firm Fountain Residential Partners, concurred with those notions, noting that occupancy is down and rents have backtracked in College Station. His firm sees similar levels of activity and competition in Waco, home of Baylor University.”

“‘We looked at Waco recently and there were already five or six student housing deals under construction or in the pipeline,’ he says. ‘And that’s for a school with just 10,000 students.’”

From Seven Days Vermont. “The granite countertops, sparkling appliances and panoramic lake views look like they belong in a posh condo development. Instead these amenities enhance a new six-story, off-campus apartment building that Champlain College is leasing to undergraduates in Burlington. The newly constructed units are helping to finally cool the long-overheated student rental market. More than 2,000 units are in the pipeline. In response, some landlords are cutting rents. Others are waiving deposits and aggressively marketing by doling out free pizza and Red Bull to student renters who aren’t used to being wooed.”

“‘The competition among landlords is markedly increased,’ said Rick Sharp, a longtime Burlington investment-property owner. This spring, for the first time in roughly 20 years, he reduced rents in an effort to find tenants for a pair of four-bedroom apartments. This year, Sharp got no takers from ads on Craigslist. He dropped the rent from $2,800 to $2,700 a month, but still has not found tenants. ‘We may have to go to $2,600,’ he said.”

“Mayor Miro Weinberger, who has pushed for new housing downtown, hails the construction. Weinberger finds the increasing vacancy rate and anecdotes of discounted rents encouraging. ‘That sounds to me like the early stages of a market reconciling, kind of recalibrating to deal with the fact that there’s substantial amounts of new supply,’ Weinberger said.”

The Real Deal on Illinois. “The long-awaited plans from Golub & Company and CIM Group for the Tribune Tower property call for a massive mixed-use development that would transform the area where the Magnificent Mile meets the Chicago River. In addition to all the new retail, luxury hotel rooms and condos, the $1 billion project would include 439 new rental units in the proposed 96-story skyscraper that would go up east of the landmarked tower starting in 2020.’

“But with Chicago’s Downtown rental market already showing some signs of oversupply, will the area be able to handle all the new inventory? Last year, more rental units were delivered Downtown than in any year on record — 4,348 — according to figures from Integra Realty Resources, an appraisal and consulting firm. While the firm expects the pace to slow this year, with a total of about 3,000 units to deliver, it’s projected to rebound in 2019, with about 4,200 new units. The annual average over the past 25 years has been 3,200 new units, according to Integra.”

“And deconversions, like the $60 million, 292-unit deal Golub and USAA Real Estate recently closed at Century Tower, are tipping the inventory balance even more toward rentals in many parts of the city, including Downtown. Kyle Stengle of Marcus & Millichap’s investment, national multifamily and mixed-use group, said the rental boom Downtown is unlikely to last much longer. ‘At some point there’s just going to be too many units and we may already be there. The overall feeling is that the market’s getting over-saturated.’”

From Bisnow on Florida. “‘Palm Beach is completely on fire,’ said Todd Michael Glaser, a high-end homebuilder who made his name in Miami but has lately been concentrating on Palm Beach County. ‘I’ve never seen the amount of $8M to $70M homes as in the last three and a half, four months. It’s staggering.’ It’s not just single-family homes that are hot, but a new wave of high-end condos and mutifamily apartments, especially in downtown West Palm Beach.”

“Kolter Urban President Bob Vail, who is developing the Alexander, said that there is something of an arms race for amenities in the new supply of high-end homes. ‘You see that across the U.S. There are [apartment] buildings in Atlanta, Denver and Dallas that are nicer and more fully amenitized than condominium units, because that’s what it’s going to take to get people to choose that building,’ Vail said. ‘It’s just sort of a differential advantage. It’s really become a race in those more in-demand markets.’”

“Though the market is healthy now, the developers agreed a slowdown is possible as new supply takes time to be absorbed, construction costs rise and actionable sites get harder to find. Low salaries in Palm Beach County mean that not many workers can afford high rents. When an audience member asked whether they were concerned with an economic downturn, Vail responded half-jokingly, ‘Condo developers, we don’t forecast those kind of things, you know what I mean? We’re just go, go go,’ he said. ‘And the faster we go, the faster we get to the closing, and then, I’m not going to say we don’t care, but … ‘ The audience chuckled as he trailed off.”




April 18, 2018

They Did It To Make More Money – No Longer A Good Idea

A report from Global News on Canada. “When we visited Ellisa Atherton’s living room in Ajax, Ont., in early March, it was crammed – wall to wall to wall to wall – with boxes. In the middle of the room, walled in by boxes, was the family’s Christmas tree – Atherton had put it up so it could be a ‘real Christmas’ for her youngest child, despite everything that was going on. But the room was too tightly packed for her to take it down again, so as winter turned into spring outside, there it stood. Faced with losing the house that she had only moved into in the fall, she didn’t feel she could open the boxes and really move in.”

“Atherton bought the house for $655,000 with a $55,000 down payment. Monthly payments of $6,000 with a mortgage rate of 11.99 per cent weren’t sustainable, but she was hoping to cut that sharply by refinancing after she moved in. But it didn’t work out that way, and her dream of homeownership is mired in a lawsuit and a series of what she calls inflated and unexpected fees that she can’t afford. Without a lower rate, she says, she’ll lose the house to foreclosure.”

“She calls the situation. ‘ … Hell, hell, hell. Depression, tears – it’s an ordeal that no one should have to go through.’”

“The census revealed that just under half a million Canadian households with mortgages spend over 50 per cent of their household incomes on shelter costs – taxes and utilities, but also mortgage payments. If households are that stressed, how will they cope when interest rates push their mortgage payments higher? It’s not surprising where homeowners are spending more than 50 per cent of their pre-tax income on shelter costs. Stressed households are concentrated in cities where real estate is most expensive – Toronto and Vancouver, but also noticeably in Barrie, Hamilton and Victoria.”

“‘The old guideline was about 30 per cent. Even if you make that 35 or 40, you’re seeing people with 10 or 20 per cent more than that,’ Toronto-based insolvency administrator Scott Terrio says of his clients. ‘It’s pretty scary.’”

“In Toronto, mortgage broker Ron Alphonso thinks the trouble could come from homeowners who invested heavily in their properties – often tearing down modest houses to build big ones – because they counted on values continuing to rise. ‘When house prices are flat, knocking down a little house and putting up a mansion is not a good idea. They primarily did it to invest and make more money – no longer a good idea.’”

From Macleans. “Not everybody is going to have sympathy for the group of homebuyers in Oakville, Ont., who say they are facing financial ruin on new homes thanks to attempts by the Ontario government to cool the housing market. These weren’t housing speculators trying to score quick bucks, according to the Toronto Star story published in early April. The cost of their new homes, which ranged between $1 million and $1.6 million, were entirely in line with average market prices. The buyers talk of scrimping and saving; of living with extended family to make ends meet.”

“Claudia and Darren Evans, for example, purchased their home for roughly $800,000 in 2013, according to Mattamy; in that time, the property’s value appeared to make extraordinary gains, prompting the couple to purchase a comparable home with a better floor plan for their young child—now valued at close to $1.6 million. After agreeing to buy the new home, the Evans’ put their old home on the market, but received only low ball offers.”

“‘We haven’t put our house on the market again and we need to close in seven weeks. There is no point. We are watching the market so closely with our realtor and we can’t afford to take the amount of money that we will get offered right now. If we got a delay in closing then it would be fine. I’m sure the market will recover in time,’ Darren Evans told the Star.”

“Buyers of this generation have been told that it’s impossible to lose money on real estate; that this is the safest investment on the books. So ingrained is this idea that generating real estate wealth has become an industry in and of itself, with entire cable channels devoted to flipping and equity building, and get-rich-quick experts offering classes, workshops and conferences.”

“Brad Carr, Canadian president of Mattamy Homes, said that housing is still a good long-term investment in the GTA—but agrees that prices are down and the days of massive housing profits were ‘unsustainable’ and probably over. Of course, beyond asking for a pre-approval and the deposit, the homebuilder doesn’t do much to double-check the state of a buyer’s finances. If he or she can afford to drop a few hundred thousand dollars, ‘We deem you to be a sophisticated buyer,’ Carr said.”

“Carr added, the market swings both ways. ‘When prices are going up dramatically, I very seldom—in fact, I have never seen—someone who has said ‘we are making substantial money by closing. I would like to give you more money,’ he said. ‘When the market is going in the other direction, we also don’t expect to be responsible for those potential price downturns.’”

From Better Dwelling. “Canadian real estate prices are acting a little skittish. The Teranet–National Bank House Price Index, shows real estate prices stalled across the country. In addition, the index is making moves we haven’t seen outside of a recession. Funny thing to note is experts, including some bank executives, are saying the correction is over. Technically speaking, a correction hasn’t even begun according to this index. A correction is when prices fall more than 10% from peak, in less than a year, which we haven’t seen yet. If I didn’t know any better, it would appear that (mortgage sellers) bank executives are misinformed. How strange.”
“Mattamy, and homebuilders like it, assume that the sort of people dropping $1.6 million on a home are ’sophisticated buyers.’ An alarming consideration: What if they aren’t?”

From CBC News. “Some investors are questioning whether the tallest building in Winnipeg will ever get off the ground after the RCMP raided the headquarters of the company behind SkyCity Centre last week. RCMP executed a search warrant at six properties in the Greater Toronto Area, including Fortress Real Developments’ headquarters in Richmond Hill, Ont., last Friday as part of an ongoing investigation into syndicated mortgage fraud.”

“Fortress is the developer of the SkyCity Centre 45-storey mixed-use condo project on Graham Avenue in Winnipeg. Winnipegger Debbie Stone bought a suite in the SkyCity development the minute it hit the market in 2015, but now she’s questioning whether it will even be built. ‘I’m actually not surprised from all the things I’ve read over the last couple of years,’ said Stone. ‘I’m just wondering how it affects the SkyCity building and whether they will be cancelling the project and refunding everybody’s deposit. I’d like to just get my money back.’”

From Stockhouse. “Media revisionists are now saying that the Toronto housing bubble burst in the spring of 2017. However, when Stockhouse wrote on June 30, 2017 ‘Toronto Housing Bubble Teetering Dangerously,’ we were one of the very first media outlets to take an unequivocal stand on this subject.”

“Even on into the summer, as Stockhouse published follow-up articles on this subject, this was still no consensus in the mainstream media. By 2018, however, apologists for Toronto’s housing bubble have had to throw in the towel. Recent media reports highlight the carnage from this burst bubble – in its very early stages. Yet the same article shows the pathetically delusional nature of media pundits and ‘market experts.’ The clear message is that the worst is over.”

“‘The future looks far less volatile for buyers and sellers in the GTA, with the condo market being the final meaningful pocket of risk, according to Pasalis. In the near term, he’s calling for neither a continued correction, nor a return to the break-neck price increases that defined so much of 2017. ‘We’ve kind of pricked this bubble,’ Pasalis told CTVNews.ca. ‘For this year, it looks like things are going to be pretty stable. It’s possible you might see price declines going forward in the future, but something else has to happen.’”

“‘The final meaningful pocket of risk’? Such messages are infantile and reflect profound ignorance concerning economics in general, and housing bubbles in particular. Why is the Toronto real estate market – and the Vancouver real estate market – an obvious asset bubble, along with hundreds of other cities across the Western world?”

“As has been explained to readers in previous articles on this subject, the real estate equation is a simple one. Over the long term, housing prices must remain parallel to income levels. Period. No exceptions, ever.”

“Wages have been flat. House prices (especially in recent years) have gone straight up in Toronto and Vancouver. Balance must be restored. Wages will never go up. This means real estate prices will go lower – and lower and lower. Housing bubbles built up over decades don’t evaporate in months. They implode over a span of years, and the real carnage has not even begun in Toronto’s housing market.”

“Stockhouse readers need to be wary of the media Revisionism to which we are now constantly exposed: 1. Pretend that no Toronto housing bubble existed, even when nothing could be more obvious. 2. Pretend that the bubble hadn’t started to collapse, even when the evidence of such a collapse was undeniable. 3. Pretend that these same market cheerleaders had acknowledged the bubble and the collapse all along, when nothing could be further from the truth. 4. Pretend that the collapse is over when it has barely even begun.”

“Some would have an even uglier term for such media Revisionism: propaganda machine.”

“The Toronto housing bubble and the Vancouver housing bubble and all the other housing bubbles across the Western world will implode because they must implode. Media cheerleading and the forecasts of intellectually bankrupt ‘experts’ cannot alter the simple arithmetic that is involved here – and undo the monetary crimes of Western central banks.”




April 17, 2018

The Adjustment And Reset That’s Needed

A report from Real Estate Weekly on New York. “A new report is showing a pause in Manhattan’s new development market, but that isn’t deterring a stream of buildings entering the city in the next few months. Halstead’s vice president of research and analytics Matthew Petrallia said it will generate more accurate pricing in the long run. ‘It’s good not to see a lot of inventory launching,’ Petrallia said about Manhattan. ‘Pricing is being revised down to a more realistic figure and we’ve continued to see that come down.’ Petrallia added that new developments in Manhattan tend to start with a high ‘aspirational pricing’ and eventually adjust to more appropriate prices.”

“When looking at quarter-over-quarter, average price per square foot in Brooklyn actually declined 5.29 percent year over year. But, Brooklyn’s available inventory doubled, mostly in part because of Brooklyn Point at 138 Willoughby adding 458 new units. Even with all the new developments expected to come online within the next few months, Petrallia said he expects both boroughs to remain relatively flat as long as a glut of new developments are spread out timewise.”

From Biznow. “Residential construction in New York City has slowed significantly since 2016’s cracking pace, and multifamily developers say it is a welcome development that will help soak up supply. The New York City Building Congress has predicted residential construction spending will hit $11.6B this year, and then slide down to $10.6B in 2019. By comparison, housing builders spent $16B on construction in 2016. ‘I expect construction prices to fall off a cliff in 2019 and 2020. It’s a good thing if you can find land to build on,’ Douglaston Development Chairman Jeffrey Levine said. ‘Land has stopped selling. Banks have stopped financing condos.’”

“Levine, whose developments include a 554-unit rental building at 2 North 6 Place in Williamsburg, Brooklyn, believes there is no doubt building rentals will pay off. The population is increasing, there is strong rental demand from baby boomers and millennials who do not want to be tied down with a home. Meanwhile, the tax law changes have made homeownership in the city much less attractive, he said. But, he describes the Affordable New York policy as worthless and unlikely to spur more multifamily development. ‘Rents have got to go up, land has to go down and tax abatements have to get better,’ he said.”

From Curbed New York. “Renters can take comfort that concessions are now the norm in the New York City market—and even better, prices are on the slow decline. In Manhattan, prices are down across the board: This past month saw the largest year-over-year decline in net effective rent tracked in six-and-a-half years, the fourth consecutive monthly year-over-year decline in median face rent, and the third highest recorded landlord concession market share in seven-and-a-half years.”

“‘Despite record concessions, we’re seeing the face rent sliding too,’ says Jonathan Miller, the author of Douglas Elliman’s report. ‘It means the concessions have kept the rate of [price] decline somewhat in check, but have not stopped it.’”

“In Brooklyn, concessions are also being offered for roughly half of all rentals, and the size of concession was 1.5 months of free rent or equivalent. Rents are falling in Brooklyn, too—March marked the fourth consecutive decline in the year-over-year net effective median rent, which dropped 6.3 percent to $2,629.”

“Finally, Northwest Queens hit a new record for landlord concessions. “The most mind-blowing numbers are in Queens,” Miller says, with the share of new rental transactions with concessions at a whopping 63.3 percent, up from 42.7 percent. The size of concession was 1.8 months, up from 0.9 months. This was the fourth consecutive month with year-over-year decline in net effective rent, while the existing median rent stabilized as new development median rent slid. As long as the rental market is flooded with luxury apartments, you can count on rental concessions being the norm, Miller says.”

From Bloomberg. “Here’s some good news for New York City apartment-hunters: Manhattan rents dropped 3.8 percent in March from a year earlier, the most since 2011. The news is even better for tenants looking in Brooklyn and northwest Queens. Rents dropped 6.3 percent and 6.4 percent respectively, and landlords offered so many move-in incentives that they set records for giveaways, according to appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. ‘For the renter, it’s a pretty good time to jump in,’ said Hal Gavzie, Douglas Elliman’s executive manager of leasing. ‘For the landlords, it’s a little stressful.’”

“Property owners across the three boroughs are contending with an avalanche of new apartment supply, giving them no choice but to cut prices. They’re stepping up discounts in the name of attracting renters, who are hunting as much for the best deal as they are for a place to live. And that’s not a bad thing for the market, Gavzie said. ‘This is what has to happen,’ he said. ‘It will help absorb quite a bit and will do the adjustment and reset that’s needed.’”

From Bisnow. “Two and a half years after listing it for sale seeking a $700M-plus return, SL Green and Ivanhoé Cambridge are selling a Midtown Manhattan office property for tens of millions less than they hoped. The joint venture is under contract to sell the 674K SF office condominium at 1745 Broadway to an institutional owner. The building’s decline in price might have been a result of poor timing; in 2015, New York City investment sales hit record levels in pricing and volume, but those numbers dipped slightly in 2016 before plummeting last year. The market has since picked up, but, as experts have told Bisnow, that is more of a result of sellers being willing to drop their asking prices than any underlying change in investing conditions.”




April 16, 2018

Local Flippers Competing Against Wall Street Flippers

A report from MarketWatch. “The National Association of Home Builders’ monthly confidence gauge ticked down one point to a reading of 69 in April, the group said Monday. The closely-watched sentiment tracker from the home builder lobby group hit its highest point since 1999 in December, and has fallen every month since then. The 69 reading is still quite strong. In the go-go days of the housing bubble, between 2004 and 2005, sentiment averaged 68. Still, the fact that confidence is declining so steadily is notable. When NAHB’s index started to fall in late 2005, it was one of the signals that foreshadowed the coming housing bust.”

From Inside NOVA. “The housing inventory is low nationwide, with a three-month supply that’s half what’s considered the equilibrium rate. Permits to build single-family homes have been down ever since the recession of the late 2000s, said Ken Wingert, senior legislative representative for the National Association of Realtors. People also are staying in their homes an average of 10 years, double the tenure that occurred in 1980, he said.”

“Retiring Baby Boomers trying to downsize their living quarters are competing for the same smaller housing units with Millennials just entering the real estate market, Wingert said. In addition, huge student-loan burdens have led young people to delay purchasing homes by about five years, he said. Perhaps most ominous was this statistic: Average incomes rose 15 percent between 2011 and 2017, but housing prices increased 48 percent during that period, Wingert said.”

“‘There has got to be a tipping point,’ he said. ‘This is not sustainable.’”

From CNN Money. “Zillow is the site you go to when you want to know how much more the house you bought a few years ago is now worth. But the real estate information company is planning to get into the business of buying and selling houses too. The company announced it was looking to potentially flip homes in the Phoenix and Las Vegas areas, saying in a press release that ‘when Zillow buys a home, it will make necessary repairs and updates and list the home as quickly as possible.’”

“The practice of flipping a home — buying it, fixing it fast and then selling it — can be very lucrative. But it is also risky. That seems to be the reason why shares of Zillow plunged 8% Friday. It didn’t help matters that the company also warned it would lose money in the first quarter — even though it boosted its sales forecasts. Zillow CEO Spencer Rascoff defended the shift in strategy though, arguing that it makes complete sense for Zillow to be involved in buying and selling homes. ‘The days of pushing a button and generating an email to a real estate agent is no longer as magical as it was in 2005,’ Rascoff said.”

From the Tennesseean. “Multi-billion-dollar real estate investment firms own nearly 1 percent of single-family homes in the greater Nashville area and have converted 3,060 houses into rental properties, according to a new study. But, since entering the Nashville market in 2015, their business model has shifted, said Tennessee State University associate professor Ken Chilton. The firms are buying spacious homes near good schools in suburban communities that attract well-educated families with incomes of roughly $75,000. They’ve shifted from buying homes at the lowest-end of the market to snatching up houses for $300,000 and more, Chilton said.”

“The increasing popularity of rental housing is mirrored in the growth of short-term rental companies such as Airbnb. ‘Some people are waking up to find out that 10 homes on their street have been bought out by rental companies in the last five years,’ Chilton said. ‘This is no longer our parents’ or grandparents’ housing market, where a Realtor puts a sign in the yard. Now we’re fighting against the Airbnb people who are competing against the local flippers and the Wall Street flippers.’”

From Bloomberg. “The biggest buyers of leveraged loans are weakening safeguards that limit how much risk they can take, amping up the potential pain for investors when the economy slows. The buyers, known as collateralized loan obligations, are beginning to erode protections in their funds that, for example, prevent them from purchasing too many smaller loans that can be hard to sell later on, according to market participants. The CLOs are dialing down these limitations to boost profits for the money managers that put the complicated structures together.”

“The shifts mean that investments designed to be relatively safe, namely highly-rated bonds sold by CLOs and backed by loans, could end up being riskier than they appear. That has some echoes with structured securities sold during last decade’s housing bubble, which often ended up being stuffed with mortgages that were weaker than investors had expected, even if CLOs are still seen as being far safer than last decade’s collateralized debt obligations.”

“Another relatively new change is the notion of ‘deemed consent,’ according to S&P CLO analyst Sean Malone. To make changes to CLO documents, the manager usually has to track down enough bondholders who agree to the shift. Under the deemed consent principle, if bondholders don’t respond to a manager notice of a change, they are deemed to have agreed. While this provision makes sense in some cases where the burden of getting 100 percent approval is too high, the language opens the door for misuse, according to Vaibhav Kumar of Silverpeak Credit Partners.”

“‘As the CLO documentation went to majority consent, the language was too loose and could be abused down the line by bad actors,’ Kumar said.”

From The Real Deal. “Manhattan isn’t the only part of the U.S. with a slowing luxury real estate market. High-end homes across the country are taking longer to sell, according to a new report by Concierge Auctions. A whopping 72 percent of luxury homes in the U.S. spent more than 180 days on the market in 2017, up from 59 percent in 2015.”

“Westchester County’s market is particularly sluggish. Homes that spend more than 180 days on the market sell for 62 percent of the asking price on average, compared to 71 percent countrywide. Luxury properties in Westchester spend 798 days on the market on average, according to the report, a total only surpassed by Nashville, Cape Cod and Atlanta.”

“Miami homes take 608 days to sell on average, while properties in San Francisco take a paltry 55 days. Beverly Hills luxury homes averaged 347 days on the market while luxury properties in Belair typically stay on the market for 251 days, according to the research. Luxury homes in Palm Beach, Florida averaged 476 days on market.

“In Manhattan, luxury homes priced at $4 million and up spend an average of 359 days on the market, according to Olshan Realty.”

From the Milwaukee Biz Times in Wisconsin. “Milwaukee was one of 53 metropolitan areas that posted a year-over-year increase in foreclosures in the first quarter with a 21 percent increase over the first quarter of 2017. Indianapolis, Indiana led the pack, up 148 percent in foreclosures during the first quarter, followed by Minneapolis-St. Paul, which was up 64 percent; Louisville, Kentucky up 36 percent; Austin, Texas, up 30 percent, and Oklahoma City, up 23 percent.”

“Nearly half, 45 percent, of all properties in foreclosure as of the end of the first quarter were tied to loans originated between 2004 and 2008, according to the report. ‘Less than half of all active foreclosures are now tied to loans originated during the last housing bubble,’ said Daren Blomquist, senior vice president at ATTOM Data Solutions. ‘Meanwhile we are beginning to see early signs that some post-recession loan vintages are defaulting at a slightly elevated rate, a sign that some loosening of lending standards has occurred in recent years.’”

From the Alton Daily News in Illinois. “More than a decade after the national housing crisis, four Illinois communities still have some of the worst foreclosure rates in the nation. Attom Data Solutions’ quarterly foreclosure report shows that Rockford, Peoria, Cook County and the Quad Cities are all in the top 20 metropolitan areas in terms of foreclosures per total homes in the first quarter of 2018. Vice President Daren Blomquist said the housing crisis is so far gone that Illinois’ foreclosure woes can longer be blamed on that.”

“‘[Illinois] loans originated in the last seven years since the end of the Great Recession are performing not as well as the rest of the country and falling into default at higher rates,’ he said.”‘

“At one foreclosure for every 335 homes, the Rockford metropolitan area has the seventh-highest foreclosure rate in the nation. Illinois had the fourth-highest percentage of foreclosed homes in the nation, behind New Jersey, Delaware and Maryland.”

“Bob Nieman, a veteran Rockford real estate agent, said his area’s lagging economy and high property taxes are the biggest reasons for so many bank-owned homes. ‘Add high taxes with high crime and you’ve got an exodus from the state of Illinois and the Rockford area,’ he said, adding that banks are extraordinarily hesitant to list homes that they’re sitting on.”




April 15, 2018

Wiping Away The Near Frenzied Competition

A report from the Vancouver Courier in Canada. “As housing sales dropped to the lowest level in five years, Metro Vancouver new home starts have soared in the first quarter of the year, with starts in Vancouver alone more than twice as high as during the same period in 2017. There were 6,542 home sales on the Multiple Listing Service in Metro Vancouver during the first quarter of 2018, which is a 13.1 per cent decrease from the same period last year. This represents the region’s lowest first-quarter sales total since 2013, reports the Real Estate Board of Greater Vancouver.”

“But total housing starts across the region increased to 6,864 units in the first three months of 2018, up 30 per cent from a year earlier. In Vancouver, first quarter starts soared 109 per cent to 1,956 homes, including 1,592 apartments or townhouses. Vancouver detached house starts jumped 93 per cent to 364 homes, reports Canada Mortgage and Housing Corp. Huge increases were also seen in North Vancouver, where 1,422 homes broke ground so far this year, compared with 107 in the same period in 2017. Starts were also higher in the Tri-Cities and Richmond. West Vancouver had 120 multi-family starts this year compared with none in the first quarter of 2017.”

From Madhunt in Canada. “Oxnard Developments, which is building 59 semis and townhomes, is seeking up to a year delay in paying the hard services component of development charges, of which in this situation equates to approximately $1 million, due in May, for phase two. Negar Javaherian, Project Coordinator with Oxnard, is expected to tell councillors tonight in her deputation that provincial government changes to the real estate market have created a drag on their new home sales.”

“‘Higher borrowing cost and federal and provincial government decisions have affected the demand side of the market and has caused the GTA housing market to slow down. We suppose no one is immune to this slowdown happening in the GTA home market,’ according to Ms. Javaherian’s letter to council seeking a deputation. ‘It has affected us negatively to the extent that we have sold only a few houses since last October.’”

From the Toronto Star in Canada. “Your letters: Little sympathy for home buyers caught in downturn: Mike Faye, Toronto. ‘Although basing their new-home purchase on artificially inflated house prices was very risky, it seems Mattamy Homes could provide some assistance/relief to these buyers. The most telling part of this story is that the average price for a new detached home has dropped $280,000 or 18 per cent. This means developers were pocketing enormous profits at the expense of home buyers, since they are still making acceptable profits at the new average price.’”

“No wonder house sales have dropped so much over the past 10 years. Who can afford a detached house at $1.22 million, when the median household income in the GTHA is $80,000, which can only support a mortgage of about $350,000 at 5 per cent over 25 years, without spending more than 30 per cent of their income. We need the industry to build housing people can afford.”

“Victor Doyle, Toronto. ‘I am not a fan of builders but, in this instance, Mattamy has done nothing wrong. It is unfortunate for the buyers that they’re not getting approved for conventional mortgages but, at $1.6 million, these are not folks who are financially struggling. These are folks who timed the market incorrectly and not getting what they want versus what they need.’

‘Is the Star actually supporting government intervention to help folks who can’t afford $1.6 million but could likely afford $1 million? With all the other social issues we have in this province, supporting families who are obviously not starving and struggling should be way down the list. The fact these folks bought before having the cash in hand is representative of their market sentiment and, to a small extent, greed.’”

From the Goldstream News Gazette in Canada. “The City of Colwood has thrown its support behind the province’s speculation tax as a way to help cool off housing prices in Greater Victoria. During a meeting earlier this week, council voted not to send a letter as requested by the Victoria Real Estate Board, asking the province to take a sober second look at the unintended consequences the tax could have before it’s implemented later this year.”

“Coun. Jason Nault saw first-hand the effects of people purchasing properties as investments only to have them sit vacant. While waiting for his current house to be built, he rented a house in Colwood and said almost half of the other homes on the street were unoccupied for a majority of the year. He hopes that will change once the tax is implemented.”

“‘There were no people living there and they were not people who contributed much to Colwood,’ he said. ‘I understand this might drive down in the short term prices of existing homes. They’re ridiculously priced as it stands.’”

From the Daily Mail on Australia. “Inner-city house prices in Sydney plunged by 10 per cent last year for the first time in more than a decade. The decrease in March represented the biggest fall in 13 years according to CoreLogic. Real estate agents have been left frustrated by the price falls laying the blame on banks for refusing to give out loans to would-be buyers. House prices fell in the city and inner south region by 10.1 per cent and inner west by 9.2 per cent which covers the suburbs of Redfern, Surry Hills and Newtown. The area with the biggest falls came in Baulkham Hills and Hawkesbury where houses dropped by 2.9 per cent and apartments plummeted by 12.2 per cent.”

“A two-bedroom cottage in Newtown sold for $1.3 million in March which would have fetched $100,000 more a year ago, one agent told realestate.com.au. Another property in Redfern, which agents believed could have fetched $1.7m in 2017, is now on the market for $1.2m. Ercan Ersan, of agents Ray White, said: ‘Talking with all the top mortgage brokers, they say the banks are taking up to five weeks to approve a loan rather than two weeks. They’re focusing more and more on buyers capacity to pay back the loan.’”

“Analysts believe the market will get harder if there is more scrutiny by lenders about whether to approve loans - following a royal commission investigating banking practices.”

From Domain News in Australia. “Not a single region in Sydney has been immune to the effects of recent tightened lending restrictions and a record increase in housing supply. Some homeowners who last year could have sold anything with a roof over it, are now struggling to sell homes even in highly sought-after locations around the city. Since February this year, auction clearance rates in Sydney have fluctuated between about 51 to 63 per cent, but some sellers in pockets of Sydney have felt the effects more acutely.”

“‘You see a huge drop-off generally because of the tightening in lending standards that APRA put through. You’ve got a lot of apartments, so supply has gone up. That has led to less confidence from buyers,” AMP economist Shane Oliver said.”

“One of the biggest changes seen in a single suburb was Hornsby. In the first three months of 2017, 86.4 per cent of properties were selling at auction. At the beginning of this year, just 14 homes went to auction, of which only a quarter sold. Real estate agent at LJ Hooker in Hornsby Nick Addison said a huge number of off-the-plan units ‘flooding the market’ were partly to blame for the lack of homes selling at auction, because they had created an oversupply of housing in the area.”

From News.com.au in Australia. “Sydney’s once frustrated home buyers have moved into a commanding position in real estate sales following the city’s flip from an extreme seller’s market to a buyer’s one. Data provided exclusively to the Daily Telegraph revealed city housing demand has dropped 25.4 per cent from a year ago, wiping away the near frenzied competition buyers were previously facing for listed properties.”

“The softer demand — mostly the result of investors and China-based buyers dropping out of sales — followed a 23 per cent bump in the supply of available housing over the same period. Home seekers have capitalised on the increased choice of homes and fewer rival buyers by negotiating prices down. Realestate.com.au’s Property Outlook report showed Sydney’s median house price dropped 4.6 per cent over the past year, while a typical unit is 1.4 per cent cheaper.’They are not competing at auctions with as many investors as they once were and the urgency to buy has gone a bit,’ the online property portal’s chief economist Nerida Conisbee said.”

“Ms Conisbee added that prices would likely continue to fall for a few more months but the strong NSW economy would prevent a major market collapse. ‘First home buyers shouldn’t wait thinking prices will keep going down and they will soon be able to afford to buy in somewhere like Rose Bay. That’s not going to happen,’ Ms Conisbee said.”

From Mirage News in Australia. “RiskWise Property Research CEO Doron Peleg says the research house has received a number of enquiries about Central Queensland as an investment alternative to the major East Coast hubs of Sydney and Melbourne. ‘Central Queensland is attracting a new wave of attention because many investors believe this property market has hit rock bottom and that the only way is up,’ Mr Peleg said.”

“However, he said the economy of Central Queensland had been in decline ‘at an alarming rate’ since the end of the mining boom. ‘This is followed by negative capital growth of, on average, (-17.5%) for houses and (-18.7%) for units in the past five years,’ he said. ‘Some areas, such as Gladstone – Biloela experienced even more severe price reductions, with (-28.7%) negative growth for houses and (-39.9%) for units in the past five years, including -7.3% and -10.4% in the past 12 months, for houses and units, respectively. So, it’s no surprise many believe strong capital growth will follow.’”

“However, Mr Peleg said while its economy had shown some slight improvement recently, Central Queensland was projected to deliver low economic growth, a soft job market and low population growth. ‘This means both houses and units in the region still carry high risk and research in our report, published last month (February), backs that up,’ he said. Moreover, he said the unemployment rate in the region was ‘very volatile,’ with frequent significant changes in recent years.”

“‘The risk is even higher for off-the-plan properties that are currently in the pipeline. The 559 house building approvals and 639 unit approvals are of the greatest concern as these new properties will be added to the already current oversupply,’ he said.”




April 14, 2018

The Great Adventures In Central Banking Bubble

A weekend topic starting with some comments from the past week. “Of course, this effort to broadly reflate house prices is no big secret (mostly - the Federal Reserve transcripts below from 2009 were released in 2015). And when all the central banks are playing from the same playbook, one sees a certain amount of synchronicity.”

“Ben Bernanke Has an Impressive Passive-Aggressive Streak, and Other Things We Learned in the New Fed Transcripts - MARCH 4, 2015 - New York Times.”

“As the Fed weighed strategies for arresting the economic tailspin in March 2009, including the collapsing housing market, Elizabeth Duke, a member of the board of governors, offered a colorful way of thinking of their task.”

“‘I’d like to start with the story of an elderly wealthy gentleman who had taken a young bride and begun to spend money like crazy,’ Ms. Duke said. ‘His friends got very concerned that he was going to go through his entire fortune, and they elected one of their number to go and talk to him about it. He said: ‘Sam, we’re really concerned. We want to make sure that you know that you can’t buy love.’ Sam said: ‘I know you can’t buy love, but if you spend enough money, you can buy something that looks so close you can hardly tell the difference.’”

“What does this have to do with housing? She continued: ‘So I think if we spent enough money, got enough of a hit right now, it would look like a floor on house prices, and we might have something every bit as good as a floor on house prices.’”

One added this, “Look no further than actions taken by the Fed after releasing their White Paper on Housing in early 2012 for the explanation of how housing so quickly became similarly overvalued to where it was in the runup to the 2007-2009 financial collapse.”

“Fed’s push on housing crosses a line, critics say. February 21, 2012.”

“Senior Federal Reserve officials are injecting themselves into a noisy debate over how to solve the housing crisis, drawing criticism from some lawmakers who say the Fed has no business straying from its traditional role as the U.S. central bank. Amid complaints that the Fed has encroached on Congress’s territory, Chairman Ben S. Bernanke has tried to allay concerns on Capitol Hill over the past few weeks, in the latest flap in a broader debate about the Fed’s proper role in the economy.”

“The latest commotion follows the Fed’s release last month of a report analyzing housing policy, which central bank officials say is closely related to their efforts to reinvigorate the economy. The report suggested that additional federal efforts to help homeowners could be worthwhile, even at taxpayer expense. Democrats have seized on the ‘white paper’ as ammunition in arguing for billions of dollars in new federal relief for beleaguered borrowers. Some Republicans have accused the Fed, which generally avoids addressing policy questions before Congress, of potentially compromising the central bank’s independence.”

“‘It appears the Fed may have overstepped their bounds in recommending fiscal policy actions,’ said Michael Feroli, chief U.S. economist at J.P. Morgan Chase. ‘It does get a little bit into dangerous territory.’”

“After Rep. Scott Garrett (R-N.J.) complained this month that the Fed had crossed a line, Bernanke said publicly that he was sorry if the lawmaker thought that the white paper intruded on a congressional debate. And after Sen. Orrin G. Hatch (R-Utah) released a letter he sent to the Fed, warning it ‘to refrain from providing any hint of activism,’ Bernanke called him to explain the central bank’s actions.”

“Some Fed officials, in particular New York Fed chief William Dudley, have advocated a variety of new efforts to aid homeowners. Many of the white paper’s ideas to help the housing market echo Obama administration proposals, such as helping homeowners refinance into more affordable mortgages and selling foreclosed buildings for use as rental properties.”

From the Mankato Free Press. “Hang onto your hats. That’s the message from Hans Olsen, the global head of investment strategy for investment banking firm Stifel. One thing Olsen says sets this time apart from all other past cycles, is that it has and will be driven largely by what the Federal Reserve Central Bank did during and after the Great Recession. ‘You’re living through a historic time. This is an extraordinary experiment in banking that’s never been seen.’”

“Patrick Baker, of Greater Mankato Growth, said Olsen’s comments reinforced things he hears from local businesses. ‘Especially the inflation piece and the interest rate piece. We’ve had a long run of low interest rates and particularly in the housing sector that’s really helped some of our market rate housing come on line. What I hear from local developers is that a 1 percent rise in the interest rate can affect the ability of a project to go or not,’ Baker said.”

“Noting the previous ‘tech bubble’ and ‘housing bubble’ that led to big ups and then downs, Olsen said the current cycle might be called the ‘great adventures in central banking’ bubble. How it all turns out in a few years will depend on a variety of things.”

From Max Rangeley, manager of The Cobden Centre. “This week, the first Annual Summit on Economic Freedom will take place in the European parliament. I will have the pleasure of debating with the director of IMF Europe, Jeff Franks, on the topic of ‘Central Banks: The Solution or the Problem?’ From 2008 onwards, central banks have generally been regarded as the heroes that saved the day from the volatile and dangerous free market, but an interesting counter-narrative has developed: monetary policy has increased inequality, distorted markets, and – perhaps most importantly – created an even larger global debt bubble than that of 2008.”

“Bureaucratic price setting has a staggeringly high failure rate. We are not surprised when Venezuela has food shortages resulting from the government setting prices – we should also not be surprised when central banks setting interest rates lower than they would be in a free market results in a $230 trillion global debt bubble.”

“When the bubble bursts, it will be important that people understand that the crash is not some act of God, random event, ‘animal spirits,’ or innate feature of financial markets, but rather a consequence of having interest rates set by central banks which has created a global debt super-bubble. The only way to prevent this is to have interest rates set by the market rather than central bankers.”

From Tobias Peter, a senior research analyst at the American Enterprise Institute’s Center on Housing Markets and Finance. “Just 11 years after the last housing bubble burst, the United States is in the midst of yet another boom — both caused by errant federal housing policy and inflated by regulatory malpractice.”

“For decades, Congress has mandated any number of credit-easing policies because they appear to make buying a home more affordable at seemingly no cost. But, as the last housing bust proved, there is no free lunch. These mandates result in unsustainable price increases and price volatility by increasing demand when supply is constrained. This same process is being repeated today. But the cost is anything but free as these mandates make housing less affordable and promote instability.”

“Regulators enforce these mandates by requiring agencies like the government-sponsored enterprises Fannie Mae and Freddie Mac to loosen credit standards in order to garner more business with higher risk borrowers. Credit easing was quickly capitalized into higher — not more affordable — home prices. The added buying power merely allowed lower-income buyers to inflate the price boom, at the expense of a greater debt burden and higher risk. Since the marginal buyer determines not only price levels, but also the degree of volatility in the market, the result was financial instability.”

“In the current boom, regulators are repeating these same mistakes. Take, for example, the Consumer Financial Protection Bureau’s ability-to-repay rule, which emerged in response to the financial crisis. This rule established the ‘qualified mortgage,’ a type of loan created to ensure that potential buyers can afford their mortgage. Even though a QM cannot have risky features such as balloon payments or an interest-only period and caps the debt-to-income ratio at 43%, it has crucial flaws.”

“There are no minimums placed on credit scores, no maximums placed on loan-to-value ratios and no limits on risk layering, which is when low credit scores are combined with high LTVs, a 30-year amortization term and high DTIs. QM is all but safe. During the last financial crisis, there were widespread defaults among loans that would meet the qualified-mortgage standard today.”

“To make matters worse, the consumer bureau has allowed Fannie and Freddie and the FHA to exceed the qualified-mortgage debt-to-income limit to further expand the pool of eligible borrowers. While this decision was applauded by industry lobbying groups for the housing industry, it made QM loans even riskier.”

“The GSEs are also being forced by the Federal Housing Finance Agency to compete with the Federal Housing Administration for high-risk borrowers. In December 2014, the GSEs, at the behest of the housing finance agency, started to originate loans with as little as 3% down — something the FHFA had told them to stop doing under previous leadership. More recently, the housing finance agency pushed the enterprises to increase their DTI limit to 50%, further away from the original QM standard.”

“An even earlier jolt to lending came from monetary policy. In late 2012, the Federal Reserve announced its third round of quantitative easing and started to purchase $85 billion per month in long-term U.S. Treasury securities and agency mortgage-backed securities. A key aim of this program was to jump-start the housing sector through lower mortgage rates. Unfortunately, that’s just around the time the housing market flipped from being a buyer’s market to a seller’s market. The housing market remains a seller’s market today.”

“As a consequence of market conditions and credit easing, home prices started to rise rapidly. Since their trough in 2012, home prices have risen at an annual average rate of 5.5%, far more rapidly than incomes or inflation. At the lower end of the market, where leverage has been expanded the most, prices have recently risen at twice that rate.”

“But as the earlier boom has shown, everything that goes up must come down. The further prices deviate from market fundamentals, the more painful the eventual price correction will be for homeowners. Regulators have again endangered the long-term health of the entire housing market.”

From the Idaho Statesman. “The latest Treasure Valley home-sales report offers fabulous news for home sellers and more discouraging news for buyers, especially people who had hoped to buy but now cannot afford to. A month after home prices set records in Ada and Canyon counties, they did it again in March. The median price of the 848 single-family homes sold in Ada County was $308,950, up $11,450, or 4.2 percent, from the month before, according to the Intermountain MLS. In Canyon County, the median was $211,945, an increase of $15,955, or 8.1 percent.”

“In the past year, prices have climbed nearly 24 percent in Ada County and 21 percent in Canyon. As usual, new homes cost more than used. The Ada County median price was $345,870. That was actually a decrease from February’s, $362,587. Canyon’s new-house median is $244,900, up $21,925, or 9.8 percent.”

“Used homes were traditionally more plentiful than new, but not now. The number of used Ada County homes on the market in the first quarter was one-third lower than in 2017, said Breanna Vanstrom, CEO of Boise Regional Realtors. ‘What we’re seeing is very low inventory driving up the prices,’ Vanstrom said. ‘We’re truly in a supply-and-demand situation.’”

From the Herald Tribune. “The Sarasota-Manatee area recorded 467 foreclosure filings during the January-March period, with one in every 880 homes in some form of distress, according to ATTOM Data Solutions. ‘Less than half of all active foreclosures are now tied to loans originated during the last housing bubble, one of several data milestones in this report showing that the U.S. housing market has mostly cleared out the backlog of bad loans that triggered the housing and financial crisis nearly a decade ago,’ said Daren Blomquist, senior vice president at ATTOM.”

“‘Meanwhile, we are beginning to see early signs that some post-recession loan vintages are defaulting at a slightly elevated rate, a sign that some loosening of lending standards has occurred in recent years. Consequently, foreclosure starts are trending higher compared to a year ago in an increasing number of local markets — some of which are a bit surprising given the overall strength of housing in those markets,’ he said.”

“Sarasota-Manatee ranked 126th out of the 219 largest U.S. metro markets for foreclosure activity in the first quarter. Florida’s finished 11th with a foreclosure filing on one in every 599 homes. The average time to close a foreclosure in Florida was third longest at 1,247 days, according to the ATTOM report.”

From DNS News. “Mobile homes aren’t a sector of the housing market we often examine here at DS News, but a recent study tracking delinquencies among mobile-home loans could signal the build-up of troubling trends. Are increasing mobile home delinquencies the ‘canary in the coal mine’ that foreshadows larger problems impending for the housing market and for the broader economy?”

“According to research cited by UBS, a global financial services firm, mobile-home loan delinquencies are up 2 percent year-over-year. Moreover, the 30-day-plus delinquency rate has reached nearly 5 percent, which puts it at the highest level since 2005. Mobile-home 30-day-plus delinquencies, however, began an upward climb around Q3 2016.”

“It remains to be seen whether the increase in mobile-home loan delinquencies will translate to increased delinquencies on other types of home loans, especially among lower- and middle-income families. In their statement, UBS says, ‘We believe weakness in these two groups will drive higher credit losses at some stage over the next few years—particularly in credit card, installment, and student loans—with macroeconomic inflection from job growth to job loss as a likely catalyst.’”




April 13, 2018

A Scarcity Of Buyers Amid A Mountain Of Unsold Homes

It’s Friday desk clearing time for this blogger. “In Houston’s housing market, the Harvey effect is wearing off. Home sales fell in March for the first time since last year’s hurricane, a new report shows. Bernie Otten, whose house took on about four inches of water during Harvey, thought about selling and leaving the neighborhood but decided to make repairs and hope for the best. ‘My wife and I have talked about moving, but we’re going to wait to see what happens to the home values over time,’ Otten said. ‘We’re a long way from break-even.’”

“Housing analysts have predicted a surge of foreclosures later this year as forbearance programs end and homeowners face mortgage bills they can’t pay. ‘I suspect this summer we’re going to see a pretty good tick up in foreclosures,’ said Jim Gaines, an economist with the Texas A&M real estate center.”

“Among the slowest moving luxury markets in the U.S. was the very expensive Santa Barbara, California, which got hit by catastrophic wildfires over the past year. It’s now taking homes there about nine months to sell and average listing prices have dropped about 10%. The slowest market is Edwards, Colorado, where multimillion-dollar ski retreats are taking over a year to move.”

“The median price of a single-family home in Maui County in March fell 10.1 percent compared with March 2017 to $680,000. Single-family home median prices skidded from $756,000, a record high in March 2017, to $680,000 last month. The 10.1 percent drop is the most since June 2014 when the median home sales price fell 11.5 percent to $530,000 from $599,000 in June 2013. The supply of new listings for single-family homes in March plummeted 33.3 percent to 120, compared with the same month last year.”

“The largest percentage price drop came in Hana where prices fell 65.5 percent to $760,000 (from $2.2 million). There were seven home sales in Hana in the first quarter, an increase in sales volume of 250 percent. The second largest decline in home prices was in Maui Meadows where median sales fell 35.4 percent to $937,500 with six sales, a 50 percent increase in volume.”

“The Colorado Springs housing market is reaching record high prices for homes. In spite of that, plenty of people are still buying. ‘Understand that whatever decision you make is probably a 10-year decision,’ said Associate Broker Rob Thompson. ‘Encouraging people to exercise caution…and look at the long horizon, that’s something I failed to do when I bought my first house.’ Thompson purchased a home in Las Vegas about 10 years ago when the housing crisis hit. ‘I ended up short selling it for 67 percent loss…it significantly put me into some debt that I had to work off.’”

“So if you are trying to buy a home Thompson says there are a few questions you need to ask yourself. ‘Is it reasonable for me to expect the 7-10 percent appreciation that I need to sell this home in the future in the time I intend to hold it…if not, then you’ve got to ask yourself am I willing to be a landlord because this will be future rental for you possibly,’ he said. Thompson’s reasoning behind all of this is that you can’t bank on continued appreciation in the market. With the tight market some people are concerned that Colorado Springs could be headed for a bubble.”

“Canada’s real estate industry organization says the number of homes sold in March plunged 22.7% and the national average price was down 10.4% from the same month last year. CREA says activity was below year-ago levels in more than 80% of all local markets, in all major urban centres except for Montreal and Ottawa, with the vast majority of year-over-year declines well into double digits. Out of the 63 real estate markets measured, Royal LePage found ‘declines were most prevalent in the Greater Toronto Area, and to a lesser degree in the Greater Vancouver detached home segment.’”

“Reykjavík is third on the list of cities where housing prices have increased the most within the last year, namely by 16.6%, The Guardian reports. Ólafur Heiðar Helgason, an economist from the Housing Financing Fund in Iceland says that the recent surge in real estate prices is far from being as worrisome as it was, for instance, right before the 2008 crash, he also admits that the process has not been followed by a parallel increment in wages. ‘We have to begin wondering whether we’ve actually reached the tolerance limits, when it comes to price growth,’ Ólafur adds.”

“Dubai: A 14,331 square feet Bulgari Resorts and Residences apartment in Dubai sold for Dh60 million was easily the priciest deal in Dubai’s freehold market during Q1-18. What is interesting is that within the luxury end, sales are happening both direct from developer as well as from investor-owners who want to make an exit. ‘There is still more demand in high-end residential projects direct from developers,’ said Brigitte Tenbergen, Associate Director of Luxhabitat. ‘Secondary market properties are moving as well… but with major price reductions.’”

“‘What I perceive as a general sentiment is that buyers are overwhelmed with the amount of projects in the market and in no rush,’ said Tenbergen. ‘They take their own sweet time and are demanding discounts/waivers as they are well aware that there will be an oversupply of properties in the market.’”

“The world is binging on skyscrapers. About 230 towers worldwide, each at least 200 meters tall, are slated for completion this year. This marks a 60% increase from 2017, with China accounting for 60% of the total and Southeast Asia and the Middle East are also big builders. But the rapid pace has caused concerns about underlying risks, with some experts forecasting a slowdown in or after next year, depending on China’s property market bubble. ‘In certain cities, a housing glut is already pushing down rents,’ said Akihiro Yasuda of Sumitomo Mitsui Trust Research Institute.”

“Federal government policies may finally have tapped the brakes on the housing market, but in doing so they might have also put the luxury car market into a spin. Double-digit gains in luxury car sales turned south just before the softening of real estate prices in Sydney and Melbourne, and they look set to continue as homeowners in the top end of the market don’t feel so flush anymore, according to Commsec analysis. Commsec senior economist Ryan Felsman called luxury car sales ‘a leading indicator’ of consumer spending as fewer luxury cars mean there’s less money being thrown around.”

“Mr Felsman said because house price falls in Sydney were being keenly felt at the top end of the market, this was feeding the falls. ‘What we’re seeing is a bit of a downdraft in confidence, people are being more cautious in their spending,’ Mr Felsman said.”

“Gini Suri, a resident of New Delhi, recently sold off her second home on the outskirts of the capital at a price much below what she paid seven years ago. The 36-year-old pottery artist and her husband paid Rs55 lakh to buy the two-bedroom apartment at Omaxe Green Valley. They sold the property for Rs49 lakh. Despite its strategic location providing access to south Delhi, Gurugram and Noida, she said rentals started to decline drastically in a span of two years, particularly from 2015.”

“‘We weren’t getting much returns out of the property and the rates kept falling. We were getting buyers for Rs63-65 lakh. We thought we would wait for a while… but the opposite happened. Instead of going up, prices crashed further,’ she said.”

“Another individual seller from Kolkata is struggling to sell his two bedroom-hall-kitchen flat at Tata Amantra, a project in Mumbai’s Kalyan-Bhiwandi area. The person, requesting not to be named, said he had bought the property for Rs65 lakh in 2013, but is now willing to take a hit of about 10% on the capital invested and sell it for Rs60 lakh; but getting a buyer isn’t easy. ‘The capital value has shrunk. At the end of four years, you realise that you have lost capital in the entire process. Everybody expected the market to pick up, which never happened,’ he said.”

“Flat or falling prices and a scarcity of buyers amid a mountain of unsold homes are forcing real estate investors to sell much below current market prices or the original purchase price, or wait indefinitely with no immediate price appreciation in sight. This is true of not only investor-driven markets like Delhi-National Capital Region (NCR), but also Mumbai and Bengaluru, as individual sellers look to exit residential investments at either a loss or with returns far below their expectations.”

“‘Investors who only buy on an assumption of increase in price are practically out, and the end-user is sitting on almost 20-30% below what is generally the current prevailing price,’ said Vipul Roongta, CEO, HDFC Capital Advisors.”

“Akash Bansal, national head- consulting at property advisory Liases Foras said that with prices not having appreciated, the return on investment has either been negative or low. ‘There are more buyers than sellers and most are desperate sellers who want money even if they are incurring certain losses,’ he said.”




April 12, 2018

The Real Estate Equivalent Of Car Crash Scenes

A report from Bloomberg on Canada. “Toronto’s housing market has seen a stunning slowdown in the past year. Now one brokerage has cataloged the damage for 988 homeowners who got caught in the eye of the hurricane. In the space of four months last year, the homeowners lost a collective $135 million as the median house price slid 18 per cent, a faster decline than any major market during the U.S. market crash, according to Realosophy Reality Inc.”

“The story goes like this: The median house price surged 30 per cent from January to peak at $765,000 in March, largely driven by investors who were pouring money into the market for quick returns, Realosophy said in a report. To tame the beast, the government instituted a series of regulations, including a foreign buyers tax, starting in April. Some 866 homeowners had clinched a sale but were not able to close, eventually selling to another buyer later in the year for $140,200 less on average.”

“Some buyers had to walk away as they weren’t able to sell their own homes or the banks appraised the house for less than what they agreed to. Another 122 sellers sold their houses for an average $107,325 lower than what they bought it for earlier. By the time the dust had settled in July, the median price had dropped to $626,000 from $765,000 in March.”

“‘The rapid rise in investor demand coupled with their rising negative cash flow suggests that a speculative mood hit Toronto, reflected in investors who appeared to believe they could make easy money by buying what they perceived to be a safe and secure asset, single family homes,’ Realosophy President John Pasalis said in the report. ‘When the market unwinded, the areas with the biggest decline had the highest percentage of investors.’”

From Macleans. “There are many culprits behind last year’s unsustainable rise in Toronto house prices, with experts blaming everything from foreign buyers to lack of supply. But a new report singles out another major factor: speculative investment. Toronto brokerage Realosophy Realty Inc. found 16.5 per cent of low-rise houses in the Greater Toronto Area were purchased by investors during the first quarter of 2017, the peak of the bubble.”

“In York Region, an area north of the city of Toronto, investors accounted for more than 20 per cent of sales. House prices in York surged the most during the run-up to the bubble, and have fallen the furthest in the aftermath. ‘This was largely a speculator driven bubble,’ says Realosophy president John Pasalis.”

“Pasalis noticed a shift in buyer behaviour in 2016, when nearly half of the visitors to his brokerage were interested in purchasing investment properties. With home prices rising fast, however, rental income typically wasn’t enough to cover mortgage payments and other expenses. Most interested buyers didn’t care about losing money each month, according to Pasalis, since they were betting that home prices would keep rising. ‘That’s just not normal,’ he says. ‘They’re just overly optimistic about how much money they’re going to make.’”

“During the period Realosophy analyzed, the average GTA investment property was short $1,650 each month. In Richmond Hill, a town north of the city, investors were out-of-pocket $2,488 monthly. A similar mentality is still at play in Toronto’s condo market. A recent report from CIBC and Urbanation found that 44 per cent of investors who took possession of newly constructed condos last year are losing money each month.”

“The Ontario government helped to burst the speculative mindset in the GTA in April 2017 when it implemented a 15 per cent foreign buyer tax. Median home prices fell 18 per cent over the next four months. Realosophy found 866 transactions failed to close during the first quarter of 2017. Those properties were eventually sold later in the year for $140,200 less on average than the price received earlier in the year. Another 122 properties were bought and sold in the same year for a loss. It’s unclear why these homes were re-listed so quickly. ‘The only thing I can think of is panic selling,’ Pasalis says.”

“A recent Superior Court of Ontario decision lays bare everything that can go wrong when buying at the top of the market. In March 2017, a couple listed their home in Stouffville, just north of Toronto, for $2 million. A bidding war ensued, and one pair of interested buyers boosted their initial offer by $200,000 to $2.25 million. The sellers accepted, but the deal quickly unravelled when the would-be buyers felt they had a mistake and overpaid. (The appraisal also came in short, and they couldn’t obtain the financing to close.)”

“The sellers re-listed the property, which sat on the market for months without receiving a single offer. The home eventually sold for $1.77-million in October. The sellers also filed a lawsuit against the pair who walked away from the deal earlier in the year. A judge ruled in favour of the sellers, and ordered the defendants to pay the difference between the closing price and their initial offer back in March. That amounts to $480,000, plus special damages. It’s a grim reminder that while the bubble may have burst, some households are still dealing with the consequences.”

From the Globe and Mail. “There is a more bearish way to examine the market, often with anecdotes shared on Toronto real estate Twitter accounts focused on examples of financially-crushing real estate losses. The twitter account ExtraGuac4Me, for example, run by investor and lawyer Joey Evans, is fond of tweeting the real estate equivalent of car crash scenes that show recent transactions that resulted in multi-hundred-thousand-dollar losses in a single year. ”

“He shared a recent example of a court case featuring a buyer who walked away from an April, 2017, agreement to purchase a house for $2.25-million. The home was resold for $1.78-million, and the original buyer was sued and ordered to pay the difference to the seller: $470,000. ‘I’m pointing out examples of what’s actually happening; these are real examples, these are real people, real families – huge amounts of money on the line,’ says Mr. Evans, who lived in the United States during the sub-prime mortgage crisis of the mid-2000s and finds eerie parallels between those days and now.”

“In his Realosophy blog, Mr. Pasalis recently shared some data that suggests those areas that saw the highest amount of investor-buying activity between 2012 and 2016 also saw the fastest price corrections in 2017-2018. In markets like Newmarket where more than 30 per cent of buyers were investors, house prices are now down 25 per cent from the same time last year, Richmond Hill’s declines were steeper at 27 per cent and Markham prices slid 22 per cent.”

“Mr. Pasalis’s take is that a declining market simply exposed some of the risk that was always there. ‘A lot of people were making bad decisions and they were able to get away with it for a long time.’”

From the Toronto Star. “The financial impact varied dramatically within the Toronto area, says Pasalis. Sellers who had to re-list took an average of 12 per cent less on the second sale of their homes. But in Newmarket, sellers took 21 per cent less — $238,866 less on average. Brampton prices depreciated by about 7 per cent or $54,502. In Toronto, the second sale was 13 per cent lower on average, about $162,000. Pasalis’s 988 total includes 122 homes that sold for less than the owner had paid within the previous year. Those cases averaged a $107,325 price drop.”

“Another 1,784 homes purchased in 2017 were re-listed and failed to sell again through the first quarter of 2018, says the study, A Sticky End: Lessons Learned from Toronto’s 2017 Real Estate Bubble. ‘We see all these people doing stupid things without really thinking. A lot of these are bad real estate decisions,’ he says. A market psychology gripped the region in 2016, says the report. ‘In a market where house prices are rising 20 per cent or more, investors believe that the $700,000 property they’re buying today is going to be worth at least $840,000 a year from now,’ writes Pasalis.”