May 3, 2016

When Asset Pricing Is Driven By Central Bank Policy

A report from Bloomberg on Denmark. “In Denmark, where rates have been below zero longer than anywhere else on the planet, the private sector is saving more than it did when rates were positive (before 2012). As the Danes head even further down their negative-rate tunnel, the experiences of the Scandinavian economy may provide a glimpse of what lies ahead for other countries choosing the lesser known side of zero. Carsten Stendevad, the chief executive officer of Danish pension fund ATP, with about $115 billion in assets, says the policy is also proving problematic for markets.”

“‘I’m very concerned about what these low, negative rates mean,’ Stendevad said. ‘I’m concerned about what they mean for asset pricing. Clearly, they are driving asset prices. That’s the intention, but it’s always a cause for concern when asset pricing is driven more by central bank policy than cash flow generation.’”

The National on Dubai. “Average house prices in Dubai are likely to fall by another 10 per cent this year with no sign of improvement on the immediate horizon, according to the ratings agency Standard & Poor’s. In a note S&P said that after falling between 10 and 13 per cent last year, it expected similar falls this year with few signs of optimism for the year after. Cluttons reported that sales prices fell by 2.2 per cent in the first quarter of the year and uncertainty over oil prices, which has a knock-on effect on banks’ liquidity, meant a recovery in the short term was unlikely.”

Reuters on Hong Kong. “Hong Kong’s home prices posted their sixth consecutive month of decline in March, government data showed, with housing supply expected to hit a record high over the next few years. Home prices fell 3.5 points from February and 21.3 points from a year earlier, according to a government index published by the Rating and Valuation Department. Data from Hong Kong’s Transport and Housing Bureau showed the city’s private housing supply was on track to hit a record high of 92,000 units in the coming three to four years.”

“A large number of units remained unsold as of the end of March. There were 1,000 completed but unsold units from developments completed prior to 2014, another 1,000 from projects completed in 2014 and 3,000 from projects completed last year, the data showed. In the first three months of the year, another 1,000 units had accumulated. Of the units under construction, 86 percent had yet to be sold, the data showed.”

ABC News in Australia. “Westpac Bank and its subsidiaries are no longer lending money to foreigners wanting to buy residential property. It is the third major bank to clamp down on lending to non-residents, home buyers with foreign self-employed income and those who hold temporary visas in Australia. The changes that ANZ and Westpac in particular have brought in are likely to hurt developers, such as Meriton, who have been targeting Chinese buyers. Large numbers of Meriton’s Chinese buyers fund their purchases locally, with Westpac one of the largest lenders in the space, and could affect their ability to settle off-the-plan contracts that have exploded in the past couple of years.”

“As well as putting developers at risk, the changes could pressure home prices. The Reserve Bank earlier this year noted that property prices could decline and bank losses could rise if Chinese demand were to decline significantly, and the changes in bank lending rules could be the beginning of a downturn. ‘At Westpac, helping Australians to achieve their goal of owning a home or investment property is core to our purpose,’ an email to mortgage brokers said. ‘For these reasons, Westpac will no longer lend to offshore customers who are not citizens or residents of Australia with an eligible visa.’”

Sourceable on Canada. “Chinese investors are getting hungrier for real estate in Canada, where foreign demand has fuelled record price gains and made million-dollar homes the norm in cities such as Vancouver. Inquiries for Canadian homes for Chinese buyers jumped 134 per cent in the first quarter from a year earlier. The increased interest indicates that Chinese investors may be seeking to move money abroad amid instability in the country’s economy and stock market, even as the government clamps down on capital flight.”

“In Vancouver – where the average home price has jumped almost 40 per cent in five years – Chinese demand is concentrated in the luxury market, according to Malcolm Hasman, a high-end real estate agent in the city. Chinese buyers this year have purchased about three-quarters of the properties for sale in West Vancouver, where the average price of a detached home is $3.1-million. ‘This year is busier than last year,’ said the agent, who said it’s common for him to see multiple bids on homes as pricey as $10-million. ‘I just don’t see any slowdown in Chinese money driving the Vancouver market.’”

“Chinese investment also has soared in countries such as Australia and the United States. Chinese investors doubled purchases of commercial and residential real estate in Australia to $18.4-billion (U.S.) in the 12 months through June, 2015, from a year earlier, according to that country’s Foreign Investment Review Board. In the United States, they surpassed Canadians as the top foreign buyers of homes, with $28.6-billion of deals in the 12 months through March, 2015, data from the National Association of Realtors show.”

The Express. “Nigeria has begged David Cameron to stop corrupt officials laundering stolen money through Britain’s private schools, property market and department stores. In a stern letter, anti-corruption and human rights groups from the African state called on the Prime Minister to tackle the problem ahead of an international summit. The group accuses corrupt officials of plundering Nigerian assets and undermining their efforts to clean up the country’s finances.”

“The letter said: ‘Now we are embarked on a nationwide anti-corruption campaign. But these efforts are sadly undermined if countries such as your own are welcoming our corrupt to hide their ill-gotten gains in your luxury homes, department stores, car dealerships, private schools and anywhere else that will accept their cash with no questions asked. The role of London’s property market as vessels to conceal stolen wealth has been exposed in court documents, reports, documentaries and more. The problem is clear, now is time to do something about it.’”

“Signed by 95 groups from across Nigeria’s political spectrum, the letter comes two weeks ahead of the International Anti-Corruption Summit takes place in London. The letter brands the UK a ’safe haven for corrupt individuals, who steal our wealth for their own private gain.’”




Real Real Estate and How to Profit

Long time poster, guest writer and friend to this blog, Jack McCabe has launched a new service I wanted to pass along. I do this not for compensation, but for the benefit of those who read here and because of a sincere respect for Mr McCabe’s insight. Best wishes for the new venture.

From the desk of Jack McCabe - McCabe Research & Consulting

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May 2, 2016

An Investment That Isn’t Working

A report from the Dallas Morning News. “Hey, real estate is back! It’s not just San Francisco and its new homes ’starting in the $1,000,000s,’ as the now famous billboard cries out. I’m thinking about this while spending a few days in Sonoma County. California real estate is headed back to prices that can only be described as bubbly. The rising level of house prices also works to increase price levels for all houses and that, in turn, is reopening a dream for others — the home as ATM. Some recent research from Black Knight Financial Services, a mortgage data-crunching firm in Jacksonville, Fla., suggests this. The firm’s February mortgage monitor reports show strong cash-out refinancings across the country. The leader? California.”

“In the fourth quarter of 2015, the report notes, California refinancings accounted for 42 percent of the $7.6 billion of equity ‘extracted.’ The equity-mining home owners in California averaged a $98,000 cash-out. Typical cash-outs elsewhere were about $60,000.”

KOIN on Oregon. “With skyrocketing home prices, high demand and low supply, there’s no denying Portland is experiencing a housing crisis. The Montavilla bungalow Samantha Gladu was interested in sold for $224,000 a year ago. Now, it’s worth over $100,000 more. But she and her husband say it’s worth it. Unfortunately, she wasn’t the only interested buyer who loved the house. ‘We’ve had houses that we put in an offer and there are 24 other offers,’ Gladu said. ‘Things are going for about $30,000 over.’”

The New York Times. “Apartments for billionaires were all the rage in Manhattan three years ago when the developer Joseph Chetrit paid $1.1 billion for the granite-sheathed Sony Building at 550 Madison Avenue. Now, in the latest example of the slowdown at real estate’s highest end, Mr. Chetrit signed a deal this week to sell the tower for $1.4 billion to the Olayan Group, which is controlled by a Saudi family, and Chelsfield, which manages its properties. The companies said the building would become, yes, an office building.”

“Mr. Chetrit and his partner, David Bistricer, were under pressure to pay off short-term loans on the property totaling $925 million. They also had trouble obtaining a construction loan as lenders became wary of projects promising oversize prices and profits. Over the past three years, said Nancy Packes, a consultant for luxury residential projects, the market for billionaire apartment buyers has gone from ‘mush to ice.’”

The Real Deal in Florida. “As South Florida’s residential real estate market starts to downshift, a new report shows cash sales and bulk home purchases are beginning to thin out. Cash deals, in which a buyer closes without using financing, were down to 53.9 percent of all sales in the first quarter, according to RealtyTrac. Though that ratio has only fallen by about 0.9 percentage points from the end of 2015, it’s dropped 6.6 percentage points year-over-year. ‘While large institutional investors and other cash buyers continue to shrink as a share of U.S. home sales, these buyers still typically beat out traditional buyers using financing — in some cases even when they submit a lower offer for a home,’ Daren Blomquist, senior vice president at RealtyTrac, wrote in the report.”

“South Florida is also seemingly being drained of its bulk buyers, defined by RealtyTrac as investors who pick up 10 or more residential properties at a time, whether they be single-family homes or condos. Those types of buyers have never had a large market share in South Florida, even in hot years like 2015 when roughly 4 percent of the first quarter’s home sales were bulk purchases. The first quarter of 2016, however, saw only a bulk purchase market share of 2.5 percent. Market-wide, bulk purchases came with a 19 percent price discount in South Florida during the first quarter, the report showed.”

The Herald News in Massachusetts. “For the second time in a month, a Fall River City Councilor is facing foreclosure proceedings on a rental property. This time, it’s President Shawn Cadime, whose property at 983 Rodman St. was listed in a legal advertisement for foreclosure in The Herald News on April 18 and April 25. The Rodman Street property is one of three investment properties that he owns in the city, he said, and attempting to sell it or have it taken into foreclosure was a ‘business decision.’”

“Cadime said he bought the property in 2005 at the height of the housing market, and then it ‘crashed in 2008.’ There has also been a large reduction in rents that landlords charge compared to the time he purchased the properties, Cadime said, and he said the rental demand in the city is lower. ‘You’ve got to make a decision and not hold onto an investment that isn’t working,’ Cadime said.”

KARE on North Dakota. “In the last two years, Williston has gone from overcrowded boomtown back to quiet hometown. There are clear signs across the region that housing and infrastructure built during the boom is now at risk of sitting unused. ‘Everybody’s trying to figure out what’s it going to take to keep them afloat,’ said Dave Rousher, manager of ND Indoor RV Park, which was built by a Minnesotan near Watford City.”

“At its peak, ND Indoor RV Park was overflowing with a waiting list. But now, Rousher believes they are doing better than most at just 38 percent full. ‘The people who came and built things around here, they’re depressed. They have bills to pay. And a loan to pay. So they’re depressed,’ Rousher said.”




April 30, 2016

The Benefit Of The Doubt Has Been Lost

A weekend topic on the Federal Reserve starting with this MarketWatch interview, “The Fed does what it wants and plays favorites. And as a result it’s lost the trust of the American people. That is the stark view the central bank’s actions in the wake of the financial crisis by Lawrence Jacobs, a public policy expert at the University of Minnesota. In a new book, ‘Fed Power, How Finance Wins,’ Jacobs, and his co-author Desmond King from Oxford University, lay out their case that the Fed managed to overstep the U.S. constitution by taking giving trillions of dollars in loans to financial market participants.”

“These actions should have been reserved for Congress and offended Main Street, he said. ‘Elites’ in Washington and New York went along with the central bank’s actions believing basically the ends justified the means, they argue. In an interview with MarketWatch, Jacobs said reform of the Fed’s 100-year old structure is now inevitable, whoever wins the White House. The following interview has been edited lightly for clarity.”

“MarketWatch: You argue the Fed has lost some of its legitimacy and credibility. That’s a big deal for the Fed. Can you explain what you mean?”

“Jacobs: Everything that I’ve read and studied and analyzed leads me to believe that there is tremendous public doubt and that it has lingered past the initial skepticism about what the Federal Reserve has done [in the crisis.] The issues about the Fed and its credibility are no longer just being questioned by libertarian [Rep.] Ron Paul in the House. It enjoys much wider scrutiny throughout Congress and, among the attentive public. The benefit of the doubt has been lost.”

“MarketWatch: And that’s because the people view the Fed as not accountable?”

“Jacobs: I think there are two sources of this decline in the credibility of the Fed. One is a sense that the Fed is unmoored from our system of democratic accountability. It does what it wants. And the second corrosive perception that is now widespread is that the Fed plays favorites. The facilities that it created were tremendous in their scope and they selectively provided benefits of credit during a credit freeze to a small number of banks and non-banks. Meanwhile, Main Street and millions of homeowners were faced with real duress or bankruptcy or foreclosure.”

“MarketWatch: Congress and the White House could have done things to help homeowners and they didn’t, so why is it the Fed’s job?”

“Jacobs: It is certainly the case that Congress fell down on the job. But partly it is because the Fed has stepped into what used to be the normal arena of fiscal policy. The Fed has kind of crowded out the constitutional authority and responsibilities of Congress. If the Fed wasn’t doing this, and it fell to Congress, Congress would absolutely step up, because it would have had no choice. But when the Fed steps in, it kind of gives an out to Congress to do its job. I think, in general, the movement of the Fed into fiscal policy is unsustainable. It far exceeds the Fed’s constitutional responsibility and it has brought upon itself this kind of erosion in trust and legitimacy.”

From CBS News. “When the Federal Reserve triumphantly raised interest rates in December for the first time since 2006, it did so over the objections of America’s trading partners — especially China. The Fed moved amid proclamations that it was focused on setting policy for the U.S. based on a tightening job market and stabilizing inflation. Fast-forward a few months, and the drums are hammering out a different beat. A rising concern for Fed officials is the health of the Chinese economy, which, despite a headline growth rate of 6.7 percent for the first quarter, remains vulnerable.”

“The Fed mentioned downside risks to China six times in its Jan. 26-27 policy meeting, after citing them three times at the March 15-16 meeting. And Fed Chair Janet Yellen singled out China and the country’s currency in her March 29 speech before the Economic Club of New York, which in retrospect was a big catalyst for the recent stock market upswing: ‘One concern pertains to the pace of global growth, which is importantly influenced by developments in China. There is a consensus that China’s economy will slow in the coming years as it transitions away from investment toward consumption and from exports toward domestic sources of growth. There is much uncertainty, however, about how smoothly this transition will proceed and about the policy framework in place to manage any financial disruptions that might accompany it. These uncertainties were heightened by market confusion earlier this year over China’s exchange rate policy.’”

“That’s a lot of focus on China for an official who’s supposed to be preoccupied, and setting policy, based on what’s happening in the U.S.”

From Yahoo Finance. “while you might think that the economy has pretty much recovered from the Great Recession of 2008, one prominent financier thinks the problems that caused that big meltdown have been papered over and will come back to hurt us again. And then there’s the little issue of China’s economy surpassing ours soon. John Thornton, the former president of Goldman Sachs (GS), who likes to take the long view, says he’s ‘feeling uneasy’ about the global economy right now and thinks we’re living on borrowed time.”

“‘After the events of 2008, really since then, the central banks either collectively or individually have tried to implement policies which would, in effect, buy time for individual governments to take the actions they should take to put their houses in order,’ Thornton says.”

“‘By and large, the governments have not done that. So I feel as though we’re sitting in 2016 with many of the same problems that we’ve had for the last eight or 10 years, they haven’t been addressed very forcefully, we’re living on borrowed time. And sooner or later, that ends in tears. I’m generally, sort of, uneasy with where things are. And I think by and large, if things don’t make common sense, sooner or later, they come home to roost,’ he says.”




April 29, 2016

People Are Starting To Get Nervous

It’s Friday desk clearing time for this blogger. “Marfa is stuck way out in the high desert. On the map, the town measures just 1.6 square miles. Surrounding it is cattle range—an openness that seems as impossible to build on as the ocean. Because so much of the town is low, the sky so big, the streets wide, and the surrounding country so vast and empty, Marfa doesn’t feel crowded. Unless, that is, you need a place to live.”

“This week I spoke with Brad Bingham, who’s 29 and works in town. He just went through a hunt for housing. Second homers, Brad says, are a big crimp on the housing market here. ‘A lot of the houses here are vacation homes that have been fixed up real nice, but they just sit vacant for the majority for the year, not rented to anybody, nothing. Maybe they’re airbnb’d – but not even that, really.’”

“Southwest Florida’s cash buyers paid a premium for homes in the first quarter, and that’s troublesome news, according to a new report. This is a disconcerting development for Southwest Florida, according to RealtyTrac VP Daren Blomquist, especially since it is combined with a declining share of cash buyers. ‘This combination is concerning because it shows a pattern where cash buyers are inflating the market above what traditional buyers using financing are willing and able to pay, even while those cash buyers are a shrinking share of the market,’ he said.”

“Another red flag is that institutional investors have fled Southwest Florida for less expensive markets in the state and elsewhere, Blomquist noted. In the Naples area, RealtyTrac said, there were no recorded sales to institutional investors during the quarter. It was the only city tracked that saw no sales to institutional investors. ‘Certainly demand from the big institutional investors is dwindling in both Lee and Collier counties, down to less than 1 percent of all sales in both markets in the first quarter,’ he said.”

“Home sales spiked in March and prices rebounded, with 1,022 Coachella Valley homes selling for a median price of $295,000, according to CoreLogic DataQuick. According to the California Desert Association of Realtors, inventory dropped slightly from February to March. But there were still 6,467 units on the market in March, up about 46 percent year-over-year, according to CDAR’s data.”

“Michael McDonald, principal with local research firm Market Watch LLC, said he sees rising inventory across all sectors of the market, which generally means prices will be stable or drop. As of April 1, McDonald said the Coachella Valley had more than eight months of inventory on the market. A ‘balanced market’ generally has about five months of inventory. ‘The time to sell a house is long enough that people start getting nervous,’ McDonald said.”

“A cool-down in Manhattan’s apartment-rental market is hitting the bottom line of Equity Residential as the landlord is forced to offer concessions to tenants who suddenly have a lot of competition to choose from. At Equity Residential’s Prism building, a rental-and-condo tower near Madison Square Park built in partnership with Toll Brothers Inc. and completed last year, the new owner of a condo listed it for lease at $800 less than Equity Residential’s units there, said Chief Operating Officer David Santee. ‘There’s some crazy stuff going on in New York,’ he said.”

“Dubai rents could fall by as much as 5 per cent this year, with the biggest drops in prime areas including Dubai Marina and Palm Jumeirah, according to Cluttons. The consultancy said that rents in prime areas are likely to fall by up to 7 per cent, driven by a decline in demand for luxury apartments. High-end, one-bedroom apartments in Dubai Marina, Downtown Dubai, Palm Jumeirah and DIFC have dropped by almost 10 per cent year-on-year. ‘Weaker demand as job creation rates slow is fuelling the declines in the rental market, which has remained exceptionally resilient in the face of some very challenging local and macroeconomic conditions over the past 12 to 18 months,’ said Richard Paul, the head of residential valuations at Cluttons.”

“Using new sales caveats from 2012 onwards as a proxy, there are at least 9,600 shoebox units island-wide that have recently been, or will soon be, completed. Singapore landlords of shoebox units have lost about $600 per month, or a quarter of their rental income, as rents plunged from their peak in 3Q2013. Monthly rents for shoebox homes, defined here as those measuring 500 sq ft or less, dived 23% from $2,792 in 3Q2013 to $2,139 on average in 1Q2016. On a y-o-y basis, the high-end segment performed the worst, with shoebox rents falling 8% compared with 4% in the city fringe and 5% in the mass market. This is likely due to a temporary spike in the supply of shoebox units in recent years.”

“Property foreclosures in Hong Kong continue to mount as home prices deflate, and analysts warn there could be more borrowers failing to pay mortgages on time as the downtrend continues. On Thursday, one high-end luxury apartment sold in a foreclosure auction 20 per cent below the price paid by a mainland company to acquire the property less than two years earlier. The owners made the first two monthly mortgage payments but fell into arrears on the third month after purchase. Eva Lee, a property analyst at UBS, said the slowing economy in Hong Kong and China was a factor in the property market cooling, bringing on a wave of foreclosures.”

“Hong Kong’s housing prices have slumped about 11 per cent since peaking in September, and are expected to fall a further 19 per cent through to the second quarter of 2017, according to Nomura estimates. ‘For sure there would see more foreclosed properties, unless the market turns around which is not likely in short term,’ Lee said.”

“The government of China’s northernmost province Heilongjiang said it aims to reduce a housing glut to a ‘reasonable level’ by 2018 through restricting land sales and offering subsidies to rural folk looking to buy homes in urban areas. Heilongjiang is one of the many Chinese provinces hit by huge housing overhangs as economic growth slows. Harbin, Heilongjiang’s capital, would need 25.88 months to clear all its inventory, according to Shanghai-based data provider CRIC.”

“You probably think your rent is eye-wateringly extortionate, but compared to this toilet in north London, we can guarantee your place is a steal. Builder, James Atherton from Highgate is seeking a tenant to cough up £3,000 per calendar month to rent his standalone washroom inside a block of flats. The budding-landlord is hoping to get flush quick by filling what he considers to be an obvious gap in the rental market.”

“He told the Camden New Journal that his loo would appeal to bus drivers who pass his block on their daily routes. ‘The bus drivers in Highgate don’t have a toilet,’ he explained. ‘I thought they might be interested in buying it, or maybe three of them could rent it.’”

“The bathroom is said to have been unused for years and is in good condition. However, Mr Atherton is clear that tenants or buyers are responsible for the upkeep themselves. Mr Atherton’s proposition comes as numbers from the Office for National Statistics (ONS) revealed that UK tenants now spend up to a third of their disposable income on rent. Renters in London spend even more than that, with 34.4% of their disposable income going on rent.”

“A surge in house prices over the last 10 years has also seen millions of young people pushed off the property ladder. In fact, even those in their late thirties are struggling to buy. This certainly explains the crappy (pun absolutely intended) situation in Highgate. While he’s set the monthly rental price at a simply staggering £3,000, he says he would be open to a cool £20,000 for a 20-year lease. What an absolute bargain!”




April 28, 2016

When Buyers Would Pay More Than The House Is Worth

Lex 18 reports from Kentucky. “Experts said the market in the Bluegrass is hot. It’s the best that realtors have seen in years, especially in Lexington. Lucy Clark has been on the hunt for a new home for about a month. However, she said houses are flying off the market. ‘It definitely seems crazier than it was when I bought a home three years ago,’ said Clark. ‘It’s kind of crazy right now to be honest with you,’ said Ty Brown, President Elect of the Lexington-Bluegrass Association Of Realtors. It’s also a first for many sellers, such as Mitzi Riva. She just put her mother’s house on sale.”

“‘Absolutely crazy,’ said Riva. ‘There has been probably five realtors here in the last hour.’ Realtors said the only comparisons are 2005 and 2006, however this time there’s no bubble, the market is healthy.”

The Dallas Morning News in Texas. “Median new home prices in the Dallas-Fort Worth area now top $300,000 – almost 50 percent more than what you’d pay for a mid-priced preowned home in the area. Median new home prices have increased by almost 60 percent in North Texas in the last decade, Metrostudy figures show. In the first quarter, starts of houses that will sell for $500,000 to $749,000 rose more than 50 percent, the research firm found. And starts of homes priced at $750,000 and more were up by more than 30 percent. Total home starts rose 22 percent in the first quarter from 2015 levels, Metrostudy reports.”

“‘Due to rapidly rising land and development costs, developers argue there is little hope for the revival of the sub-$200,000 new home market,’ said Paige Shipp, regional director for housing analyst Metrostudy. ‘An entry level home on a typical 50-foot-by-110-foot lot is no longer feasible.’”

The Tampa Bay Times in Florida. “It may be a seller’s market but try telling that to a lot of overly optimistic ones. Despite a shortage of available properties in the Tampa Bay area, sellers are reducing prices on hundreds of homes even before the first offer comes in and the true haggling begins. In the past seven days alone, there have been price reductions on nearly 1,000 single-family bay area homes, according to the Multiple Listing Service. Many of those already had price drops and some are in especially hot markets.”

“Last year, Ann Rogers, an agent with Northstar Realty in St. Petersburg began noticing a significant number of price reductions as she searched on MLS for homes that were south of Pinellas County’s Ulmerton Road and that were on the market for at least $500,000. That perplexed her. At a time when the supply of homes was so tight, shouldn’t demand have been keeping prices up? ‘All of sudden in November the price decreases started outweighing the new listings,’ she said. ‘So I thought, what’s going on here, and it must be that real estate agents in pricing property must have overshot the market and the market isn’t going up as fast as we anticipated and now we’re getting a course correction.’”

“In just the past seven days, prices have been cut on 371 single-family homes in Hillsborough, 325 in Pinellas, 195 in Pasco and 31 in Hernando. For Hillsborough, that’s 9.2 percent of all active listings. For Pinellas, it’s 11 percent. And some of those houses that didn’t have price decreases in the past week might have dropped in price earlier. ‘There’s been a ton’ of reductions, says Vince Pennino, a veteran Coldwell Banker agent. ‘The buyer will pay what the house is worth but they are not paying any more than the house is worth. That sounds simple and crazy but there was a time when they would.’”

Biznow in Georgia. “The apartment arm of one of the nation’s biggest homebuilders is taking a crack at the hot Midtown multifamily market. Lennar Multifamily is aiming to develop 195 Thirteenth St, a 27-story, 307-unit apartment project. But it’s coming at a time that many consider the later stages of a multifamily boom that has literally transformed the skyline in the city. We recently reported how multifamily listing website Adobo is seeing asking rents begin to decline in Atlanta. And a number of finance execs told our audience during a recent capital markets event that lending for new multifamily projects is getting tighter as concerns grow about the number of units still to come to the market—and the depth of the demand for them.”

“In a recent survey of apartment developers, Haddow & Co found that Buckhead may be in trouble, with 62% of the 71 respondents believing the Buckhead/Brookhaven submarket is at the greatest risk of overbuilding. In that same survey, 80% feel that debt financing is pulling back. But despite that, nearly two-thirds are still pursuing new apartment sites. Ladson Haddow says performance may be peaking with a flurry of units in lease-up or underway. ‘We don’t believe that there’s a lot of growth left at the high end of the market,’ Ladson says. He notes that while asking rents are at all-time highs, concessions have begun to creep back into the market.”

“He notes that 11 apartment towers in Midtown delivering in the next 18 months will likely need to achieve $2.50/SF rents to justify development costs. ‘The reality is nobody knows how the market’s going to react to that much luxury supply. I think we’ll all find out how deep the demand is for luxury product in Midtown soon enough.’”

The Real Deal on New York. “Real estate investment trust UDR is starting to feel the supply squeeze in the Manhattan residential market. On a first-quarter earnings call Tuesday, COO Jerry Davis noted that an expected influx of new apartments through 2017 forced the company to revise revenue growth projections. Davis said the Denver-based residential REIT is ‘beginning to feel the impact from the new supply in the Manhattan market.’”

“That new supply consists of 25,000 new apartments slated for delivery through the end of this year and ‘even higher’ deliveries of 30,000 new units in 2017, Davis said. The REIT also said it is projecting its 2017 revenue growth figures for New York to be ‘moderately lower than in 2016,’ also attributing that to the ‘continuing pressures of new supply.’”

“Davis cited third-party data indicating that nationwide apartment operator could expect unit supply to ‘peak this year’ in every one of its markets ‘with the exception being New York City.’ New York is also the only market UDR operates in ‘that will experience a higher number of deliveries in 2017 than in 2016,’ the REIT said.”

SF Curbed in California. “If you’re smarting over your mortgage, you can always console yourself that at least you have it better than everyone who‘s still renting — unless you bought in Cupertino, Los Altos, or Woodside, in which case we’re afraid your tenants are getting the last laugh. That’s what Trulia’s bi-annual, 100 metro area Rent vs. Buy report says, which singles out the nine exclusive Bay Area communities where the number crunching shows that renting is a better deal than buying.”

“Anyone with a lease within nine select metro areas can pat themselves on the back for beating the housing crisis, at least for now. The town of Los Altos Hills (not to be confused with the actual city of Los Altos, right next door) gives the best value: The median rent is over $10,000, but since the median home value is over $4 million. Technically speaking, that’s a bargain by a margin of 16.2 percent.”

“Saratoga comes in second with $6,100 rents over $2.3 million home values, a savings of 12.1 percent. Third is Monte Sereno (population 3,300), where you get a savings of 11.9 percent by renting for $7,000 a month rather than buying a home for $2.7 million.”




April 27, 2016

Everybody Got The Same Idea

A report from Bloomberg. “Canadians who collected Sunbelt bargains during the housing crash have shifted from buying to selling. They’re locking in gains from years of soaring values that are even sweeter because the American dollar, in the past five years, has jumped about a third against their home currency. In Naples, a wealthy southwest Florida town that’s bolstered by Canadian snowbirds escaping cold winters, sales plunged 19 per cent in the first quarter and inventory is piling up. The inventory of homes on the market rose 33 per cent in the first quarter from a year earlier, data from the Naples Area Board of Realtors show. Transactions are also down in once-booming getaway areas such as Palm Springs, California.”

“In the Palm Springs area, a popular getaway for western Canadians, single-family home sales in March were down 2.8 per cent from a year earlier, and inventory rose 45 per cent, according to the California Desert Association of Realtors. Inventory began rising at the end of last year because vacationers saw an opportunity for a currency play, said Joshua Devane, a real estate agent with Bennion Deville who works in the Palm Springs area. ‘Everybody got the same idea, and inventory in the market became a little bit flooded, which makes it difficult to move properties,’ Devane said.”

“In the Phoenix area — which includes Scottsdale, popular with vacationers — Canadians purchased only 110 homes in the first quarter, down from a peak of 1,454 in the second quarter of 2011, according to Michael Orr, founder and publisher of the Cromford Report, a website providing insights on the region’s housing market. Sellers from Canada now outnumber buyers five to one, he said.”

National Real Estate Investor. “For the last few years, the multifamily asset class has been the top performer of all property types. But there is much concern that developers have been adding too much inventory, flooding some markets with new supply. This will inevitably raise vacancy rates and exert downward pressure on rent growth. In fact, new supply has exceeded demand for eight of the last nine quarters. This trend was most pronounced in the last quarter of 2015, when excess supply measured 13,559 units total for the 82 markets Reis tracks. This marked an increase of nearly 10,000 units above the excess supply for the seven prior quarters.”

“In the first quarter of 2016, this trend continued. The vacancy rate climbed to 4.5 percent as 12,000 more units were produced than were absorbed. The oversupply of units has pushed the vacancy rate of CBD sub-markets from a low of 4.4 percent to a high of 6.3 percent in the fourth quarter of 2015.”

SFist in California. “Many of us not in the tech industry saw Twitter’s small round of layoffs last fall. And it turns out, many within the industry look to Twitter as a high-profile barometer as well, and the Chronicle reported this past weekend that that ‘Twitter effect’ has trickled down to the office rental market as a whole, and now more recently to the apartment rental market. Says Chandler Duvall, a big-time property manager in the city, ‘Commercial office brokers get worried, smaller tech companies get worried, venture capitalists get worried — whether it’s legitimate or not. If they are not hiring, should we be hiring? That’s when it starts to affect apartments.’”

“As of last month, also, given the bevy of empty, brand new units that all hit the market at around the same time, properties like this SFist sponsor have been offering one month free if people sign one-year leases — a long-used tactic of landlords when the market becomes more competitive that allows them to keep the base rent up while still giving a discount.”

WBRE in Pennsylvania. “Hundreds of ‘Halliburton’ employees near Montgomery received pink slips Friday, and now the ripple effect of those layoffs is hitting the local economy. Eyewitness News Reporter Cody Butler has the story. Rick Sanguedolce, is the owner of ‘Riverside Campground’, a place where many of Halliburton’s employees from out of state set up temporary homes. Nearly a quarter of the 138 campsites were occupied by those workers now only a few still are are. ‘Its hurt us financially, when you have a large company like Halliburton pull out of an area and let a lot of people go it’s a lot of lost revenue.’”

“If there is a silver lining to all this, it may come in the form of rents. When the boom was on, landlords could set rents as high as the market would bear. But now they have a glut of empty apartments. ‘When you have a large influx of outside workers coming into an area, they bringing a lot of money. But now, that a lot of them have left and are leaving, rent prices have really stabilized,’ said Sanguedolce.”

Nevada Public Radio. “How much do you really know about your neighbors? According to local law enforcement and those in the housing industry, there’s a lot of people living in valley homes who shouldn’t be there. They’re called squatters, and when the economy took a hit in 2008, it created the perfect storm of bank foreclosures and empty houses for squatters to move in. It pushed Las Vegas at the top of the list of metropolitan cities struggling with this issue.”

“Many abandoned homes are foreclosures, which means the banks own them. ‘The banks are absentee. They’re overloaded,’ said Scott Beaudry, the president of the Greater Las Vegas Association of Realtors. Sgt. Kirk Moore of the Henderson Police Department and Vandana Bhalla, a realtor at Signature Real Estate agree there is not one area of the valley with a bigger problem than another. ‘It is really everywhere,’ Moore said. ‘It happens in Summerlin, it happens in Green Valley, some of the nicest neighborhoods in gated communities,’ Bhalla said.”

Scarsdale 10583 on New York. “Though some realtors and residents are laying the blame for a stagnant market for premium homes on Scarsdale’s tax revaluation, it’s clear there are more factors in play than tax rates. A closer look at the market shows that developers have been aggressively buying up and tearing down smaller or older homes and replacing them with premium priced homes that buyers may not be able to afford. There are currently 71 homes on the market in Scarsdale priced at $2,900,000 and above, and among these, 33 of the listings are for new homes.”

“Lewis Arlt of Houlihan Lawrence reported that inventory of homes priced from $3mm to $5mm is up 65%, with 53 active listings this year compared to 32 in that price range at the same time last year. Commenting on the market, Arlt said, ‘Softening in the luxury home market is not due only to village taxes, but a widespread phenomenon. High end product is sitting everywhere. It may have many contributing factors: the stock market, the economy in general, uncertainty in the world, etc., but for whatever reasons, $3M+ buyers around here are scarce, and in some cases they’re simply not perceiving value. There’s an oversupply at the high end, and too many entry-level buyers for the scarce supply we have.’”




April 26, 2016

Spending On Something That Isn’t Yours

A report from The Record in New Jersey. “According to the 2015 State of Hispanic Homeownership Report conducted by the Hispanic Wealth Project and National Association of Hispanic Real Estate Professionals, Hispanics were the only major ethnic or racial group to raise its homeownership rate last year. In 2015, Hispanics achieved a net increase of 250,000 owner households, which accounted for 69 percent of the total net growth in U.S. homeownership. Eleonoro Paula, 53, who has lived in the United States for nearly 30 years and works as a contractor at FedEx Ground in South Hackensack, said he has been saving for years to buy his first home. For more than two decades, Paula essentially lived in the U.S. on his own — until four years ago, when his family joined him from the Dominican Republic. ‘We’re buying now because we have the right qualifications to do so,’ Paula said in Spanish.”

“The family of six, which includes three children ages 13, 15 and 16, currently rents an apartment in a two-family home in Saddle Brook for $1,500 per month. The Paulas hope to find a one-family home in the borough, where they enjoy the quiet suburban lifestyle and where the children attend school. They hope to close on a home in the $500,000-$600,000 price range, and anticipate a 30-year mortgage and a $2,600 monthly payment. To Eleonoro Paul, the $1,100 jump is worth it. ‘Realistically, no matter how you look at it, [when you rent] you’re spending on something that isn’t yours,’ Paula said.”

WEAU in Wisconsin. “Business is good when it comes to selling or buying a home in Wisconsin; more houses were sold in the first quarter of 2016 since 2007 in Wisconsin according to the Wisconsin Realtors Association. Joe Germain, President of the Realtor Association of Northwest Wisconsin, knows the number of homes sold in Eau Claire has dropped 10% from the first quarter of 2015 to this year’s first quarter, but he says the numbers can be misleading. ‘One of the reasons it’s down is the lack of inventory,’ Germain said. ‘If we had more inventory, the prices would be up.’”

“With a relatively smaller number of houses on the market, some sellers in the Eau Claire area don’t seem to be having any trouble finding potential buyers. ‘We’ve been on the market for about 30 days now and we’ve had more than 20 viewings,’ Terry Chmielewski of Eau Claire said. ‘We’ve already had one offer that we could turn down because we know that it wasn’t good compared to what we can get. We’re pretty confident; that’s why we turned down the first offer that we got,’ Chmielewski said. ‘We’ve only been on the market 30 days; I only look to it as being very good.’”

The Sun Sentinel in Florida. “South Florida’s home prices increased in March, but sales slowed as the market settles into a steady, less-frenetic pace. ‘Things are good, but listings aren’t selling overnight anymore, unless they’re just incredibly well-priced,’ said Beverly Rothstein, an agent in Palm Beach, Broward and Miami-Dade counties.”

“Zach Finn, broker-owner of Finn Real Estate across South Florida, said he had clients who agreed to sell their three-bedroom Fort Lauderdale home with a pool for $410,000, but the appraisal came back at $400,000. A year or two ago, in a more overheated market, the buyer probably would have paid all or part of the difference out of pocket, Finn said. But this buyer held firm, not willing to pay anything more than appraised value. ‘I think we’ll continue to gain a little bit of strength, but I definitely don’t see the market allowing prices to spike anytime soon,’ he said.”

Maxim on New York. “A high-living Manhattan entrepreneur who inspired a character in The Wolf of Wall Street has once again slashed the price for his lavish 6,500-square-foot townhouse. Alan Wilzig—who introduced penny stock scammer Jordan Belfort to his second wife Nadine, played by Margot Robbie in the movie—chopped the price of his Tribeca pad from $38.5 million to $24.885 million. The opulent man cave was initially listed at $44 million in 2014.”

The Midland Reporter Telegram in Texas. “Low oil and natural gas prices continue to cut deeper into the overall Midland-Odessa economy. The February Midland-Odessa Regional Economic Index has fallen 11.1 percent below February 2015 levels and is now 11.8 percent below its January 2015 peak. The index, prepared by Amarillo economist Karr Ingham for Midland Development Corp. and Security Bank by, has fallen for 13 consecutive months. The two primary pillars of the economy — consumer spending and employment — continued their double-digit declines, according to Ingham.”

“Midland and Odessa issued a total of 67 new housing permits in February, down 38 percent from 108 last February. For the first two months of 2016, the cities have issued 127 permits, down 31 percent from 184 in the first two months of 2015. Ingham said the index’s components were just as impressive when the economy was growing, rising by double digits, as they are now, falling by double digits. ‘They just had a positive instead of a negative in front,’ he said. ‘Spending and employment are doing what’s expected, losing more with each passing month. They reflect a contraction that is entrenched, and there is no light at the end of the tunnel.’”

The Idaho Statesman. “It’s a good time to be a Treasure Valley home builder. New home sales and median home prices are up sharply from a year ago. In Ada County, demand for new homes increased in the first quarter, with February sales up 25 percent from a year earlier, thanks in part to a small increase in listings. Mike Turner, owner of Front Street Brokers in Boise, says he talks to home shoppers who see new construction springing up across the Valley and think there’s an oversupply. But inventory has not grown much, because homes are either presold or are getting snapped up shortly after reaching the market.”

“‘Everything is selling,’ Turner says. ‘Consumers think it’s getting too hot, but inventory is still low, and as long as that’s the case, the market is healthy.’”

“Coleman builds in the $135,000 to $700,000 range. CBH Homes, Idaho’s largest builder, sells mostly under-$300,000 homes. Coleman owner Thomas Coleman says he plans to increase production to 300 homes this year. Owning 4,000 vacant lots in the Treasure Valley — an eight-year supply — protects Coleman Homes from paying more if land prices rise and gives the company chess pieces to move if the market shifts, he says.”

“Coleman says he is wary of an economic recovery that ‘never felt that great,’ as well the Valley’s reliance on out-of-state retirees buying homes. ‘The Valley is a little different than other areas of the country where the entry-level market is strongest and improving,’ he says. ‘Our high-end market is really strong. If you look at our average wage, which is in the mid-$40,000s, and the number of $800,000 homes sold, it doesn’t compute perfectly.’”




April 25, 2016

The Signs Of Excess Are Visible Everywhere

A report from the Guardian. “From New York to London, the air seems to be getting a little thinner at the dizzy heights of the property market. The collapse of a 78-story ’shadow-maker’ condo development in an exclusive enclave of the Upper East Side of Manhattan is sending shockwaves through the city’s real estate market. And in London the decision to hold back the sale of apartments in the landmark Battersea power station development has also rattled already nervous buyers, sellers and developers. Projects in Miami and New York have also benefitted from the EB-5 visa program – the ‘crack cocaine of real estate,’ according to one Manhattan broker – that puts foreign nationals on a path to US citizenship if they invest between $500,000 to $1m in a US project.”

“The net result of EB-5 investment, warns one real estate agent, has been to boost real estate values to the point that it is only affordable to institutional investors and pension funds. ‘They’re the only people buying and this is going to blow up our economy again.’ For this and other reasons, failure of the Sutton Place shadow-maker may be a harbinger of things to come.”

The Telegraph on China. “Elite global banks have begun to warn clients that China’s latest credit-driven boom is nearing its peak and will lose momentum by late summer, dashing hopes for a genuine cycle of fresh economic growth and commodity demand. China’s reflation drive has been explosive. New home sales jumped 64pc in March from a year earlier. House prices have risen 28pc in Beijing, 30pc in Shanghai, and 63pc in the commercial hub of Shenzhen.”

“The signs of excess are visible everywhere as the Communist Party once again throws caution to the wind. Cement production jumped 24pc in March and infrastructure investment rose 19pc. Yang Zhao from Nomura said the edifice is becoming more dangerously unstable with each of these stop-go mini-booms. ‘Structural problems and financial imbalances are worsening. We believe this debt-fueled growth is not sustainable,’ he said.”

Bloomberg on Turkey. “At first glance, the world’s best-performing housing market bears few of the usual hallmarks of a bubble about to pop. Reliance on mortgages is low, and Turkish homeowners reliably repay their loans, helped by house prices that rose faster than in any other country last year. The risk, at a time when construction has grown to make up a bigger share of the country’s investments than in China, is with the builders rather than the buyers.”

“The share of Turkey’s borrowing represented by developers is higher than at any time in the last decade, and represents almost a fifth of all corporate loans, according to the nation’s banking association. An increasing portion of those debts is going bad, with the industry’s portion of non-performing loans nearly doubling in the past five years. ‘Mortgages are not the problem,’ said Ercan Uysal, a banking analyst at Istanbul-based research firm Integras. ‘Developer leverage is.’”

The Daily Telegraph on Australia. “Renting a Sydney home is getting easier — and cheaper. A rush to construct new properties and bulk buying from property investors has ramped up the city’s supply of rental housing, putting prices in the deep freeze, new ­research shows. Landlords in some suburbs are now ­advertising their homes at ­reduced rent to bait tenants. Landlords renting houses in suburbs as far afield as Naremburn, Little Bay and Chester Hill have also slashed rents, with some ­advertising homes at $100 lower than last year. Some of these areas, like Mascot and Auburn, are construction hot spots where a glut of new properties have ­become available, particularly units.”

“Taj Singh recently took ­advantage of the weakening market by negotiating a $40 discount off the weekly rent of a new Baulkham Hills flat. ‘I knew there had been a lot of new developments nearby and that market rent had fallen a bit in the area, so it was getting harder for landlords,’ Mr Singh said.”

The South China Morning Post on Hong Kong. “Hong Kong’s first real estate agency offering 0 per cent commission for clients is finding it tough to survive in the city with its weakening housing market. Online real estate agent Candid Properties, saw staff numbers drop to four from 15 in six months. ‘The market is bad, there are fewer transactions and fewer foreigners coming to Hong Kong,’ said Alastair Hoyne, the chief executive of Candid.”

“Hong Kong home sales dropped 39 per cent in the first quarter compared with the previous three months, to an all-time low of 6,221 in the first quarter, according to Jones Lang LaSalle, an investment management company specializing in real estate. Transactions are very weak, Hoyne said, in both second home and rental market as more owners are taking a ‘wait and see’ attitude rather than cutting prices.”

The Dawson Creek Mirror in Canada. “Construction of new homes in Dawson Creek dropped drastically from 2014 to 2015, according to new data from BC Stats. In 2014, construction started on 297 new houses in the city, compared to last year when 83 new homes broke ground. It’s the second-largest drop among municipalities in the province. The Mile Zero City is sandwiched between the District Municipality of Equismalt, which at 81 per cent had the largest drop in housing starts, and the City of Quesnel, which saw a 71.4 per cent drop in new home construction in 2015.”

“The downturn in oil and gas, which has pushed unemployment in Northeast B.C. to a provincial high 9.7 per cent, is partly behind the drop in new builds. But a large number of investment properties are wrapping up construction in Dawson Creek, which is also playing a role, says Dawson Creek realtor Kevin Kurjata. What he calls ‘the duplex party’ that began in 2012, is officially over.”

“‘We’re oversupplied because for the first time in the city’s recent history, we had a company show up that had the ability to pre-sell investment properties to buyers from the Lower Mainland and Southern Alberta, primarily, based on the (2012) rents,’ Kurjata said, referring to Western Canadian Property Group.”

“In 2012, average rents for two- and three-bedroom rental properties in Dawson Creek sat at $1,048 and $1,242 per month, respectively. ‘When people are making a lot of money off of a relatively low-priced product like a townhouse in Dawson Creek for $220,000 that you are able to rent out for (almost) $2,000 a month, it looked pretty juicy.’”

“According to Fort St. John Realtor Roland Cataford of Century 21 Realty, the slow residential growth trend extends north of the Peace River as well. ‘In 2015, things were growing a little bit,’ he said, adding it was the tail end of a building boom brought on by optimism for liquefied natural gas (LNG) development. ‘Where we are now, there’s been a huge change.’”

“Not only is new construction down, but sales have also dropped off by around 70 per cent, he said. ‘Everybody kind of needs LNG to go through just to keep the bottom from falling out,’ he said. ‘A lot of what I am seeing right now is people saying ‘I got laid off, I need to sell.’ Those are tough ones because people are kind of feeling like they are up against a wall.’”




April 23, 2016

When Loss Aversion Kicks In

A weekend topic on psychology starting with CBC News in Canada. “What a fabulous buying opportunity. Or is it? After years of sharp price increases, the costs of Calgary houses are finally down nearly four per cent from where they were a year ago. While real estate company statistics show prices and sales continuing to climb across the country, a number of markets have turned, offering Canadians a useful experiment in the behavioural economics of the housing market.”

“About a year and a half ago, I wrote a piece saying that house prices could fall like oil. The point was not to predict a property market crash, it was merely to remind us that the smartest people in the oil industry failed to predict the current tumble in energy prices that now seems so obvious. At the time, the response from many was that a property market crash could not happen, simply because there were so many people waiting to get into the market. As soon as prices declined, those hungry house hunters would respond by snapping up anything that was offered.”

“Housing is considered to be what’s called a ‘lagging indicator,’ meaning that real estate markets only respond long after the economy has started to go sour. And according to Calgary-based behavioural economist Robert Oxoby, that’s at least partly due to something behavioural economists refer to as ‘loss aversion’ by current home owners.”

“Behavioural economists love to point out when conventional market rules are overturned by psychology. Especially when human behaviour makes us act contrary to our own interests. Normally, economic theory tells us that when things get cheaper, we buy more. When things become more expensive, we buy less. In the property market, that often turns upside down.”

“‘There’s a lot of herd behaviour here. We behave like cattle,’ said Oxoby, a professor at the University of Calgary. ‘People see the prices going up, and they go, ‘Oh, shit, I better buy a house now before it gets worse.’”

“It is on the way down when loss aversion kicks in, this time hurting people who want or need to get out of the market. ‘When the value of that house is high, they tend to view that as a gain,’ said Oxoby. Loss aversion makes sellers refuse to sell, preferring instead to wait until house prices bounce back again. The problem arises when that bounce-back fails to happen. And the people it hurts most are those who bought just before the downturn began, when the market was at a peak. ‘So, what happens is as prices start to fall even more, people get trapped with those big assets that they have a lot of debt on but aren’t worth as much anymore,’ said Oxoby.”

“For prospective buyers, suddenly, the challenge is exactly opposite from what it was a few years ago. Instead of being forced to buy before prices become unattainable, they wait, wondering when the market will hit bottom, fearful that further declines will wipe out their down payment and leave them owing more than they own.”

“There is only so much people in other parts of Canada can learn from housing markets devastated by falling energy prices. ‘One of the things that was supporting Alberta home prices was the fact that our incomes were 40 to 50 per cent higher than the rest of Canada, and that’s changing very rapidly,’ said long time investment adviser and real estate guru Hilliard MacBeth.”

“But property owners and prospective buyers elsewhere would be wise to watch and see if, indeed, the plunge is nipped in the bud by bargain hunters or whether prices continue to fall for a while yet.”

From Star News Online in North Carolina. “The Wilmington region was one of three markets in North Carolina and 19 nationwide that saw homes sell for less than owners paid for them, according to a RealtyTrac report. Wilmington owners sold their homes for an average of $10,250 less than what they purchased homes for. Wilmington’s average losses were the second worst in the state after Winston-Salem, which led the country in terms of dollar losses at $12,750, according to the report.”

“The Durham area saw the state’s highest average dollar gains, at $27,750, while San Jose, Calif., saw the highest average gains across the country, at $312,500, the report said. According to the Wilmington Regional Association of Realtors (WRAR), the average sale price in the Wilmington region in March was $246,665. March’s average price was still below pre-recession levels — the average sale price in March 2007 was $260,644.”

“Don Harris, a broker with Intracoastal Realty and president of WRAR, didn’t dispute the RealtyTrac report, but said he believed the report was more of a reflection on the inflated housing bubble market of a decade ago than it was a reflection of today’s housing market. He said that, in 2006 and 2007, housing prices were increasing by 15 or 20 percent annually.”

“‘The market in ‘07 was out of control,’ Harris said. ‘What we’re seeing now is housing prices trending up. We’re seeing locally that the market is robust’ but not out of control.”




April 22, 2016

If You’re A Pig, Now’s The Time To Get Out The Lipstick

It’s Friday desk clearing time for this blogger. “The first three months of 2016 were not a good time to list your $15 million East Hampton home. A cool wind is blowing through the elite enclave, as Wall Street fears send a chill through a real-estate market that, until recently, has been white hot. The market was hit by a swift one-two punch at the start of the year: a slowdown in China and anemic oil prices caused the S&P 500 to suffer its weakest start to a year since 2009, and Wall Street bonuses—a major source of funding for high-end home purchases—took a blow, too. Hedge funds were coming off a dismal year and continued to bleed well into the first quarter, while lay-offs in the banking sector have continued apace.”

“All of this led the number of Hamptons home sales to tumble 19.2 percent in the three months through March year-over-year, according to a report published Thursday by real-estate company Douglas Elliman and appraiser Miller Samuel. At the same time, the median sales price fell 2.8 percent to $895,000 from a year earlier. Sales of luxury homes—anything listed for at least $4.05 million—fell 30 percent to 45 deals in the first quarter, according to the report.”

“Short sales and foreclosures increased in the Pittsburgh region through the first three months of 2016 and contributed to a slide in overall home prices in March according to Realty Trac. Pittsburgh banks may have wanted to unload them while interest rates remain low and the market heats up, said Daren Blomquist, vice president of Realty Trac. ‘I think banks have jumped through the regulatory hoops to make sure they’re proceeding with foreclosure correctly and now that they see the market is booming, they’re making hay while the sun shines,’ Blomquist said.”

“Pittsburgh banks seemed to be eager sellers. Bank-owned homes in the region sold for 61 percent below market rate, compared to an average discount nationwide of 40 percent. Many cities that saw increases in distressed sales were in judicial foreclosure states, including Pennsylvania, where foreclosures are handled in the court system and can take longer to complete. New York City, Buffalo and Boston also had more distressed sales from a year ago.”

“The Southwest Florida housing market continued to cool in March, as home sales declined by 8 percent over the year. It was the fifth month in the past six in which sales of existing single-family homes and condominiums failed to keep pace with the prior year, according to the Florida Realtors trade group. ‘Overall, statewide inventory levels essentially held steady in March,’ said Brad O’Connor, chief economist at Florida Realtors. ‘The active inventory of homes listed for over $1 million was up 18.3 percent year-over-year among single-family homes and 38.6 percent among condos and townhouses.’”

“While the multi-family market in Baton Rouge remains strong for now, a staggering number of new apartment units completed in 2015—with many more on the way in 2016 and 2017—will likely cause vacancy rates to rise and lease rates to fall. ‘All of the new inventory on the market is forcing property owners to offer more concessions to their tenants, including high-end amenities like the lazy rivers, rec rooms and golf simulators in some of the student housing complexes near LSU. It’s also prompting the owners of older complexes to start renovating them. ‘If you’re a pig, now’s the time to get out the lipstick,’ said Craig Davenport of Cook, Moore and Associates.”

“Calgary’s condominium sector has taken the hardest hit in a housing market gutted by the plunge in oil prices. The city’s condo sales are down 17% through 2016’s first quarter compared with a year ago, and average prices have plunged 12% from the 2014 peak to around $290,000. Meanwhile, nearly a fifth of Calgary’s downtown office towers have gone dark, condo starts have fallen 60% and residential foreclosures have soared 30% from two years ago.”

“Yet, from his Vancouver office, Mohammed Esfahani confirms he has pre-sold 140 condominiums at his luxury Park Point tower in Calgary in the past year, 10 in the past month, at an average of $610 per square foot. And it will be completed, Esfahani said, even in a city where panicked condo developers have slammed on the brakes. Calgary condo starts are down 60% from the 2014 peak, with about 4,800 units expected to start this year. ‘We have always completed everything we have started,’ Esfahani said.”

“The super-prime market in London may seem unreal and disconnected from the needs of Londoners, but it is completely reconfiguring the city, with over 300 towers under or awaiting construction across the city. Many of these are luxury apartments going up in privatised, gated enclaves, stretching from Nine Elms, around the huge new Battersea Power Station development and US Embassy quarter, to Southwark and Blackfriars.”

“Who is going to live in these places? Who are the figures populating the developers’ hoardings? Who can afford to live in these fantasy worlds? Particularly unpalatable is the link between local authorities, who should serve the public interest, and the gilded lifestyles these properties promise. This is where the PR companies who oil the wheels of this new globalised property industry come in, hosting champagne receptions for councils, developers and foreign investors property industry shindigs. At last autumn’s event at London’s Olympia, sessions aimed at local authorities included: ‘Are you sitting on an untapped goldmine?’ and ‘London – from social housing to super-prime.’ You couldn’t make it up.’”

“Hong Kong’s housing sales hit a 25-year low in February. The March figure, which came in early this month, doesn’t look good either. Prices are plummeting too. Centaline Property’s Centa-city Leading (CCL) Index, which tracks used-home prices in Hong Kong, has dropped 13% from September’s historical peak to its lowest level since 2014.”

“New home sales will continue to gain market share, Standard & Poor’s Esther Liu wrote in a February research note, because there is ‘ample supply in the pipeline’ and developers are cutting prices to get rid of inventory. New home sales accounted for 29% of total sales in Hong Kong’s home market in 2015, the highest since the SARS epidemic decimated the city’s housing market in 2003.”

“Auditor PricewaterhouseCoopers became the latest to sound the warning against debt risks at China’s banks. PwC noted that net profit growth at the country’s five main commercial banks fell to 0.69 percent last year, compared to growth of more than 6.5 percent in 2014. Cuts in interest rates, lowered six times over the past 18 months by the government to encourage lending and boost the overall economy — particularly the property sector — were seen as one factor in reducing banks’ revenues. But the potential risks of higher lending were highlighted by the fact that nonperforming loans (NPLs) at China’s 18 major listed banks rose by more than 48 percent, or some $146 billion, in 2015, PwC said.”

“PwC analysts warned there was a ‘high possibility that bad loans will surge further,’ with the significant growth in past-due loans likely to lead to more turning into NPLs, Chinese media reported. In January, new loans rose by a record 60 percent year-on-year, while the nation’s total outstanding loans — all those already issued — were up 14.7 percent by the end of March compared to a year earlier, at around $15.2 trillion, the Xinhua News Agency reported Thursday. Relaxation of rules governing housing loans and downpayments has led to a particular boom in the country’s property sector, with total property loans up 22.2 percent by the end of March, and those for individual home purchases up 25.5 percent at 15.8 trillion yuan (around $2.4 trillion).”

“Fraud is rife in the banking system as banks systematically fudge the numbers on loan applications to make borrowers look more creditworthy than they really are, according to an explosive submission to a Senate inquiry on white collar crime. The economists Lindsay David and Philip Soos argue that the practice, together with a dramatic lowering of lending standards, is responsible for a massive housing bubble and threatens the stability of the entire financial system.”

“But at some stage, they argue, an economic shock will expose the decline in lending standards and cause a loss of confidence in international markets, undermining Australian banks’ access to the cheap offshore funds they rely on to maintain their lending. ‘I don’t think that Australians realise the risks the banks have taken in order to get house prices as high as they are,’ Mr David said.”




April 21, 2016

People Bought Houses With No Equity In Them

A report from CNBC. “Home construction weakened in March, and homebuilder sentiment hasn’t budged in three months — all this in the heart of the historically strong spring housing market. The common complaint from builders is that they are hamstrung by a lack of skilled labor, which is keeping production levels low. That may have been a factor for the past several years, but today it is less and less a plausible excuse. ‘Economics 101 would suggest that, if labor shortages did in fact exist, upward pressure on wages would be more pronounced and payroll growth would be anemic,’ Goldman Sachs analysts wrote in a report. ‘Therefore, the evidence from the industry-level employment and wage data does not support the existence of labor shortages in the construction sector.’”

“‘Right now I’m not having a labor problem,’ said Stephen Paul, executive vice president of homebuilding operations at Maryland-based Mid-Atlantic Builders. ‘And we’re having our best year in 10 years. I’m busy, but I don’t want to hire because I’m afraid. We don’t know if the market is sustainable. It’s been 10 years and we’re still looking for a serious recovery.’”

From Oregon Public Broadcasting. “Central Oregon’s tight housing rental market may soon see hundreds of new units on the market. Bend and Central Oregon have seen some of the lowest rental vacancy rates in the state for about two years. At times, there have been fewer than 20 rental units available in the entire city of Bend. But a number of new apartment complexes are slated to come online this summer and later this year. There are 8,647 multifamily housing units in Bend, according to the city. The new development will add at least 1,000 new apartment homes to that tally, in nearly every quadrant of the city. Many of those apartments are higher-end, higher rent units.”

“‘Single-family housing costs are beyond reach for a lot of first-time home buyers,’ said Aaron Henson, senior planner with the city of Bend. ‘Younger people are are willing to pay decent rents for a nice, new apartments. So these projects are starting to pencil, and we’re staring to see high-quality high amenity multi-family and nice new apartments.’”

“In addition to the 1,000 units currently under construction, another 800 units are in the planning stages in Bend.”

Fortune on California. “According to online real estate brokerage Redfin, the median sales price of a house in San Francisco fell between March 2015 and March 2016. That was the first year-over-year drop since 2012. The number of homes sold dropped by 22.1%, showing that fewer people bought homes this March than in the same period in 2015, suggesting that demand is slowing. Redfin isn’t the only one to see a big shift in the Bay Area. Zillow’s figures show a February year-over-year drop of 7.4% in the median sale price of a house. Just between January 2016 and February 2016 the median sales price went from $1.14 million to $991,000, a 13% decline.”

“According to Redfin Chief Economist Nela Richardson, as quoted on the company’s site, 77% of housing offers in San Francisco faced competing bids in March 2016. The previous year the number was 94%. ‘This suggests that the price drop is not about inventory, it’s about buyers fed up with high Bay Area prices and crazy competition,’ Richardson said.”

The Naples Herald in Florida. “New data from the Naples Area Board of Realtors shows that more homes are popping back onto the market over the first part of 2016, giving buyers more options to choose from. NABOR’s report for the first quarter of 2016 increased by 33 percent from the same period in 2015. The most new inventory arrived in North Naples, nearly doubling during that span of time. Condos are also a large portion of the new entries onto the market, as units under $300,000 jumped by a third. ‘The report indicated that we had 7.2 months of inventory in March,’ said Cindy Carroll, an appraiser with Carroll & Carroll.”

“Sales are slightly down from last year, closed sales down five percent, partially owning to a very active year in real estate in 2015, says NABOR president Rick Fioretti. ‘A five percent decrease in overall sales isn’t bad considering 2015 was a phenomenal year,’ Fioretti said.”

The Dallas Morning News in Texas. “The invisible hand will guide Dallas’ affordable housing policies if one City Council member’s idea becomes reality. Council member Lee Kleinman, a businessman who represents North Dallas, said his proposed strategy, which still faces a plethora of obstacles, would help solve the city’s middle-class housing woes. He said it would provide incentives to housing developers with a carrot-and-stick approach.”

“Under Kleinman’s plan, the city would require housing developers to obtain a certain number of certificates if they want to create homes. The number of certificates needed would be determined by square footage and other factors. Council member Philip Kingston lauded Kleinman’s creativity. But he questioned whether the incentives could lead to more affordable housing in areas already saturated with low-income housing. In recent years, city leaders have also been grappling with a housing market that has a glut of high-income and low-income housing.”

The Daily Mail in New York. “The high number of home foreclosures across New York state is a problem for local governments, according to recent reports from the New York State Comptroller’s Office. In those reports, Greene and Columbia counties are both cited as areas of ‘greatest concern,’ because of their high foreclosure rates and increasing caseloads. According to a map in the report, both Columbia and Greene counties are included in the downstate group of counties whose tax base fell between 6.4 percent and 22.9 percent from 2008 to 2013, after rising 60 percent or more in the previous five years.”

“Greene County Treasurer Peter Markou confirmed that. As of March, he said, the county has collected $684,192 in taxes, compared to $869,751 at the same time last year. ‘We’re seeing a decrease in collections,’ he said. ‘We have a lot of properties, especially in the resort communities, that have been abandoned for years.’”

“Columbia County Board of Supervisors Majority Leader Pat Grattan, R-Kinderhook, said he believes a lot of the foreclosures come from big banks like Countrywide and Wachovia. ‘They were very loose; they didn’t verify people,’ he said. ‘A lot of people bought houses with no equity in them. Then the value went down. The value goes down when there’s a buyer’s market. We’ve gone from 2004-2005, when there was a seller’s market, then in 2008, it started to slow down. I think home ownership is tremendous; it’s the largest financial transaction most people enter into. Unfortunately, there were a lot of loose loan practices, and people couldn’t pay up.’”