June 18, 2018

An Oversupply Putting Downward Pressure On Values

A report from Bisnow on Colorado. “McWhinney CEO Chad McWhinney said he can see the Front Range becoming megapolitan — another word that encompasses a widespread urban region — stretching from New Mexico to Cheyenne, Wyoming, and he believes multifamily properties are a great investment, especially for a long-term owner. ‘Apartments are a great long-term real estate asset class to own. The key is to make sure that you have a lot of debt that is long term. The key in this business is to make sure we don’t have a lot of short-term debt at any given time when real estate markets change. A banker will give you an umbrella, and when it rains, they ask for it back,’ said McWhinney.”

The Palo Alto Daily Post in California. “Rents in Palo Alto are sky-high and continue to climb, but new numbers from ApartmentList show that rent hikes, at least, are starting to slow down. Sam Safadi, of downtown Palo Alto-based Cal Bay Property Management, said he had even encountered young adult renters who ‘assume rents go up every year forever’ because they’ve only ever seen the market expand. What those tenants were too young to see, Safadi told the Post, was the ‘post-dot-com rent apocalypse,’ including a 40% drop throughout Silicon Valley in 2002, followed by another ‘massive’ drop in 2009.”

“‘These things move,’ Safadi said. ‘We’ve definitely seen back-off over the last couple of years, since the crazy five-year run.’ Dave Roberson, a real estate attorney who manages 84 houses in Palo Alto as the principal of San Jose-based Silicon Valley Property Management, attributed the slowdown to residents leaving town and new units coming on the market. He noted that the El Camino Real corridor has also seen an uptick in apartment construction, which ‘drowns out demand a little bit.’”

“Jason Born, who mostly rents out single-family homes in San Mateo County at Belmont-based Born Property Management, attributed the slow-down to a new crop of units coming on the market because more homeowners are putting their houses up for rent. ‘Palo Alto clearly is the watermark,’ Born told the Post. ‘The last place the market’s going to be hit is Palo Alto. If you look at the market as a stone dropping in the pond, you have to see right where the waves go out to.’”

From Oregon Business. “The Portland apartment rental market may be tapping out. Portland rents declined by 2.2% in the past year, according to a new report from rental site Apartment List. The site attributed record numbers of new units for the price decrease. Ubiquitous ‘Now Leasing’ signs blare from dozens of new and under construction buildings, and many landlords are offering move-in specials.”

From KTVB in Idaho. “Southwest Idaho chapter of the National Association of Residential Property Managers released a report in May showing Ada and Canyon County vacancy rates are up a tad - from 3.3 percent at the end of 2017 to 3.6 percent currently. Realty Management Associates Property Manager Spencer Henderson says the supply of apartments is starting to swell. ‘The housing market here has changed in the last five years more than it’s changed in the last 20. The spike, the increase, how much is being bought up, how much is being built. And it’s a different group between single family and multi-family buildings. The number of multi-family buildings have just - it’s exceeded expectations. And they’re being built every single day,’ Henderson said.”

The Journal Sentinel in Wisconsin. “‘When you hit the downtown (Tosa) area, you see these big buildings collapsing in on you. Wow, kinda knocks your socks off,’ Sandra Minor, a resident for 35 years, said in frustration at a meeting at Wauwatosa City Hall. Minor said a community that prides itself as ‘the city of homes’ was turning into the city of apartments. After a night of comments like this, the community affairs committee on June 12 recommended the common council approve the 54-unit Harwood Apartment proposal in the village. That followed a meeting at which residents cited traffic congestion, lack of walkability and an oversaturation of apartments among their concerns about the proposal.”

“Alderman Michael Walsh agreed it was not the right location for the project, saying it will exacerbate a traffic pinch point that may have unintended consequences. Walsh said it is not just the people who live next to the proposed project who care, but all of Tosa. ‘People are judicious in terms of the development that has happened and they feel it has reached a tipping point,’ Walsh said.”

The Business Record on Iowa. “A national report carried some startling numbers about affordable housing: None exists in any state, city, county or metropolitan area in the country for workers earning minimum wage and needing a two-bedroom apartment. Say it ain’t so, Des Moines. Well, yes it is, said Eric Burmeister, executive director of the Polk County Housing Trust Fund. With apartment vacancies running 6.7 percent in Greater Des Moines and near 10 percent in downtown Des Moines, Burmeister said the glut of apartments is slowing rent escalation. If rents drop a tad, a few more people can afford to pay them. ‘Things are going the wrong direction from an affordable housing standpoint,’ Burmeister said.”

From Globest on Illinois. “Developers, investors and lenders have been worried that years of exuberant construction would eventually create a downtown apartment glut. And River North, the most established residential neighborhood in the downtown market, was considered especially vulnerable due to the many deliveries in new areas like South Loop and West Loop. Occupancy of some stabilized buildings in other core neighborhoods has dipped, Laura Ballou, senior associate—market analytics for KIG adds, but not in River North. Landlords have secured these leases without resorting to overly-generous concessions. The average rent concession offered in River North now stands at just 6.33%, considerably less than the 8.33% hit landlords take if they offer one month free.”

“The data show new buildings in the South Loop, West Loop and River West are offering greater concessions despite delivering only 19%, 9% and 7% of new units since 2017, respectively.”

From Miami Community Newspapers on Florida. “The Miami-Dade County Property Appraiser, Pedro J. Garcia, has released the 2018 June 1 Estimates of Taxable Values to the Taxing Authorities showing a continued growth in the real estate market. The countywide estimated taxable value for 2018 is $288.859 billion, a 6.0 percent increase from 2017. New construction continues to drive the real estate market in Miami-Dade County with more than $5 billion being added this year.”

“However, officials are beginning to see the effects of market corrections, primarily with condominiums and high value single family residential properties, such as in Key Biscayne and Sunny Isles Beach. In some cases, the new construction value helped offset overall value reductions of existing properties in Bal Harbour, Surfside and Aventura. ‘We continue to see the same market trends as last year, with an oversupply of condominiums putting downward pressure on condo values. However, a relative short supply of mid-range single family homes has increased property values, making it more difficult for working families to afford a new home,’ Garcia said.”

From Crain’s Cleveland Business in Ohio. “Akron’s oldest neighborhood is getting a new apartment complex. Local businessman Nick Pamboukis has purchased a former senior living facility in the heart of the Middlebury neighborhood, and said he’s working to turn it into high-end apartments. ‘I have a knack for working with distressed things,’ Pamboukis quipped. Pamboukis isn’t shooting for low-rent units either. He’s hoping to get about $975 a month for the building’s 54 one-bedroom apartments, about $1,200 a month for four two-bedroom units and something in between for six corner units.”

“Those are on the high end of rents in Middlebury, but he would not be the first developer to find demand for high-end rental units there. He’ll have other challenges, though. ‘About a quarter of the houses in this neighborhood are vacant,’ noted Zac Kohl, executive director of The Well, a community development organization.”

From RE Business Online. “There is one surefire way to make sales hum in seniors housing, says Margaret Wylde, an industry consultant who has conducted research in this niche property sector for 34 years. Know who your customer is, the product they want and how much they will pay to get what they want. She believes that the industry is by and large chasing the luxury market, which is less than 10 percent of the potential market. ‘The middle market is 320 percent larger than the market everybody is going after.’”

“While the product today clearly is architecturally better than it was 15 years ago and has the consumer in mind more so than ever before, it’s ‘over-amenitized, overbuilt and over-programmed,’ says Wylde.”

From All Over Albany on New York. “A sort-of follow-up to the recent post about all the apartments the Capital Region has been adding the last few years (with many more in the pipeline)… Capital Region rents have been on an upswing during the past half decade, but that increase appears to have flattened during the last year. That’s one of the bits from the new Capital Region multi-family market report published by Sunrise Management & Consulting.”

“Sunrise president Jesse Holland in a press release: ‘The data indicates that the market is getting saturated … Everyone wants to know if the time to build more apartments is over, or if the economy is going to take off.’”

June 17, 2018

A Government Willing To See Prices Fall

A weekend topic on government policy and housing bubbles, starting with the Los Angeles Times in California. “For the last eight years, I have used my commute from the South Bay to downtown to explore the neighborhoods of Los Angeles. The more I drive, the more I notice what I call L.A.’s ‘lost space,’ mysterious plots of land that sit abandoned or underused throughout the city. On Figueroa Street near West 52nd Place in South L.A., for instance, two barren parcels sit on opposite sides of the road, the larger one surrounded with an old rusted chain-link fence. As a person who studies the economy, I’ve found it puzzling: How is it that in one of the world’s hottest real estate markets, in a city that is in dire need of affordable housing, land like this sits idle?”

“The answer stands in plain sight at the center of one of those forlorn lots, where a large white sign reads: ‘Property of the City of L.A.’ We now know that we’re land rich. Faced with a growing homelessness crisis, City Hall has started offering affordable-housing developers opportunities to develop a small number of the city’s surplus properties. That’s an important step. But there’s still no long-term strategy for using and leveraging L.A.’s incredible wealth of city-owned land to meet our needs.”

From Xinhua in China. “Home prices in major Chinese cities largely remained stable in May as local governments toughened up restrictions to prevent speculation, official data showed. Home prices in 35 third-tier cities were cooler. There was a slowdown in price growth for four months in a row in new houses, and for 10 months in existing ones. ‘The majority of cities saw an ongoing year-on-year downturn or deceleration of growth in home prices,’ NBS senior statistician Liu Jianwei said.”

“During previous years, rocketing housing prices, especially in major cities, had fueled concerns about asset bubbles. To curb speculation, local governments passed or expanded their restrictions on house purchases and increased the minimum downpayment required for a mortgage. With a flurry of property market controls, authorities have demonstrated their will to keep a lid on housing prices. Over 40 cities unveiled a total of 50 property market regulations in May, a monthly record for frequency, according to the latest statistics from Centaline Property.”

“This year’s government work report reiterated that ‘houses are for living in, not for speculation.’ ‘China will not waver in its efforts to implement property market regulation and will maintain continuity and stability of policies in 2018,’ said Wang Menghui, minister of Housing and Urban-Rural Development.”

From Channel Asia on Singapore. “By the late 1980s, housing security was mostly solved with home ownership hovering at around 90 per cent of the population from 1990 till present. Yet, policies to encourage home ownership did not let up. From the late 1980s to mid 1990s, many policies were introduced to encourage home ownership. To compound issues, our population is ageing fast. By 2030, as much as one quarter of our resident population may be over 65, many of them living in larger-than-needed flats, as their children leave the nest or as their partner passes away.”

“A house is not just a shelter. It is also a leveraged financial asset. You are taking risk on both property prices and interest rates. Singapore’s rapid growth over the first 50 years from independence has led many people to believe that home ownership is a ’sure win,’ as house prices also rose from wage and population growth. Even then, we received a sobering lesson in the late-1990s, when housing prices crashed. We have only recovered to 1996 price levels in the last several years. If many choose to fund their retirement by monetising their houses, they may run into an oversupply of flats on the market, lowering resale prices.”

From Vietnam News. “The HCM City housing market will continue to grow this year, especially the VNĐ1 billion (US$44,000) condo segment, the HCM City Real Estate Association (HoREA) has predicted. Lê Hoàng Châu, its chairman, said the VNĐ1 billion segment would be the most liquid while the luxury segment will be restructured in line with actual demand. Authorities would continue to cool down the land and condotel segments, it said.”

“They would strengthen relations with foreign investors to raise more funds, it said. Nearly 9,200 housing units were put in the market, 8,690 of them apartments and the rest houses, down by more than 44 per cent. The slowdown had spread to the apartment market, with the luxury segment declining by 26 per cent, the mid-price segment by 32 per cent and the low-end segment by 70 per cent. Land prices shot up, especially in District 9, though of late they have levelled off.”

“According to HoREA, developers face challenges in getting loans since banks are tightening credit on instructions from the State Bank of Việt Nam. The association wants the Government to control two main factors that affect the market: the imbalance between demand and supply in the luxury apartment and condotel segments and the disinformation spread by brokers to manipulate land prices.”

From Edge Malaysia. “The new government’s apparent intention to ease lending rules for home purchases may introduce additional risks to banks, analysts told The Edge weekly. Plans to facilitate home ownership among the youth, and M40 and B40 groups may result in banks being ‘forced’ to lend to these groups. ‘As it is, banks are generally wary of lending to youth, given that the biggest number of bankruptcies comes from this group,’ said an analyst.”

“Analysts speculated that the government may relax the debt service ratio (DSR) from 60% currently, but this raises concerns over what happens in case of defaults and also the gearing levels of the borrowers. The DSR was introduced to prevent the lower-income group from borrowing too much, pointed out one analyst. ‘We’ve already tried a lot of things and reached a point where there is even an oversupply of affordable housing.’”

From IntelliNews. “The Czech National Bank (CNB) took aggressive actions to burst a potential real estate bubble before it gets too big on June 12 by increasing the banks capital buffer rate to 1.5% effective from July 1, 2019 and tightening lending policies on mortgages effective from October 2018. The CNB introduced a raft of tough prudential rules to ensure that consumers don’t overload themselves with debt. Analysts have said a nascent real estate bubble is already receding and could soon burst.”

“But the growth in prices is still a worry, especially in Prague, where AirBnB is driving out regular tenants and the rate of issuing construction permits for new apartments has long outstripped demand. In response, the CNB has slammed on the brakes and issued very conservative recommendations, in effect saying, ‘We won’t let the 2008 crisis happen again.’”

From CBC News in Canada. “In an election where housing affordability is far and away the dominant issue, Vancouver mayoral candidates have largely taken two tracts. Patrick Condon wants new taxes on development land, and a new mansion tax. ‘I don’t see any way that the market under present circumstances can supply housing for the average wage earner, and I think the city only has a choice, under these circumstances, to re-engage in the construction of non-market housing,’ said Condon, who has been a University of B.C. professor in architecture and urban design for over 25 years.”

“Condon’s campaign, while only a week old, has been enthusiastically promoted by some on the left. Lindsay Brown, a writer and communications consultant, believes other candidates are putting too much faith in the private market to lower housing prices. ‘This idea that if we just build more, and remove barriers to build more housing, prices will go down. We’ve had more than an decade of this idea, so I don’t think there’s any thing particularly valuable about Hector Bremner’s idea.’”

From Macleans in Canada. “Across the street from a run-of-the-mill Starbucks in the Kitsilano neighbourhood of Vancouver is a two-storey Ferrari and Maserati dealership. Locals will tell you with amazement that it is the highest-volume location in North America. Whether or not that’s true, the five homeowners gathered today around a table at the Starbucks want to make clear that Ferraris are not for people like them. Though their homes on the west side of the city may be worth millions of dollars, they do not consider themselves rich.”

“‘It’s really hurtful when someone says, ‘You live in a $2-million property, so that means you’re a wealthy person,’ says Mary Lavin, an English teacher. ‘Um, no. Not at all.” Lavin points to her car in the lot, a 1998 Toyota Tercel. ‘I’ve had one holiday in my life.’”

“They do, however, have lots of equity in their homes, which the provincial NDP government has moved to tax at a higher rate. Residents have launched petitions, staged protests and erected yard signs claiming the tax is ‘hurting seniors and working-class families the most!!!!’ Home values have skyrocketed in the area, but incomes have not. Those who purchased property many years ago don’t necessarily have extra cash on hand.”

“The NDP government has opted for taxation to reduce demand. In addition to the extra school levy, the province increased and expanded the foreign buyer tax and put in place a so-called ’speculation tax,’ which applies to vacant homes in select regions. Finally, the province boosted the property transfer tax on high-end homes, and expanded disclosure requirements to end hidden ownership. ‘We finally have a government that’s serious about housing affordability and is willing to see prices fall,’ says Joshua Gordon, an assistant professor in the school of public policy at Simon Fraser University.”

From This Garden Island in Hawaii. “Kauai County Councilman Arthur Brun said his employer, Hartung Brothers, has been trying to build farmworker housing on its Westside property. But there’s a problem. ‘There’s so much red tape to get it done,’ Brun told about 100 people at the Aqua Kauai Beach Resort. ‘It’s a battle. The politics have gotten in front of the daily living,’ he added.”

“Their main point seemed to be that there is a lack of affordable housing, and part of that is due to government regulations that limit building. But they also noted high housing is, after all, the cost of living in paradise. ‘It’s probably never going to be as cheap as we want in Hawaii,’ said Paul Brewbaker of TZ Economics. ‘If it were, others would come here and bid up the price.’”

June 16, 2018

A Feeding Frenzy Changing To Buyers’ Remorse

A weekend topic starting with the Holland Sentinel in Michigan. “With inventory down and the number of buyers on the rise, the West Michigan housing market continues to remain red hot heading into the middle of the summer. Briana Beyer, local realtor for Coldwell Banker Schmidt, said that for her clients, it is currently a blitz to be the first through the house and from there, it is generally about putting in an offer over the asking price while also adding different stipulations to the offer to sweeten the pot. ‘It is a wild market to be honest,’ Beyer said. ‘If you are a buyer and you are not able to see that home in the first or second day, you have no chance.’”

“When looking to buy homes in the under $200,000 range, both Beyer and real estate broker Dave DeYoung, also of Coldwell Banker Schmidt, said they use tactics like asking above asking price, waving the appraisal, making cash offers and in extreme cases waving the inspection just to help clients improve offers. ‘If you can’t use cash, you have to be creative when you write up and offer,’ Beyer said. ‘You have to word things and have the correct verbiage. Some people are foregoing appraisals. … Even some, and I don’t recommend this but some are doing no inspections. People will accept the house as is.’”

“The tricky thing is that although the market is hot right now and has been for a period of time now, there is no way to tell how long it will remain the way it is. ‘There has been talk that we are on a bubble and how we don’t know how long this will last and how high prices can get but all we know is that it is strong right now, it is a good time to buy and it is a good time to sell,’ Beyer said. ‘Last year, it kind of felt like we were going on a bubble and yet we are still here. It’s hard to say and it’s hard to predict.’”

From the Dallas Morning News in Texas. “Dallas-Fort Worth is one of the markets with record-high home costs. Home prices are rising to the point that there’s a lot more talk about another housing bubble. CoreLogic surveyed long-term home price trends in 390 U.S. markets. ‘What we found in our most recent calculation is that 32 percent of these metros look a little bit overheated — a little bit frothy,’ Frank Nothaft, chief economist with CoreLogic said. ‘The last time [it was 32 percent] was 15 years ago, during the in the spring of 2003. We know how that story turned out.’”

“Nationwide home prices are almost 7 percent higher than a year ago. And the average long-term mortgage cost has risen by seven tenths of a percentage point interest compared with this time in 2017, according to CoreLogic. ‘That translates into a 16 percent increase in the monthly principal and interest payments to buy the same house,’ Nothaft told a meeting of the National Association of Real Estate Editors. Nothaft said the prices on lower-cost homes are rising even faster than the overall market — up almost 9.3 percent year over year — along with higher mortgage rates. ‘That’s a 19 percent increase in the principal and interest payment in just one year,’ he said.”

“D-FW is one of the U.S. markets CoreLogic thinks is overvalued for home prices. However, Nothaft doesn’t think there is a nationwide price bubble yet. ‘But if we continue to see relatively rapid growth of home prices over the next few years, then we might be entering a period when home prices can no longer be sustained,’ he said.”

From the Lima Charlie News. “Effective July 1st, Freedom Mortgage, one of the largest U.S. home lenders, will be unable to make loans insured by the Department of Veterans Affairs. This restriction is part of a crack down on ‘loan churning,’ a practice of convincing veterans to refinance by barraging them with mortgage-refinance solicitations. This predatory behavior includes tried-and-true scams like using teaser rates and zero-down offers to tempt veterans into variable rate mortgages, as well as more creative ploys like disguising marketing materials to make them appear to be communications from the Department of Defense.”

“Freedom Mortgage is a nonbank lender, a.k.a. an independent mortgage company, that can lend funds with an added margin for profit because it has its own source of funds and is not a bank. Before the mortgage meltdown, nonbank lenders comprised just 19% of the U.S. mortgage market in 2007. However, just over ten years later, these self-styled lenders now make up over half of U.S. home loans. The reason for this expansion is that nonbanks are not subject to the array of regulations issued by the federal government and the Federal Reserve in the aftermath of the financial crisis. They are instead regulated at the state level.”

“Wall Street is also getting in on the action, funneling $345 billion to nonbanks between 2010 and 2017. Nonbanks like Freedom Mortgage rely on U.S. taxpayers for 80% of their mortgages through Ginnie Mae — a government-owned company established in 1968 to help people afford home ownership. Ginnie Mae issues mortgage backed securities as bonds to the market, which investors can then purchase. Then Ginnie Mae takes the money invested and loans it to businesses like Freedom Mortgage. Freedom Mortgage can issue mortgages, which are backed through Ginnie Mae with, unlike similar mortgages issued by Fannie Mae and Freddie Mac, the ‘full faith and credit of the United States.’”

“‘We have depended on sheer luck,’ said then Ginnie Mae President Ted Tozer when describing Ginnie Mae operations at a business summit. ‘Luck that the economy does not fall into recession and increase mortgage delinquencies. Luck that our independent mortgage bankers remain able to access their lines of credit. And luck that nothing critical falls through the cracks…’”

“The FHA was administered by Acting Commissioner Dana Wade until last month. Late in April, she testified in a hearing before the U.S. House of Representatives, and warned of ‘certain trends and indicators of potential defaults.’ She warned of increasing mortgage delinquency among FHA-insured borrowers, increases in the percentage of borrowers spending over 50% of their income on their mortgages, and increasing levels of debt for these borrowers, all of which are outlined in a March report by the FHA.”

“The American Enterprise Institute report highlights how the other safeguard for the taxpayer, a requirement that those seeking home loans pay 3.5% of the home’s purchase price up front, is breaking down. ‘It is stunning that the median dollars of down payment for FHA purchase loans has declined from $4,000 in January 2013 to $3,900 in January 2018, while the median sales price has increased by 24% over the same period,’ said Edward Pinto, co-director of the American Enterprise Institute’s Center on Housing Markets and Finance.”

From KPTV in Oregon. “Residents in a quiet Tigard neighborhood say they are frustrated after a drug house was bailed out of foreclosure by the state. In the past five years, police say they have responded to nearly 600 calls at the home on Southwest Gentle Woods Drive, and have seized hundreds of syringes and prescription drugs. In last few weeks, there have been two police calls to the home. Tigard police say officers raided the house twice in the past eight years and recovered everything from ecstasy and heroin to hundreds of syringes and prescription drugs.”

“Within the last three years, police confirm they’ve made at least 16 arrests at the home for outstanding warrants. The home recently went into foreclosure, but the state bailed it out, according to a spokesman from Oregon Housing and Community Services. The spokesman says the homeowner received help through the Hardest Hit Fund program, which has been helping families since 2010. The state is not required to do a background check. A spokesman says if federal agencies were to conduct more thorough criminal screenings, it could fall under fair housing issues and discriminate against communities of color and keep minorities from owning homes.”

“FOX 12 spoke with a woman who lives at the home about the abatement plan, to give them a chance to voice their side of the story. ‘Oh, that’s been taken care of,’ she said. ‘Everything has already been taken care of, there’s a little bit of a misconception in the neighborhood as to the reality of the situation.’ Neighbors don’t necessarily agree. ‘A misconception about what?’ Charlotte Haines said. ‘It’s very obvious.’”

The Press Democrat in California. “Home prices rose to new highs in Sonoma County in May, when the median hit a record $692,250, but there are indications the unrelenting price increases may be starting to test buyers’ limits. Over the past six years, the median price has more than doubled, climbing from $329,000 in May 2012. Last month, the median jumped nearly 11 percent, compared to a year ago. Before the crash, the median price hit a high of $619,000 in August 2005, then plunged to a low of $305,000 in February 2009. The 2005 high wasn’t surpassed until March 2017, when the median hit $635,000. New record prices since have been set six more times — before May, the most recent occasion was in February at $689,000.”

“Bill Facendini, president and broker of Terra Firma Global Partners in Santa Rosa, said in the past three months a significant number of sellers have reduced prices of properties after failing to initially land buyers. Sellers typically try to keep raising prices above what their neighbors obtained in recent sales, he said. But buyers these days seem less inclined to pay the higher amounts. ‘They don’t feel that need right now,’ Facendini said. He called it a sign that the market is in transition and price appreciation could slow, if not level off.”

“Lisa Thomas, an agent with Pacific Union in Santa Rosa, said buyers seem more cautious about overpaying. Also, those that have been looking since winter now have more choices, as additional homes have come to market this spring.”

From Inside NOVA in Virginia. “Sellers and prospective buyers at times had a difficult mating ritual in May across the Northern Virginia real estate market, with the result being a year-over-year decline in overall sales. One trend popping up across the region? Buyers are coming into the market with a ’stop-and-go mentality,’ said Gary Lange, managing broker of the Vienna office of Weichert, Realtors.”

“Clients are ‘hot and heavy’ when they begin the search for a new home, then go cold quickly, Lange said. ‘Some of that may be due to a lack of inventory, they are looking for a deal, or they just don’t have a serious need to buy,’ Lange said. That lack of inventory created a feeding frenzy earlier in the year, but the dynamics are changing slightly, with cases of buyers’ remorse impacting the market.”

“‘Sometimes buyers have successfully bid for a home, then realize the home really isn’t for them or they paid to much,’ Lange said. ‘It is easy to get caught up in the moment when a buyer makes a hasty decision about a home for fear of losing that opportunity.’”

“Buyers feeling trapped after signing a purchase agreement at times have been backing out over minor home-inspection issues, said Lange, who suggested those in the industry needed to step in and have all parties focus on the big picture. ‘Agents must counsel buyers and sellers about the way the housing market works,’ he said.”

June 15, 2018

Defying Expectations Still, But In A Different Direction

It’s Friday desk clearing time for this blogger. “Mortgage companies have already started cutting their staff as business has dried up due to the decline in home refinancing. That’s particularly bad news for North Texas, which is one of the employment capitals for the country’s home loan business. ‘We are starting to see some consolidation — some of the smaller lenders are simply going out of business,’ said Rick Sharga, executive vice president with Carrington Mortgage Holdings. ‘We expect the mortgage volumes to be off by hundreds of millions of dollars. There are significant layoffs anticipated.’”

“Brian Simmons, one of the founders of an online mortgage platform, called Ask A Lender, said mortgage companies will have to find creative ways to lure homebuyers as they try to make up for the drop in refinancing. He also worries that, since the head of the Federal Housing Finance Agency is expected to step down soon as his term expires, the Trump administration could appoint a much more conservative overseer of the government-sponsored home finance companies including FHA, Fannie Mae and Freddie Mac. ‘This person could take a negative view on the government’s involvement on mortgages,’ he said. ‘They could make a number of moves to make it more unaffordable.’”

“A surprise surge in home inventory means some good news for house hunters in King County. The May numbers show an increase that’s late in the home selling season. ‘Big jump. 36 percent jump year over year in active inventory and so it’s almost 1,000 new units came online in King County,’ said Matthew Gardner, Windermere Real Estate Chief Economist. Rebecca Carlson, a Coldwell Banker Bain broker, noted as inventory was going up last month, she said many buyers took a break. ‘Depending on the area and the neighborhood, we’re just seeing fewer buyers looking.’”

“The boom in inventory shows developers meeting a demand for luxury high-rise living, with the market now listing 3,166 condominiums compared to 2,800 last year. The 30-month supply means about 100 condos are sold ever month. Fisher Island, South Beach, Surfside and neighboring Bal Harbour remain popular choices among luxury buyers. ‘The main reason we’re seeing this renewed activity is because our sellers have finally come to the realization that our inventory was growing and that we needed to reduce prices. The average single-family home this past year is sold for 79% for its original asking price. The average condo priced over $1 million sold for 82% of the original asking price. What we’re seeing is sale prices being discounted even 35% from the original asking price,’ said Ron Shuffield, president of EWM Realty International.”

“‘With our Northern Virginia local economy in a great place regarding employment numbers, we do not think our region’s economy is at risk to overheat any time soon, said Lorraine Arora, NVAR Chairman of the Board. Heather Embrey, associate broker at Better Homes & Garden Real Estate Premier, saw tons of action from her serious clients. ‘Sellers became over-confident and priced properties unrealistically, only to feel frustrated when savvy buyers passed them by,’ she said. Embrey remains optimistic that the June market will have a better balance, especially with her seller clients who have unrealistic expectations.”

“The failed Napa Oaks Subdivision proposal of 51 monster $2 million luxury homes above Old Sonoma Road is up for a City Council vote again next Tuesday, despite the Planning Commission’s vote against this unwanted and unneeded project. The Association of Bay Area Governments determined that the city of Napa needs 403 ‘Above Moderate’ units and it shows that there are 1,307 potential units within existing zoning. In the City of Napa, the available land supply remains adequate to meet future housing needs at all income levels. So why change the zoning of the Napa Oaks site and develop one of our last undeveloped ridgelines? This report proves there’s plenty of land available to meet this alleged demand without taking our ridgeline.”

“Realtors in New Canaan, Connecticut, have voted to ban For Sale signs throughout the community about 40 miles north of Manhattan where several high profile figures including David Letterman, Harry Connick Jr and Paul Simon have estates. Experts say the move may be a feeble attempt to cover up a real estate market that’s oversaturated with sellers. ‘I haven’t heard of anyone who thinks this is crazy,’ one local told Fox News. ‘If you drive around this town, it looks like a yard sale. It just looks bad. It starts to look ugly and desperate.’”

“In Greenwich, down the road from New Canaan, commercial signage has also been banned in residential areas under an ordinance for ‘cosmetic purposes and to avoid drive-bys’.”

“Even though tighter lending rules have helped cool the market, condos remain hot, particularly in Toronto and Vancouver, with evidence of potential speculative activity by rental investors, says the Bank of Canada. About 45% of those who have a mortgage and took possession in 2017 have negative cash flow, according to an April CIBC report. ‘They lose money on a monthly basis, at times a large amount of money—more than $1,000 a month,’ says CIBC deputy chief economist Benjamin Tal. ‘The big question mark is to what extent those investors will continue to buy, or even maybe they will start selling,’ says Tal. The answer is important, he adds, noting rental investors accounted for a record-high 80% of new GTA home sales last year.”

“The number of homes on sale for more than £1 million in London has risen to a record high as buyers walk away from ‘vanity’ asking prices, figures reveal today. North London agent Jeremy Leaf said: ‘This is definitely something we are seeing on the ground. More expensive properties have become harder to shift. It is probably taking double the time to sell them, and even that is only after there has been a couple of reductions in price to get it to a level where it is going to move.’”

“The rate of sales suggests it would take seven and a half years for all the £1 million properties to find a buyer.”

“Swedish apartment prices fell 8 percent in the March-May period from the same period a year earlier, data from an association of Swedish real estate agents showed. Property prices in the Nordic country has risen for almost two decades, making Swedish households among Europe’s most indebted. However, a surge in building and tighter mortgage rules has cool the housing market in recent months.”

“House prices contracted for a third straight month in March by 8.8%, the sixth contraction in the last seven months, Josephat Nambashu, Analyst at FNB Namibia announced. The decline meant the price of the average home was cut by N$109,941 from what it was this time last year to N$1,136,030. Meanwhile, Windhoek property prices fell for the second time in twelve months, whilst Okahandja prices contracted by as much as 13.7% y/y. Moreover, coastal property prices fell for the ninth month in a row- this time by 38.0% y/y.”

“‘Sellers seem to remain denial on pricing shifts, as 91% of homes sold in the period, sold for below asking price, which points to overly optimistic prices in an ultra-cautious buyers’ market,’ Nambashu explained.”

“Time has stood still for the ghost housing societies of Greater Noida. Three years ago when this correspondent walked the broad roads of Sector MU-I in Greater Noida, with their lovely service road trees leading to gated communities, he had found few people actually living in the fully finished housing societies. Now in June 2018, nothing much has changed. What looks like an ideal picture perfect housing dream—villas, trees, roads, parking, community centre, parks—has one thing missing: human beings. If at dusk, the sight of the empty lightless windows gives the ghost town its name, even in the bright June day there were hardly any people in the area to point out directions.”

“Four out of five houses are vacant and many of the empties are badly dilapidated. Despite the existing empties, a little ahead of the existing residential block, another block of low-rise government housing with about 1,000 apartments is under construction. Several private developers are also building high-rise residential apartments in the area. The multi-crore question to this correspondent came from the befuddled cab driver—if already people are reluctant to live, who will buy the new flats?”

“The ghost complexes of suburban Delhi are part of a larger pan-India story. According to the 2011 Census of India, out of 331 million houses in the country, 25 million were vacant. The highest number of vacancies were seen in Maharashtra with about 3.7 million vacant houses, followed by UP with 2.4 million vacancy. Above 95% of the houses surveyed were in a good and livable state, still there are so many vacant houses.”

“What’s going on? The demand for housing is very high,but the price point needs to be right. Why are there fully loaded homes in which nobody is living, why don’t prices come down?”

“There is a new clue about where the Australian housing market is headed, and it must be said, the outlook is ominous. About 100 people showed up at the auction and I reckoned $1.9 million was plausible. This guess was based on a bunch of auctions where I had thought the place was worth a bit over a million, and seeing them go for well over two (or more). Instead of $1.9 million, the place went for $1.76 million. (Which is a huge sum, don’t get me wrong. I sure as heck could not afford it!) When bidding began to dry up about the $1.7 million mark, I knew that I was seeing something. The market was defying my expectations still, but in a different direction to what I expected.”

“The evidence backs up my hunch. The property market in Australia has changed in a real way. We see prices falling slightly in Melbourne, Adelaide, Brisbane and Perth so far this year, but especially in Sydney where prices are down more than 2 per cent. That is dragging down the national average into negative territory. It has fallen for the last seven months.”

“That’s a sign of caution in the market but it also leaves the amount of new building being done at a high level. If prices start falling fast, there will still be a lot of new supply hitting the market. Builders and developers have probably taken into account that prices can’t rise forever with wages growth being so meagre. What they may not have considered — and fair enough because nobody really expected it — is the effect of the Banking Royal Commission.”

“Banks have to get back on the straight and narrow and that is going to mean handing out fewer home loans. That hurts first home buyers, and if prices of existing homes are falling too, that cuts into the amount second-, third- and fourth-home buyers can spend when they move. It is a tricky situation. If they had anticipated this, the building industry might have scaled back supply even more.”

June 14, 2018

Desperate Sellers Watch Their Properties Languish

A report from Bloomberg on Australia. “Australia’s east-coast property bubble is showing signs of deflating at a faster clip as home-lending data recorded the longest losing streak in almost a decade. Housing finance fell 1.4 percent in April, the fifth straight monthly drop and the longest stretch of declines since September 2008. A key factor weighing on Sydney’s market is tighter credit, as regulators force banks to cut back on the riskiest mortgages. Fewer interest-only loans — which are cheaper in the early years because borrowers don’t repay principal — means Sydney prices are now out of reach for many investors. Chinese buyers, a previous driver of demand, have also receded due to difficulties in moving cash from the mainland.”

“For Australian borrowers, there’s little prospect of relief for household income as wage growth has stagnated for the past five years. The economy’s private debt-to-income ratio is also at a record 189 percent, leaving little scope to increase leverage anyway.”

From the Daily Telegraph. “Desperate apartment sellers in the Greater Parramatta area have had to watch their properties languish unsold for months after listing them due to rampant building creating an oversupply of high rise units. Research showed the region has Sydney’s largest pipeline of residential building projects in the works, despite a recent drop in demand from buyers. This has ramped up competition among sellers to bait buyers and made it difficult for them to offload properties quickly without offering major price adjustments.”

“High levels of development were also ‘cutting in’, said Realestate.com.au chief economist Nerida Conisbee. ‘We’re seeing very low demand for apartments in Sydney at the moment — there has been a significant drop off driven by far fewer local and offshore investors,’ Ms Conisbee said. ‘Far fewer people looking to buy means properties take longer to sell and eventually that leads to prices declining.’”

“A report released by property consultants Urbis showed plenty more homes are on the way for Parramatta. The area had Sydney’s largest future housing supply with over 11,000 apartments in the pipeline. This included 2,048 apartments in the application phase and a further 4,555 with development approval, the report showed.”

From the Daily Mail. “Location Score analyst Jeremy Sheppard said in an interview with real estate talk, ‘over the last few years the location score has been steadily declining. Sky high prices subdue demand like nothing else.’ A lack of urgency also seems to be aiding in the steady decrease in the housing market. Suburbs with high numbers of apartments continuously getting released onto the market, such as Parramatta and Blacktown, are among the riskiest to buy investment properties. ”

“‘We’re seeing very low growth if anything at all and that’s because the demand has been very much balanced with the level of supply,’ Sheppard said. ‘The results reveal Sydney’s market slowdown is well and truly entrenched with buyer demand waning. Vendors must become realistic about their pricing, or risk seeing extended days on market until they reprice appropriately.’”

From Domain News. “Australian property owners are likely to hold on to their properties longer than they should in a declining market due to the fear of making a loss, new research suggests. This will be particularly painful for highly leveraged investors who bought at the peak of the market with the expectation that prices would keep rising. Dr Daniel Richards, lecturer of Wealth Management at RMIT University found investors often sold too early, or held on too long in a falling market due to feelings of regret.”

“‘People don’t sell at a loss. Emotion is what’s driving that, particularly regret,’ he said. ‘And housing is almost the most emotional investment you’ll ever make.’ Dr Richards said that many investors will try to ride out this downturn, but that it would cost them. ‘If you’ve bought a house and it’s gone down in value you should get out rather than wait for it all to go bad,’ he said.”

“APRA’s tightening lending standards present a pivot point for those who bought with interest-only mortgages, particularly given the Reserve Bank has flagged some borrowers will be unable to roll over their loans to cover the principal and the interest.”

From the Courier Mail. “Queensland richlister Tony Quinn, and wife Christina, have made a $470,000 loss on the sale of their luxury Main Beach apartment. The Quinns sold the sub-penthouse just before it was scheduled to go to auction and now we can reveal the sale price was $2.15 million. Property records show the Quinn family bought the three-bedroom apartment in Main Beach’s Axis building for $2.62 million back in 2006.”

From ABC News. “A central Queensland man impacted by the collapse of a local building company says he did not know his family’s half-built ‘dream home’ would not be finished — until he read a note in the company’s window. Metro Builders put the note in its Yeppoon office window over the weekend, informing people that its business had ‘become unsustainable.’ Local man Luke Renshaw said he had so far paid the company $350,000 — including a payment of $80,000 just a few weeks ago — to build a new home with a pool and shed for his family in Tanby.”

“The company was officially put into liquidation this week. Master Builders’ regional manager, Dennis Bryant, estimated at least 24 homes had been left in various stages of building. Mr Bryant said this process could take months, and if people decided to pay other companies to finish or even protect their half-built homes in the interim, they would not be compensated. ‘People are paying rent while they’re waiting for [QBCC to act]; they’re paying interest on their loans,’ Mr Bryant said. ‘And their structure is subject to the elements and to vandalism. I know that occasionally happens.’”

“Yet Mr Bryant said it was sub-contractors and tradespeople owed money by Metro who he had the most sympathy for. ‘They’re the blokes who are really copping it,’ he said. Mr Bryant said he did not expect sub-contractors to recoup much of their losses. ‘They’ve basically got to suck it up. I’m not saying that in a derogatory fashion. It’s tragic for them,’ he said. ‘People in small businesses have very little ability to absorb a big financial hit, and it could mean that one or two of them might just go under.’”

From the Katherine Times. “Katherine house prices have dropped about $39,000 in the past year, the NT Parliament has been told. NT Treasury information shows median house prices have fallen from $349,000 down to $310,000 on average in Katherine. Treasurer Nicole Manison said the NT Government is soon to release a population strategy to try and boost population across the NT.”

“‘Ultimately you need people to create that housing demand and to stimulate that growth and that need for investment,’ she said. ‘What we need to do is ensure that we have more people moving to the Northern Territory and buying into the Territory.’”

June 13, 2018

Demand Failed To Keep Up With Frenzied Development

A report from CNBC. “Rent prices have risen over the past year across the U.S., but there are some bright spots: Several cities experienced modest price drops thanks to new building projects. Of the 25 biggest cities in the U.S., Apartment List found seven — Baltimore, Chicago, Pittsburgh, Portland, Seattle, St. Louis and Washington, D.C. — where median rental rates actually decreased year over year. The price drops in Portland, Oregon, and Seattle are due, in large part, to the flood of new apartments hitting the market, says Chris Salviati, a housing economist at Apartment List. ‘Over the past year, they’ve had a record number of units hit the market,’ Salviati says.”

From Globest.com. “US multifamily rent growth waned in the beginning of 2018. According to research from Rent Café, apartment rents increased 2% in the start of the year, the weakest growth for the same period of time since 2010. Overall, cities with the largest apartment units saw the most rent growth, including Las Vegas, Orlando, Denver and Los Angeles. Nadia Balint of Rent Café: ‘Following several consecutive years of record deliveries, apartment supply is expected to hit a new peak this year, with tens of thousands of new units to be delivered in many of the nation’s primary rental markets such as New York, Washington DC, Los Angeles, Chicago, Austin, and others, slowing down overall growth. Slow-growing wages and lots of new units, most at the high end of the market, chasing after the same renters is inevitably affecting rent prices.’”

From the Newbury Port News. “Tom Saab, owner of Tom Saab Real Estate, has been in the business in Salisbury for more 40 years. He said 15 percent of his 80 summer rental units have yet to be booked. ‘I’m getting calls from other owners who have vacancies also,’ Saab said. ‘Everybody is behind. Last year, I was 100 percent booked.’”

“Saab added that a traditional two-bedroom summer rental is Salisbury usually goes for $1,000 to $1,500 a week but this season could very well end up producing quite a bit of savings for the average renter. ‘You might be able to get a little bit of a discount now because of the vacancies,’ Saab said. ‘We just need to get the message out – Salisbury Beach is open for business and there are vacancies all over the beach.’”

The Charlotte Observer in North Carolina. “A spa for your dog. Golf and boxing simulators in the gym. Private bars with wine storage for residents. A 24-hour concierge. The list of amenities in some new Charlotte apartment buildings sounds more like what you’d expect in a high-end resort than a rental unit where you might live for a year or two. But with a record number of high-end apartments under construction, buildings are turning to their amenities to stand out and try to lure renters.”

“‘It’s been an arms race, especially with the high level of supply and competition,’ said Chad Hagler, a developer with Woodfield Investments, who’s opening the 455-unit Links Rea Farms apartments this year. ‘Everyone is trying to outdo one another.’”

“Not all residents want the amenities, however. ‘I prefer no amenities. My fiance and I toured probably every apartment complex in South End and South Park, and they upcharge for rent,’ said Rob Brooks, a resident of Park Avenue Condos. The couple decided to rent a unit at the condos to avoid the higher price tag of amenity-laden apartments. While his condo has a swimming pool, Brooks said he doesn’t use it much. His membership at the Y makes a swanky fitness room unnecessary, and his lack of a pet eliminates the need for a dog park or pet spa. ‘We didn’t want any of that extra stuff,’ Brooks said. ‘It’s not important to us.’”

From Metro.us in New York. “To get accurate prices of how much it costs to live near a certain stop, RentHop looked at 50 non-duplicate listings within 0.6 miles of a subway stop and calculated the median rents. And luckily, lots of these listings got cheaper. Around half of apartments near subway stops in Manhattan saw negative rent growth, the report found — including 34 St-Herald Square, which serves the B/D/F/M/N/Q/R/W trains, which saw a rent decrease of 8.2 percent, and Chambers Street, which serves the 1/2/3 trains, which saw a rent drop of 10.2 percent.”

“Apartments are also getting cheaper around subway stops in Brooklyn, especially the ones along the L line, which is slated to shut down in April 2019, though some near the Metropolitan Av – G Train stop and the Central Av – M Train stop saw price dips, as well. ‘Our findings indicate that we are now in a renter’s market — net effective rents are dropping, specifically in Brooklyn and Northern Queens. This means that more landlords are offering concessions, and that is a good sign for New Yorkers,’ said Shane Lee, RentHop data analyst. ‘Many renters are getting one month or two months free, and the fact that there is more supply than demand definitely gives renters more negotiating power.’”

From Realtor.com on Florida. “Homebuyers are likely to absorb Miami’s abundance of unsold condos within the next two years, as developers hesitate to break ground on new projects, according to predictions from developer and consultant ISG World. Over the past two years, demand for newly built condominiums failed to keep up with frenzied development in the South Florida city, so much so that multiple developers have put previously announced projects on hold.”

“The softness has pushed many developers in recent years toward rental developments. For example 25 Edgewater, a development under construction in Downtown Miami, was originally offered as a condo tower, but has changed course and is now a rental, according to ISG. Some of the softest neighborhoods include the city’s beaches, such as South Beach, Miami Beach and Sunny Isles, where developers have canceled three major condo projects. About one-fifth of all condo units in the beach areas that have hit the market since 2011 are still unsold, according to ISG.”

“Along the stretch of Miami east of Interstate-95, there are around 3,290 unsold units in new, under construction and pre-construction developments. Analysts have pinned the slowdown on myriad political and economic factors outside of the oversupply, including a slowdown in demand from Latin American buyers. ‘The strength of the U.S. dollar against most foreign currencies and the changing political climate in South America and Europe have recently slowed the investment of foreign capital in United States real estate,’ according to the report.”

The Star Tribune in Texas. “Examples of lavish apartments are everywhere in Fort Worth. The main reason is that when apartment developers borrow money to build their projects, the banks or investors want to get the best return possible per square foot — and that’s easier to do when you’re renting to tenants with a six-figure salary. ‘Developers are searching for the highest rate of return, so they’re going to be choosing projects that earn that money, particularly in an area with a limited availability of land and a tight construction labor market,’ said Gus Faucher, chief economist at PNC Financial Services Group.”

“Since 2010, 16,460 apartment units have been built in the Fort Worth area, according to RealPage, a real estate data company. But only 4 percent of these new units — a lowly 710 apartments — are now priced below the area’s average rent price of $1,093 per month. As more luxury apartments are built, the older units tend to become a better deal. Once the new apartments are open, older competitors will offer prospective residents a month of free rent, a break on utilities and other perks to lure them in. ‘They’re older and don’t have amenities, but they are more reasonably priced,’ Faucher said.”

From KBTX-TV in Texas. “According to a recent report by Bloomberg, this past school year, Park West, a new luxury-styled apartment complex located off of George Bush Drive, had nearly half of their available apartments still up for rent. Reasons behind the vacancy seem to point to cost. At the beginning of the year, rent prices were as high as $1,000 a month, which students like Tayler Winchell think is too high. ‘I mean, I couldn’t pay for it, as a college student you are paying for your own things and school, it’s just not possible unless your parents are doing it for you,’ said Winchell.”

“Even with amenities like a rooftop pool, a fitness and activity center and a nice view, Winchell said she doesn’t blame others from turning away. ‘Yes, I would love to have a nicer apartment and the amenities that they offered, but at the price it’s just not realistic,’ said Winchell.”

“Parents like Kenia Navarro said that she would never pay more than $600 for her kids to go to stay while they were in college. ‘I remember growing up and my parents paying 700 or 800 for a three bedroom house and now a one bedroom goes for $1,000, that’s just crazy, and that’s just for rent, that’s not including utilities, groceries or anything, it’s ridiculous,’ said Navarro.”

“To help fill the empty rooms, Park West lowered their rates to as low as $600. ‘You don’t realize until it’s coming out of your own pocket and then you’re like wow okay let’s be realistic and that is just not realistic,’ said Navarro.”

June 11, 2018

There’s A Lot Of Greedy Sellers

A report from the Kitsap Sun in Washington. “Although Kitsap County’s housing market has been firmly balanced in the favor of sellers for most of the year, buyers are now finding they have regained some bargaining power heading into summer, as more houses are coming onto the market. ‘We have a lot more listings, which means there will be more competition between sellers,’ said Silverdale-based John L. Scott broker Shelley Morritt. ‘The more listings we get on the market, the more it’s going to change to a buyer’s market rather than a seller’s market.’”

“For those above the $300,000 price point, Morritt said sellers shouldn’t be concerned if their properties are staying on the market for a bit longer than other comparable homes that sold earlier this year. The market conditions have changed. ‘If it takes longer than a couple of weeks in this market to get an offer, it’s because you’re overpriced. There’s a lot of greedy sellers,’ she said. ‘They’d be better off pricing it to what you think it will sell for rather than what they’d like to make. Don’t price yourself out of the market.’”

From the Denver Post in Colorado. “Metro Denver experienced a nearly 25 percent surge in the number of homes and condos available for sale in May versus April, according to the Denver Metro Association of Realtors. Unlike prior months, a surge in new listings wasn’t matched with a commensurate surge in home and condo sales. Those rose 6.5 percent to 5,235 during the month and are down 10.9 percent year over year. The median price of a single-family home sold in May dropped 0.88 percent from April to $451,000.”

“‘Overall economic conditions like employment, job growth and net migration are stronger today than 2007-2008. I don’t see a bubble any time soon, but keep an eye on inventory,’ Steve Danyliw, chairman of the association’s market trends committee, said in the report.”

From Biz West on Colorado. “As we head into summer — and peak season for residential real estate sales — it’s instructive for would-be Front Range homebuyers to get a lay of the land and see how regional housing prices are stacking up. We found one potential sign of prices easing up this spring. The Estes Park, Greeley/Evans, Loveland/Berthoud, and Windsor/Severance sub-markets all reported average sales prices slightly below their first quarter averages.”

From Mansion Global on New York. “Manhattan’s luxury real estate market is chugging along at a steady pace, said Donna Olshan in her eponymous Olshan Report. Buyers were getting an average discount of 11% from the original asking price, the report said, while properties spent an average of 390 days on the market. The priciest deal was for a full-floor co-op unit at 640 Park Ave., on the Upper East Side. The six-bedroom apartment was asking $21 million, reduced from the $25 million it was first listed for in February last year.”

“For the first time in more than a year, not a single co-op or condo was sold on the Upper West Side, though one townhouse did go into contract, the report said.”

From The Union in California. “Now that most of the votes have been counted, the losers have made their excuses, and the winners have advanced dubious theories for why they were victorious, do you still have questions about last week’s election? So much for the carpetbagger issue: Opponents of Rep. Tom McClintock love to point out that he can’t vote for himself because he doesn’t live in the Fourth Congressional district, but his opponent in November, Jessica Morse, is hardly a homebody. She returned to the area recently after long service elsewhere in the federal government.”

“(McClintock claims he can’t move into his district because he bought his house in Elk Grove just before the real estate bubble burst and would have to take a loss if he sold. Given today’s housing prices, that excuse doesn’t work anymore.)”

From the Illinois News Network. “Steinar Andersen is a disabled veteran, widower and father of a disabled stepson who is ready to move out of Illinois. But he can’t. Employed as a information technology manager, he and his wife bought an old farmhouse near Huntley in 2005. After the housing bubble burst and the state widened a nearby road, he’s deeply underwater on his loan. ‘I still owe $187,000 in principle,’ said Anderson, 55, now fully disabled from a service-related injury. ‘Once I get to $90,000 in principle in about 10 years, I’ll be able to sell at a $130,000 loss.’”

“Andersen isn’t alone. Collen Percy and her recently retired husband are $85,000 underwater on their suburban Plainfield home. They’re worried about property taxes eroding their home’s value further, pushing a potential payoff of their home further into their twilight years. ‘We’re stuck,’ she said. ‘We would love to sell [our home] and go live in a smaller home so we don’t have the upkeep and tax burden.’”

“Two new reports on home equity reveal that a number of Illinoisans, like Anderson and Percy, may be chained to to the state by a mortgage larger than their home is worth. A study of negative equity by Zillow found 16.4 percent of Illinois homeowners with a mortgage owed that is more than their home was valued as of the end of 2017. ‘There are several metro’s throughout Illinois that are even higher,”’ Zillow economist Sarah Mikhitarian said.”

“Centralia, Dixon and Canton are the highest, with nearly two of every five mortgages underwater. Chicago, Illinois’ economic engine and home to the state’s highest wages, saw 15 percent of mortgages carrying negative equity, representing $28 billion in lost home value.”

June 10, 2018

We’re Losing Money Galore!

A weekend topic on manias starting with CBS SF Bay in California. “With the ever-escalating Bay Area real estate regularly hitting new levels of insanity, with residential homes selling for seven-times higher than the national average with the average price of about $1.6 million. The house, located in the Pacific Heights neighborhood, just sold for $9.6 million. That’s $1.6 million over the asking price. The property tax alone is nearly double the median household income and far more than what most U.S. families make in a year. Patrick Carlisle, the chief market analyst with Paragon Real Estate, admitted it is impossible to predict when the cycle will turn, he said there’s one thing that all downturns have in common. ‘It’s called irrational exuberance. People get to this belief that it’s never going to end,’ explained Carlisle.”

From Realtor.com on Nevada. “Las Vegas isn’t just surviving—it’s thriving. The city, hit hard by the Great Recession, has rebounded, emerging as one of the hottest real estate markets in the country. Broker Brian Kyle shares the same sentiments about the scorching market right now in the desert. He says homes in nice shape priced under $300,000 are getting multiple offers the day they land on the market. ‘We are back to pre-recession excitement level,’ he says, ‘although the foundation of this real estate market is completely different from where we were back then.’”

The Star Tribune in Minnesota. “Last month, the average price per square foot of a new house in the metro was $166, about 18 percent more than an existing one, according to the Minneapolis Area Association of Realtors. In 2012, the price gap per square foot between new and existing houses peaked at 31.3 percent. That gap has slowly narrowed largely because existing home prices are rising swiftly. Mark Gianopulos, Midwest region director for Metrostudy, said the Twin Cities had the highest level of annual single-family permits of any urban area in the Midwest during the first quarter of the year. ”

“He said the median closing price for a new single-family detached home in the Twin Cities is the highest in the Midwest at $416,960. However, as builders try to cater to buyers on a budget, they are trying to control costs by cutting back on size and amenities. Since the second quarter of 2015, the median price of those new houses has remained relatively flat. ‘The housing market in the Twin Cities continues to show unbridled strength even with the recent modest economic factors,’ Gianopulos said.”

From Market Watch. “On Wednesday, famed real estate investor Sam Zell spoke at an industry gathering for real estate investment trusts. ‘Today, we see a multifamily market that is catching new supply for the first time, frankly, since before the Great Recession. We probably built 480-500,000 units last year, the last time we built that many units in one year that was 1971 when the multifamily market was growing from scratch. We’ve created a lot of supply.’”

“‘In some urban markets, like New York, you see oversupply and dipping rents, and maybe creating concessions, but basically of a relatively small nature because there is no ability to overrun an urban market with oversupply. Not so with suburban markets. I think over the next 12-18 months we’re going to see oversupply particularly in the suburban markets that are going to make multifamily less attractive from a bottom line point of view than it has been up to now.’”

“What about retail? ‘The best description I can give you is a falling knife.’”

From Senior Housing News. “Large private equity firms might have an advantage in seizing the urban opportunity, given that they are flush with capital. Activity should start to pick up in the the second half of 2018 and remain elevated into 2019, predicted Robb Chapin, CEO of Bridge Seniors Housing Fund Manager. One reason is that some markets became overbuilt during the recent senior housing construction boom; the fierce competition now is leading to distressed properties. These will be coming on the market in increasing numbers.”

From Farm Forum. “North Dakota land values declined approximately 1 percent, based on the 2018 County Rents and Prices Report survey funded by the North Dakota Department of Trust Lands. The Kansas City Federal Reserve Agricultural Credit Survey reports land values down approximately 3 percent in the first quarter of 2018, for irrigated and non-irrigated farmland in Nebraska, Kansas, Oklahoma and parts of Missouri.”

“In North Dakota, the 1 percent decline continues a slow downward trend for land values statewide that first was seen in the 2015 report and continued through 2017. Values declined 0.57 percent, 3.95 percent and 0.91 percent, respectively, to $1,996 per acre. The survey data indicate that for the first time since 2003, the northwestern region experienced a decline in farmland values, falling 9.81 percent from $1,230 to $1,110 per acre. This represents the greatest decline of any region in the state. Rents in the Red River Valley counties declined 5 percent, with the southern Red River Valley counties falling from $124.60 to $118.20 per acre. Northern Red River valley counties fell 10 percent, from $89.60 to $80.80 per acre.”

“Rising interest rates put additional downward pressure on farmland as outside investment opportunities begin to look more favorable. While the bulk of farmland is purchased by farmers, a sizable share is purchased by investors.”

“Bryon Parman, North Dakota State University Extension agricultural finance specialist concludes, ‘The exact proportions of land purchased by investors versus traditional farmers is difficult to discern. However, even if as little as 10 to 15 percent is investor-purchased, should they look to sell, or at least no longer view farmland as a favorable investment, it’s likely to have a significant impact on land moving forward. Especially if bond yields rise much faster than capitalization on farmland, investors will most likely look at investments in other markets yielding better returns.’”

The North Shore News in Canada. “What was supposed to be a non-political town hall Thursday evening in West Vancouver took on angry, political overtones as the near-capacity Kay Meek crowd blasted the NDP’s forthcoming school tax. Noting the flagging real estate market and the plethora of homes selling for less than assessed value, Realtor Allan Angell dubbed the situation: ‘a nightmare.’”

“‘The NDP should be shot,’ he said, before being interrupted by applause and shouts of ‘hear, hear!’ ‘We’re losing money galore’ Angell continued. ‘My house has dropped $1.5 million in five months.’”

“Simon Fraser University professor Andrey Pavlov suggested that overall tax increases are hurting affordability. ‘If you’re a buyer, the fact that the home price is cheaper does nothing to help you.’”

“Fellow panellist Seain Conover concurred, addressing the argument that homeowners were only being asked to pay ‘a little bit’ more. ‘That’s a very disingenuous argument because when you pile on a whole bunch of expenses to an asset, the asset becomes less desirable,’ he said.”

From ABC News on Australia. “Australia’s Foreign Investment Review Board (FIRB) reported this week that foreign residential real estate approvals dropped significantly in the 2016-17 period. Whereas 2015-16 saw 40,149 approvals granted, totalling $72.4 billion, the figure for the following year was just 13,198 approvals, totalling $25.2 billion. On these numbers, the foreign property investment boom looks to be over.”

“Chinese demand may have been weakened by a range of factors, including the new FIRB application fees, Chinese overseas direct investment capital controls, and the changing global economy. But if the cycle is moving from boom towards bust, we have learned several things along the way. Between 2013 and 2017, property developers, both local and foreign, regularly contacted me to ask if I had any up-to-date research on foreign investors’ consumer preferences and market forecasts. I did not. But there was no shortage of advice out there, covering everything from feng shui-informed housing design to the key needs of foreign university students.”

“Some global real estate agents suggested to their clients that they could buy an Australian home to accommodate their child while they were studying at an Australian university, and then use the capital gain from the property sale to pay back the tuition fees. Many property developers were formulating medium- to long-term development pipelines that included the foreign capital and consumer preferences of foreign investors. It is unclear, now, whether much of this housing stock will ever be built. If it is, will it suit the changing future needs of our cities, or address our ongoing housing affordability problems?”

“In other words, what sorts of properties will be left as the legacy of the recent foreign real estate investment mania?”

From the Courier Mail in Australia. “Tenants are the big winners of the apartment building boom as median rents across many popular suburbs go backwards. Weekly median rents in Newstead, Bulimba, Milton and Fortitude Valley have all dropped by between 9 per cent and 10.6 per cent over two years. Increasing supply is a big cause of the drop, and in Bulimba the number of units has increased to 1525 from 1454 two years ago. ‘And directly across the road from me they are building another big unit complex,’ said Bulimba renter Zoe Knight.”

“While it may be a renter’s market, the drops had hit investors hard, according to Propertyology’s Simon Pressley. ‘The softening of rents in Brisbane is not new unfortunately,’ Mr Pressley said. ‘It has been progressively unfolding for three odd years, and the main cause of it is way too many apartments.’”

“Rents for houses had also taken a dive across many popular Brisbane suburbs over the past two years. The median rental price in West End was $550 in March, down from $605 at the same time two years ago, despite the number of houses not changing greatly. ‘If you have too many of any dwelling type it can often have a knock-on effect to all dwelling types,’ Mr Pressley said.”

June 9, 2018

Propping Up The Global Economic System

A weekend topic starting with Bisnow. “Someone at the International Monetary Fund has been thinking about chaos theory. Specifically the butterfly effect, the name for the branch of chaos theory which argues that a butterfly flapping its wings in one part of the world can be the very tiny incident that builds up to a hurricane on the other side of the globe. The IMF took this principle and applied it to global housing markets. Since the financial crash, global housing markets have become more synchronised: prices and the way they move have become more and more correlated, particularly in major gateway cities. A combination of low interest rate policies around the world, improved economic growth and the increasing importance of global capital has caused this alignment.”

“These conditions are even more true in the commercial real estate world, where there are fewer properties and global capital plays an even greater role. The problem with this situation, according to the IMF, is that it makes downturns harder to contain — if one market experiences a sharp correction, other correlated markets are likely to experience the same fate. Might a butterfly flapping its wings in Midtown Manhattan herald bad news in London’s West End or La Defense in Paris?”

From Think Realty. “Renters are getting more bang for their buck these days due to an increase in rental concessions. According to a report from CoStar, an increasing number of developers are offering concessions to new and renewing residents in order to keep occupancy up. Lynn Bora, vice president of operations at Winn Companies, a firm managing nearly 100,000 apartments across the country, observed, ‘Concessions are back with a vengeance.’ There is a growing glut of high-end and mid-level multifamily housing. Some cities, like Nashville, are seeing 30% increases apartment inventory.”

From the Daily Gazette in New York. “Local experts expect the long-running apartment construction boom in the Capital Region to start tapering off. Until recently, Sunrise President Jesse Holland said as an illustration, Sunrise didn’t offer two-year leases because one-year leases increase the tenant turnover rate, and every turnover is a chance to raise the rent. Now, he said, Sunrise sees two-year leases as a way to retain tenants and maintain high occupancy. Other companies, he said, have gone as far as offering two or three months’ free rent to attract new tenants.”

“SEFCU Commercial Banking Vice President Ed Jennings said lenders are not financing apartment projects as freely as they once did. ‘Where is the saturation point in the multifamily market?’ he asked. ‘I think the lenders are looking at that very closely.’”

From The Real Deal on New York. “Concessions hit record highs in Brooklyn and Queens in April, per Douglas Elliman, with 65.1 percent of new deals in Northwest Queens including them and 51 percent of new deals in Brooklyn including them — marking the first time the borough has cracked the 50 percent mark. In Manhattan, 44.3 percent of new leases in April included concessions. These unprecedented highs could lead to changes in what landlords decide to offer on lease renewals going forward, according to sources.”

“In previous cycles, many New York City landlords would knock off concessions and jack up rent once the initial lease ended. ‘That free rent may come into play on second-generation leases where the tenants decide to stay, and even if it goes back on the market, they’re probably going to be giving a month free at least,’ said Elliman broker Matthew Villetto. ‘You do have situations where a landlord would give a concession to keep someone in the building. It comes down to the math,’ said Citi Habitats’ David Maundrell.”

From Bisnow on Georgia. “The Vue is the latest in new apartment projects being announced in Atlanta and is part of a group of developments still taking the chance on the metro area’s renter appetite for new apartments. Over the next 12 months, more than 8,000 units are slated to hit the market, representing a ‘high water-mark for in-town deliveries,’ Haddow & Co. recently stated in a report. Since 2015, some 19,000 new apartment units delivered in Atlanta. This glut of new apartments is having its toll on rents. According to Haddow, developers are having to sweeten concession packages to attract renters. Rents at high-rise apartments fell nearly 5% from a year ago to $2.30/SF, and the average number of new units getting snapped up by renters also dropped to 15 per month from 20 per month in 2017.”

From Bloomberg. “Park West, a 3,400-bed student housing complex near the Texas A&M University campus in College Station has a resort-style rooftop pool, three gyms and lounges with billiard tables, ping pong and flat screen televisions. What it doesn’t have are students — or rather their parents — willing or able to pay as much as $1,000 a month to live there. Just over half the beds at the complex, financed largely by tax-exempt municipal bonds, were filled during the last academic year.”

“About 360 miles (580 kilometers) north in Norman, Oklahoma, a 1,230-bed residence hall at the University of Oklahoma featuring a ‘blow dry bar and salon,’ a market with grass-fed local meats, and a cycling studio is just 26 percent leased, according to a securities filing. It opens in August. ‘We have seen some projects go through a little bit of stress,’ said Jessica Matsumori, an analyst at S&P Global Ratings. S&P has rated about 60 privatized municipal student-housing deals, most of them BBB-, the lowest investment grade.”

“Few restrictions apply to tax-exempt financings by non-profit entities, said Mark Scott, a former head of the U.S. Internal Revenue Service’s Tax-Exempt Bond Office. ‘The real question is why an entity that builds luxury apartments is entitled to non-profit status,’ he said. Park West only rented 54 percent of beds in the fall semester and 52 percent in the spring, according to S&P. Management told S&P the market study didn’t capture all the new housing supply coming on line in the area surrounding the campus. S&P downgraded the bonds eight levels to CCC in December.”

From the Commercial Observer. “Ask a dozen multifamily experts what should become of Fannie Mae and Freddie Mac, the public-private corporations that guarantee American residential mortgages, and you’re likely to hear three dozen suggestions. But the one thing everyone can agree on is that no one expected the so-called government-sponsored entities (GSEs) to still be where they are today.”

“The federal government had no choice but to intervene to save a modicum of liquidity in residential finance markets, seizing control of the GSEs and injecting hundreds of billions of dollars to rescue them. It was never supposed to last. Willy Walker, who in his role as CEO of Walker & Dunlop leads the company that’s the biggest contributor to Fannie Mae multifamily mortgages and the third-biggest to Freddie Mac’s, knows all too well that conservatorship was never meant to be a permanent solution.”

“‘We have to keep in mind the fact that Fannie Mae and Freddie Mac [were put] into conservatorship to prop up the global economic system,’ rather than for reasons inherent to their own operations, Walker said. ‘The idea that anyone had any vision about what they would be in the future [is false].’”

“Fannie Mae and Freddie Mac don’t originate their own loans. Instead, they buy them from banks and other lenders, package them for sale in the commercial and residential mortgage-backed securities markets and make an implicit guarantee to investors in the case of defaults. Given how important the agencies’ operations are to multifamily markets, it’s no surprise Walker is frustrated with the lack of progress in reorganizing them.”

“‘All the proposals [to reorganize the GSEs] are way too complicated,’ he said, noting that only a few debt markets, such as the trade in U.S. Treasurys, are larger. ‘You can’t draft legislation that will allow you to get everyone around the table to agree if you are trying to wholly change [one of the] largest bond markets in the world.’”

“The inertia over what to do with the giant institutions might be less severe if the agencies weren’t so central to U.S. housing markets—or, if the government’s conservatorship had been less lucrative. Combined, the agencies provided about $1 trillion in liquidity to mortgage markets last year, financing millions of apartment units and even more single-family homes along the way.”

“The most vocal proponents of banishing the government guarantee in the housing markets entirely, a think tank at the American Enterprise Institute (AEI) led by Peter Wallison and Edward Pinto, argue that by extending affordable credit to some marginal housing buyers who’d otherwise be shut out of housing markets, Fannie and Freddie’s role has been to accelerate the cost of low-income housing, contributing to a perpetual seller’s market that leads to constant instability: booms and busts.”

“The GSE’s ‘effort to make housing more affordable…actually makes housing more expensive, because you haven’t solved the supply-demand imbalance,’ Pinto said. ‘Now, we’re [more than five years] into a seller’s market, and we’re getting the exact same response from the market’ as before the financial crisis, with rising prices for low-tier housing.”

“The trouble, according to economist Mark Zandi, is that during the steady economic expansion of the late 2010s, there’s been little impetus to shake up a system that has extended as-yet untested credit to residential borrowers and returned billions of dollars to taxpayers. ‘The main sticking point is that the system works,’ Zandi said. ‘You’re not happy with the pipes, but the water’s flowing. Do you really want to change the plumbing?’”

From the Democrat and Chronicle. “The current criminal case alleging wrongdoing by relatives of area developer Robert Morgan has led to many questions about the criminal charges and the possible impact locally. In all, authorities allege that hoodwinked lenders provided loans totaling $167.5 million for seven different properties. The alleged skulduggery included inflating the value of apartment projects with falsified information about how many people resided there. In some cases, prosecutors say, the alleged conspirators submitted fake documentation to property appraisers, convincing the appraisers that apartments were significantly more valuable than they really were. Those appraisals then became the centerpiece of loan requests.”

“In two cases, Giacobbe and others allegedly conjured up fictitious loans — one for $3.5 million, the other for $1.4 million — and persuaded lenders to roll those sums into the amounts the Morgan company was refinancing. In another case, in December 2016 Frank Giacobbe, a Buffalo-based mortgage broker, allegedly told a lender for a Pittsburgh property that the apartments were more than 95 percent occupied. Three months later an employee of the complex, unaware of the earlier claims, sent an accurate report to the lender that showed less than 70 percent of the complex was occupied.”

“Debt outstripped assessed value for all but one of 40 Morgan projects or purchases in the Rochester area examined by the Democrat and Chronicle, suggesting the properties were mortgaged for more than they were worth. In some cases, the debt was more than double the assessed value.”

June 8, 2018

This Overbuilt Mess Will Collapse Like Yesterday’s Carnival

It’s Friday desk clearing time for this blogger. “‘For Sale’ signs will soon be a thing of the past on homes in New Canaan, Connecticut. A six-month trial ban starts July 1, meaning those signs you see in front of houses will have to be taken down. ‘The amount of them is giving buyers an idea that this entire town is for sale,’ said resident Shawn Gardner.”

“These are tricky times for Manhattan condominium developers. Since the heady boom times of 2014 and 2015, New York City’s residential condo market has undoubtedly found itself in a state of correction. It all started rearing its head around 2016, when an unexpected and unprecedented presidential election triggered macroeconomic uncertainty and concerns about a supply glut in condo inventory began to take hold.”

“Jonathan Miller, CEO of Miller Samuel, attributed the slowdown to a ’sheer heavy volume of [luxury condo] units coming to market’ that has caused a ’slow buildup of inventory,’ as well as economic factors like a stronger dollar that has weakened interest among foreign buyers. ‘The billionaire or super-luxury market was not as wide and deep as everyone thought,’ Miller said.”

“Colorado voters will not have the chance to decide in November whether or not to limit residential growth along the Front Range, as the author of a proposed ordinance to do just said he will not try to collect signatures to get his proposal on the statewide ballot. ‘I think a recession is just around the corner, and this overbuilt mess we have will collapse like yesterday’s carnival,’ said Golden activist Daniel Hayes.”

“Warriors center Zaza Pachulia recently sold his penthouse at the Carroll Walk condo building on Bay Harbor Islands for $1.13 million – 14 years after he bought it for $1.33 million, according to real estate records. It was listed originally for $1.5 million in 2014 and it steadily decreased since. The buyer was a shell company based in Panama.”

“More people in Saskatchewan are continuing to fall behind on their mortgage payments, and recent numbers show the trend is climbing. The latest report from the Canadian Bankers Association says Saskatchewan leads the country in residential mortgages in arrears at 0.78 per cent. That’s approximately one in every 130 mortgages. It’s the highest level seen in the province since 1992, and more than three times the national average of 0.24 per cent. The percentage in Saskatchewan has more than doubled since 2014.”

“The sale price of homes is also on the downswing. The year-to-date average sale price in Saskatoon was $334,449, a 4 per cent decline from the same time last year.”

“Affordability wasn’t written into Dubai’s design brief. The ‘build it and they will come’ mentality saw developers race to fill the desert with glitzy skyscrapers, transforming the fortunes of the city in two short decades. But tightening economic conditions are contributing to a more affordable future for Dubai in all sectors of the real estate market. While prices and rents have fallen across the market, villa properties have seen the biggest drop. Plans are afoot to reboot the market which has fallen 15-20 percent since its peak in 2014.”

“‘The way we’ve been talking about the broadening of the market and the increased focus on affordability is the ‘new normal’ as a greater sense of financial realism enters the market,’ says Craig Plumb, head of research, JLL MENA. ‘Questions remain over oversupply, particularly in the residential and retail sectors and the market has definitely moved in the favor of tenants in recent years.’”

“Letting manager at Knight Frank Gail Cawood, says an increase of rental supply has caused the prices to drop, notably in the Southern Suburbs, Hout Bay and the Atlantic Seaboard. She says there are a number of new developments popping up in places like Claremont and Observatory, and a southern suburbs 2 bedroomed flat that a year ago was R15 000 would now go for about R12 000 a month. Bigger townhouses have dropped from about R32 000 to around R25 000 ‘We are finding a huge drop in the price of rentals, she said.”

“Real estate investors are now the biggest loan defaulters, signalling the more than decade-long property boom is easing. ‘The ratio of the non-performing loans to gross loans increased to 12.4 per cent in April from 11.4 per cent in February 2018 largely due to increased NPLs in the real estate, trade and manufacturing sectors,” Central Bank of Kenya governor Patrick Njoroge said. A dip in prices and the slow uptake of newly-built units have raised fears of renewed pressure on developers, who borrowed to fund for-sale projects as obligations mature. A slow down on growth of private sector credit is also hurting real estate, which heavily relies on bank loans for unit purchases.”

“Le Hoang Chau, chairman of the HCM City Real Estate Association, said that according to property brokers in these areas, sales volume had dropped by around 40 per cent compared to the peak period last month. The land liquidity there has fallen by 60 per cent compared to the previous months. Nguyen Van Trung, a broker in Binh Thanh District, told Viet Nam News: ‘Land prices have increased over the last decade, especially in recent years. Now, many investors have begun to sell at the same time.’”

“New Zealand’s property market has flattened and is likely to stay that way for at least the rest of the year, valuation data provider QV says. Even Wellington, which has had a strong run of price rises, experienced a drop of 1.3 per cent in May, attributable to weakness in Wellington City and less demand for higher-priced properties. CoreLogic head of research Nick Goodall said demand for houses would be reduced by the Healthy Homes Guarantee scheme imposing more requirements on landlords, more focus on dampening speculation in the market and ring-fencing of property investors’ losses.”

“‘All these things keep a lid on demand,’ he said. ‘The value growth witnessed in these centres over the last few years were unlikely to be sustained.’”

“Off-the-plan apartment buyers in Sydney’s west are selling below their purchase price as rising costs, falling prices and, in some areas, oversupply erode market sentiment. Darwin and Perth continue to struggle, says property surveyor Herron Todd White, with mortgagee-in-possession auctions increasing as borrowers default on repayments and lenders take possession and sell the property. Another one-time property price leader, Melbourne, is also beginning to splutter.”

“Apartments purchased off-the-plan four years ago for about $670,000 in popular Parramatta are selling for around $630,000, says Shaun Thomas, residential director of HTW. Dwelling prices have dipped by more than 1 per cent during the past three months and more than 4 per cent since their July 2017 peak. In parts of western Sydney they are down by nearly 7 per cent. ‘Generally the wider market has cooled with transaction numbers falling, selling periods extending and prices declining,’ says Thomas.”

“Brisbane apartments have plunged by about 20 per cent from their peak, according to CoreLogic. ‘Impacts of oversupply have come home to roost,’ says David Notey, an HTW Brisbane director. ‘There is resistance from buyers and they usually only perform at their best when a boom is under way.’”

“Joining a growing list of analysts including AMP Capital, the Commonwealth Bank and Morgan Stanley, Westpac predicts recent declines in Australian capital city house prices will continue for some time to come. ‘When the banks start to adjust their way of giving finance out, it affects everybody,’ said Property expert Robert Klaric. ‘All of a sudden if someone’s buying something for $600,000, there should probably be a good $50,000 to $60,000 cheaper purchase by the end of this year.’”

June 7, 2018

A Long Fuse That’s Still Burning

A report from The Olympian in Washington. “The law of supply and demand is pretty simple. A product in great supply with weak demand can yield low prices. But couple strong demand with low supply, and the reverse happens. In the case of housing during a time of scarcity, prices can hit stratospheric levels. That focus on housing supply is a key argument made in a national report on housing and homelessness released Wednesday by a coalition of Democrats in the U.S. House. ‘We simply cannot build enough units in this country,’ U.S. Rep. Denny Heck, D-Olympia, told The Olympian Editorial Board last week as he previewed the report’s preliminary findings.”

The Seattle Times in Washington. “Single-family home prices continue to reach new highs despite increasing inventory in May, according to the Northwest Multiple Listing Service. The news isn’t all bad for home buyers, however, as total active listings in King County went up for the second month in a row after years of declining inventory, increasing 36 percent in May compared to the previous year. ‘There’s a little relief, meaning buyers don’t have to write an offer within the first hour,’ said Mike Grady, president of Coldwell Banker Bain. ‘Now they have maybe a day.’”

The St. Augustine Record in Florida. “A look at the population statistics or just a drive down County Road 210 would justify the belief that northern St. Johns County has seen an explosion of growth. The reality is that it’s just a long fuse that’s still burning. The real boom has yet to come. And it will. SilverLeaf’s entrance into the county’s busiest building corridor is the surest sign that massive housing growth is still in front of us rather than in the rear-view mirror.”

“That development, which stretches from the C.R. 210 area south to State Road 16, is set at 10,700 homes, but it’s certainly not alone — not even in that part of the county. In the northern sector of the county, there are several other large housing developments that just launched in the last two years. On the east side of Interstate 95, there are three new communities: Beachwalk, Creekside at Twin Creeks and Beacon Lake that recently started selling homes. Assuming they are successful, the three will combine to add about 3,000 homes.”

“Shearwater opened in 2015 to bring 2,000 more homes. And even that pales in comparison to RiverTown, in the extreme northwest. That development was relaunched about two years ago and sold about 250 homes last year. Still, that leaves more than 4,000 homes that can be sold there. So since 2015, just those developments have added or are about to add around 20,000 potential new homes in the northern part of the county west of U.S. 1. How about east of U.S. 1? Well, a not-too-secret development called Nocatee has pretty much set the bar for development in the area. There have already been 7,000 homes sold there, and Roger O’Steen, founder and chairman of master developer The PARC Group, said the plan is to sell another 3,000 homes. (The development is entitled to more than 12,000.)”

The Star Tribune in Minnesota. “Nearly 340 residential buildings sit empty and boarded across Minneapolis, despite a severe housing shortage and a steep vacant property fee that has raised $20 million for city services over the past decade. The problem isn’t specific to Minneapolis. St. Paul has 634 vacant properties, according to the city’s data. The Twin Cities’ situation is dwarfed by the street after street of boarded-up properties in cities like Baltimore, home to more than 16,000 vacant houses.”

“These days, many of the homes left vacant sit in the Twin Cities’ most desirable real estate neighborhoods and have increased exponentially in value in recent years. Instead of selling for profit, the owners pay thousands annually to the city as they wait for the right moment to renovate, tear down or sell. Timothy Alexon, who owns scores of properties in north Minneapolis, said the annual fee pales in comparison to what he plans to make when his company eventually sells them.”

“‘The houses are going up more than the [fee] is costing me,’ he said.”

From News 5 Cleveland in ohio. “Cleveland council members and residents report a spike in the number of homes and vacant lots that are filled with overgrown grass and weeds. Cleveland Councilman Kevin Conwell said he found more than 50 homes, in just two hours, that are in violation of the city’s high grass ordinance and are a potential safety and health hazard. David Imbordino said he’s tired of dealing with two homes in his East 72nd Street neighborhood, which are filled with high grass and weeds. Imbordino said he’s contacted the city about cutting the lawn and issuing a citation, but he’s said there’s been no response.”

“‘It’s pretty bad, a lot of bad animals out there,’ said Imbordino. ‘Big ones, like raccoons. ‘The city hasn’t cut these two lot in at least a couple years, I never see them.’”

The Northwest Herald in Illinois. “On East Lake Street in Woodstock, just past Raintree Park, a house sits in disrepair. The house has been empty since 2010, and it’s not the only home that went vacant around that time, Woodstock building and zoning director Joe Napolitano said. ‘With the financial crisis, when all the bad mortgages were issued, is when we started seeing an uptick in foreclosed properties,’ he said. ‘People couldn’t pay, and a lot of them just walked away.’”

“When a property owner washes his or her hands of the problem, the matter can become stuck in limbo between the owner, mortgage company and bank, Napolitano said. The banks can claim they don’t own the property until the mortgage is released. In the meantime, municipalities are left to pick up the pieces. ‘Sometimes the bank that holds the mortgage is tied up in the court system, and some foreclosures go on for years.’”

“One of the Harvard homes has been vacant for at least 10 years, and the two others have been abandoned for more than three years, said City Administrator Dave Nelson. ‘We’ve been doing maintenance of the lawns and general maintenance to secure them,’ he said. ‘It’s nothing egregious really, but people just walk away, and then the banks walk away, too. It’s crazy.’”

The Buffalo News in New York. “Lori and Dwayne Bell of Derby have been scared out of their minds for almost 10 years. The Derby couple has spent a decade living in a home that has been stuck in foreclosure and is in perpetual danger of becoming a ‘zombie’ home. But they are determined to stay there, rather than leave a vacant and abandoned property to drag down the neighborhood. ‘We’ve been going through utter hell, every day, wondering if we’re going to have our home,’ Dwayne Bell said.”

“When financial problems forced the Bells to miss mortgage payments, they started down a path trod by tens of thousands of Americans in the wake of the housing market collapse and financial crisis of 2008. But the Bells have managed to stay in their home through perseverance — and by reading the fine print. While the economy has improved, the threat of zombie homes continues. The number of foreclosures filed in Erie County went from a recent high of 2,759 in 2009 to 1,668 last year.”

“‘It’s nerve-wracking. People think it’s easy to sit here and not make a mortgage payment. I wouldn’t wish it on my worst enemy,’ Lori Bell said.”

From KRQE in New Mexico. “Boarded up doors and windows, dirty needles, and downright disgusting looking properties can be found in pockets all around Albuquerque neighborhoods. According to the Planning and Zoning Department, based on the report from the Vacant and Abandoned Houses Task Force, there are at least 1,300 neglected and vacant homes around the city on any given day.”

From NBC Philadelphia. “Every month, New Jersey resident Kimberly Deal has to decide which bills to pay and which to put off for another time. Housing insecurity burdens hundreds of thousands of Americans, especially people with lower incomes or those who live paycheck to paycheck. In Deal’s section of Atlantic County, 61 percent of residents pay more than 30 percent of their income on housing, according to U.S. Census data. The median income for her zip code is 41,802.”

“On the Pennsylvania side, families in North Philadelphia are the most burdened by rent and mortgages. Half of residents pay at least 30 percent of their income on housing. And the median income for that area is well below the poverty line: $21,630 for a family of four, according to U.S. Census data. It’s the same every month. Sitting on the stoop of her Pleasantville home, Deal pointed out one vacant house that had been foreclosed. On the other side, eviction crews empted another home. ‘It’s been going this way in this area for some time now,’ she said.”

June 6, 2018

Facing A Reckoning For Behaviour In The Boom Times

A report from the Toronto Star in Canada. “The competition among homebuyers is increasing in the Toronto region even though year-over-year prices fell 6.6 per cent on average to $805,320 last month, from $862,149 in May 2017. The number of resale home transactions declined 22.2 per cent in the same period. Detached and semi-detached houses continued to see the steepest decline in sales compared to condos and townhouses. The average detached house price fell 8.2 per cent in the Toronto region to $1.05 million, with the biggest drop in the communities surrounding Toronto, where there was a 9 per cent price drop compared to the same month last year. In the city of Toronto, detached house prices fell only 5.6 per cent.”

“York Region is still suffering disproportionate price declines compared to the rest of the GTA. While the benchmark Home Price Index was down 5.4 per cent overall, the same indicator showed a 15.6 per cent drop in York. Detached house prices were down 17.5 per cent on the index. This year to date, the home price index shows the average price of a detached home has fallen 13.8 per cent in the Toronto region.”

From Infosurhoy on Canada. “Real estate developer Fortress Real Developments Inc. is facing a flurry of legal actions from mortgage lenders who have filed applications to foreclose on land earmarked for development projects. Court documents show senior lenders have launched actions against at least four Fortress affiliates following recent payment defaults.”

“The targeted companies include Fortress Brookdale Inc., which is building a condo project on Avenue Road in Toronto; Brookhill Holdings Inc., which is planning a single-family housing project in Bowmanville, Ont.; and Fortress Collier Centre Ltd., which is developing a commercial tower in Barrie, Ont. Another lender also filed legal warning that it plans to seize land slated for the Glens of Halton Hills project, a planned residential development in Georgetown, northwest of Toronto. Fortress lists more than 50 projects on its website that it has under development or construction across Canada.”

The Vancouver Sun in Canada. “A former Metro Vancouver realtor who has been leasing luxury properties to B.C. gangsters is behind bars in the U.S. charged with international money laundering. Omid Mashinchi, 35, appeared in a Boston courtroom last month and was ordered held pending trial. U.S. authorities allege that he wired hundreds of thousands of dollars in drug money over several months last year to banks in Massachusetts through one of his company’s accounts.”

“A Postmedia investigation has found that Mashinchi has started at least three companies in B.C. since 2006, all related to the real estate industry. And for years, police say, Mashinchi has been associating with B.C. gangsters, including leasing them condos that were used both as stash houses and as residences. Postmedia has learned that his company Mashinchi Investments, also known as the Residence Club, leased the luxury North Vancouver condo where Brothers Keepers boss Gavinder Grewal was shot to death last December.”

“And Mashinchi also leased out a West Vancouver house that was targeted in an unsolved drive-by shooting on October 8, 2017. ‘Mashinchi is well-known to the policing community and has rented several properties to known gang members,’ Mike Porteous, a Vancouver police superintendent. ‘Many of these properties have been tied to criminal activity such as drug dealing and violent events including murder and drive-by shootings‎, which are gang-related.’”

“B.C. Attorney General David Eby has repeatedly raised concerns about organized crime laundering money through casinos and the province’s hot real estate market. But the charges against Mashinchi suggest dirty cash could also be infusing property leasing and high-end rentals. So how could organized crime use condo leases to launder illicit proceeds?”

“Christine Duhaime, an anti-money laundering expert and lawyer, said leases or rental properties could be misused through ‘trade-based money laundering — where you inflate the price to get a fake invoice to then move money.’ For example, if a property rented for $10,000 a month, the landlord could actually put twice that amount into the bank as the rent, effectively laundering $10,000.”

“RCMP Chief Supt. Keith Finn said there is obvious concern about money laundering through the real estate sector in B.C. ‘Whenever you have a quick increase in prices there is an opportunity there for the criminals among us to use the flipping of houses and purchase and disposal as means to launder their money,’ he said.”

The Sydney Morning Herald in Australia. “ANZ Bank has warned the pace of decline in Australia’s house prices is ‘quite a bit larger’ than expected, and likely to last longer than it previously forecast. With national auction clearance rates at a five-year low, ANZ senior economist Daniel Gradwell predicted in a research note published on Wednesday that further weakness was in store for the housing market, before it would start stabilising later this year.”

“Mr Gradwell pointed to recent figures showing that the rate of price decline had accelerated in Sydney. The weakness was also affecting Melbourne amid a slump in national auction clearance rates and a tightening in credit availability.

Mr Gradwell said the bank had previously expected the market would have ’stabilised’ by now, based on higher auction clearance rates at the start of this year. It had expected prices would finish 2018 slightly higher in annual terms. But ANZ is now revising these forecasts. ‘Weakness in Australia’s housing market has persisted longer than we expected, and the rate of decline in prices has recently accelerated,’ the economist wrote. ‘This weakness is challenging our previous view that prices would stabilise and then recover somewhat to finish the year in positive territory.’”

“‘Additional headwinds are possible, such as the shift away from interest only loans,’ he warned. ‘There could also be further tightening of credit as the impact of the current regulatory focus on mortgages flows through into lender behaviour. All of this suggests that the fall in house prices will be quite a bit larger than we previously expected, with recovery coming later.’”

From Business Insider Australia. “At this time last year, house prices in the exclusive suburbs of Sydney — regarded as the hottest pockets of the Australian property market — were still rising by more than 10%. But now those same areas are seeing discounts running into hundreds of thousands of dollars on individual homes amid a weakening market, Business Insider has established. Several Sydney real estate agents confirmed common discounting of around 10% on price guides as sellers have struggled to generate interest — even in the prized eastern suburbs and inner west areas of Sydney, which benefited most from the rapid price growth of recent years.”

“Agents from a range of firms said properties around the $2 million mark were most affected, and that the market conditions would persist for some time. Some said they expected the discounting to spread to higher and lower price brackets. One agent said he thought it would be ‘four years or more before prices go up.’”

“In one clear example, a property on Park Parade, Bondi, was recently revised weeks ago to $2.1 million from its previous guide price of $2.3 million, in an email to the agents’ list of prospective buyers. Another property on Ormond Street, Paddington, had its guide price cut to $1.9 million from $2.1 million. Both Bondi and Paddington are among the most desirable suburbs in Australia.”

“Kenji Fukushima works at Phillips Pantzer Donnelley, a real estate agency based in the eastern Sydney suburb of Woollahra, said he had seen instances of discounting, particularly when sellers put themselves in a tight spot. ‘That can be the case, say if a buyer has already bought somewhere else before the sale. So if they’ve upgraded to a more expensive property and they need to offload their old place to balance up,’ Fukushima said.”

“In other words, buyers were would take a lower price if they were stuck in a liquidity trap as repayments become due on their new mortgage.”

From Domain News in Australia. “The foreign buyer boom in Australia may be over, but the fallout from a $47 billion drop-off in property investment is just beginning. While there was a growing chorus calling for tightened regulations on foreign purchases to slow down astronomical house prices in the past few years, there are now concerns the measures may have swung the pendulum too far in the other direction. Fewer overseas buyers could create an oversupply of apartments in the short term and subsequent discounting could have a knock-on effect, according to AMP Capital chief economist Dr Shane Oliver.”

“‘The risk is if you don’t have the foreign buyers there in the same degree as in the past it may lead to a glut of apartments, and if it does it may be at lower prices and that may discourage future construction activity,’ Dr Oliver said. Another consequence of this massive foreign investor bust, according to Dr Rogers, was an oversupply of one to two-bedroom units as developers designed housing with specific buyers in mind.”

“‘Developers from 2013 were actively trying to work out how much capital was coming from Asian countries and what type of properties they were interested in and how they should design them,’ he said. Dr Rogers said developers sat on a wealth of information profiling foreign investors and described this information as part of the ‘invisible data story’ that could paint a better picture of what’s happening on the ground.”

From Your Mortgage in Australia. “After several years of robust performance, the Australian housing market is starting to languish, much to the disappointment of foreign buyers and investors who are now fleeing to greener pastures. In a commentary on News.com.au, industry watcher and economist Jason Murphy said foreign approvals to buy Australian residential property dropped by two-thirds last financial year, from 40,000 to 13,000 in 2016-17.”

“‘That takes billions of dollars out of the market and reverses three years of surging foreign enthusiasm for Aussie homes,’ Murphy said. Meanwhile, the current condition of the financial system is also making the market unattractive for property buyers, as it is which is riddled by controversies surrounding the ongoing investigation of the royal banking commission. ‘Not only is there a crackdown on investor loans taking the heat out of the market, but banks are facing a reckoning for their behaviour in the boom times,’ he said.”

“Murphy said global interest rates are also a factor — sooner or later, Australian interest rates will follow the footsteps of the US, where mortgage interest rates have been increasing fast. ‘It is easy to find reasons to be cautious about Australian property and tough to see too many reasons for enthusiasm. No wonder foreign investors are cooling on Australian property,’ Murphy concluded.”