February 17, 2018

Regulators Are Again Asleep At The Wheel

A weekend topic starting with Fox 17 in Michigan. “There’s no doubt about it, Grand Rapids is a seller’s market. If you’re selling a home, people are virtually lining up with offers. ‘I never thought it was going to be like this. It’s like war,’ says Tanesha Gadlen. ‘We looked at eight houses this weekend. We looked at 10 last weekend. We bid on all of them over the asking price and didn’t get any of them.’”

From GoSkagit in Washington. “The median price for homes in Skagit County rose 10.75 percent in 2017, according to a report from Northwest Multiple Listing Service. With an average of 2.14 months on the market, 1,122 homes sold in the county last year for a median price of $313,000, according to the report. The double-digit appreciation rates have buyers and sellers wondering if the rapid increase could foreshadow a housing crash similar to the 2000s, said Realtor Jamie Yantis.”

”A lot of people are concerned about this being a bubble,’ Yantis said. ‘But if you look at the trend of appreciation historically, yes in 2008, 2009, 2010 we had a dump, but now we are just back on track to where the normal trajectory should have been.’”

From the News Press in Florida. “It was a cycle that repeated often — default, foreclosure, repossession, and eviction. All too familiar to thousands in Lee County beginning in 2008. Jobs were lost, incomes were reduced, homes became unaffordable. More than 40,000 foreclosures were filed in 2008 on homes in Lee County. More than 9,000 were filed in Collier County. The market glut led to lower prices at auction, and ultimately to the ghost of the Great Recession haunting people who thought the crisis was behind them.”

“Randy Johns, owner of Phoenix & Associates, a construction company in North Naples, said the impact fell on a company he worked more than 20 years to build. ‘We all extended ourselves too much,’ Johns said. ‘Investors were buying from other investors and not end users. It all came to a crash so fast we couldn’t liquidate. We lost all our cash.’”

“Since the deluge of foreclosures, housing markets have rebounded. The Florida Realtors’ association says demand once again is outstripping supply. The median price for a Lee house was $243,500 in 2017, up 7.1 percent. In Collier it was $434,900, up 3.5 percent.”

“Lisa Davidson, living and working in Southwest Florida, looks ahead to finishing paying off the deficiency judgment left from her foreclosed house. The payments have been on time, month after month, but for a while it was no help. ‘I’m optimistic,’ she sad. ‘I have two more years of paying these bloodsuckers, I just want it over with.’”

From Malaysia Kini. “Macroeconomic management is about anticipating and managing imbalances as they arise. It is certainly not just confined to describing and telling us the problems after they have become acute. This is my take on the story by Bank Negara Malaysia, on its recent narrative on affordable housing in Malaysia.”

“Why tell us now there is a mismatch of demand and supply of affordable housing? Why tell us now household income growth has not been able to keep pace with escalation in prices of houses? Why tell us now that developers have been focusing too much on high-end houses? And why tell us now that efforts by agencies set up to provide affordable housing have been too disorganised and dissipating?”

“May I ask for how long the imbalances mentioned above have been perpetuating? As far as I know, some of these problems have been in existence for decades. What were we doing during those years? What the authorities did in the past was not to correct the imbalances. Instead, they have often taken measures to make the situation worse.”

“Whenever the housing market experienced some slowdown, interest rates were lowered and loan eligibilities were relaxed to encourage more imbalances. After many years, of course the problems have become acute, as manifested today.”

“The preoccupation of our macroeconomic management is growth and political expediency, nothing else. We do not care about is the quality of growth or its sustainability. We do not care about the imbalances that will eventually sink us.”

From the Daily Sabah. “I have a Bear Stearns shirt that I purchased 10 years ago, following the collapse of the investment bank. I bought it as a novelty item as its collapse would be a once in a lifetime event I thought to myself. Little did I know many firms would suffer similar fates. Bear Stearns’ bailout by the Federal Reserve (Fed) in March 2008 was the canary in the coal mine that warned financial markets of the imminent collapse of all other holders of toxic mortgaged back securities.”

“What’s interesting then and what is still interesting to this day is that many of the same policies that allowed Madoff to run his Ponzi scheme and Bear Stearns to enjoy high credit ratings before its collapse are still in place today.”

“Ten years later, what has changed? What if any regulations and oversight do governments have to regulate credit rating agencies? Are their assessments based on quantitative rules that are free from the biases of employees of these agencies? Do business relationships with companies being rated by these agencies get in the way of their credit ratings? Ratings agencies are allowed to make whatever ratings decisions they want without fear of impeachment. No quantitative formulas have been offered to the investor public to satisfy its need for transparency.”

“As for Ponzi scheme-like acts of fraud, we are in the midst of one that may someday rival that of Madoff’s, the cryptocurrency bubble. While I have no evidence of a Ponzi scheme in the initial coin offerings of these ‘currencies,’ what’s clear is that regulators are again asleep at the wheel. Ignorant investors have been taken advantage of and are plowing their hard-earned money into ’securities’ they do not understand with the promise of quick riskless returns.”

“While many of these currencies have already gone completely bust or are down over 50 percent from their highs, bitcoin among them, the SEC and other government agencies have done nothing. By the time these regulatory bodies take any action it will be too late to reign in the ridiculous valuations that are certain to hurt thousands of investors. While nothing close to the housing bubble of the Great Recession or the losses of Madoff’s Ponzi scheme, this bubble will burst and with it, the hopes and dreams of thousands of investors.”

“It has been 10 years this month since the Great Recession’s first major event but we have yet to learn any meaningful lessons it appears.”

February 16, 2018

The Drum Is Starting To Beat For Investors In Denial

It’s Friday desk clearing time for this blogger. “There are signs that the long slide in North Texas home mortgage defaults may be over. ‘Dallas was one of the markets where we saw an uptick in foreclosure starts in late 2017,’ said Daren Blomquist, chief economist for Attom Data Solutions. ‘This surprised us. We saw it in Dallas, Denver, Nashville and Austin — great markets that are on fire.’”

“Blomquist said most of the home loan default increases he’s seen in the Dallas area came from low-down-payment mortgages made in 2014 — about the same time lenders started to ease some of their underwriting standards. ‘We have in the last few years seen a gradual loosening of credit,’ Blomquist said. ‘Some of those loans originated a few years ago are failing at a slightly higher rate than we had previously seen.’”

“Lee County’s housing market experienced a mixed year in 2017. Brett Ellis of Keller Williams Realty Fort Myers & The Islands, who has worked in residential real estate locally for 30 years, said it’s important to remember that the stats cover the entire year, so they’re not necessarily reflective of what’s happening now. ‘One thing that’s not in those numbers is that listing inventory is up 25 percent since October,’ he said. ‘That puts pressure on pricing, so I think you’ll notice in 2017 we had some upward pricing, but that started to fall off at the end of the year.’”

“‘The market got a little ahead of itself and people forward priced ahead of the market and the market said, ‘We’re not doing that right now,’ he said. ‘Interest rates are rising and wages have not gone up that much. The sellers have outpaced the buyers.’”

“Baton Rouge real estate has been in a yearslong seller’s market streak, which was thrust into overdrive after the August 2016 flood. Real estate agents say activity began slowing by the end of 2017, signaling a cooling off period, and this year inventory is expected to rise. Jerry Del Rio, a veteran agent of high-end homes says her phone has been ringing a lot less in early 2018 because the market for upscale homes has been inactive. ‘Right now the market is so dead that I’m concerned,’ Del Rio said. ‘I don’t know if it’s the holidays or the cold weather. In the past few years, we had such a good market that we saw no slowdown.’”

“After an almost Wild West-like atmosphere in the housing market last year, Dennis Roberts believes things are beginning to get back to normal. The Durham Region Association of Realtors reported the average selling price in January was $578,645, down $30,000, or roughly four per cent, from the previous year. According to Roberts, president of the DRAR, there is currently a much larger inventory of homes available for potential buyers. On Jan. 1, new mortgage eligibility laws, referred to as ‘stress test’ rules by Roberts, came into effect in Ontario. ‘There will be a number of buyers getting out of the pool, although in Durham Region it’s more of an ocean,’ he quipped.”

“Fresh data showed annual UK house prices fell for the first time in six years at the start of 2018 amid a slump in demand. The study revealed London suffered a sharp 4.3% fall in the fourth quarter of 2017, its worst performance since the depths of the financial crisis in 2009. Mortgage approvals dived to the lowest in three years in December despite efforts by the government to help first-time buyers. Acadata chairman Peter Williams said: ‘This is the eighth consecutive month in which the annual rate of increase has been declining, and now the dial is in the red zone.’”

“Property prices have plummeted in Sweden in the past year, according to fresh figures. The downturn began in earnest in August, after years of climbing house and apartment prices, according to Svensk Mäklarstatistik. In central Stockholm the price for an apartment (bostadsrätt) fell by 8 percent this winter compared to the same period last year. The average price in January was 86,553 kronor ($10,800) per square metre. ‘The general trend continues downwards,’ Per-Arne Sandegren, analyst at Svensk Mäklarstatistik, told the TT news agency.”

“Despite the prevailing oversupply of certain properties, real estate developers are unable to reduce home prices in Malaysia due to high construction and development costs, according to Rahim & Co International. ‘One of the ways to solve this problem is to reduce the cost of development. This will simultaneously reduce the overall asking and selling house prices,’ said the property consultancy’s director for its Petaling Jaya office, Choy Yue Kwong.”

“He said this amidst complaints that home prices have become so unaffordable for many Malaysians. Choy thinks that the authorities can further bring down development cost if they release more land for affordable homes and slash building-related expenses like legal and compliance fees. ‘If all of these measures are granted by the government, I am sure developers would be more inclined to push their products at a lower selling price.’”

“Regarding the faster growth of home prices compared to income, he reckons that it will be hard to substantially increase the take home pay of Malaysians as this requires boosting productivity and this could take a long time to accomplish. Rahim & Co’s Research Director Sulaiman Akhmady Mohd Saheh noted that housing affordability improved thanks to higher household income from 2014 and 2017. ‘“But ever since, income levels are growing at a slower pace compared to the growth in house prices.’”

“Meanwhile, its Executive Chairman Tan Sri Abdul Rahim Abdul Rahman highlighted that luxury home prices in Kuala Lumpur’s heart have declined significantly. ‘These units have seen prices dropping from RM2,000 psf to between RM1,500 psf and RM1,700 psf. I do not think pricing points of RM2,000 to RM2,500 psf bracket, which took centre stage three years ago would happen again, especially in the current climate.’”

“The distressed sale of a $2.5 million luxury townhouse with sweeping views of Melbourne’s bay and skyline should be a wake-up call for financially-stressed property buyers, say estate agents. Realtor Andrew Fawell has valued four distressed – or mortgagee – sales in the past two weeks for houses and apartments valued between $1 million and $2.5 million located around Melbourne’s coveted, prestigious and expensive inner south-east fringe.”

“‘The drum is starting to beat,’ says Fawell about home buyers and investors who might be feeling pressure from rising repayments, static incomes and stagnant rents. ‘I expect to be doing it a lot more often over coming months,’ he says. ‘But lots of property buyers and investors are in denial about their precarious situation.’”

“For the first time since 2012 when the global financial crisis hit local property markets, valuers are being routinely asked by lenders to do kerbside assessments of what properties might sell for at a mortgagee’s auction. ‘This is not happening on ‘Struggle Street’,’ says Fawell, whose Beller Real Estate buys and sell properties in many of Melbourne’s most coveted suburbs within a 10 kilometre radius of the central business district. ‘These are expensive properties in top suburbs that are being put under the liquidator’s hammer.’”

“Lenders liquidating a property typically avoid the term ‘mortgagee sale’ because they fear it will attract sassy bargain hunters looking to lowball their bids because they know the property has to be sold. Houses and apartments purchased for millions of dollars are being put under the hammer because owners can no longer afford their mortgage payments. Analysts warn some property owners and investors are under growing pressure because of static (or falling) prices and higher costs.”

February 15, 2018

That Kind Of Supply Is A Little Too Much

A report from KRON 4 in California. “San Francisco is at the heart of the Bay Area housing crises. You see construction everywhere, but most of us are priced out of being able to afford to live in a luxury high-rise. ‘We have 1,000 apartments that are in, what we call, the pipeline,’ said Karoleen Feng, who is with the Mission Economic Development Agency. ‘Some of them are built out, and some of them–we have about 500 that are waiting to be kicked off.’”

“MEDA uses city subsidies to buy old buildings where tenants are on the brink of eviction and keep their rents at affordable levels–which for most families is under $1,000 a month. In the last four years, MEDA has purchased 19 buildings through ’small sites.’ By 2020, MEDA says it hopes to own at least 2,000 apartments in the Mission District. ‘Having affordable housing is the first step to rebuilding this as a Latino hub,’ Feng said.”

The Toledo Blade in Ohio. “On Tremainsville Road south of Alexis, there’s a six-building, 72-unit apartment complex that motorists often scoot past without so much as a passing glance. But It was visible enough last May when word leaked out the 45-year-old complex soon might be available for sale. A buyer from Ypsilanti, Mich., immediately submitted an offer of $2.2 million, which the owners accepted before Hidden Village could even be listed. The sale price might seem surprising, given how the complex last sold nine years ago for $1.65 million and had not received much updating.”

“But such occurrences are common now as demand for properties in Toledo’s apartment market has become red hot. The result has been a sizable amount of complex ‘flipping,’ though not in the traditional sense. ‘It’s not like house flipping. That’s not what’s going on. It’s not like someone put some lipstick on a property and flipped it,’ said Harlan Reichle, managing partner of the Reichle Klein Group, a Toledo commercial real estate firm.”

“Tony Plath, a Reichle Klein real estate agent who handled the Hidden Valley Square transaction, said Toledo used to be a market that was overlooked but is now attracting buyers from all over the Midwest, the East Coast and the West Coast. After spending a minimum amount to spruce up property, they can bump the rent by $10 or $20, Mr. Plath said. ‘What a $10 per unit value will mean to the value of the property is astonishing,’ he said. ‘A $10 bump in rent on a 100-unit complex is $12,000. What does that mean to the value? At an 8 percent cap rate that equates to $150,000 more in value to the property. A $20 bump in rent increases the value by $300,000.’”

“The quest for Toledo apartment complexes has led to bidding wars on properties, with six to 10 offers arriving for some complexes, Reichle Klein said. ‘These owners of properties are ready to move on and they know the market is hot. They’re seeing a price per square foot that they’ve not seen before, so they’re anxious to get out,’ Mr. Plath said. ‘And now there’s a larger pool of buyers. We’ve had people from Mexico, from Canada looking to spend their money here.’”

The Charlotte Observer in North Carolina. “When Richard Simmons moved into his one-bedroom apartment in Matthews, the widower assumed he’d be able to afford it for years to come. Simmons started off paying $650 a month rent to live in Paces Pointe. But that was 2012. Now, the base rent is up to $867, and a raft of new mandatory fees – for cable, package delivery and ‘valet trash’ service – mean Simmons pays $946 a month, or nearly a 50 percent increase over the past few years.”

“Simmons is one of thousands of tenants in Charlotte whose rent is rising in part because of a ‘value add’ deal. It’s a term developers use for buying older apartments, spending several thousand dollars to renovate units with improvements such as new floors, granite counters and updated appliances, then raising the rent. ‘We’ve been fairly alarmed at the rate which apartments are flipping,’ said Julie Porter, president of the Charlotte Mecklenburg Housing Partnership. ‘All of a sudden you’ve got an apartment that used to be $700 (for rent) that’s more than $1,000. We’re losing units faster than we can build them.’”

From Fox 13 Memphis in Tennessee. “The owner of Kimball Cabana Apartments said he is out of money, and a new investor plans to buy the property after the apartments undergo foreclosure. Judge Larry Potter had choice words for the apartment owner, calling the 2015 purchase of the property a ‘bad business decision.’ Allen Walsh is the owner of the property, which is managed by Mississippi Apartments, LLC. ‘All of our money just got eaten up in trying to rehab the units,’ Walsh told FOX13. ‘We have finally run out of money. It just took more than we figured on.’”

From Crain’s Cleveland Business on Ohio. “The owner of the 950-suite North Pointe Apartments in Euclid has tossed in the towel and had its request granted that the lender assign its $38 million loan to a firm specializing in handling distressed loans. The loan behind the troubled four-building complex of apartment towers, two as tall as 20 stories, on Feb. 5 was assigned to the Miami office of Rialto Capital Management, according to Cuyahoga County land records.”

“Woes at North Pointe Apartments have included a sidewalk protest of conditions at the property by tenants last summer that was covered by WEWS-TV, Channel 5. Trepp reports show tenants also are voting with their feet, as its occupancy fell to 67% last September from 86% at the end of 2016. The loan was 60 days delinquent at the end of 2017, Trepp reported.”

“The property gained a dubious marquee presence in the national commercial real estate world when Trepp reported it was the largest distressed loan in the U.S. in January, as loan payments had not been made for 60 days. The notice was part of a report on the state of the U.S. multifamily property business undertaken because of long-running growth in the nation’s apartment market. While focus was on glitzy and elegant new apartment properties, the distress poster child came from the dated precast concrete towers astride Lake Erie.”

From Community Impact in Texas. “Northwest Austin’s apartment rental market might be finally showing signs of stabilization as occupancy rates and rental rates have begun trending downward. For the last two years, the city of Austin has seen an increase in the number of new apartment units coming online, totaling about 11,000 per year in 2016 and 2017, but construction is showing no signs of slowing down, said Bruce McClenny, president of Houston-based ApartmentData, a site that tracks occupancy and rates of apartments in major Texas and U.S. cities.”

“‘That kind of supply, even in the face of very good job growth and a very good economy, is a little too much,’ he said. ‘It all of a sudden becomes more of a renters market.’”

“Occupancy has been trending downward since peaking in June 2013.”

From The Jewish Voice on New York. “The Manhattan rental market is overflowing, causing landlords to offer rental concessions and price reductions in price in order to entice new renters, Bloomberg reported. Concessions jumped to yet another record in January, with 49 percent of newly signed leases coming with some sort of special offer, appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate concluded in a report. Concessions in January, reached the highest level seen since appraisal firm Miller Samuel started tracking them back in October 2010.”

“Concessions include, rent-free months, gift cards, then topping off those enticements with reductions in price. Hal Gavzie, who oversees leasing for Douglas Elliman was reported as saying: ‘Landlords have finally realized, ‘OK, we have to adjust these prices because the concessions aren’t doing as much… Customers are looking past the concessions being offered and just looking for the best deals they can find.’”

“Rents fell last month in almost every Manhattan neighborhood, including some of the borough’s priciest, according to data compiled by brokerage Citi Habitats. On the UWS, the median was $3,450, down 2.8% from a year earlier, while on the UES, they declined 5.3% to $3,185, the brokerage said, Bloomberg reported. The average rental price in Manhattan several years ago was $3,800 (2013).”

“For some fun and interesting perspective, the average price for a rental in all of New York City in the 1960’s was $200 a month, the 70’s $335 a month, the 80’s average was $1700, and the 90’s average for the 5 boroughs was around the same as last month’s average of around $3,295 for Manhattan apartments.”

February 14, 2018

Benefiting From Oversupply And Negotiability

A report from Mansion Global. “U.S. luxury markets have entered a ‘new normal’ of subdued price growth after eight years of frenzied appreciation post-recession, according to Coldwell Banker Global Luxury. The report underscores high-end price stabilization that Mansion Global has previously reported in markets including New York and Los Angeles. In cities such as Miami and Park City, Utah, wealthy buyers are benefiting from oversupply and negotiability. Despite strong activity in South Florida, well-heeled buyers are likely to have an edge in Boca Raton and Delray Beach, Florida, as well as in Miami proper.”

“Park City is one of the nation’s top luxury buyer markets. And sun worshippers have the upper hand in the Santa Barbara, California, and Scottsdale, Arizona, markets, according to the report.”

From Realtor.com. “While the idea that “Your home is your castle” has been around, presumably, since medieval times, it took on a whole new meaning in the 1980s and ’90s, when ‘McMansions’ started sprouting across the United States like upscale real estate kudzu. More than 70% of the housing markets we looked at saw an uptick in the share of listed homes larger than 3,000 square feet since January 2016. There are more large homes being built now than there were at the height of the housing market, over a decade ago. But that doesn’t mean they’re easy to sell.”

“In Denver, 61% of homes listed on realtor.com are above the 3,000-square-foot mark. There are about 3,115 of these residences in the metro area listed on realtor.com. But that’s nothing compared to Provo, UT, where 71% of listed homes boast 3,000 square feet or more. The smaller city boasts about 971 of this size, up from 66% in 2016. Desire for conspicuous consumption has attracted McMansions to the Bridgeport, CT, metro. More than half of the homes in this metro, 53%, have more than 3,000 square feet of space. (There are more than 2,416 abodes of this size listed on realtor.com.)”

“But they come at a steep price. The median home listing here is $735,000. However, all that McMansion building has left a little bit of an oversupply, says Douglas Cutler, a modular home architect and owner of Douglas Cutler Architects in Fairfield County. ‘I had a client trying to sell a super[large] McMansion,’ he says. Part of the reason it made a tough sell is that a lot of high-paying finance jobs on Wall Street were lost during the recession and still haven’t come back. ‘He’s had to cut the price down a lot.’”

“About 34% of home listings, about 1,018 abodes, in the Seattle metro are for more than 3,000 square feet. But there are also a lot of those homes lagging on the market.”

From Summit Daily in Colorado. “It’s no secret Summit County is in the midst of a record-breaking building boom with the county recently announcing it issued more building permits last year than any other year prior to the recession. The permits cover everything from spec homes to the luxury housing market and commercial builds. Despite all of that, though, the average sale price of vacant land in Summit County was actually down 8 percent last year compared to 2016.”

“Many factors are pushing on the market, according to local experts, but one likely reason for the price drop of vacant land is the limited number of local contractors to build on it. ‘There is much greater demand than we have people to do the work,’ said Chris Renner, owner of Pinnacle Mountain Homes, a Breckenridge-based builder that accounts for roughly a third to a fourth of Summit County’s luxury home builds.”

The Los Angeles Times in California. “Despite the constant refrain from economists that an increase in supply is key to solving the region’s woes, anti-growth advocates have countered that the bulk of new projects charge rents that are unaffordable to the average Angeleno, and therefore can’t help end our problems. Nowhere has this debate played out more contentiously than downtown Los Angeles. Bolstering the anti-development argument, the real estate data firm CoStar revealed in September 2017 that the apartment vacancy rate downtown had reached 12.4%, three times higher than the citywide average.”

“Per CoStar, more than 1,600 apartments became available downtown in the first half of 2017, and approximately 7,000 additional units are scheduled for completion through late 2020. Nevertheless, the Downtown Center Business Improvement District estimates that the neighborhood’s population is just 67,000. As a result, the opening of a single 500-unit rental development is, by itself, capable of spiking the vacancy rate.”

The Dallas Morning News in Texas. “Along with pulling down the securities market, higher interest rates are likely to slow the rate of home price appreciation in markets across the U.S., said Daren Blomquist, economist with Attom Data Solutions. ‘Especially in light of what we’ve seen in the stock market in the last few days, I think there is going to be a lot more pressure on interest rates to go higher,’ said Blomquist, who was in North Texas this week for a mortgage industry conference. ‘What people have predicted in the last few years is actually going to happen.’”

“‘The housing market has become somewhat dependent on low interest rates,’ Blomquist said. ‘It’s going to be an adjustment for the industry to deal with even marginally higher interest rates. In markets that have gone hog wild in terms of home prices, they are going to be in for a rude awaking as interest rates rise.’”

“Dallas-Fort Worth is one of those ‘hog wild’ home price markets. Median North Texas housing costs have shot up by more than 40 percent in the last four years to an all-time high.”

From National Mortgage News. “Hurricanes continue to have a notable impact on mortgage delinquencies, clearly evident by CoreLogic’s Loan Performance Insight report. Serious delinquency rates were up sharply in both Texas and Florida in November, compared to a year ago according to CoreLogic Chief Economist Frank Nothaft. The serious delinquency rate in Texas grew to 2.5% from 1.9% from the previous year, and rose in Florida to 3.9% from 3.2%. The serious delinquency rate in the Houston metropolitan area more than doubled to 4.6%, and grew more than one-third in the Miami area to 5.1%.”

“In Florida, the share of mortgages that were 30 or more days delinquent grew to 9.9% from 6.3% year-over-year in November, and in Texas, they rose to 6.7% from 5.6%.”

February 13, 2018

Now Buyers Are Allowed To Be Cheeky

A report from ABC News in Australia. “If you needed a sign Brisbane has an apartment oversupply, a two-bedroom unit with city views in one of the most trendy suburbs has just gone for $50,000 less than it was bought for two years ago. The Paddington unit, which sold for $440,000 after it was renovated, is just one of hundreds of units that have crashed in value since an apartment construction boom created an oversupply, with no end in sight.”

“It is not just small units affected, either. A big three-bedroom pad in South Brisbane is now on the market for $799,000, which is what it was sold for brand new 10 years ago. A luxury three-bedroom unit at Toowong that would have snared up to $950,000 at sale two years ago has lost about $100,000 in value because of the soft market, according to its seller. Units in Kelvin Grove’s Urban Village that were valued at $450,000 two years ago are now going for $399,000. Agents in those areas are ’submitting all offers’ and taking buyers’ low bids very seriously.”

“National Property Research Company director Matthew Gross said buyers had done their sums in this oversupplied market, and they were being cheeky. ‘I think buyers have always been cheeky but now they are allowed to be cheeky,’ he said. Coronis Agent Gerard Hawes said the investor market dried up in 2017 due to the crackdown on foreign investors. ‘For those people looking for decent market value, our foreign investors did tend to push the values up on that property,’ Mr Hawes said. ‘So we have seen a bit of kickback of around 10 per cent across the board.’”

The Courier Mail. “Forget apartments, Brisbane is about to be swamped with a different type of attached dwelling — prompting fresh oversupply fears. As the inner-city unit sector flounders, industry experts say developers are turning their attention to townhouses, with a new wave of residential projects set to saturate the market in 2018. New research by PRDNationwide reveals the number of townhouses in greater Brisbane is set to surge by nearly 250 per cent this year, with construction scheduled to start on more than 5400 new townhouses. In comparison, there is set to be a 170 per cent increase in the number of new apartments predicted to hit the market this year.”

“Real Estate Buyers Association of Australia Queensland representative Zoran Solano predicts Brisbane is facing a townhouse glut over the next two to three years. Mr Solano, who is a buyer’s agent with Hot Property Buyers Agency, said he had been dealing first-hand with many developers who had been snapping up sites around the city for townhouse developments. ‘We’ve seen an unprecedented amount of apartment settlements in recent years, so it’s getting harder and harder for developers to sell that product,’ he said.”

“Mr Solano said townhouse investors should be cautious in the current market, with some of his clients having to pay the difference between the purchase price and the valuation of their townhouse. ‘These properties are being sold at overinflated prices and then not valuing up to contract price,’ he said.”

From the Daily Telegraph. “Four Sydney suburbs have topped a list of the most risky areas for home seekers to purchase new properties off the plan. The research examined areas under a number of criteria including where housing supply was tracking well above demand and pushing down prices. This, in turn, was putting recent buyers at risk of paying down mortgages worth more than the value of their homes, the RiskWise Top 100 Most Risky Suburb report said.”

“Inner Sydney suburb Zetland was ranked the riskiest suburb in Sydney to buy a unit off the plan, according to the report. The suburb and neighbouring Waterloo have 5000-plus new units in the pipeline. With banks releasing their own blacklists of oversupplied markets, many lenders would require higher deposits as security for off the plan buyers who purchased in higher risk suburbs, the group added.”

“‘Lenders understand that oversupplied suburbs carry a greater degree of risk,’ RiskWise said. ‘Unlike a straightforward property handover, off the plan investors must be able to attain finance approval after construction is complete, and if the market has sunk during the build period, they are fronting the mortgage on an overvalued property. Additionally, off the plan dwellings are typically marketed to investors, and when many — sometimes hundreds — of identical dwellings come online simultaneously, it can be a race to the bottom as investors drop rents to lure in a tenant.’”

From the Australian Financial Review. “Sellers are lowering prices on high rise inner-city apartments by up to 10 per cent, advisers are being offered $10,000 commissions to recommend apartment sales, builders are adding ‘free’ luxury fixtures and lenders are including new incentives – on top of record low rates – in a bid to revive flagging residential property markets, analysis of market offers reveals. Some off-the-plan apartments are being revalued by lenders before final settlement by up to 15 per cent lower than their original purchase price, causing credit problems for buyers before they finalise their deals, according to mortgage brokers.”

“Property groups, such as Kokoda Property, are offering mortgage brokers, financial advisers and accountants $10,000 bonus for every sale plus generous rebates on stamp duty and other incentives. For example, $1.5 million apartments in Ashwood, which is about 14 kilometres south-east of Melbourne, are being offered 3 per cent stamp duty and free blinds.”

“Steve Lusi, a director of Direct Property Group, said a lender crackdown on small apartments under 50 square meters is also slowing demand and reducing prices for developers and sellers. He said the asking price for an apartment in Melbourne’s inner-city South Bank is being reduced by 10 per cent from $315,000 to $285,000.”

From News.com.au. “Six years ago, Mark was talked into using his mum’s home as equity to buy his first house. Now, in the midst of a messy divorce, he’s going to have to sell his mum’s flat to give half the proceeds to his ex-wife. The Sydney father, who asked not to use his real name, said he felt ‘conned’ by the Aussie Home Loans broker into the highly convoluted process, which all these years later looks set to leave his mum homeless. The upshot of all this was the couple wound up with two mortgages totalling $880,000. “Ever since then I have been shaking my head thinking, ‘Why did we allow this to happen?’ We should be in debt for a family home [for] $650,000, not in debt $880,000.’”

“Mark said he just wanted ‘one house for me and my wife to build a family in,’ but now owned ‘two homes, owe a lot of money, and now I have to try and figure out what to do’”

“There was some good news, however. In 2014, the couple sold their Kogarah home to an apartment developer for $1.6 million. They used the money to buy a large home in Bundeena and pay off the Kogarah loan. Mark said when the Aussie Home Loans broker heard about the couple’s developer windfall, he began trying to ‘push me towards buying more homes so I could have a property portfolio.’”

“Housing market analyst Lindsay David from LF Economics said people needed to be aware of the risks when involving a parent’s home in the purchase of a property. ‘Marital issues, the loss of a job, more often than not it’s at those times, the worst possible time, when people have to start to consider how to unlock themselves out of the financial risks they’ve acquired,’ he said. ‘The majority of people just don’t have the cash to come up with a 20 per cent deposit, so we use unrealised capital gains that exist within a house like it’s a bank account. But you can’t just take a tile out of the land bank and pay it back to the bank.’”

February 12, 2018

The Boccee Ball Is In Their Court

A report from Bisnow in Washington DC. “D.C.’s investment sales market started off hot in 2018, but amid an environment with falling multifamily rents and tepid office leasing, some investors think deals are being overpriced and are shying away from buying in the District. Crowdfunding platform Fundrise in August 2016 had announced plans to invest $200M annually in D.C. multifamily properties, as part of a JV with Insight Property Group, but Fundrise CEO Ben Miller said he has since become less bullish on D.C. ‘The market has gotten very pricey, and there is a lot of new supply of multifamily,’ Miller said.”

“The District’s Class-A apartment rents fell 3.9% in 2017, according to Delta Associates, coinciding with the delivery of 4,789 units, 45% more than hit the market the prior year. That supply growth is expected to increase even more this year. Given these fundamentals, Miller said it does not make sense for investors and developers to keep putting money into new projects. ‘Every cycle you build an industry; this cycle they built an industry around multifamily. A lot of multifamily real estate companies have to stay active, so they’re going to continue to do deals even when they shouldn’t,’ Miller said. ‘If you look at the supply of multifamily coming in this year and next year, and Class-A multifamily rents went down last year and probably will this year and the following year, why do they keep building? Why are they still supplying the market?’”

The American Statesman in Texas. “Ever since 2010, Austin-area renters could count on one thing: Renting an apartment was going to get more expensive every year. But real estate consultant Charles Heimsath’s latest report shows that – at least for now – the market has become more forgiving to renters. Experts say the shift was brought on by several factors: a surge of new apartment construction, more renters jumping to home ownership and a slight slowdown in the region’s job growth.”

“Last year, developers added 10,727 new apartments to the market, nearly equaling the record of 10,780 in 2016, Heimsath said. However, only 55 percent of the new supply was leased last year, in contrast to 81 percent in 2016, he said. On the occupancy side, the rate fell to 91.3 percent — a level unseen since 2010 — and down from 95 percent five years ago, said Robin Davis, manager of Austin Investor Interests. The decline was due in part to an ‘over-saturation’ of new apartment construction, Davis said, along with other factors, including job relocations and losing tenants to home purchases or home rentals.”

The Chicago Sun Times in Illinois. “Apartment hunters have the proverbial ball in their courts, particularly in new luxury buildings near public transportation, where some developers are offering free rent and other incentives to fill up their buildings. ‘There is no question it is a great time to be a renter in Chicago right now; there’s a lot of options,’ said broker Aaron Galvin, CEO of Luxury Living Chicago.”

“Galvin’s firm helps people to find apartments in the ‘Luxury Class A’ market made up of newer buildings constructed since 2000. He predicts March will hit ‘peak vacancy’ with roughly 5,000 new luxury apartment units up for rent in Downtown and surrounding neighborhoods. According to Galvin, buildings that stand out from the pack offer free ride-sharing pools, third-party services (organized dog walking, food delivery, on-site dry cleaning) and shared amenities such as study rooms, where residents work in open co-working type spaces. Social hangouts like bocce ball courts and demonstration kitchens are also draws.”

“Spoke, a 363-unit apartment community, was opened in December by Bond Cos. on the grounds of the demolished Gonnella Bread Co. Rents start at $1,795 for a studio, while a two-bedroom unit goes for $3,880. There’s also a two-bedroom, 15th-floor penthouse with a terrace for $6,345. New Spoke residents get a welcome gift that includes a package of Gonnella breadcrumbs as a nod to the site’s past. Through the end of February, Spoke is offering two months of free rent on 18-month leases. Damon Dance, vice president of Bond Cos., said the free rent concession ‘equalizes Spoke’s pricing in a competitive market.’”

From The Real Deal on New York. “Leasing at the Eugene, the first completed ground-up tower at Brookfield Property Partners and Qatar Investment Authority’s Manhattan West megaproject, launched to great fanfare in March. But almost a year later, the $800 million, 844-unit building’s revenues are off to a slow start.”

“The rental tower at 435 West 31st Street contributed just $1 million in funds from operations — a common measure of real estate investment trust earnings — in the fourth quarter, Brookfield’s real estate CFO Brian Davis said during an earnings call. That’s a far cry from the $10 million Brookfield expects the tower to make annually once stabilized.”

“According to StreetEasy, units at the Eugene are no-fee and come with two months free rent on a 14-month lease and three months free rent on a 27-month lease. A surge of new supply over the past two years has pushed rents down and concessions up across the city. Landlord concessions, which often come in the form of free rent, reached a new record for the fourth consecutive month in January, according to a new report by appraisal firm Miller Samuel.”

From Curbed New York. “The January market reports are out, and it looks like the New York City rental market is kicking off the new year much like it spent the last one. ‘The prevailing theme across the board was the record number of market-share concessions set,’ says Jonathan Miller, author of Douglas Elliman’s report.”

“Rental concessions from landlords are at an all-time high in Manhattan, Brooklyn and Queens. In Manhattan, the share of new leases signed with some kind of concession was a whopping 49.3 percent, up from 30.9 percent. In Brooklyn that share was 47.5 percent, up from 18.1 percent. And in Queens, the share came in at a whopping 50.8 percent, up from 38.5 percent.”

“In Manhattan, the median rental price fell 2.8 percent to $3,275 and the net effective rent—which takes into account concessions—declined 3.6 percent to $3,141. (That drop in the net effective rent is the largest annual decline in more than six years.) The size of concession was 1.4 months of free rent or equivalent, up from 1.3 months the prior month. In Queens, January marked the fourth time the concession market share reached a new record high. The median rental price was $2,650, down 1.9 percent, and the net effective rent declined 4.7 percent to $2,507. (That’s the fifth year-over-year decline in net effective rent in six months.) The size of concession was 1.8 months, up from 1.1 months.”

“More than 40 percent of rental transactions brokered by Citi Habitats offered a free month’s rent and/or payment of the broker fee to entice new tenants in January, up from 41 percent in December. ‘These incentives remain remarkably high,’ the firm notes, and they’re being offered on both new construction units and re-rentals.”

February 11, 2018

A Result Of The Feeding Frenzy

A weekend topic on one place with one article from The Spinoff in New Zealand. “The mass migration has ended. Gone are the convoys of removal vans thundering down the Southern Motorway, and the scenes of Aucklander vs Aucklander vs Aucklander mayhem in Tauranga auction rooms. Gone too, as a result of the feeding frenzy over Tauranga real estate, is any semblance of home affordability in this city by the sea.”

“Hana Chadwick works in recruitment in Auckland, and – these days – none of her candidates want to move to Tauranga. They’ve heard what’s happened, or they’ve looked at properties online and figured it out. Tauranga house prices are now within cooee of Auckland’s – but Bay of Plenty pay rates remain dire. ‘Really?’ they say, when Chadwick quotes a pay scale tens of thousands below their Auckland income.”

“The latest instalment of the comprehensive Demographia International Housing Affordability Survey has outed Tauranga as the least affordable city in New Zealand – and the 12th least affordable of 293 cities worldwide. Tauranga is keeping company at the extreme end of the table with notoriously unaffordable cities such as Hong Kong, Sydney, Los Angeles and Honolulu. The survey works on the premise that a house which costs three times your household income is ‘affordable,’ while five times is ’seriously unaffordable.’ Auckland came in at 8.8 times; Tauranga at 8.9. The survey, from September 2017, placed the median Tauranga house price at $617,000 and the median household income at $69,100.”

“1st Call Recruitment general manager Angela Singleton says many candidates consider a 10% pay cut justifiable for all the lifestyle advantages Tauranga offers. But not 25%. Candidates have started to say no to Tauranga. ‘They never used to say that because they used to be able to buy a house in Papamoa for half a million, and it was a really nice home. Now it’d be $800,000.’”

“Singleton says when the minimum wage rises 75c to $16.50 in April, Bay businesses should raise their pay rates – and charge-out rates. She says a Tauranga builder charges around $1800/m2 while an Auckland builder charges around $2800/m2. ‘Tauranga needs to decide whether it’s going to remain rural or start playing with the big dogs. It’s a bustling city. Tauranga businesses need to start charging city prices.’”

“A Housing Demand and Need survey showed median house prices rose 464% in Tauranga in the 26 years from 1991 to 2017. Over the same period, household incomes rose just 128%. The report says while Tauranga’s affordability challenges have developed over many years, the situation accelerated with the recent surge in house prices and rents.”

“Economic confidence in the Bay of Plenty has fallen sharply since September 2017. Back then, 37% of households in the Westpac-McDermott Miller Regional Economic Confidence survey expected the economy to improve. By the end of 2017, that figure had fallen to 13%.”

“Realty Group CEO Simon Anderson says Tauranga house prices began to surge in 2015 and hit a feverish peak around October 2016. By the start of 2017, the Government’s Loan to Value ratio (LVR) restrictions were making an impact. Throughout 2017, the number of houses sold each month fell back 20-25 percent to what Anderson describes as more of a ‘normal market.’ House prices also eased back in 2017, but are still much higher than before the boom.”

“Anderson says the growth in Tauranga between 2015 and 2017 was the result of ‘trickle down’ from Auckland, where overseas investors had ignited the market. At one point, 40 percent of people attending Tauranga open homes were Aucklanders. Auctions often came down to three or four Auckland buyers battling it out. ‘It was seen as cheap, at that time, by Aucklanders.’ That has changed. There’s now less of a gap between what you’d get for your money in Auckland and what you’d pay for a comparable home in Tauranga. ‘It’s probably not much of an advantage for Aucklanders to come here now.’”

“Unfortunately, Tauranga’s property boom has done more than turn off prospective employees and skew the housing market: it’s forced some families on to the streets. Jan Tinetti, Labour list MP, was principal of Tauranga’s only Decile 1 primary school before entering politics at the last election. In 2015 and 2016, she saw countless families in the Merivale School community slip in to homelessness.”

“Tenants were evicted so rentals could be sold to investors. The new owners might let the property for a short time, then tenants would be on the move again as it went back on the market at an inflated rate. Many houses were left vacant to, as one investor told Tinetti, ‘protect’ the investment. Some houses were renovated and long-time Merivale locals were refused tenancies in the gentrified properties.”

“The 2013 Census found there were just over 50,000 dwellings in Tauranga city; of which almost 4500 were unoccupied. In Mount Maunganui North, where there are more holiday homes, unoccupied dwellings represented 32% of all dwellings. The next Census is scheduled for March this year, and is likely to show significant demographic and housing changes for Tauranga.”

“The housing boom is softening – values on estimate websites drooped throughout 2017. But rents, which rose markedly during the boom, remain high. So families sleep in their cars or in tents parked on friends’ lawns. Tauranga City Council estimates there are 400 homeless people living in Tauranga.”

“Not that long ago, Tauranga was a sleepy idyll. Houses were relatively cheap and many people worked night shift in the kiwifruit season to bump up their modest wages. Now, the landscape has changed. ‘It’s unaffordable for the middle class,’ Tinetti says. ‘But when you’re not even middle class, it’s horrific.’”

February 10, 2018

Prices Have Little To Do With Supply And Demand

A weekend topic starting with the Post Bulletin. “Long-term U.S. mortgage rates climbed for the fifth straight week amid investors’ growing concern about inflation. Mortgage giant Freddie Mac said Thursday the average rate on 30-year, fixed-rate mortgages shot up to 4.32 percent this week, up from 4.22 percent last week and the highest since December 2016. A year ago, it stood at 4.17 percent. The rate on 15-year, fixed-rate loans, popular among homeowners who refinance, rose to 3.77 percent from 3.68 percent last week and the highest since May 2011. It was 3.39 percent a year ago. The rate on five-year adjustable rate mortgages rose to 3.57 percent this week from 3.53 percent last week and the highest since April 2011. It was 3.21 percent a year ago.”

‘Will higher rates break housing-market momentum? It’s too early to tell for sure,’ said Len Kiefer, a Freddie Mac economist. He noted that applications to buy homes are still up 8 percent from a year ago.”

From Lew Sichelman. “It’s the age-old chicken-or-egg story of the housing market: Should you buy that home now, while interest rates are still fairly low? Or wait for rising prices to moderate? Of course, there are many factors that will go into your decision. But here’s one you probably haven’t considered, and it has real ‘buy now’ implications: Mortgage payments zoomed last year and are likely to rise even higher this year, continuing a trend that has persisted for the past six years.”

“CoreLogic has been tracking mortgage payments for the past generation, says that while home prices may be up 6 percent through August of last year, the average mortgage payment went up 10.1 percent during the corresponding period. And for 2018, the typical home loan payment is likely to rise by more than 11 percent. That’s a good bit more than most of us have been seeing in yearly raises, if we get them at all.”

“CoreLogic’s ‘typical mortgage payment’ (TMP) is a mortgage rate-adjusted monthly payment based on each month’s median home sale price in the United States. Of the four components of a mortgage payment — often compartmentalized as PITI, for principal, interest, taxes and insurance — the TMP measures only the principal and interest payments. It assumes a 20 percent down payment, the amount necessary to avoid having to pay for private mortgage insurance (PMI), and a 30-year, fixed-rate loan. Of course, many homebuyers put less than 20 percent down and must purchase PMI, which can add several hundred dollars more to their monthly house payment.”

“The typical mortgage payment was higher than today’s TMP before the Great Recession, which stands to reason, as home prices climbed to unsustainable highs before the markets crashed in 2008. Back in June 2006, before things started to go south, the typical monthly payment was $1,250. That fell to a low of $546 in February 2012, and has risen steadily since then to $816 as of August of last year. That comes to about a 50 percent increase over five years, or about 10 percent a year.”

“Of course, in 2006, the average mortgage rate was a lot higher: 6.7 percent, compared to 3.9 percent last August.”

From Realty Biz News. “Thanks to changes in mortgage rules, realtors in the GTA have to be more creative when it comes to making a sale.Numbers show that home sales in the area have fallen 22 per cent over the last year. Industry experts have been pointing the finger at high interest rates and the new, tighter mortgage rules that came into effect on January 1st this year.”

“‘It’s still a buyers’ market in the GTA,’ notes Larry Weltman of AccessEasyFunds, a real estate commission advance company based in Ontario. ‘Let’s look at a GTA home that a year ago was selling for $1.4million, for example. Today that will likely go for $1.05 million. Let’s assume a buyer is putting 25% down, so they will carry a mortgage now of $787,500. Most of these secondary mortgages are for a one year term or less. So, at 8% per year, the buyer is paying in one year 4% extra on the mortgage or $31,496. This in turn means that effectively the property cost is an extra $31,496.’ Weltman adds, ‘This is not significant given that the buyer could close in a buyer’s market that is heavily discounted. They can then look in a year’s time to refinance with a traditional bank mortgage, and will hopefully be in a much better situation with more time to process.’”

“On the other hand, he stresses that realtors should not put a buyer client into a high interest secondary mortgage who cannot afford to carry this mortgage and has no chance of refinancing within the one year.”

From Vitaliy Katsenelson. “The Federal Reserve’s changing of the guard — the end of the Janet Yellen’s tenure and the beginning of the Jerome Powell era — has me remembering what it was like to grow up in the former Soviet Union. In the command-and-control economy of the Soviet Union, the prices of goods often had little to do with supply and demand but were instead typically used as a political tool. This in part is why the Soviet economy failed — to make good decisions you need good data, and if price carries no data, it is hard to make good business decisions.”

“Over the past decade the global economy has started to resemble one, as well-meaning economists running central banks have been setting the price for the most important commodity in the world: money. Interest rates are the price of money, and the daily decisions of billions of people and their corporations and governments should determine them. Like the price of sugar in Soviet Russia, interest rates today have little to do with supply and demand (and thus have zero signaling value).”

“The consequences of well-meaning (but not all-knowing) economists setting the cost of money are widespread, from the inflation of asset prices to encouraging companies to spend on projects they shouldn’t. But we really don’t know the second-, third-, and fourth derivatives of the consequences that command-control interest rates will bring. We know that most likely every market participant was forced to take on more risk in recent years, but we don’t know how much more because we don’t know the price of money.”

“Quantitative easing: these two seemingly harmless words have mutated the DNA of the global economy.”

“Americans have a healthy distrust of their politicians. Unfortunately, we don’t share the same distrust for economists and central bankers. It’s hard to say exactly why. Maybe we are in awe of their Ph.D.s. Or maybe it’s because they sound really smart and at the same time make us feel dumber than a toaster when they use big terms like ‘aggregate demand.’ For whatever reason, we think they possess foresight and the powers of Marvel superheroes.”

“Just as the well-meaning economists of the Soviet Union didn’t know the correct price of sugar, nor do the good-intentioned economists of our global central banks know where interest rates should be. Even more important, they can’t predict the consequences of their actions.”

February 9, 2018

In The Throes Of A Real Estate Glut

It’s Friday desk clearing time for this blogger. “The number of people packing up and moving out of the Bay Area just hit its highest level in more than a decade. Joint Venture Silicon Valley’s own study of the out-migration says workers are moving due to a number of factors. But topping the list is the high cost of housing. Carole Dabak spent 40 years living in San Jose and now she’s part of the mass exodus that is showing no signs of slowing down. She plans to sell her home for about $1 million, buy a much larger place near Nashville for less than half that and retire. ‘I loved it here when I first got here. I really loved it here. But it’s just not the same,’ Dabak said.”

“Analytics.Miami launches the first annual State of the Market report for Miami condos and a special report tracking Miami condo inventory. The findings are dire. Owners serious about selling are accepting 20% - 30% discounts off of their asking prices. Most neighborhoods have 100+ months of condo inventory at price points past $3M. To put this in perspective, In December 2017, Miami’s prestigious South of 5th neighborhood had 128 active condo listings past $3M and only one sale. In the previous month, there were zero sales past $3M, leaving the neighborhood with 128 months of condo inventory past $3M.”

“The inventory situation is almost twice as bad as it was during the last crash, and 2017 closed off with a record high number of active listings.”

“While it would be highly inaccurate to say that housing is getting more affordable, it’s not wrong to point out that housing prices—namely detached housing prices—have dropped quite a bit month-over-month in Mississauga and surrounding areas. Zoocasa says that average prices for all categories (meaning detached, semi-detached, town and condo home types) declined by six per cent from $675,656 in December 2017 to $631,672 in January 2018. Year-over-year, prices are down by nine per cent from $700,369 in January 2017 to $631,672 in January 2018.”

“‘It’s important not to let year-over-year figures skew how we look at market conditions. We know that sales are down from 2017’s abnormally high first quarter levels,’ says Lauren Haw, Zoocasa CEO. ‘Sales are in-line with the the hot 2016 market - when we saw headlines about the ‘continuous overheating’ market, when the average home price in Mississauga was $545,174 in January 2016 versus $631,672 now.’”

“A retired couple’s ‘nest egg’ flat has become a ‘noose around their neck’ due to nothing more than its method of construction. Jimmy and Ruth Hill purchased the three-bedroom council premises back in 2005. The aim was always to sell it on, however, and last year they attempted to do just that. To their horror they discovered the block of flats is classed as a non-traditional construction, mainstream banks and money lenders were not prepared to give potential buyers loans – despite the fact the Halifax gave the Hills a mortgage for it back in 2005.”

“The flat currently has an asking price of £55,000, but one firm the couple contacted in their desperation only offered them £20,000 to take it off their hands. Jimmy (65) said: ‘We have spent a lot of money and effort on this flat and that was soul destroying to get an offer like that for something we have worked so hard on.’”

“Housing prices slid again during the first month of the new year, sliding 2.2 percent in January on a national average. Real estate brokers’ association Eiendom Norge called it the weakest January in 10 years. Sales and prices often pick up after the Christmas holidays, but not this year. Average prices were down, fully 9.4 percent in the Oslo area, from last January.”

“Home sales and housing starts by Swedish property developers tumbled at the end of 2017 amid the biggest drop in prices since 2008. After years of booming prices, fueled by a shortage of housing and low interest rates, Swedish home prices dropped 7.8 percent in the three months through December after an increase in construction pushed supply too high at a time when households started becoming more pessimistic about the outlook for the market. High-end apartments in Stockholm have been particularly hard hit.”

“All over Nairobi, bright red - To Let signs are draped alongside gleaming new skyscrapers laying evidence to a city in the throes of a real estate glut. This is leading to significant losses and at the same time eroding the overall values of the prime assets raising questions on whether the property crash Kenyans have been warned about severally in the past is finally nigh. ‘What you will see is prices flattening and rents reducing over time as some developers might panic,’ said Sakina Hassanali at Hass Consult.”

“Sales of apartments in Jakarta are showing signs of bottoming out, Jones Lang LaSalle reported. In total, developers in Jakarta sold 4,610 apartments last year, down from 5,450 units in 2016 and far below the heyday of 2014 when 17,000 apartments were sold in just a year. Developers built 13,000 new apartments last year, bringing up the total number of apartments in the capital city to 138,000 by the end of 2017, but around 37 percent of those have remained unsold.”

“Condominium prices will fall this year as more than a dozen large projects come online, adding thousands of new units to a market beginning to show signs of oversupply, according to CBRE Cambodia. Ann Sothida, director of CBRE Cambodia, said condominium prices remained stable in 2017 despite the doubling of supply, but with a surge of new units expected in the coming months prices for affordable and mid-range condominiums could start to weaken. Sear Rithy, chairman of WorldBridge Land said it was too soon to say whether condo prices and rentals will fall in 2018. ‘Most condos are purchased by Chinese investors, which has little relevance on the [state of the] local market,’ he said.”

“Japanese real estate financing retreated 5.2% in 2017, the first drop in six years, with banks slowing lending for apartment construction amid higher vacancy rates. The boom in construction financing had been driven by 2015 changes to Japan’s inheritance tax law. But ‘the spike in apartment construction for tax purposes isn’t backed by demand,’ noted Yasunari Ueno of Mizuho Securities.”

“A rapid-fire release of apartments across pockets of Sydney has seen suburbs in the city’s west and south west bear the biggest brunt of price declines. Over the three months to December, prices in Canterbury Bankstown fell 4.4 per cent. The price of apartments over the quarter also declined in Sydney’s south west (3.7 per cent), south (2.1 per cent) and west (1.9 per cent), according to the latest Domain House Price Report.”

“‘Canterbury Bankstown has been hardest hit. It’s seen three quarters of consecutive decline’ said Dr Powell. ‘The majority of apartment markets across the Sydney regions have recorded a quarterly decline,’ said Domain Group data scientist Nicola Powell. ‘It signifies that the days of double digit annual growth that it had back in 2015, which was astounding, are long gone.’”

February 8, 2018

Uncertainty, Heavy Discounting In An Unforgiving Market

A report from My Twin Tiers in Pennsylvania. “A new report says Pennsylvania has some of the highest foreclosure rates in the nation. Last year, nearly 31,000 properties across the Commonwealth were foreclosed, according to ATTOM Data Solutions. Some housing agencies say part of the problem is due to predatory lending and loan scams. ‘Pennsylvania remains high, in particular, compared to other states, because of predatory lending,’ said Sam Milkes, executive director of the Pennsylvania Legal Aid Network. He says the symptoms of the housing crisis of the mid-2000’s never really went away. ‘Maybe they’re not regarding it as the same crisis anymore, but people are still losing their homes,’ said Milkes.”

The Winston-Salem Journal in North Carolina. “The Winston-Salem area ended 2017 with a slight uptick in the number of residential households considered as seriously underwater, according to a fourth-quarter report. There also was a slight dip in the number of households listed as equity rich, Attom Data Solutions said in a report timed for release today. Attom defines seriously underwater as owing at least 25 percent more on a mortgage than the property is worth.”

“The five-county region of Davidson, Davie, Forsyth, Stokes and Yadkin counties had 14,614 households listed as seriously underwater, up from 13,910 in the third quarter. The Greensboro-High Point MSA of Guilford, Randolph and Rockingham counties had 12,503 housing units, or 10 percent, listed as seriously underwater. That’s up from 9.7 percent in the third quarter and 8.9 percent a year ago.”

“Attom said the Triad is in line with the North Carolina and national trends of a slight increase in seriously underwater households and a slight decrease in equity rich households. ‘The share of homeowners with at least 20 percent equity dropped 1.1 percentage points from a year ago, while the share of homeowners with between 10 percent equity and 10 percent negative equity increased 1.1 percentage points from a year ago,’ Attom said. ‘This indicates homeowners are increasingly leveraging their equity to sell and move up into another home or by refinancing.’”

From Bizwest in Colorado. “A quick glance at average sales prices for Northern Colorado last year might make one wonder what’s up with Berthoud? After all, every local submarket in the region saw average sales prices increase. All except Berthoud, where average sales prices declined 3 percent. Most notably, total home sales in Berthoud soared from 218 in 2016 to 451 last year — a year-over-year growth rate of 107 percent. With all that demand, it seems counterintuitive that average prices would slip from $412,225 to $400,751.”

“The reason? Berthoud is a hot spot for new home construction. And because much of that new construction featured affordable options last year, average prices came down.”

From Inman News on California. “For the past several years, real estate prices in San Francisco have risen dramatically. Is there a chance that this could represent a localized real estate bubble in San Francisco? Back in 2007, right before the financial crisis, the median home sales price in San Francisco was about $900,000, with a median condo price of just under $800,000. Compare that to the national median home price, which was just over $200,000. That’s a gap of roughly $700,000.”

“Then, from 2012, the prices in San Francisco began to explode, growing consistently and significantly, year over year. For 2017, the median home sales price was a whopping $1,420,000, with a median condo price of $1,150,000. Compare that to the national median home sale price, which was $248,000 in 2017. That’s a gap of $1,172,000, meaning the gap is more than 50 percent bigger than it was pre-economic crisis.”

“There are some troubling signs, however. For starters, pending home sales in California (overall) fell for a few months in a row at the end of last year, furthering the trend of dropping pending home sales over the past few years. Real estate agents began noticing a trend of fewer floor calls, listing appointments and client presentations. The drop hasn’t affected real estate prices much so far but could be a sign of reversing momentum in the near future.”

“The problem is compounded by the fact that the Bay Area has been hemorrhaging jobs in the past few months, with September of 2017 resulting in the worst month for employment since February 2010.”

The Sangre de Cristo Chronicle in New Mexico. “Angel Fire, New Mexico, which also includes Black Lake, wrapped up the year with an overall 15 percent increase in the number of homes sold over 2016. While 15 percent may seem unimpressive when compared to the massive 48 percent spike we saw in 2016, any increase following 2016 is something to celebrate. This continual increase in buying activity over the last 2 years is moving Angel Fire from a buyers’ market to a balanced market.”

“The $500,000 to $1,000,000 home sales were down 35 percent over 2016, while over $1,000,000 home sales were up 50 percent. We also saw a slight increase in the number of homes over $500,000 entering the market. With inventory up and sales down, homes above $500,000 are currently sitting around a 3.7 year supply. The condo market saw an overall increase in units sold of 20 percent over 2016, with a 26 percent decline in sales under $90,000 and a 58 percent increase over $90,000. With the increase in inventory, condos are at a 14.6 month supply in inventory which is a Buyers’ market. History shows that this over supply will put downward pressure on condo prices this year.”

From the Real Deal on New York. “Few of the city’s residential brokerage were sorry to see 2017 close out. Why would they be? Looking back, the year was marked by buyer uncertainty, heavy discounting and unapologetic recruiting as top firms sought to maintain revenue in an unforgiving market. The stats in 2017 saw an artificial boost because many of the deals struck during 2015’s condo boom finally closed. In reality, it was a tough year for Manhattan’s residential brokerages as they grappled with a glut of expensive new developments and luxury resales lingered on the market.”

“‘Anyone who tells you it was great is lying,’ said Shaun Osher, the CEO of boutique brokerage CORE, adding that last year’s absorption was the slowest in two years. ‘It was one of the more miserable years to be a real estate agent,’ said Osher.”

“For nearly all firms, the key to closing deals in 2017 was getting sellers to reduce prices. More than 45 percent of all co-ops and condos in Manhattan sold for less than their asking price last year, according to data from appraisal firm Miller Samuel. CORE’s Osher said that for most sellers in 2017, the reality of the market correction had still not seeped in, leading to fewer trades and longer marketing time.”

“‘We definitely adjusted pricing, and that’s how we sold a lot of our inventory,’ he said, noting that agents often had to be ‘the voice of reason’ inside sellers’ heads.”

From CBS 12 in Florida. “Boynton Beach police are investigating a domestic-related shooting at a house on Aspen Leaf Drive. Officers were called to the scene at 7:11 p.m. according to police. A man and his wife suffered gunshot wounds and were taken to a local hospital. A neighbor said she was shocked to see police officers in the middle of her quiet neighborhood. ‘It’s just a white couple, they’re pretty quiet. They’ve been trying to sell their house for a long time. I don’t know if they’ve been under stress, or what’s been going on,’ Heidie Alvarado said.”

“The home listed on Zillow shows the price was just reduced to $435,000. According to the property appraiser’s office, the home, purchased in 2014, is owned by Eric and Lisa Barreca. Detectives are working to determine what led to both people getting shot. According to court records, homeowner Lisa Barreca is facing charges of attempted murder with a firearm.”

February 7, 2018

Prices Reached A Peak But Have Been Sliding Ever Since

A report from Reuters on Canada. “Home sales in Toronto fell 22 percent in January from a year earlier as rising interest rates and tighter mortgage rules weighed on demand. The average price of Toronto homes was C$736,783 ($589,002) in January, little changed from C$735,088 in December, and 19.8 percent lower than the market peak in April 2017. The real estate board said sales of detached homes fell 26.0 percent in January, while condo sales were down 21.9 percent, semi-detached home sales fell 13.1 percent and townhome sales fell 12.6 percent from a year earlier.”

“Toronto’s housing market swooned in May 2017 after the provincial government stepped in with a foreign buyers tax, among other measures, amid fears of a housing bubble. A suite of so-called B-20 rules on mortgage lending that require stress tests on uninsured mortgages took effect Jan. 1, and are expected to make it harder for many buyers to qualify for a mortgage.”

From Bloomberg. “‘It is not surprising that home prices in some market segments were flat to down in January compared to last year,’ said Jason Mercer, the Toronto Real Estate Board’s director of market analysis. ‘At this time last year, we were in the midst of a housing price spike driven by exceptionally low inventory in the marketplace.’”

“It was the weakest month of sales for January since 2009. New listings rose 17 percent from the same period last year, but it was the second lowest level for January in the past decade. Active listings soared 136 percent from a year earlier.”

The Canadian Press. “The Toronto Real Estate Board says Greater Toronto Area realtors reported 4,019 home sales for January through the MLS, compared with a record 5,155 sold a year ago. Last month’s average selling price was also down, falling by 4.1 per cent to $736,783 from $768,351 a year ago. Sales volume and prices for townhouses, semi-detached and fully detached houses were all down. The biggest decline was in the average price of fully detached houses in the surrounding 905 area code, where the average price dropped by 12.0 per cent to $879,048. In the 416 area code, the average fell 3.9 per cent to $1,283,981.”

From CBC News. “Housing sales in the city dropped over a quarter last month compared to January of 2017, according to new numbers from the Realtors Association of Hamilton-Burlington. In Burlington alone, prices fell by 8 per cent. The median in January was $625,000, down from $680,000 in the same month the year earlier. Housing prices in Hamilton reached a peak in April of 2017 when the market was at its hottest, but have been sliding ever since. ”

“The overall Hamilton-Burlington median price was down 12.3 per cent from April 2017. The Hamilton-only price was down 11.8 per cent from last April. And in Burlington, the peak was higher in March – January 2018 median price was down 17 per cent from March last year.”

From Mississauga.com. “The average price for all types of real estate in Mississauga has fallen back to levels not seen since the summer of 2016. According to the latest monthly tracking data from the Toronto Real Estate Board, the average selling price for all types of dwellings came in at $631,372 in January 2018. While that represents a 9.8 per cent year-over-year decline over January 2017, those who purchased during last year’s spring peak are looking at some fairly steep losses to kick off 2018.”

“The Mississauga market has shed 20.9 per cent since March 2017, when the average selling price for real estate topped out at $798,670. It has been in decline since. The detached home sector was the hardest hit, falling 13.4 per cent to $1,022,125 last month compared to an average selling price of $1,181,365 in January 2017. The average selling price for a detached home in Mississauga has fallen $231,623 — or 18.5 per cent — since peaking last March at $1,253,748.”

“In addition to regulations making it more difficult for prospective buyers entering the market, three interest rate hikes of a quarter point each by the Bank of Canada since last summer have also increased the costs of borrowing.”

From Mortgage Broker News. “Five weeks into the latest B-20 regime is all it’s taken for brokers to sound off. Homebuyers are having trouble qualifying for mortgages, as was predicted, and many are securing loans from the private channel. According to Ron Butler of Butler Mortgages, in the name of cooling down two overheated markets, the government has callously acted against the interests of consumers.”

“‘If you live in Medicine Hat and want to finish your basement by refinancing, why should you be afflicted because of something that’s about two big cities in Canada,’ Butler said of Toronto and Vancouver. ‘If your qualification test forces them out of A lending and into B lending, you’ve totally screwed the consumer, and why should that be government policy?’”

The Financial Post. “Since the revised mortgage guidelines came into force, both the Bank of Canada of rate and benchmark rate has risen, dealing a ‘double extra whammy’ to borrowers, said Dave Teixeira, vice president of operations, public relations and communications for Dominion Lending Centres. Dominion mortgage brokers are seeing a higher rate of rejection and clients have to submit multiple applications to various institutions before finding a lender that works, he added.”

“Private lender Fisgard Asset Management Corporation in Victoria is seeing an influx of borrowers and ‘better quality business’ said Hali Noble, its senior vice president of residential mortgage investments and broker relations. ‘A lot of these people should be bankable,’ said Noble. ‘But they’re not.’”

The London Free Press. “After back-to-back record breaking years, the London area real estate market got off to a sluggish start in 2018. The London St. Thomas Association of Realtors said 400 homes were sold in January, down 28.8 per cent from the same month last year. John DeBlock, a veteran realtor with Remax Centre Realty said there are still plenty of interested buyers, some with mortgage approvals obtained before the new rules kicked in. DeBlock said Toronto buyers have not disappeared and the new mortgage rules have increased their interest in regional markets.”

“‘They used to qualify for $1 million and now they only qualify for $750,000 and they can’t find anything for that in Toronto,’ said DeBlock.”

The Windsor Star. “After a rip-roaring year for local real estate in 2017, housing sales in Windsor and Essex County plummeted in January. Residential sales fell more than 21 per cent — year over year — from 364 units in January 2017 to 286 last month, according to the Windsor-Essex County Association of Realtors. ‘It’s a big number — it is a concern,’ said association past-president Kim Gazo, a sales agent at Deerbrook Realty.”

“But not to worry, at least not for now, Gazo insists. ‘If dramatic declines continue in February and March, I think then we can start losing sleep,’ she said.”

The Calgary Sun. “The Calgary Real Estate Board (CREB) has weighed in with its expectations for the Calgary housing market in 2018 and this year should be a little slower, but still a lot like last year in terms of sales activity and price growth. ‘Housing market conditions are expected to remain relatively unchanged in 2018,’ says CREB chief economist Ann-Marie Lurie. ‘The market will continue adjusting to the new normal in this economy.’”

“The market is definitely in favour of buyers with excellent financial credentials, particularly due to a large inventory of homes for sale. The apartment sector, plagued by oversupply in the MLS and new homes markets, is expected to stay very much a buyers’ market, with downward price pressures, for the most part of the year. ‘For buyers, there are a lot of supply choices in all prices across most product types,’ says 2018 CREB president Tom Westcott. ‘Sellers need to understand what niche their home falls within, their competition and how fast they have to sell.’”

February 6, 2018

The Hot Market Raises Questions About Its Upper Limits

A report from BizWest. “Two things struck me at the recent Northern Colorado Economic Forecast, presented by BizWest: Uniform praise for the economy overall, with strong growth in banking, health care, real estate, etc. Strength is apparent both at the national and local levels, as federal tax reform further fuels the U.S. economy. But things can change quickly. As my colleague Neil Westergaard, editor in chief of the Denver Business Journal, noted recently, economic forecasts in 2007 were almost uniformly positive. ‘The consensus view from most public and private economists was full speed ahead for the U.S. economy, despite a weak European market and flagging numbers in many other places in the world,’ Westergaard wrote in a Jan. 5 column.”

“What followed was the Great Recession, the worst economic downturn since the Great Depression. With that in mind, it’s somewhat refreshing to hear economists even hint at a downturn. How helpful would that have been in 2006, when the Weld County housing crash prompted national media to question what was happening? How helpful would it have been in 2007, when national forecasts remained overwhelmingly positive? Or 2008, when the bottom truly fell out of the national economy?”

“Economist Daniel Carter, predicting a downturn, noted in one article that the yield curve of U.S. treasuries, which typically flattens at the end of an economic cycle, might not do so in the future, as low interest rates have negated the effectiveness of the yield curve as a predictor. So, when many pundits spout nothing but optimism, acting as if a downturn is impossible, when daily reports of record-breaking stock-market performance spawn feelings of investment invulnerability, when it seems to make sense to borrow money from your 401(k) to take that Caribbean cruise that you so richly deserve, it might be worthwhile to log onto Google and search for a few archives from 2006, 2007 or 2008.”

The Register Guard in Oregon. “By many measures, 2017 was an eye-opening year in Lane County residential real estate. Fueled by the long-running seller’s market, the average and median sales prices of homes sold in the county last year set all-time records. The same real estate trends are happening in other parts of Oregon and in much of the nation, said Kevin Simrin, owner of ReMax Integrity in Eugene. Last year’s average sales price exceeded the previous record of $265,300, set in 2007 before the real estate bubble burst and the related financial crisis led to the Great Recession. But the hot market raises questions about its upper limits.”

From Builder Online. “Even as underwriting criteria have loosened generally, and credit availability has grown, smaller regional builders have been feeling the pinch when it comes to qualifying for acquisition, development, and construction (AD&C) loans from their local community banks. ‘We are still in a growth cycle,’ says Robert Dietz, chief economist at NAHB. ‘The concern would be if we had two or three quarters where that growth rate continued to slow, or even turned into tightening territory.’”

“‘The situation right now is that the economy is performing quite well,’ says Bert Ely, a banking and monetary policy consultant. ‘But what everybody’s worried about is when do the bubbles start popping, particularly in housing?’”

From the Washington Post. “The Fed isn’t typically a font of Friday night news dumps. But Janet L. Yellen wrapped up her final day on the job leading the central bank by dropping a bombshell: She smacked down Wells Fargo, issuing an order that bars the scandal-plagued, abuse-prone bank from growing until it cleans up its act. The unprecedented move by the Fed represents a shot across the industry’s bow. The policymaking gears in the Trump era have been spinning in sync to relieve pressure on banks. Yellen’s mic drop — as Capital Alpha’s Ian Katz described it in a Sunday note — is a reminder that regulators can still inflict pain on wayward firms.”

“‘Lawmakers make noise and create headlines,’ but don’t pass much, Katz writes. ‘Regulators are the ones that can put the hammer down. The Fed just put the Fear of God into bank boardrooms across the country. And that’s exactly what it wants to do.’ And Jay Powell, Trump’s pick to succeed Yellen, taking the Fed’s helm today, voted with her to impose the penalty on the bank.”

From Fox Business. “As Jerome Powell was sworn in Monday as the new chairman of the Federal Reserve, the pride of the moment may have been tempered by Powell’s recognition of the risks that lie ahead. A ferocious sell-off on Wall Street continued Monday. Yellen was able to oversee a gradual rate policy because inflation posed no threat: It ran below even the Fed’s 2 percent annual target throughout her tenure. The Powell era could be entirely different. The job market is tighter. Wages are up. Federal debt will likely rise. Tax cuts could accelerate growth.”

“The two most recent U.S. recessions were caused by bursting asset bubbles. The pricking of the dot.com bubble led to a brief recession in 2001. And the collapse of the housing bubble ignited the 2007-2009 downturn, the worst since the Great Depression of the 1930s. The current recovery began in June 2009. If it lasts until June 2019, it would tie the longest expansion on record — the one that lasted from March 1991 to March 2001.”

“Powell will be the first Fed leader in three decades without a Ph.D. in economics. But David Jones, the author of several books on the Fed, said that Powell, with his background as an investment banker, reminded him of the longest-serving chairman, William McChesney Martin, who led the Fed from 1951 to 1970. Martin also lacked a doctorate in economics but had extensive knowledge of Wall Street.”

“‘Powell, like Martin, understands markets, and I think he will be as plain-spoken as Martin,’ Jones said, citing Martin’s famous summation of the Fed’s job: ‘To take away the punch bowl just when the party gets going.’”

From Open Democracy. “In recent months, there has been a lively public debate between mainstream economists and its critics. Newspapers such as the Guardian have declared that economics needs a ‘reformation’, while there have been a number of response articles from mainstream economists complaining that the economics profession is misunderstood, and that it has been the victim of ‘dangerous’ and ‘ill-informed expert bashing’ for both failing to predict the 2007/8 financial crisis, and failing to take on new approaches.”

“Economists, and not just those who work for central banks, do regularly make forecasts which have enormous influence over policy makers, the private sector, the public – and therefore the economy. When in 2004 Alan Greenspan responded to suggestions that housing was in a bubble by saying ‘a significant decline in consumer incomes or house prices could quickly alter the outlook; nonetheless, both scenarios appear unlikely’ he was making a forecast that would have a profound effect on the subsequent course of events.”

“The real problem though is not that mainstream economists failed to predict ‘the timing, extent and severity’ (as the London School of Economics put it) of the crisis – economists have never been held to any such standard of forecasting skill, and no one asked for an exact date. It is that they could not have predicted or warned of the crisis, even in principle, because their models didn’t allow for such events. Furthermore, the models directly contributed to the crisis by enabling the financial sector to develop increasingly risky and dangerous products.”

“Finally, there is the oft-repeated claim that criticism is ‘dangerous’ (or even ‘anti-intellectual and dangerous’ as a piece in Times Higher Education said) because it erodes public trust in experts. But how could public criticism of mainstream economics possibly be more dangerous to society than something like the complete failure of orthodox economic tools during the crisis?”

“The problem we believe is not so much that economists are misunderstood by critics or by the public; it is that they have failed to adapt following the crisis, other than to come up with new ways of defending their tired paradigm.”

“Heterodox economists and people from other disciplines, including those working in the media, have already played a useful role by contributing new ideas and advocating for alternative approaches from areas such as biology and complexity theory. But if further progress is to be made, mainstream economists and policy makers need to engage more seriously with alternative viewpoints, and realise – as many in the public and the media have already done – that the days of monoculture neoclassical economics are over.”