July 27, 2016

This All Sounds A Lot Like The Bubble Of 2006

KARE 11 reports from Minnesota. “When real estate agent JJ Korman showed homes a few years ago, he knew it might take several visits before he got an offer. But this year, buyers are nearly knocking down his door. ‘Back then maybe we’d get a 15 to 20 showing amount in the first month,’ said Korman, owner of Korman Realty. ‘Here, we have that in the first weekend.’”

“Homes now sell both faster and higher. Twin Cities median sale prices are at a record $242,000, often driven up as buyers scramble to outbid. Dave Hackenmueller, a local real estate agent for 40 years, calls the last few months ‘insane.’ ‘You are going to have multiple offers,’ said Hackenmueller. ‘That’s just a given.’”

“But if this all sounds a lot like the bubble of 2006, experts say, it’s not. A new study from the University of St. Thomas found the bad loans and excessive flipping of ten years ago are gone, saying sales are now thanks to a healthy economy and cheap loans. ‘There’s a direct relationship between interest rates and values,’ Hackenmueller said, ‘And when rates are 3.5 percent, people are willing to spend more.’”

The Denver Post in Colorado. “Homebuyer demand suffered a big drop in Denver in June, despite a surge in listings that came onto the market last month, according to an index from Redfin. Redfin tracks the home tours its clients take and the subsequent offers they make, using that sample to get a pulse on demand in the larger market. A score of 100 on the index matches the three-year average of activity from 2013 to 2015. Scores below that reflect weakening buyer interest.”

“The Denver demand index came in at 36 in June, down from an index score of 129 a year earlier and the lowest monthly score captured since the index started in 2013. The 54.7 percent drop in June was the most severe among the 15 major metros that Redfin tracks.”

“Denver has faced a shortage of listings for three years now. But the June home sales report from the Denver Metro Association of Realtors showed a 24.4 percent surge in listings in June vs. May, nearly six times the average increase between those two months.”

“Despite that surge in supply, unlike any seen in months, Denver buyers cut way back. Karla Kirkpatrick Adams, a Redfin agent in Denver, said overall homes are taking longer to sell. Some buyers panic after their homes spend more than a month on the market, even though historically speaking that isn’t a long time. ‘The market is not as crazy as it has been,’ said Adams. ‘Prices have increased to a point where it is pricing people out of the market.’”

The Alaska Dispatch News. “In Anchorage, selling more expensive homes is getting harder. More listings, slower sales and flat prices in Alaska’s largest city are apparent across the housing market this summer, but it’s the upper reaches of the market, above the $750,000 mark, that are most sluggish. That’s in part because oil companies are transferring some high-earning employees out of state, said Niel Thomas, associate broker at Coldwell Banker Best Properties. Sellers in that price range also include doctors, attorneys, architects and financial and other business executives, municipal property records show.”

“Thomas sees a wide-open window for those with above-average financial means who are on the hunt for a more expansive layout. There are ‘good opportunities for local residents to upgrade if they are in stable economic circumstances,’ he said.”

“The expansion of choices at better prices is the silver lining to a market that is reverting to what realtors are describing as more balanced. The number of active single-family home listings in Anchorage as of June stood at 1,026, up 38 percent from June 2015, according to data provided by Thomas from the Multiple Listing Service. The tail end of the last recession, in October 2011, was the last time home listings broke the 1,000 mark.”

“Closings recorded by MLS totaled 1,268 for the first six months of 2016, a 7 percent drop from the first half of 2015. The year-to-date average sales price of $365,811 for a single-family home, while just barely lower than last year, is nonetheless significant for breaking a four-year trend during which the average sales price increased by 3.3 percent each year.”

“While buyers hold the advantage at the upper end, the market favors neither buyers nor sellers at the lower to upper-middle price ranges, below $500,000, as an inventory shortage has eased, according to Naomi Louvier, owner and chief executive officer of Jack White Real Estate. ‘Compared with last year, we’re not seeing as many bidding wars,’ she said. ‘To compete against the other listings, you have to do more preparation. You might have to stage your home.’”




Prices Aren’t Skyrocketing — At Least Not Statewide

The Boston Globe reports from Massachusetts. “A powerful combination of low mortgage rates, high demand, and few choices have pushed home prices in Greater Boston and across the state to record highs. The median sale price of a single-family home in the metro region was $585,000 in June, and for condominiums it was $505,000 — both records for the month, the Greater Boston Association of Realtors said Tuesday. But even at these levels, according to Warren Group’s chief executive, Timothy M. Warren Jr., the housing market is not in a bubble. Rather, Warren said, prices are reflecting strong demand and a very limited supply.”

“‘Median prices are rising slowly. We’re not in a situation where prices are skyrocketing — at least not statewide,’ he said.”

“James Gulden, a Redfin real estate agent in Boston, said he expect prices to continue rising steadily. ‘I haven’t made a bid in the past year that has sold for what it previously sold for,’ Gulden said. ‘Every time it’s for a next higher price than what the previous buyer bought it for.’”

The Providence Journal in Rhode Island. “Though the number of houses sold in Rhode Island in June went up by 2.6 percent, and the median sales price rose 3.6 percent, to $245,000, a dwindling supply of homes for sale may put the brakes on the real-estate market, according to the Rhode Island Association of Realtors. Rita Danielle Steele, broker/owner of Steele Realty Consultants International, in Providence, said investors from Boston have been winning bidding wars for multifamily investment properties on the West Side of Providence, often making cash offers on the spot.”

“As for the single-family housing market, she said, limited inventory has been pushing the spring market into summer, as many buyers, through they started a search in the spring, ‘are still looking.’ ‘When things do come on the market that are suitable, buyers need to be aggressive,’ Steele said. ‘Buyers have really needed to adjust their expectations this year.’”

“The association said condo sales were strong in June, with sales up 22 percent, though the median sales price fell 5 percent, to $207,900. The association said easier financing guidelines for condos has helped sales. About 10 percent of the house sales in June were distressed, meaning they were either foreclosed properties or short sales, and this level is nearly unchanged from a year ago.”

The Real Deal on New York. “With temperatures hitting Mars levels, Manhattan’s luxury market slid further during the third week of July with just 15 contracts signed on properties $4 million and up, according to Olshan Realty. For the week of July 18-24, the total weekly asking price sales volume was $104.5 million with an average asking price of $6.9 million and a median asking price of $5.6 million. The average discount was 6 percent, and the average number of days on market was 333.”

From The Record in New Jersey. “On Wilson Avenue in Wayne, a shady street of well-kept homes, the wood contemporary at No. 96 stands out. It’s been empty for years, thick moss grows on the roof and, neighbors say, water from a broken pipe flooded the interior and poured down the street several years ago. On Berdan Avenue in Fair Lawn, a piece of black tarp hangs off the roof of a brick Cape Cod, and two dead evergreens stand sentinel at the front steps. Get close to the house and you’ll catch a whiff of mold.”

“On Cumberland Avenue in Teaneck, weeds grow through the patio behind a vacant brick ranch; inside, paint is peeling off the walls in sheets. Neighbors call these homes eyesores. Real estate experts have another name: ‘Zombie’ houses — homes in foreclosure that stay empty and neglected for years.”

“Nancy Dyrsten lives across the street from the home at 4-03 Berdan Ave. in Fair Lawn, which was repossessed by the lender earlier this year after sitting empty for years. The landscaping is overgrown and a lamppost tilts at an angle. The roof appears to be damaged, and inside, large pieces of Sheetrock are missing from the walls and ceilings.”

“‘I’m sure the whole house is just destroyed from water damage,’ Dyrsten said. ‘It’s a very upsetting situation. It’s sad and it’s not good for our property values. There is something wrong when a house is allowed to sit like that.’”

“The house on Wilson Avenue in Wayne has been vacant for years. According to property records, it sold for more than $800,000 in 2005, as the housing bubble inflated. The home was repossessed by the lender in a Passaic County sheriff’s auction last October. It was recently for sale for $500,000, before being taken off the market last month.”

“The home, in an upscale neighborhood just blocks from a country club, has five bedrooms and 4,000 square feet, plus an indoor pool, on a lot of nearly half an acre. According to neighbors, the former homeowners left late at night, hastily packing their belongings into their vehicle. After they departed, neighbors say, a pipe inside the house broke, sending water cascading down the street. They assume the interior has water damage.”




Allowing Greed To Overcome Common Sense

A report from Bloomberg. “It turns out that even the well-off need help in a housing market as crazy as the one in the San Francisco Bay area, and lenders are elbowing each other in a rush to provide it. They’re courting Silicon Valley workers with tailored loans, guaranteed 24-hour approval and financial-planning services. Social Finance Inc. has deals with Google and other top technology companies that allow it to market to new hires. First Republic Bank — which gave Facebook Inc. billionaire Mark Zuckerberg a 1.05 percent interest-rate mortgage — has opened branches in Facebook and Twitter Inc. headquarters. San Francisco Federal Credit Union will finance 100 percent of houses costing up to $2 million.”

“For many, it’s not home values that keep them in rentals but alarming down payments, which can be more than the cost of the average U.S. house: $187,000. That’s where San Francisco Federal Credit Union comes in. It started offering zero-down loans in December to people who work in San Francisco or San Mateo County. The credit union has more than $100 million pre-approved for 30-year adjustable-rate mortgages in what’s called the Proud Ownership Purchase Program for You.”

“As the tech boom starts to show signs of cracks, there’s some concern that high loan-to-value mortgages are dangerous. Silicon Valley venture-capital funding fell 20 percent in the second quarter from a year earlier, according to a report by PricewaterhouseCoopers and the National Venture Capital Association. New companies are staying private longer, leaving fewer options for shareholders to cash out.”

“The median San Francisco condo price rose less than 1 percent in the second quarter after an 18 percent increase a year earlier, data from Paragon Real Estate Group show. Inventories of condos listed at $2 million or more jumped 44 percent — but the number sold fell 30 percent.”

“‘Lenders get so caught up trying to stay competitive and finding a market edge, they basically allow greed to overcome common sense,’ says Terry Wakefield, a mortgage consultant who co-founded one of the first online direct lenders in 1998. ‘Easy money does fuel and accelerate the inevitable bubble.’”

“And the notion of 100-percent financing makes some in the industry nervous. ‘Given what we went through in 2008, zero-down financing is suicidal for our country,’ says Chuck Green, CEO of Bay Area Captial Funding Inc., a mortgage brokerage that offers loans from about 40 different companies. ‘We have to learn from our mistakes.’”




July 26, 2016

Familiar Anxieties And Debates

The Register-Guard reports from Oregon. “Across Lane County, and especially in Eugene, many local real estate agents and housing market analysts say prices are rising at a pace not seen since the pre-recession boom years more than a decade ago. The record-breaking home prices — not just in Eugene but in many markets in Oregon and nationwide — are triggering familiar anxieties and debates. Are we in a housing-market bubble — or for that matter a stock market bubble — that’s inflated by desperate buyers and is doomed to burst? Or are the escalating home prices sustainable and reasonable?”

“Lisa Frey, a buyer’s agent with Keller Williams Realty in Eugene, has worked in real estate sales locally for 19 years. She watched Californians flood the market here during the mid-2000s boom. As the economy has recovered from the recession, they’ve returned to the Eugene market, competing with local buyers. The hot real estate market in California allows owners there to sell their property and direct the cash into Oregon. ‘The last six months is when I really noticed the frenzy start picking up,’ Frey said. ‘I just talked to somebody on Sunday who said, ‘We hate California. We want out.’”

“The recent price escalation puts pressure on buyers to up their offers and make snap decisions. That concerns real estate brokers such as Ron Blacquiere, who owns Equinox Real Estate in Eugene with his wife, Bess. After years of depressed home prices and inventory rates above 10 months, the market appeared to be heading toward a sweet spot between a buyer’s and seller’s market around late 2014, he said. The surge in prices ‘has kind of been in the making over the last 18 months,’ Blacquiere said. ‘The rapid increases give me pause, they make me nervous.’”

The Pueblo Chieftain in Colorado. “Real estate agents will tell you Pueblo’s housing market has heated up in the past few years — though they are divided over whether the cause is people coming to the area for legalized marijuana. ‘We’re going through a seller’s market right now that I’ve never seen before in my career here in Pueblo,’ said Betty Martinez, owner of a local real estate company. ‘You’re seeing multiple offers on property that are above the asking price.’”

“Laurie Linn, of the Pueblo Housing Authority, said that for whatever reason, Pueblo clearly is at the top of the list for many housing investors. ‘I had a call from a Denver man who asked me, ‘If I buy 25 or 50 houses in Pueblo, can I rent them all?’ she recounted. ‘And I told him that right now he could.’”

The Houston Chronicle in Texas. “The housing market in northwest Houston has remained steady this summer, despite the downturn in the energy sector. And builders are adjusting to suit the needs of the market. Last year, there were many builders who offered homes priced more than $300,000. But the demand now is for lower priced homes. ‘Builders start to adjust the product line they have out there,’ said Jill Wente, a real estate agent with Better Homes and Gardens, Gary Greene, in Spring. ‘We’re seeing some builders come back and make adjustments to offer lower prices in the under $300s to accommodate for that segment of the market where the demand is definitely still there.’”

“The more expensive homes are sitting on the market longer, and inventory is therefore greater. ‘It’s a different market in a sense that we’re seeing more inventory available in the higher price point,’ Wente said. ‘Buyers have more to choose from. They are taking their time on the higher price points.’”

“The housing market has returned to more normal levels, said David Patton with Heritage Texas Properties. ‘Over the $300,000 range, homes are staying on the market longer,’ Patton said. ‘That’s not necessarily a bad thing. It’s just not the frenzy we’ve had the last two years. It’s more a normal market.’”

“‘For higher price points, it is a buyers’ market because they have options they did not have in prior years,’ Wente said. ‘For lower price points, it’s still a sellers’ market.’ And more communities will be developed. ‘We still have land for them to build on,’ Wente said.”




The Days Of Impressively Peaking Values Are In The Past

A report from Bloomberg. “Welcome news for America’s renters could be unhelpful for the Federal Reserve. A 42-year high in the number of apartment buildings under construction points to an impending surge in supply that portends a moderation in the cost of shelter, which in June capped the biggest 12-month jump in almost a decade. Any cooling in the most pronounced driver of inflation means the Fed will have to wait even longer to reach their 2 percent price target — a prerequisite for some policy makers to raising interest rates.”

“Costs for shelter accounted for 63.9 percent of the run-up in the consumer price index excluding food and fuel in the 12 months ended June, the most since 2007 and almost four times the contribution of medical care, the next-biggest source of upward pressure, according to the Labor Department. That boost will be difficult to repeat.”

“Ben Weixlmann, who recently relocated to Washington, saw seven apartments over two months before moving with his girlfriend into a new development in Arlington. For a few hundred dollars more, they snagged a two-bedroom place instead of having to settle for a one-bedroom. ‘We found somewhere we’re both quite pleased with,’ said the 28-year-old, who works for an aerospace company. What helped cinch the deal: a 14-month lease for 12 months of rent.”

The Naples Herald in Florida. “Naples Area Board of Realtors Mike Hughes was somewhat subdued as he announced the latest data for the real estate market in Collier County. NABOR’s second quarter market report showed double-digit declines in pending and closed sales. It’s provided for a splash of cold water after a torrid 2015. ‘We’re facing some headwinds,’ Hughes conceded. ‘We have a nasty presidential election, and I don’t care who you’re for, it’s going to continue to be nasty until the election takes place. So that’s one thing that’s affecting consumer confidence.’”

“Pending sales dropped by 11 percent over the same period a year ago, with closed sales falling by 14 percent. Median closed price, which rose by double digits in 2015, has remained virtually flat, growing by 2.0 percent to $325,000. Meanwhile inventory on the market rose by 35 percent over this time last year. ‘[T]he days of impressively peaking values and expecting a price over market value are in the past,’ said Kathy Zorn, of Florida Home Realty.”

From Greenwich Times in Connecticut. “Second-quarter home sales in Fairfield County reached their highest level in a decade, according to a new report from Douglas Elliman. But not everything went up. The median sales price was $360,000, a decrease of 16.5 percent from the same quarter last year, and the luxury median sales price, at the top 10 percent of the market, fell 26.4 percent to $1,815,700. ‘What’s happening in Greenwich is what we’re seeing across the region,’ said Jonathan Miller, president and CEO of Miller Samuel Inc. ‘The market is softer at the top and firmer in the middle and at entry-level.’”

“In Greenwich, with its pricey real estate market, housing price trends and sales fell short of the levels from last year. Both the sales of single-family home and condos declined; the median sales price for the former fell 7.5 percent to $1,757,000 while it declined by 26.5 percent to $680,000 for the latter. Luxury-market prices followed the overall trends of the market.”

The Inland Valley Daily Bulletin in California. “The townhomes sit half-finished — or half-unfinished depending on your perspective — and the city of Claremont has had enough of what officials and residents are calling blight. So this week, city officials will be meeting with Newport Beach-based William Lyons Homes to discuss the status of a 95-unit townhome project near the 210 Freeway, Mayor Sam Pedroza said. The development has not been, well, developing for some time, said Pedroza, who, along with other city officials, is calling for the project to either get moving again or be sold to another builder who will finish it.”

“‘I think we’ll continue pushing to make sure that either the developer moves forward with something or they figure out a way to unload it to someone else. From a city perspective we’re not going to ignore it,’ Pedroza said. ‘Not only is it a blighting type of situation, but the community gets upset when they see nothing is happening as well.’”

“Claremont Community Development Director Brian Desatnik said the city is working to find options that would complete the project. ‘We don’t like any project sitting half-completed, so the site as it currently sits is a blight on the neighborhood,’ Desatnik said. ‘It is not acceptable to us.’”

“The Claremont City Council in February was informed that construction was halted. Desatnik said William Lyon Homes, which has 19 other projects currently for sale in Southern California, indicated it needed 60 days to reassess the market. ‘They did not believe the market was in a place where they needed it to be in order to proceed with the project,’ he said.”




July 25, 2016

It Could Be Sell Time

The Silicon Valley Business Journal reports from California. “A closely watched measure of real estate developers’ sentiment turned sharply lower, suggesting a pullback is on the horizon for the region’s go-go office growth. That’s the message from the latest Allen Matkins/UCLA Anderson Forecast California Commercial Real Estate Survey. The report found that by 2019, Silicon Valley office developers expect rental rates to be lower, and vacancy rates higher, than they are today. ‘What our panelists are saying is as they’re looking forward to 2018, they’re seeing markets that are not quite as good as they are today, that this building boom is kind of topped out,’ said Jerry Nickelsburg of the UCLA Anderson School of Management.”

“Signs have been emerging that the office market is losing steam, and the recent round of brokerage reports found less deal activity and in some submarkets, rising vacancy rates. Adding to the mix: A number of office projects, built without tenants lined up, that are reaching the market still unspoken for. ‘What we saw in this survey was really a bit of a peak in the middle part of 2014. What we’ve been seeing ever since then is a slow but basically continuous decline,’ said John Tipton, an attorney with the law firm Allen Matkins, which works with UCLA on the report.”

The Arizona Republic. “It could be sell time for two big groups of metro Phoenix homeowners. Many Canadians and institutional investors bought bargain foreclosure homes in the Valley during the crash. Tom Ruff, who is author of the Arizona Regional Multiple Listing Service’s monthly Stat report, has been tracking north-of-the-border addresses on property records, concluding that for every Canadian buying a metro Phoenix home now, another nine others are selling.”

“Big institutional investors, who paid cash for Valley homes and turned them into lucrative rentals, also could start selling at least some of their Phoenix houses soon, Ruff said. They now own about 12,629 houses across metro Phoenix , according to Ruff’s latest count. But institutional homeowners are losing renters as more people opt to buy. Institutional investors Colony Starwood Homes, Invitation Homes and American Homes 4 Rent all report losing more than 20 percent of their renters nationally as those folks decide to buy, Ruff said.”

“Many of the rental houses owned by institutional investors in the Valley were bought for less than $150,000 and could now sell for double that. It’s a good thing there’s a shortage of metro Phoenix homes for sale under $350,000. Still, I hope they don’t all try to sell at once. That could produce a glut of homes for sale, potentially hurting all our home values.”

The Chugiak-Eagle River Star in Alaska. “While the state of the state economy is still forefront on the minds of most Alaskans, some may be wondering whether summer 2016 is a good time to buy or sell. All of the listings in the Chugiak-Eagle River area that The Star looked at had an average falling under $500,000. Inventory is up by nearly 10 percent while homes sold in the first six months are down 8.2 percent. Days on the market are nearly equal to last year, although the average closing price has dipped by about 1.2 percent.”

“Army National Guard Lt. Col. Ruth Anne Cresenzo at JBER said she feels everyone is nervous about the future of oil prices, the state of the economy in Alaska and the future of the Permanent Fund Dividend. She told The Star that homeowners, including her, are afraid their home values will drop and those who are currently renting are afraid to buy.”

“But more encouraging words come from Bill Popp, President and CEO, Anchorage Economic Development Corp.: ‘It’s important that anyone thinking of buying or selling a home know that the Municipality of Anchorage market remains relatively stable. Total listings in Anchorage, while up in the last three months, are still at levels well within the 10-year historical range. In the last four years, it’s been a strong seller’s market in the Municipality, though that trend seems to be softening a little in the first half of 2016.’”

The Forum News Service on North Dakota. “Rental prices in Dickinson are the lowest they’ve been since the oil industry planted stakes here, but people aren’t flocking to fill up rental properties. While residents might be excited about the cheaper prices, property companies are having a difficult time renting out units and houses that once had a waiting list.”

“Amber Lengyel, who manages the Dickinson Meadows apartment complex and oversees multiple properties in the city, said it’s an unstable market. Dickinson Meadows currently has 63 percent occupancy rate and the other properties Lengyel oversees aren’t doing so well either. ‘When we opened (Dickinson Meadows) in October of 2014 we were renting at the $2,500 to $3,300 range and now we are over half that cheaper,’ she said.”

“Dickinson Place Townhome, a low-income housing complex, used to have a waiting list, Lengyel said. Now there are vacancies that can’t be filled. ‘When I first moved here three years ago at Dickinson Place Townhomes … I had a wait list a mile long,’ she said. ‘Now at that property we have something like eight vacancies and nobody on a wait list, and it’s incredibly hard to fill because market rent and low income are competing. So why would anyone want to jump through the hoops of having to do all of the paperwork with low income and you know all of the rules when they can honestly go get a nicer, if not as nice, place where it literally takes a half hour to sign a lease to move in?’”

“Realtor Diana Zietz of Continental Real Estate said the firm has an estimated 190 rentals with 30 percent vacancy. ‘When people were moving into the area, those buildings were starting to fill up even at the higher prices,’ she said. ‘Now that people have vacated, there is an abundance of properties and we haven’t seen that in the past. This is probably the worst that I have seen it.’”




Where Are They Going To Find All These Buyers?

The Wall Street Journal reports on New York. “The number of new rental apartments in New York City is expected to surge in the coming years. But the question remains whether that increase will hit the investment market for such buildings like a wave or a ripple. Over the next three years, more than 38,000 market-rate rental apartments—mostly in Brooklyn and Queens—are expected to be completed, with 14,686 of them added this year, according to Ten-X, an online real-estate company. The company estimates another 17,044 new apartments will be completed in 2017, marking a new high. The last peak came in 2001 when about 5,500 units were added.”

“The forecast from a recent Ten-X report is stark: The supply increase will result in market-rate vacancies of more than 10% by 2017 and zero rent growth for market-rate apartments in 2019. ‘I refer to it as a digestion problem,’ said Peter Muoio, chief economist and head of research at Ten-X. ‘There is so much, so fast at one point in time, that it’s difficult for any market to absorb that wave of supply.’”

From Real Estate Weekly. “With the one-two punch provided by the strong dollar and the volatility in financial markets, the United States’ appeal to foreign homebuyers was expected to wane. The National Association of Realtor’s 2016 Profile of International Activity in US Residential Real Estate, which took into account home sales to international clients between April 2015 and March 2016, found that foreign buyers purchased $102.6 billion in residential properties.”

“This represents a 1.3 percent drop compared to the previous year’s survey. The figures in the current survey show a drastic u-turn for foreign homebuyers. During the previous year, total sales dollar volume from international buyers increased by 13 percent. Edward Mermelstein, the managing partner of law firm Rheem, Bell & Mermelstein, agreed that Chinese investors have been gradually retreating from the US over the past year. ‘We’ve definitely seen a pullback over the past year from Chinese investors. That has more to do with the fact that, internally, China has been having some serious economic issues, as well as political issues,’ he said.”

“New York City is due for some tough times in some segments, According to Wei Min Tan, an associate broker at Rutenberg who works with a lot of Chinese clients, foreign buyers have scaled back their price targets. ‘In New York, you have a lot of these super-luxury buildings and many of them, by super-luxury I’m referring to ones priced seven million dollars and above, a lot of them were built with the intention of selling to rich Chinese buyers. I think that there’s an oversupply and the question would be: ‘Where are they going to find all these ultra-luxury buyers?’ he said.”

The Real Deal. “The U.S. government moved to seize four high-priced condominiums in Manhattan, as well as a stake in the Park Lane Hotel, in connection with a money-laundering scheme that allegedly diverted $3.5 billion away from a Malaysian investment fund. The government’s effort to seize the entities offers a rare glimpse into how dirty money is moved into some of the city’s most expensive properties by a complex global network of shadowy characters, mysterious business entities and willing bankers and lawyers.”

“In a complaint filed Wednesday, federal officials sought to seize valuable artworks, a private jet and real estate in New York and Beverly Hills amid its probe into how billions of dollars meant to benefit the Malaysian citizens were misappropriated from the 1Malaysia Development Bhd., or 1MDB.”

“The Manhattan properties include a full-floor penthouse at Walker Tower purchased for a then-record-breaking price of $50.9 million in 2014, as well as a penthouse at the Time Warner Center (bought for $30.55 million), Park Laurel ($33.5 million) and a condo at 118 Greene Street ($13.8 million). Federal prosecutors also moved to seize a roughly $200 million stake in the Witkoff Group’s TRData LogoTINY Park Lane Hotel.”

“In all, the New York City real estate – worth nearly $350 million – represents a small slice of the funds federal prosecutors say were misappropriated from 1MDB. But they nonetheless served as a vehicle for concealing the stolen monies and they reflect the ability of anonymous corporations to launder money through U.S. real estate, the government alleges.”

North Country Public Radio. “There are more than 150 abandoned homes in Watertown. A report put out by the city assessor finds homes in the city can be empty for months, even years, before the bank takes them over. Vacant homes have become such a problem in Watertown, the city council has had trouble wrapping their head around what to do. Brian Phelps, the city assessor, visited hundreds of empty homes and poured over stacks of paperwork to figure out why these homes were abandoned.”

“Phelps said he did find a common scenario, though. In many cases, a person had bought a home in Watertown, but two or three years later they had to move away. Often they’re military who had to relocate to another Army base. ‘When it gets time for them to leave the time on market to sell their house is not financially viable for them to make that many payments while the property is for sale,’ said Phelps.”

“Or the house just doesn’t sell. Some homeowners try to rent their property, but that can be hard to do if they don’t live nearby. Phelps said in the last two years, home values in Watertown have been steadily going down. ‘And this is a definitely a factor when you look at the market as a whole. That there are these problem properties out there that people can’t afford to stay in,’ said Phelps.”

“To answer the question of why this is happening you have to look back a few years. In 2008, when the housing market collapsed across the country, home values in Watertown stayed steady. As an influx of soldiers arrived at Fort Drum, Jefferson County and Watertown leaders asked developers to build lots of new homes. Today, selling a home is harder because there’s a lot more choice. ‘The reason why you can’t put a house on the market and sell it in three months is because there is an overabundance of supply and a lack of demand,’ Phelps said.”




July 24, 2016

You Can Hear The Panic In Their Voices

The Cape Breton Post reports from Canada. “Housing sales figures released for the second quarter show little good news for Cape Breton’s economy. So far in 2016, residential sales are down 14 per cent in the Cape Breton region, which covers the Cape Breton Regional Municipality and Victoria County. While sales are down overall for the year to date, the number of properties currently on the market last month was up 14 per cent with 627 active listings over figures from June 2015. Sydney realtor Mary Ann MacCormick said sellers are receiving approximately 83 per cent of the asking price for their home — down from 90 per cent at this point last year.”

“The increased inventory on the market has sellers readjusting sales prices downward, MacCormick said. ‘There are more choices for the buyer looking around,’ she said. ‘People are reducing the prices of their homes even though they’re originally priced, hopefully, at market value.’”

“There’s also been an interest in people looking to buy duplexes or triplexes as income properties, said MacCormick. However, the sluggish economy hasn’t provided the type of return on investment those property owners would have wanted, she said. ‘People who have bought investment properties (and) probably had a five-year plan in mind are not getting the increase now when they’re trying to sell them. They’re not really seeing the profit that they thought they were going to see and that’s because prices are not going up the same way they were in the past.’”

The Dawson Creek Mirror. “Lita Powell doesn’t mince words when she talks about the Fort St. John rental market in 2014. ‘The general feeling was just panic,’ said Powell, who has managed property in Northeast B.C. since the 1980s. That year, rents were among the highest in the province outside the Lower Mainland, driven by promises of a liquefied natural gas boom. Few if any units were available, while investors poured money into new apartments, duplexes and suites.”

“‘I describe the work environment and the rental environment as hysteria,’ Powell recalled. ‘Everybody was responding to the big companies: drill faster, work harder, we need more.’”

“Now, nearly 18 months after the first signs of an economic downturn in Northeast B.C., renters have more choice than ever, and landlords are feeling a sense of whiplash. ‘We went from an absolutely ludicrous landlord’s market to a really generous tenant’s market in a few months,’ said Kevin Kurjata, a Dawson Creek realtor and landlord. ‘I saw the oversupply issues coming,’ he said. ‘I did not see the demand vanishing at the same time.’”

“Powell, who worked for the CMHC before founding Li-Car Property Management Group, said official vacancy rates don’t take into account properties with fewer than three units—leaving out duplexes, homes with suites and other types of rentals. When those properties are accounted for, Fort St. John’s overall vacancy rate is now closer to 30 per cent, she said, with more rental units set to come on the market in the coming months.”

“The weak rental market has left homeowners with few ways out if they lose their jobs. Powell has heard from more than a dozen families this month who faced a stark choice: find a tenant or lose the home. ‘I ask them what their expectation for rent is and they say ‘for $1,800 I could do it.’ I have to tell them ‘I’m really sorry, but that’s not the magic number.’ You can hear the panic in their voices.’”

From The Province. “A Chinese property tycoon linked to a massive banking scandal in China’s industrial north is at the centre of more than $500 million in B.C. property deals, a joint investigation by Postmedia and global due diligence firm IPSA International shows.”

“Chinese real estate magnate Kevin Sun — also known as Hong Sun, Kevin Lin, Hong Wei Sun and Sun Hongwei — founded Sun Commercial Real Estate in 2013. In addition to buying and selling hundreds of millions in B.C. property, the B.C. company, which focuses on immigrant investors, has raised over $200 million from investors.”

“A B.C. Supreme Court civil case connected to a South Vancouver property flip provides insight. Detailed testimony from Bo Jiang, Sun’s friend and first employee in B.C., points to Sun’s fortune in China, his arrival on B.C.’s real estate scene, and complex land investment strategies that preceded Sun Commercial’s incredible growth.”

“Bo Jiang — or Bobo, as Sun affectionately called him — was Sun’s translator and jack-of-all trades in property speculation, Jiang would recall in the 2008 B.C. Supreme Court civil case. It’s not clear how much Jiang knew about his boss’s history in China. But according to Jiang’s testimony, he did know that Sun claimed to be enormously wealthy. Bobo was the worker who asked Richmond bureaucrats for land subdivisions, opened a Marine Drive Royal Bank account to manage Sun’s cash, and took care of all the little things, such as maintaining Kevin Sun’s growing roster of empty homes.”

“‘At that time he said something like, ‘Eventually I would give you more than what you want or what you ask,’ Jiang told the Supreme Court. ‘He said that, ‘Given that I’m so wealthy, I don’t give a damn about this little money.’”

“One associate said that in B.C., Sun seems to be repeating the style of business he started in Jilin. ‘He is an opportunist. You know, in Jilin he bought factories very cheap and he sells it for the real estate value and then leaves,’ the associate said in an interview. ‘Now he moves very fast from buying farmland to flipping houses to flipping commercial property. If a developer from China wants to develop in Vancouver, Sun buys the land first and sells it to them. He is very secretive and smart.’”

“An associate of Sun told Postmedia: ‘In Vancouver, it is not just Kevin, though. There is hundreds of people similar to him.’ The belief that there are hundreds of real estate investors in Vancouver who are under suspicion in China is shared by Canadian law enforcement sources. ‘Sometimes we ask ourselves if we’ve already lost the battle,’ one such source said. ‘I think this guy is just part of a large network.’”




Do The Underwriters Know Something That We Don’t?

Two reports from the Denver Post in Colorado. “High plateau — it’s a phrase starting to pop up a lot more in descriptions of metro Denver’s housing market. But the leveling off could require an adjustment in thinking and strategy in a market accustomed to sharp increases in home prices. And someone who buys in 2017 might find themselves sitting on zero appreciation come 2021. ‘If we get anything under 5 percent in appreciation, sellers will lose their mind and think the market is collapsing,’ said Anthony Rael, chairman of the Denver Real Estate Market Trends Committee at the Denver Metro Association of Realtors.”

“June saw a huge 24.4 percent jump in the inventory of homes for sale versus May, an increase about six times the historical average between the two months. And while the overall inventory was still a historically low 6,769, agents note that a change is in the air, even if it hasn’t yet shown up in rates of appreciation, which are still running in the double-digits. Redfin broker Michelle Ackerman said the big jump in inventory should have translated into more showings this month, but that isn’t happening. Sellers are getting fewer offers than just a few months ago and fewer buyers are touring homes.”

“In something she hasn’t seen in two decades, Ackerman said bank underwriters are getting much more cautious, asking for more time to review appraisals and in some cases challenging them. ‘That has triggered conservativeness on the part of buyers,’ she said. ‘Do the underwriters know something that we don’t?’”

“One group will have a disproportionate influence on the housing market in the years ahead: retirees who are rich in home equity but short on savings. If they perceive the market is about to roll over, they may put their properties up for sale sooner rather than later. ‘Sales are being fueled by ‘move-down’ buyers,’ said Mark Boud, chief economist at Real Estate Economics. ‘That is the only way they can take advantage of their equity.’”

“But the bottom won’t drop out as long as developers and builders continue to put out too little supply. With land and labor constrained, builders have focused on the highest profit margin opportunities — luxury apartments and higher-end homes. That leaves those segments of the market more vulnerable to any softening.”

“Metro Denver’s average apartment rent reached a record high of $1,371 in the second quarter, according to a quarterly survey from the University of Denver’s Daniels College of Business, Colorado Economic and Management Associates, and the Apartment Association of Metro Denver. Newer units, which demand higher rent, pulled the average above the median of $1,324 DU associate professor of real estate Ron Throupe said.”

“Vacancies rose last year as developers put a large number of apartments on the market. They continue to build, adding 2,442 new units in the second quarter, but renters absorbed 4,189 units, causing the vacancy rate to fall. As the market has tightened, prices have gone up: Throupe found rents increased by $56 in the second quarter. The first-quarter figure of $1,315 had been a high at the time.”

“Rents are also rising because developers have focused on adding ‘luxury’ apartments in places like downtown Denver and central Boulder. As those become a larger part of the mix, they push up the average rent. But landlords, in an effort to lure new tenants, are also offering more concessions. The ‘economic vacancy’ rate, which accounts for discounts like a month or two of free rent, is at 14.3 percent, up from 13 percent in the first quarter.”

The Gazette. “Colorado Springs’ resale housing market remains red hot, but not problem free. The pace of buying and selling in the just-concluded first half of 2016 signals this could be a second straight record-setting year for single-family home sales in the Pikes Peak region. Many sellers of lower-priced homes put their properties on the market and field multiple offers that exceed their asking prices - sometimes within days or even hours.”

“But bidding wars, delays in getting appraisals, a tight supply of homes in the $300,000-and-under range and an oversupply of half-million-dollar-and-up properties are among problems that have led to head-banging frustrations for buyers, sellers and even their real estate agents. Despite the demand for lower-priced homes, the higher-end market - $500,000 and up - remains slow, said Tiffany Lachnidt, a real estate agent with Re/Max Properties.”

“Sellers of those properties are increasingly frustrated because they keep reading the market is so strong, she said. ‘Not every segment of the market is flying off the shelf,’ Lachnidt said. ‘Over certain price points, we jump from having six months of inventory to 38 months of inventory…We talk sometimes to sellers in those price points that are incredibly frustrated because they can’t understand why they’re not flying off the market. It’s because nobody’s talking about it.’”

“Owners of more affordable homes sometimes can’t understand why their properties aren’t selling, Lachnidt said. In spite of the demand for lower-priced homes, properties still must be priced to reflect the market; a home that’s too high by just 3 percent to 4 percent won’t get the offers it should, she said. Homes also must be in good condition, and marketing them for online viewing and in-home walk-throughs is key, Lachnidt said.”

“‘Sellers and agents can’t get lazy,’ she said. ‘You still have to have staging, you still have to be priced right and you still have to have good marketing. Otherwise, you’re still not going to sell in any market.’”




Waiting For Happy Hour

A report from the Naples Daily News. “Florida saw strong existing home price growth in June over the year. But in Southwest Florida, which had big inventory increases, the numbers weren’t as strong, according to reports released Thursday by Florida Realtors and local Realtor boards. Median sales prices for town homes and condos slipped 2.3 percent, to $256,500 from $262,500 in the Naples-Immokalee-Marco Island metro area in June, compared with June 2015. ‘There’s been a pullback,’ said Michael Burke, president of the Bonita Springs Estero Association of Realtors. ‘I don’t think there’s a bubble bursting, but buyers are taking a look-and-see attitude.’”

“Part of the reason for the lackluster rise is Naples resale sellers are competing with new home builders, said a panel of brokers at the NABOR event. All said about a quarter of their recent sales were of new homes. Another is that some sellers are resistant to lowering their prices in a cooling market. ‘A lot of sellers are not interested in selling unless they get a large price,’ Naples broker Jeff Jones said.”

“In the Naples area, the inventory of single-family homes was up 25 percent over the year, to 2,674 from 2,133, while the supply of condos rose to 2,309 from 1,565 a year earlier, a 48 percent rise. In Collier County, closed single-family sales fell 5.6 percent, to 475 from 503, while town house and condo sales were down 8.3 percent, to 520 from 567. Lee County saw closed single-family sales fall 12.3 percent, to 1,177 from 1,342, and town house and condo sales drop 13.8 percent, to 514 from 596.”

“‘There’s nothing good to say about condos right now,’ said Naples real estate broker Bill Coffey. One driver of the regional sales slowdown seems to be that buyers are aware of the slowing market and are anticipating home prices will fall, some brokers said. ‘They’re waiting for happy hour,’ Coffey said.”

The Miami Herald. “The boom is over. The volume of existing home sales fell again in Miami-Dade County in June, reflecting a real estate market that has settled down after three years of heady, unsustainable growth. But prices are still rising as buyers and sellers take time to adjust to the new dynamic. Competition remains intense for mid-range homes. And the market in Broward County, which is less dependent on foreign buyers, continues to grow.”

“Overall, prices are still on the rise. Experts say they lag several months behind sales. There’s evidence the luxury market has already started to adjust: Realtors interviewed in recent weeks have said sellers of multi-million properties are starting to lower sky-high expectations.”

The South Florida Business Journal. “Two condos controlled by a Turkish media executive in the Setai Resort & Residences in Miami Beach were placed in Chapter 11 reorganization. Setai 3509 LLC and Setai 1908 LLC both filed Chapter 11 in U.S. Bankruptcy Court in Miami on July 21. Both companies are managed by Nafia Sevin Ergun Sefada, the chair of Satis Ofisi, a large media representation group in Turkey.”

“Setai 3509 owns a three-bedroom, 2,521-square-foot unit in the condo at 101 20th Street. It paid $10.95 million for it in 2014. Setai 1908 owns a two-bedroom, 1,279-square-foot condo that it acquired for $3.75 million in 2013. Michael S. Hoffman, who represents the debtors in Bankruptcy Court, said they hope to reorganize and come out of bankruptcy with their debt resolved. They are considering the options to either sell or retain the properties, he added.”

“The complaint claimed that the defendants defaulted on the mortgages, owing $5.35 million on unit 3509 and $1.57 million on unit 1908. Meanwhile, both condos have been listed for sale. The asking prices for units 3509 and 1908 are $10.95 million and $4.75 million, respectively. However, condo sales volume in Miami-Dade County has declined this year.”




July 23, 2016

A Fundamentally Flawed System

A weekend topic on the housing bubble and policy starting with the Evening Standard. “It is generally a mistake to assume that because someone is in charge, they know what they are doing. It is not just politicians we should worry about, however. The same can be said of technocrats, many of whom wield as much power. This list comprises many business leaders but, most of all in today’s world, it also includes central bankers. For the past eight years, we have by and large assumed these figures of authority knew what they were doing, even when they pursued ever more extreme and experimental policies — always with the best of intentions, but with no real idea of how they might pan out.”

“In a speech earlier this month, Hans Hoogervorst, the one-time Dutch politician who now chairs the International Accounting Standards Board, drew attention to the reservations expressed by Jaime Caruana, general manager of the Bank for International Settlements — the central bankers’ club. Caruana said with refreshing honesty: ‘At this stage, we don’t fully understand the implications of low or even negative interest rates for the financial system and the economy as a whole.’”

“Clearly, central bankers operate to different rules. It is not as if we do not know some of the negative side-effects of ultra-low interest rates, which are at the core of current unconventional monetary policies. Hoogervorst even quotes the 82nd BIS annual report, which talks about how low rates increase leverage in the system. The 2008 blow-up was a classic credit crisis caused by the excessive build-up of debt in the economy. But thanks to low interest rates, leverage today is now even higher than it was then.”

“McKinsey has done the sums. In 2007, the combined worldwide debt of households, governments, corporations and the financial sector was an astonishing 269% of global GDP. By the end of 2014, it was an even more astonishing 286%. Add in the unfunded pension liabilities of various governments round the world, which Citigroup estimated in March to be $78 trillion (£59 trillion) for the 20 leading OECD economies, and the overall indebtedness of the world’s economy today comes to more than 400% of global GDP.”

“As Hoogervorst says, it is hard to see how this is going to end well or how these obligations can be met in an orderly fashion. There is a social cost, too. Unconventional policies such as quantitative easing fuel asset-price inflation in stock markets and property. This contains the seeds of future instability and, with expensive housing in particular, can have huge negative consequences for society, accentuating inequality and intergenerational unfairness. London housing is now 50% higher than it was before the 2008 crash.”

“‘To be in bubble territory again so soon after one of the worst credit crunches in history defies common sense,’ Hoogervorst says.”

From Bloomberg. “Americans are about as wealthy as they’ve ever been—and that’s a worry? Yup, say veteran economists Daniel Thornton and Joe Carson. They’re concerned that the swelling of wealth could prove unsustainable because it’s far outstripped the growth of the economy since the recession’s end in 2009. Thornton, who spent 33 years at the Federal Reserve Bank of St. Louis before retiring in 2014, says in effect that we’ve seen this picture before. Household net worth ballooned in the late 1990’s and the early 2000’s; in the first instance pumped up by rising stock prices, in the second by expanding home values. Both cases ended badly, with the economy falling into recession after the bubbles burst.”

“The same thing could happen again, if you ask Thornton, who now heads a consulting company in Valley Park, Missouri. Just as occurred in the previous two episodes, the latest expansion of wealth has been driven more by rising prices of assets—in this case both shares and homes—than by improved economic fundamentals, he said.”

“The problem, Carson said, is that ‘the financial cycle is way ahead of the economic cycle.’ That’s a worry given that the past two downturns were driven by asset-price deflation. ‘Nobody knows what’s going to happen,’ Thornton said. ‘But there’s plenty of reason to think that’s a scary graph.’”

From CNBC. “Corporate debt is projected to swell over the next several years, thanks to cheap money from global central banks, according to a report that warns of a potential crisis from all that new, borrowed cash floating around. By 2020, business debt likely will climb to $75 trillion from its current $51 trillion level, according to S&P Global Ratings. Under normal conditions, that wouldn’t be a major problem so long as credit quality stays high, interest rates and inflation remain low, and there are economic growth persists.”

“However, the alternative is less pleasant should those conditions not persist. In that case, a ‘Crexit,’ or withdrawal by lenders from the credit markets, could occur and lead to a sudden tightening of conditions that could trigger another financial scare. ‘A worst-case scenario would be a series of major negative surprises sparking a crisis of confidence around the globe,’ S&P said in the report. ‘These unforeseen events could quickly destabilize the market, pushing investors and lenders to exit riskier positions (’Crexit’ scenario). If mishandled, this could result in credit growth collapsing as it did during the global financial crisis.’”

“In fact, S&P considers a correction in the credit markets to be ‘inevitable.’ The only question is degree. ‘Central banks remain in thrall to the idea that credit-fueled growth is healthy for the global economy,’ S&P said. ‘In fact, our research highlights that monetary policy easing has thus far contributed to increased financial risk, with the growth of corporate borrowing far outpacing that of the global economy.’”

From Stefan Gerlach, Chief Economist at BSI Bank in Zurich and Former Deputy Governor of the Central Bank of Ireland. He has also served as Executive Director and Chief Economist of the Hong Kong Monetary Authority and as Secretary to the Committee on the Global Financial System at the BIS. “After having endured the collapse of its housing market less than a decade ago, Ireland has lately been experiencing a blistering recovery in prices, which already have risen in Dublin by some 50% from the trough in 2010. Is Ireland setting itself up for another devastating crash?”

“Housing bubbles are not difficult to spot; on the contrary, they typically make headlines long before they pop. Yet they are far from rare. Bubbles in Ireland, Spain, the United Kingdom, and the United States collapsed after the financial crisis that erupted in 2008. After the Asian financial crisis erupted in 1997, property prices in Hong Kong, Indonesia, Malaysia, Philippines, South Korea, and Thailand sank by 20-60%. And a decade earlier, Sweden, Norway, and Finland experienced property-price declines of 30-50%.”

“The obvious question is why nobody stepped in before it was too late. The answer is simple: while the bubbles are inflating, many people benefit. With the construction sector thriving, unemployment falling, and banks lending freely, people are happy – and politicians like it that way.”

“Because bubbles tend to inflate gradually over a number of years before their abrupt collapse, letting them run a little further seems politically astute. No one wants to be the one to stop the party – especially if their job is at stake. But the partygoers of the private sector cannot be counted on to stop themselves. In particular, banks, for which maintaining market share is crucial, cannot be expected to constrain risky lending, especially given the expectation that, if things do go wrong, the taxpayers will fund a bailout.”

“This leaves only the financial regulator or the central bank, which can use macroprudential tools – such as loan-to-value and debt-to-income ratios on new mortgage lending – to limit the deterioration of banks’ balance sheets during boom times. But this approach isn’t perfect, either, because the risky borrowers to whom lending is restricted tend to be first-time or low-income buyers.”

“By limiting the riskiest borrowers’ access to finance, rules on mortgage lending can trigger a fierce political backlash. Ireland is a case in point. In January 2015, the central bank sought to protect financial institutions from another catastrophic bubble by restricting their lending to high-risk borrowers. As a result, annual growth in property prices fell from a little over 20% to just below 5%. But the construction industry, worried about its profits, has been harshly critical of the rules, as have ordinary people who have been denied credit, and thus must struggle to find suitable housing in a small rental market. Politicians, no surprise, have jumped on the bandwagon, to capitalize on the popular mood.”

“As the pressure on Irish regulators to relax lending rules intensifies, so do concerns that they will succumb to it. One hopes that they will continue to resist. Would-be borrowers do indeed face genuine challenges as a result of these regulations; but that is nothing compared to the pain that a collapsing bubble would cause.”

“In any case, Ireland’s experience with housing bubbles carries a deeper lesson – one that virtually everyone has missed. A housing system that can so easily produce such large and damaging bubbles is fundamentally flawed. While restrictions on lending may be useful, they are not enough to bring about an efficient and stable housing system.”

“Many in Ireland might find that conclusion overly pessimistic. Maybe they are simply hoping that, this time, the luck of the Irish will hold. Perhaps it will, and this time really is different. But there isn’t much evidence of that.”




Real Real Estate and How to Profit

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