January 20, 2017

Haphazard Overnight Gains Are Becoming A Thing Of The Past

It’s Friday desk clearing time for this blogger. “Condos and single-family homes spent more time on the market and sold for a bigger discounts as luxury homeowners have begun to face reality in South Florida. The fourth quarter Douglas Elliman reports show the more than yearlong slowdown in Miami and Miami Beach’s luxury market is continuing, with Boca Raton and Fort Lauderdale as bright spots in the overall South Florida market. ‘For deals to happen, the sellers are traveling a lot further to meet the buyer in price than they were a year ago,’ Jonathan Miller, whose firm Miller Samuel authors the quarterly reports for Douglas Elliman, told The Real Deal. The median sales price of luxury single-family homes dropped by 56.4 percent to $5.45 million, according to the report.”

“Across the board, that market saw an increase in listing inventory, especially condos. Sellers in Miami are ’still anchored to 2014 prices,’ Miller said. He thinks it could take about two years for sellers to ‘break their anchor to the prior market. The seller is in mourning for not getting the price they wanted,’ Miller told TRD.”

“Awards season is upon us, but it appears Oscar-winning director Kathryn Bigelow has a few others things on her mind. Bigelow is attempting to part ways with her Tribeca condo. The producer and director bought the two-bedroom, two-bathroom apartment in 2015, doling out $3.03 million for the 1,665-square-foot pad. Oddly enough, it appears Bigelow isn’t trying to make a profit on the place—it’s now on the market for a mere $2.895 million, so even if it sells at full ask, she’ll be taking a loss. We wonder why Bigelow is so eager to rid herself of the loft.”

“Luxury residences in Greenwich, the Connecticut town that’s home to hedge funds and Wall Street executives, sold at a quicker pace in the fourth quarter as owners became more amenable to negotiating on price. The 16 luxury homes that traded hands in the fourth quarter did so at an average discount of 6.4 percent off their last asking price, compared with an average 5.5 percent reduction a year earlier. ‘The big challenge in Greenwich at the high end is that the sellers remained disconnected from the market,’ Jonathan Miller, president of Miller Samuel, said in an interview.”

“The real estate market here is facing some significant headwinds, with the local/middle income segment recording a decline of about 40 per cent in transactions over the past ten years despite a weakening in property value. Chief Operating Officer of Terra Caribbean Hayden Hutton said confidence among Barbadians remained low, contributing to low real estate sales in the local segment of the market over the past ten years. The luxury/foreign market also recorded a steep 29 per cent decline in value since 2007, he added.”

“‘The problem is that most of the inventory was built at 2008 prices and those buyers are simply not there,’ Hutton said.”

“A survey of the FipeZap index shows that the average residential rental prices in Brazil had a nominal fall of 3.23 percent last year. Considering official inflation measured by the Broad Consumer Price Index, the average value of a lease fell by 8.95 percent in 2016. Rio de Janeiro had the largest decrease in the average rental price in 2016, with a drop of 6.21 percent (before considering inflation). Sam Flowers, an American expatriate renting in Rio for over seven years shared, ‘I am not surprised to see a decrease in rents in Rio and I think they are likely to decrease a little further after Carnaval. There is more supply than demand and that will continue for at least the first half of 2017.’”

“Dubai apartment prices dropped an average of 11 per cent last year as the market tackled tough economic conditions, according to property site Bayut.com. Rents were less affected but still dipped 6 per cent from their 2015 average. ‘With prices having levelled out and rents rationalising, the real estate markets in the two main emirates appear closer to maturity than ever, where inflationary and haphazard overnight gains are quickly becoming a thing of the past,’ the company said.”

“As recession continues to bite harder, Roland Igbinoba, president of Pison Housing Company and MD/CEO of FHA Mortgage Bank, says the default cases in the Lagos rental market have risen by 71 percent. ‘Out of a sample size of 3,700, 71 percent of people in Lagos State who are renting are in default because the rent is going up and there is recession,’ Igbinoba said.”

“Ernest Cheong, who has been a chartered property surveyor and consultant in Malaysia for more than 40 years, has advised prospective house buyers to wait until property prices come down, saying making a purchase at current prices and in the face of a bleak economic outlook would be like committing suicide. He advised the public to shed the widespread belief that only house ownership could guarantee a roof over a family’s head. Families could still live in rented homes, he said.”

“‘To make matters worse,’ he told FMT, ‘you have so-called property gurus encouraging families to buy homes they may not be able to pay for in the long run, claiming it is an investment since property prices don’t go down. What happens when you can’t afford to pay the instalments and can’t sell the property off, or if rental values can’t cover instalments? You’ll be stuck.’”

“He said it would be more sensible to rent a house than to buy one in times of economic uncertainty. ‘Sure, you could rent out the house you bought and rent a cheaper place to live in, but the question is whether you can find someone to rent your place for RM2,000 or whether you can rent it out at such a rate when we have an oversupply of houses, like we do at the moment.’”

“A first home buyer has lost a $41,000 deposit on a St Kilda apartment after the National Australia Bank walked away from the loan at the last minute arguing the property was too small. In a further sign that banks are tightening lending standards to high-risk segments of the property market, 20-year-old Alexander Tashevski-Beckwith said he was left without the deposit he paid and is on the hook for further tens of thousands of dollars in vendor fees after the bank reneged on the loan a day before settlement.”

“‘They haven’t even left me with time to renegotiate another loan,’ he said. ‘I’m in this terrible financial position right now.’ The science student said he had been studying part-time to save up money for the deposit. ‘I jumped through all the hoops, I did everything they wanted me to, then at the end of the day they ripped the rug right out from under me.’”

January 19, 2017

A Return To Less Aggressive Market Conditions

A report from The Signal in California. “Real estate may still be the best long-term investment, but first-time homebuyers are finding it more difficult than ever to grab onto the first rung of the ladder, partly because owners simply are not selling, opting instead to stay put. Ultimately, that may yield what is known as a ‘European model’ of homeownership, where children inherit a home from their parents and property stays within a single family over multiple generations. The California market isn’t there just yet, but that could be what the future looks like here unless more homes are built, said Leslie Appleton-Young, the chief economist of the California Association of Realtors.”

“‘Seventy-one percent of Californians over age 55 have not moved since 1999,’ Appleton-Young said. This creates a ‘huge problem for first-time buyers who want to move into one of those properties.’ With little new construction underway and fewer chances to buy, former residents of California are gobbling up properties elsewhere. Seventy percent of home sales in Austin, Texas, 40 percent in Raleigh, N.C., and 30 percent in Portland are completed by folks from, guess where — sunny California.”

The Austin American Statesman in Texas. “Central Texas home sales and home prices hit record highs in 2016, the Austin Board of Realtors said Wednesday. It was the sixth straight year of record sales and prices in the Austin metro area. ‘The Central Texas housing market is slowly beginning to align with long-term historical trends,’ said Brandy Guthrie, president of the Austin Board of Realtors. ‘Homes are spending more time on the market and the pace of both home sales and price growth is slowing. This normalization does not necessarily mean a weakening housing market, but a return to less aggressive market conditions.’”

“In recent months, some agents said they felt the market had cooled some from its feverish pace in the past few years. But Robin Rhoads, an agent with JB Goodwin Realtors in Austin, said homes that are priced right and in desirable locations are still getting multiple offers. If a home is sitting rather than selling, she said, ‘it’s usually because it’s overpriced.’ ‘I think some sellers are overzealous, or they tend to not really understand that all houses are not created equal,’ Rhoads said.”

The Denver Post in Colorado. “Average apartment rents in metro Denver fell for the second quarter in a row in the fourth quarter of 2016 as the market struggled to absorb a record number of new units, according to the Denver Metro Area Apartment Vacancy and Rent Report. Average apartment rents fell from $1,371 in the third quarter to $1,347 in the fourth quarter, marking the largest quarterly drop in the 36 years the report has been conducted. Median rents stayed flat at $1,329 per unit.”

“As average rents fell, the apartment vacancy rate shot up from 5.1 percent in the fall to 6.2 percent. While apartment vacancies tend to rise in the fourth quarter, the rate is now its highest since 2010, said Mark Williams, executive vice president of the Apartment Association of Metro Denver, in the report. ‘In 2010, only 498 new apartment units were built in the entire city. Fast forward to 2016 and we’re seeing that same number being delivered every three weeks in Denver,’ Teo Nicolais, a Harvard University instructor who specializes in real estate, said in the report.”

From Fox 17 West Michigan. “Grand Rapids first got its name from the rapids of the Grand River. Now, the city is becoming more known for beer and its rapid growth. Housing options are growing faster than ever before, creating an inventory of thousands of units near downtown Grand Rapids that will eventually need to be filled. But will the demand arrive as quickly as the supply? FOX 17 spoke with several downtown developers about the growth in the downtown area, but it turns out that adding to the city’s skyline doesn’t always mean success at ground level.”

“‘There is concern in the market place for the high-end market rate apartments,’ said John Wheeler, president of Orion Real Estate Solutions, ‘especially the bigger ones the big two- and three-[bedroom apartments] — you know, at $2,500 or $3,000 a month. People say I’d rather by a $350,000 house.’ What happens if the apartments don’t fill up? ‘My theory is apartments will always fill,’ Wheeler said. ‘It’s just how low you have to lower the rent to get the people in.’”

The Real Deal on New York. “Which asking price will get whacked this week? Two adjacent co-ops belonging to ‘The Sopranos’ creator David Chase received one of the biggest price reductions in the city’s over-$10 million market during the past week. The penthouses at London Terrace were listed last year for $16.5 million, but are now asking a more subdued $14.9 million. In total, 13 ultra pricey pads received reductions of more than 5 percent in the period between Jan. 9 through 15, according to data from StreetEasy.”

“795 Fifth Avenue, 2204 - Previous Price: $25.9M - Current Price: $22.5M - Percentage Drop: 13 percent. Back in May 2014, this four-bedroom co-op hit the market for an ambitious $33 million. But that was back when ultra-luxury pads were selling like hot cakes, and sellers had high hopes for what their apartments could (and often would) fetch. In October 2014, the asking price was shaved back to $29.9 million, where it sat for nearly 18 months. In March last year, the price was slashed to $25.9 million. Last week, it was dropped again by 13 percent, and is now asking $22.5 million.”

“12 East 13th Street, Penthouse - Previous Price: $20M - Current Price: $18.5M ($3,243 per square foot) - Percentage Drop: 8 percent. This 5,700-square-foot triplex apartment at DHA Capital and Continental Properties’ 12 East 13th Street hit the market in November 2013 for $28.4 million. Seven months later, the asking price was lifted to $30.5 million, and then dropped last November by $10 million to $20 million. It’s now on the market for $18.5 million. DHA Capital and Continental Properties paid $32 million for the 45,000-square-foot property in 2012. Apartments in the building hit the market in 2013, ranging from $7.5 million to $28.5 million for the top triplex.”

“Steven Fisch, of Continental Properties, told the Wall Street Journal at the time that the companies were seizing on the limited supply of ultra luxury properties in the city. ‘It’s a very different market now,’ said Compass’ Herve Senequier. ‘Properties above $15 million have received pricing adjustments, and the price now makes more sense.’”

January 18, 2017

The Only Thing That Can Happen

A report from the San Francisco Business Times in California. “The increasing inventory coming onto San Francisco’s condo market has some experts warning about a ‘condo glut.’ Condo supply in San Francisco was up by 70 percent in 2016 compared to 2012, with roughly 1,000 units on the market and more than 2,000 condos under construction. San Francisco hasn’t seen this level of condo inventory on the market since 2008, when 2,069 units came on the market. According to Paragon Real Estate Group, prices for condos have plateaued or slightly dropped in average dollar per square foot values. This is mainly attributed to general economic factors and not any significant market crash.”

“While condos still made up a majority of home sales in the city in 2016, the data from Paragon does show a slowdown among the top end of luxury condos, owing to the new inventory coming onto the market.”

The Post Independent in Colorado. “Reports and newsletters trickling in last week confirmed what Aspen-area real estate watchers already knew: The market was down significantly in 2016. And compared with 2015, it was down indisputably. That year, Pitkin County’s total sales volume broke the $2 billion barrier, the first time the mark had been eclipsed since the Great Recession. Pre-recession, county real estate sales topped $2 billion three times — in 2005 and 2007, as well as the record-setting $2.64 billion in 2006.”

“In 2016, total sales neared $1.4 billion, according to Land Title Guarantee Co. and Aspen Times research of public records. Compared with those $2 billion years, the drop-off was significant. But 2016 was, on its own, still a solid year, brokers said. ‘2015 was on another level,’ said Raifie Bass of Douglas Elliman Real Estate’s Aspen office.”

“Aspen, the backbone of Pitkin County’s real estate industry, ended five consecutive years of increased sales volume in 2016, noted broker Andrew Ernemann in his monthly newsletter issued last week. Total sales in Aspen dropped 39 percent, Ernemann reported. The slower market spurred an 18 percent rise in Aspen’s inventory, with the average seller capturing 93 percent of the listing price, Ernemann said. Aspen’s average single-family home price was nearly $6.6 million from January through November of 2016, according to Land Title Guarantee. For the entire 2015, it was nearly $7.7 million. Sales transactions solely in Aspen also dropped from 323 in 2015 to 202 in 2016, brokers James Benvenuto and Jennifer Houston said last week in their annual market report.”

The Baton Rouge Business Report in Louisiana. “Experts are forecasting a cooling-off period for Baton Rouge’s student housing market in 2017, following a years-long boom that has led to a spate of apartment developments throughout the LSU area. Currently, Baton Rouge is one of the strongest markets in the country for student housing, says LSU Real Estate Research Institute Assistant Director Brian Andrews. There has been a good deal of new construction in recent years.”

“But that growth, and corresponding high unit prices, are not expected to last, Andrews says. LSU is increasing its presence in the market. That, coupled with an unsustainable amount of construction, will make for some belt-tightening, he says. ‘That’s not good news for some of the people that are out there catering to the student market,’ Andrews says. ‘You have a stagnant number of people looking for an increasing number of housing units. The only thing that can happen is for rents to go down.’”

The South Florida Business Journal. “A company managed by the head of private equity firm Apollo Management took a $4 million loss on the sale of a condo in Miami Beach’s Faena House. It marks one of the few times that a condo buyer in the recent development cycle has sold for a significant loss. Completed in 2015, Faena House sold condos at some of the highest prices per square foot in Miami-Dade County.”

“OFH LLC, managed by John J. Hannan, sold the 4,381-square-foot Unit 9-A in Faena House for $12.5 million. The price equated to $2,853 per square foot for the condo, which has four bedrooms and 6.5 bathrooms. Hannan’s company paid $16.5 million, or $3,766 per square foot, for the condo in September 2015. He is the founder and chairman of Apollo Management, which has over $180 billion in assets under management.”

From Bloomberg on New York. “A condo tower rising in what’s billed as Manhattan’s newest neighborhood reported that more than a quarter of its 285 units have sold since marketing began in September, a sign that local buyers are willing to commit to the borough’s far west side. The increase in deals, coinciding with a stock-market euphoria and developers’ greater price flexibility, follows a year in which luxury contracts fell by 18 percent from 2015, said Donna Olshan, president of the brokerage.”

“‘Developers are coming around to the notion that they absolutely have to negotiate or they’re not going to get a deal done,’ said Olshan, who isn’t involved with sales at the Hudson Yards tower. ‘Many developers are taking offers 10 or 15 percent below asking, but they don’t want to cut the price. They’re whispering in brokers’ ears, ‘Make me an offer.’”

January 17, 2017

The Time To Dream About Better Prices Has Passed

A report from Nebraska TV. “After the boom comes the bust. Farm incomes have dropped three straight years following record highs, and that makes for difficult conversations between landlords and farmers who rent. Experts tell farmers the time to dream about better prices has passed. Allan Vyhnalek, an Extension Educator said, ‘2013 was good year yet, 2014 was hope we go back up to $5 corn, 2015 was wishing we’d got up back up to $5 corn, 2016 was dreaming we’d got back to $5 corn, and now we’re at hopes wishes and dreams, figure out where we need to be.’”

“For farmers like Dave Buss of Adams County, that’s not easy. ‘It’s pretty hard to show a profit, you have to have a really sharp pencil,’ he said.”

“Vyhnalek tells landlords, don’t set rent based on coffee shop talk. ‘First I find it very interesting we’re going to manage a farm, farm land worth hundreds of thousands if not millions of dollars based on information we get from a coffee shop. That bothers me, inherently,’ he said. He says landlords and tenants need to do what’s fair for both sides, because everyone needs to do their part to get through these tough times.”

The High Plains Journal. “In conjunction with the Kansas State Ag Econ department, we recently hosted a meeting that focused on 10 considerations to make during a struggling farm economy. How long can I afford to lose money on rented ground? It is no secret that land rental values do not adjust as quickly as changes in commodity prices. This may be the result of multi-year leases with fixed cash rents, negotiating a lower rent may be difficult in some cases, and landowners may search for other tenants who are willing to pay their asking price.”

“A difficult decision is to let land go, often because you may never have the chance to rent it again. In some cases, there may not be a choice. A lender may require you to release the ground or you may not be able to cover your variable costs.”

From Prairie Business Magazine. “Strong crop prices during the 2008 to ’13 boom boosted farm profitability, encouraging landlords to ask for higher rental rates and allowing farmers to pay more. Corn, in particular, provided strong returns, pushing up rental rates the most in areas where the crop is common. Cass County, in eastern North Dakota, reflects the trend in areas where corn and soybeans are major crops. The average per-acre rental rate for nonirrigated cropland in the county nearly doubled from 2008 to ’15, rising from $67.50 to $125.80. It 2016, however, it dropped to $117.”

“Farmland rental rates are said to be ’sticky.’ They go up slowly in good economic times, but also go down slowly when times are tough. That’s because many leases are for multiple years, so what happens in one crop season isn’t necessarily reflected in the rent that a farmer pays the following crop season.”

“That’s why rates generally rose from 2012 to ’15, even though crop prices declined in the same period. U.S. farmers received an average of $3.23 per bushel for corn in November 2016, the last month for which data is available. That’s down from $3.59 a year earlier, $3.77 two years earlier, $3.77 three years earlier, $4.35 four years earlier and $7.02 in November 2012.”

“So, the overall decline in rental rates from 2016 to ’17 reflects, in part, the drop in crop prices in previous years that hadn’t yet been accounted for fully in rents. Overall rental rates began falling a year ago, the result of declining crop prices and the likelihood that few farmers would be profitable in 2016 without big yields. Experts predicted in the winter of 2015 to ’16 that rental rates for 2017 would fall sharply if yields were average or poor in the 2016 crop season.”

“The most likely outcome is that rental rates overall will drop a bit across the Upper Midwest, with so-called ‘high-end rates’ — ones paid by aggressive operators who hoped for strong crop prices — falling the most, say farmers, ag bankers, extension specialists and other who talked with Agweek. In Minnesota, for instance, ‘I’m estimating an overall decline of 7 percent, with a lot of that high-end rates,’ says David Bau, University of Minnesota extension educator for agricultural business management.

“That decline would be comparable with 2016, when Minnesota average rent for nonirrigated farmland fell to $160 per acre from $170 per acre the previous year. Across the Upper Midwest as a whole, rental rates typically fell 5 to 20 percent from 2015 to 2016, though there were many exceptions.”

From Illinois Farmer Today. “Higher farm incomes that began in 2007 and continued through 2012 resulted in significant increases in cash rents. Summary data from the Illinois Farm Business Farm Management Association (FBFM) records for this time period indicated that operator’s total net farm income, except for 2009, averaged over $200,000. During the previous 10 years, total net farm incomes averaged well below $100,000 per farm. Incomes in 2013 and 2014 were about one third of the 2012 total net farm income, and the 2015 income figure was basically a breakeven amount.”

“According to the USDA, average cash rents in Illinois increased from $141 per acre in 2007 to $212 in 2012, a 50 percent increase. Average cash rents continued to increase in 2013 and 2014 even though farm incomes declined, averaging $223 and $234 per acre respectfully. Another source of cash rent data, survey information from the ISPFMRA, indicates the mid one-third average rent for excellent farmland averaged $183 per acre in 2007 and increased to $379 per acre in 2012, a 207 percent increase. The mid one-third averaged $396 per acre in 2013.”

“According to the USDA and ISPFMRA data, cash rents have started to decline. The USDA data indicated the average cash rent for Illinois for 2016 was $221 per acre. But this is only $13 per acre less, or a 5.6 percent drop from the 2014 high of $234 per acre. According to the ISPFMRA data, cash rents peaked in 2013. The mid one-third average cash rent for excellent land was $396 per acre and for good land was $339 per acre. The average cash rent for excellent land for 2016 dropped to $325 per acre, a $71 per acre or almost 18 percent drop from the peak.”

The Dispatch. “While a study by the Mississippi State Extension Service forecasts a possible farm crisis for 2017, local farmers hold a more optimistic view, thanks to what they believe will be a strong cotton crop. While both commodity and input costs — primarily seed costs — have risen steadily over the early part of the decade, a decline in commodity prices since 2013 has not coincided with a comparable decline in those input costs, according to Bryan Parman, an agricultural economist for the Extension Service.”

“‘The year 2013 was the last year of relative high commodity prices,’ Parman said in the report. ‘Now, commodity prices have come down, but input costs have not come down nearly as fast. We’ve had a couple years in a row now of negative returns for farmers,’ he said. ‘They’ve lost money per acre, especially those who are renting land.’”

“The prospects continue to be discouraging when it comes to soybeans, where prices have fallen dramatically over the past four years — from $14.40 per bushel in 2013 to $9.25 last year. The current market price of $9.50, if it holds by the fall harvest, only slightly reverses that trend.”

“David Johnson, who farms 650 acres in Noxubee County, said he plans to divide his acreage equally between corn and cotton. Johnson irrigates about a third of his acreage, which points to a concern farmers say is potentially as serious as crop prices. The drought that began last fall has continued into winter, which means ponds farmers use to irrigate their crops are far below normal. ‘Our ponds are very low,’ he said. ‘If the winter continues to be dry, there’s going to be some farmers that are going to be in trouble.’”

From Successful Farmer. “We want to help you take in the blue sky for agriculture in 2017. After sinking prices in nearly every grain and livestock market in 2016, economists see a return to higher ground. Now may be the time to buy good, used equipment. The outlook for fertilizer prices and cash rent rates point in favor of savings for farmers. Still, it will take a while to work through the glut of several years’ worth of high yields, which could mean an extended period of low rental prices.”

“Certainly one of the biggest silver linings in the storm clouds of a depressed farm economy has been the significant savings being offered on late-model, and low-hour machinery. Values on high-horsepower tractors, four-wheel drives, combines, self-propelled sprayers, and grain carts are one quarter to one third less than in 2012. ‘I’ve never seen opportunities to buy large machinery at such competitive prices as exist today,’ says Jeremy Knuth of Heritage Power, a John Deere dealership out of Baldwin City, Kansas. ‘We are looking to move out built-up inventories, and we are willing to work hard to make a transaction work for an individual farmer’s situation.’”

“Another hallmark of this massive inventory of late-model machinery is that most of the equipment for sale carries unprecedented low hours. It is not uncommon to uncover a 2014 model year 300-plus-hp. tractor for sale with fewer than 500 hours. The poster child of like-new large machinery is the grain cart. A search of John Deere’s dealer website, machinefinder.com, finds 252 large (1,000-plus-bushel) grain carts for sale that are 3 years old or younger. Even more amazing is the number of brand-new carts that are 2, 3, and even 4 years old still sitting on dealers’ lots.”

Where Things Start To Wobble And Teeter

A report from the Union Tribune in California. “Towering over a part of San Diego known more for offices than apartments, The Rey is one of downtown’s biggest apartment complexes in years. Coming in at 22 stories with 478 apartments, the development will balloon to more than 900 units if it decides to build a second tower already approved by the city. It lives up to its luxury status with a rooftop pool complete with a lounge and kitchen area, two-story gym, expansive views, top of the line appliances, and a lobby that looks more like a fancy hotel than an apartment building. Residents will pay for the amenities with rents about 24 percent more than the average rent in San Diego County.”

“Its opening comes as national trends appear to show a major slowdown in rent growth for luxury units, but most local experts say San Diego will not suffer the same fate because the need for more apartments is so high. Realtor Jason Cassity, who works downtown with sellers and renters, said he has noticed rent growth slowing downtown at other complexes and ones where his firm serves as property manager. ‘We used to property manage a few doors and, almost religiously, assume we could raise the rent 10 percent every year or every turnover. That’s not the case anymore because of the increase of supply,’ he said.”

“Andrew Woo, data scientist for Apartment List, predicts the areas where rent went up the quickest in recent years, like San Diego, will see the biggest slowdown. ‘For new luxury apartments coming online, they may find it more challenging to fill vacant units, which explains why you’re seeing so many specials right now,’ he said.”

The News Gazette in Illinois. “Champaign County home sales topped 3,000 in 2016 for the first time in a decade, increasing 8.23 percent from a year earlier. For homes priced under $400,000, Champaign County Association of Realtors President Jim Waller is seeing more of a sellers’ market, with four months of supply, while there is 81/2 months of supply of homes priced over $400,000, creating a buyers’ market. ‘Homes under $400,000 are performing better than the luxury segment,’ Waller said. ‘That’s not necessarily a concern. More younger people are coming into the market, and they’re not buying homes over $400,000.’”

The Palm Beach Post in Florida. “By one measure, at least, Palm Beach County’s housing market is on fire. From late 2015 to late 2016, the county’s home prices jumped 12 percent, the highest appreciation of any metro area in the country, according to a recent study by Ten-X. Even as home prices bounce back, Palm Beach County incomes have been essentially flat over the past decade. In another example of uneven appreciation, there’s strong demand for entry-level homes but not for more expensive properties.”

“‘We are seeing strong appreciation, but it’s not across the board,’ said Randy Bianchi of Paradise Properties of Florida, a real estate brokerage in West Palm Beach. ‘When you get above that $300,000 to $350,000 level, things are sitting longer.’ And in the higher price ranges, demand seems even softer, said David Dweck, head of the Boca Real Estate Investors Club. ‘When you get to the half a million market, that’s where things start to wobble and teeter,’ Dweck said. ‘Sellers’ expectations are too high right now. If you’re around $500,000, you better be priced right, or you’re going to sit on the market.’”

“Appreciation varies by location, too. Over-55 neighborhoods are languishing, but hot neighborhoods such as West Palm Beach’s South of Southern area have seen big price jumps. ‘In that section of town, we’ve had huge appreciation,’ Bianchi said. ‘The prices are getting a little crazy.’”

From Crain’s New York Business. “Yes, there is a glut of luxury rentals sprouting up on Manhattan’s West Side, in Long Island City and in downtown Brooklyn. High-end condos are poised for distress. Super towers continue to rise in places like Billionaire’s Row, but sales of these ultra-pricey pads have stalled. The upcoming oversupply will allow investors to buy portions of a high-end project’s debt, either at a discount or low enough in the capital stack to take control at a discount.”

“Richard Mack, co-founder of the Mack Real Estate Group, plans to provide luxury developers with cash infusions in return for sizable ownership stakes that will ensure him profits even if the units are sold with steep price cuts. Buying New York real estate still requires huge amounts of capital. One workaround is to partner with owners who bought when prices were a fraction of what they are today.”

“‘I’m seeing a lot of demand among real estate investors to partner with longtime real estate owners,’ said Martin Polevoy, a co-head of DLA Piper’s real estate practice. Such partnerships allow investors to bring the cash to reposition or redevelop a property, then profit on the upside without being saddled with the costs of having bought the property in today’s heated market.”

The Press of Atlantic City in New Jersey. “To Dan Boddy, a veteran real estate agent based in Galloway Township, mortgage foreclosures aren’t just a key part of the Atlantic County housing market. ‘They’re the dominant factor. That’s what’s selling,’ says Boddy, of Century 21 Frick Realtors. ‘I was talking to a local title company a few months back, and they said that was about half their business now.’”

“New Jersey had the highest rate in the country last year, at 1.86 percent of all homes with some foreclosure activity. The state also led the U.S. in the number of ‘legacy’ foreclosures, according to ATTOM, meaning the loans date to between 2004 and 2008. Plus New Jersey had the second-longest average foreclosure process in the country, at an average of 1,383 days, or almost four years from start to finish. ‘The majority of them are still tied to those older loans,’ said Daren Blomquist, ATTOM’s senior vice president. ‘That’s an indication that we’re still dealing with the last crisis and not the more recent economic troubles. They have not even completely shown up in the foreclosures.’”

“Based on his 22 years in real estate, Boddy has to agree with that national perspective. ‘I don’t think that’s even hit the market yet,’ he says, meaning foreclosures caused by casino closings.”

January 16, 2017

The Correction We Had To Have

A report from The Middle Ground in Singapore. “As of last December, rental yields in Singapore are down 19.9 per cent from their peak in 2016. This is a huge deal, for reasons explained below. As for condomniums, last December was the sixth consecutive month of declining rental yields. It’s not a coincidence that, in 2016, we also saw several high end condominiums selling for a loss. Three units at Orange Grove Road, for example, sold for losses close to a million dollars. Despite how negative all of this sounds, it’s actually quite good for the average Singaporean.”

“Again most Singaporeans are home buyers, rather than property investors (how many people do you know who own multiple houses?) It means diddly-squat to the average Singaporean if rental yields falls, because they have nothing to rent out anyway. What does matter to the average Singaporean is that landlords will rush to offload their properties, and hence send prices down.”

The Daily Mirror on Sri Lanka. “The Sri Lankan government will be legislating new laws to allow foreign investors to obtain residency in Sri Lanka easily, Finance Minister Ravi Karunanayake told a media briefing yesterday. ‘Anyone who brings in US$ 300,000 will get a special temporary residency visa, and someone who brings in US$ 1.5 million will get permanent residency,’ Karunanayake said.”

“Karunanayake said permanent residency (PR) will also be given in order to address the glut in the Sri Lankan luxury apartment market. ‘They (PR holders) will be able to lease properties. This will help our innocent people who go to the Middle East. They can instead stay here and work (for the PR holders),’ Karunanayake said.”

The Courier Mail in Australia. “Developers who have failed to do their homework on the Brisbane highrise apartment market face tough times in 2017 as the sector adjusts to new realities. Resolution Research director Diana Howes said the market was slowing as development applications fall and tighter lending guidelines and construction costs have ensured an increase in project deferments. ‘It’s the correction we had to have,’ Ms Howes said.”

“According to the latest figures for inner city highrise apartments there were 71 projects in the market in the 12 months to September 2012, 10 more than the same period in 2015. ‘Projects by unsophisticated developers who haven’t done their homework, or have entered the Brisbane market from interstate for the first time and have priced above market expectations are at risk of failing to proceed,’ she said. ‘Similarly, suburbs including Chermside and Mt Gravatt, where there is an uncharacteristically high volume of off-the-plan projects in the market at prices aligned with inner city values are likely to suffer or fall over this year. It’s going to be a challenge for these developers to secure pre-sales.’”

The New Indian Express. “About 1.21 lakh ready to occupy houses are unsold in Bengaluru. It would require at least two years to sell these houses, a report by real estate consultant firm Knight Frank has found. This comes even as there is no visible let-up in the inflated pricing in the housing sector. The city’s real estate sector has come under considerable pressure in the last two years, realtors told Express. ‘While the buyers are anticipating fall in prices, builders have already reduced their profit margins in the last two years,’ said Farooq M, Director, BangaloreCityhome.

“An analysis of the residential and office market performance of Bengaluru for July-December 2016, Satish BN, Executive Director (South), Knight Frank said here on Tuesday that there were no takers for these ready to occupy buildings. A majority of these unsold properties are in South Bengaluru. ‘The margin of profit has already been reduced by 10-15 per cent. People who wanted to sell a two-bedroom house for Rs 45 lakh earlier are now selling it at Rs 40 lakh,’ Farooq M added.”

The Vanguard on Nigeria. “Following the present economic recessing facing the country, some house-owners in the Federal Capital Territory (FCT) have reduced their house rents so that people can afford the houses. Many houses in the FCT have remained unoccupied as many people can no longer afford to pay rents due to the harsh economic situation. Mr Friday Shamaki, a house owner at Kpaduma Village in Asokoro area, said he had to reduce his house rent to enable his tenants pay other bills, as well as to reduce unnecessary argument that may arise from the inability to pay the usual rent. ‘It is obvious that the nation is facing recession which had forced the prices of commodities and services to increase drastically.’”

“‘This has affected everyone, and has made me to reduce house rent from N250,000 to N200,000, which will go a long way to prevent any unnecessary argument or fight with my tenants due to their inability to meet up with the rent charges,’ he said.”

“Mr Folunsho Adegoke, a house owner in Karu area said he reduced his house rent to attract and encourage tenants to remain in his house, rather than leaving it unoccupied. ‘I just finished building this four blocks of two- bedroom flats, which initially I wanted to give out at N300,000 each, but I had to reduce it to N250,000 so that the house doesn’t remain empty and starts deteriorating,’ he said.”

From Globes in Israel. “Avi Tiomkin: When the change occurs, its speed and force will surprise everyone. ‘It is completely clear that a fall in housing prices in Israel, accompanied by a drop in land prices that has already begun, is about to pick up speed in the near future,’ Avi Tiomkin, a global economic consultant to international hedging funds, told Globes. Globes: ‘How did you reach that conclusion?’Tiomkin: ‘The leading indicator, namely a significant fall in housing sales, has already become a fact.’”

“Tiomkin, who has scored previous successes in predicting substantial changes in direction in the Israeli and global economies, asserts, ‘There is no doubt that the concentrated effort to increase the supply of housing on the one hand and the halt in demand by both long-term investors and speculative buyers on the other are having an effect. The substantial drop in luxury housing sales in Israel in 2016 (over 50%) and the nominal 8% decrease in mortgages (a 13% fall in real terms taking into account the increase in housing prices) are the best proofs of this.’”

“‘Massive construction of new housing began one or two years ago at the peak of the euphoria among contractors and the banking system, in the absolute belief that price rises would never end. This housing is now reaching the market and contributing to the surplus,’ he said. ‘Keep in mind,’ Tiomkin adds, ‘the boost, tantamount to fostering panic among potential housing buyers, given by the media with various headlines. This generated substantial pressure among buyers, and certainly contributed substantially to higher prices and the lengthening of the process we previously saw.’”

“‘It is evident around the world,’ Tiomkin continues, ‘that there is a 25% slide in prices in the leading luxury housing markets, such as New York, London, Miami, and San Francisco. We’re also seeing these price falls and stagnating sales today in Tel Aviv and the luxury neighborhoods around it. Cases of housing buyers overseas letting go the advances they paid in order to get out of a deal are already not so rare. This process is now spreading to a lower price level. Note that luxury residences led the price rise, and they are also leading the market turnaround.’”

January 15, 2017

A Five-Year Frenzy May Be Cooling

A report from Bisnow on Washington, DC. “In recent years, DC has experienced an influx of Millennials who have boosted absorption in the rental market, but Delta Associates’ latest multifamily report says that trend is slowly fading. While absorption remains well above the 10-year average, 2016 saw a steady decline that, by Q4, had reached the lowest level since Q2 2014. ‘We expected the trend to start to go down but it went down a little more than we expected it would,’ Delta Associates’ multifamily director Will Rich told Bisnow. Delta expects absorption will continue to drop over the next three years. It predicts a 9,033-unit per year average through 2019, with 2017 being the strongest year in that period.”

“While this absorption would still be above the 10-year average, the area is preparing for a record year of multifamily deliveries. More than 13,000 units are expected to deliver across the DC Metro area in 2017, nearly 2,000 more than last year.”

The Dallas Morning News in Texas. “Almost 50,000 apartments are being built in North Texas. And nationwide, developers got permits to start an estimated 383,000 multifamily housing units in 2016. Still, after a half-dozen years of rising construction, the apartment building binge shows signs of flattening in 2017, top housing economists say. ‘We are seeing a leveling off of production,’ said Robert Denk, a forecaster for the National Association of Home Builders. ‘I think we are pretty much done.’”

“Apartment construction around the country remains very high — more than three times the starts the industry saw at the worst of the recession in 2009. ‘We’ve been averaging almost 400,000 starts in 2016,’ Denk said. ‘We think that’s not quite sustainable.’”

The San Francisco Chronicle in California. “Sound Off: Concerns about a commercial real estate crisis? According to various sources, San Francisco’s commercial real estate market may be seeing a slow down in the city’s technology driven economy. Office subleasing is at the highest level since 2010. A five-year frenzy for San Francisco office space may be cooling as venture capital investments decline and tech firms slow their hiring from record paces. The extra space is a warning sign that the growth rate for some companies was unsustainable. Some startups took more space than they needed in the hopes of expanding later, while others are moving to less expensive areas.”

“The trend isn’t entirely negative, however. Subleasing opens up more affordable space at a time rents are near record highs. - as the space on the market for sublease have asking rents about 17 percent below those of regular leases, according to Cushman & Wakefield.”

The Grand Rapids Business Journal in Michigan. “While not quite yet a wet blanket, there’s at least a damp towel on optimism for future development of market rate housing in downtown Grand Rapids. Absorption of apartment units coming online has slowed, with hundreds of units still under construction or planned, resulting in a more diligent and hesitant process in considering new projects. Developers, lenders and brokers all told the Business Journal they’re treading lightly into future market rate developments.”

“Mercantile Bank commercial lender Justin Karl said there is concern supply could soon outpace demand, and despite current demand in Grand Rapids, it still is tough to open a project and fill 200 units immediately. ‘It’s been something on our minds: When do we have too much?’ Karl said. ‘There’s a general consensus they’re in good demand and projects are being absorbed but maybe not as quickly as they thought.’”

The Denver Post in Colorado. “Metro Denver’s housing market could diverge in a big way this year, with apartment rent increases slowing to a crawl or even reversing, while home prices continue to race higher. Signs of cooling are strongest on the multifamily side, where a large number of high-end units are expected to hit the market this year. Abodo, in its annual rent report, puts metro Denver in the category of declining markets, recording a 6.7 percent drop in one-bedroom apartment rents in January compared with a year earlier, the seventh steepest decline among the cities it tracked.”

“One of the more upbeat reports comes from RealPage in Texas, which estimates metro Denver rents are rising at a 4.4 percent pace, down from gains in the 8 percent to 10 percent range a year ago. ‘It has been a meaningful slowdown,’ RealPage chief economist Greg Willett said. ‘But it is still a good number.’”

“RealPage estimates about 11,000 apartments came onto the market last year and that another 13,000 should become available this year out of a construction pipeline of around 21,000 units. So far, the Denver market has managed to absorb the new supply, but landlords, eager to fill their projects, are offering more concessions — including a month or two of free rent — to win over tenants, a key reason why rent increases have slowed.”

“Willett said apartment developers, initially focused almost exclusively on downtown areas, are casting a wider net, although the economics have them still focused on higher-rent or luxury units. Whether the metro Denver apartment market holds up or rolls over will depend mostly on continued job growth and in-migration, given that developers can’t easily put the brakes on projects launched years earlier.”

From Fox Business on Florida. “Stephen Cohen, a realtor and investor specializing in the South Beach luxury condo market, is biding his time. By this time next year, the 15-year real estate veteran expects the average price for a condo in Miami Beach’s hottest neighborhood to drop by more than 40 percent than it is today. ‘In the last six months, prices have dropped by nearly 20 percent,’ Cohen says. ‘I expect it will go down another 20 percent in the coming months. So I’m not buying until 2018.’”

“From Miami’s Brickell financial district to the sunny shores of Golden Beach, a growing glut of luxury condos combined with a dwindling pool of foreigners willing to pay seven figures for a glitzy home in a glass and steel tower has experts like Cohen predicting a free fall in sales prices in the next 12 months. ‘It’s a complete stall,’ Cohen says. ‘There is nothing moving. Realtors are freaking out right now.’”

January 14, 2017

Flippers Bought Not One, But Two Or Three

A report from CBC News in Canada. “Real estate numbers show hundreds of new condos in Calgary are sitting empty. The Canada Mortgage and Housing Corporation (CMHC) says about 1,500 newly-built housing units sat vacant across the city last month and more than 800 were apartment-style condos. Calgary hasn’t seen that kind of new-build vacancy rate in 15 years, the organization says. Many of the empty condos were planned during an earlier boom, said Matthew Boukall, a senior director with Altus Group, a real estate advisory company. ‘We saw in 2014 a huge number of condos starting construction. It takes anywhere from 18 to 36 months to build a condo … So we’re actually seeing a natural progression of the market out of a hot market in 2014 into a slower market in 2015, 2016,’ he said.”

“Doug Hayden, a real estate agent with EXP Realty, says while it may be a good time to buy, he advises people to think long-term when purchasing a property and not to consider condos as an easy property to drop. ‘I’ve had people that have bought not one, but two or three of these, hoping to flip them or to rent them out, and where they really got caught is the rental market. They were planning on having rentals cover their investment in these and it’s not working out at all.’”

“Hayden says he is surprised that there are still companies pulling permits to build more condo buildings, although they may put those projects on hold. ‘There’s more inventory that looks like it is coming down the pipe,’ he said.”

From Post Media. “Calgary had about 1,500 newly constructed housing units that were vacant in December, a stunning glut not seen since June 2001, according to the Canada Mortgage and Housing Corp. More than half of the current stockpile, about 800 units, were apartment-style condos. ‘Very pricey homes have taken a beating,’ said Brian Kernick, president of Greenview Developments, which plans to break ground in the coming weeks on a 65-unit low-rise condo building in Inglewood.”

“The City of Calgary received 27 development permit applications for condo projects worth more than $10 million in the last six months of 2016. Four of them, including an $18.7-million apartment development in Mahogany and a $15.8-million building at Legacy Park, have been approved so far. Several developers that have approached Calvin Buss, who specializes in designing and marketing large condo projects in Calgary, recently have found they couldn’t charge high enough prices for condos in the current market to build their projects economically.”

“Three out of four condo projects that have come across Buss’ desk in the past few months have converted to rental developments. The theory is that builders would have to sell condos at a loss now, or they could build rental apartments and take a loss on rents — but only until the economy recovers. ‘If you build a tower and you have to rent it out for two years at 15, 20 per cent below market value, you eat it for those two years, and in the next 20 years, you make it all up again,’ Buss said.”

From Global News. “People in Saskatoon looking at buying a condominium have a favourable market to choose from after prices dropped by 6.4 per cent at the end of 2016, compared to the same time in 2015, according to a real estate report. Real estate company Royal LePage released its fourth-quarter market update indicating that the median condominium price in Saskatoon now sits at $221,168.”

“Matt Miller, a broker with the company said current buyers have ‘fairly good negotiating power and they have a lot of product to choose from.’ ‘The market certainly favours the buyer right now, so it is a good time for a buyer to get into the market,’ Miller said in an interview. Miller said a number of large housing projects began when Saskatoon’s real estate market was expanding and continued once the struggling energy sector slowed down the city’s economy. ‘Demand tapered off a little bit, but the supply kind of kept up because these are longer term projects, they continue to come onto the market,’ Miller said.”

The Saskatoon Star Phoenix. “Saskatoon’s housing market emerged from the economic turmoil of 2016 in comparatively good shape, with a ‘manageable’ decline in sales partially offset by virtually flat prices, according to the CEO of the Saskatoon Region Association of Realtors. Royal LePage Vidorra owner and broker Norm Fisher said housing ‘isn’t strictly boom or bust,’ and that while there are fluctuations throughout the year, flat prices are likely due to sellers who would rather wait than slash their asking prices.”

“Fisher added that while townhouse sales were up and detached house sales ‘moderated’ in 2016, an ongoing oversupply problem among apartment-style condos will likely persist through 2017, leaving buyers with plenty of choice and lower prices. ‘The concerns that came up through the spring and summer, I think if you look back over the years we see those same concerns being echoed year after year after year. ‘There’s a housing bubble and it’s going to pop’ — I can’t tell you how many times I’ve heard that.’”

From CBC Edmonton. “Home values in Edmonton fell by a wider margin than in any other Canadian city in the final three months of 2016, Royal LePage reported in its latest house price survey. Edmonton house prices were down 2.1 per cent in the fourth quarter of 2016 compared to the same period of 2015, the survey found. Royal LePage said the average price of a home in Canada was $558,153 in the final quarter of 2016.”

“‘Construction of major oil and gas facilities has turned off up north and drilling is way down, which impacts our market as we’re a major service hub to those industries,’ Tom Shearer, a Royal LePage broker and owner, said in the release.”

From CBC New Brunswick. “Saint John Coun. Gerry Lowe is concerned about the number of vacant buildings in the city. The properties in east and west Saint John and on the central peninsula included multi-unit apartment houses, single family dwellings and two long-vacant restaurant/motels. He said the city is now keeping an eye on more than 90 vacant buildings. Lowe concedes the employment downturn is a factor. ‘A lot [has] got to do with the economy,’ he said. ‘People just can’t afford to keep them up. So they just walk from them and leave them.’”

“One of the calls Lowe received came from east Saint John resident, Gary MacDonald, who is concerned about a vacant home across the street from an apartment house he owns. ‘I’ve actually witnessed rats fighting on the front step of it,’ said MacDonald.”

From My Prince George Now. “A recent Stats Canada report shows the number of BC jobs went up by 1.1% in 2016, but a closer look shows a different picture in the Cariboo. Iglika Ivanova with the Canadian Centre for Policy Alternatives says jobs in our region actually dropped 0.8% from last year. Huge growth in the south offsets these smaller northern numbers, which Ivanova says is mostly due to the housing sector. ‘What we’re seeing there is jobs in construction, jobs in real estate, in finance, jobs in retail and building services, and they are concentrated where the housing market is concentrated in metro Vancouver and Greater Victoria.’”

“Ultimately, she believes the housing bubble will pop. Those who can afford to buy and build homes will continue to do so, while the average person won’t be able to pay the fees. This can lead to homelessness and a drop in housing prices.”

The Canadian Press. “The hand-painted sign on a bumpy road on the east side of Hanna speaks volumes. ‘Hanna supports coal, cows, gas and oil,’ it says bluntly. The sign includes a circle with a line through it over the words ‘carbon tax.’ The town of 2,700, 230 kilometres northeast of Calgary, like many rural Alberta communities, has largely lived off agriculture. But a large vein of thermal coal east of town led to the construction of the coal-fired Sheerness generating plant in the early 1980s and has provided welcome jobs and business in the region ever since.”

“People worry that economic boost is threatened by a new carbon levy and the provincial government’s plan to shut down coal-fired power plant by 2030 and move exclusively to natural gas, wind, solar and hydro energy instead. ‘If it’s a complete 100 per cent closure we’re going to lose 200 full-time, well-paying jobs. That’s about 7.5 per cent of our population,’ says Hanna Mayor Chris Warwick. ‘To put that into real life numbers, Edmonton losing 7.5 per cent is about 62,000 people _ Calgary’s around 90,000 _ so it’s a massive hit. These are well-paying jobs so it’s not a good situation for us.’”

“Dale Crowle, who runs Hanna Building Supplies, says his customers are concerned. ‘There’s going to be a lot of job losses. The tax base will be tough, resale on housing will be tough. There’s not a lot of new homes going up in Hanna,’” he says. ‘People are nervous. We see it every day here. It’s going to be tough.’”

The Globe and Mail. “Mortgage fraud has surged in Canada as soaring home prices in some markets have squeezed buyers and attracted attention from money launderers, data from credit reporting agency Equifax Inc. show. The number of mortgage applications flagged as potentially fraudulent has risen 52 per cent since 2013, Equifax found. The majority of mortgage-fraud applications have come from Ontario and British Columbia, where home prices have risen the most in recent years.”

“Instances of fraud ranged from prospective home buyers submitting fake or altered employment letters, bank statements or tax returns in order to qualify for a large mortgage, to money laundering and identity theft, said Tara Zecevic, Equifax vice-president of customer insight. ‘It could be investing in the market as a way to cleanse money. It could be: ‘I really want that home and I’m getting into a bidding war and even though I make $60,000, I’m going to say that I make $90, 000,’ she said. ‘What ends up happening is consumers think: ‘I’m not really doing anybody any harm.’”

“About 90 per cent of all mortgage applications flagged for potential fraud have come from banks rather than other types of mortgage lenders, largely because banks have become better at spotting fraud attempts. Instances of mortgage fraud were highest in the markets that are also the most attractive to foreign buyers.”

“That could be in part because hot markets such as Toronto and Vancouver have attracted attention from those looking to launder overseas money through Canada’s housing market, or it may be that demand from foreign investors is putting pressure on local buyers to fake their mortgage applications in order to compete for a home. ‘It may not be a direct link,’ Ms. Zecevic said. ‘It is a question mark, because we don’t necessarily know how much foreign investment is in the [housing] market.’”

A Good Market Almost Always Benefits Sellers

A report from the Mail Tribune in Oregon. “In many respects, 2016 was just the kind of year Jackson County real estate agents like. During the fourth quarter of 2016, median prices jumped 9.7 percent to $247,375 from $225,440 for the corresponding period in 2015. During the past five years, northwest Medford ($197,500) and west Medford ($161,250) have seen more than 80 percent appreciation in their median prices. ‘Every market favors buyers or sellers,’ said Colin Mullane, spokesman for the Rogue Valley Association of Realtors. ‘What we call a good market almost always benefits sellers, and we fear the buyers’ market. I’m always happy when our median prices stay close to inflation. We’re really close to getting back to where we were, and I think we’ll get there in 2017 or 2018. I think inventory combined with interest rates will keep the median growth to 2 or 3 percent versus what we’ve seen over the past three or four years.’”

“‘Looking at the statistics, there’s a stark contrast to what people really think is happening,’ said Mullane. ‘We’re not seeing rapid and soaring prices, and the market won’t tolerate it if prices pushed beyond what we saw.’”

The White Mountain Independent in Arizona. “The White Mountains housing market is different from the Valley market, but it surely is showing signs of rebounding. Cliff Pettingill, Century 21 Sunshine Realty broker, said a majority of the homes in the White Mountains belong to second-home buyers. The main reason most are second homes, he said, is because young people do not tend stay in the area after high school. ‘The majority of our young people leave town,’ Pettingill said, ‘partly because there are few well-paying entry-level jobs. Because of that, there are few affordable first-time buyer homes for sale in the area.’”

“Pat Sarcoz, of White Mountain Realty in Show Low, added that there has been a slight increase in foreclosures the last couple of years and that more buyers are using USDA and veteran entitlement loans that require zero down payment. ‘But, opportunities for veterans and people who qualify for USDA loans to get a low mortgage payment and a low interest rate could be diminishing, depending on what the feds do with interest rates,’ she said.”

“Pettingill said people who purchased a site-built home in the White Mountains in 2006 for $300,000 found out the next year it was only worth a little more than half. Pettingill said a home purchased in 2006 for $300,000 is now worth about $240,000, meaning the local housing market has recovered about 80 percent since the 2006 collapse. He said the Phoenix market is booming again, adding that, ‘We can’t expect the same level of housing recovery until we get the same kind of economic recovery as the valley is enjoying due to a growing employment base.’”

“In other words, Pettingill said the White Mountains need more better-paying jobs before it can have the same kind of recovery.”

The Washington Post. “During his final news conference of 2016, in mid-December, President Obama criticized Democratic efforts during the election. ‘Where Democrats are characterized as coastal, liberal, latte-sipping, you know, politically correct, out-of-touch folks,’ Obama said, ‘we have to be in those communities.’ In fact, he went on, being in those communities — ‘going to fish-fries and sitting in VFW halls and talking to farmers’ — is how, by his account, he became president.”

“But Obama can’t place the blame for Clinton’s poor performance purely on her campaign. On the contrary, the past eight years of policymaking have damaged Democrats at all levels. Two key elements characterized the kind of domestic political economy the administration pursued: The first was the foreclosure crisis and the subsequent bank bailouts.”

“Obama didn’t cause the financial panic, and he is only partially responsible for the bailouts, as most of them were passed before he was elected. But financial collapses, while bad for the country, are opportunities for elected leaders to reorganize our culture. In January 2009, Obama had overwhelming Democratic majorities in Congress, $350 billion of no-strings-attached bailout money and enormous legal latitude. What did he do to reshape a country on its back?”

“In this case, big banks and homeowners both experienced losses, and it was up to the Obama administration to decide who should bear those burdens. Obama prioritized creditor rights, placing most of the burden on borrowers. This kept big banks functional and ensured that financiers would maintain their positions in the recovery. At a 2010 hearing, Damon Silvers, vice chairman of the independent Congressional Oversight Panel, which was created to monitor the bailouts, told Obama’s Treasury Department: ‘We can either have a rational resolution to the foreclosure crisis, or we can preserve the capital structure of the banks. We can’t do both.’”

“Second, Obama’s administration let big-bank executives off the hook for their roles in the crisis. Sen. Carl Levin referred criminal cases to the Justice Department and was ignored. Whistleblowers from the government and from large banks noted a lack of appetite among prosecutors. In 2012, then-Attorney General Eric Holder ordered prosecutors not to go after mega-bank HSBC for money laundering. Using prosecutorial discretion to not take bank executives to task, while legal, was neither moral nor politically wise; in a 2013 poll, more than half of Americans still said they wanted the bankers behind the crisis punished.”

“Third, Obama enabled and encouraged roughly 9 million foreclosures. This was Treasury Department Tim Geithner’s explicit policy at Treasury. The Obama administration put together a foreclosure program that it marketed as a way to help homeowners, but when Elizabeth Warren, then chairman of the Congressional Oversight Panel, grilled Geithner on why the program wasn’t stopping foreclosures, he said that really wasn’t the point.”

“The program, in his view, was working. ‘We estimate that they can handle 10 million foreclosures, over time,’ Geithner said — referring to the banks. ‘This program will help foam the runway for them.’ For Geithner, the most productive economic policy was to get banks back to business as usual.”

“Many Democrats ascribe problems with Obama’s policies to Republican opposition. The president himself does not. ‘Our policies are so awesome,’ he once told staffers. ‘Why can’t you guys do a better job selling them?’”

January 13, 2017

An Unprecedented Glut

It’s Friday desk clearing time for this blogger. “Douglas Elliman has released its rental report for the final month of 2016, showing that the rental market did not end the year with a bang. December marked a record amount of leases signed with concessions, 26.4 percent. That’s double the amount from the same time last year. Brooklyn landlord concessions more than doubled from one year ago, as brokers saw a surge of new leases, due to new development and tenants pushing back on rents. But the borough actually saw its median rent slide year-over-year for the fifth time in six months. The median rent declined in all bedroom categories, with larger declines for larger units. ‘There’s stress in both Manhattan and Brooklyn rentals,’ says Jonathan Miller, the man behind the numbers.”

“For years, we’ve been hearing about how Austin is one of the fastest-growing cities in the country. But city demographer Ryan Robinson said we’re starting to see signs that the market may be cooling. ‘So we’re finally beginning to see something we haven’t seen in years in the multifamily market, and that’s concessions, things like free month’s rent, move-in specials, different things,’ he said. ‘You haven’t seen any of that because it’s been such a landlord’s market.’”

“The large number of new apartments being developed in the Milwaukee area has increased the overall supply to the point where rents are beginning to drop and vacancy rates are rising. That’s the view of Ian Martin, vice president of development at Mandel Group Inc., one of Milwaukee’s most active apartment development firms. Meanwhile, an estimated 4,300 new apartments are scheduled to be completed throughout the Milwaukee area this year, and again in 2018, he said. That compares to around 7,000 units completed from 2010 through 2016.”

“‘Everybody’s building,’ Martin said. ‘That supply is already starting to impact the local fundamentals.’”

“Architect and developer David Hovey isn’t the type to splash his name across the side of his latest downtown Chicago apartment tower, but his signature will be all over it. The building arrives at a time when the downtown apartment market is in the midst of a big increase in the supply of luxury-priced rentals. In the three years 2016 through 2018, roughly 11,500 new apartments will be added to the market, according to Ron DeVries, a VP of Appraisal Research Counselors, which tracks the downtown housing market.

“He said developers have begun offering concessions–typically a month or two of free rent–to fill their buildings. ‘Absorption has been about 2,500 a year,’ DeVries said, ’so we’re getting more and more overhang.’”

“Fargo-based Appraisal Services Inc. tracks the local apartment vacancy rate each quarter, and the Dec. 1 count suggests another potential issue. In June 2013, apartment vacancy in Cass and Clay counties was 2.5 percent; that climbed to 9 percent last month. The issue, according to commercial real estate appraiser Petter Eriksmoen, is developers responded to high demand and short supply by building new complexes—a lot of new complexes, with about 1,300 new units coming online per year in the past five years.”

“He said these warning signs suggest the local economy may have ‘reached the top’ and plateaued after several big years. ‘I think we’re coming back down to earth a little bit,’ he said.”

“Calgary home sales are expected to remain significantly below normal in 2017, according to the Calgary Real Estate Board. CREB president David P. Brown acknowledged that while some realtors made it through the past two years with no problems, others ‘got hurt dramatically.’ ‘We’ve come off two very, very tough years,’ he said. Some realtors have left the business altogether as a result of the downturn, Brown said. ‘But we’ve also seen people getting into the industry, because they’re getting laid off from other positions in other industries. They’re taking on real estate as a second career.’”

“Inner city units in Sydney, Melbourne, Brisbane and the Gold Coast sold off-the-plan have been declared a ‘clear and present danger’ to property buyers due to over supply forcing down prices. A report by trends forecaster Hotspotting said the number of apartments being released exceeded current demand. And units in Sydney’s ’second CBD’ Parramatta, compared to inner Sydney, posed an even greater risk to buyers on account of already falling sales volumes, the report said.”

“Analysts widely consider oversupply a red flag for off-the-plan buyers because it puts downward pressure on prices — increasing the risk of homes being worth less, when built, than their owners paid for them. Hotspotting director Terry Ryder said inner Melbourne presented the biggest danger for buyers. ‘New supply in Melbourne has gone way over the top but many buyers are unaware of this,’ he said. ‘Parramatta, in particular, is a concern. There is already a pattern of decline in sales but supply is still increasing. It’s a very dangerous combination.’”

“Across capitals, developers’ have sought to remedy supply imbalances by targeting foreign buyers, especially from China, in the hope they will absorb excess housing stock. The strategy wasn’t working because Asia-based and local banks were clamping down on foreign lending, Mr Ryder said. ‘Someone needs to rent those homes too but vacancies are on the way up in most inner city areas,’ he said. BIS Shrapnel analyst Angie Zigomanis agreed foreign buying was decreasing, resulting in softer demand overall. ‘Foreign buying was at a peak 18 months ago but it’s been in decline since then,’ Mr Zigomanis said.”

“Kayode Oyedele, an estate manager, was shocked after going through the content of a correspondence he received from tenants in some estates he manages in Lagos and Abuja. After a meeting with representatives of the tenants last November, it was clear that a hard decision had to be taken. The tenants unanimously laid down their cards in clear terms before Oyedele: ‘Reduce your rent or we vacate your estate,’ they said emphatically.”

“Faced with this stark reality, Oyedele had no choice but to convince the property owners to take a 30 per cent cut in rent if they desired to still have the buildings occupied.”

“The Head, Property Management, SFS Capital Limited, Victoria Island, Lagos, Mr. Bolarinwa Odeyingbo, regretted that the property market recently suffered an unprecedented glut as thousands of properties across the country remain unsold, abandoned and uncompleted. Mass homelessness is now a common feature in all metropolitan areas, and infrastructure problems continue to escalate.”

“‘This year may even pose a worse outlook in that regard. I foresee a situation where a lot of the dollar denominated commercial rents for the new ‘A’ Class developments will be further reduced by as much as 30 to 40 per cent as tenants with ability to pay for such will further shrink,’ he said.”

January 12, 2017

In The Throes Of A Softening As A Glut Floods The Market

A report from the Dallas Morning News in Texas. “Homebuilders in North Texas and around the country are looking forward to at least a couple more good years for sales and construction. But some tough times could be down the road with a possible recession and another price bubble, a housing industry economist warns. ‘During the next five years, we actually go into a fairly severe cycle of overvaluation,’ said Mark Boud, top economist for housing analyst Metrostudy. ‘This will be hard to avoid.’”

“The median sales price of North Texas preowned homes has jumped more than 40 percent in the last few years and is at a record level. Prices went up an additional 10 percent in 2016. ‘You’ll need to be prepared for more severe recession after the party ends.’ Boud said. ‘We are kind of setting the table for that.’”

The Baltimore Sun in Maryland. “Federal workers in Maryland and across the nation are bracing for reductions in head counts, civil service protections and even salaries when President-elect Donald Trump and Congress turn their attention to government spending later this year. The threats and preliminary steps taken by Congress have created anxiety for many of the government’s 2.1 million employees, including some 300,000 who live in Maryland. ‘The federal government is the core driver of the Maryland economy, whether we like it or not,’ said Richard Clinch, director of the Jacob France Institute at the University of Baltimore. ‘When the federal government gets nervous, employees don’t buy houses, cars and flat-screen TVs.’”

From Forbes on New York. “The upper end of Manhattan’s real estate market has been slumping for months, with apartments in some of the borough’s priciest enclaves languishing on the market before selling. New York’s priciest borough is still in the throes of a softening at the very high end as a glut of expensive condominiums floods the market. The downward decline is forcing developers at some of Manhattan’s priciest condominiums to cut prices.”

“Buyers who signed contracts and completed those purchases at 432 Park Ave., got price reductions averaging 10%, an analysis by appraiser Miller Samuel Inc. showed. A penthouse on the 88th floor of the building sold last month for $60.9m, a 20% price cut from its original asking price. One of the last remaining full-floor apartments at One57, one of a cluster of expensive new condominium towers on Manhattan’s so-called Billionaires’ Row, sold last month for $45.8m, about $12.7m less than its $58.5m asking price.”

The Seattle Times in Washington. “An immigrant from China who had been living in King County has pleaded guilty to visa-fraud charges after federal authorities charged her with using stolen money from overseas to purchase a house on the Eastside. Shilan Zhao, 53, submitted false documents to federal immigration authorities and will forfeit her $900,000 house in Newcastle and give up properties worth tens of millions of dollars in California and New York, the U.S. Attorney’s Office in Los Angeles said. She also will spend up to five years in federal prison.”

“The indictment says she used funds from fraudulent transactions from a grain storehouse in China to buy a four-bedroom house on 113th Avenue Southeast in Newcastle for $525,000 in 2012. Her ex-husband, 53-year-old former Chinese government official Jianjun Qiao, was a director at the grain business in Zhoukou.”

“The pair laundered about $2.2 million in funds from overseas into a Canadian bank account, according to the indictment. Zhao also sold a Bellevue home on 139th Place Southeast for $998,000 in 2014 after the family bought it for $687,000 in 2010, county records show. Zhao lived in Newcastle but also owned a condo in Flushing, N.Y., and several properties in Southern California, the U.S. Attorney’s Office said. The Monterey Park, Calif., properties have a combined value of $28 million, according to the Los Angeles Times.”

“While this specific type of prosecution is rare, there has been no shortage of problems with the EB-5 immigration program, both locally and around the country. Just last week, local developer Lobsang Dargey pleaded guilty after defrauding hundreds of EB-5 investors from China.”

“In June, another Seattle developer, Henry Liebman, was fined $1.24 million for improperly using unlicensed brokers to steer EB-5 investors his way. And in April, a Bellevue immigration lawyer got a $278,000 fine in a similar EB-5 case. Washington is home to the fifth-most EB-5 investors from overseas, with more than 800 investors and family members living in the state, according to a new federal report.”

January 11, 2017

Heading Into A Rent-Reducing Glut

A report from Philadelphia Magazine in Pennsylvania. “The real estate sections in local and regional media of late, most definitely including this one, have been awash with stories about new luxury rental developments. Hardly a day passes without an announcement of a new high-end project on the drawing boards or a ribbon-cutting at a newly completed one. This boom in high-end apartment construction in Philadelphia comes as a similar one nationwide enters its eighth year. That’s about the point where market cycles come to an end as supply begins to outstrip demand, and when that happens, those developers who find themselves standing instead of sitting when the music stops usually have to resort to price cuts to fill vacant units.”

“Lauren Gilchrist, vice president and director of research at JLL, sees signs that it’s getting awfully close if it hasn’t peaked yet. Gilchrist noted that about 8,300 new rental housing units have been delivered or are on their way since 2012, and another 3,200 are in the planning stages. ‘I’m beginning to hear from developers about significant concessions being offered to new tenants,’ she said. ‘Absorption has slowly begun not to keep pace with the delivery of new units.’”

“Gilchrist doesn’t see the bursting of a bubble on the horizon here, but she does see the high-end market softening in the near term: ‘Projects not yet in the development pipeline may be riskier than they were a year ago.’”

The IndyStar in Indiana. “I’ve written about real estate in three cities since 2011 — Milwaukee, Baltimore and Indianapolis — and have spent much of my time asking the same question: When will developers stop building luxury apartment buildings? The answer remains unchanged — for now. The nation’s inexplicable apartment boom will persist for at least another year. But there is evidence that it’s waning.”

“Developers are expected to complete 3,700 new apartments in metropolitan Indianapolis this year, including 1,023 Downtown, according to apartment brokerage firm Tikijian Associates. The firm also projects that 1,528 apartments will open Downtown in 2018. Apartment construction has surged in almost every large U.S. city, turning vacant lots into mid-rises and fulfilling the millennial dream of granite countertops. Most experts have predicted the bubble will burst — some day — while marveling at just how many people are willing to pay more than $1,000 a month to live in buildings with theater rooms and pools.”

“Much of last year’s eye-popping rent growth can be attributed to new luxury buildings that opened, said George Tikijian, senior managing director of Tikijian Associates. But, for existing buildings, Indianapolis rent growth is following a national trend that suggests the apartment boom as we know it is almost over. ‘I do think we’ve probably seen peak rent growth and peak occupancy growth for the next few years,’ Tikijian said.”

From Crain’s New York. “The market for land in Manhattan fell precipitously in 2016 according to data from the real estate services firm Cushman & Wakefield. The dollar volume of land sales dropped to just under $3 billion in Manhattan, a 74% decrease from the year prior, as the number of transactions fell by nearly 40%.”

“The data is further evidence that the land market has taken a drubbing amid concerns about an oversupply of residential units in the city, especially high-end condos. Sales have also become difficult to finance as banks have pulled back on lending to land deals. Construction financing has also become more difficult to source, discouraging buyers.”

“According to Bob Knakal, Cushman’s chairman of investment sales, the drop in land prices was not reflected in the company’s report because prospective sellers have not yet adjusted to the slow down and have still insisted on top-dollar sums reflective of the frothy land values from over a year ago. Knakal said that parcels that might have commanded $800 per square foot over a year ago were now roughly 25% cheaper to buy, or around $600 per square foot, a discount that will become clearer in the coming months as more deals take place.”

“‘It takes awhile, a year to 18 months, before sellers get used to the new reality and begin selling at the new market prices,’ Knakal said.”

From Reason Magazine on Texas. “The retirement fund for firefighters and police officers in Dallas is more than $5 billion in the red, and Mayor Mike Rawlings thinks someone should have to go to jail for messing things up so badly. The big problem for the Dallas pension fund is that benefits promised by city officials were too generous relative to what the city was contributing, and the investment returns failed to make up the difference. It overinvested in real estate (at one point, the Dallas police and fire pension plan had the highest percentage of real estate holdings of any major pension fund in the country, according to one report), leaving it vulnerable to downturns in the housing market.”

A letter to the editor in The Citizen in Georgia. “If you lived in Fayette County over the past 20 years, you might remember the enthusiastic multi-family apartment debate in Peachtree City. Developers were saying hundreds more apartment units were needed in the city and many residents were questioning the logic of bringing in more multi-family rental housing. Development interests wanted the apartments because it was profitable and investment money was plentiful. Eventually, we end up with over-supply of rental housing. With the glut comes slashing rents and offering concessions to attract renters, which crashes the entire market.”

“Chasing single millennials with apartments when the market in downtown Atlanta is heading into a rent-reducing glut is foolishness, especially when millennial families are opting for single-family housing. As with housing preference, another fallacy is millennials will not drive cars. J.D. Power’s Power Information Network reported that the share of the millennials in the new car market increased 28 percent. Millennials are estimated to be 40 percent of the nation’s cars sales by 2020.”

“We do not need to be fooled and we must remind ourselves that suburbs are continuing to outstrip downtowns in overall population growth, diversity and even younger residents. Three-quarters of people age 25 to 34 live in metro suburbs. Building apartments and other high-density housing is not the answer to any of our problems and could cause further problems, especially when the units are built with materials denoting a short useful lifespan.”