September 26, 2016

We Are Sinking Fast

The Age reports from Australia. “All across Melbourne, new apartments riddled with faults have been sold to investors and residents. Some of the problems are so costly to fix that it would be cheaper to build the apartments again. Often these cases play out behind closed doors or, quietly, in the courts. After all, who wants to tell the world that they’ve bought a disaster? Strata Community Australia (which represents Victoria’s body corporate managers) is aware of at least 58 apartment buildings in Melbourne with defects, valued at a total of about $49 million. ‘That’s just the tip of the iceberg,’ the group’s Victorian general manager, Rob Beck, said. ‘It is rare for buildings to be defect-free.’”

“Consider the case of Amanda Frazer, a first-home buyer who bought in Ormond off the plan in 2012. When she went to inspect her two-bedroom home, she discovered something different to what she had signed up for. The developer had squeezed another unit into the building and significantly reduced the size of her property’s balcony. She called the council. The council inspected the building and declared it illegal; because of the extra apartment jammed in, the complex no longer complied with the planning permit.”

“Ms Frazer received no compensation from the developer and there was little point pursuing him for the lost value in her home and repairs (estimated to be up to $100,000) as his businesses went into administration. This is not unusual. Ms Frazer said an inspector found further breaches in the building code: the floors weren’t level, the stairs were too steep and the ceilings too low. ‘It was a shoddy finish. You could see the lack of care,’ she said.”

From “It made headlines as Melbourne’s ‘tallest, skinniest skyscraper,’ but media buzz around 54 Clarke St in apartment-flooded Southbank wasn’t enough to save the developers from the rapidly turning property market. Like many others, the original private syndicate of developers behind 54 Clarke St were forced to walk away. The ‘Elysium’ site went under the hammer earlier this month. As pre-sales drop and banks tighten lending for developers, a growing number of ‘mum-and-dad’ apartment builders are being forced to abandon construction, experts have warned — sparking fears of a domino effect.”

“The trend is noteworthy because it appears to gel with a scenario floated by investment firm CLSA earlier this month of a looming apartment ‘crisis.’ The broker predicted that a wave of defaults would force smaller developers into receivership, pushing down prices and potentially causing wider contagion that could lead to a recession. Meriton founder Harry Triguboff, Australia’s richest man, has also sounded increasingly urgent warnings, telling recently that a ‘very significant’ number of Chinese buyers were walking away from apartment purchases.”

“Last week, Mr Triguboff told The Australian he would not be able to get 50 deposits on a new project, compared with 105 in the previous month. ‘We are sinking fast,’ he said.”

“Albert Callegher from ACM Finance, a specialist ‘last-mile’ finance broker that provides top-up funding for property developers, said CLSA’s prediction was already coming true. ‘The small to medium developers doing projects between $2 million and $20 million, they’re going broke,’ he said. ‘I’ve had one client say to me he’s got one developer with over 2000 apartments that can’t settle. We’re hearing it everywhere but it’s not making the news, because you don’t want an avalanche.’”

“He warned Melbourne may be facing another 2004-style Docklands-style property bubble. ‘The developers simply sold the water view and position as the most fantastic, New York-inspired development in the universe,’ he said. ‘As a result, poor investors paid 25 per cent above market, the market corrected itself, and as a result a lot lost their homes through unscrupulous pricing structures. What’s happening now is the same as the Docklands. The last three years it’s been exuberant buying.’”

From ABC News. “Darwin locals trying to sell their properties are feeling the pinch of a depressed housing market as the volume of sales reaches an all-time low. Some have been forced to leave the market altogether. Glenn Chandler’s tropical, open-plan house in Darwin’s northern suburbs has been on the market for more than a year and has had just six enquiries. ‘When we moved in it was only a couple of years before Cyclone Carlos knocked it over entirely, so we had to build it from scratch … and that was a good four-and-a-half years ago,’ he said. ‘It’s been on the market for a good year, year-and-a-half, but not actively. I’ve been told that in a depressed market that’s what you expect.’”

“Anne Clifford has lived in Darwin for more than 40 years and has just taken her inner-city Darwin apartment, in Larrakeyah, off the market. ‘My apartment’s been on the market on and off for the last two-and-a-half years, I had it with an agent for three months and didn’t get much interest at all,’ she said. ‘Certainly didn’t get any offers that I liked so I just decided it wasn’t worth just throwing it away because the prices have dropped $50,000 to $100,000 in the last three years I think. In 2010, it was actually valued by a proper valuer for $620,000 and we had it on the market for $550,000 this time.’”

“Ms Clifford said she would wait for the market to improve. ‘I’m not going to rush into selling it because I just don’t think the market’s right, but I’ve been in Darwin 40 years and there’s a lot of ups and downs and I know Darwin will pick up and it will get better.’”

Landlords Beware, People Are Shopping Price

A report from the San Mateo Daily Journal in California. “Renters struggling to afford the considerable cost of living locally may see some relief on the horizon according to county real estate professionals who project the market will soften. Average rents have nearly doubled in and around San Mateo over the past five years, jumping to about $3,100 for a one-bedroom apartment, according to market data offered by RentJungle. But in the last month, average rents have been dropping incrementally, down about $100 from the heights hit over the summer, and local property managers said they expect the trend to continue. ‘We sit in these markets that are hot for so long, I think that we forget that we are starting to see the rents come down,’ said Sally Navarro, a property manager with AVR Realty in Burlingame. ‘Things are softening up.’”

“Andrew Peceimer, a representative of Westbay Real Estate Group who manages roughly 60 properties throughout San Mateo County, expressed a similar sentiment. He said the recent building boom bringing online a swath of new units particularly in Redwood City and San Mateo may begin to offer some space in a market which has been historically tight. ‘We are headed toward having an over supply on the market and rents will go down,’ he said. ‘The market will soften.’”

“Indicative of his position is data offered by real estate information company CoStar, showing average vacancy rates have jumped to 8.8 percent, up more than 5 percent from the five-year average of 3.4 percent.”

The Mercury News. “Abodo, an apartment search website, says monthly rents dropped markedly from August to September in San Jose and San Francisco. Those cities were on Abodo’s Top 10 list for the ‘Biggest Fall’ in rents for one-bedroom apartments during that period. Some observers are emphatic: ‘The prices have reached their saturation point,’ said Ron Stern, CEO of Bay Rentals, a housing relocation service. ‘Tenants cannot be soaked for one extra dollar.’”

“Particularly in Santa Clara County, he said, ‘the rental market has slowed down to almost a crawl. We do a lot of credit reports, and the number of reports we’re doing has declined. … Landlords say, ‘Is my price too high? I’m not getting any calls.’”

“From August 2015 to August 2016, said Jeffrey M. Mishkin, regional manager at the San Francisco office of Marcus & Millichap, San Francisco’s rental market ‘was flat.’ ‘One-bedrooms were down 7.7 percent year-over-year, from $3,395 to $3,150. Two-bedrooms were down from $4,500 to $4,300, a 4.7 percent drop.’ Plus, he just had received an informal report about a ‘very large owner’ of apartments on the Peninsula ‘who said that rents are down on every one of his properties.’”

“Stern advised apartment hunters to look in smaller apartment developments, rather than the larger — and often more expensive — complexes. ‘You can get a nice place for $1,600 or $1,700, maybe less,’ he said. ‘There’s a nice duplex in Campbell for $1,850 in a good neighborhood. The landlord says, ‘I don’t want to squeeze it for an extra 200 bucks. I just want to get it rented.’ ‘Landlords beware,’ he warned. ‘People are shopping price, not quality, right now.’”

The Orange County Register. “All that local construction activity is adding up to more options for Orange County house hunters. The supply of new homes for sale and being constructed was 1,093 in 2016’s second quarter, according to data from MarketPointe and the Real Estate Research Council of Southern California. That’s almost double the inventory from a year earlier and it’s local builders’ largest supply since the end of 2007.”

“So far this year, the median selling price for a new Orange County home averaged $807,000 vs. $693,000 for resales of existing, single-family homes and $444,500 for existing condominiums. The bulk of Orange County new homes for sale are priced between $700,000 and $1.5 million, so this added supply greatly aids shoppers looking in essentially the upper half of the market.”

“While it appears the overall market is not oversupplied like a decade ago, added supply will force builders to compete further. For example, Orange County’s median price for new homes this year has fallen by 4 percent.”

The Fresno Bee. “Wathen Castanos Homes is getting ready to build $800,000 houses in Marina, north of Monterey. It’s a feat the owners of the Fresno-based home-building company still can’t believe today, almost a decade after the Great Recession nearly crushed the business. ‘I don’t think any of us had the confidence that we would make it through,’ President Joshua Peterson said.”

“Now, Wathen Castanos, one of Fresno’s oldest home builders, is constructing in a dozen cities across the central San Joaquin Valley, from Tulare to Clovis, as well as the Central Coast.”

The Manteca Bulletin. “Manteca’s future health — economically and as a community — is becoming more and more reliant not on just the Bay Area/Silicon Valley but also on a larger footprint planners have dubbed the Northern California Mega Region. A recent Wall Street front page article about Silicon Valley home prices and the lack of buildable land is prompting more traditional Bay Area single family home builders to look at opportunities in Manteca and nearby. Manteca has more than 9,000 housing units in various stages of approval while next door Lathrop has 11,000 approved units as part of the River Islands project.”

“Even though City Manager Elena Reyes is upbeat about how quality housing will raise the Manteca economy, she is well aware of the downside. ‘People in Manteca can be impacted by Bay Area paychecks,’ she said.”

The Silicon Valley Business Journal. “Silicon Valley’s infamously high housing prices might be responsible for recent increases in the number of residences listed for sale. ‘We see more and more equity from price gains entice (homeowners) to sell their homes and reap those gains,’ said Ralph McLaughlin, chief economist for residential real estate site Trulia.”

“Housing inventory in Santa Clara and San Benito counties increased 8.7 percent, and in San Francisco and San Mateo counties the number increased by 19.3 percent. The third quarter was the second quarter in a row in which inventory increased in the San Jose metro area, and the third consecutive quarter for the San Francisco metro division. The largest gain in the San Jose metro inventory came from homes valued in the middle-third of the market, whose number of for-sale homes increased by 13.1 percent this quarter from 2015.”

September 25, 2016

Now There Is A Slowdown On Everything

A report from the Financial Post in Canada. “Your home may have climbed in value as much as 35 per cent in the past year, so why wouldn’t you want to own another one? Increasing numbers of homeowners keen to take advantage of a booming market for low-rise detached homes are ‘doubling up’ on their investment by holding on to their existing homes, even as they move into larger ones. In essence, their old principal residence becomes an investment property — one they hope will deliver some income but more importantly will lead to massive capital appreciation — especially in two of Canada’s hottest cities for real estate.”

“The phenomenon, though not widespread, has been present in the Vancouver market as it heated up and is beginning to work its way into Toronto transactions. Calum Ross, a Toronto mortgage broker and wealth planner, said if you’re not cash-flow positive, even after factoring in a jump in interest rates, you are playing with fire when it comes to an investment property. And that includes your former principal residence.”

“‘My concern is some people are keeping their home not because it’s part of a sound financial plan; it’s the greed,’ said Ross. ‘You have to be mindful, you don’t want to be overweight in real estate.’”

“For the wary, it is worth considering what is happening in Vancouver. Simon Coutts, an agent with Macdonald Realty, said a lot of people who were holding onto their principal residence with hopes of flipping in the near future may have tough time now realizing a gain. ‘Now there is a slowdown on everything. Deals are in the can that are collapsing,’ Coutts said, adding some of those Vancouver owners are getting nervous. ‘Last month there were lineups of people to buy everything. Those lineups are gone.’”

The Metro News. “The B.C. government’s newly-introduced foreign buyer tax led to a steep drop in both total home sales across Metro Vancouver and the dollar value of residential home sales in the month of August. In Metro Vancouver, there were 1974 home sales involving foreign nationals in the period from June 10 to August 1. That fell to just 60 from August 2 to August 31. Total dollar value of home sales in Metro Vancouver fell from $14 billion to $6.5 billion.”

“B.C.’s Ministry of Finance released data that compared two periods of different duration: 53 days between June 10 and August 1, and 30 days between August 2 and 31. Home sales to foreign buyers dropped 94% between the two periods, when the number of deals in the first period is averaged over a 30-day period. ‘I hope all the people who said (foreign buyers) were just 3 to 5 per cent of the market are hanging their heads,’ said David Eby, MLA for Vancouver-Point Grey and the Opposition NDP’s critic for housing.”

“On July 29, just before the tax took effect, more than $850 million in transactions involving foreign buyers were registered at the B.C. Land Titles office, ‘equal to more than 55 per cent of all transactions registered in Metro Vancouver on that day, and almost 40 per cent of the total foreign investment in Metro Vancouver residential real estate for the entire period after data collection began and before the additional tax took effect (June 10-Aug. 1, 2016),’ according to a government press release.”

“Eby said the numbers are likely much higher because of techniques like assigning properties to permanent residents or Canadian citizens to avoid paying the tax. ‘This is just a small portion of what’s happening,’ he said. ‘We know that in the Trump Tower building, the developer was helping people assign their properties to permanent residents and citizens to avoid the tax.’”

The Global News. “The U.S. Department of Treasury has named a a relatively unknown Vancouver company with offices downtown as a ’significant transnational criminal organization,’ which has helped to defraud Americans of hundreds of millions of dollars. The allegations against PacNet Services Ltd., which have not be proven in court, came during a press conference with U.S. Attorney General Loretta Lynch.”

“The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) said PacNet is an ‘international payments processor and money services business’ with a long history of money laundering by ‘knowingly processing payments on behalf of a wide range of mail fraud schemes’ that targets victims across North America and the world.”

“Vancouver anti-money laundering lawyer Christine Duhaime says the news is ‘unfortunate for Canada.’ ‘We are getting a bit of a reputation for money laundering,’ she told Global News.”

“Peter Ferlow, the husband of Ruth Ferlow who is listed as the director, manager, or company secretary of several PacNet-linked companies, told Global News he was not aware of any evidence proving these allegations are true. According to Ferlow, the company has roughly 100 employees in Vancouver who were surprised to find the competition bureau and Vancouver Police at their office after the news broke.”

“‘The company and all the principles and higher managers in the company are now listed on the U.S. Treasury site with personal home addresses and nobody’s guilty here. Like, what is going on? It’s kind of wrong,’ he added. ‘Everybody is out of work, and they’re just regular people there. From one week to the next you can’t make your mortgage payment.’”

Stagnant Inventory At Unrealistic Prices

A report from the Culpeper Star Exponent in Virginia. “The latest news in the long-stalled Clevenger’s Corner mega-development and other housing projects topped the Friday morning agenda of the Culpeper County Board of Supervisors retreat meeting. Culpeper County Planning & Community Development Department Director Sam McLearen told the board that Centex Homes recently withdrew its 2013 proffer amendment to build 762 single family homes on quarter-acre lots in the planned neighborhood, Clevenger’s Corne. ‘That’s one of the biggest things that has happened in the last couple of weeks,’ he said, describing the grandly imagined development as a ‘dormant project.’”

“Withdrawal of the 2013 proffer amendment that removed apartments, duplexes and the large commercial component means the project reverts back to its original, closely contested 2005 rezoning that included those features. But the development appears permanently stalled.”

From WFTS in Florida. “They’re called ‘Zombie’ homes: in foreclosure and abandoned. Despite several years since the housing crash, many of these ‘Zombie’ properties that were bought at peak value, and later foreclosed upon, still sit empty in the Tampa Bay Area. That includes a boarded-up home with an over-grown grassy yard on East 26th Ave in Tampa, which sits just around the corner from Rosetta Jacobs. ‘There were renters there, but not legal renters there,’ explains Jacobs’s daughter Lida Williams. ‘Now there’s nobody there and it’s been vacant for months.’”

“According to RealtyTrac , about 7.4% of the foreclosed homes in the Tampa Bay Area are ‘Zombies’ or abandoned. The Bradenton-Sarasota Area has the same percentage. And that percentage not only leads the entire state of Florida, but is among the highest rates in the entire country. What’s the problem? Florida was among the hardest-hit by the housing crash, and some small banks that made bad loans have been unwilling to sell the abandoned properties for less than the original purchase.”

“‘So rather than make the sale at fair market value they hold on to the stagnant inventory at unrealistic prices,’ explains Vincent Arcuri, a longtime Tampa Bay Area realtor. ‘The homes are over-priced. If you see a home that’s been on the market for a year, clearly it’s an over-priced property or there’s something wrong with it. A big problem for the bank is the longer it sits there,’ explains Arcuri, ‘the roof is leaking, there’s mold issues, then it becomes even less desirable for even an investor.’”

The News Tribune in Washington. “In May 2015, I took a car ride with city of Tacoma code inspection supervisor Dan McConaughy. It was a tour of a handful of derelict homes — 13 of what he described at the time as ‘the worst’ Tacoma had to offer. Back then, there were 308 unoccupied derelict homes on the books in Tacoma, with many of them — about 60 percent, by McConaughy’s estimation — wallowing in what he described as ‘the black hole of foreclosure.’”

“That’s a colorful way of depicting homes that sit in a state of unfortunate financial limbo — where homeowners, who’ve received a foreclosure notice, have moved on, but the bank holding the mortgage has yet to finalize the foreclosure process. So the home sits empty, sometimes for years, with the bank presumably waiting for just the right time to initiate the trustee sale to unload the property.”

“Recently, I decided to check in again with McConaughy — who was nice enough to give me an updated tour of the 13 homes he showed me last year. With the real estate market in Tacoma and throughout the region humming — thanks, Seattle! — I couldn’t help but wonder if the situation with derelict homes stuck in McConaughy’s ‘black hole of foreclosure’ had changed”

“I was surprised to hear the answer. ‘Right now the market’s hot, so you would think of (the banks) selling more. But, no, I don’t see that,’ McConaughy told me. ‘I don’t think the inspectors see that. I’m very disappointed in the banks,’ McConaughy reiterated.”

“How consistent has the problem of derelict homes in Tacoma remained since the last time I wrote about it? Of the 13 derelict and abandoned homes he showed me last time out, seven of these cases have been closed. They’re ‘wins,’ as McConaughy calls them. The trouble? ‘Half of them have been taken care of,’ McConaughy says. ‘But there’s a new 13. That’s for sure.’”

“As of Sept. 6, there were a total of 390 unoccupied derelict homes throughout Tacoma. That’s 82 more than the last time I jumped in the passenger seat of McConaughy’s city-issued Prius. While it’s important to note that not all derelict homes represent foreclosures, McConaughy and Lisa Wojtanowicz, the division manager with Tacoma’s Neighborhood and Community Services Department, confirm that many of them are.”

“While anecdotal, McConaughy sticks by his 60 percent estimate for the number of these homes stuck in the foreclosure purgatory.”

The Alaska Journal of Commerce. “‘There was cautious optimism in the first six months of the year,’ said First National Bank Alaska Senior Vice President Michelle Schuh. ‘Now I think people are just being cautious.’ Schuh clarified that the second quarter of 2016 was steady for her bank, and likely for the rest of the state, but the lack of legislative solutions to the state’s $4 billion budget deficit is starting to affect the business community’s outlook, if not the numbers.”

“Schuh said state budget cuts are the beginning of a trend she hopes doesn’t materialize, with declining home values at the end. Though none of the banks have noticed home values dropping in the state, Schuh said the lack of a state budget solution could produce such a decline.”

“‘If we don’t address the budget, we know we’re going to have state layoffs,’ she said. ‘If you’re seeing lower state employment, and you’re already seeing private sector layoffs happen, your housing concerns are going to be next. That’s where we’re going to see a softening in the real estate market.’”

“Like Schuh, Northrim Chief Financial Officer Latosha Frye said the bank’s balance sheet is still healthy, but the gloom of the state’s fiscal situation is setting in. ‘General sentiment is people are waiting for what’s going to happen next, and every day there’s a barrage of information about all the action the state isn’t taking with fiscal issues,’ she said. ‘It’s just unavoidable. At some point that becomes a downer. The psyche impact takes that to another level, I think.’”

“For credit unions, which have higher rates of consumer loan portfolios than that of banks, number are looking even less optimistic. Alaska’s credit unions, unlike the banks, posted an overall decrease in quarterly net income of 22 percent year over year. Each of the three largest credit unions posted rises in the rate of delinquent loans. Alaska USA’s delinquent loan rate rose a negligible 0.1 percent, but the delinquent loan rate for Credit Union 1 and Denali Alaskan rose by 54 percent and 77 percent respectively.”

September 24, 2016

Something More Complicated Might Be Going On

A report from the Daily Nebraskan. “In the past four years downtown Lincoln has quintupled its number of beds through the addition of several student-marketed apartment complexes, adding the perfect living option for some, but a nightmare for others. Often targeted toward students, the new downtown apartment complexes provide housing and other amenities for those looking for a place to live while in school. They also tend to rent by bedroom, rather than by unit. And with the university aiming to increase enrollment – and by extension, the amount of students seeking off campus apartments – developers smelled a market for apartment complexes.”

“But, at least according to initial numbers, that market may not be developed yet. Vacancy rates reported by student-oriented apartment complexes are higher than the most recent statewide average of 5.6 percent. Aspen and 8 | N reported a 36.7 and 27.7 percent vacancy rate, respectively. Students moving in have found unfinished construction, exposed nails, appliances that don’t work and a host of other problems. After living at Claremont Apartments his sophomore year, Austin Moylan switched to Prime Place in August 2015. Shortly after moving in, he noticed residents weren’t treating the property well.”

“‘People just treated the place kind of how it was given,’ Moylan said. ‘It became kind of a trend to punch holes in the wall. There were entire walls that were just shredded with the insulation ripped out. People kicking walls in and punching walls in, up and down every stairwell in the building.’”

The Los Angeles Times in California. “An Orange County developer is proposing one of the most ambitious developments of the current real estate boom in downtown Los Angeles — a massive mixed-use complex with twin towers soaring 58 stories. SunCal is proposing 1,736 residences, two hotels, shops and creative offices and a school on a lot now the site of two warehouses. About 430 of the residences would be condos, the rest apartments.”

“SunCal’s proposal comes amid growing concern over the level of development in downtown Los Angeles. Though experts don’t foresee a crash as in 2008, there’s debate whether the top of the current cycle has been reached. Some lenders have grown wary of new projects and a handful of recently opened luxury apartments are offering concessions, such as free rent and free parking, to attract wealthy tenants.”

“In all, nearly 10,400 apartments and condos are under construction downtown, according to a July report from real estate firm Transwestern. In just three years, Mike Parillo has watched development in the Arts District explode while rising rents have forced many of his fellow artists out of the neighborhood. He said the proposed project could dramatically change the aesthetic of the area. ‘Sixty stories? That’s crazy,’ Parillo said. ‘That seems out of place. It doesn’t even compute.’”

From Hawaii News Now. “For some time now, Hawaii’s skyrocketing rents have been explained with simple economics – not enough supply, too much demand. But new Census figures suggest something more complicated might be going on. In the second quarter of 2016, nearly 11 percent of Hawaii’s rentals were vacant, Census estimates show. That’s up from 8 percent at the same time last year (and a far healthier 5 percent in early 2015), and is on par with states with far more affordable housing markets.”

“In fact, Hawaii had the sixth-highest rental vacancy rate in the nation during the quarter. Nationally, the vacancy rate was 6.7 percent in the second quarter of 2016. Meanwhile, Hawaii also has the highest rents in the nation, Census numbers also show, and they’re only rising. Eugene Tian, state economist, said the rental vacancy rate might be legitimately increasing in some areas (such as urban Honolulu) because renters are being priced out or moving into homeownership thanks to a construction boom in Kakaako.”

“He said some renters are undoubtedly ‘withdrawing from the market’ because of the rising prices, moving in with family or sharing their housing cost burden by getting roommates. (In the second quarter of 2016, the rental vacancy rate in urban Honolulu was 10.1 percent, up from 7.5 percent in the same period a year ago.)”

“Meanwhile, economists say, the state’s rental housing vacancy rate is also likely going up because of a glut of vacation and seasonal rentals on the Neighbor Islands. The issue is particularly acute on Kauai and Maui. Kauai, for example, has a rental vacancy rate approaching 18 percent (up from 6 percent in 2000). Maui County’s rental vacancy rate is 26 percent, from 7 percent in 2000, according to a 2015 state housing availability report.”

“The report concluded that the significant increases in rental vacancy rates on the Neighbor Islands highlighted the ‘increase in the number of seasonal and vacation units.’”

The Houston Chronicle in Texas. “The glut of new apartments is dragging down average rents in Houston, with rent in August falling the most in six years, a new report showed. Not everyone is getting relief, however, as renters in suburban markets with concentrations of older complexes saw the highest rent increases, Axiometrics reported.”

“‘Though job gains in education, health care and hospitality somewhat offset the continued job losses in the energy sector, the demand for apartments is just not there,’ Stephanie McCleskey, vice president of research for Axiometrics, said in an announcement. ‘With new properties being completed every month, they just won’t be filled as quickly as we would like to see until job growth picks up.’”

The Elko Daily Free Press in Nevada. “One of Elko’s biggest downsides has gone by the wayside. After having a shortage of apartments and multi-family dwellings for most of the past four decades, we now have an ample supply. Today, it’s actually ‘a renter’s market,’ as one real estate manager told us for a recent article on the wealth of new rental properties. The experts were divided on whether Elko has a ‘glut’ of rental housing, but they all agreed there is no longer a shortage.”

“Large apartment complexes have literally been popping up all over town. Instead of a waiting list, newcomers might find themselves being offered a free month’s rent. Like many aspects of living in Elko, prices are geared toward people employed by the high-income mining industry. But the arrival of more upscale apartments also means that more lower-end properties are left open and available for those not making a miner’s salary.”

“The abundance of rentals also frees up motel rooms. Many newcomers have had to live out of motels, some of which offer weekly and monthly rates. At the same time, hundreds of more motel rooms are being added to the inventory. If anyone was reluctant to move to Elko because of the lack of apartments, they now have no reason to delay. We almost wish we didn’t live here already, so we could move here now.”

Another Bubble Within The Bubble

An interview from the Epoch Times. “To make outsized returns or avoid some nasty losses in investing, you have to go against the grain. There are few people who live that principle more than Reggie Middleton, the CEO of fintech (financial technology) company Veritaseum. On his independent research website BoomBustBlog, he called the demise of Bear Stearns, Lehman Brothers, and BlackBerry maker Research in Motion, the subprime market, and a correction in Apple. In this exclusive interview with the Epoch Times, Mr. Middleton tells us why he is getting worried about U.S. real estate again in 2016.”

“Epoch Times: You called the latest housing crash in 2007 and 2008. Why are you worried about U.S. real estate in 2016? Reggie Middleton: After the bubble had popped, you had corporate welfare come in where regulatory agencies and central bankers insisted that they did not want the markets to go down to their clearing level. So you had quantitative easing, zero interest rates, TARP, and all these other acronyms giving free money to save risk-taking entities who didn’t want to take their losses; they just wanted to make profits.”

“They privatize the profits and socialize the losses. In doing that, they create another bubble within the bubble that hadn’t even finished deflating.”

“The second bubble was very hard to see coming. But it limited supply because a lot of the builders were still insolvent from the last bust and those who were able to build were reluctant, so when you limit supply, you automatically inflate demand relative to supply.”

“When that happened, prices started shooting up again. But when prices started shooting up, they shot up in a very uneven perspective. Affordable housing is harder to come by, and most of the money is in the high end; that’s where most of the development came on. Now, if you look around here in New York, there are cranes everywhere—from New York City going down to Miami.”

“Epoch Times: In our neighborhood alone, we have five developments within a couple of blocks. Mr. Middleton: Massive amounts of inventory. In Miami, it’s the same thing. In South Beach, downtown Miami, up and down Biscayne, everywhere. If you go to D.C., Philadelphia, Georgia, Texas, on the West Coast, it’s the same.”

“Demand is also going up because of tight supply in certain areas, but income has only gone up incrementally. When income goes up this much, supply goes up that much, who’s going to buy these or pay for these houses?”

“Epoch Times: Especially in the high-end market. Mr. Middleton: Exactly. The high end has already softened. The Hamptons, much of the Upper East Side, Aspen. The middle and low end are going to soften as well. The reason is that supply’s starting to pick up more and more. It’s picking up because of zero interest rates and negative interest rates; we have institutional investors who are trying to get yield because they are pension funds, and they rely on income-producing investments.”

“Now, this perspective seems to differ from many of the real estate publications and analysts you’d see, where they say there’s significant demand and tight supply. I look around; I just don’t see it. Unless an extra 5,000 to 6,000 people are going to move into this six-block or this three-block area like where we are right now, or an extra 200 or 300 extra businesses are going to move in over the next 12 months, then I think there’s excess supply.”

“It’s the bubble 2.0, but this bubble seems to be an elastic bubble that’s difficult to pop. Every time we stick a needle in the bubble, the Fed comes in and papers over with another acronym: TARP, MARP, bubble patch, etc. In the United States, you had—if you don’t count the bubble—for the last 50 years, you had roughly 1 to 3 percent residential housing appreciation per year. Now, you have 5, 10, 15, or 20 percent annually in certain areas.”

“That’s ridiculous. Unsustainable. Especially when you have the same income. If you factor in unemployment, you have negative income growth. That means housing is going this way; income is going that way.”

From Bloomberg. “The consensus that Chair Janet Yellen has worked hard to maintain among Federal Reserve policy makers showed signs of severe strain on Wednesday. Three members of the Federal Open Market Committee, notably including Boston Fed President Eric Rosengren, dissented when the majority of voters elected to hold interest rates steady despite strong progress this year in the labor market, expectations for higher inflation and calm in global financial markets.”

“Rosengren, 59, played a key role during the 2008 financial crisis leading the Fed’s efforts to prevent a collapse in money-market mutual funds. He has also frequently cited the number of cranes he sees while heading to and from work in downtown Boston as he warns about a potential bubble in commercial real-estate valuations.”

“The disagreement shows the mood on the FOMC is shifting, said Roberto Perli, a partner at Cornerstone Macro LLC in Washington and former Fed economist. ‘The chair is not an emperor,’ he said. ‘I don’t think she can, even if she wanted to, hold these guys back.’”

The Journal Star. “Wells Fargo CEO John Stumpf wants Americans to believe that 5,300 of his former employees — yes, 5,300 — of their own initiative without any direction from above, worked in unison if unconsciously to defraud customers by creating more than 2 million phony bank and credit card accounts without authorizations or signatures and then charged them fees for something many didn’t even know they had.”

“To say next to nothing of the allegations of Wells Fargo’s abusive mortgage service and foreclosure practices that had what by then had become the nation’s largest bank socking customers with outrageous fees for services sometimes not even delivered, such as an $1,800 charge to a widow for an eviction that never took place.”

“Again, the guy regrets it, truly. Hey, ‘the housing downturn was a challenging time for the nation’ — if less for some than for others, if we may say so — according to a spokesman. The bank ‘has acknowledged … mistakes.’ There’s blame to go around: ‘Lenders, investors, along with policymakers and regulators — all sides — learned foreclosure processes had to be addressed.’ So can’t we all just stop harping on it, chalk it up as lesson learned, and move on?”

“Did we mention that this fraud went on for years after it was initially uncovered in 2013 by the Los Angeles Times (not, interestingly, by regulators)? Did we mention that no members of Wells Fargo’s upper management were fired (unless you count the head of community bank operations being allowed to retire over the summer with a golden parachute in the tens of millions)? Did we mention that most of the 5,300 who did get canned — the company is all about accountability, capital A — were among its lowest paid, making as little as $12 an hour? Did we mention that no one near the top has had their pay docked, including a Stumpf who reportedly made — we hesitate to use the term ‘earned’ — $19 million last year, $103 million in combined compensation between 2011 and 2015?”

“If the conduct of Wells Fargo — and of course we’re talking about the institution and its leadership; we trust many who work there are as appalled by these revelations as anyone — doesn’t make Americans even angrier in this, the Year of Rage, what will? Unfortunately, so much of that fury has been misplaced. In this case, it’s perfectly placed.”

“What are the lyrics of that Dylan song (thanks for the reminder from a Wall Street Journal commenter)? ‘Steal a little and they put you in jail. Steal a lot and they make you king.’ Until that changes, expect more of this kind of fundamental immorality.”

September 23, 2016

Buyers Saw That It Just Got Beyond The Pale

It’s Friday desk clearing time for this blogger. “Real estate is the heart of Miami’s economy. In the past four years, more than 3,000 condo units have been built, and a whopping 11,000 are slated to finish construction by 2018. It might seem an insane proposition to sell 14,000 new luxury condos in six years, and it appears market experts agree. Real-estate expert Andrew Stearns released a study that suggests, yet again, that demand for luxury condos in Miami could be hitting its breaking point. Though there were more than 700 post-2012 ‘preconstruction’ condos on the market in August, Stearns reported that only eight of them had sold. And all of them lost money on the sale. ‘There appears to be something going on,’ Stearns said.”

“Stearns’ website,, has been compiling data all year. This past May 5, Stearns reported that Miami’s condo market might be hitting an ‘inflection point,’ wherein there are simply too many new condos, and people trying to resell even 1- or 2-year-old condos will be selling them at ’significant losses.’ ‘At [the] current rate of sales, there is over 10 years of inventory of recently completed condo projects due to lack of sales activity,’ he wrote. ‘If current sales trends continue, in the next 24 months there will be over 57 years of inventory of newly completed condos on the resale market.’”

“This, he said, would then cause spillover problems with Miami’s rental market. In the next 24 months, he wrote, ‘rents will likely tumble as preconstruction buyers unwilling to take losses on their condos flood the rental market with new units.’”

“Could it be the break Bay area homebuyers have been waiting for? New numbers show home sales are actually slowing. Santa Clara County Realtors Association President Trisha Motter said, ‘We’re not seeing the bidding frenzies or paying as much over list price as we were before.’ For instance, a house in South San Jose has been up for sale for three months and counting, something that would have been unimaginable a year ago.”

“Motter is in process of selling a nearly identical home just across the street from the home that has been sitting on the market for months. She says the combination of the right price and a tasteful staging helped her snag a buyer in just two weeks. ‘Before you could put your home on the market with no preparation and it would move quickly. Now, buyers are taking it a little bit slower. They have options,’ Motter said.”

“A potential shadow inventory looms over the market as state-mandated mediation proceedings drag out the process, raising the specter that foreclosures could jump again in the coming months as those procedures reach their end. ‘We’re about seven, eight years after the crash and were still dealing with foreclosures,’ said Mike Feldman, president of the Connecticut Association. ‘Eventually, we’ll wash through all this stuff, but it’s hanging over our heads because the judges have to deal with it. Other states have done it a lot faster.’”

“In upscale Gold Coast communities like Greenwich, it is not unusual for a mortgage to be triggered simply by a house carrying more debt than its actual value, according to David Marantz, a court-appointed attorney based in Stamford currently overseeing the auction of a Greenwich property. ‘Often people don’t want to pay because they’re under water,’ Morantz said.”

“A former realtor who owned at least 12 rental properties in Nevada and Texas and filed multiple bankruptcy petitions to avoid paying the mortgages has been sentenced. Barbara Jean Dennis, 60, of Las Vegas pleaded guilty in February to bankruptcy fraud, admitting that she used the automatic stay provision in bankruptcy proceedings to avoid paying the mortgages, while at the same time, collecting rent from her tenants, according to a Department of Justice news release.”

“‘As this case demonstrates, the fallout from the housing crisis in Nevada is still impacting federal investigations and prosecutions,’ said Daniel G. Bogden, U.S. attorney for the District of Nevada. ‘The prosecution of these cases typically takes years and requires a significant amount of resources.’”

“After a dismal year in 2016, the Fort St. John housing market may be starting to stabilize. Fort St. John RE/MAX owner Trevor Bolin says the homes in Garrison Landing are selling for up to $70,000 less than they were last year. But he says sales aren’t just picking up because of the huge discounts. Pipeline projects in the area are providing new jobs, and there is confidence work is going to pick up soon.”

“But not everyone is confident things are turning around. Robin Spencer-Pickell was thinking about selling her home last year. Bolin told her she could get about $360,000 for it, despite the tax assessment for her home being $460,000. Spencer-Pickell figures the value’s only gone down since then, and doesn’t see any signs the market is stabilizing.”

“‘That isn’t the true picture. Go up and down any of these streets and see how many for sale signs are up and how many for rent. All these new ones that are up, those guys lots of them are renting them out or selling them just to get what they put in to building them back out. It’s a bleak picture. It’s not pretty,’ said Spencer-Pickell.”

“A record year for Australia’s volume home builders raises concerns that the country’s largest-ever housing construction cycle has peaked. The home builder with the biggest absolute increase in starts last year was Newcastle-based MJH Group. ‘Greenfield developers had to be willing to cut their profit expectations to keep volumes rising,’ said managing director Andrew Helmers. ‘The prices have come off. The clever developers with a bit of room to move, are adjusting their prices. It’s good signals for buyers. The peak of the market was about Fathers’ Day last year. After that it seemed to switch off – it just got beyond the pale. I think buyers saw that.’”

“Facing a slump of almost 30% in sales in the past two years, the real estate sector in Indore is struggling to get into gear. Of the 60,000-odd apartments in the city, as many as 28,000 are lying unsold and vacant. A major chunk of apartments in the city have seen a dip in resale value. With more than 25,000 vacant apartments, real estate developers are finding it difficult to earn from the projects. ‘The current rate per square feet is almost the same as it was two years ago. This is one of the reasons why home-buyers are not finding it viable to sell their flats. There is no appreciation,’ said CREDAI Indore chapter’s secretary Akhilesh Kothari.”

“‘Today 70% buyers look for affordable housing and the rest are in for luxurious apartments. But the newer projects that are coming up are largely focusing on premium flats, which are not on the list of most home-buyers,’ said CREDAI’s youth wing secretary Niket Mangal. But realtors seem eager to cash in on luxury. ‘The biggest gap is in demand and supply of housing. Affordable housing is what majority consumers need but there are increasing options in premium apartments. That is not what most buyers need,’ he added.”

September 22, 2016

There’s Too Many Buyers Who Can’t Afford A House

A report from CBC News. “When it comes to low interest rates, winter is coming. That was Federal Reserve chair Janet Yellen’s clear message Wednesday. Despite strong objections from some of her advisers, Yellen announced no change this week. So strongly that Yellen and her advisers on the committee that makes interest rate decisions were unanimous that a rate rise was needed. ‘We are worried that bubbles could form in the economy,’ she said.”

“Borrowers should keep their eyes open. Yellen’s message is that, for the first time in a long time, rates are on the way up. Then again, she gave us a much more serious warning a year ago, and since then, nothing much has really happened.”

From Bloomberg on Florida. “Alex Sifakis never raised this much money this fast. The house flipper from Jacksonville, Florida, crowdfunded nine deals totaling more than $9 million through RealtyShares over the last two and a half years. A July deal for $1 million took him just 12 hours. ‘It’s the greatest thing in the world,’ Sifakis said. ‘The amount of money you can raise isn’t limited by anything but their investor base. And the investor base is growing and growing.’”

“House flippers and property developers are increasingly crowdfunding — tapping the virtual wallets of anonymous internet backers on platforms such as RealtyShares, LendingHome, PeerStreet and Patch of Land. For riskier ventures, such as building new homes and buying, renovating and selling existing ones, they’re finding quick financing can be easier to get online than from banks. That’s contributed to an increase in home flipping. In the second quarter, 39,775 investors bought and sold at least one house, the most since 2007, according to ATTOM Data Solutions.”

“‘If you’re originating and selling, you’re just trying to get as much volume as you can,’ said Brett Crosby, a Google Inc. alum who co-created PeerStreet and is now chief operating officer. ‘In order to get more borrowers in the door, you start to drop underwriting guidelines.’”

The Williamette Weekly in Oregon. “The 21-story, dark glass tower looming above the east end of the Burnside Bridge is supposed to help solve Portland’s housing shortage. The apartment building known as Yard opened in late July. The tower was intended to ease Portland’s housing crunch by adding 284 apartments to a city where low vacancy rates are driving up rent. That’s why the Portland Housing Bureau offered tax credits to the real estate developers that bought the property from the Portland Development Commission in 2014.”

“But the entire 11th floor is available as a short-term rental. The decision to create short-term rentals out of a whole floor of a city-subsidized apartment complex raises questions about the city’s use of scarce housing dollars and its failure to enforce the rules for companies like Airbnb. ‘This entire floor dedicated to Airbnbs speaks to the fallacy of the argument of ‘build, build, build and the market will provide something that’s affordable,’ says housing advocate Justin Buri.”

The Mercury News in California. “In the Bay Area housing market, it appears to be a game of cat and mouse. Sales of single-family homes in August crept up ever so slightly from the year before as many buyers took a wait-and-see attitude, challenging sellers to negotiate — something unheard of in the overheated market of 2015. ‘Outside hotly contested areas, we’re seeing price adjustments of a kind we haven’t seen in some time,’ said Timothy Ambrose, treasurer of the Bay East Association of Realtors. ‘Buyers start thinking, ‘Well, should I wait?’”

“‘The Bay Area eked out a very small year-over-year gain for home sales,’ said Andrew LePage, a research analyst for CoreLogic. ‘Now why is that the case when the job market’s doing well and interest rates are still incredibly low? Once again, it’s because of affordability and constraints’ in the housing supply. ‘And it’s not just that there’s not enough houses for buyers — there’s too many buyers who can’t afford a house.’”

The Real Deal on New York. “In yet another sign of the dipping ultra-high-end market, the seller of the city’s most expensive listing has cut $24 million from the asking price. The 12,000-square-foot duplex co-op at 834 Fifth Avenue was listed in April for $120 million. But now that it has sat on the market for five months, the seller decided to offer a discount to $96 million ($8,000 per square foot), the New York Observer reported.”

“One of the most sought-after addresses in the city, 834 Fifth Avenue doesn’t allow financing for co-op purchases.”

September 21, 2016

A Herding Behavior

A report from The Investor on Colorado. “The Denver metro area remains a popular destination for Millennials, employers, investors, and apartment developers in 2016. To capitalize on the strength of the apartment market, 23,650 units are under construction and an additional 22,000 units are in planning. This includes mid-rise and high-rise properties, two property types that have been seeing record pricing levels. In June of 2016, Joule, a 16-story high-rise in Denver’s Golden Triangle sold for $120 million, or an astonishing $535,000 per unit. Three weeks later, Simpson Housing purchased Broadstone Blake Street and 2101 Market, two mid-rise communities adjacent to Denver’s Coors Field for $143 million, over $365,000 per unit.”

“Difficulty in obtaining construction debt may lead developers to reassess proposed projects, however, there is no stopping units currently under construction.”

The Daily Cougar on Texas. “National student housing developer Aspen Heights is breaking out of college towns and into the Third Ward, building a new complex on Old Spanish Trail. The property from the rising student housing group is scheduled to house its first University of Houston and Texas Southern University students in the Fall of 2017. Kiley Rapier and Geron Fuller, the complex’s managers, said the apartments will bring luxury to student living.

Theatre freshman Clare Keating summed up many students’ thoughts when asked about the new property: ‘That would be cool, if I could afford it.’”

The Capital Times in Wisconsin. “The Hub is emblematic of a national trend of amenity-rich student housing developments that are transforming downtown Madison and other college towns around the country. The arrival of the $5 billion student housing industry has brought a new class of developers to Madison, some observers say. The lucrative private student housing market heated up just as top-ranked public universities across the country were feeling the pinch from years of reduced funding from their states and looking for alternative sources of revenue.”

“Andra Ghent, a professor of real estate at the Wisconsin School of Business, said high-end student housing is feeding demand. The ability to rent by the bed to a population likely to be seduced by amenities that aren’t expensive to build makes for a potentially high return on investment, she said. ‘Once somebody makes a few good returns, you get a herding behavior,’ Ghent said. ‘But I don’t know if the returns will be that attractive going forward.’”

From Yahoo Finance on California. “For San Francisco Bay Area residents long accustomed to skyrocketing rents and real estate prices, there’s some relief on the horizon. That’s due to an overall increase in the number of homes and apartments on the market, which keeps prices from rising. The housing research firm Axiometrics estimates 12,300 new rental units will glut the Bay Area cities of San Francisco, Oakland and San Jose this year, up from nearly 7,000 units in 2015 and 6,700 units in 2014.”

“As a result, landlords from San Francisco’s South of Market neighborhood, all the way to Cupertino, are doling out tantalizing incentives to land tenants, such as four to six weeks free rent, discounts to tech workers, and even free bikes. The other reason for the Bay Area’s cooling rents and real estate prices? ‘Peak unaffordability,’ as Trulia Chief Economist Ralph McLaughlin calls it. ‘Your average buyer can’t afford a home,’ McLaughlin explained.”

The Real Deal on Florida. “The developer of H3 Hollywood, a condo project in downtown Hollywood with 60 percent of its units under contract, has halted construction and sales while it tries to find financing, The Real Deal has learned. The move comes as the planned 15-story, 247-unit development is at the 13th floor of construction, sources told TRD.”

“In an emailed letter to buyers, the developer, Hollywood Station Investments LLC, said construction had been on pace until recently, ‘However, general market conditions have deteriorated and this has affected the condominium like many other projects.’ Construction is now ‘in standby but we are diligently working with a lender to obtain construction financing and we hope to resolve this matter in the coming months,’ the development group, led by Diego Besga and Alex Nahabetian, wrote.”

“Fortune International Realty handled sales for the development at 2165 Van Buren Street, but the project has stopped marketing units, an agent told TRD. Buyers under contract have placed 50 percent deposits on their units. Condos at H3 Hollywood begin at $250,000, with a median price per square foot of $300. Units range from studios to one- two- and three-bedrooms, from 594 square feet to 1,579 square feet.”

“Construction had been expected to be completed by December 2016 or January 2017. Calls to the project’s sales director, members of the development team, their attorney and the general contractor were not returned on Wednesday.”

“H3 Hollywood is the latest project to be canceled, put on hold or delayed amid a slowdown in the condo market, as the strong U.S. dollar and foreign economic turmoil continue to dampen sales. Among the developments, Boulevard 57, a planned mixed-use project on Biscayne Boulevard in Miami, called off condo sales this summer, and the entire site is now being marketed for sale. The Conrad Fort Lauderdale Beach, a condo-hotel in Fort Lauderdale, is facing months of delays, a construction lien from its general contractor and an opening date that hinges on a yet-to-close refinancing deal. And Auberge Miami, a planned condo tower just north of downtown Miami is delaying construction until at least year-end 2018.”

Buyers Are Looking For Projects That Will Rapidly Appreciate

KUTV reports from Utah. “Utah’s housing market is booming with homes selling in a matter of days with multiple offers at or above asking price. Prices have been rising so fast, some worry the state and the nation could be in for another housing bubble. Here in Utah, home prices have recovered to pre-crash prices, adjusted for inflation. Nationally home prices are about one percent shy of the peak pre-bubble. ‘The area I am worried about is the value of new home construction,’ said Robert Spendlove, a senior economist for Zion’s Bank who keeps a close eye on Utah’s economy. Overall, he sees strength. Looking at the housing market and especially new home builds, he ‘wouldn’t say people should wait- but they should be careful not to overbuild.’”

“His reticence comes from the possibility that interest rates could rise while families are waiting for their house to be built, pricing them over their allotted budget by the time they reach closing. But there are differing opinions on whether or not Utah is nearing a housing bubble. Jim Wood, who’s studied Utah’s housing market for 40 years and is a senior fellow at the University of Utah’s Kem Gardner Policy Institute, ‘doesn’t see any sign of a bubble in the housing market, nor in new construction.’”

“He’s watched housing in Utah since the early ’70s and believes Utah’s prices will only keep increasing into 2017. Wood tells people “don’t wait for prices to go down. That’s not going to happen in the short term.’ If you’re in the market for a new house, Wood’s advice ‘would be to get into a home as soon as you can.’”

“Only time will tell if Utah’s housing market will stay on its upward trajectory, but neither economist sees a big bubble that will burst and hit Utah families. There is also a difference in the so called bubble effect this time around. The difference today is that rising prices are not being driven by bad mortgages.”

The Wall Street Journal. “Mortgage-finance giant Freddie Mac and two nonbank lenders are loosening income and documentation requirements for mortgage applicants in a new pilot program. The changes announced Monday are designed to help boost mortgage originations among first-time buyers, applicants with low-to-moderate incomes and those who live in underserved areas.”

“The moves come nearly a decade after the start of the mortgage meltdown, as many consumers remain shut out of the housing market largely because they can’t meet the underwriting criteria that most lenders require. Under the Freddie program, applicants will be able use the income of people who will live with them but aren’t going to be on the mortgage to qualify.”

“In addition, income from second jobs that borrowers have held for a relatively short period will be factored in. The pilot also doesn’t require bank statements that would show a paper trail of how some borrowers save for their down payments. Many of the pilot’s features are similar to what Fannie Mae currently allows on some mortgages it purchases but are new for Freddie Mac, which is among the largest purchasers of mortgages in the country. Freddie Mac says it purchases one in every four mortgages originated by lenders in the U.S.”

The Nevada Appeal. “The Nevada Rural Housing Authority Home at Last program is providing an increasing number of mortgage grants in Fallon. The program, which started 10 years ago and expanded its loan product suite last year, has helped 146 families in Churchill County with $20.4 million in mortgage assistance. The Home at Last enhancements combined with the Federal Housing Administration (FHA) mortgage insurance premium decrease last year is encouraging low-to-moderate income borrowers into the housing market, often for the first time.”

“The program has provided $1 billion in mortgages and $28.6 million in down payment assistance to help over 5,300 households statewide. The expansions addressed homebuyer and lender feedback to provide more borrower down payment and closing cost aid. ‘Many people think homeownership isn’t possible due to rising home prices, reduced inventory or lack of a down payment,’ said Diane Arvizo, director of Homebuyer Services for the program. ‘The reality is with rising rents, lack of adequate and affordable rental housing as well as the influx of people moving to the region to seek expanded job opportunities, now is a great time to buy.’”

The SFist in California. “Smack dab in the middle of a terrible affordability crisis, San Francisco is getting a jolt of what it really needs: ultra high-end condos. Or so argues Forbes, which on Friday published a post celebrating the fact that housing in the city by the Bay has ‘finally’ begun to cater to the super rich. Think helipads, infinity pools, and brass door-handles custom-forged ‘a few steps from the Seine’ — you know, rich people stuff.”

“‘After years of lacking the kinds of glossy, amenity-filled towers found in abundance in other big markets, high-end condominium developments are coming to San Francisco,’ the article explains. ‘And they are packing some of the highest price tags in the city.’”

“But don’t worry, these building aren’t pulling in global investors who will buy the property and just leave it sitting empty. Rather, Forbes tells us, they are meeting a local need. ‘These projects will appeal to local buyers,’ Alan P. Mark, the president of a high-end development sales and marketing firm, explained the paper. ‘Bay Area buyers are looking for projects in prime locations that will rapidly appreciate.’”

The Record in New Jersey. “The asking price has been lowered – again – on the Saddle River chateau owned by Grammy-winning singer/songwriter Mary J. Blige. The eight-bedroom, 4-acre estate is now listed for $9.88 million, down from $13 million earlier this year. The house had been on the market for as much as $13.9 million in 2011. Blige bought the gated stone manse at 119 E. Saddle River Road for $12.3 million in 2008, as the housing bubble was beginning to deflate. The home was brand new then; it had been built on speculation on the site of two ranch houses.”

“Blige is not the only Saddle River celebrity trying to sell a home. Rosie O’Donnell has listed her home at 115 East Allendale Road for just under $6.5 million. The actress/comedian bought the six-bedroom house for $6.375 million in October 2013. Another celebrity, Sean ‘Diddy’ Combs, recently sold his Alpine home for an undisclosed amount. He had bought it for $6 million in 2004 in the name of an LLC and had been trying to sell it, off and on, since 2006. In 2011, the asking price was $13.5 million, but that was cut several times, reaching $7.9 million earlier this year.”

“There are 38 homes listed for sale for $6 million or more in Bergen County, according to the New Jersey Multiple Listing Service.”

The Advertiser in Louisiana. “Lafayette and its neighbors remain mired among the worst 10 housing markets in America, Nationwide Economics reported. Nationwide economists said Lafayette ranked fifth in the bottom 10 of 400 housing markets across the country. All of the bottom 10 are located in identifiable ‘energy’ markets. ‘You’re still seeing the downstream impacts of low oil prices,’ said senior economist Ben Ayers.”

“While mining and logging has ‘hit bottom’ and was ’slowly coming up,’ he said, manufacturing jobs declined by about 3,000 in the five-parish area that includes Acadia, Iberia, Lafayette, St. Martin and Vermilion. ‘Manufacturing falling off is not helping,’ he said.”

“For those shopping for a home, the low ranking means ‘it’s a great time to buy,’ Ayers said. For homeowners looking to sell: Not so much.”

September 20, 2016

The Argument For Demand Exceeding Supply Is Unfounded

A report from Bloomberg on China. “China’s attempts to slow runaway home-price growth in major cities are showing little sign of success, stoking the threat of a housing bubble that could destabilize the economy. Home prices rose in 64 of 70 cities tracked by the government, up from 51 the previous month. Shanghai prices surged a record 4.4 percent for a year-on-year gain of 31 percent, while Beijing’s climbed 24 percent from a year earlier. ‘The more immediate risk of a sudden and steep downturn in the economy comes from the threatened bursting of the property market bubble,’ Pauline Loong, managing director at research firm Asia-analytica in Hong Kong, wrote in a report. ‘And bubble it is. The real question for investors is when and what will pop the bubble?’”

“One difficulty in reining in the home-buying frenzy is the larger leverage residents used through commercial banks with a growing appetite on mortgage loans, JPMorgan Chase & Co. analysts led by Zhu Haibin wrote in a note. Buyers in second- and third-tier cities are able to obtain the same mortgage discounts as in largest hubs, normally between 10 to 15 percent, a sign that a liquidity surge has backed up the rally, Nomura’s Gao said.”

“‘What’s different in the current round of credit easing is even home purchase in third-tier cities enjoyed a relatively large discount,’ Gao said, citing Guizhou province. ‘This is a strong signal of a widespread ease in credit.’”

The New Zealand Herald. “It’s becoming harder for Aucklanders to borrow money for a new house if they haven’t already sold their current home. Mortgage brokers say they have noticed banks are tightening their lending conditions - a direct result of a cooling of the hot property market where there has been a big drop in houses available for sale, and fewer homes selling at auctions.”

“East Auckland mortgage broker Bruce Patten said he was getting about 12 calls a week from people having trouble getting bridging finance from their banks to buy a new home before selling their old one. ‘With auction clearance rates starting to drop they run the risk of being left with two houses and big debts, or selling for less than expected and a much larger debt,’ he said. ‘I think the banks think that things have peaked and that is why they are pulling back.’”

“Hayden Broadbelt of Elite Auctioneers, which runs auctions for several real estate firms across Auckland, said auction clearance rates had dropped to the same levels as October last year when the banks were adjusting to the first LVR tightening. Although 72 per cent of properties in South Auckland were still selling at auctions, clearance rates were only 60 per cent in central and East Auckland and 55 per cent on the North Shore.”

“‘The numbers of people bidding are reducing,’ he said. ‘There are still a lot of people attending auctions, and we are seeing properties sell 24 to 48 hours afterwards, but there is actually a gulf at the moment between owners’ expectations and what the [buyer] is prepared to pay.’”

The Australian Financial Review. “After high level of construction activity since the late 2000s, with multi-unit residential commencements rising by 6.8 per cent a year over the five years to 2016-17, developers - particularly in Melbourne and Brisbane - are now holding back developments and delaying project starts due to an oversupply of products. Developers and owners of projects have ’started slashing prices of apartments,’ according to the Multi-Unit Apartment and Townhouse Construction in Australia report.”

“The construction of apartments in the major Australian cities will slow down heavily in 2017 and 2018 as the apartment industry heads into a correction, according to a report by IBISWorld. ‘The industry has moved into a sharp cyclical correction in the current year, stemming from the recent completion of several large-scale developments and the accumulation of unsold and unleased apartments. The industry is in the midst of a sharp correction that is expected to continue through to a deep cyclical trough in 2017/18.’”

“As the industry picks up again after 2016/17, the strongest returns will come from large-scale developments of up-market apartment complexes in Sydney and Brisbane, particularly riverside, harbour-side and themed developments. ‘However, the majority of multi-unit housing developments are likely to be valued near the lower end and rental market, well below the average values of the late 2000s,’ the report warns.”

The Vanguard in Nigeria. “Amid increasing glut in the Nigeria’s property market as a result of the economic recession currently facing the country, the Chief Executive Officer of Sujimoto Construction Limited, a Lagos-based real estate development company, Mr. Sijibomi Ogundele, has revealed that the surge in the number of empty apartments in Ikoyi, Lagos, is due to over pricing.”

“Ogundele added that this disturbing phenomenon must have prompted the well-informed and educative research publication of economy watch, Financial Derivatives Company Limited recently, which informed that ‘The number of vacant properties in the upper class real estate neighbourhoods of Lekki, Victoria Island and Ikoyi has risen by 72 percent over the last 18 months.’”

“Describing the situation as a case of quality versus quantity, said ‘A developer who compromises on quality of materials, no matter how highbrow the property’s location, has no right to place an exorbitant price on it. Thus, the argument for demand exceeding supply, as far as empty apartments in Ikoyi go, is unfounded.’”

“‘While the cost of a nice three-bedroom apartment in Johannesburg would go for about $350,000, the same apartment in Ikoyi would want $1 million. If the cost of construction materials is the same all over the world, the price of marble, granite, cement, tiles, kitchen, doors, paints etc, why is cost in Nigeria about 300 per cent higher?’”

“‘With the oil price plummeting, and major economies across the world experiencing down turn, individuals and organizations no longer have loose money to throw around. And with the current downsizing by companies, prospective tenants demand full value for their hard-earned money.’”

A Canary Which Is Starting To Lose Oxygen

A report from the New York Real Estate Journal. “Overall capitalization rates (cap rates) are always the topic of discussion in real estate appraisal circles. We are still in the midst of some of the most historically low cap rates in modern history. The cap rates are directly related to the lowest interest rates in my 43 years as an appraiser. The effect of the low interest rates has driven one of the most active real estate market in 30 years in the northeast United States. This is especially true in New York City where real estate values are exploding. Of course some of the older buildings like One Seneca Tower had some functional obsolescence because of age and had 850,000 s/f of space which makes it a large fish in a small pond. I use this as example similar to that of a ‘canary in a coal mine’ which is starting to lose oxygen.”

“The point is; without more than low interest rates the success of smaller markets is dubious if there is not an influx of international capital, jobs and population. The Federal Reserve Bank headed by Janet Yellen is expected to increase rates before the end of the year ever so slightly which should result in continued low cap rates which will keep sales activity and prices relatively high even in the secondary markets.”

“However, the Federal Reserve has some of its own problems. Their holdings of U.S. treasuries, etc. are approximately $6 trillion. This is an increase of over 600% over the past 7 years. Some think this is a house of cards or type of Ponzi scheme; and is a policy which is not on solid financial ground. However, this strategy has kept interest rates artificially low which not only has encouraged borrowing for new projects but also boosted the stock market to record highs and real estate cap rates at all time lows.”

“One thing is for certain; real estate activity is still at near record levels in the big markets and smaller metropolitan areas in part because of low interest rates and government intervention for the foreseeable future. However, look out for the ‘canary in the coal mine’ example like Seneca Tower in your local market which may fuel a major change in Federal Reserve policy and cap rates.”

From Bloomberg. “Heightened scrutiny of U.S. commercial real estate lending is paving the way for lightly regulated investors to gain a bigger toehold in lucrative deals. Private funds are seeking a record $32 billion for commercial-property debt as buyout firms, real estate investment trusts and hedge funds expand lending. These companies, which typically charge higher interest rates, can move quickly on large loans that may be seen as too speculative for banks.”

“With banking regulators warning of a potential real estate bubble, firms such as Blackstone Group LP and Starwood Property Trust Inc. stand to become an even larger force in the market. So-called shadow banks — lenders that fall outside of the industry’s oversight — are able to take on more risk amid calls for caution in an area that melted down during the 2008 financial crisis.”

“The record capital being sought by U.S. private funds for real estate debt investment as of July was up almost 40 percent from a year earlier, according to data researcher Preqin Ltd. Banks, by contrast, are pulling back as slowing global economic growth, uncertainty over interest-rates increases and pockets of overbuilding spark concern that commercial real estate prices are due for a fall after almost doubling in six years.”

“In Manhattan, where a surge of construction has led to a glut of luxury apartments, Blackstone extended a mortgage originally made for $285 million on a condominium tower being built by Gary Barnett’s Extell Development Co. when the developer couldn’t pay off the loan on its Aug. 9 due date. Nonbank lenders ‘trust their own instincts,’ said Steven Delaney, an analyst with JMP Securities LLC. ‘Blackstone is the largest owner of real estate in the world,’ he said. ‘They don’t need regulators and the Fed to tell them what the state of the real estate market is.’”

The Philadelphia Inquirer. “With a 7 percent increase from August 2016 to September 2016, Philadelphia is third on a list that only landlords could like. According to rental agency Abodo, the hike puts Philadelphia on a list of U.S. cities where rent has increased the most, second only to Bakersfield, California and Miami, Florida. The same report indicated big dips in Seattle (down 13 percent) and San Jose, California (12 percent).”

The San Francisco Business Journal in California. “San Francisco is seeing fewer market-rate housing proposals as rents have softened and a major policy change more than doubled the affordable housing requirement, according to an analysis of city planning data. The slowdown is a sign that the city’s real estate boom may be fading even as the city pursues more concessions from developers to fund affordable housing.”

“A Socketsite analysis of the city’s development pipeline in August found that the number of units proposed, approved and under construction fell slightly by 100 to 63,300, as new applications fell relative to completed projects. Companies that track rental prices such as Apartment List and Zumper have also reported dips in the past few months in San Francisco rents.”

“‘I will say that as a result of (Prop. C), the land market for residential housing is kind of locked up right now. We’re in the market every day, and it’s very difficult to transact,’ Jesse Blout, principal of developer Strada Investment Group, said at the Business Times’ San Francisco Structures event last week. ‘Part of that is because land owners are used to a certain level of pricing.’”

“The city’s current housing production is still near a record high and outpaces previous cycles of growth, and supporters of more development say that increased supply gas helped lower rents for the high end of the market. Major landlords such as Equity Residential have offered new renter concessions such as a free month of rent as thousands of new units have been completed in the South of Market and Mission Bay neighborhoods.”