June 22, 2017

Everyone Talks About Oversupply

A report from the Charlotte Observer in North Carolina. “Tenants are signing leases for three new uptown apartment towers, the latest in a wave that’s flooding the market with luxury units commanding the highest rents in the city. The avalanche of apartments means developers need to find renters for hundreds of freshly built units, a new test for the ongoing apartment boom. The gleaming towers feature top-of-the-line amenities that weren’t common even in high-end condominiums before the recession: Rooftop pools, spas for washing pets, package rooms with refrigerated storage for meal-delivery services. Jim Borders, CEO of SkyHouse Uptown’s co-developer Novare Group, said the building’s first tower is nearly fully leased while the second is about 20 percent leased. He said worries about oversupply downtown have become common in many of the markets in which Novare Group is building apartments, from Denver to Nashville.”

“‘Every single one of them, everyone talks about oversupply,’ said Borders.”

From Builder Online. “NAHB Eye on Housing’s Carmel Ford reports that completions of non-subsidized, unfurnished, rental apartments in buildings with 5 or more units totaled to 73,300 in the fourth quarter of 2016, which is about 9% higher than completions in the fourth quarter of 2015 (67,300). The absorption rate (the share of apartments rented within three months after completion) was noticeably lower at 48% in the fourth quarter of 2016. In the fourth quarter of 2015, it was 55% and has not been below 50% since the fourth quarter of 2009.”

From Bisnow on Texas. “As the urban core densifies more this cycle than ever before, the submarkets surrounding Downtown Dallas become more attractive to multifamily developers. Two of those submarkets — Uptown and East Dallas — have more units under construction than any others. High-end developments are leasing well, anything from 15 to 20 units a month in both submarkets, according to CoStar. ‘But we’re starting to see higher concessions. What was one month [free rent when signing] last year is 1.5 or two months this year,’ CoStar Group Senior Market Analyst of DFW David Kahn said.”

“Meanwhile the newer Uptown submarket is making more of a luxury play. Kahn’s only concern with the healthy market is communities renting units for $3/SF. ‘Until The Taylor delivered around $2.50/SF in 2014 and Brady delivered around $3/SF in 2015, we never saw that. Now we’re basically about to quadruple the amount of high rents in this small area in a couple of years.’”

The Sacramento Bee in California. “Six out of the seven least affordable metropolitan areas across the U.S. are in California. They are Los Angeles, San Francisco, San Jose, San Diego, Riverside and Sacramento. ‘It’s getting harder and harder to live here,’ said David Shulman, a senior economist for the Anderson Forecast. ‘The state is running out of people who can afford the $3,500 per-month rents so those prices are beginning to fall…but if you look at the one-bedrooms for $1,500, those rents are continuing to go up.’”

From Bloomberg on New York. “Donald Trump’s office properties aren’t bringing in as much cash as banks that loaned him money had expected. The buildings — 40 Wall Street, Trump Tower, and 1290 Avenue of the Americas, a tower in which Trump holds a 30 percent stake — are victims of a changing New York office market, where gleaming new skyscrapers are attracting tenants and demand for space in vintage properties is falling.”

“‘We’re in the biggest development pipeline in Manhattan since the 1980s,’ said Keith DeCoster, director of real estate analytics at Savills Studley. ‘Older buildings — circa 1980s, 1990s — are having a tougher time competing.’”

The Real Deal on Florida. “When the development firm lead by condo king Jorge Pérez hit the brakes on Auberge Residences Miami, a three-tower, luxury project planned for Miami’s Arts & Entertainment District, South Florida’s real estate community took notice. When the king lays off the gas, that doesn’t usually bode well for others.”

“Q: Do you think that slow and steady is the new normal for South Florida? A: I would think that we will always be a city of bumps and highs, a little bit like a roller coaster. At heart, developers are cowboys. They like the business, and we try to control them, but I don’t have control. The good part about Miami is this huge international demand. The bad part about Miami is every time they [foreign buyers] come in, we also have developers coming in from Colombia and Argentina and they have these projects and we say, ‘Are they kidding? They don’t know the market.’”

“‘I’m not going to throw anyone under the bus, but you’re seeing some projects [where] I’m saying, ‘Even in a good market, these should not be developed. It does not make sense,’ and we’ll get some of those.’”

June 21, 2017

How Communities Became Commodities

A report from Bloomberg on Brazil. “Brazilian banks are wrestling with a growing pile of assets they’d rather not own: at least 13.8 billion reais ($4.2 billion) of cars, real estate, equipment and other collateral seized when borrowers defaulted on their loans. The total surged 42 percent in the first quarter from a year earlier at eight of the nation’s biggest lenders as fallout from the worst recession in Brazil’s history continues to weigh on banks’ finances, according to the companies’ financial statements.”

“‘With more time, banks can now hold off on selling those assets until they manage to get a better price,” Eric Barreto, a professor at Sao Paulo business schools Insper and M2M Saber, said in an interview. ‘But in the event of a liquidity crisis like we had at the end of 2008, those banks with a lot of real estate assets may face troubles.’”

From Postmedia News on Canada. “Alberta’s boom and bust economy has left Calgary with record numbers of newly built homes and condos that sit vacant as a massive stockpile of housing goes up for sale at the end of a recession. More than 2,000 new housing units were unoccupied in the Calgary area last month, the biggest inventory on record, driven largely by construction of apartment-style condos, according to the Canada Mortgage and Housing Corp.”

“Many of the residential developments causing the glut broke ground in 2014, which marked the end of a boom with a dramatic slide in oil prices, triggering a prolonged recession. Todd Hirsch, chief economist at ATB Financial, said the major housing glut shows ‘we’re not ‘quite out of the woods’ after a bruising recession.”

From CNBC on Israel. “Israel will hold a lottery starting Saturday night to sell 15,000 apartments at reduced prices under a program to help ease starters into the housing market. One prominent critic of government policy on the subject warns that such measures at a time when prices are already showing signs of falling can lead to a rout in the market.”

“‘They take steps to curb the market but if the market is starting to fall, it will exacerbate the fall,’ says Elli Kraizberg of Barl Ilan university’s Graduate School of Business Administration. ‘Now when you find that the market is starting to fall, to prevent a 30 percent fall in the market, they should take steps that are the opposite of what they’re doing.’”

From Newsday. “President Robert Mugabe has stopped renting a luxury property in an opulent United Arab Emirates suburb, a top government official confirmed. While Mugabe’s spokesperson, George Charamba told the Sunday Times that the Zanu PF leader had been renting the property, in 2015 it was reported that First Lady Grace Mugabe had bought a house in the same neighbourhood for around $1 million, according to a Dubai estate agent, who claimed to have sold her the property.”

“The estate agent, who claimed he sold the Emirates Hills house to Grace, told the Sunday Times ‘anyone with a pile of cash could buy a villa in Dubai in no time, with few questions asked.’ ‘If you’ve got money in the bank, you can do a money transfer. If the money is in cash, which means it’s not legit, we have to find other means. But it’s not a problem,’ the agent was quoted saying.”

“Other famous residents of Emirates Hills include Asif Ali Zardari, husband of assassinated former Pakistani President Benazir Bhutto, who in 2004 was jailed eight years for shady arms deals and money laundering, and former Thai Prime Minister Thaksin Shinawatra, deposed by the military in 2006 before being charged with tax evasion in absentia.”

From Open Democracy on the UK. “This isn’t a story about the Grenfell Tower disaster. The causes of that are complex, and we don’t yet know them all. But it is the story of what’s happening to the homes and lives of ordinary people in London. It’s a story about how communities became commodities. And as criminal money pumps ever more air into the London housing bubble, driving up the prices in generally expensive areas, it’s no wonder that, to some, the relative value of the lives of the ordinary people who live there seem to diminish by comparison.”

“Writer Roberto Saviano is well-known world-wide as the leading expert in the Calambrian mafia. Saviano has written about crime in Italy and about international drug money. Of all of the places he’s researched, he holds particular contempt for one. Speaking last year, Saviano said: ‘If I asked you what is the most corrupt place on Earth, you might tell me, well it’s Afghanistan, maybe Greece, Nigeria, the South of Italy and I will tell you it’s the UK.’”

The Dhaka Tribune on India. “According to a rough estimate of industry insider, on average prices of flats have seen 25% to 30% fall in the last couple of years after the bubble burst in 2012. A large reason for the drop in sales in recent years was that prices had remained artificially high in the decade and half before that because of the unregulated use of ‘black money’. Policy Research Institute of Bangladesh executive director Ahsan H Mansur said that ‘Huge black money invested in the property business was one of the reasons behind the creation of housing bubble for the last few years, and it was bound to burst sooner or later.’”

“Seeking anonymity, an economist said that a huge amount of black money is still being pump into housing sector. He argued that prices of flat remains high and beyond the reach of people only for allowing black money in the sector. According to law, untaxed money holders can legalise the money through construction or purchase of residential buildings or apartments by paying a 10% tax. Despite the criticism surrounding the opportunity to whiten black money, the Real Estate and Housing Association of Bangladesh wants investment of black money in the sector without questions being raised about its source.”

“The realtor platform claim that the number of unsold flats still remain above 10,000.”

The South China Morning Post. “The market has cooled sharply since March 17, when Beijing’s municipal authorities tightened rules such that those who had paid off previous mortgages would no longer be classified as first-time buyers. In addition, new caps on mortgage lending meant second home buyers had to put up a minimum payment of 80 per cent. A majority of prospective buyers were priced out due to the higher purchasing threshold.”

“Housing agents say transactions have slowed dramatically as sellers are reluctant to compromise much on price while buyers are sitting on the sideline waiting for bigger bargains. Meanwhile, more than 80 per cent of Beijing owners are reducing their asking prices, while just three months ago, 80 per cent were raising prices, according to property agent Homelink. In a reversal from three months ago, when home prices were rising regardless of layout, design, and building age, buyers now have a lot more negotiating power.”

From Your Investment Property on Australia. “Mainland Chinese investors are turning their backs on the Australian property market due to a series of measures designed to cool one of the world’s hottest real estate markets. This dip in foreign investment heightens the risk of a damaging correction in house prices. The federal and state governments’ latest moves targeting foreign investors mirrors similar measures imposed in other favoured destinations of Chinese investors, including Vancouver, Singapore, and Hong Kong. However, there are fears that our governments’ latest measures could push an already unstable market over the edge.”

“Sutono Pratiknya, a Sydney-based property sales consultant, said the new measures have sent a clear signal that overseas investors are no longer welcome. ‘We used to do five property tours a month, picking up a dozen investors from the airport and showing them our latest offering. Now, there’s nothing,’ Pratiknya said.”

“‘The fact is that a lot of developments hinge on foreign investment,’ said David Bare, the NSW executive director at the Housing Industry Association. ‘Applying these measures when the market is starting to cool is going to have a much greater effect than it might’ve 12 or 18 months ago.’”

June 20, 2017

Waiting For The Rescue Boat

A report from Bizwest on Colorado. “In the Boulder Valley, we are beginning to see the two largest residential market segments (in terms of price) act as two different market with two different sets of rules. On one hand, we have what I’ll call the ‘Upper Market,’ which I’m defining as homes priced at $1 million and above (which currently go up to $5,995,000). You’ll note that I’m not calling this the ‘Luxury Market,’ both because the average home in Boulder is currently over $1 million and because many of the homes in this segment would not fit the definition of ‘luxury.’ On the other hand is the ‘Lower Market,’ which is comprised of any homes below $1 million. While the Boulder Valley is generally described as being in a seller’s market, the Upper Market shows strong signs of being a buyer’s market.”

“As of the close of the first quarter, there were 11.3 months’ of inventory in the Upper Market. If you are a buyer in the Upper Market, it means you likely have a little more time to consider your options and are more likely to be able to buy a home for less than its asking price.”

From Maui Now in Hawaii. “Maui Now sat down with realtor Lee Potts of Aloha Group Maui and KW Island Living to discuss the current Maui real estate market. Maui Now: Is the current Maui market a buyers or sellers market?”

“Lee Potts: If you go to homes that are for sale over $700K, there were 48 sales last month and there’s 405 homes for sale above $700K. That’s enough inventory to last for over eight and a half months, that makes it more of a buyers market. If you jump up a little higher, which is not uncommon here on Maui, to $1.5 million there were only 15 sales but we have 215 homes for sale so that very much is a buyers market above $1.5 million.”

The Greensboro Reflector in North Carolina. “Current data indicates that the supply is dwindling in lower to mid-price ranges, good news for those sellers, but increasing as prices increase, according to data supplied by Mike Aldridge of Aldridge and Southerland Realtors. ‘There’s only a one month supply of houses between $100,000 and $150,000 and a three-month supply of houses between $155,000 and $175,000,’ Aldridge said. ‘It only reaches a balanced supply when the price reaches $250,000 to $350,000. Really, anything below $400,000 is looking really good for sellers.’ Above that price, supplies increase between 12-24 months, Aldridge’s data indicated.”

“Home prices are adjusting upward somewhat but not yet to pre-recession levels, Charles Manning, president of the Greenville-Pitt Association of Realtors acknowledged. ‘People who have been sitting on the (selling) fence now are hearing that the market is picking up and they’re beginning to feel like they’d better get their home on the market,’ Manning said. ‘A great many are still upside down (a condition where the equity value of a property is less than the outstanding loan balance) and they can’t sell. That explains some of the current financing issues some people are facing.’”

The Killeen Daily Herald in Texas. “Almost 67 percent of all new foreclosures in Bell County in 2016 were tied to the Veterans Affairs home loan, a federally guaranteed, zero percent down mortgage for qualified veterans and active-duty soldiers. Due to the favorable terms of the loans — more than 57 percent of new purchasers in the Fort Hood area market used one in 2016 — service members, often unknowingly, take on a Catch-22 loan in looking for a way to grow their wealth.”

“Brian Adams, a real-estate agent with StarPointe Realty in Killeen said the Fort Hood area market is unique due to a high number of foreclosures on Veterans Affairs home loans. ‘Because of the 100 percent financing and the fact that most buyers finance the VA funding fee into the loan, it literally means that buyers with the VA loan are underwater from Day 1, usually by a few thousand dollars,’ Adams said. ‘Many soldiers’ financial situations change, they find that they bought more house than they could keep up with, and find that they can’t sell it without bringing a lot of money to the table.’”

From Mansion Global on Florida. “Both developers and buyers are taking a wait-and-see approach to the launch of new developments in Miami. For developments that have broken ground and are moving forward, between 60% and 100% of the units have been sold, said Edgardo Defortuna, CEO of Fortune International Group, a real estate development. For Miami projects that have launched sales but not broken ground, ’sales are slow, with few exceptions,’ he said. ‘They’re waiting for the rescue boat to come in and lift them out of the water,’ Mr. Defortuna said.”

The Real Deal on New York. “On this week’s episode of ‘Million Dollar Listing New York,’ our three heroes give us an exercise in stress management. With 25 Mercer in the rearview mirror, Fredrik is reaching for new heights — literally — at 45 West 22nd Street, an 83-unit condo tower in the Flatiron District. He’s beckoned by the building’s developer, Bruce Eichner, who bestows on him $400 million in unsold listings.”

“Though it doesn’t seem like Lorber is especially ecstatic when he finds out Fredrik has agreed to Eichner’s pricing structure. Perhaps he should have said no and ran for the hills? Nevertheless, Fredrik embarks on his quest to make Papa Lorber proud. He focuses on selling the $20 million apartment before he pushes the pricier units on the higher floors. Lorber unexpectedly turns up during the sales soiree, and reminds Fredrik of all those ridiculously priced pads that he needed to sell, like yesterday. This tower may too tall for even Fredrik to climb.”

“Shortly after the first home sells, Ryan meets with David, the seller of the 17-foot-wide townhouse, to convince him lower the asking price. He uses the $9.47 million townhouse — yep, the one that ruffled David’s feathers last episode — as a comp for the neighborhood. Even if the current price is a bit high, he should’ve known this would upset David, seeing as he was bothered by Ryan talking a similar listing on the same street. But rather than budging on the asking price, David decides to take the townhouse off the market.”

“‘That’s not reducing the price — that’s the opposite,’ Ryan says. ‘Now there’s no price!’”

June 19, 2017

Thinking Of It As A Gold Mine

A report from the St Catharines Standard in Canada. “After more than a year of soaring real estate values in Niagara, ‘the feeding frenzy is slowing down,’ says St. Catharines realtor Randy Mulder. Although the region’s real estate market has yet to be hit as hard as the GTA, he said the impact of measures introduced by the provincial government to rein-in escalating house prices will eventually trickle down to Niagara. Brock University business accounting professor Feyez Elayan said home values in Niagara are catching up after decades of being undervalued, which may help protect them from fluctuations in the market.”

“‘People are starting to figure out the value of the Niagara region,’ he said, referring to amenities and events that make the region a desirable place to live. ‘We are sitting on a gold mine. The prices will come down and settle, let me put it that way. But it’s not going to go back to the previous level.’”

From News.com.au. “The picturesque city of Vancouver took inspiration from Australia by clamping down on foreign buyers purchasing existing homes in the seaside city. But unlike Australia, Canada has no restriction on foreigners buying real estate — and in a country where property taxes are very low, that was driving prices skywards. So, in August last year, Vancouver’s provincial authority, British Columbia, the equivalent of our state governments, moved. From January 2016 to January 2017 house prices in Vancouver fell 18.9 per cent.”

“While foreign investment is often demonised as contributing to Australia’s escalating house prices, the University of Sydney’s senior lecturer in urbanism, Dallas Rogers, said it has been far easier for foreigners to invest in Canada than it has in Australia, hence why the new measures in Vancouver have had such an impact. On the opposite side of the country, Toronto is now also looking at introducing similar measures.”

“In Australia, he said, the major problem is the evolution of property as a means to make money, rather than as simply a place to live. ‘It comes down to the way we think about homes and the way we are still thinking about homes,’ he said. ‘From about World War II we’ve had this changing view of a house as a place to live and to raise a family, to, increasingly, thinking of it as a source of capital.’”

The Vancouver Sun. “Massive and risky home loans are increasing in number across Metro Vancouver, while mortgage fraud cases are also on the rise, connected to the growth of so-called ’shadow banking,’ a Postmedia investigation shows. The trend of increasingly risky loans underlying Metro Vancouver’s high home prices is illustrated by Bank of Canada figures that show the rapid growth since 2014 of large mortgages made to people with relatively low incomes.”

“There is also evidence of growing links between shadow banks and traditional banks, according to the Bank of Canada’s June 2017 report, as people borrow large amounts from shadow lenders to use as down payments in order to qualify for lower-interest loans from federally regulated banks. Shadow lenders identified by Postmedia through a review of B.C. civil court filings, lending documents and regulatory filings, include mortgage investment corporations, hedge funds, and private lenders such as realtors, crowdfunding companies, real estate lawyers and mortgage brokers.”

“For Hilliard MacBeth, an Alberta-based author and wealth manager, the Bank of Canada loan risk statistics and the related growth of shadow banking in Vancouver and Toronto herald a crisis. ‘These properties in Vancouver are so expensive that you need people either laundering money or loan fraud or people borrowing such large amounts of money that should never be allowed, in order to keep it going,’ MacBeth said. ‘If everyone is reporting their incomes honestly in Vancouver, there is no way that housing prices can stay where they are.’”

“Postmedia’s review of Ficom enforcement hearings shows an increase in the number of alleged mortgage fraud cases in B.C., mostly linked to private mortgage lenders and mortgage brokers. ‘We have experienced an increase in mortgage broker complaints in the last few years,’ Chris Carter, acting registrar of mortgage brokers, confirmed. ‘About a third of our investigations relate to application fraud.’”

“As a result of the flood of money pouring from Mainland China into Vancouver real estate in recent years, some financial experts say they believe Canadian banks are directly exposed to shadow lending in China and the risks of so-called ‘ghost collateral’ — meaning collateral that may not exist or is used continuously to secure loans for multiple borrowers. Postmedia confirmed that Canadian banks are allowed by the federal regulator, the Office of the Superintendent of Financial Institutions, to accept collateral from China to secure real estate mortgages in B.C.”

“One U.S. hedge fund manager, who did not want to be identified, said: ‘We all know that the ghost collateral is a huge deal, and we all know that the shadow banking and other Chinese influence in Vancouver is profound. The issue it that the ghost collateral ends up re-hypothecated and laundered. So by the time it shows up in Vancouver, it will likely just look like a rich Chinese cash buyer with a suitcase of money.’”

From Macleans. “A year after getting married, Alex Taylor and Rachel Tuttle decided it was time to buy a home and start a family. But soon after starting the hunt in 2015, their hopes were dashed. Detached homes were averaging $1.2 million, and even though Taylor and Tuttle qualified for a mortgage, they would have faced steep monthly payments of $4,000. They adjusted their expectations and set their sights on a townhouse on the outskirts of the city. Still, the cost was too high. ‘It felt very risky to put that much of your savings into one investment,”’ says Tuttle.”

“Taylor is tired of talking about the issue. ‘I know it’s mean to say and I know it would hurt those of our friends who completely over-extended themselves,’ he says, ‘but honestly, we’re praying for a crash.’”

“He’s not the only one. In May, sales dropped 20 per cent compared to the year before in the Greater Toronto Area while active listings surged 42.9 per cent from a record low. Those are the kinds of numbers that cause indebted homeowners to sweat, but serve as a balm for those on the sidelines in Toronto: like Taylor in B.C., many now openly cheer for the market to collapse.”

“The Financial Consumer Agency of Canada found the number of households with a HELOC and a mortgage against their home has increased nearly 40 per cent since 2011, prompting commissioner Lucie Tedesco to caution this month the trend ‘may lead Canadians to use their homes as ATMs.’ Last year, Canadians withdrew $12.8 billion in home equity to fund renovations, according to Scotiabank Economics, and another $3.6 billion for ‘other’ purposes.”

“‘A lot of people have these totally unsustainable lifestyles they’re only able to pull off because, by doing nothing but sit on their ass, their net worth goes up by a few grand every month,’ says Toronto resident Phillip Mendonça-Vieira. ‘I don’t think there’s anyone who doesn’t own property who’s not secretly, like, ‘F–k you, guys. This is unsustainable.’”

From The Tyee. “You’ve heard it a million times. The reason so few of us can afford Vancouver is because there aren’t enough new homes being built. This is the version of reality that real estate industry leaders and their political allies want us to believe. But an investigation of the industry by The Tyee has revealed reality to be much more complex.”

“Over the past six months I spoke at length with financial analysts, economists, industry consultants, realtors and many others to learn the true causes of Vancouver’s housing crisis and who is profiting from it. They were in broad agreement that real estate is at the centre of a massive realignment between our society’s rich and poor — and one that few leaders in the industry seem willing to publicly acknowledge.”

“Real estate has historically been a local industry. The people who buy and sell a city’s homes tended to live in that city. Yet that all began to change a decade or so ago. And one of the major reasons for it is a big shift in our global financial system. It’s a complicated subject. But what you need to know is that the global capital investors use to invest in things is growing much faster than the actual economy. There is so much capital, investors don’t know what to do with it all.”

“Desperate for quick financial returns, many investors are pouring this capital into real estate, turning local markets into global investment opportunities. One of the results, according to trackers such as Bain & Company, is ’skyrocketing home prices.’”

“The real estate industry is aware social mobility is declining. Its leaders know there is huge demand for cheaper homes. But they prefer to profit from income inequality rather than doing anything about it. That’s one takeaway from a major real estate industry trends report produced by PwC and the Urban Land Institute. ‘The middle class has been hollowing out,’ it concluded.”

“With land prices going up in big cities, the industry is increasingly focused on building luxury homes for wealthy people. Not everyone thinks it’s a wise strategy. ‘Time will tell if that’s going to come back to haunt us,’ said one CEO. ‘Not everybody makes $75,000 to $100,000 a year.’”

June 18, 2017

It Was A Pretty Good Story About A Lack Of Supply

A report from the South Bend Tribune. “The sun beat down on a recent weekday as crews worked to level 29 acres of land for The Reserve, a new 390-unit luxury apartment complex. Watermark Residential, a developer out of Indianapolis, announced the project in September, when it filed to annex the property into the city of Mishawaka and rezone it from agricultural to residential. The Reserve is among a slew of new projects as the local rental market rebounds from an extended down period, with developers projected to add 2,000 new units to the market by the end of next year — compared with just 205 the previous four years.”

“Compared with other urban markets, South Bend has lagged in new apartment construction over the past few years, with only a few hundred units added from 2013 to 2016, and zero in 2014 and 2015. ‘I think what you’re seeing across most of country right now is oversupply. We like the schools up there, and we like the fact that it’s close to new retail,’ David Englert, director of acquisitions for Watermark, said. ‘And then up until recently, it was a pretty good story about a lack of supply of new apartments being delivered.’”

“The problem is particularly acute at the high end of the market, Englert said, characterized by upscale, single-family-style developments with pools, fitness centers, lounges, game rooms, rooftop terraces, dog parks or walks and other amenities. ‘That’s the market that virtually everybody whose building now, that’s the market they’re going after,’ said Michael Zink, senior vice president of multi-housing with South Bend-based Bradley Co.”

From Crain’s Chicago Business. “Building booms often end badly, especially those—like in the student housing sector—that have stretched out for several years. While a few college towns where Core Spaces doesn’t operate, such as Baton Rouge, La., and College Station, Texas, are getting overbuilt, the U.S. market remains healthy overall, says Taylor Gunn, a student housing analyst at Axiometrics. Developers are expected to complete 47,122 off-campus student-housing beds around the country in 2017, roughly equal to the last two years, and down from more than 62,000 the two years before that, according to Axiometrics.”

“Marc Lifshin’s company, Core Spaces, develops buildings with golf simulators, spas with plunge pools and tanning beds, and in-room hot tubs. As student housing developers have tried to one-up each other with amenities, some observers have questioned the focus on luxury, grumbling that college has become a country club for rich kids.”

“A Core Spaces project in Madison, Wis., includes a band room and ice rink in the winter. This year, Core Spaces will wrap up a second development in Madison and one in Seattle. Projects in Ann Arbor, Mich., Tuscaloosa, Ala., Minneapolis and other towns are on tap for 2018. ‘This is kind of the third inning of student housing right now,’ says Lifshin. ‘I don’t think we’re close to the peak yet.’”

From Costar. “The senior housing sector saw elevated expansion levels of new units in the first quarter of 2017, with the additional new inventory offsetting otherwise healthy levels of absorption, according to Tim Komosa, an economist manager for Fannie Mae. A combination of high levels of new construction and unexpected interruptions in demand have resulted in Houston, Las Vegas and San Antonio having the lowest occupancy rates among the large metros for seniors housing. Total absorption for seniors housing declined from the recent record levels. Annual rent growth for seniors housing declined from its recent peak.”

“‘Given the robust supply that segment has seen in the past five years, this (lower) level of occupancy is likely just a result of slightly too much supply in a short period,’ Komosa said.”

The Anchorage Daily News in Alaska. “Anchorage’s typically tight rental market is loosening. Vacancies are up and rents are down compared to last year, with some landlords even offering one month free on a year lease and other incentives. In Carolyn DeYoung’s experience, some property owners are still adjusting to the new reality of the rental market. ‘I’ve had to call more than one owner to say ‘OK, they (the prospective renter) will pay $1,500 not $1,600 a month, because they can rent the same thing down the street,’ said DeYoung, who has worked in the industry for 18 years.”

The Real Deal on Florida. “Demand remains robust for rental housing in Miami and the rest of South Florida, among residents and real estate investors alike. But despite the area’s population and employment growth, some market watchers say South Florida’s extended, postrecession rise in monthly rents could slow or stop if overbuilding floods the market with units. ‘Luxury rents are going to start coming down as more and more individual investors put their condos on the market to rent,’ said Joe Lubeck, CEO of Robbins Electra, which owns and manages about 23,000 units in multifamily developments in Florida, Georgia, Maryland, North Carolina, Texas and Virginia.”

“‘That probably will be most problematic in Miami, but we’ll also be seeing it in all the major metropolitan areas, because so many of the new condominiums are being bought to rent out,’ Lubeck says.”

“Rents at less luxurious locations in South Florida are bumping up against their upper limits, too, said Mike Pappas, president of South Florida residential brokerage firms Keyes Company and Illustrated Properties. ‘There’s no question there has been a skyrocketing of rents in the last five years that has peaked,’ Pappas said. ‘We’re starting to see rental prices wane, or at least pause.’”

The Washington Post. “Richard Florida is rethinking things. Since publishing the best-selling book The Rise of the Creative Class in 2002, Florida has used his considerable speaking and writing heft to push mayors, urban planners and company executives to cater to tech-savvy young professionals. His argument, in short, was that to save themselves from postindustrial ruin, cities needed to attract the best young talent in computer programming, engineering, finance, media and the arts so their towns could build economies based upon the venture capital and start-up companies the new workforce would produce.”

“Often taking a cue from Florida’s mantra, real estate developers dialed up hip but tiny apartments designed for creative millennials and outfitted them with coffee bars, gyms, pool tables, bocce courts, pool decks and fire pits. Somewhere along the way, however, Florida realized that the workers he so cajoled were eating their cities alive.”

“‘I think, to be honest, I and others didn’t realize the contradictory effect,’ Florida said in April at a panel discussion. He said he realizes now that prompting creative types to cluster in small areas clearly drove living costs to such heights that low-income and often middle-income households have been forced elsewhere, creating a divide.”

“As inequality has deepened in top cities, writers on class and poverty have begun to take sharper aim at Florida’s theory, calling the ‘creative class’ a fallacy and a failed experiment, not because he was wrong that investing in cities would help draw the creative class but because he argued that doing so would benefit cities at large. So although he still champions investments in urban areas, at the panel event Florida said the criticism had made a mark.”

“‘To be seen as the neoliberal devil, foisting gentrification on cities, is not a situation I like to be seen in,’ he said.”

June 17, 2017

Moral Hazard, Easy Money And Cheap Credit

A weekend topic starting with the Star Tribune. “Prices for houses are generally back to where they were during the housing bubble that preceded the financial crisis a decade ago. What’s worse, flipping is back. That is the speculative practice of buying houses hoping to quickly sell for a gain. One report this spring said there hasn’t been this much flipping since 2006 — more or less the frenzied peak of the last housing boom. Neel Kashkari of the Minneapolis Federal Reserve seems oblivious to all this, at least according to critics knocking Kashkari’s recent essay about asset bubbles and what the Fed ought to do about them. Kashkari’s entirely sensible answer: not much.”

“And he made an even better point, that, even if the Fed did have something smart to do, it’s highly unlikely anyone at the Fed managed to correctly spot an asset bubble forming in the first place. As for the U.S. housing bubble alarmists of 2017, there’s far more to proving a case of irrationally overvalued housing prices than pointing out that the Case-Shiller housing price index has climbed above 2006 levels.”

“And it appears Kashkari agrees. ‘I appreciate [you] responding to my essay,’ he responded via Twitter to a blog arguing that spotting bubbles isn’t difficult at all. ‘If so easy to spot bubbles, why tell us? Launch [hedge fund] and short ’em. Make trillions. No? Just talk then.’”

From KCRA in California. “The average Sacramento County home is on the market for just eight days before selling, SAR’s Tony Vicari said. It’s really all about supply and demand, Kellie Swayne of Dunnigan Realtors said. ‘Right now, California’s real estate is hot, hot, hot,’ Swayne said. ‘With so little supply out there we’ve got lots of buyers in the market. We’ve got multiple offers most of the time.’”

“But with prices on the rise, some wonder if Sacramento’s housing bubble could one day crash as it did in 2008. Swayne said conditions are different now because inventories are so low. ‘For right now, there’s no end in sight in Sacramento, and frankly across the state, for relieving of more inventory on the market,’ Swayne said. ‘When that happens maybe we can start talking about a bubble.’”

The Business News Network in Canada. “In the almost 12 months since Finance Minister Bill Morneau announced his working group on housing, Ottawa has made it harder for Canadians to get an insured mortgage through more stringent stress tests. In the meantime, B.C. and Ontario have pulled policy levers – most notably taking aim at foreign investors with a 15 per cent tax.”

“BMO Capital Markets Senior Economist Sal Guatieri says the time for policy tinkering has passed. ‘Time to take out the heavy artillery: higher interest rates,’ Guatieri wrote in a note to clients. ‘The ball is now firmly in the Bank of Canada’s court.’”

The Border Mail in Australia. “It is almost exactly 10 years since the financial world began a wobble that would swing into what we now know as the global financial crisis. Today, the scars of the global financial crisis remain. There have been trillions of dollars in losses. And in a world of subpar economic growth, even optimists are downbeat about whether the economic medicine has been taken.”

“Let’s start with the question of debt. Lord Adair Turner, who chaired the UK Financial Services Authority between 2008 and 2013 and helped redesign global banking, says the world since has not addressed this root cause of the crisis and that means it’s at risk of another one. Lord Turner says the world is suffering from ‘irrational exuberance’ and ‘debt overhang.’”

“‘There’s been no deleveraging,’ Lord Turner says. ‘Once you’ve got too much debt in the economy … it’s incredibly difficult to get rid of it. If you say, ‘I’m going to write it off’, your banks go bankrupt … if you try get rid of it by people paying down that debt … the attempt to pay it back is what drives the economy into recession.’”

“To avoid that, interest rates then fall, and that simply encourages more borrowing, he says.”

“The team at LF Economics - a research firm founded by Lindsay David and Philip Soos - have also been sounding strong warnings of a crash. David says, ‘I don’t believe there is another mortgage market globally where a banking system leveraged their household sector as much as ours is without a systemic collapse.’ He says Australia’s debt profile has a strong resemblance to Ireland’s debt profile in the lead-up to the GFC, whereby public debt levels by global standards were relatively low but household debt is extremely high.”

“‘The mistake we have made in Australia’s is that we essentially copied Ireland’s pre-GFC paper wealth creation model by allowing banks to over-lend and engage in Ponzi finance,’ Mr David says. ‘That is, lending ever-larger amounts of mortgage debt to owner-occupiers and investors to increase leverage and outbid other speculators.’”

From Bloomberg. “The architects of U.S. monetary policy at the Federal Reserve should be happy. They’ve succeeded beyond their own expectations in bringing down the unemployment rate without triggering an outburst of inflation. Stock indexes are near record highs, and interest rates remain low. On June 14, the Federal Open Market Committee voted as expected to raise the federal funds rate a quarter point, to a range of 1 percent to 1.25 percent. It said it expects inflation to rise to its 2 percent target ‘over the medium term.’”

“For Fed Chair Janet Yellen and company, the central mystery continues to be why ­inflation remains below 2 percent despite unemployment having dropped to just 4.3 percent in May. Those who set interest rates are in the awkward position of not understanding how things got so good—and are therefore confused about what to do next.”

“The risks could simply be hidden. If rates get much higher, borrowers who took on too much debt during the long period of abundant credit may have trouble making payments or refinancing, says Christopher Whalen, chairman of Whalen Global Advisors Inc. He says the Fed should have begun tightening credit several years ago but can’t do so now without triggering a wave of defaults. ‘I think they’re stuck,’ he says. ‘They’ve boxed themselves in.’”

The Real Deal. “In May, commercial real estate mortgage borrowers paid off maturing loans at a slower rate, according to Morningstar Credit Ratings LLC. In 2007, borrowers took out 10-year loans that were repackaged into commercial mortgage backed securities. This partially explains the uptick in the number of unpaid and delinquent loans, the Wall Street Journal reported. About $9.4 billion was unpaid from about 790 loans that came due last month.”

“The real estate market has been preparing to deal with a wall of 10-year maturities, and last month there was an increase in borrowers that either failed to repay their debts or defaulted on monthly payments. ‘It’s all because of the riskier nature of the loans originated 10 years ago,’ Steve Jellinek, a Morningstar vice president told the newspaper. ‘Today, with more conservative lending standards, they can’t get refinancing.’”

“Nearly 18 percent of commercial mortgage securities loans that reached maturity in the past 12 months were delinquent. From June 2015 to April 2016, the average was about 10 percent.”

From the Independent Institute by Alvaro Vargas Llosa. “Moral hazard, easy money and cheap credit have never produced good results. History is littered with examples of financial disaster brought about by monetary manipulation originating in central banks and then spreading to other parts of the system. One would think that the 2007/08 credit crisis, whose effects have not quite withered away, would teach politicians, central bankers, corporations and consumers something about the causes of credit crunches and meltdowns.”

“Think again. The world’s four largest central banks have pumped more than $9 trillion into the system since the last financial crisis and brought about a world of absurdly low and even negative interest rates. The incentives generated by these policies and their effects—moral hazard, easy money, cheap credit—will lead, at some point, to the bursting of new bubbles.”

“However, those consumer credit markets are the ones already signaling distress, so we better pay some attention. These symptoms point to risks not dissimilar in nature to what was happening before the housing-related financial meltdown. Banks are beginning to reduce outstanding corporate lending for the first time since that crisis, a very significant reversing of the trend. Standard and Poor’s downgraded 1,088 companies in the United States last year, and analysts are predicting a wave of junk-debt defaults, perhaps encompassing one in every four high-yield debt issuing companies.”

“One can never tell exactly when a bubble will burst or which corner of the financial system will be the epicenter of the earthquake. But if and when these looming bubbles explode, the main culprit will be the irresponsible policies that were supposed to prevent future bubbles and that created the perfect storm of moral hazard, easy money, and cheap credit once again.”

June 16, 2017

What Was Happening Before The Recession

It’s Friday desk clearing time for this blogger. “A new report from RealtyAustin shows for the first time ever, the average price for single family homes in the Austin area is nearly $400,000, up 9.6 percent from May 2016. After a long search first time home buyer Caitlin Intrator remains optimistic. ‘I do think the growth will continue, so when I hear that number I think, Yes! Can I just get in today? So tomorrow I can start reaping the benefits.’”

“David Arbit, director of research and economics for the Minneapolis Association of Realtors, said we’re not in a housing bubble. ‘Typically in bubbles, you have easy money, where if basically if you fog a mirror, you can get a mortgage,’ Arbit said. ‘And we don’t really have that anymore.’”

“They were all the rage — then the scourge — of the housing boom and bust. Now they’re back, big time: home mortgages that require tiny or zero down payments from buyers. Several major lenders are offering loans with 1 percent down, and now a large national mortgage company has gone all the way, requiring absolutely nothing down.”

“Movement Mortgage, a top-10 retail home lender, has just introduced a financing option that provides eligible first-time buyers with a nonrepayable grant of up to 3 percent. This allows applicants to qualify for a 97 percent loan-to-value-ratio conventional mortgage — essentially zero from the buyers, 3 percent from Movement. Duke Walker, branch manager for Movement for the Washington area, told me that although the program is brand-new, it’s already ‘going great guns.’ Movement is hardly the only player in this arena.”

“Many San Diegans would like to own a home in the region they work in, but they often struggle with the large down payment. Gearing up for a new generation of buyers, San Diego-based Guild Mortgage has launched a 1 percent down payment mortgage that has some of the easiest debt requirements on the market. Other lenders — Quicken Loans, Guaranteed Rate, United Wholesale Mortgage — have 1 percent down programs, but Guild Mortgage allows the borrower to have the most debt and allows for more sources of income, said an analysis by HousingWire.”

“Norm Miller, real estate finance lecturer at the University of San Diego, said 1 percent down payment programs ignore a lesson from the housing crash: Not having a high amount of equity in a home can be asking for trouble. He said a buyer who overpays for a property by 5 percent, but only pays 1 percent down, could quickly find themselves with negative equity. ‘That’s not an unrealistic scenario,’ he said, noting data from 2005 to 2008 that showed it happening frequently. ‘It’s déjà vu all over again.’”

“Miller said that adjustable rate mortgages weren’t the only factor in the crash, but also dropping home values. Defaults don’t typically happen if a borrower’s home has positive equity, he said. When the value of a home drops, that’s a big factor in defaulting — no matter what type of loan. ‘The system is not set up to stop people from overpaying,’ Miller said.”

“San Francisco, which had the greatest uptick in home values in recent years, now has the weakest market out of the nation’s top 100 metropolitan areas, with annual prices falling for the first time since 2011. ‘We are seeing an increasing number of engineers who don’t want to live in this state of uncertainty. They are opting to go back home to India or China, or they are looking to work in Canada,’ said Mike Grandinetti, chief marketing and corporate strategy officer at Reduxio, an IT firm based in Silicon Valley.”

“For more than 20 years, Mark Eilers, managing director of land services for Colliers International in Tampa, has been helping clients buy and sell land. Q: With prices for residential real estate rising so much, there’s concern that we might be headed for another housing bust. Do you see signs that commercial real estate in general is slowing down or even facing a bust like that in 2007-08? A: (Lenders) are much more methodical in underwriting than they were back then, and they are underwriting more intelligently. Now things have slowed done and people on all sides are being more careful, the lenders, the developers, everybody.”

“Q: Are any types of development cooling? A: Multi- family (apartments). The lending market is tightening up so it’s putting pressure on getting deals done even if they find land. Right now lenders are a bit wary. Are we going to be oversaturated in West Shore, for example, with all the top-dollar rents? How deep is the renting pool? Downtown Tampa is the same way. It’s all predicated on the fact that because land is so expensive, rents have to be really high and (lenders) are concerned, do we have enough business to rent at $2 a square foot? Historically in Tampa, an apartment complex built in 1985 in Carrollwood is getting $1, maybe $1.30.”

“CoreLogic’s latest report places Connecticut’s negative equity share, or percentage of mortgaged homes in which the loan amount is higher than what the home is currently worth, at 9.9 percent — the fifth-highest total nationally. Nevada has the highest negative equity share, at 12.4 percent. Florida, Illinois and New Jersey rounded out the top five. ‘I’m not surprised if that were the case,’ said Michael Barbaro, president of the Connecticut Association of Realtors. ‘I can tell you that what I’ve witnessed is a lot of sellers or would-be sellers that just don’t have the equity to sell.’”

“Barbaro said the fact that millions of people are still underwater shouldn’t be surprising considering what was happening in the lending world before the recession. ‘Prior to the crash, there was a prevalence of high-ratio loans, such as 100 percent financing,’ he said. ‘In addition to the fact that they purchased at the height of the market, (homeowners) didn’t have a lot of equity to begin with.’”

“Searches for ‘overgrown,’ ‘debris’ and ‘dilapidated’ in the Public Eye email inbox yield countless reports of rundown homes in South Jersey. Despite a four-year turnaround in the housing market and an optimistic outlook from officials, Atlantic County still has one of the nation’s highest foreclosure rates. Homes remain vacant years after the recession. While auctions and investors have helped remedy the problem in many towns, residents still notice homes falling into disrepair, with no one seeming to handle the problem.”

“One Egg Harbor Township resident who contacted Public Eye said he’s taken the first step in getting a neglected foreclosed home addressed. The concerned resident said the committee helped him get as far as identifying who currently owns the property, Ditech Home Loans, to which notice has been given. But there has been no response from the Florida-based company.”

“A last-ditch effort may be to look into home and garden show casting calls. A quick scan of the TV seems to suggest the newest reality-show trend is home renovations, and Atlantic County could provide a handful of house-flipper series a season’s-worth of shows.”

June 15, 2017

Sellers Were Thinking This Is Their Lottery

A report from the Toronto Star in Canada. “When it comes to Toronto real estate, there are roughly two kinds of people: those who own a home in the city and fear (or vehemently doubt) that a crash is upon us, and those who don’t own a home in the city and pray with all their might that a crash is upon us. Those who did pull themselves up with little help made big sacrifices and big, complex, plans, along the way. For example, Sarah Larbi, a 33-year-old Toronto native who owns six houses with her common-law partner — one in Oakville, where the couple lives, and five in Brantford, which she rents out for $1,300 to $1,500 a month. She has been saving aggressively for several years to amass what is essentially a suburban empire.”

“Even though Larbi is presumably the last person to shy away from big risks, she isn’t willing to take an investment risk on Toronto real estate. ‘If I buy a house (in Toronto) and it’s a million dollars, let’s say, then you’ve got to make $10,000 a month (in rent) or something insane in order to make any money at the end,’ she says. ‘For me it doesn’t make sense because I’d have to do high, high management, like Airbnb, to even break even.Larbi’s advice? If you have an appetite for risk, consider investing in a property outside Toronto, where prices are cheaper, ‘and maybe you’ll be able to use the equity to buy something (in Toronto) later.’”

From Metro News. “Between 15,000 and 28,000 homes in Toronto sit empty amid the housing crisis, according to a new staff report exploring the possibility of a vacant-homes tax. City staff tried to determine the number of units held purely as investments. They arrived at their figure by looking at Toronto Hydro data on addresses where electricity and water hadn’t been used in a year. A City of Vancouver study using similar methods pegged the number of empty homes there at 10,800.”

“Cherise Burda, executive director of the Ryerson City Building Institute, is encouraged Toronto has taken this first step toward a tax that would incentivize people to rent out vacant homes. However, she believes the real number of empty units is much larger, as the new report doesn’t take into account places where hydro isn’t even hooked up. ‘We need to be building housing for our population, not for speculation,’ she said.”

From Better Dwelling. “Toronto real estate had a sudden surge last year, and we’re finally starting to get a better picture of what happened. New statistics released by the Toronto Real Estate Board (TREB) once again confirm everyone didn’t just wake up to a shortage of land overnight. Instead it appears that speculators saw a gold rush, adding pressure to prices that sent emotional buyers into a bidding frenzy.”

“A surprising number of properties in the city of Toronto have been bought and sold in less than a year. In 2016, TREB said it was ‘less than 5%’ but stopped short of giving a number. In just the first five months of 2017 however, it accounted for 7% of transactions. TREB called this ‘a very small share,’ but to give it context it’s about twice as large as Toronto’s luxury market. Also probably worth noting here that Toronto’s luxury market is considered one of the hottest in the world. In case you didn’t catch that, 7% of the properties that were sold *this year* were bought less than 12 months ago – right around when prices started taking off.”

“Sure, some might be informal landlords, but the cap rates don’t make economic sense. If you’re not familiar with the term, that means home prices in Toronto can’t be made up with rental income in an efficient way. Most purchases return around 2% in rental income, which means you’ll lose money on a mortgage annually. Meanwhile listings are soaring, as people try to exit. Toronto needs to continue building to prevent an actual housing crisis in the future, but if you still think land became scarce in Toronto overnight, good luck with that.”

The Globe and Mail. “Celebrations are still breaking out in houses and condos around the Toronto area as sellers stare down a real estate market decline that has extended from May into June. But while some clinch a deal at the price they were hoping for, less fortunate sellers have been hit severely by the shift in market dynamics. In Durham Region, east of Toronto, agent Shawn Lackie of Coldwell Banker-R.M.R Real Estate, says the overheated market of the early spring raised the expectations of sellers to unrealistic heights. ‘What it really did was throw a whole lot of gas on the fire for sellers – thinking they were going to cash in because this is their lottery.’”

“But listings suddenly surged after Ontario introduced policies in April aimed at cooling the housing market. Mr. Lackie recalls that listings had been trickling out and suddenly there were 138 new listings in one day. The following day there were another 85 by midafternoon. ‘Now, buyers have eight, 10, 14 different houses to look at.’”

“He’s also seen a lot of stress heaped on owners who signed a firm deal for another property, then delayed putting their existing home on the market in the hope of getting an even higher price later in the spring. This year, the strategy backfired for some. ‘It’s dangerous as hell, but people were running ahead and doing it,’ he says. ‘If you buy and sell in the same market, you’re going to be affected by all of the same factors. But they got cute. They’re the ones who have been bitten.’”

The Saskatoon Star Phoenix. “The pace of residential construction in Saskatoon fell off sharply in the first five months of the year, driven downward by a collapse in the number of new multi-family buildings under development, according to new data from the country’s mortgage insurer, the Canada Mortgage and Housing Corp. The city’s apartment market is a different story. Vacancy rates remain well above the historic high of 10.3 per cent reported by the CMHC last November. Experts have said up to 18 per cent of the city’s apartments could be empty.”

The Financial Post. “Naheed Nenshi was first elected mayor of Calgary in 2010 when the iconic Bow tower was rising to re-top the city’s skyline, new companies were opening their doors, established ones were expanding and luxury retailers were setting up shop. Office vacancy in the city’s bustling core was so tight, ‘You couldn’t get space downtown for love or money,’ Nenshi recalled.”

“To fill the gap, skyscrapers were rapidly built — 10 million square feet between 2007 and 2016 — all underpinned by confidence in the future of Alberta’s oilsands and a business-friendly climate. But the expansion of Calgary’s commercial core, home to Canada’s second-largest concentration of head offices after Toronto, came to an abrupt halt when oil prices collapsed in late 2014. The fallout worsened as new governments muscled in with policies to accelerate the transition to green energy.”

“Massive layoffs, bankruptcies, consolidation and an efficiency drive at the oil and gas survivors reduced the downtown workforce by 40,000. Put another way, one in four Calgary office workers — and their workspaces — were no longer needed. Both Barclay Street Real Estate and Avison Young put the vacancy rate at 24 per cent, but it’s closer to 30 per cent for older buildings and projected to rise to 27 per cent later this year and remain high in 2018.”

“It’s estimated there is 13 to 14 million square feet of vacant space within Calgary’s striking cluster of glass towers. That’s equivalent to all the office space in downtown Vancouver. Many skyscrapers have completely empty floors. In others, just a handful of people occupy space where hundreds used to toil. ‘We went from essentially zero to almost 30 per cent (vacancy) in about 18 months,’ Nenshi said. ‘I love roller coasters, but this is too much.’”

From CTV News Vancouver. “B.C.’s anti-gang task force has arrested nine people following a year-long investigation into illegal gaming houses, money laundering, loan sharking and kidnapping. The Combined Forces Special Enforcement Unit said the criminal network behind the various operations has national and international ties, including to mainland China.”

“The probe was launched in May 2016 and ultimately led police to six different homes, which turned up ‘arge amounts of cash and bank drafts, drug paraphernalia, suitcases, cellphones, computers and other related material,’ the CFSEU said in a news release.”

From The Province. “Li Zhao, who is accused of murdering Chinese businessman Gang Yuan, has filed a claim in B.C. Supreme Court seeking a one-third share of the Yuan estate’s profits from the sale of 47 Saskatchewan farm properties. Zhao claims he and Yuan were in a joint-venture to develop Saskatchewan farmland, according to documents filed with the court last month.”

“A deal planned by Yuan’s company to sell the properties in Saskatchewan was near completion, Zhao’s claim states, when Yuan was found shot and cut into 100 pieces in his West Vancouver mansion on May 2, 2015. Zhao, 56, has pleaded not guilty to the second-degree murder of Yuan, 42.”

“In his criminal trial, a judge ruled this week that Zhao’s confession to West Vancouver police is admissible. The court heard that Zhao told police he and Yuan were in business together in an agricultural company and were having legal problems with the company. Zhao told police that following an argument with Yuan, who lived in his British Properties home with Zhao and Zhao’s wife, he fatally shot the victim and cut up his corpse with a saw.”

“While Zhao’s criminal trial continues, a number of civil claims are underway in B.C. courts, as Yuan’s relatives in China and Vancouver battle over his Canadian assets, including Saskatchewan farms and luxury properties in Vancouver, estimated to be worth about $50 million in 2015. In addition to his Canadian fortune, Yuan had mining interests in China. And according to a 2015 court verdict in southwestern China, Yuan was linked to a government corruption and bribery scandal that led to a 19-year jail term for an official named Yunye Lin.”

June 14, 2017

The Declines Could Signal Saturation Of The Market

A report from AZ Big Media in Arizona. “Phoenix renters caught a slight break in May, as average rents decreased slightly from the high reached in April, according to Axiometrics. Some moderation in the market can be expected given the recent drop in job growth. Meanwhile, levels of new supply are high, with 7,076 new units identified for 2017 delivery. ‘Phoenix’s current rent growth rate might not have been impressive a year ago, but the overall moderation of the apartment market places it among the strongest performing metros in the nation,’ said Jay Denton, vice president of analytics for Axiometrics. ‘However, occupancy is trending downward, which may limit the ability for strong rent increases later in the year.’”

From Boston Agent Magazine in Massachusetts. “Boston might be the third most expensive housing market in the country, but average rent prices in the area have actually begun to trend downward. According to a recent RENTCafé report, Boston has now been closely following a nationwide trend. It turns out apartment construction rates have actually been booming all over the country. And Boston is no exception. According to Yardi Matrix senior analyst Doug Ressler, this growth doesn’t appear to be slowing down anytime soon. It also means good news for those who hope to rent in some of the country’s historically pricey markets.”

“‘Renters have much reason to be optimistic,’ Ressler said in the report. ‘After a long period of incessant rent increases, rents are finally slowing down — even in some of the country’s higher-rent cities, like San Francisco and New York. Even if demand for apartment living is still robust, rent growth will continue to taper off in the coming months, mainly prompted by the record number of new apartments entering the country’s tightest markets.’”

The Longview News Journal in Texas. “Longview apartment rents continued to drop in May, according to a new monthly survey from Apartment List. The declines could signal saturation of the market, said Karen Holt, housing navigator with Community Healthcore in Longview. Rents apparently are dropping in the Longview area because newer and higher-end properties are making it tougher for older properties to attract tenants, Holt said.”

“‘So they are seeing a decline in occupancy,’ she said. ‘Therefore, they have to adjust their rent.’”

“Holt said renters should not have to pay more than 30 percent of their income toward housing. The area median household income is between $56,000 and $57,000 a year. Using $650 as a hypothetical monthly rent, Holt said a tenant would have to earn $12.52 an hour to avoid paying more than 30 percent of his or her income. ‘Wages are going to have to go up or the properties are going to have to lower the rent a little bit,’ she said.”

The Jewish Voice New York. “Luxury apartments are dropping in price. Robby Browne of the Corcoran Group found this out the hard way when he had to drop the price of the two-bedroom condo at 15 Central Park West which he owned that he was typically able to rent out for $18,500 a month. According to him, whenever a lease was about to expire, tenants and agents would be clamoring to rent the apartment, and he never had a problem finding someone new to move in. Now, with the current real estate market, he not only had to refurbish the apartment, but he had to drop the rent down to $16,250 a month.”

“As he put it, ‘I thought, ‘Be sensible, Robby, the rental market is down. Put it on at a price that will work. I don’t like missing a month.’”

“After a huge increase in rented condos that led many investors to become landlords, there’s now a huge quantity of extremely high priced condo units available on the open market. Tenants are finding themselves able to get sweet deals in terms of rent thanks to downturns in the real estate market, where landlords are finding themselves having to drop rents to find tenants. Since 2015, the high-end rental market decreased 10%-15% according to Robby Browne.”

“According to Dorothy Somekh, who works with Halstead Property, the real estate market will remain ’soft’ until apartments currently without renters are finally rented out. She states, ‘The people who are going to rent [to tenants] are the ones that are going to make adjustments quickly.’ Jordan Sachs with Bold New York. He stays, ‘Our clients on the rental market are getting 20 percent off on some of these apartments. You’re dealing directly with an owner, not a professional landlord. All he wants is cash flow, and every day the apartment sits vacant is affecting his return on investment.’”

“One can find a plethora of expensive condos and other rentals in places like Tribecca and Chelsea in Manhattan which have long been attractive to real estate developers. But with the closure of many new developments just in the last year, these same rentals are now on the open market. As Jordan Sachs put it, ‘We’re seeing a flood of apartments $40,000 and higher.’”

June 13, 2017

The Infatuation Had A Short Shelf Life

A report from the Bangkok Post in Thailand. “Over the past several years, concerns have been periodically raised about the possible re-emergence of a bubble in the Thai housing market, particularly on the back of condominium oversupply in Bangkok. The latest warning by Supachai Panitchpakdi, a former director-general of the World Trade Organization and secretary-general of the UN Conference on Trade and Development, about a possible property bubble, has further driven home those prospects. But is Thailand heading for a 1997-style property crash?”

“Prasert Taedullayasatit, president of the Thai Condominium Association, says developers have been more cautious in launching new supply after they learned a significant lesson from the 1997 financial crisis. ‘High household debt, which had an impact on homebuyers in the middle- to lower-end segment, has driven developers to launch new supply in higher-priced segments,’ Mr Prasert says. ‘Everyone learned a lesson.’”

The Daily Mirror in Sri Lanka. “While dismissing fears of a property bubble, Fitch Ratings Lanka said Colombo’s luxury apartment buildings may end up becoming incomplete ‘ghost projects’ if developers continue without strong pre-sales in a market that is currently in oversupply. ‘The question is whether the developer has a cushion? Does he have a fall back? Now in that scenario you could have ghost projects; meaning someone who has a skeletal structure up, cannot complete it, and banks aren’t likely to give you funding when there’s a glut,’ Fitch Ratings Lanka Managing Director Maninda Wickramasinghe said.”

The Irish Times. “On the way down, we convinced ourselves it wasn’t happening, or at least most of us did. Warnings about the unsustainable nature of the Irish housing market went unheeded or were countered with guff about soft landings and demographic imperatives. The naysayers, that minority of bankers, investors and economists who raised a red flag, were painted as cranks; contrarians; those who got in the way of business.”

“Regardless of where the Irish market is headed, John McCartney, director of research at estate agency Savills, believes the two biggest problems of the last decade will be avoided. ‘Because the credit has been rationed [courtesy of the Central Bank’s lending rules] you’re not going to get banks with heavy losses arising from bad loans; and we’re not going to get people with impossible debt burdens.’”

“He also doesn’t believe that this period of very rapid house price growth will be followed by a crash either. ‘I think it’s just going to be a glide path to slower, more sustainable growth. The fact that so many investors are piling into the market is indicative that there are very good returns and the reason that there are such good returns is that rents are growing so strongly and the reason that that’s happening is because there is not enough housing units to go around.’”

The South China Morning Post. “The developer has been forced to stop the sale of the remaining converted apartments at its luxury serviced apartment project, Arch Residence, on the Huangpu River in Pudong. More than 100 buyers who bought the converted apartments last year for prices ranging from 9 million yuan (US$1.3 million) to 18 million yuan now face potential huge losses, according to sources.’

“‘The value of this kind of apartment will certainly drop significantly as most buyers are unwilling to pour money in these properties. People don’t know what the government will do next with these apartments,’ said Clement Luk, chief executive for east China at Centaline Property.”

From The Tyee in Canada. “Steve Saretsky began his career as a realtor in Vancouver just as home prices climbed to crazy highs. He realized most of the things the public hears about the market are either false or over-simplified. So he decided to expose the truth. In Saretsky’s words: ‘I would boil it down to low interest rates creating an easy credit environment, slash foreign capital coming in and distorting the market, and ultimately, as prices went up, it fuelled a fear-of-missing-out speculation.’”

“In the meantime, developers are adamant that our housing crisis could be solved simply by building more condos. Saretsky isn’t buying it. ‘When you’re pushing supply as the solution, and then you’re ultimately selling it overseas to foreign speculators, it’s really not helping locals,’ he explained to Global News.”

“Saretsky knows he isn’t the only person in real estate who desires serious change. Some industry people worry about the type of city their children will grow up in. Or the economic fallout from a housing crash. ‘A lot of realtors I’ve spoken with want some sanity to the market,’ Saretsky explained. ‘They know it isn’t sustainable.’”

The Vietnam Express. “When the bubble inflated in 2007, My didn’t see it coming. Like many others, the Vietnamese car dealer quit his job to become a real estate investor, after seeing robust growth in a market that appeared to have an army of homebuyers willing to line up for villas and apartments from midnight — an image perpetuated by the local media at the time. The infatuation had a short shelf life.”

“The market in Ho Chi Minh City crashed that same year, triggering a long phase of freezing that followed. Some refused to admit that the bubble had burst, or even rejected the idea of a bubble in the first place. For My, the damage of the burst has always been real. As home prices plunged and the costs of bank loans soared, he turned from a hopeful investor to a debt-ridden man. Even though all of his company’s assets have been seized, creditors are still following him every day, hoping to recover more for their own losses.”

“Khai, another investor hit by the 2007 crisis, has counted himself among the lucky ones. Betting on several properties in Binh Duong, he always hoped he could reap a 15-20 percent return as promised by his brokers. He even mortgaged his house in Ho Chi Minh City to secure the deals. What came after that was a nightmare for him: land prices dropped, interest rates surged and buyers disappeared. He rushed to sell his properties despite huge losses. Then he borrowed from his relatives to pay the banks.”

“‘Had I not acted quick enough, I would be a homeless man now,’ Khai said, asking to be identified by his first name only.”

“Watching the so-called land fever in Ho Chi Minh City unfold in recent months, a businesswoman couldn’t stop thinking about the bubble a decade ago. Speaking on condition of anonimity, she said she has been warning everyone around her about a possible bubble. Her advice: investors should stay out if they have to rely on bank loans. She turned to leveraging when she entered the market in 2007. Bank loans accounted for half of her investment and, after three years, ‘I had nothing left but debts to pay,’ she said.”

“Land prices in suburbs skyrocketed in the first five months, increasing by 30 to 40 percent between January and May in many outlying districts. Figures from leading real estate advisers CBRE and Savills showed that the land market is cooling down. Sales in the residential sector in the first quarter fell 13 percent from late last year with a 47 percent drop in the apartment sector, according to Savills. Duong Thuy Dung, director of CBRE Vietnam, said that the market in the megacity has shown signs of a slowdown and the question is how long it will be able to maintain a safe distance from crashing.”

June 12, 2017

You Keep Seeing The Market Going Down

A report from the Arizona Republic. “Condominium developers are building highrises near downtowns, luxury loft-style homes next to shopping centers and smaller infill-connected homes in popular neighborhoods of Phoenix, Scottsdale and Tempe at a record pace. But not every infill housing project is drawing buyers at the rate developers had hoped. Experts attribute the slack sales in those cases to location and pricing. ‘Attached projects dominate the landscape in many parts of the Valley, but the reality is that about one in five infill projects is selling really well and others are struggling,’ said real estate analyst Jim Belfiore of Phoenix-based Belfiore Real Estate Consulting.”

The Journal Sentinel in Wisconsin. “The Beam House has features found in many other Walker’s Point apartments that have been converted from historic industrial buildings. Beam House developer Peter Moedee isn’t concerned about the local apartment market possibly being overbuilt, which has led some developers to cancel, delay or downsize their projects. He’s building the units at River Place Lofts to a high enough quality level so they could eventually be converted to condos. ‘I think there’s still room for new projects,’ Moede said.”

The Post and Courier in South Carolina. “Apartments in the Lowcountry are less expensive than the national midpoint, and prices are falling just as rates across the country are on the rise. In its June study, Apartment List notes that Charleston’s median rent stands about 6 percent below the national average. ‘As rents have fallen in Charleston, many other large cities nationwide have seen prices increase, in some cases substantially. Charleston is still more affordable than most similar cities across the country,’ the company says.”

From Michigan Biz. “Stakeholders in West Michigan’s commercial real estate and construction industries remain generally upbeat as they look toward the second half of the year. However, they share concerns about one of the region’s key sectors: urban multifamily apartments. With minimal inventory and high occupancy, downtown Grand Rapids and its surrounding neighborhoods still have more than a thousand units under construction or in various stages of development.”

“Apartment developers like John Wheeler contend that while their projects continue to garner significant interest from renters, they may encounter a different situation six months or a year down the road. ‘I’d say a year from now, I wouldn’t want to be bringing a whole lot of apartments on,’ he said. ‘There’s going to be a whole bunch of them. A year out from now, I think there’s going to be cause for concern. There’s a lot of units coming on.’”

“Other active apartment developers in Grand Rapids share Wheeler’s skepticism about how much longer the current real estate cycle can last. Derek Coppess CEO of Grand Rapids-based 616 Development LLC, also noted that he believes the growth period is in its late innings. ‘I think we’re at the top end of this market cycle now,’ said Coppess, whose firm just completed a joint venture with a Mid-Michigan property management group. ‘I don’t say that out of fear. You just have to know where you’re at. I think we’re ready to look at some different development opportunities and just be prepared for a downturn.’”

From Miami’s Community Newspapers in Florida. “As of June 2nd, the Pinecrest market remains soft, but slightly better than in March. Homes listed over $1M are at 18 months of inventory, indicating a strong Buyers’ market. A healthy market is 3-6 months of inventory. If you’re a Seller, it’s tough out there.”

From Real Estate Weekly on New York. “Citi Habitats president Gary Malin said he sees certain segments of the sales market in New York City doing well, with people looking at both sides of transactions to see what makes sense for them. ‘I certainly know there’s definitely activity, but when you get above $5 million, people are getting more deliberate in their approach,’ said Malin. ‘Things are not moving. The average time on the market is high. I think there’s plenty of demand, and plenty of people who would like to transact, but plenty of construction is coming online and people feel that they have options.’”

“Level Group salesperson Jeremy Swillinger feels that the residential market is not where it used to be, and buyers that were once motivated to purchase a property in order to get into the New York market have ’simply disappeared.’ ‘While the demand is still here in New York City, we’re less with buyers purchasing on a ‘must’ basis,’ he said. ‘They’re not just buying something to buy something in New York, they are wise about it.’”

“‘There are still some investors, some foreign buyers, but instead of looking at five properties and making a decision, they’re seeing 25 properties and making a decision, and when they do, they’re not pulling the trigger and getting the asking price, they’re taking their time and making sure the comps make sense, and making offers at a lower price,’ he said. ‘Anything above $3 million struggles. They don’t struggle like the $8 million and up market, that market has crashed.’”

“With interest rates continuing to rise, Swillinger sees those who purchase with the help of a mortgage entering the market more and more, while those who are cash-only buyers ’sitting and waiting.’ ‘There’s nothing pushing them to go and buy something,’ he said. ‘What’s the motivation if you keep seeing the market going down, especially in the higher brackets?’”

“A couple years ago, Swillinger could show a client five properties and they’d make a decision and the deal would get done ‘incredibly’ easily. Now, he has to ‘go to bat’ for a client and negotiate ‘every hat trick’ to get the deal done, including throwing in incentives, being flexible and making sure the terms are best for both buyer and seller. ‘My clients are making offers, but there’s a disparity, from where my clients as buyers are and where sellers are, the gap is slowly narrowing,’ he said. ‘I think sellers now realize the market’s not where is used to be and are decreasing prices.’”

June 11, 2017

Left High And Dry

A report from CBC News in Canada. “A record-breaking number of homes were listed for sale in the Hamilton area last month, according to new data from The Realtors Association of Hamilton-Burlington (RAHB). In a statement, RAHB CEO George O’Neill said that two months ago, realtors were talking about the low inventory of listings — yet now, they’re already talking about a record for new listings. In April, the provincial government announced measures to try to help cool Toronto’s extreme housing market growth, with an additional focus on the Greater Golden Horseshoe. He wonders if even just the talk of controls contributed to people deciding what to do. ‘Our members reported seeing a shift in the market even before the announcement,’ O’Neill said. ‘It’s possible that sellers read and heard that changes were coming and decided to act sooner rather than later.’”

The Canadian Press. “Home sales in the Greater Toronto Area plunged 20.3 per cent last month compared with a year ago, according to the latest data from the country’s largest real estate board, a sign that recent efforts to cool the searing market are having the desired effect. The average selling price for all properties in May was $863,910, up from $752,100 the same month last year, the Toronto Real Estate Board said. But that was down from $919,614 in April, the first month-over-month drop this year. The move came as listings rose 42.9 per cent from a year ago, when they were at a record low, according to the real estate board.”

“‘Certainly there are a lot of people sitting back right now wondering what’s happening with the new housing plan and kind of taking a breather just to see how it affects the market,’ said Brian Elder, a sales representative with Royal LePage Real Estate Services. ‘It definitely will pick up again. But to the degree it was before? I don’t know. I suspect it won’t get quite that heated.’”

The Edmonton Journal in Canada. “Growing supply and decreasing demand are helping create a buyer’s market for new homes in the Edmonton suburbs, show new figures from a real estate consulting firm. The number of ’spec’ homes built before they’re sold rose to 2,430 last winter from 2,156 in the summer of 2016, while sales dropped about 20 per cent to 1,263 over the same period, according to Intelligence House research.”

“That gave the city an oversupplied 2.3-year backlog of new homes, Intelligence House co-owner Alex Ruffini says. ‘Technically, if you have too much supply in the market, that tends to drive prices down or you see lots of promotions … Builders are more willing to give more discounts or give deals,’ he says. ‘(Having 2.3 years) is not tremendously oversupplied, but the power is on the demand side right now.’”

The Sydney Morning Herald in Australia. “Here’s a simple graph that tells an amazing story – the owners of Sydney’s housing don’t want to sell. The graph, by analyst Peter Wargent using SQM Research figures, effectively blows away much of the wishful thinking by wannabe Sydney buyers that prices are about to be significantly lower. Barring international calamity causing global financial markets to seize up, we would only get markedly higher interest rates if the economy was growing markedly faster and unemployment markedly lower. Mark that down when it happens, but no one would advise holding your breath.”

“As for the state government’s efforts to toss a few grand the way of first home buyers – it increases their buying power, increases demand when supply remains the key issue. Vendors will be pleased. SQM’s Christopher warns that prices are pushed around by relative movements – listings being up or down a bit can be felt – but the scale of the shortage of listings means the fundamentals of the market aren’t about to change enough to matter. Yes, Sydney housing is very expensive, but people who want to live here are prepared to pay it.”

From The Australian. “Singapore’s Banyan Tree has slashed the price of entry-level apartments in its Australian flagship development by more than $100,000, as stresses show in the Brisbane unit market. Prices of the ground floor eastern-facing apartments in the $150 million development have been cut from the original price of $900,000 to $795,000 in a bid to spur sales. Construction on the 76-apartment complex is expected to start midyear, about a year later than the initial timeline.”

“CBRE Brisbane managing director Paul Barratt said there was strong ‘investor caution’ that would lead to further price adjustments. ‘Buyers are cautious about their belief in capital gain so unless a project represents compelling value a lot of investors are in sit and watch mode, but they risk missing out on the best buying in many years,’ he said.”

The Daily Telegraph in Australia. “Desperate landlords in the Queensland capital are increasingly resorting to desperate measures to secure tenants, as the impacts of the city’s long-predicted apartment oversupply is finally being realised. Theresa Fitzgerald, principal of Theresa Fitzgerald Property Management, in the exclusive inner-northern riverside suburb of New Farm, said it was not uncommon to see apartments of a decade or so old sitting vacant for six weeks.”

“‘Some of them just cannot accept it. If the average rent they were getting was $520 a week and they get an offer of $490, some just can’t accept it,’ Ms Fitzgerald said. ‘They were getting good money a year ago but rather than accepting less, it sits empty for weeks.’”

From Smart Company on Australia. “Hundreds of creditors are owed $12 million following the appointment of liquidators to Brisbane-based apartment builder CMF Projects, with real estate analysts warning more SMEs could be caught up in future troubles that are looming in the property sector. Managing director at Market Economics Stephen Koukoulas tells SmartCompany there’s already a ‘time risk’ building apartments due to approval processes, and with negative stories and developments starting to emerge about the apartment sector in cities like Melbourne and Brisbane, it’s likely SME suppliers will be left ‘high and dry.’”

“The prospect of more tough times for apartment builders across the country will have a broader macroeconomic impact, says Koukoulas. ‘But there are going to eventually be people left high and dry, and you get that downward spiral occurring. You get this cascading down the chain,’ he says.”

“While some have clearly ‘made a fortune’ from the apartment boom, sub-contractors and suppliers who might be caught up in the slowdown are largely powerless to the prevent the possibility they might lose jobs or payments, Koukolas believes. ‘That’s their bad luck, really… just bad luck,’ he says.”