December 13, 2017

The Market Could Fall Like A House Of Cards

A report from the Denver Post in Colorado. “Metro Denver’s real estate boom may still have room to run, but developers behind several high-profile projects in the region said they are turning cautious. ‘People can’t make the deals pencil out,’ said Matt Joblon, CEO of BMC Investments. More are biding their time, but some developers are turning to riskier lending sources or accepting returns so low they have no margin of error if anything goes wrong. ‘We are being patient and waiting. There will be a comeuppance,’ predicts Andy Klein, founder of Westside Investment Partners in Denver.”

“Developers this decade have heavily focused on luxury apartment projects in Denver’s urban core. But even there, so much new supply is hitting the market that landlords have become more lax in qualifying tenants, which Joblon warned could lead to a steep jump in move-outs and tenants who leave without notice.”

From the Santa Cruz Sentinel in California. “Despite concerns about tax reform hurting California homeowners, Santa Cruz County buyers showed up, pushing the median price to a new record, $880,000, up from $787,500 a year ago, and boosting sales to 175, up from 136 sales a year ago, according to Gary Gangnes of Real Options Realty. Listings rose, breaking the shrinking inventory trend that has dominated for five years, but mostly higher-end properties are for sale. Of the 340 active listings the first week of November, half were priced at $1 million or higher.”

“Roger Berke, owner of Thunderbird Real Estate since 1989, said he worries the current market could fall ‘like a house of cards.’ He said he sees home buyers borrowing against stock options, taking advantage of the market boom and a record Dow Jones Industrial Average under President Trump, when the formerly aggressive federal consumer protection agency is being weakened. ‘It just doesn’t feel right,’ Berke said, noting proposals in Washington to cap the tax writeoff on mortgage interest for newly purchased homes and to cap deductions of state and local property taxes.”

“Dennis Norton did the redesign of a Depot Hill home, purchased by the seller in 2013 for $1.3 million. He stayed within the existing 1,800-square-foot footprint. Home values on historic Depot Hill have jumped $1 million, he said, estimating that two-thirds are empty, owned by buyers who live there part-time, and hope to retire there someday. But with so many second homes, few full-time residents are around to keep an eye on the neighborhood.”

The Herald Tribune in Florida. “Bucking the national trend, the number of Southwest Florida homeowners who were late on their mortgage payments unexpectedly shot up over the year. But analysts say it’s not a sign of new housing woes, but instead the temporary impact of Hurricane Irma. In the Sarasota-Manatee region, 4.9 percent of mortgages were at least 30 days overdue in September, up from 3.4 percent in August and from 4.2 percent one year earlier, CoreLogic reported.”

“Charlotte County also reported a 4.9 percent mortgage delinquency rate, also up from 3.4 percent the prior month and from 4.0 percent last year. Throughout Florida, the 30-day delinquent rate jumped from 6.3 percent to 7.5 percent in September. Nationally, the early stage delinquency rate — defined as 30 to 59 days late — rose by 0.3 percent, the largest gain since June 2009. ‘This does not reflect a deterioration in credit, but rather the impact of the hurricanes in Texas, Florida and Puerto Rico,’ said Frank Nothaft, chief economist at CoreLogic. ‘September’s early stage delinquency transition rate rose to 2.6 percent in Texas and it rose to 3.2 percent in Florida, which is higher than the 1 percent that’s typical for both states.’”

The Houston Chronicle in Texas. “More than three months after Hurricane Harvey,Houstonians eager to return home are stuck navigating an unfamiliar world of flood insurance policies, mortgage company procedures and contractor bills. Many face precarious financial futures as grace periods and forbearance programs come to an end, leaving borrowers with bills three times their monthly mortgage payments.”

“‘I’m seeing people cutting bait, saying, ‘I’m done,’ said Kevin Riles, a longtime Houston real estate broker. ‘They’re just trying to sell for what they owe or look at short sales.’”

“As financial pressure mount, foreclosures are looming. Foreclosure Information & Listing Service, a local foreclosure reporting firm founded in 1963, predicts the number of properties posted for foreclosure will reach as high as 2,000 by the end of 2018. That’s more than double what they were running earlier this year.”

“After Hurricane Katrina, nearly 55 percent of mortgage properties had a delinquency. ‘There are 1.18 million mortgaged properties in Harvey-related disaster areas, more than twice as many as were hit by Hurricane Katrina, with nearly four times the unpaid principal balance,’ said Ben Graboske, executive vice president of Black Knight Data & Analytics.”

“John Campbell was already behind on his mortgage when Harvey hit. His house wasn’t damaged by the storm, but his job was affected. Campbell is a mental health counselor and his wife also works in health care. They are both independent contractors and, like many others, were unable to work the week of the storm. In the following months, Campbell said, not as many people sought out counseling because of their own storm-related financial woes.”

“Campbell said he called his mortgage company and was told he could defer three months worth of mortgage payments until a later date. He figured he and his wife could get caught up on the two months that were past due and then resume normal payments. At the end of November, they called to make their past-due payment and were told they owed a whole lot more. ‘They told my wife, ‘No, you owe us five months,’ Campbell said. If the couple doesn’t make two mortgage payments each month through February their lender will foreclose. ‘I’m scared and I’m angry because we’ve got three kids and a 2-month-old baby,’ Campbell said.”

The Cohasset Mariner in Massachusetts. “After analyzing the most recent housing data for Norfolk County, Register of Deeds William P. O’Donnell expressed some concerns with regards to real estate sales and lending activity for the month of November 2017. ‘The average sale price of residential and commercial property for the month was $638,120, a 12 percent reduction year over year,’ said O’Donnell. ‘Also, total sales volume, again for both residential and commercial, was $619 million, a 9 percent decrease from November 2016. Clearly, the limited amount of available real estate inventory is having a drag on the real estate market in Norfolk County.’”

“The story gets more sobering when looking at the lending market numbers in Norfolk County. ‘As we have seen for the last few months, the number of mortgages recorded during the month of November decreased by a significant 28 percent,’ said O’Donnell. ‘Also, the total volume of mortgage financing, for both residential and commercial properties, came in at $1.1 billion, a 35 percent decrease year over year. There is no question consumers are being cautious when considering big ticket expenses. Furthermore, interest rates have crept up slightly, which have proven disconcerting to many homeowners interested in purchasing a home.’”

“A total of 125 Notice to Foreclose Mortgage documents, the first step in the foreclosure process, were recorded versus only 52 in November 2016. ‘Frankly, the Notice to Foreclose Mortgage numbers were disappointing,’ said O’Donnell. ‘We must continue to bear in mind that foreclosure activity has a human face, even during these seemingly decent economic times.’”




December 12, 2017

Many People Are Living In Fantasyland

A report from CNBC. “Bitcoin is in the ‘mania’ phase, with some people even borrowing money to get in on the action, securities regulator Joseph Borg told CNBC. ‘We’ve seen mortgages being taken out to buy bitcoin. … People do credit cards, equity lines,’ said Borg, president of the North American Securities Administrators Association, a voluntary organization devoted to investor protection. Borg is also director of the Alabama Securities Commission. ‘This is not something a guy who’s making $100,000 a year, who’s got a mortgage and two kids in college ought to be invested in.’”

From Reuters on Canada. “Canada’s two largest housing markets, Toronto and Vancouver, are being held aloft by booming condo markets as investors and developers stick to an asset they love, fueling charges that the market is geared toward building fortunes rather than homes. Data released on Friday showed urban construction starts for multiple-unit buildings, typically condos, surged 16.9 percent in November to 175,016 units, a record high even after a decades-long boom.”

“Beneath a skyline of cranes, the majority of condos being built are one-bedroom or studio apartments aimed mostly at buyers betting on price appreciation, along with some first-time buyers seeking a foothold, rather than families or so-called end users seeking a house that will grow with them. ‘Investors are looking for product that they can put the least amount of money down for and realize a profit when they resell it down the road,’ said Michael Ferreira, principal at consultancy Urban Analytics.”

The Orange County Register in California. “California doesn’t have a housing bubble — yet. But look out if mortgage interest rates go up, or if there’s an ‘economic shock,’ such as a major stock market correction. Those could be the ‘tipping points’ that ignite a market turnaround, ending a 68-month streak of steadily rising home prices, a recent California Association of Realtors report concluded.”

“The report, drafted by state Realtor economists, seeks to explore ‘the B word,’ addressing whether California is in another housing bubble. Bubble fears are a real issue after almost six years of steadily rising home prices, and after disastrous miscalculations a decade ago put the economy in a tailspin and led to 7.8 million U.S. foreclosures, according to CoreLogic.”

“‘Prices are rising rapidly in California, and both housing affordability and homeownership are trending downward at an alarming rate,’ said the report. ‘This … has led many to begin to question if home prices have reached a level that is no longer sustainable,’ the report added. ‘We’ve begun to hear the ‘B word’ again: Have home prices gotten out of whack again? Are we at the tipping point yet? How much longer can this go on?’”

“‘Incomes simply have not kept pace,’ the report said. ‘The current trend is worrisome from an affordability and, thus, a price sustainability standpoint.’ The Realtor association ‘does not believe we are at the tipping point for home prices yet,’ the report concluded. But, it added, ‘residents in the Bay Area and Orange County will be well served by keeping close tabs on broader economic conditions. … If prices do fall, they will hit those areas the hardest.’”

From Community Newspapers in Florida. “Would you go to a Toyota dealer advertising a Corolla for $85,000? How about a pizza joint with a $62 pie? Of course not! Which is why, as a real estate professional, it infuriates me to see homes priced well above their eventual sales price. Many in the media would lead you to believe Miami is a hot market. And, in certain neighborhoods, this is true. But in the vast majority of Miami-Dade County there is an over-supply of homes and unrealistic expectations. In short, if you are a seller in this market it’s time to put on your big-boy pants.”

“If you travel through Pinecrest and Palmetto Bay, you’ll see loads of FOR SALE signs, even on the shortest drive. And yes, most of them have been there long enough to start serving as landmarks. I am amazed by the conversations I have with people who (a) believe they magically know the market better than anyone else, (b) think their house is perfect and (c) feel they can outsmart the market and make a disproportionate amount of money. In short, many people are living in Fantasyland.”

From ABC News. “Richard Thaler does a good line in one-liners. Shortly after picking up the Nobel Prize for economics in Stockholm a few weeks back — for questioning whether we really behave rationally when it comes to self interest — the behavioural economics pioneer was asked how he would spend the $1.4 million cheque.”

“‘I will try to spend it as irrationally as possible,’ he quipped, much to the amusement of reporters and those in the Royal Swedish Academy of Sciences.”

“But on what? There’s so much to choose from when it comes to behaving badly or, if you’re looking for excuses, irrationally. From an investor viewpoint, perhaps Professor Thaler should look at bitcoin. For not since the dotcom boom, or our very own housing market, has there been a better opportunity to abandon any form of common sense.”

“So, what spurs us to part with our cash in this way? Human beings, far from being rational, instead are unpredictable and often, deeply flawed. Rather than examine all the evidence and carefully weigh it up, we often look for information that merely backs up our existing beliefs or, even worse, just react to the last thing we heard. And given we’re social animals, we herd. We’re sheep. If we’re not trying to outdo those around us, we’re desperately trying to be just like them.”

“So when everyone’s buying uber-expensive houses with oodles of cash borrowed at the lowest interest rates in the history of mankind, pushing prices even higher, we’re tempted to jump on board.”




December 11, 2017

A Mass Exodus Appears To Be Expanding The Glut

A report from CBC News in Canada. “Before oil prices tanked in 2014, Fort McMurray was a notoriously hot housing market. Realtor Lance Bussieres could barely keep a house on the market for a couple of hours before getting several offers. ‘It was very busy,” Bussieres, co-owner of ReMax Fort McMurray, said. ‘There were times where you would list a house and you would have two or three offers — if not that evening, the next day. People were literally leaving the house and writing offers in the driveway.’”

“Michael Mack has had a ‘for sale’ sign in the window of his three-bedroom trailer in the Fort McMurray subdivision of Waterways for about three weeks. He wasn’t happy when one realtor asked him and his wife to list their home for around $200,000. They bought it for about $370,000 in 2013 and were hoping to at least match that. ‘We’ve had two calls. Nothing serious,’ Mack said. ‘It would be nice to break even.’”

From Business in Vancouver in Canada. “It sounds like an unfathomable statistic within the realm of Lower Mainland real estate. The average single-family detached home in the Fraser Valley is now sitting on the market for more than a month before being sold. Long seen as an affordable alternative to Vancouver’s astronomically high prices for homes, the Fraser Valley housing market now seems out of reach for the average buyer as well. Anne McMullin, CEO of Vancouver-based non-profit Urban Development Institute, said she’s not surprised by the cooling of the market for single-family homes in the Fraser Valley because it’s also happening all over the Lower Mainland.”

“‘People want to blame everything else, but the housing market is still a local market,’ she said. ‘When you start to get over a million dollars [for a property] in the Fraser Valley, there’s very few people that can afford that.’”

“McMullin said the Fraser Valley appears to have hit its ‘threshold’ of how much people are willing to pay for a single-family home in the area. ‘You might say that on the North Shore [of Vancouver], that threshold is about $2 [million] or $2.5 million. And on the west side it’s about $3.5 million, and sure you’ll get a $16 million home sold every once in a while, but they don’t go much more than that.’”

“A mass exodus of gen-Xers and baby boomers appears to be expanding the glut of single-family homes for sale across the Lower Mainland, which could also signal some troubling financial trends on the horizon. According to a report titled The Future of B.C. Housing by Resonance Consultancy, 34% of Metro Vancouverites plan to sell their homes and downsize within the next five years. The report found that 60% of those surveyed also plan on using the sale of their houses to fund their retirements.”

From Domain News in Australia. “Sydney homeowners are losing confidence in the auction market, with the proportion of sellers withdrawing their properties from auction surging in November. Last month one in six sellers got cold feet and called off their auction – almost twice the rate of apprehensive homeowners during the same time last year. It’s the most deflated homeowners have been in at least three years.”

“Clearance rates have also been in decline over the year, with just over half of homes selling at auction in November – the lowest in two years, excluding January, which normally has a low volume of sales. It was 73 per cent during the same period last year, according to Domain Group data. AMP Capital chief economist Shane Oliver said buyers no longer had a ‘fear of missing out,’ which had been a big driver of the auction market.”

“‘I think the sentiment around the property market is a lot weaker than it was two years ago,’ he said. ‘Buyers can afford to take their time, they can be more considered about what they’re buying.’ Mr Oliver said low clearance rates also showed that APRA measures to slow the investor market were ’starting to bite.’”

From News.com.au in Australia. “Next year’s banking royal commission could push the ­already slowing Sydney real estate market into a deeper spiral. Experts warn the inquiry, announced by Prime Minister Malcolm Turnbull would encourage banks to be even more cautious with their lending policies. Adding to the downward pressure on prices, the restrictive lending environment comes as developers are ­releasing a load of new properties on to the market.”

“AMP Capital economist Shane Oliver said the combination of rising supply and falling demand would push Sydney property prices down by an average of about 5 per cent over 2018. ‘Banks are already under a lot of pressure from regulators to reign in their lending, especially to investors, and the commission will encourage some banks to be even stricter,’ Mr Oliver said. ‘The risk is that the further tightening associated with the commission would accentuate the slowdown already under way.’”

“BIS Oxford Economics analyst Angie Zigomanis said banks’ lending policies to ­investors would have the most critical impact as investors ­accounted for nearly 60 per cent of Sydney homes purchased in 2016. Mr Zigomanis said investors triggered both the recent price boom and the slowdown that followed. ‘The market began to change when investors could no longer get interest-only loans,’ he said.”

“Research from investment bank UBS confirmed buyers were growing increasingly wary of the housing market. ‘The proportion of respondents saying that the ‘wisest place for saving’ is in ‘real estate’ has collapsed to a record low,’ the bank said in a note.”




December 10, 2017

The Biggest Effects In The More Expensive Markets

A weekend topic starting with the Dallas Observer in Texas. “To our regret or good fortune time only will tell, but Dallas is a great laboratory for viewing the forces roiling around American cities. We’ve got thunder overhead, rumblings in the basement and maybe a great day ahead. Nationally, the divide between cities and everybody else has been consuming ink in recent weeks. From the point of view of the people in Texas who despise cities, the problem with cities is that they all voted for Hillary Clinton. Cities are viewed as bastions of anti-Trumpian disloyalty while voters in the rest of Texas would be honored to deliver their first-born daughters to be officially groped. Second-born, in fact, if the first one’s already too long in the tooth.”

“Something else is growling round down there while we sit up here in the kitchen staring at each other. It’s related to another level and type of urban issue being bandied about nationally. That question is whether liberal ideas and policies on certain issues — zoning, density, the environment, labor law, including the minimum wage — operate against the poor. Conservatives seem to think they’ve stumbled on a devilishly clever new trope: insisting that restrictive city ordinances, especially in the area of real estate, are responsible for the high cost of housing and therefore to blame for most of the associated ills of poverty.”

“As someone who has covered real estate and land-use battles at the level of City Hall for about 100 years, I am here to tell you this idea is ancient and hoary, not new at all. The argument is that all restrictions are snobbish and the only justice for the poor is a free-for-all with no zoning or protection for established neighborhoods. Thank goodness people in cities are smarter than that. Most of us know there are two kinds of people who do not make cities work, who do not make sure the buses run on time or see to it that the garbage gets picked up the way it should: (1) really rich people and (2) really poor people. The people who make a city work the right way are the middle class.”

“We are invested in the dirt. We’re not going anywhere soon. The institutional arms of government need to work right for us, and they need to work right here, right now. Yes, we have standards. Those standards have to do with safety, efficiency and pleasantness. If those are snobbish standards, then OK. Call us the snobs.”

The Mercury News in California. “Emma Carroll, a UC Berkeley grad student, is thinking about taking out loans just to pay what could be a substantially higher tax bill. Jerry Pohorsky, an engineer in Santa Clara, might put off his plans to buy a new electric vehicle if a federal tax credit gets cut. And John Hansen, an attorney in Castro Valley, is considering moving to Georgia in part to avoid paying some California income and property tax he could no longer deduct from his federal bill.”

“As Republicans square the last details of President Donald Trump’s massive tax overhaul before a final vote in Congress, many Bay Area residents are running the numbers and worrying that they’ll end up paying more. California’s high taxes and the Bay Area’s high home prices will likely make our region one of the most adversely affected places in the country, and accountants and tax experts say there’s not much taxpayers can do to avoid it.”

“‘This doesn’t affect 95 percent of homeowners in the country, but it affects basically everybody here,’ said Joseph Salazar, a tax specialist and financial adviser in San Jose. ‘If you have a young couple looking to buy their first house, why would they want to move here?’”

“‘Looking at our situation, I think it’s going to be a better deal,’ said Bob Jackson, 65, a San Jose Democrat and retired mail carrier. He and his wife take the standard deduction and have no mortgage on their mobile home, which they rent a space for instead of paying property tax. ‘It’s good for people like us.’”

“There are many in the Bay Area like Jan Soule, a San Jose Republican retiree from the tech industry, who says the tax plan ‘makes sense.’ The house she and her husband have owned for decades is paid off, and they have relatively low property taxes thanks to California’s Proposition 13 — so they won’t miss many of the deductions. She doesn’t believe her party is using it to punish blue states. And if some Californians are angry about having to pay a higher tax bill, Soule said, ‘maybe they’ll wake up to the fact that our state taxes are out of control.’”

The Los Angeles Times in California. “If you were to stand near the corner of 57th Street and South Vermont Avenue, you might not see many great selling points. But if you were to stand there with Julio Ruiz, you’d get a different take. He’d point out the nearby transit options, which could get you to USC, downtown, and all the way to the beach. He’d tell you about all the people moving into the area and all the investors who want a piece of the action.”

“And he’d tell you this: ‘There is cheap housing in L.A. … The American dream is still affordable in Watts, Compton and all the forgotten ghettos. There’s a buzz all over here,’ he said. Houses are getting multiple offers, sometimes all cash, and some are selling above asking prices.”

“Ruiz represents a Koreatown couple interested in a $500,000 home in South L.A. because the price would be double that amount where they now live. And he handled one sale in which a white gay couple bought a rehabbed Craftsman near Slauson and Western avenues for just under $500,000. ‘One of our neighbors … said she was so happy the gays were moving in because property values would be going up,’ said Steven (last name withheld by request), who lives in the house with his partner.”

“As much as I admired Ruiz’s hustle and pluck, I had to point out that he’s riding a wave that will lift some people and drown others, particularly low-income minorities. He argued that he used to work for banks and had to clear squatters, gangs and drug dealers out of houses all over the South Side. Neighbors appreciated the improvements, he said.”

“‘There was an opportunity for people to fix up these houses and for first-time buyers to get in through FHA, VA or different types of loans. As these houses started getting rehabbed, I felt like South L.A. was getting cleaned up,’ Ruiz said.”

The Denver Post in Colorado. “Years of rapid home price appreciation along the northern Front Range will leave homeowners in the region more vulnerable to changes in the tax code now before Congress. Coloradans need to be aware of one change in particular that could have big implications for them when it comes time to sell — an extension in the time owners must occupy their homes to avoid paying capital-gains taxes.”

“‘Homeowners across the country should pay attention. You will find the biggest effects, however, in your biggest, more expensive markets,’ said Danielle Hale, chief economist with Realtor.com.”

“Right now, owners must have lived in a home for at least two years within the last five years at the time of sale to avoid paying capital gains taxes on any increase in value up to $500,000 for joint filers, and $250,000 for single filers. For most homeowners, that means holding on to a home for at least two years is a good idea.”

“But Congress, looking for ways to generate more revenues to pay for cuts elsewhere, wants to extend that to five years within the last eight years. That would force most homeowners to wait five years or more to avoid a tax penalty that could reach into the tens of thousands of dollars.”

“According to HSH.com, Denver is the country’s ‘most recovered’ large metro housing market, with a federal home price index 72.3 percent above the peak reached last decade before the housing crash. The median home price in Boulder was about $516,000, and $392,000 in metro Denver, as of August, according to the Black Knight home price index. Sellers in metro Denver had an average profit above their initial purchase price and other costs of $110,000, while those in Boulder pulled down profits of $150,000. Nationwide, the average gain on sale is around $80,000.”

“The National Association of Realtors (NAR) argues the loss of real-estate-related deductions could cost homeowners $1,000 more on average in taxes while providing renters a savings of $500. ‘The NAR is predicting home prices could fall from 7 percent to 11 percent (in Colorado) if both the mortgage interest and real estate taxes deductions are eliminated,’ said Steve Thayer, chairman of DMAR and owner of Keller Williams Action Realty in Castle Rock.”

“That would translate into the typical homeowner in Colorado losing home equity in the $24,000 to $36,000 range, Thayer said. The mortgage interest deduction on second homes, which account for about 5 percent of the state’s housing stock, is also on the chopping block. In some mountain resort counties, the share of vacation homes can run 30 percent to 40 percent higher.”

“Glen Weinberg, chief operating officer at Fairview Commercial Lending in Steamboat Springs, said on his daily lunchtime jog, he has noticed more vacation homes coming up for sale. People could be disappointed with the paltry snow or just making year-end financial moves. But the surge coincides with the Congressional wrangling over tax reforms. His take is that some owners are trying to get ahead of what they perceive as a downturn in the second home market, he said.”

“‘What does this mean for the second-home market? It will be fascinating to see what happens,’ he said.”




December 9, 2017

Mommy, Why Is That Stranger Puking In The Bushes?

A weekend topic starting with the OB Rag in California. “Editor’s Note: The following is an interview with an fictitious Airbnb host. I’m sitting down with an Airbnb host to discuss the dollars and sense of short term vacation rentals (STVRs). These have been a hotly debated issue in San Diego, and our 9 city councilmembers are gearing up for a vote on December 12th on how to regulate it. Q: What’s to stop you from just buying and converting more properties?”

“A: Well I have a day job, this is just a side thing. It’s easy work though. Without a doubt I could do this full time and make a killing. The income covers a new mortgage right off the bat. I’d just buy more properties until it reaches saturation, if there is such a thing. Is Mission Beach saturated? Airbnb even asked me to host other people’s properties for them. The state of limbo at the city is probably the only thing really keeping more investors on the sidelines.”

“Q: You don’t seem like a fan… A: Well I guess I see both sides of it. I have them on 3 sides of my place now and another 2 doors up. The guy behind me is running one out of his garage, the one next door has one in his granny flat. I don’t even know if that’s legal. I mean it’s not a nuisance really, most of the guests are quiet. They’re terrible at parking. But mostly it’s just unsettling to play Mr. Rogers with a different neighbor every few days. I’ve had them come knocking on my door late at night because they can’t find the rental next door. The shear quantity of them is getting out of hand in my neighborhood and I don’t know where it ends.”

From Voices of Monterey Bay in California. “It’s all a-clash when tossed into the housing blender: short-term rentals and the local rental market and Airbnb and property rights and neighborhood tranquility and making a quick buck and vacation rentals and the cool new gig economy and community standards and surviving in this day and age and affordable housing and mommy, why is that stranger puking in the bushes at the house next door?”

“Jenny McAdams, a vocal opponent to the city’s policy, says she supports owner-occupied short-term rentals. But she contends the city is inept at managing the program and that more than 80 percent of the homes being rented to vacationers live outside Pacific Grove. McAdams has spent considerable time in research on the issue of vacation rentals in Pacific Grove. She’s developed a spreadsheet identifying each of the homes used for legal short-term rentals in the city. The database seems to show that most of the vacation rental owners live elsewhere.”

“‘To me the numbers say the City of Pacific Grove is a bunch of suckers,’ McAdams said. ‘Clearly investment groups and out of town investors are swooping up our neighborhoods, laughing their way to the bank, and throwing their TOT crumbs to the city.’”

From CBS Local 2 in California. “The Palm Desert City Council has voted to phase out short term rentals in single family neighborhoods with R1 and R2 designations by Dec. 31, 2019. The vote came after a marathon of public comment, council discussion and failed motions.”

“Both sides made arguments that home values in the city would drop if the opposition has regulations go their way. ‘They cannot sell their home because a serious buyer will not buy a home if they know that a short-term rental is nearby,’ said Christel Prokay, founder of Protect Palm Desert Neighborhoods Group. ‘The values will decline. I think that the short term rentals are essential to the concept of the city and the economic viability of the city,’ said Lesley Miller a short-term rental owner.”

From The Tennessean. “Airbnb has created a multibillion-dollar business by bending, circumventing, or even breaking the existing laws on transient housing in many communities. Their objective has been to blur the lines between transient and long-term housing. This has allowed Airbnb to create housing for tourists, without having to invest in real estate or management costs. It gives them a competitive advantage against the traditional lodging industry. In the process, they have made housing less available and less affordable in many cities across not only the United States, but the world.”

“We don’t allow other commercial businesses to operate in our residential neighborhoods. We don’t allow recording studios, beauty parlors, lawyers offices, massage therapists, or any similar business to operate in our residential neighborhoods. So why ‘mini-hotels’?”

From the CTV Toronto in Canada. “Politicians in Toronto will be scrutinizing proposed rules for short-term rentals this week that could spell major changes for those who offer secondary residences for rent on platforms like Airbnb. Among the raft of regulations going before city councillors is a rule that would ban short-term rentals of homes that aren’t the landlord’s primary dwelling.”

“Fairbnb, a coalition founded by a Toronto-area hospitality workers’ union to advocate for Airbnb legislation, says city hall must ensure that rental units are preserved for long-term renters, not vacation rentals. ‘We have no problem with the typical Airbnb host,” spokesman Thorben Wieditz said. “We have a problem with those people that lease or buy properties as investments and turn them into ‘ghost hotels.’”

“Ajay Joshi, who hosts five Toronto condo units on Airbnb, said the proposed regulations would create more business for hotels because fewer Airbnbs would be available, while causing financial hardship for short-term rental landlords like him. ‘Many people have made legal investments in buildings (that allow) short term rentals,’ said Joshi. ‘Their livelihood is at stake, along with heavy investments in down-payments, paid land transfer taxes and furnishings.’”




December 8, 2017

The Adjustment Might Result In A Full-On Crash

It’s Friday desk clearing time for this blogger. “Back in August, the seven-bed, seven-bath Russian Hill triplex at 949 Lombard, once used to film the first San Francisco season of MTV’s The Real World, popped up for sale, asking a princely but contextually appropriate $6.99 million. Four months later the price has precipitously dropped, landing at $4.89 million in the latest offer.”

“In Stouffville and Keswick, where the houses tend to be newer and there’s not much to distinguish them from competing listings, sales are slow. Cameron Forbes, general manager of ReMax Realtron Realty Inc, points to the example of one Stouffville house listed for sale for about $1-million six weeks ago. At the time, it was the only property in the area around that price level. Since then, three or four very similar houses have arrived on the market. The agent cut the price to about $880,000 but still the buyers aren’t coming to a house that would have gone for $1.1-million in the spring.”

“‘Activity dropped to zero,’ he says of the number of potential buyers who requested showings.”

“Nordea Bank AB won’t keep up with growth in Sweden’s mortgage market as the biggest Nordic lender adopts a more cautious approach, Chief Executive Officer Casper von Koskull said.Sweden’s housing market has dominated economic headlines of late amid signs a price correction is under way. Concerns that the adjustment might result in a full-on crash have hit the currency, with the krona losing more than 5 percent against the euro since the end of August.”

“Stricter mortgage rules have coincided with a big increase in supply, and with households’ finances increasingly stretched, home prices have started to fall. ‘There is a cooling taking place in the Swedish housing market, no doubt,’ von Koskull said.”

“Capital values in Dubai’s residential property market have dropped to their lowest level in four years, according to Consultancy Cluttons. Comparing current unit prices to those at the peak of the market in the third quarter of 2008, it found that Burj Khalifa apartments had fallen in value by 71.2 percent, apartments in Discovery Gardens by 38.5 percent and in Jumeirah Lakes Towers by 31.4 percent. Prices in some districts have come under pressure recently because of the number of newer, cheaper units coming onto the market, Cluttons said.”

“On a recent Sunday morning in the sun-drenched Australian city of Brisbane, about 50 ‘property tourists’ boarded a bus tour with a difference. The group – all local Aussies looking to purchase their first homes – were shuttled to five new apartment projects where brochures promised they could ‘capitalize on international deposit defaults’ and snap up properties at sharp discounts. The homes were mostly being sold by Chinese investors unable to make settlement on their investments as Beijing cracks down on money flowing out of China and restrictions on Australian banks lending to foreign investors bite, the company behind the tour said.”

“‘Getting money out of China is very hard now. That’s a big factor for these discounts,’ said Property Direct founder David Beard, who sold some two-bedroom units on the bus tour at 15-20 percent lower than list prices. ‘Property sales have fallen because of that, and it has got progressively harder to get bank loans in Australia.’”

“While the rules were often flouted in the past, doing so now has become increasingly difficult, some money transfer agents told Reuters. At the same time, under pressure from regulators to douse risky lending in the real estate sector, Australia’s biggest banks stopped loaning money to foreigners. ‘It is almost impossible to send the full (settlement) amount from mainland China,’ said Felix Su, financial adviser at foreign exchange firm KVB Kunlun.”

“The red-hot population growth rate around Denver and Northern Colorado is cooling, and those who are leaving in increasing numbers say they were driven away by rising housing prices, jobs that don’t pay enough and traffic jams. ‘It’s kind of ironic because the reasons why I’m leaving Colorado are the same reasons why I left New Jersey — too much traffic, not making enough money and angry people,’ said Nicole Parkin. ‘The growth of our beautiful city has brought nothing but increased traffic, angry entitled transplants who have no respect, and a cost of living that is through the roof.’”

“Because the recession hit New Jersey homeowners particularly hard, the Garden State faces an abundance of short sale homes — homes that sell for less than the amount that the current owner owes on their mortgage. ‘We do have more inventory than Philadelphia,’ said Patricia Rohan, a broker at Weichert Realtors in Burlington County. ‘But the number of short sales on the market is probably throwing the number off. They sit longer on the market than regular homes that are not distressed. The short sales need permission from the bank to sell,’ Rohan said, so there is more ‘red tape.’ As a result, she said, some buyers will stay away — meaning the houses will linger.”




December 7, 2017

There’s Just Too Much Supply

A report from Bisnow. “Acquisition opportunities for multifamily investors in 2017 have been slim as a record amount of capital flowed into the debt and equity space. While our investors have their eye on value-add, Class-A multifamily may be in a bubble. ‘There’s just too much supply,’ AMLI Residential CEO Greg Mutz said. Of AMLI Residential’s nine markets, Chicago is the most oversupplied, Mutz said. That is most true downtown. Mutz said the company cannot make the numbers work with new development.”

From Berkleyside in California. “Two industry groups – Apartment List and Zumper – are reporting that median rents in Berkeley fell anywhere from 3.8% to 15.9% in 2017, and dropped from 10.9% to 15% in Oakland. After going up for years, rents started to decline in June and have dropped ever since. One manager of about 1,000 apartments in Berkeley and Oakland confirmed the gist of the industry reports, although he put the decline in rents at about 5.8%. Sam Sorokin of Premium Properties said he calculated that number by looking at people who first started renting in August 2016 and moved out in August 2017. His company had to lower rents to attract tenants, he said.”

“‘Something’s up,’ said Sorokin. ‘All the economic indicators are great: strong job market, good wages, we’re not in a recession. Things just aren’t renting for as much. In 2017, a tipping point has happened. The new construction has caused the rents to decline. There is no other reason I can think of.’”

“Since 2014, 910 units have been built across 11 projects, according to a ‘housing pipeline’ study prepared by Berkeley city staff. There are an additional 525 units being built, or which have active building permits, in nine projects. But now that so many of these units are available, the demand has dropped, Sorokin said. Units are sitting empty.”

The Union Tribune in California. “San Diego County is on track to build fewer homes than it did last year, said permit records released this week. Residential building permits for all homes — condos, apartments and single-family homes — are down 18 percent in the first nine months of 2017 compared to the same time last year, said the Real Estate Research Council of Southern California. The only county with slower building was Orange County, which had a 21 percent reduction.”

“The slowdown is led by a drop in permits for multifamily construction, down by 2,209 permits, or 40 percent, compared to the same time last year. Real estate analyst Russ Valone, president of MarketPointe Realty Advisors, said fewer new builders are coming to town because of land costs. He also noted that some lenders are wary of new projects because rent increases for high-end apartments has slowed.”

“‘As those newer projects’ rents push into the mid-$2,000 a month range, we started to see a slowdown in the rate of increases,’ he said. ‘I think you may have some lenders looking at the slowed increases and starting to take a cautious view of the marketplace.’”

The Charlotte Observer in North Carolina. “The booming Charlotte apartment market has been dominated by gleaming new towers and thousands of units packed onto small sites next to the light rail over the past few years, but that could be about to change. Developers in Charlotte are increasingly turning to bigger, more spread-out sites in the suburbs. Charles Dalton, president of Real Data, said markets such as South End and uptown that have been flooded with apartments now have much higher vacancy rates, as landlords compete to fill thousands of new units.”

“‘If you’re a developer or lender, they’re looking at those numbers and saying why are we building in a place that has a 15 or 20 percent vacancy rate, when we could be building in the suburbs that have a 5 percent vacancy rate?’ said Dalton. The trend was on display recently in Charlotte, where developers have filed rezoning plans to build 1,000 new apartments in the last month. None of them are planned in urban locations.”

From WPSU in Pennsylvania. “The Metropolitan is one of the new high-end developments in State College. For Penn State students looking for new, well-appointed apartments close to campus, the buildings are a plus. But for families and renters looking for affordable places to live, the boom in student housing is a mixed bag. The high rises also mean a change in the feel and appearance in parts of town.”

“Jim May, director of the Centre Regional Planning Agency, said the inventory of housing in the area had not improved in a while. But, over the past few years it has. Between 2 and 3,000 new student units have been proposed or are under construction in the past few years. May said a lot of that comes from large national developers attracted to the area.”

“For one thing, the vacancy rate — the number of empty apartments in a building — is still very low. Nationally, that number is about 8 to 10 percent. With Penn State students nearby, the rate in State College is closer to 4 or 5 percent. Eventually, the housing market in the area might max out, May said, but, that hasn’t happened yet.”

“‘There will come a time when the last person in is the one that probably loses money, but I don’t see that happening for quite a while,’ May said.”

From The Pitch on Kansas City. “‘A word you’ll hear me say a lot today is condos,’ said my tour guide, Troy, as we sailed past the Western Auto building on Grand, atop a double-decker bus. What a coincidence: I had been talking about condos just hours before. Or maybe I am just always talking about condos these days. Luxury housing is sprouting up everywhere in this city.”

“It bothers me. Maybe, as some smart people tell me, this influx of new housing will satisfy the market, make apartments less scarce, help stabilize rising rent prices across the city. Maybe. But when I stare at these boxy buildings and envision the 550-square-foot rooms inside them, renting for $1,700 a month, all I can think is that the best thing about Kansas City — that it’s cheap to live here — is slipping away before my eyes.”

“I got a short Americano in the Crossroads the other day and it was three dollars and some amount of cents. Do you know what that means? That means my coffee cost $5. I give the barista a dollar, and who knows what happens to that loose change. It’s never in the car when I need money to park. Five dollars! Call me Andy Rooney, but you know it’s true. I was hardly alone at the brewery the other night, where the cheapest beer was $8 and it came in a 10-ounce glass. Were some of you also wondering when you started getting less beer for more money? Do you really like this Whole Foods–ification of your city?”

“As Troy said at the outset, condos were indeed an inescapable component of the tour. So much of our history is now just housing. The old federal courthouse on Grand is now the Courthouse Lofts. Many buildings in the Garment District — which Troy told us was once second only to New York in terms of clothing production — have been converted into lofts. The Western Auto Building (originally built for Coca-Cola): lofts.”

“All these buildings that were once home to businesses that provided fair wages and pensions for workers are now condos for the upper-middle class, or cafés staffed by overeducated employees with crushing student-loan debt, unprotected by unions, with no chance for retirement. That the zombies of late capitalism have invaded Kansas City and are in the process of making this quiet place unlivable for the average person is horrifying. We should be enacting policies aimed at making life easier for ordinary Kansas Citians. Instead, we give massive tax breaks to developers, ignore our failing schools, and build a streetcar for people lucky enough to work or live along the increasingly expensive route along which it travels. And for tourists. Don’t forget the tourists.”




December 6, 2017

Despite The Big Price Drop, Making The Choice To Sell

A report from the Huffington Post. “Foreclosure starts have begun to edge up in some of the nation’s hottest housing markets. Nearly a quarter of the nation’s large metro areas saw upticks in foreclosure starts, the point when banks take the first step to foreclose on a delinquent home loan, in the third quarter of this year. That included a surprising number of some of the hottest inland housing markets, such as Denver, Austin, Dallas, Nashville and Columbus, Ohio. For some of the high-flying real estate markets in cities like Denver and Austin, the rare increases may be early warning signs of trouble to come if credit gets too loose, said Daren Blomquist, a vice president at ATTOM Data Solutions, which tracks foreclosure starts.”

“There’s a tendency for banks to lend too much when prices are rising and resale value is harder to predict, but ‘in a rising market, they’re going to be OK anyway,’ said James Gaines, chief economist at Texas A&M University’s Real Estate Center. The highest rates of foreclosure in Austin, Dallas, Denver, Nashville and Columbus are for mortgages that started in 2014, Blomquist said. That looser credit, meant to entice first-time buyers to the market, has added instability to the housing market because homeowners have less incentive to weather hard times and keep paying the mortgage, he said.”

“‘With lower down payments, the borrower has less skin in the game, and that’s just inherently more risky,’ he said. ‘It can take a few years for the chickens to come home to roost, and I think that’s what’s starting to happen.’”

From Kenneth Harney. “Here’s an important question for anyone hoping to buy a home next year but who isn’t quite confident about qualifying for a mortgage: Is it true that lenders have eased up on certain key requirements, making it simpler for first-time buyers and others who can’t pass all the strict tests to get approved? The good news answer is yes. A recent survey of banks and mortgage companies by giant investor Fannie Mae found that a record number of lenders report that they have relaxed at least some requirements for mortgage clients.”

“Debt-to-income changes top the list. Under previous rules, your total monthly debt load could not exceed 45 percent of your monthly household gross income. Under the new rules, your total monthly debt can now go to 50 percent. With Federal Housing Administration (FHA) loans, you can push it even higher — 55 percent or 56 percent — provided that other aspects of your application are strong.”

From Bizwest on Colorado. “If you’ve been tracking headlines on the business pages in recent months, perhaps you were caught off guard by the news that home prices declined in some Front Range communities. After all, isn’t the market still blazing hot? And haven’t Fort Collins and Greeley and Boulder and Denver been experiencing some of the fastest appreciating housing prices around the country?”

“The standard for a ‘balanced’ housing market is six months of inventory. Locally, the inventory for homes priced at $400,000 or less is at a fraction of that six-month standard. Fort Collins is at 1.89 months, Greeley at 2.47 months, and Loveland at 1.75 months. But if you look at homes priced at $700,000 or more, the inventory is ample — nine months in Fort Collins, 9.38 months in Greeley, and 6.97 months in Loveland.”

From ABC 30 in California. “For sale, signs are popping up in the Bay Area as many fire victims are forced to sell after the devastating fires in wine country earlier this year. There are empty lots where homes once stood across Santa Rosa. Officials with the North Bay Association of Realtors say they are going up for about 160,000 dollars instead of 500,000.”

“And despite the big price drop, many fire victims are making it the hard choice to sell what they once called home. Officials expect more people to put up their lots for sale but they say it is still too early to tell exactly how housing values will be impacted. But there is concern more victims will find themselves priced out.”




December 5, 2017

When Everyone Is Doing It, You Can’t Put Everyone In Jail

A report from the Toronto Star in Canada. “During a preliminary budget presentation at Toronto City Hall on Thursday, city manager Peter Wallace tried again to warn us about the threat posed by betting everything on the health of the real estate market. If anything, the costs for the city could go up if the market collapsed. A real crash in housing would likely mean a deep recession, with people losing their jobs and businesses failing. Imagine a scenario where land transfer tax revenue dropped by 40 per cent. A crash could actually be worse, because the volume of sales would almost certainly go way down, meaning not just lower payments but fewer of them.”

“A sudden need to find tens or hundreds of millions of dollars is going to be a world of hurt. ‘We’re gambling on the real estate market,’ Councillor Gord Perks told the Star this week, repeating a warning he has issued in the past. It’s a gamble on which his colleagues keep doubling down.”

From Reuters on Canada. “Toronto home sales were down in November from a year earlier. The average selling price for all homes types was down 2 percent at C$761,757 compared to C$777,091 in November of last year. Prices were also down 17 percent from the April peak. New listings rose 37.2 percent from a year earlier, when supply was below historic averages, while active listings more than doubled to 18,197 from 8,639 as properties sat on the market longer.”

From Malta Today. “During the conference organised by the newly set up ‘Property Malta’ last Thursday, the most important issue is whether Malta is experiencing a bubble in the property industry and the resounding reply was simply ‘no’. Those present at the conference were regaled with some staggering statistics. The declared gross value of property sales in contracts made during 2016 was over €2.50 billion. The industry creates 15% of added GDP in Malta. One out of every 9 employees in Malta works in the industry and related services: 37,275 jobs, equivalent to 11% of the working population of Malta.”

“Attributing all this economic activity to ‘greed’ - in contrast with other sectors of the economy where, apparently, people are not greedy (!), is nonsense.”

From Buy Association on the UK. “Homes are selling for an average 3.86% less than the asking price, with sellers in Wales having the least realistic expectations. Last month, it was revealed by Rightmove that more than a third of sellers had been forced to drop their asking prices in October – equivalent to £2,392. But buying agent and market commentator Henry Pryor said he was not worried by the state of the housing market, and believes the fluctuations are an overdue correction that will be welcomed by some. He also said than his clients had actually paid as much as 11% less than asking price.”

“‘The housing market is a double-sided coin,’ he said. ‘On the one hand, there are rising house prices; but on the other side of the coin there is the buyer, for whom lower prices are a good thing. This national obsession with ever-rising house prices is not something I subscribe to.’”

From Punch Nigeria. “Property developers as well as estate surveyors and valuers have said the real estate industry is still in recession despite the rebound in the economy. Some of them, who spoke with our correspondent, said many houses were still vacant and there was still high rate of default on rent payment by tenants. ‘No one wants to start a project that won’t be taken up. Prices have also nosedived and because of the challenges of having to spend more time and resources selling one property, our income has been affected and it has been challenging for estate surveyors and valuers and others too,’ said Victor Alonge, CEO Nelson Thorpe Alonge, a firm of chartered surveyors and estate surveyors and valuers.”

From Bloomberg on Hong Kong. “Hong Kong’s red-hot housing market shows no signs of cooling anytime soon. Prices in the city have climbed 11 per cent this year, defying skeptics waiting for the bubble to burst and government attempts to rein in the world’s most expensive housing market through a raft of taxes and mortgage curbs. An average 20,000 new private residential units come to market each year, barely enough to cover the 20,000 mainland Chinese who become permanent residents each year - allowing them to avoid the punitive stamp duties slapped on foreign buyers - let alone anyone else.”

“Cash-rich developers are pulling out all stops to entice buyers. At its Cullinan West project, Sun Hung Kai Properties is offering buyers finance of as much as 120 per cent of the purchase price: 90 per cent toward buying the new property, and 30 per cent to pay down their existing mortgage. Aggressive bids by mainland developers keen to build up land banks have pushed Hong Kong prices to records. Non-local developers account for 68 per cent of all government land purchases this year, according to Colliers.”

“In February, two mainland companies paid a record HK$22,118 (US$2,834) per square foot for a waterfront site. Those costs will ultimately result in higher apartment prices once developments are completed, causing neighbouring property owners to raise their own expectations. ‘People translate a land sale into the final built price, and when it is way above the market everyone will raise their own prices,’ says Denis Ma, head of Hong Kong research at consultancy Jones Lang LaSalle.”

From Reuters on China. “Gravity-defying property prices in China have spawned widespread home-loan fraud as buyers fear missing out on what seems like a sure bet. Real estate agents, valuation companies and banks themselves are party to the scam. When Zhu Chenxia bought a flat early last year from Lei Yarong in the up-market Nanshan district of China’s southern metropolis of Shenzhen, the two women drew up three purchase agreements to cover the deal. Only one was genuine.”

“Details of the deception are contained in a court judgment from a subsequent dispute between Zhu and Lei over the transaction. Remarkably, Zhu herself disclosed the fraud to the court when she gave evidence that showed the pair had conspired to cheat the bank and the government. Hu Weigang, a senior partner at Guangdong Shen Dadi Law Firm, would like to see the law enforced on the mainland as it is in Hong Kong, where creating a bogus document can lead to jail. But, he acknowledges, the scale of this cheating makes it virtually impossible. ”

“‘When everyone is doing it, you can’t put everyone in jail,’ says Hu, who specializes in real estate litigation.”

From the Australian. “‘The Boxing Day sale of real ­estate’ is how David Beard opens his Australian Property Tour of Brisbane apartments going cheap, largely as a result of defaults by foreign buyers. Inspired by the oversupply of apartments in the Brisbane market, Mr Beard saw an opportunity to bring local buyers to developers desperate to sell completed units.”

“The first port of call was a ­masterplanned community at Hamilton on Brisbane’s northside. On offer were one, two and three-bedroom apartments with access to a fully equipped gymnasium and 20m swimming pool, for a 10 per cent discount on the retail price. In the case of a two-bed two-bath unit, buyers were looking at $513,000, down from $569,000.”

“‘Every industry has its Boxing Day and today is ours,’ Beard said, as 58 people boarded the bus for the five-hour mystery tour. ‘We don’t work for any of the developers, but I can assure you we’ve spent a lot of time putting these deals in place. The prices available today won’t be available tomorrow.’”

“It was on to Bowen Hills, but as Mr Beard pointed out, nothing was for sale. Hours after he negotiated a 19 per cent discount on several new apartments, an investor jumped in and snapped them up, leaving Australian Property Tours with a hole in its itinerary. ‘Brisbane just can’t get it right in the apartment market,’ said Mr Beard. ‘There’s either an oversupply or an undersupply, and once the current stock goes, probably by the end of next year, there’s not going to be much coming on to the market at all.’”




December 4, 2017

Now They’re Having Trouble Filling Them

A report from Multi-Housing News on Washington. “Alex Henderson, who leads Grosvenor’s Puget Sound Co-Investment team, foresees renewed interest in development, given the potential oversupply of rental product and undersupply of for-sale product in the area. Henderson: ‘To my knowledge, there are very few condo products coming out over the next two years, especially in comparison with apartments, which continues to be a major challenge and opportunity for the Seattle housing market. When you look at the full development pipeline of Seattle, we are expecting 12,000 rental units this year and only a handful of condominiums.’”

The Seattle Times in Washington. “The strong economic growth of Seattle and Washington state appears to be downshifting. This assertion comes with plenty of qualifiers and questions, but early data are undeniable. I’m also skeptical that slower growth, or even an outright recession, would have much long-term effect on house prices in the city or the most desirable parts of the metro area. We’re now part of the enduring West Coast levitation seen from San Diego to San Francisco, lately in Portland, seemingly forever in Vancouver, B.C.”

“On the other hand, a growth slowdown might hurt. If it gets weak enough, we land in a ‘growth recession.’ That’s not an actual recession, where output goes into negative, but a slowdown significant enough that it shocks the economy. If a car suddenly goes from 90 mph to 25, you’ll feel it. Your face might hit the dashboard.”

The Mercury News in California. “Apartment prices in the Bay Area dipped last month, but renters, don’t breathe a sigh of relief — analysts expect prices to continue to climb in 2018. ‘Even when rents dip a little bit, they’re still more than twice the national average,’ said Sydney Bennet, a researcher for Apartment List. Nationwide, apartment prices fell in two-thirds of the major cities last month, she said.”

The Business Report in Louisiana. “The multifamily market in Baton Rouge appears to have softened in recent months, a result of continued pullback from the effects of last year’s flood and a seasonal slowdown. Craig Davenport of Cook, Moore & Associates says he’s generally seen some lower rents, more concessions offered to tenants and lower occupancy at apartment complexes in the area. Multifamily broker Chad Rigby says the market is ’softening’ as effects from the flood continue to dissipate and we enter the holiday season.”

“The student market, however, is one segment that is clearly being overbuilt, he adds. LSU is adding several hundred units with Nicholson Gateway and it recently announced a policy to require students to live on campus for their first year, moves that are expected hurt off-campus student housing properties.”

The Longview News-Journal in Texas. “Rents in the Longview area ticked down in November from the previous month and are down 3.1 percent year over year, according to Apartment List. The 0.7 percent monthly rent decline in Longview seems to be an ‘aberration,’ said Jim Tucker, owner of the Fairways Apartments on McCann Road, which has 152 units. ‘That really doesn’t happen unless we are in a recession or depression,’ he said.”

“The downward trend came as no surprise to Karen Holt, housing navigator with the East Texas Aging and Disability Resource Center in Longview. In a statement, she cited ‘aggressive, high-end conventional property development’ in recent years.”

“‘Based on numerous data sources, the supply for conventional or high-end properties is far greater than the demand at this time while the supply of affordable housing is lower and demand much higher,’ she said. ‘This effect causes rental rate drops on older, conventional properties trying to keep up their occupancy levels to maintain a level of financial security and compete with the newer properties that have been built in the past few years.’”

From KCCI 8 on Iowa. “This year alone, developers have built 4,000 new apartments in downtown Des Moines, but now they’re having trouble filling them. Buyers have so many options they don’t feel the pressure to make the decision to rent, so in order to entice renters, apartment complexes are offering $1,000-dollar gift cards, gift packs and even a couple months of free rent.”

“‘Four thousand brand new apartments have been added this year, and they’re adding 2,000 more for next spring and summer,’ said Brooke Van Sickle, assistant property manager at Confluence on 3rd. But all these new apartment complexes are having trouble filling their open spots. With so many options, people don’t feel a sense of urgency to rent. ‘People who are normally 100 percent full with their waiting list are now sitting between 90 or lower rates,’ Van Sickle said.”

“Confluence on 3rd opened in June, and they are still only 85 percent full. They are now offering a special of $300 off rent; and they’re not alone. ‘Everywhere downtown has to offer a special right now, which is odd. Downtown has never had to offer a special before,’ Van Sickle said.”

“R&T Lofts is offering two free months rent and has waived administration fees. Maxwell is offering one free month rent and different gift packages. ‘(It) helps to entice people to want to rent and it kind of keeps you competitive price wise, which is helping to drive the rents a little bit lower even,’ Van Sickle said.”

“‘Des Moines is on the map. It’s just on fire,’ said Lisa Howard, a real estate agent with Coldwell Banker. ‘Developers are coming down here and building or renovating old historic buildings.’ Howard does not think the low rent prices will stay for long. ‘The prices are high downtown. It’s expensive, and there’s high demand,’ Howard said. ‘Unless that demand changes, I don’t see the prices coming down. I really don’t.’”




December 2, 2017

Expanding The Reach Of Central-Planning Regimes

A weekend topic on central planning and the housing bubble, starting with Bloomberg. “Central bankers are starting to see promising results from one of the recent additions to their monetary policy toolbox. Lending curbs to stem financial risk — so-called macroprudential limits — have helped slow risky borrowing and temper property price bubbles in countries from New Zealand to Canada, a host of financial stability reports showed this week. While there hasn’t been uniform success — Hong Kong’s housing market shows no signs of cooling — it’s given central banks some breathing space to be more gradual in tightening monetary policy.”

“‘If you think about lessons from the global financial crisis, macroprudential is one of the key lessons,’ said Steven Bell, chief economist at BMO Global Asset Management in London. ‘It was a tool of counter-cyclical credit tightening, and I think that’s going to be a permanent feature.’”

“Global policy makers aren’t off the hook yet. Stricter financing rules may have curbed excesses, but household debt remains high in many countries, say analysts at Citigroup Inc. The Swedish Financial Supervisory Authority said in its financial stability report that housing and debt risks are still elevated, even though capital and lending requirements for banks have been raised for years in order to stem risk.”

From Canadian Mortgage Trends. “More than 1,200 mortgage professionals from across the country descended upon Niagara Falls for Mortgage Professionals Canada’s annual National Mortgage Conference. OSFI’s new B-20 mortgage rules dominated discussions. Former Prime Minister Stephen Harper critiqued the current government’s implementation of recent mortgage rule changes by saying, ‘[When in government] we did our consulting with industry members before announcements, not after.’”

“‘The percentage of homes being done at 30 years [amortization] has gone up materially in the last six months,’ said Mark Aldridge, CEO of MCAP. He added that he believes the bigger issue is not the impact on new buyers, but instead those renewing their mortgages who have never missed a payment, but won’t be able to qualify under the 200-bps stress test. ‘You’re stuck at that bank. And believe me, the banks have the data, so they can charge 20 bps, 30 bps more on customers who have nowhere to go… In the interest of financial stability, we push competition to the side and it’s going to be consumers, it’s going to be probably 20% of mortgage consumers out there, that suffer from that.’”

From Fairfax Media in New Zealand. “Business confidence has taken another tumble, falling to the lowest level in more than eight years. The ANZ business outlook survey found a net 39 per cent are pessimistic about the economy over the coming year, a 29 point fall since October. The latest survey is the first of its kind to be taken since the new Labour-led Government was formed.”

“‘Uncertainty around changing Government policy, a softer housing market, and difficulty getting credit are likely culprits,’ ANZ chief economist Sharon Zollner said. ‘The economy is at a delicate juncture as migration, construction and housing run out of steam as growth drivers. Zollner said while it was the first survey of its type that ANZ had conducted since Jacinda Ardern became prime minister, ‘it would be too simplistic to ascribe the full move to the change of government. There is a lot else going on. The softening in house price inflation is one obvious factor that shouldn’t be overlooked (particularly its importance for the retail sector), as is the reported difficulty of getting credit.’”

From Channel News Asia. “The recent wave of collective sales and an increase in land prices prompted the Monetary Authority of Singapore (MAS) to sound a note of caution on the local property market. In its latest annual review of financial stability, the central bank said that these recent developments could bring about risks to the ’sustainable conditions’ in the market.”

“Industry observers said the warning from MAS follows a similar call for prudence from National Development Minister Lawrence Wong earlier this month. It also comes on the back of new rule changes, – a sign that some analysts interpreted as authorities beginning to cast a watchful eye on the collective-sale fever. Ms Christine Li, research director at Cushman & Wakefield, noted that several en bloc sales launched since last year involve huge sites, where the number of units in the new projects may be three or four times that of the existing units. While the market is nowhere near oversupply for now, this ’spike’ in the number of new homes at each site may pave the way for a supply glut further down the road, Ms Li added.”

From Quartz on China. “China has a master plan to oust the US as preeminent global superpower—and this time it just might work. That’s according to the Washington Post’s David Ignatius, citing two Pentagon briefs. ‘There’s an eerie sense in today’s world that China is racing to capture the commanding heights of technology and trade. Meanwhile, under the banner of ‘America first,’ the Trump administration is protecting coal-mining jobs and questioning climate science,’ he concludes. ‘Sorry, friends, but this is how empires rise and fall.’”

“The ‘China is taking over the world’ meme is a perennial one. As usual, this argument overlooks what’s happening within China’s borders. That includes: a credit-driven growth model that has left debt growing faster than the economy, the continued dominance of inefficient state-owned enterprises (SOEs) at the expense of dynamic private firms, and a fiscal system that depends on a housing bubble to sustain it.”

“More foreboding is the intensifying of the Party’s control of digital networks and personal information, and the spread of China’s tightly sealed internet into Africa and central Asia. Major vehicles for this ‘internet sovereignty’ strategy are the Chinese tech companies once praised as the embodiment of dynamism and innovation. Whether swearing fealty to Xi boosts the global competitiveness of Tencent, Alibaba, and the others may be revealing.”

“Even that campaign, however, works not by seizing the reins of the existing global order, but rather by expanding the reach of Xi’s central-planning regimes. The core problem for China is: Power doesn’t guarantee competence. And Xi’s handling of the domestic economy in the past half-decade suggests a dearth of the latter.”

From City Journal. “The Republican tax-reform plan, if adopted, would put on the chopping block some cherished tax deductions—perhaps none more so than the $80 billion mortgage-interest deduction (MID) on residences, which mostly benefits affluent homeowners. As the various bills under consideration propose, the deduction should be pruned or eliminated—not just because it is inequitable but also because it distorts the housing market.”

“The effects on home prices vary by city, but there’s good evidence that cutting back the MID would lower prices in high-cost areas, where newcomers find it difficult to move nowadays. Benjamin Harris, who served as chief economist for former vice president Joseph Biden, wrote in a doctoral dissertation that abolishing the MID ‘would lead to a 28 percent decline in metropolitan-area housing prices in cities where the average taxpayer buying a new house is in the 35 percent tax bracket.’”

“Not surprisingly, the homebuilders lobby—among the hardiest of Washington swamp creatures—is fighting the proposal. In a moment of candor, however, homebuilding industry executive, Glenn Kelman, who heads the national real estate brokerage firm Redfin, told the New York Times, ‘The current tax code favors people who are buying a home versus the rest of America,’ he said. ‘As a captain of industry, I would prefer more tax breaks to help people buy houses, but as a citizen, I realize someone has to pay.’”




December 1, 2017

Now That It’s More Normal, People Have More Fear

It’s Friday desk clearing time for this blogger. “Realtors are expecting overall home sales in Idaho to expand by 3 to 5 percent in 2018. The housing market is growing, and Ross Farr, a mortgage lender at Zions Bank, says the shortage of houses compared to the demand for them is expected to continue in 2018. If you are thinking about buying, in this market climate, do not wait for prices to drop because they won’t anytime soon. Buy when you can. ‘This pervasive concern that this is a new bubble and that we’re heading for another collapse — I did mortgages through that collapse. I know that fear is justified, however, this time, credit quality is so much higher. I don’t think people who are waiting for prices to come down, I don’t think they’re going to see it. I think they’re going to regret it,’ Farr said.”

“This year’s headlines maintained the fever pitch: ‘Nashville ranked nation’s hottest single-family housing market,’ ‘Nashville’s housing market ranked No. 1,’ ‘Should you invest in Nashville’s red-hot housing market?’ The region’s soaring values — up more than 34 percent over four years — are causing many to wonder: Is Nashville’s housing market in a bubble that’s about to burst?”

“A few signs are feeding their anxiety. During recent months, some Nashville neighborhoods have seen a distinct slowdown. Sales prices have dropped, the time it takes to sell a home has climbed, and the number of homes sold has slipped, compared to the same months in 2016. Hardest hit have been expensive neighborhoods and those in the urban core flooded with new infill development. ‘A lot of people got used to that rate of growth and now that it’s more normal, people have more fear,’ said Robby Stone, an agent with Village Real Estate.”

“Stone’s company has been trying to sell a new house in East Nashville for more than a year. His client, Aerial Development Group, tore down a tiny $165,000 house and built a four-bedroom house will all the latest design trends. Village Real Estate listed it for $649,000. The house hasn’t moved. Now the home is listed at $599,900, and Stone continues to show it on Sunday afternoons. ‘I have people ask me every week if that house has sold,’ he said. ‘I can’t wait for the day that I can say ‘yes.’”

“Sarasota belongs on the list of places with millionaire homeowners, and the high-end housing market here is on a hot streak. At the peak of the luxury market pricing potential buyers will find some price cuts. One of the listings of Saunders Realtor Kim Ogilvie rests on a scenic spot on Casey Key with panoramic views of both the Gulf of Mexico and Blackburn Bay. The asking price now has fallen almost a $1 million — to a shade under $8 million. ‘The key is pricing,’ Ogilvie said.”

“David Lowy, the son of the founder of retail giant, Westfield Corporation, is the owner of the opulent One57 pad that came on the market on Monday, asking $27 million. Even if it sells for its full ask, the apartment will still be a loss for Lowy, who picked it up for $28 million in 2015, according to the Wall Street Journal.”

“Toronto developer Brad Lamb has cancelled plans to build a major downtown Edmonton condo project. The 37-storey Jasper House Condominiums On The Park was supposed to start construction by fall, but a statement from the Lamb Development Corp. said it couldn’t meet critical dates in the purchase and sale agreements. ‘The unfortunate economic circumstances that unfolded in Alberta over the last three years negatively affected our sales projections,’ the company said.”

“Jagbeer Singh, a private security guard, whiles away his time at the entrance of a ghost town in outer Delhi’s Bawana — rows of abandoned apartment buildings constructed for 3,680 poor families currently living in slums tucked in the crevices of the national capital. ‘I don’t know for whom these houses were built, but I do not mind guarding them as long I get paid (a monthly salary of Rs 10,000),’ says Singh, pointing towards a road overrun by wild grass which leads to the desolate four-storey tower blocks with broken windowpanes and plaster chipping off the walls.”

“A body representing real estate agents and negotiators has urged for a more nuanced view on the status of the property market, amid reports that there is an overhang on the supply side of the market. ‘When the data comes out from the National Property Information Centre (Napic) that there will be an overhang of, let’s say, 40 percent, a lot of people who see the data don’t really dissect where the data comes from. Some (of the data) are from areas where you shouldn’t be building homes. When you put homes there and can’t sell it, then it gets added (to the figures) and will show that there is an overhang,’ said Malaysian Institute of Estate Agents president Eric Lim.”

“Recent falls in Sydney prices could continue for months to come as the market finally slams into reverse gear, housing experts claim. Data showed home prices slid down for a third straight month over November, with the market having peaked in July. Four years of ballooning values have been pricked by a combination of tighter bank lending policies, a crackdown on overseas investors, stagnant wage growth and a flood of properties coming onto the market in spring. Where once Sydney sellers could name their price, now agents report they face a battle to attract prospective buyers to open inspections.”

“Elders Real Estate’s Peter Salisbury said would-be buyers were dropping out of contention for many of the homes currently up for sale. ‘Last year we were getting at least 15 people coming to open-for-inspections. Now you’re lucky if there’s three,’ he said. ‘There are a lot more buyers putting in low-ball offers. That was something you wouldn’t bother doing before.’”

“Ray White Rural Miles sales consultant, David Sweetapple said it was in December 2013 when the housing market fell overnight due to resource companies pulling their staff from the communities into camps. Mr Sweetapple does not blame the companies for their action but said the decision crippled the town of Miles. ‘Since then we went up to 45 per cent vacancy and property values dropped by 80 per cent,’ he said.”

“First National Real Estate Chinchilla Principal Rebecca Gurski said the the housing prices during the CSG boom were unsustainable and once the construction had finished, a mass exodus occurred affecting everyone. ‘It affected investors, home owners plus the pricing going down affecting everybody,’ she said.”

“Karina and Juan Santillan bought their home, a single-story bungalow in West Covina, 20 miles east of Los Angeles, for $152,000 in 1999. In retrospect, refinancing their home was a bad idea. But the Santillan family never thought that it would lead them to foreclosure, or that they’d spend years bouncing among hotels and living in their car. The parents never thought it would force three of their four children to leave the schools they’d been attending and take classes online, or require them to postpone college and their careers for years. They did not know they would still be recovering financially today, in 2017.”

“A few years after they bought their home, the Santillans say, people started knocking on their door selling financial products. It was easy money, the Santillans were told. Borrow against your house, it’s sure to gain value. Santillans refinanced their home in 2003. Records show they took out an additional mortgage in 2004, but Karina says she has no recollection of taking out a second mortgage. They refinanced again in 2004. They used the money to remodel their home, which they figured would give it more value. As housing prices in the region soared, they refinanced one more time, in 2005, borrowing $396,000 from New Century Financial Corp., which would itself file for bankruptcy two years later. At the time, their house worth less than $300,000, according to Zillow.”

“The payments would have been high even if both Karina and Juan had been working full-time. But Karina’s work selling insurance dried up as the housing bubble burst in 2007. Then the ink manufacturing company where Juan worked cut everyone’s pay 10 percent. They first fell behind on payments beginning in 2007, and received an eviction notice in early 2009. To keep their home, they would have had to pay $447,431. They moved out of their home on June 29, 2009. While America prides itself on being a place where people can climb up the economic ladder, it’s also a place where people can fall fast, and far. ‘We just can’t forget, that in any given moment, things can change,’ Karina told me.”