April 27, 2017

On A Quiet Day You Can Hear The Values Falling

A report from ABC News in Australia. “It’s two weeks from the federal budget, and the Government is under pressure to come up with a strategy to put the brakes on rising house prices. The Coalition has long argued that if more housing supply comes on to the market, record prices rises could be dampened. But there are different views on whether increased supply will help make housing more affordable, or if it will instead fuel more investment into an already overheated housing market. Lindsay David, of LF Economics, argues that if there really was a housing supply shortage, rents would also be skyrocketing, like they did in mining towns during the minerals boom.”

“‘When you’re in the pit of an irrational exuberance it doesn’t matter how many new dwellings you build,’ he said.”

From The Australian. “One of the biggest bull runs the Sydney housing market has seen is drawing to an end, with house prices falling this month as the crackdown by regulators starts to bite. CoreLogic head of research Tim Lawless said that recent restrictions from the banking regulator had pushed up home lending rates, taking the heat from investor enthusiasm. Sydney, in particular, had seen a wave of investors, so the impact of the regulator’s crackdown — most recently aimed at limiting interest-only loans — was likely to be more pronounced, Mr Lawless said.”

“‘It’s too early really to tell on the basis of one month’s figures, but if we are moving through the peak, it will be a moderate slowdown,’ he said.”

From The Newspaper. “Australians are racking up extreme levels of debt to buy homes that are among the world’s most expensive, a ticking time bomb that could wreck the economy if it is hit by a sudden shock, experts warn. The nation has a household debt-to-GDP ratio of 123 per cent, largely housing debt - second only to Switzerland, according to the Bank of International Settlements. Those levels exceed the US, Spain and Ireland before their property market crashes, global ratings agency Moody’s said in a report this month, warning Australians also held limited liquid assets.”

“‘Australians have borrowed up a storm and housing prices in this nation are now dangerously dumb,’ prominent Australian economist Chris Richardson said this month.”

The Courier Mail. “Melbourne-based developers arriving in Brisbane with plenty of cash and big plans to build high rise inner-city apartments have been commonplace over the past few years. While there are plenty still building high-rises there have also been plenty of plans dashed — or delayed — as Brisbane copes with an apparent apartment over supply. This time last year Melbourne-based Hamilton Corporation was spruiking two Fortitude Valley apartment projects.”

“They announced that 80 per cent of its Elixir apartment project was pre-sold while it also launched a 111-apartment project. A quick drive around by Business Confidential found the Robertson St site remained a big hole in the ground, while there is a big ‘For Lease’ sign on the Berwick St site which last year was up for sale.”

From Ten Eyewitness News. “Even though Sydney and Melbourne’s skyrocketing house prices have shown no immediate signs of letting up, it’s a different story on the west coast, now experts fear Perth could be the ‘Canary in the Coal Mine’ warning us all of the disaster just around the corner. The Western Australian capital enjoyed a high demand in property in 2007 and 2012, largely due to the mining boom which lead to a strong price growth.”

“However, home owners are now battling to pay over inflated mortgages with house prices declining at an alarming rate. Prices have dropped by double-digit percentages in some areas, with Mandurah in south Perth seeing some residents’ property prices fall by a remarkable 40 per cent in a decade. If you’re reading this from Sydney and Melbourne, consider it a warning. ‘There’s probably a lesson for Sydney and Melbourne today of perhaps what’s coming after the market turns,’ Perth property valuer Gavin Hegney told the ABC’s 7:30 program.”

“He pointed to the fact that West Australia was once considered ‘infallible’, considered to be booming on par with the other major cities. Unfortunately, that’s no longer the case. 35-year-old property owner Daniel Johnston also appeared on the 7:30 program, and told about how he purchased an investment in Mandurah for $580,000 in 2007… which is now worth only $350,000. He spoke about fears of losing his family home, as they struggle to keep up with the mortgage repayments. ‘We thought it might slow, the property price, but never expected the drop that Mandurah has had, It’s nearly halved,’ he told 7:30.”

From News.com.au. “Families in Western Australia are at breaking point, plagued with mounting debts they can’t pay off, as they face the reality of a collapsing economy. As properties decrease significantly in value and unemployment rates rise, many are now struggling to find jobs to make ends meet.Could this be the future of Melbourne and Sydney? Western Australia was once a booming product resources hub, with thousands moving to areas around Perth from interstate and overseas to work.”

“It had one of the strongest economies in the nation with housing prices on par and even higher than Sydney and Melbourne in the early 2000s. Fastforward to 2017 and WA now has the weakest economy in the country, with a high unemployment rate and a collapsing property market. Perth property valuer Gavin Hegney told ABC’s 7.30 program homes at the top end of Perth and on the urban fringe were decreasing in value and lessons could be learned from WA’s collapse. ‘Perth was booming, booming along and the east coast was on its knees,’ he said. ‘It’s the complete reverse today.

“Brad Wright was a project engineer working around WA, earning about $250,000 a year. Now he works as a security guard part-time while he tries to dig himself out of a dire financial position. He had two investment properties and a home in a luxurious suburb of Perth during the boom. He borrowed almost $1 million and said waiting for his loan approval was ‘as easy as buying an ice cream.’ ‘People have had their incomes slashed to 10, 20 per cent of what they were normally being paid and they have to meet enormous payments,’ he told 7.30.”

“He said the stress of trying to deal with the bank and find a solution to his troubles pushed him almost to the point of suicide. He said he didn’t know what he would do if he had to resort to selling the family home. ‘We will basically be kicked out on to the street with just the clothes we’re wearing and substantial debts,’ he said.”

“Lifeline financial counsellor Jenny Cecil said they were servicing a new group of clients — those struggling as a result of the economy collapsing. Many had been high income earners. She said a lot of clients were now using credit cards to maintain mortgage payments, electricity bills and council rates, making their financial positions even harder. In Mandurah, about an hour and a half from Perth, a home five minutes from the shopping centre and three minutes from the beach can be purchased for just $399,000.”

“There has been an 18 per cent drop in the price of properties in Mandurah in the last 10 years. What used to be an issue of an undersupply of housing in WA is now an issue of oversupply and both housing prices and rental prices have dropped dramatically. ‘They say in the top end of Perth on a quiet day you can hear the property values falling,’ Mr Hegney said. ‘And property values at the top end of the market have probably dropped 30 per cent from where they were at the peak of the market in 2009.’”

April 26, 2017

The Path To Prosperity

Two reports from Bloomberg on Canada. “Canadians fretted for years that home prices in the country’s largest city are rising at an unsustainable rate. Now they’re doing something about it. Ontario, the country’s most populous province, announced on Thursday a set of measures aimed at cooling the Toronto housing market. The province’s securities regulator on Wednesday also accused an alternative mortgage lender, Home Capital Group Inc., of making misleading disclosures, sending its shares tumbling. The issues at Home Capital relate to an investigation into loans with faulty income information. The company cut ties with 45 brokers in 2015 after finding falsified borrower income information, the same flaw that sunk many subprime lenders in the U.S. during the housing crisis.”

“The Ontario Securities Commission alleged Wednesday night that the company’s former officials didn’t satisfy disclosure requirements, made ‘materially misleading statements’ and failed to comply with other securities rules. ‘I think a lot of this mortgage fraud in Canada has been covered up and you’re now starting to see tips of various icebergs hitting the boat,’ Marc Cohodes, an investor who’s betting against Home Capital’s stock, said in a telephone interview.”

“Home Capital Group Inc.’s shares plunged more than 60 percent after the mortgage lender disclosed a costly new loan to tide it over as its deposits dwindle, intensifying a spiral of bad news. The company is effectively paying 22.5 percent on the first C$1 billion it borrows, which falls to 15 percent if it uses the full C$2 billion available to it, according to Jaeme Gloyn, an analyst at National Bank of Canada.”

“‘They did what appears to be to us a very expensive deal,’ said David Baskin, president of Baskin Wealth Management in Toronto, a former investor in Home Capital stock. ‘Basically they blew up the income statement in order to save the balance sheet, which I guess if you’re facing an existential crisis is what you have to do.’”

The Hamilton Spectator. “Nearly one quarter of Hamilton area homes sold in the first three months of the year were purchased by buyers from the Greater Toronto Area, a new analysis of the local marketplace has found. Conrad Zurini, broker of record for RE/MAX Escarpment Realty said: ‘Increasingly, these are (Toronto) investors looking to purchase townhomes and small single-detached homes as rental properties (in Hamilton).’”

“He suggested a frenzy by Toronto buyers to purchase investment properties could be adding an inventory of new rental properties to the marketplace faster than demand. Central Hamilton really jumped in the numbers. The vacancy rate went to 9.9 per cent in 2016, compared to 5 per cent the previous year.”

The Windsor Star. “Windsor’s real estate market has become so hot, sales agents for the majority of listings are restricting bids to one day — a strategy reserved for the nation’s most competitive housing markets in Toronto or Vancouver.”

“‘It first started (in Windsor) about six or eight months ago,’ said Denny Laurin, a broker/manager at Re/Max Preferred Realty Ltd. ‘But now we are in a situation with ample buyers that, for a seller, the best product to serve them is the multiple-offer situation. At the very start of this (a couple years ago) the average sale price in Windsor was $140,000, now it is nearly $250,000,’ Laurin said. ‘I have seen quite a few in South Windsor being sold for $100,000 over the asking price. A property that last year was worth $250,000 is now sold for $325,000.’”

From Mississauga News. “Residential sale prices in Mississauga shot up more than 30 per cent in the first quarter of 2017, according to a RE/MAX report. Mississauga’s 2017 average residential sale price for the first quarter is $753,788, an increase of 31 per cent from the same time last year. Significant price increases and high demand in the Greater Toronto Area during the first quarter of 2017 spurred growing numbers of buyers to leave the downtown core, RE/MAX said in its Spring Market Trends report. ”

The Winnipeg Free Press. “A new Re/Max report predicts a five per cent increase this year in the average selling price of a Winnipeg home, although one local agent said developments in recent weeks suggest that number may be a bit high. Akash Bedi, owner of Winnipeg’s Re/Max Executives Realty, said selling prices have been climbing at a slightly slower pace since the first-quarter data for the Re/Max report was compiled. ‘We are down a bit so far because of an oversupply of condos and an oversupply of higher-priced homes,’ he explained.”

The Regina Leader Post. “As options for renters in Regina increase, landlords are dealing with higher property taxes but often without the ability to raise rents. Jason Hall, a landlord with multiple properties in the city, is also trying to manage increased property costs in a wide-open rental market. ‘As much as you want to increase, if the market won’t handle that, you can increase it all you want but it will be empty,’ he said.”

“Hall agreed that since the market is favouring renters, it often results in landlords unable to raise rents. ‘I think it would be crazy for a landlord to pass this on to the tenant because they can just go down the street to someone who is not going to raise the rent. It is not good news for any property owner or homeowner. If you have one house, it is probably not as bad as someone who owns 150.’”

From Macleans. “On any given day now you can expect to hear at least one economist, public official or financial commentator express grave concern about the mountain of debt Canadians now carry. As a licensed insolvency trustee firm, our practice is on the front lines of Canada’s household debt binge and the bad personal finance habits that ensnare so many people. And what we see every day is that the majority of those grappling with serious debt trouble are the most typical individuals and families you could imagine.”

“Here is just a sample of recent files that have crossed our desks: A staff accountant with multiple lines of credit, several maxed-out credit cards, a big mortgage, a significant home-equity line of credit (HELOC) and two leased luxury cars; a TTC driver with two mortgages and $100,000 in unsecured lines of credit.”

“Those disturbing financial cases are no longer the extreme end of the spectrum that they were at one time. They are the ‘new normal’ in our trustee practice. The real horror stories are far worse, albeit less frequent. Two or three decades ago, it would have been unthinkable for people to hold the equivalent of $30,000 or $40,000 (or more) in credit card debt. Yet now that has crept into the Canadian psyche as just something one does.”

“(By the way, have you noticed the ‘Estimated Time To Pay’ wording on your credit card statement? It is a calculation of how long it will take to pay off your credit card balance if only the monthly minimum payments are made. The record we’ve seen is 330 years and 10 months.”

From CBC News. “There’s a difference between housing and real estate. Housing is where we live; real estate is an investment. It’s a pedantic but critical distinction. In all the breathless debates over housing bubbles and policy options, we look primarily at the investment. Imagine for a moment those debates centred around an investment other than real estate. A mutual fund. Or gold. Or an Exchange Traded Fund. Wouldn’t there be a backlash against government intervention in those investments? Would any of the stern statements from politicians keen on cooling the market make any sense?”

“The point here is that nearly all the oxygen in any discussion around housing focuses on that investment, and on one generation being priced out while the retirement plans of another generation are based almost exclusively on the soaring value of their homes.”

“But it’s hard to change decades of thinking. Economist Armine Yalnizian says politicians need to rethink the path to prosperity. Traditionally, she says, the two paths were higher education and/or home ownership. ‘The former no longer guarantees even employability, let alone higher wages; the latter is increasingly out of reach in part because of the former,’ she says.”

But Yalnizian says breaking from that orthodoxy comes with risk. ‘Politically it is hard for politicians to get off the ‘ownership society’ narrative track, because it looks like they’re waving the white flag on the future of the middle class for younger voters,’ she says.”

Where Any Fool Who Wants To Buy Can Buy

A report from the Los Angeles Times in California. “Bidding wars are common and prices are rising during the popular spring buying season. A report out Tuesday from CoreLogic shows the Southern California median home price jumped 7.1% in March from a year earlier, hitting $480,000 in the six-county area. And despite low inventory, sales rose 7.8%. When Elizabeth Rodriguez and her husband realized that the market was white-hot in the Northeast L.A. burbs where they wanted to raise their three children, they devised a strategy. The couple began writing a ‘love letter’ to sellers describing how much they wanted the house. And then they bid over asking — way, way over asking.”

“In one case, they offered $102,000 above the $798,000 list price for a three-bedroom Spanish-style home in Mount Washington. The house sold to someone else for $985,000. ‘After that I was like, this is insane,’ said the 35-year-old mother of three. The couple bid on 11 homes, she said, before they finally purchased a three-bedroom in the hills of Glassell Park listed at $799,900. To seal the deal, they again bid about $100,000 over asking, this time before an open house was held. ‘It was a crazy process,’ Rodriguez said. ‘I’m glad we are on the other side of it.’”

The Union Tribune. “The San Diego County median home price reached $515,000 in March, its highest point in a decade and a 7.7 percent increase in a year, CoreLogic reported. The median price had been below half a million dollars since October last year, which had some analysts surmising costs had hit an affordability wall. But, the March numbers show some buyers are willing to go higher to get homes. ‘Home prices are going up faster than household incomes,’ said Mark Goldman, finance and real estate lecturer at San Diego State University.”

“Many analysts, including Goldman, say the market is not heading for a housing bubble because the last crash was built on riskier loans. ‘I don’t see any speculative value in the market. We’re seeing very cautious underwriting when it comes to appraisals,’ he said. ‘Even though people are anxious to get into the market, it’s not one of those markets where any fool who wants to buy can buy.’”

The LA Daily News. “If you want to buy a home in the San Fernando Valley, make sure you’ve got money — lots of it. The median price of a home in the area hit $671,500 — the highest ever on record for March. The last time a home’s median cost — the price at which half the homes are less and half are more – was this high in the area it was June 2007, when the housing bubble was about to burst and the median was $655,000, according to the Southland Regional Association of Realtors report.”

“The new median price number for March was up 13.3 percent from a year ago, and was a definite leap from most of 2016, when the median price was stuck in the $600,000s, according to the association. Back then, buyers resisted paying more, and the ‘pool’ of buyers who could afford such prices had constricted.”

“But the new numbers are in another galaxy compared to the low point not so long ago. Just take March 2011, after the bubble had burst in the midst of the Great Recession: The median cost of a single-family home in the San Fernando Valley was $370,000, according to the association. And if you go way back to March 1998, the median price of a single-family home in the San Fernando Valley was a whopping $180,000.”

From KRON-TV. “In San Francisco and San Mateo Counties, a family of four making $105,350 or less is now considered low income by the federal government Department of Housing and Urban Development. That means they can qualify for affordable housing. ‘They are eligible now to apply for housing through the local housing authority, be it Section 8, be it public housing, or other HUD-subsidized programs,’ HUD Regional Public Affairs Officer and Homeless Liaison Ed Cabrera told KRON-TV.”

“The income limits in the Bay Area are the highest of any area in the country, Cabrera said. In neighboring Santa Clara County, low income starts at $84,000. Contra Costa County is at about $80,000. For Napa, it is $74,000. And for Solano, it is $64,000.”

The San Francisco Chronicle. “California dreaming? Hardly. Mattresses on sidewalks, moving vans in driveways and hasty garage sales hint at a trend Bay Area residents have long suspected – exodus. Real estate brokerage site Redfin released its annual ‘migration report’ and found that those residing in San Francisco Metro are the most likely to leave. The catalyst for moving – high housing costs – should surprise no one.”

“San Francisco recorded the highest ‘net outflow’ – the number of potential homebuyers looking to move to San Francisco Metro subtracted from the number of those who want to leave. The region’s outflow was double that of New York.”

The Marin Independent Journal. “The California Association of Realtors reported Monday that pending sales in the Bay Area were down in March for the sixth straight month on a year-over-year basis. Redfin’s new report shows the San Francisco metro area has the highest ‘net outflow’ of users: 15,087. That figure is the difference between the number of potential homebuyers who want to move to the San Francisco metro area and the number who want to leave it; a lot more want to leave than come.”

“New York had the second highest ‘net outflow,’ followed by Los Angeles, Washington, D.C., and Chicago.”

The Coachella Valley Independent. “Despite a growing economy and decreasing unemployment, the homeless population in the Coachella Valley is expanding—at an alarming rate. The annual Riverside County ‘point in time’ count in January showed the homeless population had increased from 1,351 unsheltered and 814 sheltered individuals in 2016, to 1,638 unsheltered and 775 sheltered in 2017.”

“The Coachella Valley cities had 297 homeless individuals in 2016—and 425 individuals in 2017. Another alarming fact: The number of homeless individuals locally without shelter is about to rise, because Roy’s Resource Center, the only shelter for the homeless on the west end of the Coachella Valley, is slated to close at the end of June. The beleaguered facility in North Palm Springs is shutting its doors largely because some local city governments have not been paying their share to keep Roy’s financially solvent.”

“The closure will undoubtedly lead to a significant increase in the number of unsheltered homeless—at the time of year when shelter is needed most. ‘We just had a ‘point in time’ count, and it shows that if we look at the nine valley cities, the increase in homelessness in the Coachella Valley is 43 percent: We went from 297 to 425. That’s huge. If Roy’s closes down, and we have no provision for the 90 people it currently houses, the increase is even more dramatic, because we’re talking about going from 297 to 515, and that’s crazy,’ said Sabby Jonathan, the mayor pro tem of Palm Desert.”

From KQED News. “Augie Cortez and his wife, Blanca, bought a little slice of the American Dream about 17 years ago in Bloomington, a working-class community in San Bernardino about 50 miles east of Los Angeles. Their roomy four-bedroom house was the very first on the block of a brand-new subdivision not unlike scores of others that began carpeting Inland Southern California toward the end of the 1990s. The Cortezes gathered up their savings and managed to put up a healthy down payment on a 15-year mortgage. After a couple of other home purchasing efforts collapsed, they were eager to make this one stick and they wanted to pay it off fast.”

“Monthly payments would be high. But the name of the little cul-de-sac seemed like a good omen: Dream Street. And for a while, the dream was good. With so much homebuilding going on, it was easy for just about anyone to get a mortgage back then, even if you had shaky credit or no job at all. Low-income minority neighborhoods like the ones around Dream Street were ripe targets for subprime lenders.”

“Augie and his wife had a sound conventional loan, but still got dragged under in a housing crisis that would ultimately steamroll through neighborhoods across the country. In 2006, the last of the brand-new homes on Dream Street sold for about $430,000. Three years later, at the peak of the mortgage meltdown, the same home was worth barely a quarter of that.”

“It was the same story up and down the block and across the region as the bubble burst on the housing market and people couldn’t afford their mortgages. Even people like Augie Cortez, who didn’t have mortgages spring-loaded with dangerous adjustable rates and hidden fees, were dragged down. Construction work vanished and Cortez’s cement finishing jobs dried up.”

“To put food on the table Cortez sold lumber and other items online. He did odd jobs for neighbors. Mortgage payments got skipped for months. Default notices were dropping into mailboxes across the neighborhood — including his own. ‘Just walk away, that’s what people were doing, just walking away,’ he says, recalling what it was like then.”

“Local real estate experts warn that Inland Empire housing is once again way overvalued, and overdue for a ‘correction.’ Prices have surged to an unsustainable level in the last year, according to Neighborhood Housing Services of the Inland Empire, a nonprofit that helped guys like Augie hold onto their houses 10 years ago.”

“At the edge of those vacant lots, a sign lashed to a post beckons with a come-on that sounds a little suspicious, given what this neighborhood has survived over the last decade: ‘Buy a Home, 1% Down.’ There’s no name for a real estate agent or mortgage broker. But there’s a local phone number. I give it a call. ‘Hi, this is Emily your friendly real estate professional,’ chirps a pre-recorded message. ‘Buying a home has never been easier! Here’s how it works,’ continues Emily. ‘You put down 1 percent and your lender 2 percent toward your down payment, which puts you on your way to home ownership.’”

“Emily asks me to leave my number and a good time to call back. I don’t. But I do find out more about that sign, and about new trends in home loans that are stoking old fears.”

April 25, 2017

A Glut May Pressure Owners To Drop Their Prices

A report from Multi-Housing News. “W. Allen Morris, president and CEO of The Allen Morris Co., recently spoke with MHN about how he sees the multifamily landscape shaping up for 2017. MHN: With about a quarter of the year behind us, what have you seen so far in 2017 when it comes to multifamily investment opportunities? Morris: One is that there’s less pressure on land prices as many buyers have not been able to secure financing and have backed away from new projects. There is also the reality that some markets are dealing a current oversupply of product, markets such as San Francisco, New York and Miami, among others. This has and will continue to exude downward pressure on rents.”

“MHN: What do you feel is the most important thing that investors need to be aware of in today’s multifamily environment? Morris: I would say competitive products that could drive rental rates down in the project you invest in. To that end, developers need to develop or select properties that have market differentiation, a strategic advantage over competition. One example is in our St. Petersburg project where we are leasing at above our pro-forma rental rates, and we are able to do so because we are delivering a quality product that is amenity-rich—a market differentiator.”

The Washington Post. “Apartment living has changed in recent years. Gone are the days of shag carpeting and laminate countertops. Now renters demand hardwood floors and high-end finishes similar to what they would find in a single-family home. They also want a wide-range of amenities in their buildings. Amenities are a hot topic in the apartment housing industry. In some competitive markets such as the D.C. region, an arms race of sorts appears to be breaking out as buildings try to outdo each other with lavish features.”

“‘People say, ‘Do we really need a fitness center? There’s a gym right down the street,’ said Cindy Clare, president of Kettler Management in McLean. ‘But you do. I always say 100 percent of your residents think they are going to use the fitness center, only 10 percent will, but everybody thinks they are.’”

From Metro US on New York. “With a glut of rental units on the market, New Yorkers are negotiating, scoring free rent, iPads and more from their landlords. It’s a new phenomenon. Landlords are at a disadvantage because record high rents are driving people to the outer limits of the five boroughs, while new developments are flooding the market in historically popular areas, creating high vacancy rates in Manhattan and parts of Brooklyn. In March, 35 percent of leases signed at Citi Habitats included some sort of deal sweetener for the tenant, up from 20 percent in March 2016 and 12 percent in 2015, according to company figures.”

“Jonathan Katz, for example, made out pretty well. He is now moving into a one-bedroom in Park Slope, Brooklyn, which had been vacant for more than two months. To lure him in, Katz was given three months of free rent on an 18-month lease (a savings of $8,700), did not have to pay a broker’s fee and got $100 knocked off the base rent. For an apartment that would have cost him $2,900 a month, he will now pay $2,350. ‘There was a time when concessions were few and far between,’ said Joshua Juneau, a broker for Triple Mint in Manhattan. Now, he said, ‘we’re getting 700 emails showcasing what’s available and what incentives are being offered.’”

The Chicago Tribune in Illinois. “Chicago’s Trump Tower has an unusually large number of condominiums for sale and for rent, and real estate agents predict that a glut of available units in the building may pressure owners to drop their prices. Already renters in Trump Tower say they have been able to get sizable discounts. The number for sale ‘is amazing,’ said Gail Lissner, vice president of Appraisal Research Counselors. ‘I’ve never seen that number for sale since they opened, and there have been very few transactions.’”

The Real Deal on California. “The Bloc is a bellwether for the real estate market in Downtown Los Angeles, and for quite a while, it was signaling all good things to the industry, with promises of growth and prosperity for all. But with previously announced tenants now jumping ship, a revolving door of retail leasing brokers and three pushed-back openings, the industry is beginning to suspect that the development was a false prophet.”

“After hip hotels and trendy restaurants started popping up in DTLA more than five years ago, retail was expected to be the next frontier. The Ratkovich Company announced leasing news shortly after the developer snagged the property in 2013.”

“The percentage of the Bloc’s 720,000-square-foot office tower that was leased also dropped substantially in the first quarter, though sources could not say by how much. Ratkovich said 48 percent of the space is leased. Industry insiders speculate that tenants with short-term leases were booted in favor of finding tenants who could pay more. The development company has also been rocked by some internal issues, from the sudden departure of chief operating officer Clare DeBriere in January to the Bloc’s financial troubles last year.”

The Hawaii Tribune-Herald. “The University of Hawaii at Hilo wants to lower the price of its most underused residence hall by about 18 percent next fall, part of a proposal to boost the dorm’s occupancy and generate more funding to pay back bond debt. Hale Alahonua, a 300-bed, suite-style dormitory, has remained less than 60 percent full since opening in 2013. Currently it’s about 50 percent occupied. Many students have complained the dorm is too expensive — at $3,859 per semester, it’s the priciest housing option on campus.”

“As a result of low occupancy, UH-Hilo has dipped into reserve funds to pay off a 30-year, $17 million revenue bond used to help finance the $28 million dorm when it was built. This week, administrators presented a three-year rate restructuring proposal that would slash the yearly cost to live in Hale Alahonua by more than $1,400 — putting it about $300 cheaper per year than one-bedroom double rooms in Hale Ikena, a popular apartment-style dorm and the next priciest on-campus housing option.”

“‘Why are we confident about this? Well, for the past four years, as enrollment (campuswide) has continued to decrease, housing has consistently had 18 percent of the total student population,’ said Farrah-Marie Gomes, UH-Hilo’s vice chancellor for student affairs. ‘With the (price) reduction of Hale ‘Alahonua, the expectation is we will be able to bring up total occupancy and that’s how we make those payments to debt service.’”

April 24, 2017

A Baseline When Many People Overpaid Is Illogical

A report from Westworld on Colorado. “Thanks to Denver’s red-hot real estate market, more and more people trying to buy a home in the metro area are finding themselves in bidding wars, resulting in offers that frequently blow past the property’s listed price. The incredible demand, as well as the speed with which purchases are being made, explains why some real estate agents have started putting up ‘Coming Soon’ signs on houses before changing them to ‘For Sale.’ Scott Grossman, who chairs the board for the Denver Metro Association of Realtors, elaborates on this point. Local real estate agents have been seeing bids for properties from people who haven’t actually seen them ‘for a little while now — especially buyers who are coming in from out of state, who are somewhat at a disadvantage. There’s no luxury of being able to fly in and look at a house next week, because most likely it will be long gone by then. So they see a listing come on the market and put in the highest bid — but then, over the next week or two, something happens and they back out of the deal.’”

“‘Some of them have buyer’s remorse, thinking, ‘Maybe we’re paying a little too much for this. Let’s get out.’ Or maybe there’s an inspection issue that might cause them to second-guess. And there’s more risk of that happening from people who haven’t walked through it and actually seen it.’”

The Real Deal on New York. “In December 2015, with new development sales beginning to drag, Doug Yearley got poetic about condo sales – or the lack thereof. ‘There are certain units in certain locations within a building that are hot, and then there are other units that may be in a dark, cold corner that you have to incentivize a bit more,’ the CEO of national homebuilding giant Toll Brothers told investors during an earnings call at the time.”

“Since then, Toll Brothers has rolled out an aggressive array of incentives at its condo projects in New York, becoming one of the biggest players to acknowledge the slowdown and spell out its plans to tackle it. And in planning for the future, it’s shifted away from the top-tier luxury product that has saddled so many developers with unsold inventory. ‘They got a little aggressive on their pricing,’ said Stephen Kliegerman of Terra Holdings, and doesn’t work with Toll Brothers. ‘One of the negatives of doing your own in-house sales and marketing is you don’t have boots-on-the-ground brokers to say to decision-makers: ‘You’re going a little too far.’”

The New Journal in Florida. “Regina Marston slowly drove her SUV up and down the section of short, parallel roads that make up the heart of Volusia County’s northernmost beachfront community. One by one she pointed out the abandoned boats, cars, pickups and trailers improperly parked in front yards. Junked yards in plain view. Lawns not maintained. Work being done without proper permits or any concept of deadlines. Marston wearied of the exercise before she ran out of examples of the downturn her neighborhood in the older section of Ormond-by-the-Sea has taken.”

“‘It’s counter-intuitive to have mainland housing be worth more than beachfront housing,’ said Marston, 67, a former Realtor who owns two homes in the area and has pestered county officials for several years in an effort to break what she considers their ongoing indifference to the area.”

“Doug Daniels represented the area on the County Council from 2013 through 2016. He recalled knocking on doors during his campaign in 2012 and being astonished to see so many derelict homes on so many streets throughout the community. ‘You could tell that a lot of the prior owners of those properties were gone,’ he said. ‘They had been foreclosed out and someone else acquired their properties. … You look at some of those streets and it almost seems like blight by design.’”

“‘I am resentful. I admit it,’ said homeowner Janet Jester, 70. ‘I’m not going to picket in front of people’s houses or anything, but I don’t like it. It lowers the value of my property.’”

The Illinois News Network. “Illinois is one of the few states in the nation to still have home foreclosure rates higher than pre-recession levels. A real estate agent in one of the hardest-hit areas of the state says high property taxes send people away. Bob Nieman has been a Realtor in the Rockford area for decades. While the recession was years ago, he says there are still a high number of foreclosed homes there. In a city where the average home price is less than $110,000, he says people still tell him the monthly mortgage payments are too high.”

“‘On a $100,000 home, the taxes are going to be around $4,000. Normally, that’s an objection,’ he said. ‘It has a damper on whether they’re willing to buy it at all. The tax bill is high but the price per square foot, compared to other areas, is low.’”

The Greenwich Free Press in Connecticut. “Just a day after public relations firm Lou Hammond pitched its services to the First Selectman’s Economic Advisory Committee with a goal of making Greenwich more enticing to home buyers and businesses, Bloomberg published a feature reporting that the Greenwich market ‘jolted awake’ in the first quarter of 2017 in tandem with a rising stock market and house price reductions averaging 7.9 percent.”

“Commenting on the Bloomberg article, the director of the Greenwich Association of Realtors, Theresa Hatton was dismissive. ‘The contention about discounts is actually normal in any market and at any price range,’ she said. ‘Homes that are on the market longer sell for less than asking price, homes priced to sell are sold quickly and usually for at or above list price. It is universal across all real estate markets as cited by real estate author and trainer, David Knox.’”

“Some readers have been more sympathetic to the Bloomberg argument. After a March 8 GFP feature about the proposed re-branding campaign – Proposed Greenwich Re-Branding: A Pearls and Mercedes Town No More – GFP reader Marija said she was opposed to her tax money being spent on a PR campaign ‘to increase real estate prices.’ ‘Greenwich housing is already expensive – and a baseline of the height of the market in 2007 when many people overpaid is illogical,’ she argued. ‘Housing is impacted by economic cycles, and we are likely to face another downturn in the upcoming years. PR campaigns will be futile to prevent this.’”

“The reader went on to lament the tear down trend and construction of even larger ‘high end’ houses on speculation that she argued few people can afford. ‘Let those developers and agents pay for their own marketing.’”

“Commenting on GFP’s April 19 feature write-up on the Lou Hammond presentation, local journalist and author Sarah Darer Littman wrote, ‘Those of us who made prudent financial decisions when purchasing homes are being asked for our taxpayer dollars to bail out the bad decisions of people who took out too much debt to invest in McMansions in back country and now can’t unload them for what they paid for them. Never mind that these are many of the same folks who are ardent proponents of free market principles when it comes to those less well off than themselves on issues like healthcare and the carried interest loophole.’”

April 23, 2017

The Biggest Swing You Could Imagine

A weekend topic starting with Mother Jones. “Are we in a second housing bubble, as I suggested in a chart I posted a couple of days ago? Brad DeLong has an optimistic take: ‘There were three good reasons in the mid-2000s to believe that housing prices should jump substantially….How much were these worth? Not enough to boost housing prices to their 2005 values. But plausibly enough to boost housing prices to their values today. IMHO, the best way to view the graph is as a positive ‘displacement’ boom caused by true fundamentals, a bubble upward overshoot, a crash downward undershoot, and now (we hope) equilibrium.’”

From News Talk. “How do you spot an economic bubble? Generally, you only see it when it pops. Everyone who lived through Ireland’s Celtic Tiger boom and bust will know what it feels like when ‘good times’ turn sour. Ireland’s current rapid rise in property prices is being caused by a miss-match between supply and demand. Low stocks of houses available to buy make them more expensive - but that doesn’t necessarily mean there’s no ‘bubble’ element to recent price hikes. There is a saying in economics that when people start saying ‘this time is different’ it’s time to get worried.”

“FOMO - When bubbles start to form investors are afraid of being left behind when there’s money to be made - so they pile in. Euphoria - Valuations hit extreme levels (think Irish property prices in the year before the crash). Downfall - The shine wears off. Savvy investors realise a market is out of control and start to jump ship as values head south. Fallout - We all sit around asking ‘why didn’t we see this coming’ (and writing think pieces about how we’ll spot the next bubble forming).”

The Tampa Bay Times in Florida. “With the peak selling season in full swing, Tampa home sales didn’t disappoint in March — prices in all four bay area counties jumped again by double digits compared to the same time a year earlier. ‘We certainly have a great, healthy market right now,’ Charles Richardson, senior regional vice president of Coldwell Banker, said Friday. ‘I don’t see any adverse influences to cause it to slow down.’”

“March’s price increase marks the 61st consecutive month of year-over-year price gains. Despite some talk of another bubble, tighter lending standards have stopped the rampant speculation that sent prices soaring to unsustainable levels before the 2008 crash, bankers and Realtors say.”

The Tennessean. “Spurred by Nashville’s breakneck growth, Davidson County’s property values have soared by a record median 37 percent since 2013 under a reappraisal performed by the office of Davidson County Property Assessor Vivian Wilhoite. In Nashville’s most rapidly gentrifying neighborhoods — including large stretches of East Nashville, parts of North Nashville, The Nations in West Nashville, and Wedgewood-Houston near the city’s fairgrounds — values have skyrocketed the most.”

“It means these neighborhoods will be taking on a significantly larger tax burden than they’re accustomed. ‘The growing demand for real estate in the Nashville market drives up values,’ Wilhoite said.”

The Napa Valley Register in California. “The first quarter of 2017 saw continued improvement in the sale prices of American Canyon homes, where home values increased 45 percent over the previous five years. The average sale price of newer homes was $603,000, a 13.6 percent jump over 2016’s average sale price of $530,625. The newer homes sold for $216 per square foot. Older homes average sale price was $406,917, up 13.5 percent from the 2016 average of $357,947. Interest rates remain low, and American Canyon offers more value for home buyers compared to the rest of the Bay Area.”

The Green Bay Press Gazette in Wisconsin. “Difficult might be an understatement when it comes to finding a house in Brown County these days. Home sales data show 2017 is shaping up to be the busiest year for sales in a decade. ‘It has changed like night and day,’ Realtor Mark Olejniczak said. ‘The biggest swing you could imagine.’ Olejniczak said two or three offers on a property is no longer unusual. ‘I’ve seen five offers on one property,’ he said. ‘And it’s not just in certain areas. It’s the east side, the west side, Green Bay, Bellevue, De Pere, Lawrence, duplexes, rural homes, starter homes, condos. If a buyer has looked at a (starter home), they need to make up their mind pretty quickly and come pre-approved to buy.’”

The Des Moines Register in Iowa. “New data show central Iowa’s hot housing market has infiltrated every corner of Polk County. Home prices have surged around the metro in recent years thanks to a steady economy, an influx of young homebuyers and a historically low number of homes for sale, real estate professional say. With few houses on the market, some sellers have enjoyed bidding wars and above-list-price offers.”

“‘The story continues to be supply, historically low supply, lower supply than we have had for a long, long time,’ said Bob Burns, president of Coldwell Banker Mid-America Group. ‘It’s driving prices up.’”

From WFPL on Kentucky. “The supply of available homes in Jefferson County isn’t keeping up with demand. The sparse inventory is keeping home values here on the rise. Tony Lindauer, head of the Jefferson County Property Valuation Administration, held a news conference Friday morning at the PVA headquarters in downtown Louisville to brief reporters on the latest assessments. ‘We are one of the hottest markets in the country,’ he said. ‘That’s basically what’s driving the prices up.’”

“And John Nelson, an economics professor at the University of Louisville, said he’s more concerned about the longevity of market conditions and job creation than threats of a housing market bubble, despite rising home prices. ‘That’s the least of my concern,’ he said of a new bubble.”

The Colorado Springs Gazette. “Something is missing from front lawns across Colorado Springs: for sale signs. Actually, the signs are out there, but there are far fewer around these days. The result: Some sellers routinely field multiple offers, especially if their single-family homes are priced in the $200,000 to $400,000 range; buyers must act within hours - or even less - to make an offer or risk losing the home; and both sides are seeing prices soar because of the furious demand and supply problems.”

“‘We are experiencing something that I’ve never seen in this market before,’ said Joe Clement, broker-owner of Re/Max Properties and a 40-year real estate veteran. One of his agents recently listed two homes in the $250,000 to $350,000 price range. Within days, the first home had 34 showings and eight offers, while the second had 40 showings and six offers. ‘It’s like crazy,’ Clement said.”

“And while nobody wants higher mortgage rates, an uptick would eventually reduce the number of buyers in the market, Clement said. ‘The big cities and the medium-size cities like our size all have the same problem: inventory, inventory, inventory and demand, demand, demand,’ Clement said. ‘I’m not cheering for high interest rates or a bump-up, but it could help us in this case. It could put a little damper on the fire. It’s not out of control, but it’s getting there.’”

April 22, 2017

Hand-Wringing About A Housing Glut

A report from Money Watch. “If you want to rent an apartment in one of those high-rise buildings going up in major cities nationwide but can’t find one in your price range, this could be your lucky day — or even your lucky year. Rents may slowly be spiraling downward by as much as 20 percent. Jay Rollins, the head of real estate investing firm JCR Capital, is predicting that the booming urban rental market in places such as Denver, New York City and San Francisco may have finally become overbuilt and overbought. ‘A lot of new buildings have come on-line,’ said Rollins. ‘There’s too much, and prices are getting too high.’”

“Rollins’ firm provides financing for acquisitions in the rental and condo markets with both debt and equity. He describes his mini-investment bank as ‘opportunistic.’ Rollins also looks for those who want to take over buildings whose original owners end up over their heads in debt and are forced to sell to someone who would ‘buy it for a dollar in order to make two.’ Simply put: high-end ‘flippers.’”

The Oregonian. “Rent increases have slowed across the metro area and have even fallen in some areas, according to the apartment industry association Multifamily NW. The report comes as new construction has flooded the metro area, giving renters at the top end of the market plenty of options to which to choose. Newly constructed apartment buildings are offering more move-in bonuses, and their established high-end competitors are doing the same.”

“The report said rents fell 6 percent in Hillsboro and 4 percent in both Northwest Portland and Beaverton.”

From NPR Pittsburg. “The demand for new apartments in Philadelphia and Pittsburgh has grown swiftly over the last few years. Developers have met that demand with a tremendous amount of construction, said Barbara Byrne Denham, senior economist at Reis, a real estate data and analytics company based in New York. 
It might seem like both cities have more new luxury apartments than they know what to do with. But is hand-wringing about a housing glut a wise reaction? ‘Yes and no,’ said Byrne Denham.”

“The vacancy rate in Pittsburgh rose from 4.7 to 5.2 percent in the same period. ‘While that looks striking, it’s not alarming,’ said Bryne Denham, noting that new construction in Pittsburgh for 2017 is expected to drop by almost a third, to roughly 1,000 units. ‘So we do see a lot of supply, but it’s not such an alarming rate that we’re going to see empty, empty buildings.’”

The Buffalo News in New York. “Grand Island Supervisor Nathan D. McMurray wants the town to put a moratorium on the development of any new apartment complexes until it has a master plan in place. Oakwood Ridge, a $1.2 million apartment complex at 2984 Grand Island Blvd., with two buildings, each with eight apartments, a total of 16-units, raised an outcry on social media – led by McMurray, who said ‘there’s an absolute oversaturation of high-end apartments on Grand Island.’”

“Oakwood Ridge Developer David Mazur, who also built a similar development, the 32-unit Nottingham Estates two years ago, told The Buffalo News that he abided by all the rules of zoning and even designed his new complex at half the density that he was allowed. He said another apartment complex, Heron Pointe, a 230-unit project on Grand Island Boulevard that is under construction, is what started the issue with oversaturation, not his complex. ‘I do believe if that project didn’t exist they wouldn’t be worried about my 16 units,’ said Mazur.”

The Houston Chronicle in Texas. “Modern apartment buildings have to offer more than cable TV to draw the interest of prospective renters, so developers and designers are working hard to keep pace with the rapid lifestyle changes ushered in by digital technology. Tasked with identifying amenities that could differentiate apartment buildings in this age, a group of graduate students from the University of Houston’s Stanford Alexander Center for Excellence in Real Estate investigated emerging examples and drew up a list of best practices.”

“Developers were keen to pay attention. With a glut in luxury high-rise apartments, competition for residents is heating up and amenities could give innovative landlords an advantage. Workout rooms and swimming pools don’t drive as much renter excitement anymore. So what’s next? According to the students: fingerprint-scan door locks, dedicated facilities for package delivery, building-specific smartphone applications, internet-connected appliances, transportation services and facilities for pets.”

The Journal Sentinel in Wisconsin. “A high-end lakefront apartment development planned for St. Francis has received preliminary city approval after the number of units was substantially reduced. Bear Development LLC now plans to develop 11 two- to three-story buildings, totaling 221 apartments, with enclosed parking. The $30 million project would include three additional buildings with garages, as well as a clubhouse with an outdoor swimming pool.”

“Kenosha-based Bear reduced the unit count after seeing a decline in rent among similar developments in the Milwaukee area because of an oversupply of new apartments, according to city officials. Similar concerns have led to other Milwaukee-area apartment developments being downsized, delayed or canceled. Any city financing help would be provided through new property tax revenue generated by the project. The development’s monthly rents would start at $900, according to city records.”

The Capital Journal in South Dakota. “Two apartment complex owners - Mike and Donna Jean Newton, and Glennis and Mark Zarecky - asked the Hughes County consolidated equalization board for lower tax bills on large apartment buildings. Each got some relief. Mike Newton did not appear before the board, but sent a note: ‘When we built, the city was crying for places for people to live. Now not many people are moving to Pierre. It is difficult to pay these kinds of taxes when you can’t keep apartments full.’”

“Prairie Vista, near Northridge Mall, has one-bedroom and two-bedroom units, billed as luxury apartments, from $800 to $1,050 per month. He’s got the building for sale, listed at $1.8 million, but says he would take less.”

“Glennis Zarecky did appear before the equalization board on Monday. As in the Newton’s case, the owners got some tax relief. A quick influx of apartments has changed some of the dynamic, Zarecky said. ‘I think back and we built ours and opened it up in 2013 and there was an absolute demand for quality apartments. But since then, the Fosters built 24 units and Prairie Vista opened a year or so later than we did.’”

“‘Our vacancy rate in 2016 was certainly twice as high as what we had budgeted for,’ she said. Zarecky said she’s not sure what has changed, except perhaps a certain slice of the market has been met. ‘I think when it comes to that grade and budget of apartments, I think the demand has been met,’ Zarecky said. ‘What I believe is still in demand is more affordable ones. There are a lot of people who don’t want two bedrooms, or can’t spend $700, or $800, a month.’”

April 21, 2017

Responding Rationally To Loose Money

It’s Friday desk clearing time for this blogger. “The slumbering housing market in Greenwich, the Connecticut town favored by Wall Street’s financial elite, jolted awake in the first quarter as buyers emboldened by the rising stock market committed to purchases — as long as they didn’t have to pay full price. Prices remain 20 percent below the town’s peak in the second quarter of 2006, when the median was $2.33 million. ‘That kind of market no longer exists,’ said Jonathan Miller, president of Miller Samuel. ‘If it comes back, it’s not tomorrow.’”

“‘Too much luxury product’ says one broker as a glut of ultra-high-end condos sparks price cuts, including on Gwyneth Paltrow’s pad, which she sold for 30 percent below its original price. Paltrow’s pad wasn’t an outlier. In 2015 and 2016, a confluence of events, including a glut of luxury units and uncertainty surrounding the presidential election, forced many sellers to slash their prices as buyers took harder and longer looks at properties. ‘The New York market became very overpriced,’ Donna Olshan, whose eponymous brokerage specializes in properties costing more than $4 million, tells THR. ‘Buyers became very cost-conscious.’”

“Though the residential slowdown continues in South Florida, sellers may finally be adjusting to market conditions by lowering their prices. Residential properties sold for bigger discounts during the first quarter compared to the same period of last year in Miami Beach, continuing a trend from the fourth quarter of 2016, according to Douglas Elliman. Properties in Miami Beach spent 143 days on the market during the first quarter of this year, up from 97 days the previous year. Listing discounts also continued to increase, which makes sense given that ‘pricing was too high to begin with,’ said Jonathan Miller, whose firm Miller Samuel authored the reports. ‘The spread is widening. The seller is traveling farther to meet the buyer, and I don’t believe it’s the buyer coming up to meet the seller.’”

“According to the latest FipeZAP Index, residential real estate sale prices in Brazil remained relatively stable in March. Eleven of the twenty cities included in the Index showed a decline in sale prices from February to March. ‘What I tell the owners I work with is that if they want to sell they property in a short array of time they must indicate a price that is below market value. If not they must be patient,’ said Charlie Jonas from luxury real estate agency, Rio Exclusive.”

“The best rental deals on residences in Abu Dhabi could be on the new one ones as landlords ramp up on incentives. Landlords are facing a stark choice - stick to their demands and see their tenants moving out and having to keep the units unoccupied for longer. Or they can give in to market forces and sign up tenants for the best they can get under the circumstances. They have to as rents in Abu Dhabi remain under extreme duress, particularly at the top end of the residential leasing space. On many counts, the level of stress on asking rents is much higher than what landlords in Dubai’s freehold zones are facing. What is remarkable about Abu Dhabi is that it is happening within a much lower residential base.”

“Alpon Abu of Vase Solutions says rental prices in Nairobi recorded a drop in the final quarter of 2016 caused by an oversupply of apartments and falling demands, citing available reports. ‘It seems there is an oversupply of A class commercial spaces as well as expensive apartments that is causing a drop in prices, rental yields,’ he says. ‘Moreover, several banks have gone down within the last 12 months. With a weak banking system that cannot provide sufficient finance support for further growth, the future does not look bright for developers.’”

“International Real Estate Federation vice-president Michael Geh said only owners who could no longer bear the hefty mortgage repayment were willing to let go of their high-end properties at 20 to 30 per cent less. ‘If you have two to three luxury condominiums and there is no rental coming from either and people not wanting to buy, then it seems necessary for owners to give about 25 per cent off the asking price to let go of at least one property. But for the buyer, it is a good deal. So, I wouldn’t say the property market is crashing because there is still a willing buyer for a willing price tag,’ said Geh who represents the Malaysian chapter of the International Real Estate Federation.”

“Geh likened the situation to the English folklore Robin Hood, noting that the rich would not like the current situation while the ‘poor’ would be happy being at the receiving end.”

“A meeting has heard the reason Newstead-based builder CKP Constructions collapsed, leaving four projects around the city uncompleted. CKP Construction director Craig Petersen told a meeting of creditors that an unpaid debt owed by a developer called Gabba Holdings had lead to cash flow problems from which the company was unable to recover. The company’s collapse is the latest in a series of building company failures and comes as the Reserve Bank of Australia singled out the Brisbane property market as an area of concern.”

“Housing and Public Works Minister Mick De Brenni said the CKP collapse meant subcontractors had once again been left exposed. Brisbane/Gold Coast-based Cullen Group collapsed just before Christmas, owing subbies an estimated $18 million and leaving a string of uncompleted projects. ‘MEA Chief Executive Malcolm Richards said that the collapse would leave many sub-contractors out of pocket. ‘This is devastating news for the many mum and dad sub-contracting businesses who will now be left out of pocket due to the collapse of CPK Constructions,’ Mr Richards said.”

“Fresh from their triumphs on energy, health and other files, the Ontario Liberals plan to extinguish an ‘overheated’ Toronto housing market. Chesterton once said the modern world consists of formerly coherent virtues wandering about in mad isolation. Let us soften our scorn for the credulity of past ages long enough to consider that the major thrust of government policy over the past decade has been to ’stimulate’ the economy by keeping interest rates artificially low.”

“The point is, the whole idea behind cheap money, other than (a) government can alter real interest rates because the market is full of dopes who don’t know from nominal and (b) to hold down interest payments on runaway public debt, is to make citizens borrow and spend. Then when we do, responding rationally to loose money by taking out big mortgages, they say hey, we wanted you to spend like maniacs but not on significant assets. Dawk.”

“Part of the argument is that if the housing ‘bubble’ were to ‘burst’ it would hurt the economy. But that’s only true if government has foolishly socialized risk by backing unsound mortgages. So having made the whole system dangerously unstable and inflated it recklessly, they now want to do us another favour based on their superior enlightenment, capacity and compassion.”

“So why not simply mandate that no house in the Greater Golden Horseshoe can sell for more than its MPAC valuation, at least to a stinking foreigner? Because it would be central planning, which we know always causes unfair disaster. So while they devise other central planning to cause unfair disaster, please hit the roof as hard and often as possible especially if you live in Toronto. Putting holes in it with your head will reduce its value. Which your government actually wants.”

April 20, 2017

You Keep Bidding, And Then You Have Buyer’s Remorse

A report from the Citizen Times in North Carolina. “In the red hot local real estate business, it’s a little taboo to use ‘the B-word.’That’s mainly because everyone has painfully fresh memories of the last housing bubble, which burst with a near-nuclear detonation in 2008, leading to a worldwide recession with impacts that lingered for years. So pardon professionals like Mike Figura, an Asheville market analyst, who is dancing around the B-word in light of the first quarter real estate report. ‘It’s getting a little frothy out there,’ Figura said, noting that he opened his company in 2005. ‘When I started, it did feel similar to what’s going on now, in terms of bidding wars and setting new records each quarter.’”

“‘I don’t know if we’re in a situation where we’re creating bubbles, but we are seeing appreciation in selling prices of about 10-12 percent (a year), and I’m not sure if that’s sustainable,’ said Don Davies, whose firm RealSearch conducts market studies.”

From CBS Detroit in Michigan. “Home prices are on the rise for the seventh straight year with a new survey by Real Comp showing the median price of a home in metro Detroit has risen by $13,000 this year. When will it end? ‘The prices have gone straight up,’ said Jeff Glover is an agent at Keller Williams Real Estate. ‘You’ve got 2011, 12, 13, 14, 15, 16 … that’s now seven years of increases in home values. We’re at least a couple of years beyond the point where it normally starts shifting back the other way, normally every five, six years. We won’t find out how long this is going to last until six months after it’s already changed.’”

The Idaho Statesman. “Treasure Valley home values have steadily climbed since the Great Recession, and median prices have surpassed the peaks of the pre-recession housing bubble of the mid-2000s. ‘At the beginning of the year, it used to be one in a handful sold for over the asking price,’ said Mike Brown, owner of the 39-agent Mike Brown Group at Silvercreek Realty in Meridian. ‘Now, it’s three in a handful.’”

“Katrina Wehr, 2017 president for Boise Regional Realtors, said some buyers get caught up in the moment and make hasty bids they later regret, especially if they had previously lost out after offering on houses they had grown attached to. ‘You can get caught up, just like when you’re at an auction,’ Wehr said. ‘You get excited. You keep bidding, and then you have buyer’s remorse.’”

From North Fulton in Georgia. “For at least the last four years in Atlanta the job market has been on fire. People have been moving to Atlanta and homebuilders have had trouble keeping up. The story has been big, but the same – until now. Today, something very different is happening. Inventory levels started dropping again for houses priced under $400,000. And they have started rising for houses priced above $400,000. It is truly night and day.”

“Home builders may be starting to over build the luxury market. For the last several years, because of the increased number of jobs and influx of people into Atlanta, they have had no trouble building higher-end homes and selling them prior to putting a shovel in the ground. Not many builders have been building the sub-$400,000 market. A homebuilder friend of mine told me that he just finished a $450,000+ townhome community in what I consider a very desirable location. And he’s having trouble selling them.”

“If you are wondering why apartments are going up everywhere you look, go try to buy a house under $400,000 and you’ll know.”

The Lane Report in Kentucky. “The Greater Louisville Association of Realtors (GLAR) reported sales up 4.67 percent this year. ‘Our members are still working in a very strong sellers’ market for homes up to $400,000,’ said Allison Bartholomew, president of GLAR. ‘Between $400,000 to $600,000 the market becomes slightly more balanced and over $600,000 we’re in a buyers’ market in most areas due to the influx of new listings.’”

From Mansion Global on New York. “The cost of urban luxury has just gone down. A 4,254-square-foot corner duplex at the Seville has lopped about 40% off of its original asking price of $11.25 million. The six-bedroom, four-and-a-half bathroom Upper East Side apartment is now listed at $6.75 million. Listing agent Thomas Di Domenico attributes the new price to several factors, including a rise in interest rates and the shift in recent years from a seller’s market to a buyer’s market in Manhattan.”

“Mr. Di Domenico also says the property wasn’t marketed correctly when it was first listed at the much higher price in 2014. He and his team have completely restaged the space for buyers who increasingly shop online for real estate. ‘The visuals have to be strong,’ he said. ‘And the property has to match up.’”

April 19, 2017

It’s Almost Like Buyers Are Playing With Monopoly Money

An update on Canada and Australia: CBC News. “If real estate is a lottery draw, Toronto-area homeowner Marni Blouin won the jackpot. Blouin and her husband purchased their modest detached home in Scarborough, Ont., 12 years ago for $238,000. In early April, they listed it for sale at $629,000, after hearing about the scorching-hot market that has boosted Toronto home prices by nearly 30 per cent annually. ‘When it was actually getting ready to be listed at the beginning of April, I couldn’t even watch the news because the hype was crazy,’ said Blouin.”

“They received an offer for $850,000 the very same day the listing was posted on MLS, and soon sold the home for $875,000. Blouin said she and her husband were shocked, but also thrilled. ‘It felt really good,’ she said. ‘We knew we would get good money, but we didn’t think it would yield that much at this point. As much as I like the money, I’m kind of sad for the people that are looking for a house, really.’”

From Quinte News. “A Belleville real estate official says the housing market in Belleville and Trenton has ‘gone into a frenzy.’ Manager of Royal LePage ProAlliance Realty, Jeff Nelles, was commenting on the latest housing sales statistics for the first quarter of 2017, released by Royal LePage. He says inventory and new build construction cannot keep up with the demand from home buyers leaving Toronto. Nelles says ‘it’s almost like buyers from the GTA are playing with monopoly money.’”

The Business News Network. “Amid growing fears of a housing bubble in Canada’s largest city, Ontario Finance Minister Charles Sousa is reportedly close to unveiling new measures to improve housing affordability. But one Bay Street money manager is skeptical about how much Queen’s Park will be able to cool the market in Toronto. ‘Mark my words - government will not fix this issue,’ said Kash Pashootan, senior vice president and portfolio manager at First Avenue Advisory, Raymond James, in an interview with BNN. ‘Unless you’re going to build land that doesn’t exist, you’re not going to fix the supply issue,’ he said.”

The Financial Post. “‘Almost the entire province of Ontario’s housing market is now on fire, while most of the rest of the country wonders what all the fuss is about,’ said Doug Porter, Bank of Montreal’s chief economist. The economist said ‘many talk about the lack of supply and land constraints driving prices,’ but noted March prices rose 21.5 per cent year over year in London and 21 per cent in Windsor. ‘There are lots of open spaces around London, for example,’ said Porter.”

The Courier Mail in Australia. “A house around the corner from me sold at auction a couple of weeks ago. It’s a modern place: brick, two-storey, built just a few years ago on a 450sq m plot, not much to look at from the outside. Faces a tiny park, so it’s in a nice spot. The price? Over $4 million. But don’t worry, there’s no housing bubble. On average, a house bought just eight years ago for $500,000 in suburban Melbourne is now worth $950,000. Again, no bubble.”

“Take this on the authority of the Federal Government. Deputy Prime Minister Barnaby Joyce insists the only thing stopping prospective homebuyers from purchasing a house to live in is their squeamishness or snobbery about moving to the country.”

The Sydney Morning Herald. “Intense media focus on housing affordability has primarily focused on the story of the individual; the young person who can’t afford a house. But in all of our focus on the individual, we are failing to recognise the greater problem – that when house prices do fall, and they will, they risk taking our banking system and the wider economy with them. We need to induce a ’soft decline’ before it is too late.”

“Our national addiction to cheap mortgage credit has placed our economy in a precarious position. We need to stem the flow of credit now, to prevent the violent bursting of a housing bubble which is otherwise inevitable.”

From The New Daily. “Day after day we are seeing more signs that the housing-credit bubble is coming to an end, but also that low-income Australians are set to be hit hardest when it does. The latest report, from global accounting giant KPMG, shows that the poorest 20 per cent of Australian households have started leaping into negatively geared property investments ‘despite their inability to manage the financial risks.’ The report backs the long-held views of some economists and commentators, including this one, that Australia’s mania for property speculation will end in tears.”

“It notes: ‘…there is a fixation in Australia about growing wealth through investing in property. This attitude is reinforced in television shows we watch and the newspaper and magazine articles we read. It should not be surprising that the poorest in our society, who are exposed to these messages and who see others growing their wealth through investing in negatively geared property, also want to participate in this investment activity.’”

“Major media owners, whose very existence relies on advertising from the banking and real estate sectors, have promoted the property wealth machine so effectively, and it has grown so big, that it’s now on the verge of collapse.”

From Domain News. “Brisbane house prices have fallen this year, recording the largest quarterly drop since September 2011. SPACE Property West End principal Angus Commins said the past few weeks have been tough for sellers in the inner city suburb. Mr Commins said anecdotally, the market had been weaker than usual. ‘We got to a point to where we were pushing a million for that product and now that’s come down to about $850,000, $900,000,’ he said.”

April 18, 2017

Losing Momentum Due To A Historic Construction Boom

A report from the Colorado Real Estate Journal. “There will be stunning views from Shea Properties’ 28-story apartment building in the middle of downtown Denver, but the most interesting view may be from the street. Passers-by of the high-end apartments on Curtis Street will look up to see people swimming behind a 40-by-9-foot wall of glass at the end of the pool. ‘This is going to be iconic,’ said Peter Culshaw, Shea Properties executive vice president. While Culshaw said there probably are a ‘few too many’ apartments being built downtown right now, he doesn’t believe the market is wildly out of scale, and he thinks there are many millennials who will continue to rent vs. buy.”

From Crain’s Chicago Business in Illinois. “The developers of a 29-story apartment tower in the Fulton Market neighborhood have put the ‘For Sale’ sign up, even before taking the ‘For Rent’ sign down. Chicago-based Shapack Partners and its partners are cashing out quickly, capitalizing on a downtown apartment market that has been on a roll but is losing momentum due to a historic construction boom that’s increasing competition for tenants.”

“Other new luxury apartment buildings in downtown Chicago have sold for more than $500,000 a unit, and a few have fetched more than $600,000 a unit.”

ABC 15 in Arizona. “Developer Michael Lafferty tells ABC15, the draw of downtown caused a boom in apartment construction–with more than 3,500 apartments slated to be built or in the process of being built in downtown Phoenix. The boom of living units is causing rents to fall flat, but developers like Lafferty aren’t worried. ‘People will now be able to afford downtown, and we will fill the 3,500 units,’ he said.”

“Many developers are sealing the deal with huge incentives, making the current market a renter’s dream come true. Lafferty says the most outrageous deal going right now is 3 months free rent. ‘Probably every month for the next six months there will be a better [offer], so if I was a shopper for rent in the downtown market I would wait until summer.’ he suggested.”

The Houston Chronicle in Texas. “Jose Guerra is ready to start his afternoon shift at a fancy wine bar downtown. There’s just one problem: His 1997 Mercury Grand Marquis broke down, and there’s no public transportation from the friend’s house where he’s staying. Rents in and around downtown, which average $1,750 for a one-bedroom, would seriously stretch his income of about $3,500 a month. And, Guerra says, he has it relatively easy: Housekeepers make less than half his earnings and those who find something close put up with crowded and unsafe conditions in boardinghouses. ‘They’re constantly worried about how to pay their rent,’ Guerra says.”

“If current trends continue, it’s the kind of problem that could sneak up on the city, leaving downtown establishments without the workforce they need to stay open. ‘It’s getting tougher for candidates to live in the downtown area on lower salaries,’ says Amber Watts, the Houston Branch manager for the staffing firm Robert Half. ‘I’ve spoken with several candidates that can’t afford a car and housing in the area.’”

The Ocolly in Oklahoma. “Like spring flowers, new apartment complexes are popping up in Stillwater to meet the demand for amenity-flush living from students willing to pay top dollar while challenging local landlords to stay competitive and modernize. Longtime property owners are absorbed in fierce competition, a touchy subject after years of foregoing maintenance and upgrades because of little competition in the neighborhoods near campus. They must now spend thousands on new bathrooms and kitchens or see their units go empty, they said.”

“Even OSU is adjusting housing rates, offering Apple Watches and free parking to returning students and touting its amenities, including the Colvin Recreation Center, trying to fill dormitories. Stillwater is one of many cities across the country that private developers have targeted in recent years for student housing development, adding almost 281,000 beds to college town markets from 2012 through fall 2016, according to Axiometrics. Kelsy McGuire, a sales and marketing specialist at Aspen Heights, which has operated in Stillwater four years as one of the newer complexes farther from campus, said the increase in student housing has had an impact. ‘Each time a (complex) is built they are the new exciting thing,’ McGuire said.”

The Times-Picayune in Louisiana. “A promised crackdown on short-term rentals in the French Quarter could shake up the real estate market in the city’s priciest neighborhood, where an estimated 400 houses and condos were listed on Airbnb last month. ‘You’re going to have a tattle-tale system like none other,’ said Bob Ellis, a French Quarter resident and an attorney representing short-term rental operators in the city. Ellis said he’s never seen so many for-sale and for-lease signs when he walks through his neighborhood, and some landlords and owners are worried.”

“‘There are a ton of people that have vacation rentals here,’ Ellis said. ‘That’s how they offset the cost of owning a home here. It’s going to be extraordinarily hard on people, and I think that’s why you see so many listings right now.’”

“Lisa Shedlock, a French Quarter real estate agent and resident, said since last fall, more properties have become available for sale and for rent in the neighborhood, but that should be attributed to the market correction rather than a reaction to short-term rentals.”

‘The French Quarter rental market has changed,’ said Robert Ripley, another French Quarter real estate agent. ‘Rents are dropping in the French Quarter.’ Rent for a typical two-bedroom with a balcony has gone down from about $2,500 to $1,800, he said. A one-bedroom that used to be rented for $1,500 to $1,750 now fetches only $1,100 to $1,300, he said. “

April 17, 2017

The Quick Ups And Downs Are Not Healthy

A report from the Star Tribune in Minnesota. “Mike Petefish already has the planter hooked up to his tractor in his farm yard, staged next to field cultivators and semis that can haul massive fertilizer tanks and large bins with conveyor belts called seed tenders. Petefish, who farms 5,000 acres near Claremont in south-central Minnesota, is ready to plant. But mixed with excitement as a new growing season approaches is anxiety about whether he will end up in the red at the end of the year. Soybean prices have dropped by one-third since 2013 and corn prices are down by nearly half, well below the cost of ­production.”

“‘People can withstand a year or two of losses, but this could be the third year in a row for some farmers,’ Petefish said. ‘I see this as the tipping year.’”

“University of Minnesota Extension researchers reported recently that more than 30 percent of Minnesota crop and livestock producers lost money in 2016. Federal estimates show that average net farm incomes have fallen by nearly half since their peak in 2013, the largest four-year drop in 40 years. February was the busiest month in 10 years for filings at the Farmer-Lender Mediation Program at the University of Minnesota Extension, which helps producers work through financial roadblocks with their bankers.”

“Tighter credit also has brought subtle changes in the real estate market, he said, with fewer farmers able or willing to purchase farmland from retiring producers. ‘A few years ago, every piece of land capable of producing a crop was long gone before you even heard it was available,’ Petefish said. ‘Now there’s rental ground available and some land for sale.’”

“The majority of farmers have been able to figure out financing for this cropping season, said Tom Slunecka, CEO of the Minnesota Soybean Research & Promotion Council, but it hasn’t been easy. ‘Things are really getting tough out there,’ he said. ‘If the prices for commodities stay stagnant, we’ll see a lot of farms go under next year. This year there are a few, and it’s extremely disheartening.’”

The Cavalier County Extra in North Dakota. “The report released in a January survey commissioned by the North Dakota Department of Trust Lands was another indication of just how badly the North Dakota agricultural community has been hit by the recent slump in agriculture. Andrew Swenson, NDSU Extension Service farm management specialist, derived regional and state average cropland values and rents from the published results of the county-level survey.”

“After three years of declining land values, Swenson believes that the land market still is adjusting in the aftermath of an 11-year period, from 2003 through 2013, when cropland values averaged an annual increase of 15 percent, the strongest sustained run-up in cropland values during the past 100 years. ‘Producers are in a dangerous financial environment because crop prices have dropped faster than production costs,’ says Swenson. ‘Agriculture is a competitive industry, and during several years of strong crop prices, which peaked in 2012, producers were willing and able to spend more on production inputs, including land.’”

“He adds, ‘On average, this resulted in a doubling of production costs per acre over an eight-year period, from 2004 to 2012. Overall production costs peaked in the 2013 to 2014 time frame and have been declining but not fast enough to project profits.’”

The Kearney Hub in Nebraska. “There is a lot of truth in the saying that the value of land, or anything else, is what someone is willing to pay. For ag land, who that someone might be depends on how the property fits with an existing farm or ranch operation, whether additional labor and equipment might be required, a prospective buyer’s debt load and/or cash flow, whether more than one buyer is interested, and, most of all in Nebraska, the market price of corn.”

“From Feb. 1, 2015, to Feb. 1, 2016, average land values for all ag land classes surveyed dropped by about 4 percent, to a Nebraska average of $3,115 per acre. The combined average ag land value in the south region, which includes Gosper, Phelps, Kearney, Harlan and Franklin counties, was $4,255 per acre, a decline of 8 percent from 2015. For center-pivot irrigated cropland, the average was $7,240 per acre, a decline of 12 percent.”

“A February report from the Federal Reserve Bank of Kansas City’s Ag Credit Survey says the average change in farmland values in Nebraska from the peak third quarter of 2013 to the fourth quarter of 2016 was a decline of 17 percent. Jim Jansen said ag land rent rates peaked in 2014-2015. ‘It’s healthy to see changes in land that reflects current economic conditions, but the quick ups and downs are not good,’ said Jansen, who is part of the Extension Risk Management Education North Central Center.”

From Feedstuffs. “Farmers in most areas of the Federal Reserve Bank’s Ninth District of the U.S. saw good yields in 2016, and for another year, those strong harvests should offset some of the effect of continued low crop prices, according to a new report from the Federal Reserve Bank of Minneapolis, Minn. Lenders responding to the Minneapolis Fed’s fourth-quarter (January) agricultural credit conditions survey reported that farm incomes and capital spending continued to decrease.”

“‘Falling incomes also led to decreased loan repayment rates, while loan demand, renewals and extensions increased,’ the report noted.”

“Dallas Tonsager, board chairman and chief executive officer of the Farm Credit Administration, recently testified before the House Agriculture Committee that, while the Farm Credit System banks and associations are ’safe and sound,’ there are concerns surrounding the farm economy.”

“‘In the farm economy, debt-to-asset levels are rising, while net farm income is declining. Interest rates, while still low, have begun to rise, and crop prices are expected to remain weak through (fiscal) 2017,’ he said. ‘These factors are causing the value of Midwestern farmland to slip. Prices in the protein and dairy sectors are also weak. As a result, the credit quality of the system’s loan portfolio has declined slightly.’”

“‘Most customers are coming in with earned net worth losses and reductions in working capital. We’re doing consolidations and restructures on several,’ a South Dakota lender noted.”