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The Market Seems To Be Oversaturated With Overpriced Properties Because Of Speculation

A report from the Red Hook Star Revue in New York. “‘I think in the rental market the prices have definitely come down – I would say 20% from what the rents were historically in Red Hook, Cobble Hill and Carroll Gardens,’ explained broker Victoria Alexander. “That’s been really great for tenants that are moving into the neighborhood; they have a lot more leverage.'”

“She said that the general Red Hook market seems to be oversaturated with overpriced properties listed at the moment. ‘We’ve seen in the last year that properties have sat on the market for 6 to 12 months, not moved and prices have slowly come down,’ Alexander said. ‘And that’s because of speculation.'”

The Des Moines Register in Iowa. “Des Moines-area renters looking for relief from rising rent prices should zero in on downtown units. Rents in the city’s core have declined by 1.8 percent for a 1-bedroom, 4.7 percent for a 2-bedroom and 16 percent for a 3-bedroom unit, according CBRE/Hubbell Commercial.”

“Declining rents downtown can be attributed to a sharp increase in new units — 2,500 over three years — resulting in vacancies not seen since 2010, said Cy Fox, vice president of CBRE/Hubbell Commercial. To fill empty units, landlords are offering concessions as much as three months free rent and electronics such as TVs or iPads.”

“‘It’s hard to get rent growth when you’re offering concessions,’ Fox said. ‘We’re kind of in a supply-and-demand imbalance right now, but we expect it to correct itself.'”

From Doug French on Nevada. “Eli Segal interviewed developer Tim Deter, who at 48 would be a Gen Xer, with the horsepower and razzle dazzle to talk Goldman Sachs into lending him $41.5 million to build 210 apartment units atop 21,600 square feet of commercial space way south of the Las Vegas Strip in desert suburbia.”

“There seem to be apartment projects going up everywhere and I’m told there are at least 5 years worth on the drawing board.  Segall begins his reporting with, ‘Developers have packed the Las Vegas suburbs with apartments in recent years.'”

“Rumor has it, Picerne, a multi-state apartment builder with 17 projects in Las Vegas, is hitting the brakes. The company line is rents have risen beyond what’s affordable for the average Vegas worker bee. When asked by Segall about apartments being overbuilt going into the ‘08 crash and now another bubble may be forming, Deter said, ‘apartments were pretty full throughout the worst of times in Vegas. That gives me a lot of confidence.'”

“Yes, entrepreneurs must be long on confidence.  However, a look at the chart below provides some realism: rents and occupancy both plunged during the worst of times. The payment to Goldman Sachs will likely stay the same, crash. or no crash.”

From Curbed Seattle in Washington. “Seattle’s construction boom has been dominated by one-bedroom apartments and studios—housing built for one or two, at least ideally—for quite some time. But these apartment sizes don’t meet the needs of every household.”

“Around 80 percent of new, market units have one bedroom or fewer. ‘The city of Seattle definitely has a family-sized housing problem,’ said Costar market analyst Jared Kadry. ‘Developers are targeting millennials and tech employees in the urban core, where large units are not necessarily a priority.'”

“Where there are large units, they’re not always priced for families or, as the oft-repeated and seldom-useful advice goes, getting a roommate. Three-bedrooms are largely concentrated downtown and in South Lake Union, where they’re a staple on the top floors of luxury high-rise buildings. For example, West Edge at Second and Pike has eight such units, billed as penthouses. Four are available as of publication, with rent ranging from $11,500 to $16,600 per month.”

“The lower floors of those buildings also complicate things somewhat. New construction often includes what is euphemistically called an ‘open one-bedroom’—or, even more euphemistically, an ‘urban one-bedroom’—which is, essentially, a studio with a carved-out sleeping nook. As we were discussing the numbers with Kadry, he confirmed that some of those units are being captured as one-bedrooms.”

The Patriot Ledger in Massachusetts. “Affordable housing options are scarce, even as Quincy is in the midst of an apartment and condo construction boom. Private developers have built 3,800 new homes in the city in the last decade, but experts say low- and middle-income residents are priced out of the luxury-priced market and too little is being done to produce more affordable housing.”

“The influx of new, high-end apartments to the rental market is driving up the cost of existing housing. Landlords are raising rents or pushing tenants out to take advantage of the robust economy by selling their buildings.”

“A Patriot Ledger review of rents at new luxury apartment complexes in Quincy show two-bedroom apartments as high as $2,800 a month. A Quincy resident earning $64,890 a year — the city’s median single-person-household income — could not afford $2,800 a month for rent, based on federal guidelines that say no more than 30 percent of income should be spent on rent and utilities, in this case, $1,622.”

The Akron Beacon Journal in Ohio. “The 22 Exchange complex has been spared from foreclosure and won’t be sold at a Summit County sheriff’s auction. The massive residential and retail complex in downtown Akron was slated to be auctioned in early December. But it was pulled from the sheriff’s sale at the request of lender Wells Fargo, which had foreclosed on the property last year.”

“Court records indicate the bank and former owner 22 Exchange Student Housing worked out an agreement behind the scenes to deed the property to Wells Fargo ‘or its assignee’ to avoid foreclosure. The court records do not say who the new owner is.”

“22 Exchange is a prime piece of downtown real estate that covers an entire city block. It’s made up of housing for University of Akron students and retail businesses. It also contains several empty storefronts. When it opened in August 2009, 22 Exchange was heralded as a new hot spot for students. At the time, the developer hoped it would become a bustling housing and retail complex for young adults. But Wells Fargo foreclosed in February 2018, arguing that 22 Exchange Student Housing had failed to pay on its $19.5 million mortgage.”

This Post Has 51 Comments
  1. When asked by Segall about apartments being overbuilt going into the ‘08 crash and now another bubble may be forming, Deter said, ‘apartments were pretty full throughout the worst of times in Vegas. That gives me a lot of confidence.’

    ‘However, a look at the chart below provides some realism: rents and occupancy both plunged during the worst of times. The payment to Goldman Sachs will likely stay the same, crash. or no crash’

    Despite the facts about these projects, these guys stick to the “story” about how they are recession proof.

    ‘At the time, the developer hoped it would become a bustling housing and retail complex for young adults. But Wells Fargo foreclosed in February 2018, arguing that 22 Exchange Student Housing had failed to pay on its $19.5 million mortgage’

    How many times have we read about student housing being even more recession proof that regular airboxes? Cuz they depend on student loans doncha know and people go back to school in recessions. And we’ve seen the second largest number of failures in student, behind senior living, and we aren’t even really into a recession!

  2. ‘The influx of new, high-end apartments to the rental market is driving up the cost of existing housing. Landlords are raising rents or pushing tenants out to take advantage of the robust economy by selling their buildings’

    That’s the key. It isn’t about long term sustainability. It’s jazzing stuff up, jacking up rents and unloading to a greater fool.

  3. ‘Developers are targeting millennials and tech employees in the urban core, where large units are not necessarily a priority.’”

    The same demographic that’s turning to AOC-style “progressives” who will stick up for them against greedy landlords and corporate sharks. Seems like a sound long-term investment strategy to me.

  4. Tesla Faces Backlash in China After Price Cuts

    ‘Liao Zongyi was one of 10 Tesla owners who converged on a store in the central city of Changsha on Saturday to register their annoyance. Mr. Liao, who runs a catering business, took delivery of a Model X on Feb. 25 that he could now buy for roughly $30,000 less, he said’

    “I feel like I wasted my money,” the 34-year-old said. He assumed Tesla would refund him the difference, but “it turned out they were just going to leave us in the lurch and not even respond to our messages.”

    ‘Ethen Hou, a 32-year-old customer from Chengdu in western China, said Wednesday he paid about $141,650 for a Model X sport-utility vehicle that was delivered to him Feb. 23. The car now costs only $114,800, Mr. Hou said, or 19% less. He expressed disappointment that nobody from Tesla had called him to apologize or offer compensation.’

    ‘The extra $26,850 “is just my contribution to Elon Musk’s rocket-building project,” Mr. Hou said, referring to the Tesla chief executive’s company SpaceX.’

    https://www.wsj.com/articles/tesla-faces-backlash-in-china-after-price-cuts-11551888976

    ‘my contribution to Elon Musk’s rocket-building project’

    Plus his pot smoking and tequila swilling.

    1. Anyone who buys tech should realize it’s not an investment. It depreciates rapidly. I paid $600 for a new iPhone 4 years ago that is probably worth maybe $100 now. The price you pay for new tech is steep depreciation. Anyone buying a vehicle thinking about it as an investment is loony.

      1. Electric cars are tech. Period.

        We have rapidly developing technology which makes models obsolete year-over-year. Why one would choose to purchase one of these cars is beyond me.

        I leased one because I have a short commute, the tax incentives were attractive, the operating cost is low, and I expected depreciation to be a killer. I think I was right: a used model of the same year (2017) with under 5k miles is listed for sale locally over 50% below it’s original MSRP (even has a price reduction) . After 3 years and 30k miles these things are going to be almost worthless.

        1. After 3 years and 30k miles these things are going to be almost worthless.

          They will be low cost functional transportation. Only during a free money bubble would that be considered almost worthless. Someone will take advantage of all the sunk costs and subsidies that went into making it even if they get lucky and don’t have to pay much for it.

          1. all the sunk costs

            They told me in school that the sunk costs are gone, gone, gone.

            I don’t think a lot of these projects would ever have started without the credit bubble and the resulting spike in energy costs.

          2. After 3 years and 30k miles these things are going to be almost worthless.

            In general, the more expensive the car, the steeper the depreciation. The earliest EVs like the 1st and 2nd gen Leafs and the BMW i3 had horrid depreciation rates because they had very poor range (e.g 60-80 miles). I think a lower priced model 3 will do pretty well though because there is a higher floor due to the lower cost of operation. I watched the Chevy Bolt for 2 years and the depreciation never happened or else I would have ordered one.

            I would be very happy if model 3s depreciated as quickly as you say they did because I’d buy my wife a red one in a couple of years.

    2. “I feel like I wasted my money,” the 34-year-old said. He assumed Tesla would refund him the difference, but “it turned out they were just going to leave us in the lurch and not even respond to our messages.”

      ‘Ethen Hou, a 32-year-old customer from Chengdu in western China, said Wednesday he paid about $141,650 for a Model X sport-utility vehicle that was delivered to him Feb. 23. The car now costs only $114,800, Mr. Hou said, or 19% less. He expressed disappointment that nobody from Tesla had called him to apologize or offer compensation.’

      That sounds like a significant cultural misunderstanding :-).

  5. It goes without saying that the Fed’s punchbowl removal plans met an untimely demise, due to a run-in with a political buzz saw. Meanwhile the bad gambling debt encouraged by interest rate suppression keeps piling up higher and higher.

    1. US officials say they will investigate the risky $1.6 trillion ‘leveraged loan’ market
      Callum Burroughs and Jim Edwards 4m
      – The US Financial Stability Board, a leading regulator, is set to launch an inquiry into the risky leveraged loan market, the Financial Times reported.
      – Leveraged loan volume has spiked in recent years, leading to warnings from former Federal Reserve Chair Janet Yellen and the Bank of England.
      – “The deterioration in underwriting standards for leveraged loans is increasingly worrisome,” says Lazard Asset Management.

      1. Eye $ense a Wall Street pattern of $peaking with “2.tongue$” is beginning to be emerge.

        This will end poorly’, says J.P. Morgan strategist about a boom in arcane debt on Wall Street
        Published: Mar 7, 2019 | MarketWatch

        Much hand-wringing has accompanied the resurgence of one corner of the credit market on Wall Street, which has displayed many of the hallmarks of a bubble.

        However, Anton Pil, managing partner at J.P. Morgan Asset Management, may have put it best at a Wednesday luncheon the firm hosted to discuss its guide to alternative inve$tments.

        “This will end poorly,” Pil said, expressing his view that growing appetite for so-called leveraged loans and a recent surge in production of a form of that debt that has increasingly carried fewer protections for investors and restrictions for borrowers — known as covenant lite — could blo$$om into a bigger problem on Wall $treet.

        David Lebovitz, global market strategist at the firm, citing recent its research, said the composition of lenders in private credit has shifted away from traditional bank$ and toward nonbank lender$, and as a result, the quality of leveraged loan$ has deteriorated.

        Back in 1994, 71% of so-called leveraged loans were funded by bank lenders and 29% were provided by nonbanks. Now, 91% of leveraged loans are provided by nonbank lenders, Lebovitz explained.

      1. “Instead, auto finance companies have a disproportionate amount of subprime loans, at 50 percent.”

        Eye seem to recall Ben’s HB.B used to have a poster that was a participant in those “repo$$ession extraction” biddne$$ activitie$ … Back.to.thee.Future! (Via Va Lo$tWage$ might have some fun vehicle$)

      2. It turns out that rock-bottom rates encourage “how-much-a-month” thinkers to overpay not only for houses, but also for automobiles.

        Quick, call the Consumer Financial Protection Bureau!

        Why Americans are suddenly paying $550 per month for new cars
        Nathan Bomey, USA TODAY Published 6:01 a.m. ET March 1, 2019 | Updated 12:38 p.m. ET March 7, 2019
        These warning signs should scream danger and prompt you to walk out of the dealership without that new car, according to Adam Shell. USA TODAY

        In the Netflix era, many Americans are managing their finances based on their monthly subscription payments, often with little regard to the total they’ll pay in the long run.

        That paradigm benefits the automotive industry and the lenders that finance car loans, as auto sales remain near record levels.

        The average price of vehicles hit an all-time high of more than $36,000 in 2018, according to Kelley Blue Book – and with interest rates rising, car shoppers are now borrowing more than ever and extending their loans to record lengths.

        New-car buyers agreed to pay an average of $551 per month for 69 months in January, according to car-buying advice site Edmunds. That’s nearly 10 percent more per month than three years earlier.

        1. The auto thing is astounding to me. When I look around, it’s like 2005 on steroids, with millennials paying $1,000 a month for a brand new, loaded diesel truck. Then they have the $75k toy hauler (on the 20 year “residence” payment plan), all the toys to fill it ($20k RZR X 2), the 4 bedroom house purchased at the peak, etc. I really don’t get it. You still have to service that debt. With both parents working, the math still does not add up in my mind.

          1. I can almost match you but I did pay 26k for the used BMW I bought back in 2011 that I’m still driving. With all this money sloshing around some amazing things have happened in the performance car world. There are a lot of truly fast cars being made now.

            It used to be that rumors of a mid engined Corvette were always a good indicator that the top was in sight. But thanks to the interference from the Fed it looks like this time it’s actually going to get built before everything falls apart. Normally we would have collapsed by now and the project would be canceled. Again.

    2. WOLF STREET REPORT
      Credit Bubble
      Debtor Nation
      Housing Bubble 2
      Wall St. Shenanigans
      “Shadow Banks” Dominate Mortgage Lending by Piling on Risks. Federal Housing Administration (FHA) on the Hook
      by Wolf Richter • Feb 27, 2019
      But deposit-taking banks have pulled back.

      Lovingly known as “shadow banks,” nonbanks have come to dominate the mortgage market. And they originate the riskiest mortgages. The government — mostly the Federal Housing Administration (FHA) — is on the hook. Nonbanks do not take deposits and are not regulated by banking regulators (Federal Reserve, FDIC, and OCC). Their funding is derived mostly from selling the mortgages they originate, but also from bank loans and other sources. During the mortgage crisis, a slew of them got in trouble and, because they did not hold deposits, were allowed to collapse unceremoniously.

    3. They are caught in a low rates trap of their own making, from which they are unable to escape.

          1. Prices of prime properties around the world are falling
            The Economist-1 hour ago
            The name might also apply to London’s bloated housing market. Prices have … Some 8,600 luxury units are for sale—six years’ inventory at current selling rates.

          2. “…Some 8,600 luxury units are for sale—six years’ inventory at current selling rates…”

            Is 6 years “alot?”

    1. “About 21,000 years ago, during the last glacial maximum (LGM), sea level was about 125 meters (about 410 feet) lower than it is today. About 125,000 years ago, during a warmer climatic interval in the last interglacial stage, sea level was about 6 meters (about 19.7 feet) higher than it is today.”

      https://www2.usgs.gov/climate_landuse/glaciers/glaciers_sea_level.asp

      At the reported rate of sea rise for Battery Park, NYC it should take a couple or three thousand years to match the last interglacial sea level maximum.

    2. That begs the questions: How many humans > age 90, will die over the next 80 years? What effects might it have on ocean front/cliff dwelling availability?

      Foghorn: “eye say, come here son, eye’s got something to tells ya … “

  6. “Seattle’s construction boom has been dominated by one-bedroom apartments and studios—housing built for one or two, at least ideally—for quite some time. But these apartment sizes don’t meet the needs of every household”

    Ain’t that the truth!! Seems like every construction project out there assumes the only people living in a city are single milenials who will never age and never have kids. It’s a weird thing, not just in r/e but in the media in general. How many articles have you read with the headline “Millenials Are Changing XYZ Forever”.

    It’s like no, not really. Nobody is changing anything. 20-somethings want stuff that 40-somethings and 60-somethings don’t want and vice versa. Nothing radical about this. Every 25 year old since the beginning of time has had different wants/needs than 45 year olds. Yet for some weird reason the fact today’s 20-somethings behave a certain way is non-stop MSM “news”. And idiotic developers are starting to find out how, well, idiotic they’ve been over the past 10 years.

  7. “ She said that the general Red Hook market seems to be oversaturated with overpriced properties listed at the moment. ‘We’ve seen in the last year that properties have sat on the market for 6 to 12 months, not moved and prices have slowly come down,’ Alexander said. ‘And that’s because of speculation.’” “

    This is a realtor speaking…

    The Fed and other CBs have blown huge asset bubbles. “There be dragons” (and consequences). Mississippi bubble deja vu. “Wealth effect.”: + on way up, – on way down. What a bunch of morons.

  8. And speaking of Seattle…..

    From Seattle Times:

    “But in February, home prices bounced back as the median sale rose by $45,000 from the month prior, according to new data released Wednesday. It was the first time in eight months that prices actually went up, on a month-over-month basis”

    Blip?
    Start of another phase of the bubble?
    Statistical noise?
    Dead cat bounce?

  9. Looks like eye’m gonna bee “old.school” ’till the end!

    Beer is now being sold as a ‘wellness’ product

    Published: Mar 7, 2019 | MarketWatch

    Beer is getting better for you.

    As American beer consumption continues to drop, brewers are attracting health-conscious consumers with no and low alcohol beverages that pack in vitamin-rich fruit and electrolytes with fewer calories.

  10. OT… Tesla continues to act as if cars, not to mention other things have never been mass-produced before. How much longer will this joke of a company survive?

    “While CEO Elon Musk is hyping the company’s new crossover SUV, the Model Y, Tesla has yet to decide where it can make room to manufacture the car.

    Tesla head count dropped by another 8 percent since the electric vehicle maker announced it would close most stores and sell online only, people familiar with the situation told CNBC.

    Employees say Tesla has not yet informed all sales staff about whether or not their stores will close or if they’ll be able to keep their jobs.

    Tesla employees also say the company is not yet making 7,000 vehicle batteries a week consistently at the Gigafactory in Nevada.”

    https://www.cnbc.com/2019/03/07/tesla-lays-off-more-workers-and-cuts-costs-ahead-of-model-y-reveal.html

    1. How much longer will this joke of a company survive?

      It’s looking like suicide by SEC (analogous to suicide by cop). Admittedly, not my own phrase. Tesla filing for bankruptcy would immediately collapse Elon’s financial house of cards. In addition to his pledged $TSLA shares, he recently mortgaged his homes for about $61M after being outed for embezzling from SpaceX.

      Elon Musk Turns to Mortgage Stanley for Five Monster Mortgages:

      Elon Musk’s New Boring Co. Faced Questions Over SpaceX Financial Ties

      I’m following the train wreck in real-time!

      1. Are people thinking about that he might be “in” with TPTB and will never go under because somebody important has his back? I started thinking about it the other day as I realized how tightly intertwined with NASA he is these days (and who knows what else). I’m starting to think that he’s no longer someone that will be allowed to sink or swim by the normal rules.

        1. Being redpilled, I have no doubt he’s a globalist pawn: the anoited savior of mankind from global warming. His usefulness appears to have run out.

          1. His usefulness

            He was useful when oil was headed to >$100/bbl and the “spend a thousand now to save $1 in the future” looked smart to many. When Journey to the Center of the Earth was touted as a new idea and colonizing the great vacuum of space seemed like a great way to preserve your DNA, not to mention the thought that an extra couple of inches of water in the oceans would make the planet implode, because of cows, in just a few years. He’s just an icon of crazy, which is kinda epidemic.

            I expect he’ll go down with the Housing Bubble. Solar cells, rocket ships, boring machines and luxury golf carts with him. JMO.

  11. “Around 80 percent of new, market units have one bedroom or fewer.”

    But they’re priced as though they’re 3 bedroom units.

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