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Many Are Stuck With One Flip That They Are Losing Money On

A report from the Gananoque Reporter in Canada. “Sales on Calgary’s MLS system in February were down 10 percent from February 2018, while the city-wide benchmark price declined five percent, year over year, to $414,400. If people don’t need to sell at this time, then don’t says Corinne Lyall of Royal LePage Benchmark in Calgary. ‘No, they are just adding to an inventory that is already saturated in many areas,’ says Lyall.”

“Mark Herman, a broker with Mortgage Alliance in Calgary, doesn’t think speculators are going back into the market. ‘Not at all,’ he says. ‘Many we speak to are stuck with one flip that they are losing money on. Some lenders that do these are also stuck and losing funds due to the decreases.'”

“‘Even longer term ‘buy it, live in it, fix it and sell it in two-or-three-years’ types are stuck as the home is now worth what they paid for it, but they have put $20 to $40,000 worth of materials and their own time and labour for improvements,’ he said.”

From CBC News. “A provincial housing program did little for low-income families and caused a glut of overpriced homes on the market, according to Saskatchewan NDP MLA Cathy Sproule. Sproule said the government’s Headstart on a Home program gave builders millions in subsidies, but didn’t lead to nearly enough affordable housing units.”

“She said the market was flooded with averaged-priced homes out of reach for those on low incomes. She said it also flooded the market with housing stock, contributing the the current slowdown in construction. ‘They’ve made our housing market much, much worse due to oversupply,’ Sproule said.”

The Edmonton Post. “Less than 600 single-family detached homes were sold in the frigid month of February, marking a five-year low for the month in the Edmonton Metropolitan Region. The amount of overall home sales in February is a sharp decrease of 11 per cent from the same period in 2018.”

“‘February tends to see the start of an increase in unit sales in the real estate market following the sluggish winter months, and this year is no different,’ association chairman Michael Brodrick said. ‘Inventory remains high and compared to last year the market is still lagging, but we are hopeful the traditional upward trend for spring holds true this year.'”

From Glacier Media Real Estate. “It’s easy to think of Metro Vancouver real estate prices as being particularly hard-hit in the past couple of years, by a combination of provincial taxation measures and the federal stress test. But a report published this week by The Economist shows that, in global terms, we are far from alone in seeing recent declines in home prices.”

“Examining eight of the world’s prime urban real estate markets – Auckland, Berlin, Hong Kong, London, Manhattan, San Francisco, Sydney and Vancouver – the UK-based economics magazine and research group found that almost all of the cities have seen home prices drop in recent years.”

“Vancouver has seen a more recent decline, echoing activity in Hong Kong, where prices have grown considerably more than Vancouver since 2009. The report said, ‘Prices started falling in August [2018] in Hong Kong and have dropped by nine per cent since. Developers there were spooked when their bids for a vacant parcel of land in the world’s most expensive neighbourhood — aptly called ‘The Peak’ — failed to meet the government’s reserve price in October.'”

“The Economist reported than prices in Manhattan fell by 4.3 per cent last year and that 60 per cent of home listed at $1 million or more in 2018 failed to sell. In Sydney, prime prices have slipped by 16 per cent since 2017. In London, home prices have fallen by 20 per cent from their 2014 peak, according to international realty group Savills.”

“The report authors wrote that concurrent prices drops across prime cities are no coincidence, as global housing markets are now intrinsically interlinked.”

“‘The International Monetary Fund (IMF) observes that house-price movements have become increasingly correlated across the world, and that the link is greater between big cities than between countries. That is because housing is becoming a more global asset class rather than a purely local one. The prevailing winds of the international marketplace affect prime residential property much as they do shares and bonds. The IMF notes that international correlation increases at the time of severe recessions and can help predict the risk of a downturn.'”

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  1. ‘Examining eight of the world’s prime urban real estate markets – Auckland, Berlin, Hong Kong, London, Manhattan, San Francisco, Sydney and Vancouver – the UK-based economics magazine and research group found that almost all of the cities have seen home prices drop in recent years…The report authors wrote that concurrent prices drops across prime cities are no coincidence, as global housing markets are now intrinsically interlinked’

    Shacks are local. A mania can be world wide. The HBB beats the IMF without leaving town.

  2. ‘If people don’t need to sell at this time, then don’t says Corinne Lyall of Royal LePage Benchmark in Calgary. ‘No, they are just adding to an inventory that is already saturated in many areas’

    Before Vancouver, before Toronto, Calgary was the golden child of shack riches. It just gets worser and worser. Headed right for you California, Denver, Dallas and Seattle.

    1. Ironically, Gananoque is a small town on the St. Lawrence River near Kingston Ontario. Great marina, no marine gas for sale anywhere. They’ve been in a Luxury apartment boom themselves. Guess it’s more interesting to talk about the other side of the country.

  3. ‘She said the market was flooded with averaged-priced homes out of reach for those on low incomes. She said it also flooded the market with housing stock, contributing the the current slowdown in construction. ‘They’ve made our housing market much, much worse due to oversupply’

    Wa happened to my shortage?

    1. She also forgot to mention that the market was flooded with averaged-priced homes out of reach for those with average incomes.

      Based on a conversation elsewhere, I just looked up homes in my old neighborhood in the Austin outskirts. Used to be a working class neighborhood 12 years ago with people buying $85k – $110k homes on $30k to $60k household incomes. The houses haven’t changed – still (now) ~40 year old, ~1450 sq/ft, 3br/1.5 bath on 1/5th to 1/6th acre lots. Only they are now priced in the mid to high $300s. Ain’t none of the families that used to make up the neighborhood affording them now.

      I see a couple attempted flips in progress that I’m going to track…

      1. Wow! I thought Austin was one of the few places that didn’t get bit by the housing bubble. The prices were relatively flat, if I remember, all the way from the late 1990s till the early 2010s.

        1. The joke about Austin is it’s the San Francisco of Texas. Used to be that was a reference to the politics, now it also applies to housing costs.

          But while some of that is due to the general housing bubble, a lot of it is also due to Austin becoming a genuine tech town. Apple, Amazon, Dell, IBM, Oracle, Samsung each have thousands of highly paid employees in and around Austin. 2019 Austin is not the 1980s Austin, some people still think of, with country music as the main industry.

  5. That is because housing is becoming a more global asset class rather than a purely local one.

    All those hot-money flows of Yellen Bux sloshing around the globe looking for a place to die.

    1. housing is becoming a more global asset class

      Almost like maybe those with a few extra bucks (or just a good relationship with Mr. Banker) were encouraged to speculate on it, while the weak suffered and just tried to avoid homelessness.

      1. housing is becoming a more global asset class

        Because money grows on trees. So, borrow some money, buy some trees and sit back. Credit does not create wealth.

    1. Regarding Chrysler Building..

      “The land under the tower is owned by the Cooper Union school, which raised the rent to $32.5 million last year from $7.75 million in 2017.”

      A little more info about this school and their deal:

      “Two years before the crash of 2008, when it still seemed like the real estate bubble would never burst, Cooper was able to renegotiate its lease with the Chrysler Building. As a result, this year, Cooper Union will receive an increase in rent from the Chrysler Building of about $12 million — going from $7.8 million in 2017 to $20.1 million in 2018. The rent then soars by yet another $12 million, to $32.5 million annually, from 2019 to 2027. The honeypot keeps getting sweeter, with additional increases scheduled thereafter.”

      https://www.thevillager.com/2018/03/driven-by-chrysler-building-rent-cooper-on-road-back-to-free/

  7. DAYLIGHT SAVINGS

    When told the reason for daylight savings time the Old Indian said, “Only the government would believe that you could cut a foot off the top of a blanket, sew it to the bottom, and have a longer blanket.”

    Contributed by Ernie Salgado Jr.

    1. I think there is something about daylight while everyone is awake versus while everyone is asleep, or at least indoors, that the Old Indian may have overlooked.

      1. Meanwhile, Fauxahontus has filed a police reporting claiming that two assailants wearing MAGA hats and dressed as colonial settlers accosted her in the wee hours of the morning and tried to wrap her in a smallpox-infected blanket.

      2. Changing time is incredibly bad for a myriad of health factors, not to mention an increase in accidents.

        1. You would have really hated the rotating 12-hour shifts I used to have to work. I hated them too.

          1. That is one reason why I turned down an ICU position. They require shift rotations from day to night at the hospital where I was working. I love taking care of people as an RN, but one thing I grew to understand is that the system uses and abuses healthcare workers. Almost invariably the RNs end up gaining a significant amount of weight, usually due to the stress, poor work environment, bad schedules, and caffeine and sugar to make it through the shifts. There are outliers that manage to stay healthy, but they are the exception to the rule as the deck is stacked against them.

          2. “…one thing I grew to understand is that the system uses and abuses healthcare workers.”

            There is a considerable irony to the unhealthy works hours the profession whose role is supposedly to keep the rest of us healthy imposes upon its membership. My BIL is an example — a high energy anesthesiologist whose work schedule would easily kill a normal human at a young age.

            I also had a friend from college years who died of cancer in early middle age of cancer, after having himself become an MD and cancer researcher. When I knew him well, he got by on three hours of sleep a night, and lack of sleep is known to be a major cancer risk factor.

            Time to get back to sleep…

    2. Florida is going to full time DST. Washington state is considering it as well. I hope it happens nationally. I’ll gladly give up that hour of daylight in the morning for an extra hour of daylight in the evening.

  8. You dudes who recently made buckets of money with highly leveraged long bets on stocks are soon going to lose your shirts.

    • Shiller’s P/E10 predicts a 2.6% annualized real total return. Take today’s S&P 500 price and divide it by its companies’ average inflation-adjusted earnings over the past 10 years. This gives you a ratio that suggests whether the market is overpriced or underpriced. If you could buy one “share” of the S&P 500 index, your account would be worth around $2,700. After 10 years of 2.6% gains, you’d have $3,490. (Controversy alert: Various economists have proposed a number of improvements in the way Shiller’s ratio should be calculated.)

    • Buffett’s MV/GDP says minus 2.0%. Divide the S&P 500’s market value by the U.S. gross domestic product. Buffett wasn’t the first person to suggest this metric, but he’s said on the record that it’s “probably the best single measure of where valuations stand.” If the index fell 2.0% annualized, your $2,700 would turn into $2,206. Not so great.

    • Tobin’s “q” ratio indicates minus 0.5%. This metric divides the market value of all U.S. equities (not just the ones in the S&P 500) by the cost to replace all of the companies’ assets. It’s based on academic papers by economists James Tobin, a 1981 Nobel laureate, and William Brainard. This formula predicts that your S&P 500 account will drift slightly lower in real terms, not quite keeping up with inflation.

    • Jones’s Composite says minus 4.1%. Jones uses Buffett’s formula but adjusts for demographic changes. For example, as America’s population ages, this reduces economic demand. The resulting Demographically and Market-Adjusted (DAMA) Composite has predicted the S&P 500’s 10-year returns more closely than any of the other formulas since 1964. Let’s hope he’s wrong. A 4.1% annualized loss would drive your $2,700 account down to $1,776 after 10 years. That would be a 34% decline, almost as bad as the “lost decade” of 2000 through 2009.

    The predictions might seem far apart, but they aren’t. The forecasts are all much lower than the S&P 500’s annualized real total return of about 6% from 1964 through 2018.
    …

  10. ‘No, they are just adding to an inventory that is already saturated in many areas,’

    Whoa! From “housing shortage” to “saturated inventory” in… what? 6 months?! LOL

  11. “The Chrysler Building, the famous art deco New York skyscraper, will be sold for a small fraction of its previous sales price.”

    Oh? At what price is it being sold for?

    “The deal, first reported by The Real Deal, was for $150 million, according to a source familiar with the deal.”

    And how much was originally paid?

    “Mubadala, an Abu Dhabi investment fund, purchased 90% of the building for $800 million in 2008. Real estate firm Tishman Speyer had owned the other 10%.”

    Ouch! So why was it sold st such a huge loss?

    “The incentive to sell the building at such a huge loss was due to the soaring rent the owners pay to Cooper Union, a New York college, for the land under the building.”

    Say what? The building is owned but the land the building sits on is rented? Are these people just plain stupid?

    “The rent is rising from $7.75 million last year to $32.5 million this year to $41 million in 2028.”

    Bahahahahahahahahahahahahahahahahaha.

    New York City’s iconic Chrysler skyscraper will sell at a huge loss | Fox17
    https://fox17online.com/2019/03/09/new-york-citys-iconic-chrysler-building-will-sell-at-a-huge-loss/

    1. How and why would somebody build a skyscraper on rented dirt, or were the two “divorced” after construction? No matter the reasoning, this is one of the dumbest purchases ever.

  12. New York City is edging toward financial disaster, experts warn

    https://nypost.com/2019/03/09/new-york-city-is-edging-toward-financial-disaster-experts-warn/

    (snip)

    “Property taxes, almost half of the city’s revenue, is rising faster than any other revenue source — squeezing businesses and forcing homeowners, already hit by federal property tax deduction changes, to relocate to lower-tax states.

    “The top 1 percent of New York City earners pay some 50 percent of Big Apple income tax revenue.”

  13. California is the most impoverished state in the country:

    “The hygiene situation is just horrendous” for people living on the streets, says Glenn Lopez, a physician with St. John’s Well Child & Family Center, who treats homeless patients in Los Angeles County. “It becomes just like a Third World environment, where their human feces contaminate the areas where they are eating and sleeping.”

    https://www.theatlantic.com/health/archive/2019/03/typhus-tuberculosis-medieval-diseases-spreading-homeless/584380/

    1. San Jose wants to create safe parking areas for homeless living in cars
      KRON4-Mar 8, 2019
      “The goal is to take vulnerable people who are in need,” according to Ragan Henninger, deputy director of San Jose’s housing department. “Whether it’s a family …

      1. If I were homeless, CA would be the place I would choose because of temperature. Get a vehicle that allows for sleeping flat comfortably and get some blackout shades all around. Get a nice memory foam mattress and some lightweight blankets. Also, you need to get a pass to a 24/7 gym if you can afford it to shower, shave, etc.

        1. Dude, get out of your ivory tower. “Memory foam” mattress, gym, etc.? LMFAO. Have you ever even seen homeless people?

          1. There are all types of homelessness, especially in the Bay Area. Take a look around the 880 and 237 interchange some time, or cul de sacs pretty much anywhere in the area, and you’ll cars, SUVs, and crappy old motorhomes parked since they can’t even afford rents. I’ve often thought about doing this myself, but marriage and kids preclude that ability.

          2. As a matter of fact, yes, I have treated a ton of homeless people. The ER is a rotating homeless treatment center. You would be surprised to see how many children are homeless, and there are also working homeless.

            The homeless that most people conjure up in their mind are the drug addicted and mentally ill, and they certainly exist. But there are many other homeless, or “housing insecure.”

          3. ‘homeless, or “housing insecure.”’

            They are part of the dirty underbelly of deliberate government-sponsored housing price inflation.

  14. But while in many ways the building is very conspicuous, there is also a hidden side, a side most New Yorkers do not know, and something that the press (to judge by coverage in the New York Times) has assiduously not told them. What is hidden is that the building pays no property taxes and that the money that would ordinarily be due for such taxes is used to support a private college, Cooper Union. This institution, an elite and venerable private college of art and architecture on Manhattan’s lower east side, has so far been able to escape taxation of the Chrysler Building even though it is the general rule in New York that real estate taxes are due on commercial property regardless of who owns it.

    https://www.wernercohn.com/Chrysler.html

    1. What is hidden is that the building pays no property taxes and that the money that would ordinarily be due for such taxes is used to support a private college, Cooper Union.

      The oligarchy knows how to take care of its own.

      1. Who knows? This thing is so long in the tooth that the tooth is dragging on the ground.

        The fundamentals and technical indicators, along with the interesting comparison between present day charts and that of 1937, certainly make me think we’re at the precipice of that very moment. I bet we see a nice long slide into a complete bear market and Greater Depression shortly.
        Fed has little dry powder beyond asset purchases, and that’ll take a while to get done. Get ready for more movies like TBTF2, and The Big Short 2.

  16. A very long time ago I did something like 4 12s days, 3 days off, 4 12s nights operating a chemical plant, some days off then 5 8s days on maintenance. The place was deadly dangerous and the management was toxic. Now I don’t even use an alarm clock.

    1. A very long time ago I did something like 4 12s days, 3 days off, 4 12s nights operating a chemical plant, some days off then 5 8s days on maintenance. The place was deadly dangerous and the management was toxic. Now I don’t even use an alarm clock.

      This was my last duty station in the Navy. Worked as an MP and we did a rotating month on 12hr days, then a month on 12hr nights, for 4 years. The schedule was 3 days on, 1 day off, then 2 more days on, then 3 days off, rotating. Worst command I’d ever heard of and burned me out on the military completely at that point.

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