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During A Recession, You Can’t Unbuild

A report from Michigan Live. “When Carl Calfin bought Geddes Hill Apartments in 1989, rent for a four-person unit was $895. Today, that unit goes for $2,600. Luxury high-rises have dramatically changed Ann Arbor’s student housing market in recent years, he said. He thinks that segment of the market could become oversaturated, because not every student can afford or is seeking that type of housing.”

“‘They brought a level of pricing that’s unheard of,’ Calfin said. ‘It really added expense to the student body. If they don’t know different, they pay it.'”

The Star Democrat in Maryland. “Washington College is wading into the real estate business, temporarily, as it tries to sell half a dozen properties officials say no longer are tied directly to the college’s strategic plan or value proposition.”

“‘Don’t panic. We are not liquidating,’ Laura Johnson, the college’s vice president of finance told the Chestertown council. ‘Over the past decade, the demand for housing among faculty and staff has declined to the point where we simply don’t have enough renters who are interested in these residential properties to continue to hold them for that purpose.'”

From The Ledger in Florida. “Lake Mirror Tower, a historic residential high-rise that Broadway purchased as NoBay was being developed, had a history of success with around 75 units, but new construction was seen as more of a gamble. This time, Broadway’s project would be adding to a market with many times the number of downtown residential units, based on the number of ongoing and planned residential projects in downtown.”

“Broadway President Matt Clark, like others in real estate development, are not sure how long the current real estate surge will continue. ‘We can’t go on indefinitely,’ he said. Banks are getting squirrelly about lending for apartment complexes since a project started today wouldn’t go online until 2021, most likely. ‘What’s that market like?’ Clark asked. ‘If they don’t take quick action, they will miss it. … There’s a lot that can happen between now and 2021.'”

From Curbed on Texas. “The growing number of luxury rentals in Austin exemplifies a trend in cities across the nation: the bifurcating housing market. Joshua Roberson, senior data analyst at the Real Estate Center at Texas A&M University says there’s already been a sales slowdown across Texas markets this year. Igor Popov, chief economist at Apartment List agrees, noting that some economists have adopted a pessimistic ‘winter is coming’ perspective around the fate of all this new construction.”

“‘During a recession, you can’t unbuild,’ he says. ‘Will that create a glut on the supply side?'”

The Colorado Springs Independent. “Nancy Burke, vice president of government and community affairs for the Apartment Association of Colorado, says via email that rents are beginning to stabilize because of more supply hitting the market.”

“‘Rents for the past two quarters in Colorado and in Denver have decreased,’ she says. ‘The construction of 12,324 new apartments in 2018 — a volume nearly three times greater than Denver’s long-run average construction levels — has been a key factor in the easing of the rental market there. ue to a surplus of available apartments, average rents declined for the second quarter in a row [in Denver].'”

“Colorado Springs started March with the nation’s biggest decline in year-over-year median one-bedroom unit rent prices, falling 5.3 percent to $900, according to Zumper.”

From Seattle PI in Washington. “Seattle’s condominium market hit a bump in the road in February; median sales prices decreased as inventory rose further and sales activity flattened. The citywide condo median sales price dropped 17.01% compared to last February to $444,000, which also reflected a one-month dip of 5.5%. While we have seen other year-over-year declines, this is the first double-digit drop in the median sales price since the market bottomed in spring 2012.”

From The Guardian on Louisiana. “In recent years, short-term rentals with companies such as Airbnb proliferated and now operate on about 45% of the Historic Faubourg Treme District’s parcels. Now Treme moves in an unnatural rhythm. For about half of each week, the number of tourists drops and many blocks are ‘like a ghost town,’ said Darryl Durham, who has lived there since 2006. Each Thursday, the tourists return, filling hundreds of units. Suddenly, Treme is alive with groups of drunk, mostly white college-aged kids, Durham said.”

“Treme isn’t an isolated case. Short-term rentals are so concentrated in Bywater, Marigny and other neighborhoods around the French Quarter that some residents and longtime homeowners are finding investors have effectively converted their blocks into hotels. The number of Airbnbs citywide spiked from 1,905 to 6,508 between 2015 and December 2018, according to the watchdog website Inside Airbnb. Of that figure, 85% are owned by investors, some of whom live as far away as San Francisco or New York City.”

“In January, the New Orleans city council unanimously approved a package of regulations that would make it illegal to convert ‘whole home’ investment properties into short-term rentals in residential zones. If the rules are ultimately approved, thousands of homes could be forced back to the local housing market, and Airbnb would take a financial hit.”

From Bloomberg on California. “Airbnb Inc. and Expedia Group Inc.’s HomeAway failed to persuade a U.S. court of appeals to strike down a Santa Monica law that makes the companies liable for illicit rentals in the Southern California beach city.”

“San Francisco-based Airbnb is gearing up to be ready to go public by the end of the year, but is still fighting various cities in court over efforts to curtail its operation. In January, Airbnb and other home-sharing sites won a ruling granting a temporary reprieve from a New York City law that would compel them to turn over renter data, a requirement that threatens to cut their bookings in the city by half.”

“Airbnb is also fighting Paris where it faces as much as 12.5 million-euro ($14 million) in fines for allegedly posting illegal advertisements, and in November it sued Boston over a new ordinance that it says would limit short-term home rentals and impose unfair restrictions and financial penalties on the company.”

“Airbnb and HomeAway argued that the Santa Monica ordinance makes it impossible for them to operate, particularly if other municipalities adopt similar laws, because it would require them to monitor and remove listings for unregistered residences. If they don’t, users would be stuck looking at listings that they won’t be able to book, according to the companies.”

This Post Has 60 Comments
  1. ‘The citywide condo median sales price dropped 17.01% compared to last February to $444,000, which also reflected a one-month dip of 5.5%. While we have seen other year-over-year declines, this is the first double-digit drop in the median sales price since the market bottomed in spring 2012’

    Good thing everybody is putting 20% down. Still, 400k seems kinda high for a box of air.

    1. Down 17% in one year is HUGE.

      In the last bust, there were some cities where prices barely fell 17% total in 5 years (from 07-12). It does seem things are happening much quicker this time around.

    2. ‘since the market bottomed in spring 2012’

      Just before the Fed went hog wild with QE stimulus for housing?

  2. ‘If the rules are ultimately approved, thousands of homes could be forced back to the local housing market, and Airbnb would take a financial hit’

    Yet more evidence silicon valley is full of greedy slime-balls.

  3. ‘The growing number of luxury rentals in Austin exemplifies a trend in cities across the nation: the bifurcating housing market’

    This article is worth a read if you want to see how far this mania has gone. I still don’t think this “I wanna walk to bars every night” thing will last, especially at these nose-bleed prices.

    Anyone remember the last time we were fed this “new urbanism” crap? Except last decade it was mostly condos.

    1. This new urbanism has been something to behold in WA state. Even the suburbs are trying to cash in on this. Lots of condo/apt buildings popping up in places like downtown Auburn and Kent with space for retail on the ground floor. What should be a tell that forced urbanization isn’t working is the fact that a lot of the retail space in these buildings remains vacant a year later. No trendy restaurants, boutique shops, or brew pubs to speak of. Nothing has taken hold. Retailers that do move in are usually out of business within 4-6 months. Auburn has been especially aggressive with this push, going so far as to build two higher end retirement communities downtown. It’s been interesting to watch, that’s for sure!

      Of course, it wouldn’t be Western Washington without tent cities, and new urbanization has pushed ‘homeless’ encampments out to the suburbs as well. I put homeless in quotes because a majority of the ‘homeless’ are junkies. We are finding more and more tents in the green spaces in Auburn and out towards Lake Tapps…and with that has come an increase in property crimes and litter, including used needles at the parks and human feces on sidewalks and walking trails. It’s getting bad.

      Being able to walk to bars was something I aspired to in my 20’s. By my late 30s being able to walk to bars wasn’t important. Neither was eating at trendy restaurants and overpaying for everything. You’re absolutely right that this new urbanism is not sustainable. While I still have friends that live downtown Seattle so they can walk to bars, a majority of people outgrow that mindset and want something different.

      1. It’s getting bad.

        It’s got to be pretty bad when there’s a proposal for a publicly-funded safe-injection site.

      2. Our complex is in an urban hub. I was in a meeting last week with a developer that lives way out in the suburbs. He was complaining about the backwards city council that won’t allow one shred of density. Even townhouses get nixed. He also complained that they have no restaurants, no commercial, no anything. But he did say they have 9 dance studios!

    1. “The number of properties sold for which construction hadn’t yet started declined to 183,000, the lowest in three months, showing a weaker pipeline of building for the coming months.

      The sales drop occurred despite a drop in the median sales price, down 3.8% from a year earlier to $317,200.”

      Oh dear…

      1. The sales drop occurred despite a drop in the median sales price, down 3.8% from a year earlier to $317,200.
        Prices drop 4% after going up 15% a year for five years and the buyers are supposed to just line up for “deals”?

  4. “Don’t panic.”

    Translation: REIC spokesmen are doing their best to cover up their growing sense of panic.

    1. Seems like an awful lot of REIC “experts” making cooing noises about how I shouldn’t panic. While I’m pretty sure a whole lotta FBs are in a state of agitation reminiscent of Beaker on the “The Muppet Show,” I myself, as a sedate renter, remain cool as a cucumber. Am I missing something?

    2. “‘Don’t panic. We are not liquidating,’ Laura Johnson, the college’s vice president of finance told the Chestertown council. ‘Over the past decade, the demand for housing among faculty and staff has declined to the point where we simply don’t have enough renters who are interested in these residential properties to continue to hold them for that purpose.’”

      DONT PANIC BEN OR EVERYONE ELSE. JOHN/DAVE WILL BUY ALL THESE UNITS AND THEN OFF TO THE MOON AGAIN!!!!!!! DONT PANIC!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

      1. ‘Over the past decade, the demand for housing among faculty and staff has declined to the point where we simply don’t have enough renters who are interested in these residential properties to continue to hold them for that purpose.’”

        I see. So my grasp of supply and demand fundamentals is a bit hazy, Laura, but won’t this declining demand inevitably mean you’ll reach the point where you have no choice but to liquidate?

        Oh dear…this sensation feels a lot like PANIC!!!!!

  5. So which is it in Colorado. Stabilizing or decreasing. Can’t be both unless you use speak realtorbabble.

    Will love it when the YOY bit bites them in the backside. It is starting now. When you have 5+ % monthly drops, the cumulative effect of YOY gets real ugly in subsequent months. Still being used to hide truths however in many areas. Yun will come up with a clever new metric however. When single family rents drop, the is the big straw to fall. Lots of investment properties go on market and the race to the exits commences and the direction of urgency reverses.

    Kind of cool to see this unfolding before ours eye. We have been predicting this here for some time. History repeating.

  6. “Colorado Springs started March with the nation’s biggest decline in year-over-year median one-bedroom unit rent prices, falling 5.3 percent to $900, according to Zumper.”

    Rents are still crazy in CoS relative to incomes. A lot of military owners (there are five Army and Air Force bases in and around Colorado Springs) who bought at the peak of the bubble are being deployed elsewhere, and expect renters to cover their mortgage. Sorry, greedheads, but you need to “adjust” your expectations.

  7. “There’s a lot that can happen between now and 2021.”

    That’$ “popcorn $peak” to my ears!

    1. Not one bit of a surprise. Getting something for doing nothing is what appraisers, brokers and Realtor is about.

        1. This story is certain to get the Millennial Socialist fringe riled up. They might also be interested to know that college in Denmark is free.

          U.S. News
          A slew of CEOs charged in college entrance cheating scam
          Published Tue, Mar 12 2019 • 1:45 PM EDT Updated Wed, Mar 13 2019 • 10:14 AM EDT
          Emma Newburger
          Robert Frank

          Key Points

          – A slew of business executives and two high-profile actresses are among 50 people charged in a $25 million cheating scheme to help wealthy students to gain admission to top colleges, law enforcement officials say.

          – Suspects allegedly paid bribes to sports coaches to help get the students admitted to institutions like Yale, Stanford, the University of Southern California and Georgetown, regardless of athletic or academic level.

          – Former PIMCO CEO and Hercules Capital co-founder among 50 people charged in college cheating scandal

          Two high-profile actresses and a slew of top business executives, including a former head of Pimco and a founder of Hercules Capital, were among 50 people charged in a $25 million cheating scheme to help wealthy students to gain admission to top colleges, law enforcement officials said Tuesday.

          Suspects allegedly paid bribes to sports coaches and administrators to help get the students admitted to institutions like Yale, Stanford, the University of Southern California, and Georgetown, regardless of athletic or academic abilities.

    1. “The value of residential real estate in Canada held by households dropped C$30 billion ($22.5 billion) in the fourth quarter to C$5.10 trillion, from C$5.13 trillion in the same quarter the previous year, Statistics Canada reported Thursday. The 0.6 percent decline is the first decrease in country-wide home values in data going back to 1990.”

      That seems incredible. They didn’t see any home price decline in the 2007-2009 global financial meltdown!?

      Anyway, the $22.5 billion drop in values is apparently a very small percentage of the aggregate value of Canadian housing, so this really is no big deal:

      (5.10/5.13 – 1) X 100% = -0.58%

          1. “Validation of REIC-cited $tati$tic$ is a nece$$ary chore.”

            $ub$titute “chore” for: ta$k

            & mo$tly, they offer diciption$, or lie$ … or di$tortion$ … or alternative fact$!

      1. They didn’t see any home price decline in the 2007-2009 global financial meltdown!?

        I think they just kept climbing. Nothing Subprime in Canada and all that.

        A small percentage drop nationally is more interesting when you consider that the core markets are sinking hard. The Ebola is spreading.

    2. From what I recall living in SE Florida, Canadians owned a lot of Homes/condos.
      Wondering if/when the disappearing equity in Canada will result in an increase in the sales of said homes and condos.

  8. “‘During a recession, you can’t unbuild,’ he says. ‘Will that create a glut on the supply side?’”

    This is correct. Supply is effectively fixed in the short run, at least physically speaking. Of course, sellers will be more reluctant to put their homes on the market when demand is weak and potential prices are low. However, this may not apply to speculators, who don’t buy a house as a place to live in, but rather as a vehicle for short-term capital gains. These folks may be very eager to offload residential real estate investments at the first sign that prices are going down.

    And that is where you could get your supply glut, if demand has fallen and buyers are demanding deep discounts to reflect the risk that prices will fall further. Buyers’ reluctance to catch themselves falling knives has a tendency to create a feedback effect of making prices fall even more and more quickly than they already have. And a buyer strike in the face of panicked speculators offloading their HODLings exacerbates the supply glut.

    1. “a buyer $trike in the face of panicked $peculators offloading their HODLings$ exacerbate$ the $upply glut.”

      Daffy: that’$ it … “Youuu’re deththpicable!”

  9. Here’s a flip gone flop: Purchased in 2017 for $487k, “with a fully renovated kitchen, new gas range, new fridge, and new dishwasher”, marked up 54% in September 2018 for $750k. It’s sat on the market now for 169 days, marked down 20% since to $598k and still no buyers.

    https://www.zillow.com/homedetails/2205-N-Harrison-Blvd-Boise-ID-83702/79673574_zpid/

    P.S.: What’s with gray, black and white being the fad interior color-scheme for new shacks and renovations these days?

    1. P.S.: What’s with gray, black and white being the fad interior color-scheme for new shacks and renovations these days?

      I don’t know but I hate it. The current apartment is also that scheme.

      1. I actually like the 90s look. Medium wood cabinets, eggshell walls, formica or tile or some simple granite on the counters, ceramic tile floors, and matching simple durable appliances, I don’t care what color. Nice carpet and pad in some neutral color outside of the kitchen and bathrooms.

          1. I wasn’t specifically thinking of kitchens when I found that link. Carl’s description is indeed accurate. The kitchen had to be muted so as not to compete with that busy 90s decor!

          1. Hahah…no problem. I looked at your example but didn’t know anybody whose house looked like that in the 90s. Looks like a different social class than I grew up in :-).

      2. I prefer colors a little brighter and less depressing. The gray ersatz “wooden” floors are strange since wood is naturally brown or tan in color. This is a trend I have noticed the last few years. To each his own.

        1. wood is naturally brown

          Sometimes the old timers stained oak gray with a simple solution of iron dissolved in acetic acid (basically vinegar). It reacts with the tannin to give gray.

      3. Something a little lighter than the creamy yellow background of this blog. Specifically, Benjamin Moore Linen Sand 2151-60 or Mannequin Cream 2152-60.

    2. Yikes! A true “round-tripper”
      Not a fan of Boise gray winters of smog with that gray interior.

  10. The Fed enabled trading Adam Smith’s “invisible hand” of free markets for crony capitalism and maximum moral hazard across the asset spectrum. As asset prices revert to the mean, the wealth effect turns negative. Three bubbles in 20 years. How do we even allow this? Unelected and unaccountable, but it’s your money…

      1. You would $uck.$eed in the Tax Indu$trial complexe$ arena$, as well as, Thee Wanker Bankers, that’$ obviou$ … ($ent.a$.a.complement!)

        “The way to win is to not play.”

        It’$ an interesting first move, philo$ophically … Curiou$.about.that …

    1. “Three bubble$ in 20 year$. How do we even allow this?

      Eye’m awaitin’ a $narky comment from a guy who used to bee hangin’ out in Chetham’s$ Library to respond to yer a$tute que$tion!

  11. Lake County, IL – anything under 200k in decent shape is still going under contract in less than a week…

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