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A Market That Has As Its Logic The Rapid And Otherworldly Inflation Of Asset Values

A report from The Stranger. “On March 8, Seattle Times‘s astute real estate reporter Mike Rosenberg wrote that the waterfront area has become the next ‘gold rush.’ Big-money investors are moving in and expecting a terrific boom in property values. This development would be a dub (echoes) of what’s happening right now in the area around New York City’s High Line, a Manhattan project that was inspired by public spirit (Friends of the High Line), but upon its completion of its first phase in 2009, was almost immediately captured by a market that has as its logic the rapid and otherworldly inflation of asset values.”

“This week is the week for Seattle to think about the Waterfront project—which has already buried billions of dollars—because the first phase of a massive development located at the north end of the High Line, the Hudson Yards, just opened and has stunned the public and critics not with its unrestrained expression of corporate power, but its obvious obscenity.”

“Here we have, without a doubt, a form of city planning that must be described as billionaire urbanism. It’s the terminal point of neoliberal urbanism. It’s soon coming to Seattle’s waterfront.”

“Alan G Brake writes in Dezeen Magazine: ‘Hudson Yards is not for us, because it is a billionaire’s fantasy of the future of city life. Architecture is slow, and Hudson Yards was conceived by the administration of Michael Bloomberg and built by Stephen Ross, the chairman and majority owner of Related Companies.'”

“‘The two men believed, and apparently still believe, that catering to an ultra-luxury consumer magically benefits everyone. Bloomberg famously said in 2013: ‘If we could get every billionaire around the world to move here, it would be a godsend.'”

“‘But the tides have turned. New York is facing a crisis of confidence, its leaders having neglected its infrastructure and its public realm for so long that its basic systems (the subway, the streetscape, subsidised housing) are breaking down. Income inequality has reached levels not seen since the 1920s.'”

From Fox and Hounds in California. “In Lethal Weapon 2, whenever he is confronted with potential arrest for some villainous deed or other, South African diplomat Arjen Rudd, masterfully portrayed by Joss Ackland, whips out his credentials and shouts “Diplomatic Immunity!”

“Rudd’s supposedly unanswerable response brings to mind the refrain of corporatist Democrats, their right-wing Koch Bro Bros and the YIMBY ZOMBYs (Zoning Opportunists in My Back Yard) that follow them, when confronted with criticism of their favored ‘solution’ to housing unaffordability in California. Rather than ‘Diplomatic immunity!’ their watchcry whenever confronted with the irrationality of their density fetishism is: ‘Law of supply-and-demand!'”

“Anyone who disputes their notion that ‘build, build, build’ or more density will increase housing affordability significantly is tarred as a “supply-and-demand denialist” ,  and curtly dismissed as being in the same pigeonhole as climate change deniers. Anyone who suggests that ‘abundant housing’ is hardly the same thing as ‘affordable housing’ is akin to a charter member of the flat earth society.”

The San Francisco Examiner in California. “Housing production in San Francisco slowed across the board in 2018, with production levels dropping by nearly 41 percent from the previous year for market-rate and by 56 percent for affordable housing.”

“The San Francisco Examiner has previously reported that close to 45,000 potential new homes are currently approved in San Francisco — the highest number tracked by The City’s Planning Department to date — though many of these projects have yet to break ground.”

“While the City’s slow approvals process has been blamed for the backed up housing pipeline, rising construction costs and a growing trend of flipping entitlements have also been cited as sources for delays in actual housing production. ‘People aren’t taking risks right now,’ said Jonathan Moftakhar, a realtor with Vanguard Properties, blaming in part ‘unpredictability in city policy that ultimately leads to the swings in production.”

The Arizona Republic. “Luxury apartments make up about 87 percent of all the new rental complexes built in the Valley during the past few years. Older complexes with lower rents in central Phoenix, Scottsdale and Tempe have been torn down to make way for the pricier options.”

“Developers rushed to build new complexes in central Phoenix, Scottsdale and Tempe. Most of those were luxury apartments because they are typically the most profitable and easiest to get financing to build. Courtney LeVinus, CEO of the Arizona Multifamily Association, points to he lopsided luxury inventory as the most noticeable ‘supply/demand imbalance’ in Arizona.”

“Hair and makeup stylist Christina Lopez has been looking for an apartment near her salon. ‘When I trained in New York, I shared an apartment with three other people and we paid only $500 each,’ Lopez said. ‘A lot of us don’t understand what’s going on with rents in Phoenix. Are there really that many people who can afford to live in all the new complexes?'”

From CultureMap on Texas. “Apartment Guide compared two-bedroom apartment rent prices in the 100 largest U.S. cities to determine where rents are rising and falling the fastest. Houston appears on the latter list at No. 3, with rents falling 8.4 percent to an average of $1,548 in 2018. Houston isn’t the only Texas city to see a dramatic price drop. Fort Worth lands at No. 8 on the list, with rents falling 5.6 percent to an average of $1,376 last year.”

From 6sqft on New York. “Developer Related Companies’ high-profile condominium at 520 West 28th Street launched sales in 2015 to a flurry of hype and hubris. The highly-anticipated West Side residence was Zaha Hadid’s first ground-up structure in New York City, offering homes that ranged from $4,950,000 to a $50 million penthouse.”

“Crains reports that since that glittering launch, though, only 16 of the building’s 39 units have sold, calling the offering ‘a rare bust.’ The sales figures reflect about a 40 percent sell-through that looks even lower when square footage is considered: The building’s biggest units remain unclaimed, including its three penthouses. Of the 16 apartments that have sold, 14 were bought in 2017. Only two units sold in 2018, and none so far this year.”

“Some say luxury buyers are looking for smaller units with lower price tags. Douglas Elliman broker Frances Katzen thinks it’s the timing that’s causing the condo’s units, with an average sale price of $8.3 million, to move slowly. ‘The building came to market just as buyers were starting to pull back.'”

This Post Has 48 Comments
  1. Jul 24, 2017
    Is the real estate double bubble back?

    Average U.S. commercial real estate prices are now far over their 2007 bubble peak, about 22 percent higher than they were in the excesses of a decade ago, just before their last big crash. In inflation-adjusted terms, they are also well over their bubble peak, by about 6 percent.

    In the wake of the bubble, the Federal Reserve set out to create renewed asset-price inflation. It certainly succeeded with commercial real estate – a sector often at the center of financial booms and busts.

    Commercial real estate prices dropped like a rock after 2007, far more than did house prices, falling on average 40 percent to their trough in 2010. Since then, the asset price inflation has been dramatic: up more than 100 percent from the bottom. In inflation-adjusted terms, they are up 83 percent.

    This remarkable price history is shown in Graph 1.

    Bank credit to commercial real estate has been notably expanding. It is up $238 billion, or 21 percent, since the end of 2013 to $1.35 trillion. It has grown in the last two years at more than 7 percent a year, which is twice the growth rate of nominal gross domestic product, although not up to the annual loan growth rate of more than 9 percent in the bubble years of 2000-2007.

    The Federal Reserve also succeeded in promoting asset-price inflation in houses. U.S. average house prices are also back over their bubble peak—by about 2 percent, in this case. They have rebounded 41 percent from their 2012 trough. In inflation-adjusted terms, house prices a have climbed back to the level of 2004, when we were about two-thirds of the way into the bubble. See Graph 2.

    House prices and commercial real estate prices are closely related. As shown in Graph 3, they made an obvious double bubble, a double collapse and a double big rebound. The statistical correlation between the two since 2001 is 86 percent.

    We will know the answers when, sometime in the future, somebody explains it all to us ex post. For now, we know that real estate prices are back to the levels of the last bubble, reflecting the Federal Reserve’s production of asset-price inflation through its interest rate and bond market manipulations.

    https://www.rstreet.org/2017/07/24/is-the-real-estate-double-bubble-back/

    1. Part of an abandoned, half-built housing tract in Lancaster will be burned to film the climax of the forthcoming movie, “Lethal Weapon III,” under an agreement announced Wednesday.

      Officials with the federal Resolution Trust Corp., which acquired the rotting remains of the Legends tract from a failed savings and loan, said that Warner Bros. has agreed to pay a $25,000 fee and to later demolish any houses used in the filming.

      The movie makers plan to use about a dozen of the tract’s 54 structures to film the fire scene in the Mel Gibson-Danny Glover movie, due for release in the spring. The movie has been in production in the Los Angeles area since October, and filming in Lancaster is set for mid-January.

      https://www.latimes.com/archives/la-xpm-1991-12-19-me-1066-story.html

    2. “…reflecting the Federal Reserve’s production of asset-price inflation through its interest rate and bond market manipulations.”

      Is this a recent addition to their mandate, or has it always been part of it?

    3. “Jul 24, 2017
      Is the real estate double bubble back?”

      Is a bubble coming into view through the lens of the rearview mirror?

  2. ‘The San Francisco Examiner has previously reported that close to 45,000 potential new homes are currently approved in San Francisco — the highest number tracked by The City’s Planning Department to date — though many of these projects have yet to break ground’

    ‘People aren’t taking risks right now,’ said Jonathan Moftakhar, a realtor with Vanguard Properties, blaming in part ‘unpredictability in city policy that ultimately leads to the swings in production’

    Yeah, well Jon it was reported months ago that every single residential project in downtown San Francisco is for sale. Meaning the developers don’t think they can make money. Why? They paid too much for the land when this bubble was building.

    1. Do those 45,000 new homes include tents and RVs used by the homeless? Cuz otherwise, I’m not sure where there’s room for 45,000 new homes in San Francisco.

  3. ‘Luxury apartments make up about 87 percent of all the new rental complexes built in the Valley during the past few years. Older complexes with lower rents in central Phoenix, Scottsdale and Tempe have been torn down to make way for the pricier options’

    ‘Developers rushed to build new complexes in central Phoenix, Scottsdale and Tempe. Most of those were luxury apartments because they are typically the most profitable and easiest to get financing to build. Courtney LeVinus, CEO of the Arizona Multifamily Association, points to he lopsided luxury inventory as the most noticeable ‘supply/demand imbalance’ in Arizona.’

    This article mentions, “Phoenix used to be affordable and it isn’t now!” That the Arizona Republic would write this is laughable. No paper in the country has more breathlessly engaged in blatant boosterism and promotion of higher prices for everything.

    1. Agreed. They love to post “articles” about high priced property sales, mansions and such. It’s a very pro real estate publication. Go figure, it’s Phoenix’s economy!

  4. ‘broker Frances Katzen thinks it’s the timing that’s causing the condo’s units, with an average sale price of $8.3 million, to move slowly.’

    ‘The building came to market just as buyers were starting to pull back’

    Isn’t it interesting how often this plays out?

  5. boots obs

    One of the local Amish markets contains a furniture store within the market. It was very traditional-looking country place, of course. All beautiful stained wood furniture, warm lighting and cozy, with quilts and flowers and placemats, framed landscape paintings on the walls, and small farming figurines (geese and stuff) strewn around. Then they enclosed the wall with drywall, and I wondered if the place had gone out of business.

    Well, they opened it back up and … wait for it… the store had been renovated to Millenial gray. It’s been opened up and decluttered. Gray walls, gray flooring, very bright lights, single bud vase, few textiles, and no hint of farming or landscapes. The furniture was still there, but some of the pieces were gray stained. It was a cross between IKEA and Fixer-Upper.

    *sigh* there’s no escaping it, is there.

    1. I expect the backlash against this particular trend to be pretty vicious when it inevitably happens.

      1. Yeah, let’s go back to avocado refrigerators and wood paneling, because that was so much more stylish.

        1. The gray themes are much better than the avocado and paneling, for sure. That stuff was just so dark that it looked cluttered even when it wasn’t. But the color scheme clashes with traditional hardwood. Personally, my fave decor would be the same uncluttered look, only with traditional hardwood and a color palette of sage, cream, and rose.

          And NO wallpaper. EVER. And no wordy wallhangings like Eat, Dine, Family, or that god-awful Live Laugh Love.

          1. Glad I’m not the only one who finds those wall hangings and “art” with cheery platitudes annoying and obnoxious. They seem to be everywhere. I just saw a listing with a rather large fake wooden “SMILE” perched on top of a fireplace mantel. What a turn-off.

            Like I haven’t been told enough to “Smile!” throughout my life, to walk into someone’s living room and be lectured at by their decorations.

        2. Yeah, let’s go back to avocado refrigerators and wood paneling, because that was so much more stylish.

          Lots of other things happened between 1975 and 2015. There’s a whole world of choices out there. 50 shades of gray looks cold and boring and dirty to me.

  6. That “Seattle Is Dying” video posted yesterday is both disgusting and hilarious.

    Imagine paying a $5,000 a month mortgage to live in such a sh*thole 🙁

    1. “Seattle is dying” was funny seeing all of those white people crying about homelessness. I couldn’t take more than 5 minutes. I lived most of my life in some sh*tholes cities in the midwest. Gary IN looks like Syria and these people are complaining homelessness. $900 rent in Youngstown, Ohio feels the same as 5k when they shutdown the gm plant.

      1. Upper middle class white liberals – and specifically white womYns – are all about live and let live with homelessness and illegals. As long as it’s on the other side of town. But in Seattle it has started affecting the nice part of town. And in a blink of an eye the live and let live crowd turns law & order.

        1. I see more tax and spend to take care of these druggies and deranged, I see no law and order in any of these hell holes. The live and let live (((crowd))) is all about taking advantage of each crisis to attack their enemies, hence the nurturing of each crisis likes its a pet – because we know what they do to their fetuses.

  7. “Architecture is slow, and Hudson Yards was conceived by the administration of Michael Bloomberg and built by Stephen Ross, the chairman and majority owner of Related Companies.”

    False. Architecture follows whoever controls the purse strings, especially when it comes to fantastically developments such as Hudson Yards. You should look no further than the developers for what is an arrested development mindset. The smart developers were the ones that saw or created a market for lux before the explosive growth in that sector. The ones that decided to jump onto that bandwagon a couple years were too late.

    1. ‘The smart developers were the ones that saw or created a market for lux before the explosive growth’

      They were just copying what had happened in London, which is the ultimate speculative “safe deposit box in the sky” city. And it morphed in to the over the top super lux in NYC, with $30 million+ airboxes. They got em in Miami Beach too.

  8. OMG I love the first bunch of paragraphs here!

    Do people know of Anand Giradharadas and his new book “Winners Take All” about the hypocrisy of the neolib billionaires and their tech-world defenders? I have been waiting to get the book from my local library (long hold list) but I hope he has a section on housing!

  9. An interesting observation from one of our luxury zips here in SW Florida.

    There were several listings for single family luxury houses that featured artists conceptions of the house to be built upon contract. Currently vacant lots resulting from teardowns of existing old houses.

    However quite recently, those original listings have been pulled and the properties delisted for just the vacant lots. In one case a $14,000,000 listing for very large mansion on large tract direct gulf of Mexico recently relisted as 3 vacant lots for about 3.5M each.

    Another sign that the market is changing. In previous couple years, a number of these prebuild luxury homes had successfully sold and been built. We are heading for something new soon.

  10. Given that the stock market pretty much always goes up, why is Mr Market in such a lather over the Fed’s pause on rate hikes?

    1. Opinion: The Fed’s total capitulation is a bad omen for the stock market
      Published: Mar 21, 2019 1:05 p.m. ET
      Recession is coming, and first-quarter earnings will tell us how quickly
      Getty Images
      By Sven Henrich

      Let’s be very clear what Wednesday’s full-frontal capitulation by the Fed means: It’s coming. The next recession that is. It’s just a matter of the how and the when.

      Now mind you, the Fed will never, ever overtly tell you a recession is coming. They can’t. Their underlying primary mission is to keep confidence up. A Fed predicting a recession would cause all kinds of havoc in capital markets and almost certainly bring about a recession. So they won’t tell you, but their actions speak loud and clear.

      First understand what the capitulation means: It means all their 2018 statements of optimism and predictions of raising rates in 2019 and previous insistence on a balance sheet roll-off being on “autopilot” were all wrong. Reality and markets rolled over them. They didn’t see the slowdown coming, and only after markets dropped 20% in December did they change their policy stance and have now cemented a dovish stance for years to come.

      Wednesday’s capitulation was so complete and even more dovish than markets had expected. How scared is the Fed? How scared should markets be? What are they seeing that forces them to not only halt the balance sheet roll-off, but to only project a token rate hike for 2020, in effect ending the rate-hike cycle?

      1. “How $cared is the Fed? How $cared should market$ be? What are they $eeing … ”

        There looking with $lanted eye vi$ion$:

        Chine$e companie$ are defaulting on their debt$ at an ‘unprecedented’ level

        Defaults for Chinese corporate bonds — issued in both U.S. dollars and the Chinese yuan — soared last year, according to numbers from two banks.

        Analysts blamed the difficulties on tighter monetary conditions, aggravated by high borrowing costs, as well as a crackdown on shadow lending.

        Defaults look set to continue this year although at a more manageable pace, said experts. But that doesn’t bode well for already-high debt levels in China.
        Weizhen Tan |CNBC | Wed, 20 March 2019

        China witnessed an unprecedented wave of corporate bond defaults last year, in a fresh sign of wobbles hitting financial markets as slowdown deepens,” said DBS analysts in the report.

        According to DBS, the energy sector bailed on 46.4 billion yuan of payments in 2018 — making up almost 40 percent of all defaults in yuan-denominated debt. Consumer companies were the next worst hit, according to the bank’s report.

        “The default wave is extending into 2019 … Given the reduced risk appetite and huge maturing volume, the outlook is poor,” DBS said, adding that there are 3.5 trillion yuan in corporate bonds due this year.

        1. “…as well as a crackdown on shadow lending.”

          I guess it would be best if shadow lending were just allowed and enabled to operate in the shadows without any regulatory limits?

    1. Keep posting Norma, I love your insights. Good to have someone up north keeping a watch on ID.

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