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Anybody Who Bought In ’08 Or ’09 Would Be Lucky To Break Even

A report from Bloomberg on New York. “Manhattan’s would-be buyers are weighing potential purchases cautiously these days, refusing to overpay for homes and causing years of rapid price increases to come to a halt. They’re also tax-sensitive, thanks to new rules that limit how much of their property levies can get written off on federal returns.”

“Thousands of Manhattan condos built before the 2008 downturn benefited from the now-defunct 421-a, in which developers received property-tax breaks and passed them along to buyers as a way to promote sales in their pricey buildings. Under the program, an apartment’s property-tax burden would be phased in over 10 or 15 years, with the first few years fully exempt. The abatement’s expiration means the unit is subject to the full tax bill.”

“Buyers — owners who live in the units and investors who rent them out — paid top dollar for condos with low carrying costs, probably reasoning they’d recoup their investments by selling at a big profit before their abatements ended, said Grant Long, senior economist with StreetEasy . That strategy won’t work in today’s saturated market.”

“At the Avery, a two-bedroom unit on the 19th floor purchased for $2.05 million in 2014 is still seeking a buyer at $1.795 million, after a year on the market. On the 10th floor of the same tower, a one-bedroom marketed by broker Alon Chadad, for which the seller paid $936,790 in 2008, is in contract after three price cuts, according to StreetEasy. The deal will close this month at $952,750, he said.”

“‘It’s one of those buildings where anybody who bought in ’08 or ’09 would be lucky to break even,’ Chadad said. ‘That’s what we’ve been seeing these last few months.'”

“At a sampling of five buildings where the city’s 421-a tax abatement will end this year or next, owners are listing a greater share of apartments for resale compared with other large Manhattan condo towers, according to StreetEasy. Often, they’re not finding takers until the price drops close to — or less than — what the seller paid years ago.”

From Jing Daily. “Student life is often characterized by fastidious saving and bargain buys, but for most of the 370,000 Chinese enrolled in U.S. universities, frugality and cautious spending are of little concern. According to China’s Ministry of Education, 90 percent of students living abroad pay full-tuition using personal or family funds.”

“In a short statement, the agency responsible for regulating and advising all aspects of China’s education system drew attention to Chinese citizens increasing difficulty in obtaining and extending their students visas, going so far as to mention this rising refusal rate.”

“While stopping short of actively dissuading Chinese citizens from applying to American universities by reminding, ‘students and academics of the need to strengthen risk assessment before studying abroad, enhance prevention awareness, and make corresponding preparations,’ the Ministry did appear to make a thinly veiled threat to undermine the flow of Chinese students to the U.S.”

“If this were to occur, the potential damage to the real estate and luxury industries could be substantial. In 2018, Chinese buyers spent an estimated $30.4 billion on residential housing, according to the National Association of Realtors, with many of those purchases accompanying attendance at nearby universities.”

“In Irvine, California, for instance, a city that’s home to a cluster of world-renowned universities, 70 to 80 percent of newly built house purchases in 2017 were made by Chinese parents.”

This Post Has 51 Comments
  1. ‘the Ministry did appear to make a thinly veiled threat to undermine the flow of Chinese students to the U.S.’

    I don’t think anybody but the UHS will care.

    ‘In Irvine, California…70 to 80 percent of newly built house purchases in 2017 were made by Chinese parents’

    These people are speculating.

    1. Do tariffs apply to Chinese real estate purchases inside the U.S.? It seems like this is a ripe channel for the picking if the goal is to raise taxes off foreigners, rather than further burden already tax-strapped U.S. citizens.

      1. This is what Vancouver has done. Target foreign buyers of empty shacks and watch what happens to the housing market. It’s not rationale there yet, but moving in the right direction.

    2. “I don’t think anybody but the UHS will care.”

      It seems like a lot of U.S. parents might care, if this development reduced the risk their child would miss out on a first-rate university education, due to displacement by foreign national students.

        1. I guess the shack builders. That’s why they are sitting on thousands of empty new boxes out there.

    3. Universities would care. Unlike those pesky American students who demand scholarships and grants and work-study jobs, foreign students pay full freight and help support the school.

      Education is an American product as much as soybeans. That’s why China feels safe in threatening to pull students — it’s like any other tariff or boycott.

      But I find this very ominous: “increasing difficulty in obtaining and extending their students visas.” What does this mean? Extend their visa just long enough to pop out an anchor baby or two and stay in the US — with the blessing of the Chinese government?

      It should be noted that these students are NOT the best and the brightest. These are the kids who email the homework problems to companies in China to do the homework and lab writeups, and then cheat on the exams.

      1. But I find this very ominous: “increasing difficulty in obtaining and extending their students visas.” What does this mean?

        I think STEM grads get an extra 3 year visa extension after graduation to work in their first tech job. I assume they are talking about that extension. The married ones do frequently have a child during that time. I think more an an insurance policy than anything else.

  2. ‘anybody who bought in ’08 or ’09 would be lucky to break even’

    It keeps getting rolled back. Used to be 2016, then 2011, now it’s a decade or more.

    1. Wasn’t 08 the downslope for the last bust? So in fact 08 was higher than 12. Still really puts into perspective that if you buy at the wrong time you can be bringing a check to closing a decade later. Better to throw $ away on rent, (at least for that decade)

        1. Renting is less costly now? Careful Mafi-hon, or Ben will bombard you with media articles of two-month free rent, dropping rents, and dying Yellenbux. 🤨

          Renting WAS less costly until about 3 years ago, when the comedy duo of Janet Yellen and Mel Watts teamed up to provide incentives and free money to convert old average into new luxury, and build nothing new except luxury. Captured renters capitulated for a while, until recently when all the new stuff came online and flooded the market with rentals. Now, heck, I don’t know what’s going on.

          1. OK sorry, I misinterpreted the whole thing. I thought you said renting was less costly back then. Oh well.

      1. I think that this quote is going to end up becoming the “Suzanne researched this!” moment of Bubble 2.0.

    1. Takoma Park is worse than Santa Ana! Illegal centrals LOL
      I used to live in Silver Spring and went to UMCP.

  3. Wall Street to Jay Powell: “Is that a bazooka in your pocket, or are you just happy to see me?”

    1. Efficacy of plunge protection measures underway appears to be waning.

      Stocks extend powerful rally driven by hope of the Fed cutting interest rates
      By Chris Matthews and Mark DeCambre
      Published: June 5, 2019 9:54 a.m. ET
      ADP estimates just 27,000 new private sector jobs were added in May
      Getty Images
      Stocks set to rally Wednesday?

      U.S. stocks on Wednesday added to gains scored a day earlier, after Federal Reserve Chairman Jerome Powell implied that the central bank would cut borrowing costs if financial conditions showed signs of weakening from tariff tensions.

      A weak report Wednesday on private-sector job creation added to data that suggest the economy is slowing, at least temporarily.

      How are benchmarks faring?

      The Dow Jones Industrial Average (DJIA, +0.25%) rose 145 points, or 0.6%, to 25,477, the S&P 500 index (SPX, +0.05%) gained 14.6 points, or 0.5%, at 2,818, while the Nasdaq Composite Index (COMP, -0.25%) advanced 0.7% to 7,581, a gain of 55 points.

      1. Wa happened to Quantitative Tightening? Their just going to keep trillions on the books in a low inflation environment? I don’t see how the Fed can get out of this one. . . maybe more QE, which means assets will go back up, but will be cheaper due to lower interest rates.

          1. “deflationary”
            Only if they stop doing it (QE). They could ultimately kick the can down the road for another decade or two. Just look at Japan as an historical reference.

  4. I remember in the seventies and eighties the Irainians we’re buying up Beverly Hills mansions and painting them pee green.

    They drove up the prices at that time and people hated their color choices and statue’s they displayed.
    That was when I first noticed how foreign bucks can drive up a market. They had money to burn and they thought the prices were cheap.

    I always felt like some sort of penalty tax should of been put on foreign buying so our market’s didn’t get whacked out by foreign bucks.

    Today gobalism has screwed up so many markets . Pricing doesn’t make any sense when worldy demand affects end user home buyers .

  5. San Clemente counter offer pretty good but I’m smelling blood now. Also got a really good price drop on a place I liked in Mercer Island. Time for a trip.

        1. Well, well, talk about being neighbors….

          I’ve walked by that house dozens of times – it’s recent construction on a teardown. I remember it because it’s next door to a similar architecturally styled house (the one with the small birch trees IN the driveway, and next to one of the trails in the Ellis Pond park.) It’s not a JayMarc home, so I don’t know the rep for construction quality.

          Hmm.. noticing that zillow’s imagery is incorrect for 4540 (nextdoor) or that it is missing the teardown / sale info – street view is up to date.

          Anyway, I’ve not been inside it – it’s been on sale for a couple weeks now. I suppose I should see if they’re having an open house. It’s similar in specs and price to other recent construction around the island. Property taxes are about $17.5K/yr

          The neighborhood is ok – a mix of new and slightly older homes. If it was one street over on 88th, you might get annoyed by the heavy traffic speeding to and from the High School- mostly in the morning and afternoon (for reasons of congestion on 40th, 86th to 88th to 47th is the main ‘short cut’ to Island Crest Way south). In general, it’s mostly quiet and you’re an even distance from the north end and south end grocery stores 🙂 Flat lots are always good, and you’re 45 seconds from ICW – the main road running North/south through the island, so getting to I-90 to go off-island is easy and quick compared to some addresses (like having to drive the length of East Mercer way).

          I expect over the years ahead that neighborhood will have a few more older $1M-1.3M houses torn down to build houses similar to that one. A crash can throw a wench in that of course.

          Again, it all comes down to ‘what do you really want’ / ‘what is your lifestyle’ – For me, the older homes in the area are half price, and I don’t want 4000 sq ft (done that in TX)

          digging online, It looks like that house was built in 2017 and owned by a couple – so I’m guessing the seller is not the builder. A flipper maybe? but then why wait a year to list? perhaps there’s some room for the owners to come down.

          As for waterfront, it’s nice if you can get it, but check access / neighbors – some of those you get to via steep private drives. Property tax rates are higher. I always figured you’re looking at $50k/yr for starters, but I haven’t checked lately.

          Any other specific questions about the immediate area?

          1. No, I checked the guy out Not a lot of info . They painted a kid’s name on one of the walls so they must have had it built. Surely that will sit for awhile.

          2. I imagine it will. The ‘median’ price for the island is currently said to be $1.7M. Stuff below ~$1.5M is moving quickly still – provided it’s priced right. Most of the active listings over $2.5M seem to linger for months, even the ‘less expensive’ waterfront. Not sure what the sales rate has been in that price band.

    1. If you can afford it, coastal SoCal beats out any place in WA. The food is better, the weather is better, there are more walkable areas and it’s year ’round – there’s a reason it’s one of the top places in the country for the wealthy.

      1. Forbes article from April 4, 2018:

        The Top Four Reasons California Is Unsustainable

        4. California’s Infrastructure Deficit

        3. Government Debt

        2. California’s Taxes and Regulations

        “Little wonder, the demographer Joel Kotkin concluded that ‘the state is run for the very rich, the very poor, and the public employees.’ It is also how California found itself with the worst poverty problem and why ‘California ranks dead last among U.S. states in quality of life, according to a study by U.S. News.’”

        1. The California Governments

        “Within a decade you can expect higher income taxes and sales taxes. There is always a movement afoot to do away with California’s landmark property tax protection known as Prop 13. You also can expect a service tax – a tax on lawyers and accountants as well as hairdressers and gardeners. That service tax would be on top of the existing income tax. Beyond all of that, sooner or later an asset tax will be proposed. California counties already collect an asset tax on businesses. Look for that to be proposed statewide as California lurches ever farther to the Left and if forced to confront future debt.”

        “If you are living in one of the 49 other states, you should learn from the lesson that is California. If you are living in California, there is always the lesson of how Michigan came to be governed by a more centrist government. Of course, that came after the failure of the prior government. For now, however, for all its concern for sustainable foods and products, California is on a high-speed rail to unsustainability.”

        Upshot: There’s more to life than weather.

        1. CALmatters article from January 6, 2019:

          Gavin Newsom’s keeping it all in the family

          “Newsom is succeeding someone who could be considered his quasi-uncle, since his inauguration continues the decades-long saga of four San Francisco families intertwined by blood, by marriage, by money, by culture and, of course, by politics – the Browns, the Newsoms, the Pelosis and the Gettys.”

          “The connections date back at least 80 years.”

          I’m honestly not sure what’s swampier: CA or DC.

          1. That’s quite the political double helix. Sprinkle a few Иs and Яs in there and it would read like the post Soviet era Oligarchs.

          2. political double helix

            Our (inextricably?) intertwined state and federal representation.

          3. I could go on and on with the corruption at the federal level: Maxine Waters, Adam Schiff, Diane Feinstein, Kamala Harris, Ted Lieu.

  6. I’ve been busy the last couple weeks and haven’t been keeping up with the blog. Have there been any juicy Las Vegas market updates in that time? Thanks in advance. 🙂

  7. I believe affordability is the key to housing and rental prices. I looked at mortgage vs rent affordability, which I believe is the biggest factor in determining whether housing prices are out of alignment (in a bubble). The only areas in the San Francisco Bay Area that I was able to find data on quickly were San Francisco, San Jose, and Vallejo, so I used those to create an average. The data for mortgage affordability assumes a median priced home, median income, a 20% down payment, and a 30 year fixed interest mortgage. Rent affordability takes into consideration median rent and median income. I found some very interesting results. To not bore you with all the details, bottom line is that the difference in the average mortgage and rent affordability for these three cities is currently around 2.5% (a mortgage takes up 2.5% more in median income than rent). In the 2006 bubble the difference was almost 10x more at 24.9%! Clearly housing prices are not in a bubble, they are simply a reflection of high demand for housing in the San Francisco Bay Area, both in terms of buyers and renters. Worst case scenario and Silicon Valley collapses like it did in 2000, then the drop in demand for housing can definitely create a drop in housing and rental prices, although looking back to 2000 housing prices had a small correction in pricing while the rental market took a beating and rental affordability peaked. So bottom line, based on what people are currently getting paid, IPO’s, accessibility to 20% down payments, etc., I believe housing prices are currently not in a bubble in the San Francisco Bay Area, but there is a strong argument that rental prices are and will potentially take the biggest hit during the next recession.

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