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Prices Are Definitely Going Down

A report from the Philadelphia Inquirer in Pennsylvania. “Prices paid for vacant land in Philadelphia have plummeted to their lowest levels in three years after peaking in 2017, an indication that the city’s development boom led by townhouse, condo and apartment projects is losing steam.”

“Buyers of bare development sites paid an average of $31.72 per square foot during the first six months of 2018, down more than 46 percent from last year’s average of $59.23, according to public data compiled this month at the Inquirer’s and Daily News’ request by Kevin Gillen, senior research fellow at Drexel University’s Lindy Institute for Urban Innovation.”

“The January-to-June prices were the lowest since 2015, when land averaged $26.94 per square foot for the year. The decline comes as apartment landlords face a surge in supply that’s already starting to tamp down rents, while homebuyers tighten their purse strings in the face of increasing interest rates and other headwinds, Gillen said.”

“‘We’ve seen a significant run-up in land prices during the recent development boom, and many parcels have priced themselves beyond what could feasibly be developed on them,’ he said. ‘We’re seeing a correction.'”

“This year’s declines, coming amid other data that show faltering rents and home prices in the city, could mean that Philadelphia’s boom days are due for a break, Gillen said.”

“‘Land prices and sales tend to be a leading indicator of real estate markets,’ he said. ‘Since the consensus is that our housing market is at or near its peak, it makes sense that land prices would begin softening before house prices.'”

“Gary Jonas, who has built townhouses and apartment buildings in Northern Liberties, Graduate Hospital, Mantua and other parts of the city as a principal with How Properties, said sellers are only beginning to understand that developers like him no longer expect returns that can justify prices they were paying for land as recently as a year ago.”

“‘People are still trying to get last year’s pricing, and they’re not getting it,’ he said. ‘Prices are definitely going down.'”

The Dayton Daily News in Ohio. “The growth in new apartment construction in the Dayton market is helping keep down rent costs for renters. ‘By Austin Landing and the Dayton Mall we’re having to give a month free, but we’ve got other areas in town that we really offer no incentives or very little,’ said Oberer vice president of management services Lloyd Cobble. ‘I don’t think it’s time to panic yet and we haven’t seen any indication that we need to start offering heavy concessions.'”

“‘We have lost people who really want that new product,’ said Tina Warner, vice president of the Greater Dayton Apartment Association Board. With growing competition among new units, houses and luxury apartments, Warner said she’d be leery of any new units coming on the market that aren’t already planned.”

“‘I can’t think of one area in the region where I’m like ‘wow they could really use some additional units,’ Warner said. ‘I think that we’ve already hit the bubble of the rent increases.'”

From GlobeSt.com. “At a time when there’s a widely acknowledged housing shortage, why is apartment building so popular with both lenders and investors, and new condo construction so scarce? Developer Meg Epstein has some answers. She blames it partly on the lenders.”

“‘Banks hate funding condo projects. They can’t repossess a condo project and just rent it out and wait to sell it. If it goes bust, they lose a lot of money. They are just too conservative, despite the risks not actually being that much greater than multi-family, when you factor in supply/demand,’ she tells GlobeSt.com.”

“‘She thinks investors can earn higher returns investing in condos compared to apartment buildings. Nashville is an example.

“There is an oversupply of apartments in Nashville, as evidenced by the rent incentives; one or two months ‘move in specials.’ There is an undersupply of condos as evidenced by the short number of days on the market and lack of supply when searching for condo product,’ she says.”

This Post Has 13 Comments
  1. ‘Buyers of bare development sites paid an average of $31.72 per square foot during the first six months of 2018, down more than 46 percent from last year’s average of $59.23’

    Are we there yet? Are we there yet?

    DONG!

    1. I hope this is a sign that higher rates and no more appreciation are finally putting an end to all the speculators in the market, as they realize finding a real job is better than bankruptcy. Who knows, perhaps they can find one that makes them an asset to society rather than a burden.

      Over 12,000 apartment units are expected to be completed in Denver in 2018. Without the need for any new apartments for a few years, I wonder how many jobs will be lost, helping to fuel the next major recession. Add in home builders, realtors (with sales dropping over 30% YOY), mortgage bankers with refi’s dropping off the cliff, etc., and its pretty scary what is in store for us.

  2. ‘We’ve seen a significant run-up in land prices during the recent development boom, and many parcels have priced themselves beyond what could feasibly be developed on them’

    This happened all across the country.

    ‘Is the real estate double bubble back?’

    Jul 24, 2017

    ‘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.’

    1. in inflation adjusted #s. So retail (malls etc) are suffering, so office space in increasing substantially.

      And many companies are moving to open or team spaces – so there is a double witching hour coming

      ‘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.’

  3. April 19, 2018

    From Philly Mag in Pennsylvania. “Are you still stunned over Monday evening’s announcement that Dranoff Properties will sell all of its apartment buildings in the Philadelphia area to the Apartment Management and Investment Company of Denver for $445 million? Deep down inside, Carl Dranoff himself might be too, for he wasn’t looking to sell the properties even though the glut of apartments both he and your section editor saw coming last year has indeed come to pass.”

    “‘I’m an outlier,’ Dranoff said. ‘I’m not like most developers who build a building, then turn it over to someone else to run. I’m a long-term steward of my properties, and I had no intent of selling them.’ But AIMCO was intent on expanding its presence in the Philadelphia market.”

    http://thehousingbubbleblog.com/?p=10407

    These apartments were built to flip.

  4. Even if the prices drop to the 2007 peak, they are still overpriced… Still got a long way to go.

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