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It’s All Over

A report from the Wall Street Journal on New York. “Property investors have spent billions of dollars on apartment buildings for what has been one of the most reliably profitable bets in New York City real estate: converting rent-regulated apartments to market-rate units. But New York’s new rent law may be putting an end to that business, causing financial stress for the companies that own these buildings.”

“The new laws could cause the values of rent-stabilized apartment buildings to drop 20% to 45%, depending on their current rent rolls, several brokers and investors said. That would leave many properties worth less than their mortgages and put building owners at risk of default.”

“‘It’s all over,’ said Lazer Sternhell, a real-estate investor and broker of rent-regulated properties in New York. ‘You can’t raise the rents. You can’t deregulate.'”

“Asking prices for the sale of regulated buildings are already falling. In one example, a brokerage had previously pitched a partially vacant, 22-unit building in the East Village on the premise that a buyer could eventually double the monthly income from $26,300 to $52,600.”

“After the rent law passed, the company notified potential investors that they were lowering income expectations and cutting the asking price by 17%, the first of what could be many cuts. ‘Every spreadsheet in New York just changed,’ said Steven Vegh, a real-estate broker who sells buildings to investors.”

The Tennessean. “It’s no surprise to anyone who’s walked the streets of Nashville for any length of time that new apartment complexes and row homes are seemingly everywhere. In the first quarter of 2019, construction permits for new duplexes, town homes, condominiums, apartments and triplexes jumped 71.9% over that period last year, from 1,067 to 1,834.”

“Meanwhile, the number of unsold single-family homes sitting on the market ballooned and prices dipped as demand shifted. The slowed demand for homes caused inventory to balloon 7.2% in the first quarter in Nashville over the previous quarter. Year over year, Nashville’s unsold housing inventory jumped 31.4%. The resulting price decreases, and another anticipated mortgage rate decrease, could help turn the tide back to favor single-family homes.”

From NBC Miami in Florida. “Residents at a Fort Lauderdale apartment complex said they aren’t feeling safe after several cars in the community were vandalized. Now residents of this apartment complex are frustrated because they say they were promised luxury — instead they complain there aren’t any surveillance cameras and not enough security.”

“‘It’s scary. It’s time for corporate to do something for us,’ said resident Liz Havens-Cook. ‘We are paying to live in this very nice place and it isn’t safe.'”

From City Watch LA in California. “Let’s hear no more of this foolishness that housing prices are high because the supply of housing is low. The concept of Supply and Demand, as used by the Garcettites of this world, is a fraud.”

“Supply and Demand set the price between a WILLING buyer and a WILLING seller. Fraud vitiates willingness. In other words, when the price is set by fraud, either the buyer or the seller is deceived. That is true for buying a house and for renting an apartment. Massive frauds have grossly inflated the cost of housing.”

“Thus, one cannot see high prices and conclude that supply must be low. Garcetti feeds us this economic foolishness because he has one point to push: build more to make his buddies wealthier. It does not matter to Garcetti that we already have 110,000 empty apartments. We the People ignore the fact that if we had a genuine housing shortage, then Garcetti would not continue destroying rent-controlled apartments.”

“Garcetti is no bumbling fool; he knows what he is doing. Don’t tell me that someone who went to Columbia University and who was a Rhodes scholar is too dumb to grasp the results of destroying tens of thousands of rent-controlled units. He targeted RSO units so that his developer buddies could make more money.”

“When a city has an excessive supply of high-end condos, apartment houses and small lot subdivisions, this suggests too many purchasers are merely parking their cash. A major reason to ‘park cash’ is money laundering. Toronto recently discovered that it has in its housing market. If honest Canada has a problem, can you imagine what criminogenic LA has?”

“This one has turned Hollywood into Fraudywood and now into Crappywood. It’s the criminal vote trading system at LA City Council where every councilmember must vote Yes for each project no matter how terrible it is. Since this criminal vote trading agreement guarantees that each Councilmember can deliver on whatever he promises, the bribery-extortion racket is the only thing that functions smoothly in Los Angeles.”

“Each spot zoned project is another example of the criminal vote trading system, which His Holiness Judge Fruin blessed. Let’s be clear. Spot Zoning is criminal fraud which is prevalent due to the criminal vote trading system. We know that there is vote trading since each project is unanimously approved. The chances of 10,000 consecutive projects getting unanimous approval without criminal vote trading is less than 1 in Infinity.”

“Unless they knew in advance that bribing one councilmember would guarantee approval, they would not even try spot zoning. Without the guarantee of the vote trading pact, the developers could not have bid up the costs of homes.”

“As we know, each sale enters the ‘Comps’ for comparable home sales and the next seller wants the high developer value for his house no matter who buys it. That forces family home buyers to pay exorbitant prices and the fraudulently hyped developer prices become the standard. City Council’s criminal vote trading is the main cause of inflated prices for single-family homes.”

“Basically, all of Los Angeles’ woes stem from corruption. Garcetti sits in the center of it and he is not alone. He has a whole city council, the large downtown law firms, the Board of Supervisors, METRO, most state judges and a gazillion other hangers-on to support him in facilitating the demise of Los Angeles.”

“Signing Alexandra Datig’s Recall Garcetti Petition is a big step in the right direction, but it is the first step in a thousand-mile journey. Sign here.”   

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This Post Has 60 Comments

  1. ‘The new laws could cause the values of rent-stabilized apartment buildings to drop 20% to 45%, depending on their current rent rolls, several brokers and investors said. That would leave many properties worth less than their mortgages and put building owners at risk of default’

    And so it will go everywhere that is overbuilt, like Seattle.

    ‘It’s all over,’ said Lazer Sternhell, a real-estate investor and broker of rent-regulated properties in New York. ‘You can’t raise the rents’

    I’ve been making this point for years. These guys paid so much for the airboxes, they have to have rents going up every year with no end in sight. Which is unpossible and eventually will collapse.

    1. Those that bought rent stabilized buildings years ago paid 20-45% less then what a market rate building would have sold for. So they are not going to hurt. Its the latter buyers who overbid hoping to use as much “illegal”ways to coerce low paying renters to move or be evicted, thereby increasing rent roll and still make a profit.

      But now take away a 20% vacancy increase and making preferential rent the new baseline rent, new buyers will be hurting pretty good.

      1. So they are not going to hurt.

        Unless they, you know, leveraged those buildings. Which I’m sure nobody did.

    2. “We can do this.” Those sound more like the famous last words of many an extreme sports enthusiast.

  3. This period reminds me of the 1850 to 1910 period in USA history. The fat cats bought up everything to price fix . The majority worker bees lived like slaves at the mercy of the price fixing low wage monopolies. That horror story changed eventually but now we are back to market forces being rigged again.

    1. This period reminds me of the 1850 to 1910 period in USA history.

      And how did that end again?

    2. “The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basle, Switzerland, a private bank owned and controlled by the world’s central banks which were themselves private corporations. Each central bank, in the hands of men like Montagu Norman of the Bank of England, Benjamin Strong of the New York Federal Reserve Bank, Charles Rist of the Bank of France, and Hjalmar Schacht of the Reichsbank, sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world.” —Carroll Quigley, Tragedy and Hope, pg. 324.

      1. a world system of financial control in private hands able to dominate the political system of each country

        Sounds like that could have contributed to WWI and WWII. Glad that could never happen now.

  4. ‘A major reason to ‘park cash’ is money laundering. Toronto recently discovered that it has in its housing market. If honest Canada has a problem, can you imagine what criminogenic LA has?’

    This last article was a great rant, but Canadians are second to none in encouraging money laundering.

    2. What were we to expect when the same crowd of fraudsters were allowed to continue operating in the real estate industry? With the ten of thousands of real estate agents, mortgage brokers and underwriters, property assessors, CDO-synthesizing off-shoring scammers, NINJA loan borrowers who falsified financial documents, all who conspired to create the largest fraud induced property bubble in centuries….you could count on the fingers of one hand the number of people who were prosecuted. So here we go again. Trapped on the titanic and the only life boats are reserved for the captain and crew that rammed the iceberg.

      1. Exactly. I remember after the last meltdown when they were checking the loan documents, and there was some insane number like over 60% that were fraudulent. And, these aren’t documents that were fabricated by borrowers, it was the LENDERS who were doctoring them, because they knew what would get through underwriting. They just wanted that sweet commission.

        1. The only way you can have a housing bubble is with fraud. There’s no other way for house prices to become so detached from incomes.

  5. “My AirPods were in the arm rest, they stole that, but that was it,” Martin said. “And that’s the worst part of it. $800 for a window because I drive a 2019 Range Rover … it cost me $800 to fix it for a $200 AirPod they stole.”

    Oh the horror!

    1. Yeah, but drug seekers are like that and it is annoying to have your vehicle burglarized. I had my $12k Honda Civic’s window broken in 3 times in the course of 3 years. There was nothing of value to be stolen though. Some vehicles and locations are just targets.

      1. Nice. I was a cheapskate and had high deductible auto insurance and no glass coverage (I was under 25 at the time and so insurance was already astronomically high to begin with).

  6. Mega.wanker.bank$ $uper.$trong! … NON.bank$ $acrificial lamb$ awaitin’ to bee $laughtered.

    Only the largest and most complex banks were tested this year. As previously announced, smaller and less complex banks were not tested this year and are currently on a two-year cycle, consistent with the Economic Growth, Regulatory Relief, and Consumer Protection Act. The firms tested this year represent about 70 percent of the assets of all banks operating in the U.S.

    “The results confirm that our financial $ystem remains re$ilient,” Vice Chairman Randal K. Quarles said. “The nation’s large$t bank$ are $ignificantly $tronger than before the crisis and would be well-positioned to support the economy even after a $evere $hock.”

    Press Release
    June 21, 2019

    Federal Re$erve Board releases results of supervisory bank stre$$ test$
    For release at 4:30 p.m. EDT

    https://www.federalreserve.gov/newsevents/pressreleases/bcreg20190621a.htm

    1. Off-topic, but is it? We have a population and demographic time bomb going off and with the opioid epidemic, deaths of despair (e.g. suicide, alcoholism, drugs), and cardiovascular deaths we are going to have an increase in housing supply.

      That’s a sobering scenario outlined by two new, provocative studies. One, from Fannie Mae’s Economic and Strategic Research Group, warns that the “beginning of a mass exodus looms on the horizon,” where “homeownership demand from younger generations is insufficient to fill the void left by multitudes of departing older owners.” The net result: gluts in some local markets with potentially negative impacts.

      Could baby boomers spur a housing bust?
      Chicago Tribune
      JUL 17, 2018

      “Will baby boomers turn into party poopers when they unload their homes in large numbers starting in the next decade? Could they create an indigestible oversupply in the market that lowers home prices and frustrates sales?”

      “That’s a sobering scenario outlined by two new, provocative studies. One, from Fannie Mae’s Economic and Strategic Research Group, warns that the “beginning of a mass exodus looms on the horizon,” where “homeownership demand from younger generations is insufficient to fill the void left by multitudes of departing older owners.” The net result: gluts in some local markets with potentially negative impacts.”

      “A second study, from the Stephen S. Fuller Institute at George Mason University, focuses on the Washington, D.C., market and sees a similar problem ahead. “The significant number of older owners in relatively large homes may portend a ‘baby boomer sell-off’” in the D.C. region and elsewhere in the U.S., it reports. Some longtime owners “may have difficulty attaining the price gains they witnessed in their neighborhoods during recent years,” according to author Jeannette Chapman, the Fuller Institute’s deputy director.”

      1. Another big, big factor has been the poisoning / corruption / what ever you want to call it of our food supply with additives, and in particular HFCS/Sugar along with the push for ‘upsizing’ portions.

        Pair that with the computer age/information revolution and overall we’ve collectively have become much more sedentary.

        I think recently here I was mentioning finding my parent’s photo albums from growing in the 70s – holy fark we were more active and in better shape then.

        And now, there are a lot of factor$$$ to push treatments (that cost $$) as opposed to addressing the root cause by requiring a clean up of our food supply.

        There are also other, second order factors that contribute to the problem. When I was growing up, almost daily I would go outside.. by myself.. and disappear into the neighborhood or into the nearby forests, with friends or alone, but no adults. A parent today would have to worry about having the cops called on them for that. And Information and screens are addictive and somewhat useful – being outside is often seen now as ‘unproductive time’. And let’s not get started on the ill health effects of reading and posting on single-topic blogs. 😉

        1. A parent today would have to worry about having the cops called on them for that.

          Mostly symbolic, but an effort to push back a bit against the trend you describe:

          Utah’s ‘Free-Range’ Parenting Law Protects Parents So Kids Can Roam
          NPR
          April 1, 2018

          “In 2015, two children, ages 10 and 6, were walking home alone from a park in Silver Spring, Md. They were picked up by police and held by Child Protective Services. Their parents were charged with neglect.”

          “The parents were supporters of a so-called free-range parenting style that encourages independence and exploration for children.”

          “Now the state of Utah has become the first in the country to protect free-range parenting. To do that, a new state law changes the definition of neglect.”

          “”What we’ve done with this bill is just to define some specific things that neglect is not — like letting your kids play or walk to or from the park,” says GOP state Sen. Lincoln Fillmore, the bill’s sponsor and a free-range parent himself. “These kinds of things that parents want to allow their children to do so they can start building the self-reliance, the independence, the problem-solving skills that they’re going to need as adults by practicing those in safe environments as children.””

      3. homeownership demand from younger generations is insufficient to fill the void left by multitudes of departing older owners.

        The beauty of the market is that as prices drop homeownership will become more attractive and the problem will correct itself. Someone will want those houses at the right price. Most of them anyway. Sellers might want to get ahead of the curve.

  8. In the past 2 weeks, I’ve had 3 brokers ask me for short term hard money financing for homebuyers with 6+ month old contracts to buy new construction….and all of a sudden they couldn’t get it financed before closing and they are about to lose their deposit.

    1. they couldn’t get it financed before closing ??

      Any idea why they could not ?? Speculators that could not qualify ??

  9. I don’t get the history. My guess is that you have specu-vestors whose financial situation changed, couldn’t unload their existing property, the appraisals aren’t coming in high anymore, the banks are tightening, or a combination of the above.

      1. Yeah, I used to read a lot of Mises stuff. Austrian school and the monetary overstimulus theory has a lot to contribute to understanding bubbles. It’s not just monetary policy that creates a bubble. Regulation and tax policy can strong contributing policy. Fannie and Freddie as well. Nimbyism too. Also money laundering and monetary policy in other countries. Some factors are more important than others, but there are many reasons why we are in the bubble.

        2. Once you wrap your head around it for a bit, it seems all each of us can do is look out for ourselves. And maybe open the eyes of a few others along the way. 🙁

  11. What Do the Oligarchs Have in Mind for Us?

    “To get a preview of the society the oligarchs want to create, the best place to look is where oligarchal domination is most complete. Wired magazine’s Antonio Garcia Martinez has called Silicon Valley “feudalism with better marketing.” In Martinez’s view, the new aristocratic class is an “Inner Party” of venture capitalists and company founders. Well below them is an “Outer Party” of skilled professionals, well paid, but forced to live ordinary middle-class lives due to high housing prices and high taxes. Below them lies the vast population of gig workers, whom Martinez compares to sharecroppers in the South, “…with the serfs responding to a smartphone prompt rather than an overseer’s command.” Further below still lie those who constitute, in Martinez’s phrase, “the Untouchable class of the homeless, drug addicted, and/or criminal.”

    California, and particularly the Bay Area, already reflects this neo-feudal reality. Adjusted for costs, my adopted home state suffers the overall highest poverty rate in the country, according to the US Census Bureau. Fully one in three welfare recipients in the nation live in California, which is home to barely 12 percent of the country’s population, while a 2017 United Way study showed that close to one in three of the state’s families are barely able to pay their bills. Today, eight million Californians live in poverty, including two million children. Roughly one in five California children lives in deep poverty and nearly half subsist barely above that.

    For all its protestations of progressive faith, the Golden State now suffers one of the highest GINI rates—the ratio between the wealthiest and the poorest—among the states. Inequality is growing faster than in almost any state—it now surpasses that of Mexico, and is closer to that of Central American banana republics like Guatemala and Honduras than it is to developed countries like Canada and Norway. There’s even the return of medieval diseases such as Typhus tied to the growing homeless encampments. We could soon even see the return of Bubonic plague, although the mainstream media seems to be ready to blame this, like most ills, on climate change as opposed to failed social policy.”

    https://quillette.com/2019/06/19/what-do-the-oligarchs-have-in-mind-for-us/

    I deleted Facebook. I don’t shop at Amazon. I’ve never purchased an Apple product. I use duckduckgo for search and Firefox for browser.

    I visited the Bay Area for the first time six weeks ago and the level of urban squalor on the streets was incalculable.

    Starve the oligarchs, just stop letting them make money off of you…

    1. Sounds a bit like the Hunger Games.

      As much as I respect your principled boycott of tech companies you find abhorrent, I would submit that a strong regulatory and political response is going to the the only thing with sufficient force to accomplish your goal. Warren is probably right that we need to break up the big tech companies. But Yang is even more nuanced. Breaking up these big tech companies is a 20th century solution to a 21st century problem. Better regulation of data, privacy, and the way in which these platform monetize and make money off of essentially free labor.

      1. One problem is that the data collected by and lack of privacy is too tempting for the government to get its hands on. Some regulatory improvements may be made, but the rulers of countries will not want to lose access to 1984 levels of surveillance, which they see as insuring their continuance in the face of storms ahead.

    2. KGB defector Yuri Bezmenov’s warning to America

      “29 [now 36] YEARS AGO, Soviet defector and KGB operative Yuri Bezmenov, specializing in the fields of Marxist-Leninist propaganda and ideological subversion; warned us about the silent war being waged against America as part of a long term plan to take over and destroy the American system and way of life.”

      “Watch this clip in AMAZEMENT as you realize he is describing EXACTLY what’s happening in America today, where by Obama and his gang of Marxist usurpers who now have control of your government are just the culmination of a very long term plan, but are the ones who are about to bring it into fruition.”

      3. Haven’t seen the Bezmenov interview in a while. I do remember reading that not too much later after this taping no one knew his whereabouts (they weren’t implying that foul play occurred.)

        I enjoy these type of interviews. It’s that “Oh, no” “Oh, yeah” back and forth. You’ve probably seen the Kay Griggs interview, but just in case… Very long, pretty wild stuff.
        Kay Griggs: Colonel’s Wife Deep State Tell-All 1 of 4
        youtube.com/watch?v=MQNitCNycKQ

        An short interview from a childhood friend of Barack Obama:
        Mia Marie Pope Ousts Barack Obama as a Foreigner on the Manning Report
        youtube.com/watch?v=GEB-jl4DDhU

        2. from a childhood friend of Barack Obama

          Care should be taken not to rebroadcast wild unsubstantiated accusations. It might not be true.

      1. Is it better?

        I know they put a lot of effort into performance. I’ve used it daily for many years now and have no issues really. Every once in a while I’ll have to fire up Chrome or Safari to get a page to load (likely due to the blocking I have enabled in FF), but I’d suggest giving it another try!

  12. That Florida story sounds like my area of Los Angeles. Endless car theft/break-ins/catalytic converters and rims being taken, but the houses for sale are asking $1.5-1.8 million. Oh, did I mention the homeless lying around, the trash, and the crappy schools? It’s a terrible deal, I’m glad I just rent.

  13. This new listing has an interesting price history that traces the two bubbles:

    https://www.zillow.com/homedetails/13324-Starmount-Way-Poway-CA-92064/16742502_zpid/

    Price history
    DATE EVENT PRICE
    6/22/2019 Listed for sale $1,450,000 (+64.8%)
    3/6/2012 Sold $880,000 (-9.7%)
    1/25/2012 Listing removed $975,000–
    10/30/2011 Price change $975,000 (-18.4%)
    7/18/2010 Price change $1,195,000 (-5.5%)
    7/9/2010 Listed for sale $1,265,000 (-9.6%)
    7/19/2007 Sold $1,400,000 (-6%)
    3/23/2007 Listed for sale $1,489,000 (+37.9%)
    9/19/2006 Sold $1,080,000 (+24.1%)
    6/8/2000 Sold $870,000 (+68.9%)
    11/30/1993 Sold $515,000–

      1. loss of Chinese political contributions

        Far more than just the Chinese. Are you familiar with Charles Ortel’s work on the Clinton Foundation the last 4+ years?

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