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Caught Between The Devil And The Deep Blue Sea

It’s Friday desk clearing time for this blogger. “Taylor Denchfield says he has been flipping homes since he was 17 (he is now 25). Data from the first three months of this year suggests the flipping market has already begun to cool off. ‘We’re certainly reaching the top of the bubble,’ said Denchfield, a Washington, D.C.-area real estate broker. ‘Investors may be getting out while the getting is good, before the market softens further,’ said Todd Teta, chief product officer at Attom.”

“Among the more than 16,200 condo units across 682 new buildings completed in New York City since 2013, one in four remain unsold, or roughly 4,100 apartments — most of them in luxury buildings, according to StreetEasy. In an analysis of seven luxury towers on and around Billionaires’ Row, including pending sales, almost 40 percent of units remain unsold, said Jonathan J. Miller, the president of Miller Samuel Real Estate Appraisers & Consultants.”

“The last time similar offers were made was in the late 2000s, ‘when the bottom dropped out,’ said Simon Bacon, a senior vice president with Douglas Elliman. ‘It’s a troubling sign.’ ‘People don’t realize this is already as bad as it was after Lehman, purely from a supply standpoint,’ said Mark Chin, the chief executive of Keller Williams TriBeCa. ‘I can smell it from here, I just can’t figure out yet where the stench is coming from. But it’s guaranteed to be happening.'”

“But among new projects, developers do not suffer equally, said Donna Olshan, Olshan Realty ’s president. The developers who bought at peak land costs and who promised lenders overly ambitious returns are less able to reduce their pricing now that the market has softened. ‘Some of them are caught between the devil and the deep blue sea,’ Ms. Olshan said.”

“If you had invested in a property in San Francisco five years ago and cashed out in 2019, you would have made a 50% profit, never mind the rental income. But if you had bought a year ago and sold today you would have made exactly zero. The California boom is over and investors need to switch to Plan B, which is the answer to the Jeopardy question: How do you deal with a market that at best will be moving sideways, but could also drop 20%?”

“The cycle is the same. People with new money bid up real estate until builders produce more or everyone who wants it has enough. Then nobody is left to pay the astronomical asking prices and these have to come down.”

“A 7,418-square-foot home in Naples, Florida, is set to be sold in a live, no-reserve auction on Nov. 2, according to Elite Auctions. The home was most recently listed for $7.95 million. But it first came on the market in February 2016 for $12 million. That listing was removed at the end of 2017. The home was relisted in January 2018 for just under $10 million, but still has not found a buyer, even at its lower price.”

“The 14,000-square-foot mansion on Deere Park Drive sold Sept. 10 for $800,000, less than the $1.18 million that the seller paid in 2017 when he bought it in foreclosure. This recent seller’s planned rehab never went through, and he put in on the market in August 2018, asking $2.2 million. He sold it for about 68 percent of what he paid for it. This week’s sale price is also well below the $2 million that previous owners paid for it 28 years ago, before launching a decade-long rehab. After spending several years in the 2000s trying to sell it for prices upward of $7 million, they ultimately lost it to Bank of America.”

“Red Deer realtor Richard Pochylko sometimes finds house sellers need a bit of a reality check. The market has been correcting for several years now, and the new house value number is sometimes an eye opener, said Pochylko, president of the Central Alberta Realtors Association. ‘There are still a lot of people who haven’t been thinking about house values,’ he said. ‘If you talk to them, they’re literally shocked by what you tell them.'”

“Property prices in Dublin are now falling for the first time in seven years, according to the official figures. The rapid slowdown in property price inflation has been linked to the pick-up in the supply of new homes. New dwelling completions rose by 25 per cent to 18,072 last year and are expected to be up again this year.”

“A few months ago, the state government had proposed the unthinkable: imposing a ban on the construction of apartments and high-rises. The radical idea came as a result of an acute shortage of potable water in the city and a torrent of bad news from Chennai. Though the proposal remained just that, a proposal, several other factors seem to have done the government’s job. Construction activities have slumped by over 50% in the last two to three years in the city.”

“‘People are afraid to invest as so many reforms are being implemented by the governments. The slump has resulted in the price drop of these unsold units as the industry is pinning hopes on brighter days,’ said a senior official.”

“Property investors are dumping assets on the expectation that prices are set to decline, and so-called gap investors are also selling. ‘Many are selling their real estate, except for few key properties, in order to manage risk,’ said Han Moon-do, Yonsei University professor of real estate finance. ‘They think the housing prices have peaked.'”

“Sun Hung Kai Properties Ltd, Hong Kong’s biggest developer, is offering new homes at a discount to entice buyers. The first batch of units in the Kowloon development Cullinan West III have been priced at 20 percent lower than current market levels in the area. The pricing is described by the developer as ‘traveling back in time’ — it is close to the price set two years ago for the first phase of the same development, even though home values have risen 8 percent in the period.”

“Zerin Properties Sdn Bhd real estate negotiator Natasha Gideon said she has seen some improvement in the subsale market. ‘For those with cash in hand, they realise now is a buyers’ market. In addition, owners are willing to let go at below market value. The only constant issue is clients not having enough money for the 10% downpayment,’ she said.”

“Pure Property Investment’s Paul Glossop said that he remains concerned for the house and land packages segment of the market, particularly in Sydney’s south west region where a significant portion of the NSW government’s infrastructure spending has been directed recently. ‘Those are the ones which scare me the most,’ Mr Glossop said. ‘People got caught up in the hysteria.'”

“According to him, house and land packages are often located at a considerable distance from city centres and infrastructure, because they were built on the ‘next bastion of available land’ on the outskirts of Sydney. Investment adviser Simon Peisley said that investors can implement several strategies to bridge the gap between rental cash flows and borrowings in SMSFs. ‘The key here is to take a completely objective approach to rental income generated. If reducing the asking rent by $20 per week is going to save you from the property being vacant for four weeks as well as agent fees, then you should swallow your pride and consider it,’ he advised.”

This Post Has 82 Comments
  1. ‘The last time similar offers were made was in the late 2000s, ‘when the bottom dropped out’ …‘It’s a troubling sign.’ ‘People don’t realize this is already as bad as it was after Lehman, purely from a supply standpoint’…‘I can smell it from here, I just can’t figure out yet where the stench is coming from. But it’s guaranteed to be happening’

    The bubble popped years ago.

    1. ‘I can smell it from here, I just can’t figure out yet where the stench is coming from. But it’s guaranteed to be happening.’

      Perfect description of where we are right now.

  2. ‘We’re certainly reaching the top of the bubble,’ said Denchfield, a Washington, D.C.-area real estate broker. ‘Investors may be getting out while the getting is good, before the market softens further,’

    I have a couple of smart money folks in my circle of friends and family who sold homes in the D.C. area over the past year. One of them made roughly a 300% gain over the purchase price 15 years ago; I haven’t yet heard the outcome of the other sale.

    When the smart money starts to run away,
    It’s time for dumb money to hope and pray.

    1. Professor, do you think they were smart money when the bought fifteen years ago and hung on through the bursting bubble?

      1. Honestly looking at a DC housing chart the 300 percent return seems impossible if someone bought 15 years ago. Either he dumped a lot of money into the house and is leaving that out or he is just making up numbers.

        1. Not sure about what amount they dumped in.

          However, back in 2002 was right after the 9/11/2001 attack and also in the wake of the tech stock collapse, but before a lot of bubble runup from 2002-2007, so I can see how that may not have been a bad entry point.

          I don’t know the exact figures, but we’re talking about a purchase in the $200-$300 thousand range and sale near $1 million. Of course these are nominal figures; the gain would look less spectacular if adjusted for inflation.

        2. A-dan, you’re right. 3x in 15 years in DC is not impossible, but all the planets would have to align. Did he buy a run-down house in Northern Virginia and fixed it up just as all the DHS contractors moved in? Or if this house is anywhere close to Arlington, where Amazon II is going. Or maybe he’s practically on top of the new Metro stops. Or all three.

          But nobody is getting 300% in Maryland, where the unsexy domestic agencies are located. My own house, I guess, appreciated about 20% in the past 7.5 years. That’s not much more than historic inflation.

          1. REALTOR, I have so much money left after “throwing money away on rent” every month that I don’t know where to throw it.

          2. Yes, that’s nice. But while you’ve been paying rent, I’ve been paying down my mortgage debt. I could sell my house tomorrow and walk away with ~$120K free and clear. Now that’s a general statement. I’m guessing that the house needs $15-20K of work to get into salable condition.

          3. Well to be fair, most of equity I have is simply the down payment money and payment on principle that I’ve been making over the years. Only about 1/3 of the equity increase is from appreciation. I’ve been in the house 7.5 years… it adds up…

        3. Dan – there is huge variance by neighborhoods that is obscured in the city level data. 300 to 1 mil in that time frane is not incommon in Dupont Circle or Adams Morgan.

          1. Thanks. I think Oxide nailed it, the stars aligned. Good. I have no problem with people who buy to meet actual housing needs doing well.

      2. It was largely due to luck of timing. In both cases, changes in life circumstances precipitated a move.

        However, given the appearance of a softening market, I don’t see how their timing of sale could have been much better.

    2. ” … who sold homes in the D.C. area over the past year”

      Wheretoeth did they move their wheelbarrow$ of $helter.$hack.ca$h? ($urely knot $an Die.go, CA)

  3. The California boom is over and investors need to switch to Plan B, which is the answer to the Jeopardy question: “How do you deal with a market that at best will be moving sideways, but could also drop 20%?”

    Why would anyone buy now in an overpriced market, with prices already going sideways and poised to drop against the backdrop of near record low interest rates and unemployment?

    It seems like the only diection for prices to go from here is down.

    1. People forget this. A stalling market with record low rates (which are trending higher this week) is a clear cut sign the top is in.

      Of course “John” will find a reason why this is a good time to be a buyer and seller.

      1. Dear JohnDave/D00mer/Jingleballs,

        Please accept my condolences for what your about to go through. The 5 stages of grief can be quite overwhelming. Now that you got passed stage 1 (denial) and have entered stage 2 (anger) you may feel it necessary to take it out on all the people who said dont buy into the massive bubble, but you assured them that Suzanne and your realtor had your back. Soon you will be bargaining with your bank but feeling very depressed about your poor decision / speculation, and finally (if you make it this far) you will accept that your a debt donkey and vow to never do it again but you probably will given the chance during bubble 3.0 ps, i take back my condolences.

        1. during bubble 3.0

          This has taken so long to play out, if there is a three tits up event like you imply, not many people will still be around who remember what things were like in the pre-debt bubble world.

  4. “…Red Deer realtor Richard Pochylko sometimes finds house sellers need a bit of a reality check….”

    So where were you, Richard Pochylko , with such sage advice, last year, and the year before that, and the year before that, and the year before that…..? Drinking the REIC Cool Aid?

          1. I remember reading a post on an auto forum from a car salesman complaining that all car buyers are liars. I about choked. It was rich.

  5. ‘investors can implement several strategies to bridge the gap between rental cash flows and borrowings’

    That negative gearing (cash flow negative) doesn’t look so great now eh?

    Sydney bubble popped in 2017. Vancouver 2016, same with NYC. Miami 2015, London 2014. Some popped more recently but even Seattle, bay aryan, Denver are over a year now. This thing is done. I’m not wasting my time with internet Forest Gump types anymore. It’s time to get serious and focus on opportunities.

    1. Does that mean the demise of HBB is imminent? It certainly sounds like it from posts this week. This blog was the only good thing to come out of the bubble, and I will miss it when it’s done. Of course, we understand you have to move on, and that we have benefitted for free from the thousands upon thousands of hours you put into it. You didn’t have to put any of this research you were doing for yourself online, but we’re glad you did. You didn’t have to open up and moderate a comments section, but we’re glad you did.

      1. “Does that mean the demise of HBB is imminent? … This blog was the only good thing to come out of the bubble”
        Bubble l + Bubble ll = Bubble$

        Full Werewolf moon Friday.13th …

        A 1$t victim:

        $ervices
        MoviePa$$ is shutting down on September 14th
        The company is considering a sale.
        Engadget |Igor BonifacicIgor | 9/13/19

        MoviePass is $(hutting down. On Friday, the subscription service announced it will stop offering discounted movie tickets on Saturday, September 14th. In a press release, the company said its “efforts to recapitalize MoviePass have not been successful to date.” Moving forward, all options are on the table, with MoviePass saying it’s considering, among other things, selling itself off entirely. It added that it doesn’t know when or if it will be able to continue.

    2. This thing is done. I’m not wasting my time with internet Forest Gump types anymore. It’s time to get serious and focus on opportunities.

      Ben, I don’t doubt that it gets old keeping the HBB going seven days a week, while spending an inordinate amount of time dealing with ingrates and buffoons. Would understand fully if you washed your hands of this labor of love and chose to focus on more profitable, less aggravating ventures. Wouldn’t blame you if you did. But I’d be saddened by the demise of the HBB.

      For more than a dozen years now this site has been a voice in the wilderness, and a lone, authoritative bastion of truth and light amidst the pervasive lies, spin, and mendacity of the REIC – an industry of dissemblers – and a resource for those seeking real news, real truth, real insights, and an intrepid community of contrarians and free thinkers. Being solely responsible for keeping that resource going day after day, year after year, while enduring the slings and arrows of jackasses and trolls, has to be a bag drag at times, and an opportunity cost in terms of time and money. Again, couldn’t blame you if you packed it in. But an irreplaceable bastion of truth and light would disappear, when there aren’t that many left still carrying the fire.

      1. I’m not shutting this blog down, sorry if it came off like that. But what I’m not going to do is argue with intellectual piss-ants who refuse to acknowledge what’s already happened. Like the MSM is doing. Take this NYT article. By any measure of a mania or bubble, NYC meets it. By any measure of a bubble popping, NYC meets it. Same can be said of many of the most expensive cities around the world.

        This trip to Miami is partly to start looking at distressed property and how to approach it. So I may have more videos of that process hopefully from multiple cities. This blog will continue to a logical stopping point. But what I’m saying is it’s time to roll up the sleeves and get to work on early retirement from this crash.

        1. Early retirement! Good for you Ben! Sounds like you’re going to purchase some fix-ups, fix ’em up, hire a property management, and live off the passive income. Have at it.

          It’s taken me a while to understand that prices are dropping for anything that’s not luxury or listed at wishing prices. And I fully see that bubbles will pop in areas like Austin or Denver or Seattle.

          But in an area like mine, houses have been appreciating at about the rate of inflation. There don’t appear to be many foreign buyers or banks interested in my block. The few houses which were listed at prices about that modest appreciation have been renovated to the nines and sellers are trying to recoup the reno costs. Would my nabe really drop so much?

        2. Thanks for the clarification. And I’m really looking forward to your reports from Miami, and the info from Jack McCabe you said you might post about the vulture funds.

          Just my opinion, but while the bubble has indeed popped, it seems like opportunity is still a long, long, long way down. And I wonder what opportunity will look like in a place like Miami. If the construction of those luxury towers is anything like Australia, what is the value then? Can’t wait to hear what you find there.

          1. After the probable 2021 recession probably will be a good time, and which markets will be determined by two metrics, the rents compared to price and the price compared to incomes of the area.

          2. After the probable 2021 recession

            The prosperity of the serial debtor is like rotten undergarments and a brightly colored over coat. We’ve been in recession for years with only the outer vestiges of prosperity thanks to the debt. I say this just to ask the question: What will stop the increase in debt from countering the loss of productivity in our economy (call it a recession)?

      2. “irreplaceable bastion of truth and light would disappear, when there aren’t that many left still carrying the fire.“

        Very well said. I am very grateful for all the non bias RE information and humor that receive from this blog. MSM is a joke and weeding through the lies is near impossible. Glad Ben does it!

        1. Yes beautifully-written Boo. A lone voice in the wildnerness is and has been so important to all of us.

  6. “I do expect these other tech markets to follow the same path, however, especially Denver, Boise and Austin, which are over-priced about 30% right now.”

    Oh Dear

    1. The quality of life in Denver keeps getting worse.

      Traffic, air pollution, homeless, street crime, road rage and just rudeness in general. It’s almost as if there’s an unspoken collective realization that moving to Denver was a mistake…

      1. “Traffic, air pollution, homeless, street crime, road rage and just rudeness in general.”

        Sounds like a good description of any major metro area.

          1. I move to the Denver Metro area 3 years ago for a high wage and still renting. I am staying until the work dries up or until the high wage becomes low relative to my current housing. I will stay long term if home prices come down 30%-40% and my wage is not impacted.

  7. ‘I can smell it from here, I just can’t figure out yet where the stench is coming from. But it’s guaranteed to be happening.’”

    We here on the HBB can help you out with that, Mark.

  8. Argument for price going sideways

    “That’s partly because the tech boom is not just a temporary surge in wealth. It’s created large numbers of jobs for people who made (and still make) good bucks. It’s not just Google programmers with $200,000 salaries but also bankers, lawyers, stock brokers, office landlords, security companies, caterers, the whole eco-system of an industry that will probably change radically in the next few years but will not be going away.”

    I’m sure there is no BIG bubble in Tech or Bonds markets and these high-flying unicorn tech companies (Uber, WeWork, Lyft, Chewy, etc) will be fine …

    1. “these high-flying unicorn tech companies (Uber, WeWork, Lyft, Chewy, etc)”

      Two illegal taxi companies, an office space landlord (possibly also illegal) and a Pets.com 2.0

      How is it that these companies are even considered “tech”? Is the local toll road to the airport a “tech company?” They do have a website after all.

      1. How is it

        For those not living in the mania, it is a clear sign that we are at or near the terminal limit of malinvestment.

  9. The pricing is described by the developer as ‘traveling back in time’ — it is close to the price set two years ago for the first phase of the same development, even though home values have risen 8 percent in the period.”

    I’ve got the DeLorean set for 1995 prices. The firesales after the coming cascade of defaults and foreclosures are going to be epic.

      1. The brakes were probably the best part…

        (Spiffy owned a DeLorean DMC-12 for a while in the late 80s. It was an… uh.. interesting experience.)

          1. Uhh.. let’s see… things like successfully picking up girls on a weekday, and then figuring out the mechanisms that made it work which only made me more cynical and disillusioned.

            Having a car that screams ‘look at me’ in the decade of the Yuppie just pointed out how shallow most people can be.

            Or the general level of technology in any car designed in the (late) 1970s.

    1. Yeah, I have it on good authority from a realtor with a sociology degree that if I sign on Mr. Banker’s dotted line for a Denver shack, $100K in sweet equity is baked in the cake, most assuredly. How could I refuse? I am but putty in the hands of these realtors with their scrupulously objective research.

      1. GUN STORE OFFERS ‘BETO SPECIAL’ ON AR-15 RIFLE

        Adan Salazar | Infowars.com – SEPTEMBER 13, 2019

        Alpha Dog Firearms in Tempe announced the sale Friday, saying Beto’s anti-gun statements encouraged them to lower the price on the demonized AR-15 rifle.

        “Beto O’Rourke said ‘hell yes we’re taking your AR’s.’ Well Beto, we’re discounting AR15’s to such a low price that EVERY AMERICAN can afford one,” Alpha Dog wrote in a Facebook post. “How about the low low price of just $349.99? Yeah, that works.”

        1. Nice!

          I don’t suppose Beto will be going door to door stealing people’s property while threatening their lives?

      2. “realtor with a sociology degree”

        🤯 realtor with a degree! Somethings not right with this, are they allowed to get degrees? We talking about realtor right??

  10. But if you had bought a year ago and sold today you would have made exactly zero.

    It’s hard to work for free. Flippers are going to be running for the exits like someone yelling fire in a crowded theater.

    1. It’s hard to work for free. Flippers are going to be running for the exits like someone yelling fire in a crowded theater.

      I expect more than a few of these houses may have a fire more due to good insurance than anything else. A good “fire” related song it has bankers and lawyers but no realtors unless they are the ones “selling”:
      https://www.youtube.com/watch?v=K7r-V1id038

  11. Nobody ever suggested that central banking was a popularity contest.

    Europe quantitative easing
    Draghi faces chorus of criticism over fresh stimulus
    Succession of ECB council members speak out on negative rates and bond-buying
    European Central Bank (ECB) President Mario Draghi gestures as he speaks at a news conference on the outcome of the meeting of the Governing Council, in Frankfurt, Germany, September 12, 2019. REUTERS/Ralph Orlowski
    Mario Draghi’s policy was labelled “disproportionate” by the boss of the Dutch Central Bank
    © Ralph Orlowski/Reuters
    Martin Arnold in Frankfurt yesterday

    Mario Draghi’s decision to restart the European Central Bank’s economic stimulus efforts has attracted fierce criticism and opened deep divisions in the institution’s top ranks.

    Thursday’s announcement that the central bank would cut interest rates further into negative territory and restart its €2.6tn quantitative easing programme of bond-buying was greeted with outrage by those who argue that the measures penalised prudent savers while fuelling potential asset bubbles in housing, stock markets and bonds.

    One German tabloid accused Mr Draghi of being “Count Draghila” who “sucks our bank accounts empty”. And, more significantly for the future of the bloc’s policymaking, there was resistance within the ECB governing council itself.

  12. Even billionaire developers in Hong Kong – the world’s most unaffordable housing market – are acknowledging the link between fiscal and monetary policies that enable and encourage rampant speculation in housing and CRE markets, and social unrest among young people facing the prospect of lifelong debt servitude if they wish to own their own tiny skybox. The longer the unrest goes on and the more violent it gets, the more property values and rents are dropping, which probably hasn’t escaped the notice of the protesters.

    https://www.scmp.com/business/companies/article/3027057/hong-kongs-unwise-policies-fuelled-protests-unrest-city-hang

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