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What Will Happen To Prices If Too Many Look To Sell At Once?

A report from the East Bay Times in California. “Across the Bay Area, from the Berkeley hills to the Santa Cruz Mountains, insurance companies are declining to renew policies that include fire coverage — sending families scrambling in the heart of fire season to lock down alternatives that tend to be more costly and less comprehensive. ‘If something doesn’t happen, we are going to see a significant devaluing of the properties,’ said Matt Price, who lives south, toward Bear Creek Redwoods Preserve, pointing out that moving out of the mountains isn’t always realistic for people who want to stay nearby, given the ultra-competitive housing market. ‘There’s no way you could leave the mountains and go back to the Valley.'”

“‘I have heard from many local communities about how not being able to obtain insurance can create a domino effect for the local economy, affecting home sales and property taxes,’ Insurance Commissioner Ricardo Lara said.”

From KCRA in California. “As California insurers drop policies in high-fire risk areas or raise rates so high, people are unable to sell their homes. ‘It’s been getting worse, but about a year (ago), I noticed it being affected, and the values have gone down because the homes can’t sell,’ said Stephani Menser Polley, a realtor in El Dorado County.”

The Home Buying Institute on Colorado. “Home-price appreciation within the Denver real estate market has slowed considerably over the past couple of years. This is typically what happens when local housing markets become much more expensive within a relatively short period of time. Eventually, affordability problems creep into the mix, and would-be buyers begin to shy away from the market. This reduces demand and removes some of the upward pressure from home prices.”

“According to Jill Schafer, chair of DMAR’s Market Trends Committee: ‘In the first half of 2018, home sellers were taking offers over the weekend and selecting the best one in the stack on Monday. This year [2019], sellers are making price adjustments as they try and find the right price point to entice buyers to make an offer.'”

From Inman News on New York. “Of the 16,242 new condos built in New York City since the start of 2013, more than 25 percent remain unsold, according to the study. An estimated 30 percent of these condos are finding themselves on the rental market, according to StreetEasy, meaning many of the actual sales are going to investors, versus New Yorkers using these homes as their primary residence. The study says that the presence of investors should raise alarms.”

“‘Though evidence suggests that the return on rental income for these purchases is low, many buyers are presumably speculating on their ability to sell the units for higher prices in the future,’ the study reads. ‘But this prospect has darkened further in recent months, as prices on many new condos have tumbled downward.'”

“‘That so many buyers are placing heavy bets on their future ability to sell at a profit raises big questions about the sustainability of the current building boom,’ the study continues. ‘How long do buyers plan to hold on to these condos, and what will happen to prices if too many look to sell at once?'”

“The fact that so many condos remain unsold could also be a harbinger of a future recession or economic slowdown, according to the study. Still, more condos are on the way. StreetEasy’s study also found that 63 buildings with more than 5,617 units already have listings on StreetEasy but are yet to finish construction.”

From The Real Deal. “The numbers say New York City’s condo market is in trouble. Other analysts say the pool of inventory is even larger than StreetEasy’s self-proclaimed ‘conservative’ calculations. Appraiser Jonathan Miller puts the number of unsold condo units in Manhattan alone at 9,000 — that includes buildings under construction and ‘shadow inventory’ that sponsors are withholding from the market. By Miller’s count, it would take nine years to sell the backlog.”

“To address the staggering oversupply, the hallmarks of the market increasingly now include sponsors paying agents larger commissions (sometimes in advance of closings), fronting buyers’ closings costs, and agreeing to rent-to-own schemes or heavily discounted bulk deals with investors. The latter, Douglas Elliman’s Simon Bacon noted, were last seen in the 2000s as ‘the bottom dropped out.'”

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This Post Has 54 Comments

  1. ‘heavily discounted bulk deals with investors’

    Hmmm, that would leave the prior buyers in a sticky situation.

    2. Hmmm, that would leave the prior buyers in a sticky situation.

      I foresee an epidemic of stress fractures from the stamping of little feet.

  2. ‘If something doesn’t happen, we are going to see a significant devaluing of the properties’

    Pretty much every day for years I’ve read Californians wailing “we need cheaper shacks!” Now it’s staring you in the face and we get the whine country.

    1. ‘If something doesn’t happen, we are going to see a significant devaluing of the properties’ ??

      Asking price for a buildable lot in Paradise California is $20K…It was at least 5 times that prior to the fire…

      1. I might add that the fire insurance issue may have some very serious and broad implications…If you have a loan on your house, fire insurance covering the amount of the loan is a condition in the note with foreclosure as the recourse if you can’t or don’t provide it…Ditto with getting a new loan either through refinance or if you are a buyer trying to purchase…

        1. If you have a loan on your house, fire insurance

          Merely one of the thousand things that can go terribly wrong when one borrows huge sums of money that can only be paid back over a lifetime of dreary precision donkey cart pulling.

          1. Fire insurance is probably as hard to obtain if the home is owed outright. Mortgages aren’t the problem here.

    2. In governmentese, “affordable housing” means “unaffordable housing.”

      If housing becomes more affordable as commonly understood, you can bet your bottom dollar that many
      speculators’ hair will light on fire.

  3. ‘evidence suggests that the return on rental income for these purchases is low’

    Or maybe even negative!

    ‘many buyers are presumably speculating on their ability to sell the units for higher prices in the future’

    This always ends up with somebody losing an eye.

  4. “This always ends up with somebody losing an eye.”

    So since many of the same people are involved does that mean they have now lost both eyes?

    2. “So since many of the same people are involved does that mean they have now lost both eyes?”

      Both eyes were lost BEFORE they got involved .

      1. T$k, t$k … just like you$ Mr. banker, they just kept their $harp eye$ focu$ed on Thee x1 thing after $igning yer dotted line$: $helter.$hack$ as a mean$ to Ea$y Monie$!

  5. Appraiser Jonathan Miller puts the number of unsold condo units in Manhattan alone at 9,000 — that includes buildings under construction and ‘shadow inventory’ that sponsors are withholding from the market. By Miller’s count, it would take nine years to sell the backlog.”

    Nine years? So if six months is normal inventory what do you call a nine year inventory. Come on folks according to AOC we have only twelve years to live until we all die due to global warming. You need to move these before we all die.

      1. Beto must be assuming a lot of extra carbon in the atmosphere after the Great Confiscation Battle of 2021.

  6. “‘That so many buyers are placing heavy bets on their future ability to sell at a profit raises big questions about the sustainability of the current building boom,’ the study continues.

    Die, speculator scum.

      1. Figuratively speaking. I want the speculators to get wiped out so sanity can return and housing will be treated as shelter, not a speculative investment.

        1. We also need those in charge of financializing the economy to experience a severe drubbing and soon so that they won’t even think about enabling another bubble in our lifetime. A televised public caning followed by tar and feathers along with hefty fines and jail time would be too much to ask I suppose… 🙂 Consequences have a way of modifying behavior in a positive way (think spanking your kids when they were young and you wouldn’t be far off).

          So far only Bernie Madoff is the only one since the GFC who’s done any jail time, and the the Fed prints money at will. How is that different that counterfeiting one might ask?

          1. A televised public caning followed by tar and feathers along with hefty fines and jail time would be too much to ask I suppose…

            You are far too lenient.

          2. We also need those in charge of financializing the economy to experience a severe drubbing

            And in the end that’s probably the only way to reduce speculation.

        2. housing will be treated as shelter

          All Ponzi schemes come to an end, and this is the biggest one ever. A lot of “housing” will be treated like a convenient source of dry firewood.

  7. “Hart is particularly frustrated because, like Mann-Craik, she and her neighbors have painstakingly removed vegetation from their properties that could fuel an inferno.”

    This person is totally clueless. A raging California wildfire is supposed to respect property that has had vegetation painstakingly removed from it? Bahahahahahahahahahahahaha. This person needs to get out more often.

    1. These pukes could use goats to keep down the brush, but, nah that would require some common sense.

      But, hey, the science guys at the Berkeley National Labs have been using goats for years. Go here …

      Goats from the field: Goats return to help Berkeley fight fires
      https://www.dailycal.org/2018/06/06/goats-field-lawrence-berkeley-national-laboratory-fights-wildfires-goats/

      (snip)

      “Lawrence Berkeley National Laboratory wages war against wildfires by deploying an unconventional force: goats, which were released Tuesday in the area surrounding the lab.

      “The lab is using goats to eat the underbrush in the grassy hills surrounding the building, which the lab’s fire marshal, Todd LaBerge, said can help keep fires from spreading.

      “For the next four to five weeks, there will be 400 to 700 goats at a time grazing on about 90 acres of land — roughly 68 football fields — surrounding the lab, according to Keri Troutman, a spokesperson for the lab.

      “The goats visit annually, and the lab has used them for 21 years.

      “Goats R Us, the company dispatching the goats, has a system in place to ensure the goats don’t damage the land — walking the tightrope between fire mitigation and erosion control, according to Troutman. Goats R Us also sets up fences to create areas which can be easily overseen by the herders.

      “'(The herders) watch carefully and move the goats once the grasses and brush have been ‘mowed’ to the correct level,’ Troutman said in an email.

      “By eating away tall plants such as grass and various other underbrush, the goats prevent the ‘ladder fuels’ from reaching higher levels of the trees where fire is more difficult to put out, LaBerge said.

      “According to LaBerge, wildfires move upward as if they’re a climbing a ladder. Fires that start in tall grasses eventually move up into medium-sized brush patches. The fire can then spread to trees, ending up in the canopy. By shearing down the size of tall grass and brush patches, goats help keep small fires from becoming devastating, LaBerge added.

      “’The biggest problem with a wildland fire is when it gets into the treetops,’ LaBerge said.’It’s what we saw happen in Napa — you have to keep the fire out of the canopy.'”

      1. “'(The herders) watch carefully and move the goats once the grasses and brush have been ‘mowed’ to the correct level,’ Troutman said in an email.

        Could unemployed realtors and Real Journalists be retrained as goat herders? They could actually serve useful functions for once.

        1. I think dog poop is, if you put it in a paper sack, light the sack on fire, and leave it on someone’s front porch to stamp out.

          That’s what I’ve heard, anyway.

    2. This article was from a couple of years ago …

      Wildfire Prevention Fund for the Oakland-Berkeley Hills set to run out
      https://www.dailycal.org/2017/06/28/wildfire-prevention-fund-oakland-berkeley-hills-set-run/

      And, whatdoyouknow, they use goats.

      (snip)

      “The remaining funds from an expired assessment tax, which funded wildfire prevention methods in the Oakland Hills, will run out by roughly the end of the year, according to Oakland City Councilmember Dan Kalb.

      “In 1991, the Oakland and Berkeley Hills fell victim to one of the worst wildland urban fires in U.S. history. The fire destroyed 1,520 acres, took 25 lives and left 5,000 people without homes.

      “The Wildfire Prevention Assessment District was formed after the fire. The District collected assessments from property owners in order to supplement fire ‘prevention, suppression and preparedness programs’ as well as other measures, according to a city of Oakland press release.

      “The assessment, which phased out in January 2014, was up for renewal near the end of 2013 and was narrowly voted against — lacking only 66 votes for the two-thirds majority required to pass.

      “Although the tax is no longer being assessed, funds still remain from when it was being assessed and collected.

      “’That money is supposed to be used … for helping to reduce the wildfire risk on public properties,’ Kalb said. ‘(There is) a lot of city-owned land. … We have to make sure that we take care of the brush and make sure things don’t overgrow.’

      “According to a report by the Oakland City Council Public Safety Committee, the wildfire prevention assessments were put towards roadside clearance in the Oakland Hills, provided free chipping services and trained contractors to work in and around protected areas and species, among other things.

      ‘One of the most effective things (we did) was to hire goats,’ Kalb said. ‘We used goats to graze on the land, (a) relatively low-cost way to reduce the overgrowth in the brush. We’re going to do that this year as well.’

      “Kalb is concerned, however, that the wildfire prevention fund is running out. According to him, the money from the fund will be likely gone late this year, possibly making it through the beginning of 2018.”

    1. Tanking vehicle sales – commercial and private auto – are ALWAYS leading indicators of an economic downturn. Imagine what sales would look like if subprime auto loans weren’t being extended to anyone who can fog a mirror.

  10. One thing to realize is there is no such thing as financial alchemy. There are systems that give the impression of alchemy, like fractional reserve banking, or insurance, or pensions, but these things fail from time to time. While they’re working, they’re fabulously lucrative.

    The government and Wall Street created the central bank at least in part to “be the lender of last resort” – to be the place where the money came from if the fractional reserve system failed.

    “It just works!” “But why? What happens when some critical condition is reached?” “Don’t worry about it, it just works!” The central bank is a tool created by Washington and Wall Street, and it can print the money to backstop these “alchemic” schemes, but how many times can it do so? Indefinitely?

    It was tremendously interesting last week when Draghi had the ECB launch QE-infinity (they resumed asset purchases) and bond yields around the world shot up and prices dropped, when it was discovered there was major pushback from German and Dutch finance ministers.

    One guiding principle is that policy makers are first and foremost going to help themselves.

    1. Used to bee iffin’ ya wrote a $1000.00 check on Friday evening, you had @ least 72 hour$ before it was revealed that your acct with only $100 was going to create a negative $ituation.

      The Federal Re$erve act$ the same way. Only they get$ to point their finger @ the U$ taxpayer & say: no worrie$, they’ll cover this $hortfall in some amount of time, mea$ured in decade$ instead of hour$.

      Why bee concerned iffin’ your action$ are “Indemified” bye the greate$ & most reliable Taxpayer$ in the hi$tory.of.thee.world!

    2. “Trees don’t grow to the sky.” – German Proverb

      Stein’s Law: “If something cannot go on forever, it will stop.” – Herbert Stein (1916-1999), Economist

      – When 90% of the population has reached debt saturation, the Fed is now “pushing on a string”. How will 25-50 bps make any difference at this point. We’ve borrowed from the future for (at least) the past 10 years since the GFC. This is called “pulling demand forward”. What happens when there’s no demand due to debt saturation? This scenario is kind of a global phenomenon currently.

      – The Fed and other central banks know this. It worked in 2016 because they all worked in concert to reflate the markets, including with participation from China. Now they’re all out of ammo. They’re really good at blowing asset bubbles (ref.: “The Everything Bubble”), but alas, “there’s no free lunch”, and so the great unwind draws nigh.

      – BTW, it’s telling that value is suddenly outperforming growth. It took 10 years to do it thanks to central bank machinations. Think about that in the context of risk-off…

    3. ‘The central bank is a tool created by Washington and Wall Street, and it can print the money to backstop these “alchemic” schemes, but how many times can it do so? Indefinitely?’

      I liken this to the question of how many times an alcoholic can rely on the hair-of-the-dog hangover cure.

      The answer is unknown, but the eventual outcome in both cases is systemic collapse.

    2. Mr. Banker, I see that the Federal Reserve has been quietly expanding its mandate: https://www.federalreserve.gov/faqs/about_12594.htm

      Now, I don’t believe the Fed is some all powerful entity operating on its own – it’s a tool created by politicians and Wall Street to further their agendas. I don’t see POTUS and Dimon dancing to Bernanke and Powell’s tune, but rather the other way around. But I got a chuckle to see that now “Financial Market Stability” is now a raison d’ etre of the Federal Reserve, while before there was some debate about whether it should be added to the “mandate”. They just did it 🙂

  14. “Are we there yet?”

    Financialization as a parasitic construct; slowly killing the host. Lately, it’s been hard to differentiate the public and private sectors; everything’s been infected.

    1)
    https://confoundedinterest.net/2019/09/13/the-big-short-part-deux-us-home-prices-slow-as-wage-growth-highest-since-early-2009-tiny-bubble-or-big-bubble/
    The Big Short: Part Deux? US Home Prices Slow As Wage Growth Highest Since Early 2009 (Tiny Bubble OR BIG Bubble?)

    “The big difference between the 2000s housing bubble and today’s housing bubble is that the 2000s housing bubble was driven by subprime and ALT-A credit. But today’s housing bubble is in part driven by foreign investors on both the west and east coasts, not to mention the Federal Reserves low interest-rate policies. And we are seeing a softening of credit standards from Fannie Mae and Freddie Mac.”

    “And Fannie and Freddie’s debt-to-income (DTI) is rising to 2008 (financial crisis levels).”

    “So does the US have a tiny bubble? Or a big bubble?”

    2)
    https://www.theguardian.com/commentisfree/2019/sep/11/boeing-capitalism-deregulation
    Broken capitalism | Boeing
    Boeing’s travails show what’s wrong with modern capitalism
    Matt Stoller | Wed 11 Sep 2019 06.00 EDT

    “Deregulation means a company once run by engineers is now in the thrall of financiers and its stock remains high even as its planes fall from the sky”

    “There was only one problem. The company was losing its ability to make safe airplanes.

    Something is wrong with today’s version of capitalism. It’s not just that it’s unfair. It’s that it’s no longer capable of delivering products that work. The root cause is the generation of high and persistent profits, to the exclusion of production. We have let financiers take over our corporations. They monopolize industries and then loot the corporations they run.”

    The executive team at Boeing is quite skilled – just at generating cash, rather than as engineers. Boeing’s competitive advantage centered on politics, not planes. The corporation is now a political machine with a side business making aerospace and defense products.

    Far from being an anomaly, Boeing is the norm in the corporate world across the west. In 2016, the Economist noted that profits across the corporate sector were high and persistent, a function of a lack of competition across swaths of the economy. If corporations don’t have to compete, they can raise prices to buyers, lower what they pay to suppliers and workers, and reduce quality.

    High profits result in sloth and corruption. Many of our industrial goliaths are now run in ways that are fundamentally destructive

    Our system is no longer aligning rewards with productive skill. Despite the 737 Max crisis, Boeing’s stock price is still twice as high as in July 2015, when Muilenburg took over as CEO. That right there is what is broken about modern capitalism. We had better fix it fast.”

    1. And Boeing’s problems keep growing. Some customers are refusing delivery of Dreamliners built at Boeing’s low wage South Carolina plant because of quality issues. During a recent test, a 777X was being pressure test (while on the ground) and a hatch blew off (oh well, at least they caught that now).

      Boeing’s once legendary quality has vanished.

        1. How did they mess that up? The KC-46 is based on the 767, one of Boeing’s old school and very bullet proof aircraft.

      2. Aren’t these the people who eventually wanted to build plastic planes made in China? The Chinese won’t even get dog food or baby formula right.

        1. The Chinese have a 737/A320 competitor going through certification. So far, only Chinese airlines have ordered the COMAC C919, mostly because the design is not competitive. In collaboration with the Russians they are developing a wide body airliner, the C929.

  15. Nature is going to do what it does and burn the heck out of the hills and tree filled mountains, that ‘s the easy part. The insurance companies are stepping in to do their part which should result in people needing to leave the mountains and return to the Valley and prices coming down as abandoned shacks become worth zero. However, the taxes part of the equation is screaming “save the house values”, so it’s not going to be a simple subtraction problem. It’s going to be ugly, complicated and there will be selective saves.

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