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The Dream Should Not Cost More Than The Reality

It’s Friday desk clearing time for this blogger. “Four Bay Area cities got ranked among the weakest real estate markets in the nation. Some experts say this cooling of the market is all part of a normal stabilization period that will keep the housing bubble from suffering a big burst down the line. ‘As the housing market cools down, sellers have to lower the prices in order to attract buyers and close the deal,’ says analyst Shane Lee. ‘In San Francisco, listings saw a median price drop of -5.63 percent, which translates to around $100k.'”

“The wave of tech initial public offerings fizzled. Developers are having to cut home prices — unheard-of a year ago. A full-floor apartment in San Francisco’s poshest neighborhood of Pacific Heights was listed at $21.6 million. But more than a year later and after a $5 million price cut, it is still on the market. A $10.8 million home listing in the town of Portola Valley, Calif., was slashed to $5.7 million. The median sale price for a nearby home in San Jose, Calif., has dropped 10 percent in a year to just under $1 million, according to Zillow.”

“For now, most people are waking up to find they are still on Earth. This is good news for those in San Francisco who mostly viewed the tech exuberance as bad news: housing rights activists, first-time home buyers, and renters. ‘We are excited by any resetting of Bay Area rents that bring them down from their artificially inflated high,’ said Fred Sherburn-Zimmer, the executive director of Housing Rights Committee. ‘Eventually all bubbles burst.'”

“Since the record-breaking peak of the market in 2015, New York City’s investment sales sector has been slumping — a trend that continued through most of this year. Chinese investors, for example, invested some $3.8B in the first half of this year into U.S. real estate per CBRE, a 95% drop from their annual spending over the previous five years. RFR Holding Co. bought the Chrysler Building back in March for $150M, an enormous loss for The Abu Dhabi Investment Council, which paid $800M for a 90% stake in the Chrysler Building from Tishman Speyer in 2008.”

“The owners of 47 units in the All Seasons condo-hotel in Miami Beach are part of a joint Chapter 11 reorganization case. The affiliated debtors filed for bankruptcy in U.S. Bankruptcy Court in Miami. According to the filing, the debtors intended to purchase every unit in the All Seasons and either redevelop the property or sell the building in bulk to a developer. The debtors also owe two years of property taxes.”

“If Scottsdale were to be Beverly Hills, the Town of Paradise Valley would be its Bel Air. ‘As far as a buyers or seller’s market, it really depends on what you have to sell,’ said Dub Dellis, chief operating officer at Walt Danley Realty. ‘There is a stronger demand for new or newly remodeled homes. But it is a mistake sitting in a home built in 1992 to think that the value of that home is appreciating.'”

“Sweden’s central bank on Thursday raised interest rates, pulling its benchmark rate out of negative territory for the first time in five years. In a tacit reference to Sweden’s housing crisis, the bank warned that ‘assets may become overvalued, risk may be incorrectly priced and the indebtedness of various agents may increase in an unsustainable manner.'”

“If you are a tenant or are looking to rent an appartment in Switzerland, you may be in luck. Due to an ongoing construction of new apartment buildings and the higher number of existing vacancies, housing experts predict that rents will decrease in the coming months. Between 5,000 and 8,000 apartments will be empty throughout the country in 2020, around 3,000 more than last year. ‘We assume that rents will continue to decline regionally in the coming year,’ said Claudio Saputelli, real estate expert at UBS.”

“The sales of luxury homes in Hong Kong plunged to a three-year low in the first 11 months of 2019, with fewer local and mainland Chinese buyers willing to commit to big-ticket purchases since June. To step up sales and avoid being hit by the imminent introduction of the vacancy tax, developers are offering long completion dates and discounts.”

“St Vincent de Paul Society‘s executive manager Andrew York said he’d never seen it so bad. Mr York told WAtoday Vinnies had seen a significant increase in the number of small businesses owners needing emergency relief. ‘We’ve got small businesses and franchisees, they’re actually remortgaging their houses to keep the businesses afloat,’ Mr York said.”

“The Cabinet Makers Association of WA confirmed the sector was hurting with 20 shops across the metro area closing in the past year. ‘The share of the pie is less and so everybody is fighting for that smaller amount,’ said association vice president Ugo De Laurentis, who has been in the industry for 30 years. ‘The outcome of [the drop in construction starts] is that prices have dropped but our labour rates and material rates have not dropped so essentially the margins have been reduced.'”

“The sale of the Capital Pointe lot can proceed after a judicial ruling on Wednesday. The land was posted for sale in April of this year with an asking price of $8.5 million. The price was then slashed to $2 million earlier this year. A FAAN Mortgage document published Nov. 22 indicates that if the $2.2 million figure is approved, there won’t be enough of a profit from the sale to pay back everyone who was an investor in the project.”

“Real estate purchasers are being cautioned not to overinvest during construction as their investment will not determine the value of the property in the future. ‘Property must be treated as an investment at all times and, therefore, we need to consistently assess the value of it after we invest in it, so that we don’t spend more than is necessary. There is nothing wrong with building out a dream. However, the dream should not cost more than the reality, which is its worth!’ said Earl Samuels, chief development financing officer at The Jamaica National Group.”

“Craig Lazzara, managing director for S&P Dow Jones Indices, and Geoffrey Hewings, director of the Regional Economics Applications Laboratory at the University of Illinois, said the notion that a home should be an investment vehicle with a big payoff is a relic of the 20th century. ‘We looked upon housing as an investment,’ Hewings said. ‘It’s going to keep appreciating, and at some point I’ll be a very rich person when I liquidate’ by selling the house. ‘That got us into trouble in the (housing) bust.'”

“Lazzara said his parents were part of the mid-20th-century wave of homebuyers. They bought a house in Maryland in the 1950s, when interest rates and prices were low, and ‘the thing that made the most money in their entire life was that house’ when they sold it after a few decades. That period was an exception and not the rule, Lazzara suggested. Since the housing bust of the 2000s, he said, ‘that irrational part of the exuberance about housing has disappeared.'”

This Post Has 61 Comments
  1. ‘For now, most people are waking up to find they are still on Earth’

    This article is pretty funny. It’s got that “man, we are really a buncha ass-hats aren’t we?” theme.

    1. And along with that the realization that the ‘tech’ was really just a bunch of taxi services, office space rentals and dog walkers. In other words a big, giant scam.

  2. Speaking of ass-hats:

    ‘If Scottsdale were to be Beverly Hills, the Town of Paradise Valley would be its Bel Air’

    ‘it is a mistake sitting in a home built in 1992 to think that the value of that home is appreciating’

    These monstrosities are white elephants too. Last decade Paradise Valley prices went down 50% lickety split. And driving around I don’t see the appeal.

    1. Curious — what is it about these homes specifically that’s distressing their value? Size, architecture, style…?

          1. LOL I just paid mine for $25 and reviewed the last year of bills the highest for July was less than $100.

            My heat and hot water are included in my rent.

            Loanowners are always broke, always b*tching about unexpected bills. Such sad, angry, broke people 🙁

          2. Loanowners are always broke

            Apparently going into debt for a high maintenance housing jewel in the rough at interest does not automatically make you rich.

      1. Look what has happened to each successive generation since the end of WWII as the U.S. assumed the role of the World’s Policeman. Realize that roughly 70% of our economy is based on Consumer Spending.

    2. Ass-hats, you say? You been in the PV mall at any point over the last decade? F’ing ghost town… Saw a homeless dude sleeping in one of those faux leather massage chairs that you, i don’t know, pump quarters into or swipe your plastic to operate it… Homie had his shoes off, too. Keep it Kalssy, PV. The retail and the restaurants on the perifery of the mall itself are more of a draw… There’s a Costco, too. Busier than the mall for sure, any day of the week. RETAIL in America, as dead as disco.

  3. “…Craig Lazzara, managing director for S&P Dow Jones Indices, and Geoffrey Hewings, director of the Regional Economics Applications Laboratory at the University of Illinois, said the notion that a home should be an investment vehicle with a big payoff is a relic of the 20th century….”

    Update for Craig Lazzara and Geoffrey Hewings: The 20th century ended 20 years ago. Didn’t the REIC get the memo?

    Why is the MSM consistently a day late and a dollar short?

    https://www.marketwatch.com/story/rental-properties-are-a-terrible-investment-according-to-robo-adviser-with-20-billion-in-assets-under-management-2019-12-19

    1. They can be. I had a guy from Flagstaff ask me over a year ago, “do you actually make money on rentals?”

      These people are paying money every day to be a landlord.

      1. I have several friends who are landlords, and who were landlords. Even on cash flow positive properties, the margins are extremely thin when you consider vacancy, maintenance, repair, etc. One guy and his wife and brother had a bunch of sfr’s that they purchased on the cheap. They still sold all of them off and said it’s the biggest hassle they’ve ever dealt with.

        1. “…I have several friends who are landlords…”

          Ditto from South Orange County.

          My friend purchased most of his properties in the early 90’s when R/E in Orange County was “cheap”.

          He is a very careful investor [an accountant by trade] and manages the properties himself.

          While is now cash flow positive (30 years later!) and has a pretty decent income, he related to me that it the hardest work he has ever done.

          Lots of stories about endless hassles with deadbeat tenants (even though he tries to screen carefully), attempted rip-offs by contractors (ie. roof replacement), proposed rent controls by gov’t, the list goes on.

  4. With the United States projected to have a population of 1.4 billion by 2060 (Latin America and Chinese immigrants), don’t you guys’ think RE values will also quadruple by then?

    1. ‘Chinese investors, for example, invested some $3.8B in the first half of this year into U.S. real estate per CBRE, a 95% drop from their annual spending over the previous five years. RFR Holding Co. bought the Chrysler Building back in March for $150M, an enormous loss for The Abu Dhabi Investment Council, which paid $800M for a 90% stake in the Chrysler Building from Tishman Speyer in 2008’

  5. Who knew housing bubbles were related to central bank policy rates?

    Amid housing bubble, Sweden ends negative interest rates
    Edmund Heaphy
    Yahoo Finance UK
    December 19, 2019, 5:15 AM PST
    Homes in Trosa, Sweden. The country is experiencing a housing bubble.

    Sweden’s central bank on Thursday raised interest rates, pulling its benchmark rate out of negative territory for the first time in five years.

    Though the increase brings the rate from –0.25% to 0%, the Riksbank said it was concerned that if negative rates were to continue, banks in the country may begin to pass negative interest rates onto households.

    1. WTF?

      ‘Negative interest rates effectively mean that banks and depositors incur a charge for holding their money with a bank, something that is meant to encourage lending.

      But such low interest rates, the central bank said on Thursday, “can create incentives for excessive risk-taking in the economy”.

      In a tacit reference to Sweden’s housing crisis, the bank warned that “assets may become overvalued, risk may be incorrectly priced and the indebtedness of various agents may increase in an unsustainable manner.”’

    2. If rates go negative in the US, for sure I’d refinance my mortgage. But I certainly wouldn’t borrow any new money, which is what negative interest rates entice us to do.

      1. Yeah, all that sunken-living room stuff went out with the 1980s. I just see it as a trip hazard now. And that western/California architecture looks like crap mixed in with the rest of the street. And the kitchen appliances are all on one wall… I wonder what it looked like before they took all the interior walls down.

        At least they took pity on us and refrained from hosing the place down in Minimalist Millenial Gray.

      1. It wasn’t as fugly as I expected. Common style here in San Diego but certainly out of place in Birmingham.

        1. If the whole home had a common theme like the facade, it would have been fine (though, as you said, still a bit out of place in this area — outside of southwest Detroit, you see very little of it here).

          It’s just a confused mishmash, like there was a different builder in every room.

      1. doesn’t jive with the Olick narrative.. I was expecting to see an article of the more common 80k/yr family of 4 signing (and qualifying!) for a 600k loan that they will never pay back and the sob story of how they were lied to and conned into the loan (Mr. Banker…. / Realtor…. )

      1. i know right! why pay city garbage when you can simply dump it on the streets for the realtors to rummage through. Also anyone that gets into a property with an HOA would be WAY better off renting the same property and often for much less than the cost of the “loan” ownership. Dumb dumb debt donkeys

  6. Got shrinkage?

    California still most populous, but stalls at 39.9 million
    By ADAM BEAM , Associated Press
    December 20, 2019 – 4:50 PM

    SACRAMENTO, Calif. — More people are leaving California than moving in, evidence of the toll the state’s housing crisis is taking as the world’s fifth largest economy inches toward 40 million people.

    An estimate released Friday by the California Department of Finance put the California’s population at 39.96 million, just shy of the 40 million milestone demographers had predicted the state would have passed by now.

    The report shows California added more than 180,000 people when accounting for births and deaths for the 12 month period ending July 1. But when you include people who moved in and out of the state, California lost 39,500.

    State officials say it is the first time since the 2010 census that more people left California than moved in over the course of a year, contributing to the state’s slowest recorded growth rate since 1900.

    “People won’t move here because they can’t afford to come in the door,” said Dowell Myers, professor of policy, planning and demography at the University of Southern California. “The jobs are there. The people aren’t there.”

    More than 158,000 people moved to California over the 12 month period that ended July 1. But more than 197,000 people left.

    1. One wonders how much they were brainwashed in their youth. I came into Nation building times were people could get ahead on one income.

      Really, most people today are the most entertained generations ,as well as the most brainwashed. But, you would think that people would want basic survival as the first priority. How do they get people to vote against their own interest, their freedoms and their Constitution.

      I think the power brokers rely on distraction from real issues in a big way. If you can brainwash people into believing that idenity politics or equity in health care is the main issue they won’t notice the highway robbery taking place by Globalist, Wall Street, and the price fixing monopolies.

      I had it made in the shade in terms of stable well paying jobs and had no clue that it could be taken away by the traitors in the body politics as they did it slowly.

      I have to believe that the hate for Trump has more to do with powerful monopolies being threatened than a hate for his personality.

      When I hear a Political party be more concerned about the rights of law breaking ilegals than Citizens, it’s a sign of some form of take over. When you have one of the front runners for President being a Commie being Bernie Sanders, and Joe Biden being a corrupt old sick puppet for money interest I’m shocked

      We don’t have a Government that is responsive to the people anymore. It’s all brainwashing on what the issue are even.

      Some old mindless corrupt guy like Biden is the frontrunner Are these people serious. I think Biden ran to protect the Swamp which includes himself.

      The Commies and the money robbers have teamed up to defeat a government by the people.
      As I have said before, the Communist will eat the Globalist for lunch once they obtain critical mass.

  7. “The model assumes a 3% down payment, a 30-year fixed rate mortgage and 28% maximum “front-end” debt-to-income ratio (defined as the ratio of monthly housing expenses to monthly gross income).”

    “If a homeowner has a mortgage, the front-end debt-to-income ratio is usually calculated as housing expenses (such as mortgage payments, mortgage insurance, etc.) divided by gross income. In contrast, a back-end debt-to-income calculates the percentage of gross income going toward other types of debt like credit cards or car loans.” —investopedia

    1. To further my post above , we really don’t have capitalism anymore. People don’t have power to set prices when you have price sitting monopolies. People can’t set wages when you have Globalism, outsourcing, illegal immigration, and unfair trade. USA Citizens can’t even set real estAte prices anymore and that’s a shame because shelter is a basic need.

      This One World Order idea was the opposite of the Founding Fathers ideas. George Washington expressed that foreign entanglements were not good.

      So, you have monopolies sitting the prices for most part and the medical industry is one of the great est violators. You have a fake price real estate market.
      Most of the contortions in the market are the direct result of Politicians making laws and policies that set up a rigged deck and betrayed the people having any control or power.

      It’s really a strange story how this billionaire Trump ends up exposing the Swamp, even if that wasn’t his intent.

      1. “This One World Order idea was the opposite of the Founding Fathers ideas. George Washington expressed that foreign entanglements were not good.”

        George Washington was blessed that he didn’t have a White House packed full of “blue eyes,” and he didn’t have to deal with Iran or the Palestinian situation.

  8. In six months Lenin completed one of his longest and most interesting books, Imperialism: The Highest Stage of Capitalism. Much is dated, but some of his ideas have resonance now: ‘Capitalism…is no longer the progressive force described by Marx’; the free market era ‘has been followed by a new one in which production is concentrated in vast syndicates and trusts which aim at monopoly control’. Giant multinational technology companies ‘freeze out other competition to forestall independent technological innovation’. Financial control ‘has passed from the industrialists themselves to a handful of banking conglomerates – the creation of a banking oligarch”
    Imperialism: The Highest Stage of Capitalism
    Lenin
    +

    1. When they took away basic survival by taking away the jobs, didn’t they think that blowback would come out of that.

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