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A Sustained Uptick In Sales Can Not Be Realized Until The Market Resets Its Prices

A report from the Wall Street Journal. “U.S. home builders benefited from low interest rates this year as housing starts climbed to levels not seen in a decade. Home builders cranked up volume partly by focusing on homes more buyers can afford. In the third quarter of this year, the average price of a Meritage home fell 4.4% while the number of home orders rose 24%. ‘You’re seeing shifts down in average price,’ said Jonathan Boise, a home-builder analyst at Fitch Ratings.”

From Bloomberg. “In a year when the 10 most expensive homes in the US sold for an average US$100 million each, sellers of superluxury properties had reason to be confident. But some were too confident, at least on paper: Many sellers of luxury real estate listed properties for millions of dollars more than their ultimate sales price.”

“The offering price of a Los Angeles mansion once owned by Tony Curtis, and later Sonny and Cher, has swung radically in the last few years. It’s currently listed for US$115 million after being offered at US$180 million in 2017, showcasing a price cut of US$65 million. According to the Los Angeles Times, it was purchased in 2016 for US$90 million.”

“And, after an original asking price of US$110 million, a New York City penthouse in the ultraluxury Woolworth Building was relisted earlier this year at US$79 million, a 28 per cent cut. Each of these super-high-end sales ‘shows you how extreme the aspirational pricing was to begin with,’ says Jonathan Miller of Miller Samuel Inc.”

“Homeowners in luxury residential communities have a ‘herd mentality,’ that if everyone wildly overprices their properties, perhaps they’ll sell at a higher price, Miller says. One example is a spec house in the Bel Air neighborhood of Los Angeles. Originally priced at US$250 million, it sold for US$94 million in October, according to the Wall Street Journal, about a 62 per cent cut.”

“‘Superluxury sales are a real phenomenon. The question is how much or how often are we going to see these asking prices that have no connection to the actual value,’ Mr Miller says. ‘I suspect that will diminish, at least in the current cycle.'”

From Mansion Global on New York. “Manhattan’s luxury housing market recorded a steep drop-off in the number of new pending sales this year, even as buyers slashed their asking prices, according to a year-end report from Olshan Realty. In the past 50 weeks, total new pending luxury sales rang in at $7.651 billion. That’s nearly $1.5 billion less than the same period last year and the lowest total since 2012, when the city was still in the depths of the Great Recession housing crash.”

“‘One submarket that was desperately trying to hang on to its lofty prices was new development, as sponsors seemed locked into models that are no longer sustainable,’ said Donna Olshan, president of Olshan Realty and author of the report. Deals for newly developed homes plummeted 35% in 2019 compared to a year ago, even amid a historic build-up in new condos.”

“Meanwhile, sellers had to grease the wheels of the city’s stalled market with some of the biggest price cuts in years. The average seller in 2019 lobbed 10% off the asking price before going into contract, up from 9% last year. It also took the average seller 496 days to go into contract, around 50 days longer than a year ago, according to Olshan’s figures.”

“‘The luxury market showed clear signs of strong buyer resistance, prompting ongoing price corrections that ignited more activity in the final two months of the year,’ Ms. Olshan said. ‘It’s a fragile market by any measure, and it seems obvious that a sustained uptick in sales can not be realized until the market resets its prices.'”

The Bay Area Newsgroup in California. “The Bay Area home market remained sluggish in November, as buyers searched for cheaper homes and sales slowed entering the holiday season. The median sale price for a single family home in the Bay Area fell 2.4 percent to $803,200 in November from the previous year, according to Zillow.”

“‘More than anywhere else in the country, the Bay Area has hit an affordability ceiling,’ said Zillow economist Jeff Tucker. ‘Once a price gets high enough, it’s out of reach.'”

“Prices in the nine-county region have slumped through most of 2019, after a record-breaking, seven-year streak of rising home prices. The Santa Clara County median single family home price fell nearly 2 percent to $1.11 million, the 11th straight month of year-over-year declines in the once red-hot market.”

From Curbed San Francisco in California. “San Francisco might finally be adding new homes faster than new residents—but don’t break out the champagne and housing bonds just yet, because even if this turns out to be true it has less to do with new housing construction and more to do with the fact that the city’s population growth is now a fraction of what it used to be.”

“Across the state, the California Department of Finance cited ‘higher domestic out-migration, lower immigration to California, and fewer births’ as reasons for dwindling gains. Per the city’s own annual housing inventory, in 2018 SF gained about 2,600 new homes, but the inventory for 2019 won’t be out for months yet.”

“The San Francisco Planning Department projected a net gain of about 4,700 new homes in San Francisco for 2019, and at the beginning of the year the city estimated that more than 9,700 homes were under construction already.”

From WTOP in Virginia. “In frothy, Amazon HQ2-driven Arlington County, prices showed signs of leveling off. The median selling price in November was $537,500, down 4.9% from a year ago, and sales in Arlington County were down 12.6%. The number of sales in Alexandria dropped significantly from year-ago levels, down 25.8%, with the median selling price down 2.5% to $539,000.”

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This Post Has 67 Comments

  1. ‘the average price of a Meritage home fell 4.4% while the number of home orders rose 24%. ‘You’re seeing shifts down in average price’

    Happening all across the US. And like last decade, they’ll drive more recent suckers underwater and won’t give a damn.

    1. I have no pity for the lemmings who are rushing to their financial destruction in these bubbleiyious markets. Most are sheeple who don’t have a thought in their barren craniums that wasn’t put there by their TeeVee; let them learn the hard way what an untrustworthy and mendacious source of news and information the corporate media has become.

  2. ‘Superluxury sales are a real phenomenon. The question is how much or how often are we going to see these asking prices that have no connection to the actual value…I suspect that will diminish, at least in the current cycle’

    Bloomberg is getting casual about this super lux pop. But of course they miss its significance. First, there’s never been a “cycle” with $100 M condos and $350 M shacks. Show me the previous cycle that left canyons of empty airboxes all over the planet. It never happened before. Like Miller said the other day, the super lux bubble began in the wake of QE and negative interest rates. (Way to go central bankers, your carbon foot print is there to be claimed!)

    OK, so luxury popped first. As I’ve pointed out, inside the most expensive cities, the most expensive addresses fell first fastest and further generally. See Miami. This was just the most vulnerable part of the bubble though. The most discretionary purchases are the most speculative. Nobody needs a $5 M shack in Santa Clara, down it goes. Now it’s spread across the US and the media is still navel-gazing at the luxury carnage.

    1. ‘First, there’s never been a “cycle” with $100 M condos and $350 M shacks.’

      That was my thought as well. For a while before the first wave of Housing Bubble collapse in the 2007-2009 period, La Jolla was the highest price U.S. market. I saw super-luxury listings at the time in the $10s of millions, but nothing in the $100 million to $350 million price range. The “herd mentality” to purchase homes and condos worldwide at those price points as investment properties appears to be a new phenomenon, related to Yellen bucks seeking a toetag home.

      Of course, if its just a matter of parking your gravy somewhere offshore, and out of reach from your national government’s tax authorities, perhaps a few $10 millions in losses is no big deal.

    2. “First, there’s never been a “cycle” with $100 M condos and $350 M shacks.”

      “We no longer have business cycles, we have credit cycles.” —Peter Boockvar

  3. ‘In frothy, Amazon HQ2-driven Arlington County, prices showed signs of leveling off’

    Been happening for a couple of years. Check out the Falls Church sales and prices in the graphic.

  4. ‘San Francisco might finally be adding new homes faster than new residents…population growth is now a fraction of what it used to be’

    Oh dear…

    ‘Across the state, the California Department of Finance cited ‘higher domestic out-migration, lower immigration to California, and fewer births’

    This has been building steam for some time. Los Angeles lost something like 10k people net, but there’s 100,000 apartments/condos on the way. And the NYT article last week had a comment on luxury oversupply for bay aryans.

    1. And all those “new comers” – especially the criminal illegal invaders, can truly afford the average $700,000 crack shack.

      And the higher end luxury homes/condos coming to market…

      Such a small segment of the market. But that is all the builders are building.

      1. December 21, 2019

        ‘San Diego County’s median home price hit an all-time high of $594,455. Here’s how the different home types fared in November: Resale single-family homes: Median of $633,750, down from a peak of $649,000 in June. Resale condos: Median of $429,000, down from a peak of $440,000 in August.’

        ‘Newly built: Median of $673,000, down from a peak of $812,500 in October last year’

        http://housingbubble.blog/?p=2742

        This link also has the Miller quotes I mentioned:

        “It sounds like fairly typical boom and bust stuff. Except if you scratch below the surface, says Jonathan J. Miller, a New York-based real estate consultant and CEO of Miller Samuel, you’ll see something more curious at work. It’s a distortion created by ultra-low interest rate policies.”

        “‘A lot of this circles around speculative markets born out of the financial crisis more than a decade ago, where central banks around the world [lowered rates to] zero or close to it,’ Miller says. ‘Investors were looking for higher returns in a low interest rate world. They wanted to invest in tangible assets rather than financial [assets.] Money poured in.’”

        “First prices for real estate soared, followed by building and oversupply.”

        Here’s where it gets it wrong:

        “Weakness in high-end real estate doesn’t make sense right now. The stock market is roaring ahead, and with wealthy investors benefitting disproportionately, prices for mansions, trophy homes and apartments should follow suit. Not this time.”

        “Note that the three sale prices are down significantly — 47%, 36% and 57% respectively — from what was being asked only a few years ago. These aren’t haircuts, they’re massacres. It’s the kind of price action you’d expect in a stock market rout, not a rally.”

        It’s a bubble, that’s what explains it.

      2. The bursting of Tech Bubble 2.0 is going to lay waste to those nosebleed SF shack prices as trillions in ficticious Yellen Bux valuations evaporate from tech company stocks and portfolios.

        1. It feels like we are in the calm before the storm period of 1998-2000 again. Really smart people I knew at the time foresaw the imminent crash, though nobody foresaw the exact timing.

          I’ll never forget the cascading waves of tech stock collapse, which were shown on teevee in graphic detail day-in, day out for weeks on end, once the dot com bubble burst.

          1. “It feels like we are in the calm before the storm period of 1998-2000 again.”

            Yesterday, we drove to Wenatchee, WA for another physical therapy visit. It was the usual 1-hr pleasant drive until we reached Wenatchee where we encountered gridlocked traffic of last-minute holiday shoppers, literally bumper to bumper, blocking the intersections. The credit cycle must be in full-swing.

      1. Here’s another: “The difference between God and Reggie Jackson is that God doesn’t think he’s Reggie Jackson.”

    1. So not a bubble….

      “They did even better in 2018. A local couple sold a 16.4 feet 8.2 feet parking lot at the Ultima flat in Kowloon for HK$6 million in May last year, walking away with a 76 per cent gains within nine months. The HK$44,444 per sq ft price tag was almost triple the average cost of home prices in the same neighbourhood.”

    1. I like that, it accurately describes may client base.

      It goes well with Janis Joplin singing about freedom being another word for nothing left to lose. Personally, being Christmas and all, I do my very best in helping my clients obtains such freedom.

    1. Since being pushed out of the CEO role in 2017, Kalanick has moved on to helm CloudKitchens, a startup that turns commercial space into leasable kitchens for delivery-only restaurants.

      WeCook.

    2. LOL, I think Uber’s business model was based on the assumption that within just a few years they could get rid of all the drivers and replace them with fully autonomous vehicles. And then somehow become profitable. Obviously those fully autonomous vehicles aren’t going to be here soon, if ever.

  12. A Sustained Uptick In Sales Can Not Be Realized Until The Market Resets Its Prices

    Unless we drive down interest rates even farther. 1.5% 30 year fixed, anyone?

    1. IRVINE, Calif. — May 9, 2019 — ATTOM Data Solutions, curator of the nation’s premier property database and first property data provider of Data-as-a-Service (DaaS), today released its Q1 2019 U.S. Home Equity & Underwater Report, which shows that at the end of the first quarter of 2019, more than 5.2 million (5,223,524) U.S. properties were seriously underwater (where the combined balance of loans secured by the property was at least 25 percent higher than the property’s estimated market value), up by more than 17,000 properties from a year ago.

      The 5.2 million seriously underwater properties at the end of Q1 2019 represented 9.1 percent of all U.S. properties with a mortgage, up from 8.8 percent in the previous quarter but down from 9.5 percent in Q1 2018.

      1. With historic record low interest rates that won’t stay at record low levels forever, and a new crop of subprime borrowers currently entering the Ownership Society, the underwater problem will only worsen from here.

  15. Merry Christmas & Best wishes to all!

    & $pecial Thanks to Mr. Ben Jones for his tremendous efforts on keeping all us “True.Believer$” illuminated about the HB.B ll!

    1. He said suburbs were “mostly white and wealthy” and that their local officials — who have historically been in charge of zoning — were ignoring the desires of poor people, who did not have time to lobby them to increase suburban density.

      So what are poor people so busy with exactly that they don’t have the time?

      It really doesn’t matter, as the suburbs are going to become the ghettos of the future anyway. Wealthy people are headed back to urban living, where nothing that’s already existing will ever be “affordable”, and there won’t be any land or space to build any.

      Liberals who think they can legislate human behavior and self interest are brain dead ****ing stupid; this is just one more example.

      1. Liberals who think they can legislate human behavior and self interest are brain dead ****ing stupid; this is just one more example.

        I don’t know that suburbs will become ghettos in the future, but this progressive nonsense is getting closer to the point of a severe backlash.

        And I can guarantee you that those in charge who pass such stupidity will not be subject to the laws and regulations they made.

    3. Prediction: The Onion will fold in 2020. With the latest MSM headlines from Clown World, the Onion’s satiric business model has become non-viable.

      1. Hand-tooled jokes are no match for highly automated mass-produced idiocy. The news is a lot like Ford’s Model T…you can have it in any color as long as its progressive.

  19. A quick Merry Christmas and well wishes to all the (ir)regular crew that posts and reads here.

    I’ve been staying too busy of late to check in more than once every few days, but it’s always comforting to come back and see people active reasonably sensibly, unlike most of the internet these days.

  20. Merry Christmas, from Uncle Fed!

    The Financial Times
    Markets
    ‘Santa rally’ caps strongest US market since 2013
    Stimulus from the Federal Reserve put a rocket under all kinds of assets in 2019

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