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The Dramatic Decrease In Value Has Hit Investors Hard

It’s Friday desk clearing time for this blogger. “The figures from the Greater Boston Association of Realtors point to a market that, while certainly pricey, is significantly less frenzied than it was a year or two ago, when buying a house here usually meant a bidding war, fought at lightning speed. The number of days a property sits on the market is creeping up, and more homes are selling below their initial asking price. Those are all signs, said Jim Major, president of the association, that the market is approaching something like normal. Buyers are responding accordingly, he said, and sellers should get the message.”

“‘There is less of a sense of urgency among today’s buyers, and they’re showing more sensitivity to price and condition as the market has showed signs of cooling,’ he said. ‘As a result, homes are sitting on the market longer and owners need to be more realistic in their pricing if they expect their property to sell.'”

“San Francisco, San Jose, Las Vegas and Seattle have slowed down the most, with San Jose and San Francisco seeing a decline in year over year home values. ‘As we approach the winter holidays, housing, too, is taking a breather,’ said Skylar Olsen, Zillow’s director of economic research. ‘Motivated sellers trying to close before the end of the year dropped their list prices in September and October.'”

“New York City prices will fall 3% next year, a continuation of this year’s trend. In the third quarter of 2019, prices were down 4.4% from the same period the previous year, according to Knight Frank. To sell all the newly built condos in Manhattan at the current sales pace, it would take nine years. ‘The luxury market on the sales side is the weakest segment of the housing market,’ says Jonathan Miller, president of appraiser Miller Samuel Inc.”

“‘Although interest rates are near historically low levels and financing guidelines have loosened, the buyer pool has not come pouring back into the market,’ noted Mike Opyd, broker/owner of RE/MAX Next in Chicago. ‘The result has been an increase in inventory and a slowdown in sales. Buyers continue to take their time making decisions, knowing they have options and a better chance of getting what they want at a price they want. I expect this trend to continue into the new year.'”

“The Bank of Canada just went all of 2019 without an interest-rate move. The way it’s being hemmed in by Canada’s high household debts, it could go all of 2020 without one, too. The clues lie in the types of debt that are fuelling the insolvency rise. Leading the way are home-equity lines of credit (HELOCs) and unsecured lines of credit – debts whose interest rates reset automatically with changes in lenders’ prime rates, which move in lockstep with the Bank of Canada’s policy rate.”

“”If raising the [Bank of Canada’s] overnight rate to only 1.75 per cent could set off a climb in insolvencies, before any major job losses have been seen, it’s clear that taking rates to anywhere near what was historically neutral, or even where some models might currently put neutral, could prove to be overkill,’ economists Benjamin Tal and Avery Shenfeld said in a research report.”

“A property developer who became one of this year’s biggest bankrupts with debts of £40 million has described how he used cocaine to work 22 hours a day in a doomed effort to save his business. Martin Skinner was jailed in September for a drug-drive crash, lost his £500 million property empire the following day, was declared bankrupt earlier this month and evicted from his home last week. He came under fire for driving to Worthing magistrates’ court in a McLaren 675LT Spider supercar, but he said this was only because a friend had filled it with fuel. The former millionaire said he could not afford the train fare as he had ’42p in my bank account and 30p in my pocket.'”

“As Dubai’s real estate sector crashes, even expat investors are shying away from bargains. Real estate values in Dubai have now dropped by 25 per cent over the past four years, leaving the property market in confusion and investors looking to pull out before it becomes worse. The continuing slump in oil prices plus the massive oversupply of luxury properties has taken a huge bite out of demand and left many real estate agents wondering where to go next. The market’s nose-dive is also affecting the rest of the UAE, with the biggest falls in the upscale property sector.”

“Even the most publicised developments in Dubai have been affected, with Palm Jumeira Island prices collapsing by almost 10 per cent in 2018 and still falling further this year. The majority of Dubai’s exclusive upscale developments came onstream and were sold prior to the 2008 financial crash, with homes listed at $1 million in 2014 now fetching less than $500,000. The dramatic decrease in value of many of the world’s most luxurious developments has hit investors and wealthy expat professionals hard, with the general feeling that hanging on and praying for common sense to be restored is better than losing a large chunk of invested earnings.”

“Property expats believe the market will take at lease a two-year period to recover, even although oversupply is still being ratcheted up as new developments come onto the market. Over 30,000 homes are due to be completed by the end of this month, with a further 96,000 scheduled for the back end of next year.”

“The slowdown in the Bangkok condominium market this year reflects low confidence among developers and buyers alike in the country’s economic situation. Purchases by foreigners are down around 40% from a year ago, mainly because of the stronger baht and sluggish economic conditions globally. Chinese buyers, the largest foreign buyer group, have almost disappeared.”

“Beijing’s housing prices have hit its lowest level since 2017, falling by about 18.5 percent compared to its peak in April 2017, according to a report. Home prices across first-tier cities have diverged since July 2019, with Shenzhen in southeast China’s Guangdong Province alone continuing its rising momentum.”

“There is an oversupply of poor quality high rise and off-the-plan apartments in Sydney, Brisbane and Melbourne. We’ve seen an oversupply of newly built high rise apartment towers in many of our cities. Some will make great investments increasing substantially in value over the long term, but many of the high-rise towers built in the last fifteen years will continue to underperform with poor, if any, capital growth in the foreseeable future. Of course, these Lego Land apartment blocks never made good investments.”

“They offered little scarcity and had no owner occupier appeal having been built with investors in mind, and often overseas investors who didn’t fully understand the needs of the local market. Worse still, because of the high developer margins and marketing costs, many investors paid too much to start with and have since found that on completion their properties were worth considerably less than their contract price.”

“An attorney representing a group of Chinese investors who loaned $49.5 million to a developer to build a 60-story hotel/condominium at Wabash & Superior is now demanding that his clients get their money back. Doug Litowitz, representing the investors in a federal class action lawsuit, says construction of Carillon Tower was supposed to be finished in 2017. The tower was not built and now New York-based Symmetry Development, LLC, says it does not even own the land on which the tower would be built.”

“‘After four years of hiding $49 million in Chinese money on a five-year loan, investors were told it would be completed in 2017 [but] no shovel has hit the ground,’ said Litowitz. ‘There is no proof Symmetry even owns the main parcel on which they are supposed to build, and the other parcels of the project are in foreclosure and heavily encumbered, and the whole thing is subject to future landmark committee approval.'”

“Each investor loaned at least $550,000 to Symmetry in order to participate in the federal EB-5 Visa program that would provide for them a path to become a legal resident of the U.S. ‘We believe Symmetry should give back the Chinese investment and instead locate a rural area to build a more modest structure such as a teepee, yurt, or bamboo hut reinforced with elephant dung,’ mused Litowitz.”

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This Post Has 49 Comments

  1. ‘homes are sitting on the market longer and owners need to be more realistic in their pricing if they expect their property to sell’

    You tell those greedy sellers Jim. BMW payments dammit!

    1. Becoming more realistic in their pricing translates to lowering the prices.

      Lowering prices destroys the values of the comps.

      Destroying the values of the comps destroys wealth.

      Destroying wealth destroys the economy.

      1. Yes, but the economy it destroys consists of borrowing against US houses to buy Chinese goods. Lower land prices mean lower costs for manufacturing. Lower housing costs mean more houses can be sold and built creating jobs. Lower housing costs allow Americans to live in red areas and still have more money to buy US manufactured goods. This is why while housing prices are correcting the US economy is doing better than under Obama. MAGA.

  2. Wilmington, NC Housing Prices Crater 22% YOY As Coastal Carolina Homeowners Slip Deeper Underwater

    https://www.zillow.com/wilmington-nc-28405/home-values/

    *Select price from dropdown menu on first chart

    As a noted economist said so eloquently, “A house is a rapidly depreciating asset that empties your wallet every day you own it. Rent a house for half the monthly cost of buying it.”

  3. ‘The West Ham United footballer Michail Antonio crashed his £210,000 Lamborghini into a woman’s front garden wall while dressed as a snowman on Christmas Day. Kia Rosina was about to eat her Christmas dinner with her family in Balham, south London, at about 6.30pm when she heard a crash that shook the whole house.’

    ‘She went outside and found Mr Antonio, 29, on the phone shouting that he was all right. Smoke was coming out of the Huracan car, which had ploughed into the brick bin shed.’

    ‘He was said to have been screaming, “Don’t keep telling me I’m stupid,” to the other person on the phone. “He [Antonio] was on the phone shouting to someone saying he was all right. He kept saying, ‘Don’t keep telling me I’m stupid,’ to the person on the phone, and, ‘You should be asking me if I’m all right,’ [like] the person on the phone kept having a go at him.”

    https://www.thetimes.co.uk/article/west-ham-footballer-michail-antonio-crashed-lamborghini-while-dressed-as-snowman-g0pgq2v7l?region=global

    1. He kept saying, ‘Don’t keep telling me I’m stupid,’ to the person on the phone, and, ‘You should be asking me if I’m all right,’ [like] the person on the phone kept having a go at him.”

      Anyone who crashes his £210,000 Lamborghini into a woman’s front garden wall while dressed as a snowman is, ipso facto, a few IQ points short of moron.

  4. ‘homes listed at $1 million in 2014 now fetching less than $500,000. The dramatic decrease in value of many of the world’s most luxurious developments has hit investors and wealthy expat professionals hard, with the general feeling that hanging on and praying for common sense to be restored is better than losing a large chunk of invested earnings’

    That’s right airbox gamblers, don’t give it away. Don’t screw up the comps!

    1. 50% off huh… unpossible or so im told by the pro RE hobos that passed through the HBB. this must be FAKE NEWS, RE only goes to the moon and money is FREE so BUY NOW or be PRICED OUT FOREVER!

    2. even more that Manhattan, Malibu etc., Dubai was the ultimate confidence vehicle.

      There is no intrinsic value in Dubai – now that Saudi, and other countries are building up financial, o&g and recreation centers.

      The buildings were put up so quickly (by Bangladeshi and other) workers with low supervision, that the condo fees will be going up exponentially,

      I have a friend that is renting out a luxury 2 bdrm condo with a great view of the water and the Burge for only Euros2400. The owner – a guy in London is losing a ton each month – but cannot sell – because he cannot make up the loss

      Besides Vietnam and Kenya – and a few other countries with no common sense – i dont think that Dubai will recover

    3. ‘homes listed at $1 million in 2014 now fetching less than $500,000.’

      That 50% off number keeps showing up again and again in the MSM.

      It’s as though we are on the brink of a return to normalcy in real estate pricing.

  5. “The majority of Dubai’s exclusive upscale developments came onstream and were sold prior to the 2008 financial crash, with homes listed at $1 million in 2014 now fetching less than $500,000.”

    Well it’s still cheaper than renting I tell YA

    1. https://www.laloftblog.com/2019/12/11/real-estate-is-dead/

      “Those who are spending big bucks on renting the same place for many years should be aware that renters are usually the biggest losers of all because they stand virtually no chance of getting any of their money back. With time, home owners find positive long-term returns even when they purchase at the top of the market.”

      NOW is the BEST time to buy!

  8. “sold the property in 2010 for $24 million.”

    Mel Gibson’s former Greenwich estate sells for $13.2M

    By Phil Hall – December 27, 2019

    Dubbed “Old Mill Farm” by its original owner, it was renamed “Wayne Manor” by Gibson after he bought it in 1994 for $9.3 million. Gibson modernized the home, including the installation of air conditioning and a home theater, and sold the property in 2010 for $24 million.

    After Gibson’s departure, the new owner Cosette Property LLC attempted to sell the home in 2015 for $31.5 million. When no buyer came forth, it was taken off the market and brought back in 2018 with a $22.5 million asking price.

    https://westfaironline.com/119798/mel-gibsons-former-greenwich-estate-sells-for-13-2m/

    2. Gibson dumped another $16 million in it (overpaid for an adjacent small parcel of land and a complete renovation and added floor plan 2003-2006) in the years following.

      Nothing says funny like losing $6 million on a house.🤣

  9. good middle of the road article –
    Lesson 1 is a bad premise – but a lot of good wisdom for the res

    Lesson 6: Property investment is a game of finance with some houses thrown in the middle
    While many beginners believe that finance is all about interest rates or fees, there’s much, much more to it than that.

    Strategic investors don’t only use finance to buy properties.

    They use finance to buy themselves time to ride through the ups and downs of the property cycle by having a rainy-day buffer in a line of credit or an offset account.

    Lesson 10: High-rise apartments carry a higher level of risk
    We’ve seen an oversupply of newly built high rise apartment towers in many of our cities.

    The problem is, not all apartments are the same.

    Some will make great investments increasing substantially in value over the long term, but many of the high-rise towers built in the last fifteen years will continue to underperform with poor, if any, capital growth in the foreseeable future.

    Of course, these Lego Land apartment blocks never made good investments.

    Also read: The statistic that could make you think twice about buying in a high-rise

    They offered little scarcity and had no owner occupier appeal having been built with investors in mind, and often overseas investors who didn’t fully understand the needs of the local market.

    Worse still, because of the high developer margins and marketing costs, many investors paid too much to start with and have since found that on completion their properties were worth considerably less than their contract price
    ———-
    “There is an oversupply of poor quality high rise and off-the-plan apartments in Sydney, Brisbane and Melbourne. We’ve seen an oversupply of newly built high rise apartment towers in many of our cities. Some will make great investments increasing substantially in value over the long term, but many of the high-rise towers built in the last fifteen years will continue to underperform with poor, if any, capital growth in the foreseeable future. Of course, these Lego Land apartment blocks never made good investments.”

  11. https://www.cnbc.com/2019/12/27/homebuilders-careful-to-avoid-repeat-of-2008-marcus-millichap-ceo.html

    Lessons learned.

    Build speculative high-end, unaffordable houses to make more profits!!!! DAMN supply and demand thingy!!!

    ——

    The shortage is more prevalent on the starter-home category, where the supply of homes under the $100,000 figure is down 15%. That pushes more millennials, first-time and other younger buyers into the rental market.

    As mortgage rates fall, housing starts picked up more than projected in November with permits for future homebuilding reaching a 12½-year high. Yet higher labor and materials costs are pushing construction companies to focus more on higher-end homes, Nadji said.

    He said it “doesn’t pencil out at the entry level, therefore most builders have to now build higher-end units in order to increase profitability. We’re seeing that both on the for sale and the apartment rental side.”

    However, Nadji argued that the real estate industry could be considered the “turnaround story of the last half century.”

  12. The dramatic decrease in value of many of the world’s most luxurious developments has hit investors and wealthy expat professionals hard, with the general feeling that hanging on and praying for common sense to be restored is better than losing a large chunk of invested earnings.”

    Sorry, bagholders, but you’re not going to pray your way out of this. And “common sense being restored” is the nightmare scenarios for speculators and the central bankers whose radical Keynesian monetary experiments enabled such insane asset bubbles for the past ten years.

  13. Worse still, because of the high developer margins and marketing costs, many investors paid too much to start with and have since found that on completion their properties were worth considerably less than their contract price.”

    And that’s even before the major structural issues and construction defects start to surface.

    1. This avocado 60’s place we’re renting as some weird stuff going on. There are cracks above doorways on the section of the house that is an addition. Late at night, when everything else is quiet, you can hear sounds which I interpret as settling, maybe worse (cats sit and stare on corner of room).
      I hear some people are having to replace their main water lines to the street as they’ve become rotten.

  14. ‘There is no proof Symmetry even owns the main parcel on which they are supposed to build, and the other parcels of the project are in foreclosure and heavily encumbered, and the whole thing is subject to future landmark committee approval.’”

    Gosh, sounds like somebody didn’t do their due diligence.

    1. After watching that I’m not as proud of myself for taking care of my wife and kids for 2 weeks when the power was out after Hurricane Frances in 2004.

          1. Heh heh…kind of like Free Solo. One guy out there on his own, facing the lonely solitude of climbing El Capitan, with only his film crew for company…

          2. with only his film crew for company…

            Most of the film he took himself while living alone there for 30 years.

          3. “Not quite; somebody is there with him doing the filming.”

            Nothing I can find supports that.

            Richard Proenneke
            From Wikipedia

            He made a film record of his solitary life which was later recut and made into the documentary Alone in the Wilderness. In 2011 a sequel was produced after it was discovered that Proenneke had shot enough footage for at least two more programs. Alone in the Wilderness: Part 2 premiered on December 2, 2011. A premiere date for Part 3 has yet to be announced.

            Proenneke’s cabin was added to the National Register of Historic Places in 2007.

            https://en.wikipedia.org/wiki/Richard_Proenneke

  18. Two things about this article surprise me — (1) I am finding it hard to believe that a high-tax state like New York is not already assessing property based on its fair market value, and (2) the state’s current tax bill on property assessed at only $24,000 are $4,300 a year.

    Here in my state (MI)

    1. …we do assess at fair market value; the assessment roughly works out to be about half of what the house would actually sell for.

      What I take issue with is that the assessed value does not change until the property changes hands and is re-assessed — this allows builders who buy small, older homes in gentrifying communities for essentially the value of the land they are on, and then tear them down to build much more expensive mega-mansions, keep paying the old assessment until the house sells, so they can sit on them more or less indefinitely until they find a buyer, which prevents the homes from adjusting value to market conditions.

  19. “Property tycoon Martin Skinner says cocaine fuelled his effort to save empire”

    “A property developer who became one of this year’s biggest bankrupts with debts of £40 million has described how he used cocaine to work 22 hours a day in a doomed effort to save his business.”

    “Martin Skinner was jailed in September for a drug-drive crash, lost his £500 million property empire the following day, was declared bankrupt earlier this month and evicted from his home last week.”

    The limeys have Martin Skinner, and we have Elon Musk.

    1. “…he used cocaine to work 22 hours a day in a doomed effort to save his business…”

      You do whatever works.

  24. NEW YORK, DEC 26 (Reuters) – The Federal Reserve bought $825 million of agency mortgage-backed securities in the week

    from Dec. 19 to Dec. 24, compared with $1.806 billion purchased the previous week, the New York Federal Reserve Bank said on Thursday.

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