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What Is Wrong With That Property That Is Causing All These Price Reductions?

A report from the Miami Herald in Florida. “Moving trucks may be parked near Virgin MiamiCentral soon. Park-line Miami at 100 NW Sixth St., the two 30-story apartment buildings for rent above the train station, opened its leasing office in mid-January. Najam Syed, head of asset management at Brightline said his team is hopeful that it will soon be leasing the 816 luxury units. The smallest unit, a 630-square-foot studio and bathroom, will lease at $1,900 per month. The largest unit, a 2,865-square-foot three-bedroom, three-bath apartment, will lease at $4,200 per month. Pricing is based on the market average in Edgewater and the medical district, Syed said.”

“‘With new supply coming on board [in the area], we expect rent to be stable for the next two to three years,’ Syed said. Other luxury residential projects are planned for the area. ‘Florida has always been plagued by an oversupply problem,’ Syed said.”

The Real Deal on New York. “Luxury contract signings in Manhattan were up last week, but it’s a little too early to celebrate. Fifteen contracts above $4 million were signed between January 13 and 19, according to the Olshan Luxury Market Report. That was four more than the previous week, but signings overall have been sluggish in 2020, with the first two weeks of January marking the worst start to the year in seven years.”

“The figures suggest a continuation of 2019, with little evidence of recovery in the luxury market. ‘At this point, we have 34 contracts signed [in 2020], and last year we had 37,’ said Donna Olshan. ‘It’s not that much different.’ (In 2017, there were 68 luxury contract signings in the same time period.)”

“The priciest contract was unit 50C at the Christian de Portzamparc–designed 157 West 57th Street. It was listed for $21 million in October 2018 and went into contract with an asking price of $16.5 million. The seller initially paid $19.35 million when they bought it in April 2015. The trend is noticeable across the pool of 15 properties, 11 of which had price reductions. The average price discount between first and final asking price was 17%, the report showed.”

“The four properties asking above $10 million were hit the hardest, with an average price reduction of 28 percent and an average of 626 days on the market. ‘The higher you go in price, the greater degree in difficulty and the much longer marketing demand,’ Olshan said. The average number of days on the market for all the properties was 591.”

The Pikes Peak Courier on Colorado. “Occasionally a property is listed with a price that is perceived as overpriced for the market. As a result, it may sit on the market longer than surrounding similar properties. The seller gets nervous the property hasn’t sold and instructs his broker to lower the price again and again but still no contract materializes. Is this a stigmatized property or just coincidence that it’s not selling?”

“We can’t make a blanket statement for every property that sees a price reduction as a stigmatized property because changes in the market or condition of a property sometimes necessitate a price reduction. However, in a situation that a property was clearly overpriced at a level substantially beyond what the real estate professional recommends may develop a stigma. The market may look at the overpriced property now displaying reduction after reduction and ask what is wrong with that property that is causing all these price reductions.”

The San Francisco Chronicle in California. “After years of rapid growth, Bay Area rents continue to increase but are finally showing signs of a slowdown. Ken Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at UC Berkeley, is noticing the slow growth. ‘Several years ago, we had year-over-year growth exceeding 10 percent, so [this is] sharp deceleration,’ Rosen said.”

“Rosen cites three main factors impacting prices. First, new supply is flooding the market, especially in Oakland and the Silicon Valley. Second, skyrocketing rents in the last decade mean the region has finally ‘reached a rent level that pushes against affordability ceiling for many households,’ he said. A substantial increase in ‘out-migration,’ with people and jobs leaving the region, is making the market less competitive. ‘This is caused by high cost of housing, much higher effective tax rates, because of the new tax law limiting state and local income tax deductions, and the general deterioration of quality of life,’ Rosen explained.”

“Chris Salviati, housing economist with Apartment List, agrees that the 2019 data reveals the Bay Area market has flattened and noted that the region’s allure as the best place in the country for jobs may be fading. ‘Even though the economy remains hot in the Bay Area, a lot of other cities in other areas of the country have started to thrive,’ Salviati said. ‘There are burgeoning tech scenes in other cities. If you wanted that high-salary tech job, the Bay Area was once the only place to come. Now, other places can offer similar opportunities at a lower cost of living. It has become less attractive. That inbound demand is cooling.'”

From KTRH in Texas. “With mortgage lenders relaxing some rules in recent years, there are fears of another housing bubble like we saw in 2008. So-called jumbo mortgages specifically, are loans that exceed the guarantees set by Fannie Mae and Freddie Mac.Some lenders offer up to $1 million with only 10 percent down if you have a FICO score of at least 760. Those who can put 30-40 percent down may receive up to $3 million. Others are accepting scores as low as 640, which was considered sub-prime a decade ago.”

“‘Conforming loan limits now are right at $500,000 in the Houston area, so anything that is above that is really who would be impacted. And that is really a very small percentage of the homes that are bought and sold in Houston, Texas,’ says Chris Nooney, certified mortgage planner for Goldwater Bank.”

“While banks are still on the hook for defaulted loans, Nooney says protections have been put in place since the housing crisis a decade ago. ‘That risk to the potential bank does increase if the underwriting criteria or underwriting guidelines become more lax where they will allow for lower down payments and higher amounts financed.'”

“Still, Nooney believes fears of a housing crisis are overblown. ‘We all tend to forget things that happen, especially the financial crisis, how soon we forget,’ he says. ‘When we’re reminded of something as serious, we all tend to take this frantic approach to what may happen.'”

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This Post Has 72 Comments

  1. ‘new supply is flooding the market, especially in Oakland and the Silicon Valley’

    Wa happened to my shortage bay aryans?

    1. There never was a shortage. Money from Fed Reserve allowed banks/pe/vulture firms, etc to build massive shadow inventory and control the supply of the houses on the market. Suckers who bought 2010 onwards paid too much for their shack.

        1. Still pushing the PT and hoping to get a bit more range of motion, but its come a long way in healing and doesn’t bother me all that much anymore.

          Figure I’ve got a year until the right knee needs replacing and I do it all again…

    3. The “shortage of inventory” magically morphed into “shortage of affordable housing.”

      The aim, of course is NOT to drop the prices to where they are affordable, but to cut government cheesechecks to support the prices these suckers took out loans for.
      Just like subsidized wheat and soybeans. Socialize the losses and privatize the profits. As usual.

  2. ‘Others are accepting scores as low as 640, which was considered sub-prime a decade ago’

    Ahem…

    2. Ben, its called nonprime now. The name is different so it must be different this time.

      It was listed for $21 million in October 2018 and went into contract with an asking price of $16.5 million. The seller initially paid $19.35 million when they bought it in April 2015.

      The seller still saves money from renting. Renting means throwing money down the trash. If I were to rent, I would shoot myself in the head right now.

      1. “Ben, its called nonprime now.”

        If G. Gordon Liddy was a mortgage broker he’d say, “Less than prime.”

      3. It is indeed much different this time, as the Fed has already dropped rates to the floor and started nonQE before nonprime was fully imploded.

        Which makes you wonder what they will do this time when the full implosion arrives.

        1. Seems like a path to dollar devaluation. They are attempting to persuade people to jump on the loan bandwagon now because your future time for money would rise and you would be paying back devalued money at these low IRs. What i was taught about saving and financial responsibility has gone out the window. Now they teach us we need to buy over priced real estate and stawks.

          1. Behind the public curtain there is an effort underway to break the dollar hegemony primarily in energy purchases such as Russian natural gas to the EU countries as well as Iranian crude sales, which are in violation of an embargo imposed by the U.S. and allies. At the other end of the spectrum are western consumers in debt up to their proverbial eyeteeth who are sensitive to rate changes.

  4. Since arriving in St. Petersburg, FL on Sunday I have not seen a single panhandler on the streets. Not one.

    What are they doing right here that they can’t do in LA, SF, Seattle, Denver?

    1. “What are they doing right here that they can’t do in LA, SF, Seattle, Denver?”

      Sending them to LA, SF, Seattle, or Denver?

    2. Recreational MJ is still illegal in Florida, right? Why would a bum camp out in a park in freezing cold Denver and not someplace warmer?

  6. The smallest unit, a 630-square-foot studio and bathroom, will lease at $1,900 per month. The largest unit, a 2,865-square-foot three-bedroom, three-bath apartment, will lease at $4,200 per month.

    Meanwhile, the median household income in Miami is a meager $54K. Yet they keep building “luxury” apartments that few can afford.

      1. They should have priced it at $1888/month to attract Chinese renters.
        Pricing it at $888/month would attract even more renters 🙂

  7. “and last year we had 37,’ said Donna Olshan. ‘It’s not that much different.’ (In 2017, there were 68 luxury contract signings in the same time period.”

    These numbers should be sobering to anyone in the luxury anything sphere. Even in one of the richest cities in the world, the number of people buying a $4mil+ home is far less than 100 a year. Entire markets have been created to serve this so-called high net worth individual contingent, from financial services to first class airplane cabins to luxury cars, not to mention housing, but as we’ve said all along, there are in fact very few of them, and even fewer willing to spend.

    1. When I browse car and truck inventories, by and large almost every model on the lot is the top of the line trim. You have 20 loaded vehicles and maybe one economy model. Everything has gone “luxury.”

      2. No kidding, I took a look at cars. com and I saw tons of Honda Civics (not the fancy Type R ones) that are as much as $30K.

        1. Well… As a noted economist stated so eloquently, “I can ask $50k for my used up 10 year old Honda Civic but where is the buyer at that price? So it is with all rapidly depreciating assets like houses and cars.”

          He’s right.

          Southborough, MA Housing Prices Crater 13% YOY As Debt Burdened Boston Homeowner Defaults Balloon

          https://www.movoto.com/southborough-ma/market-trends/

      3. “…Everything has gone “luxury.”…”

        Gotta hand it to american marketing/Madison Ave. They are masters of the craft of laying major guilt trips on folks that you just aren’t cutting it unless you buy “luxury” housing, hotels, cars, shampoo, dog food, on and on.

        Problem is, 99.9% actually need luxury like they all need a 3rd nostril. Nevermind that they can’t afford it anyway.

        What a complete joke our whole society has become.

        1. luxury hotels

          That reminds me of all the people who pay $500 or more per night to stay at one of Disney’s “luxury” hotels in Orlando. I like going to Disneyland or Disneyworld, but to spends thousands and thousands to visit a theme park has become extreme. And yet, they have huge crowds.

          1. “…And yet, they have huge crowds….”

            Disneyworld was the site of a recent business conference for my company.

            Noted that these same huge crowds also have the latest $1000 iPhones.

            I am totally and completely baffled.
            I sincerely just don’t get it.

          2. It’s a bubble. During a bubble everybody is trying to avoid getting left behind because it seems like everyone is getting rich except them.

          3. And they’re paying thousands and thousands of dollars to wait in line all day. Hard, hard pass.

    2. luxury cars

      Just did a google on Lexus sales. They sell 700K cars world wide, per year, out of 90,000,000 cars. Another search shows that about 8 million luxury cars are sole worldwide every year. Not even 10% of the total. And I’m certain that a large chunk of those who have one can’t really afford it.

    3. None of the small handful of megarich buyers needs another housing unit, other than for vanity or asset allocation purposes. And this crowd consists of financiers or folks who can afford to pay the best investment managers available. They are already comfortably housed, typically with many housing units to their individual names.

      Knifecatchers they aren’t. They need to purchase a falling knife megamansion like they need a hole in the head, which explains why the top-heavy top end of the market can sink like a turd in a well for years after the onset of bubble collapse.

  9. “…certain that a large chunk of those who have one can’t really afford it….”

    I will bet most certainly a very high (pushing 100%) percentage.

    In the book, The Millionaire Next Door: The Surprising Secrets of America’s Wealthy by Thomas J. Stanley determine that folks who are *really* multi-millionaires could care less about expensive junk, in particular the most popular car was a FORD F150 pickup truck because they last , economical to run/repair, and are very practical.

    1. When I look at a “luxury” car, with its countless gadgets, all I see is a maintenance nightmare.

      And they aren’t even that well made. Lots of plastic where there used to be metal in the engine bay. And you won’t find cheap OEM parts for them at AutoZone.

      1. “And you won’t find cheap OEM parts for them at AutoZone.”

        Copy that!

        The secondary market at the Auto Parts stores in electronic items such as emissions sensors are defective. And worse, lots of lower priced items on eBay that are labeled OEM are Chinese counterfeit. The legitimate OEM items on eBay command top price.

    2. the most popular car was a FORD F150 pickup truck because they last , economical to run/repair, and are very practical

      That book was before the trucks became high margin luxury trucks, I believe. Now it’s probably Camrys, preferably used.

      1. A Lexus is nothing but a dolled-up Toyota.

        The Camry is a good car – it has all you need, and every mechanic in North America can work on them.

        1. Luxury features,especially the safety features, bleed downward. Today’s Corollas are probably equivalent to a 2012 Camry, and today’s Camrys probably equivalent to a 2012 Lexus.

          1. Luxury features,especially the safety features, bleed downward.

            Exactly. Backup cameras, blind spot monitors, distance sensors, lane keep assist, keyless entry, side curtain airbags, auto-dim mirrors, etc etc.

            Many of these are now standard on all cars, and used to only be found in luxury cars.

          2. But adaptive cruise control gives you an opportunity to catch-up on the morning video news with Android Auto while battling commuter traffic.

      1. We have an entire consumer-based economy based on the three premises that:

        1. People are stupid.

        2. These stupid people will pay anything to feel superior to their fellow men.

        3. Using money that they do not have.

        And entire economy based on these premises, which returns us to premise number one, which is:

        People are stupid.

        1. People are stupid.

          …and in a normally functioning economy their access to other people’s money would normally be heavily restricted.

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

    REALTORs lie
    Nobody asks why
    Rich renters rent
    And save money not spent

    Rather fitting this Chinese lunar new year brings us the Year of the Rat, because REALTORs are parasites, in the economic ecosystem they only flourish from the ignorance and stupidity of their host organisms…

    1. Realtors have unique DNA that allows them to lie without remorse and a far below average IQ which allows them to stare at you like a dear in headlights when factual data about the declining real estate is presented. Interestingly, this recent coronavirus outbreak is suspected to be spread by none other than REALTOR! If you spot one of them, stay at least 6 feet away!

    1. It’s pitiful that these are the kinds of people in charge and “leading” our country. Just pathetic.

      1. The good ones are already pretty much sold out here. My wife contributed to that. She was supposed to fly to Shanghai today and then aborted at the last minute and shipped all the masks and goggles to her staff and friends instead.

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