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How Is The Market Accepting This Surge In Supply? It’s Balking!

A report from the Orange County Register in California. “Southern California’s housing market may be suffering from a case of ‘be careful what you wish for.’ It wasn’t too long ago real estate pros said a lack of inventory was frustrating home seekers rushing to buy from limited options. In late 2018, there may be too many choices.”

“House sellers are finding it takes 43 more days to get a home from listing to escrow compared with the same period a year ago. ReportsOnHousing latest report from Oct. 18 shows 38,015 listings of existing residences in the four-county region covered by the Southern California News Group. That’s 8,380 more houses for sale in a year’s time — or 28 percent. And current supply is 14 percent above the six-year average.”

“How is the market accepting this surge in supply? It’s balking! Demand — or new escrows — was 10,579, off 3,066 sales contracts in 12 months or down 22 percent. It’s also down 16 percent vs. previous six years.”

“That dip in demand has cooled the estimated selling pace. Rising supply and falling demand means ‘market time’ rose to 108 days for the typical listing to get to escrow vs. 65 days a year earlier and an average 87 days for this time of year in 2012-2017. Last time SoCal homes moved slower was January 2016!”

From Eastsider LA. “Prices on more than 70 condos, apartments and other Eastside properties dropped during the past week. Here are some examples, followed by a breakdown by neighborhood: Mt. Washington: Price drops more than $150,000 for a 3-bedroom hilltop contemporary. $999,000.”

“Echo Park: $120,000 cut on four units on a lot – a 4-bedroom/2-bathroom Craftsman, a back duplex with a 2-bedroom and a 1-bedroom, and a stand-alone studio. $1,475,000. Highland Park: $50,000 reduction on a 5-bedroom/4-bathroom, 2,588-square-foot home, including two master bedrooms. $898,000.”

The Desert Sun. “The price of Elvis Presley’s famed Palm Springs getaway can’t help falling. From an initial asking price of $9.5 million in 2014, the house where Presley and wife Priscilla honeymooned after their 1967 Las Vegas wedding has declined to an asking price of $3.26 million in a new listing touted this week. The Vista Las Palmas house has been on and off the market since at least 2014.”

“Listing agent Scott Histed said the house attracted two purchase offers as soon as it was listed in July. Neither offer panned out, though, so Histed is hopeful potential buyers will survey the 5,000-square-foot home during the Modernism Week preview in October.”

“‘There’s nothing like it in Palm Springs,’ Histed said, adding that the property ‘is priced now to sell.'”

From National Real Estate Investor. “Buyers are paying a little less for apartment properties in San Francisco than they used to. ‘We’ve seen it on all levels, people are sharpening their pencils a little more,’ says Ramon Kochavi, regional manager in the San Francisco office of brokerage firm Marcus & Millichap.”

“Also, several top buyers are expected to buy fewer apartment buildings this year as they digest the properties they purchased over the previous 12 months. Other investors are offering to sell their properties to avoid regulatory burdens like seismic retrofit requirements or the growing menace of rent regulation.”

“Investors are accepting cap rates that average around 3.5 percent for buildings in class-A locations—for example, a 1920s rent-controlled building in a prime neighborhood like Pacific Heights. That’s up from cap rates that were close to 3.0 percent a year ago, according to Kochavi.”

“The yield on investments on these properties has stayed low even as interest rates have risen, including the benchmark yield on 10-year Treasury bonds, which was higher than 3.0 percent for most of October, up more than 150 basis points from its most recent low point in the spring of 2016. That can’t last forever, especially as federal officials plan yet another increase to their own benchmark interest rate targets before the end of 2018.”

“The volume of trading top apartment properties—those rated with four or five stars by CoStar—fell by more than 40 percent in San Francisco in 2017 compared to 2016. The sales volume on such building also likely dropped significantly in 2018.”

“Some owners have also offered to sell properties because of the threat of new regulations, such as the potential rent control regulations that could be unleashed by California’s ‘Proposition 10’ ballot initiative.”

“‘Prop 10 has scared a lot of people over the past few months,’ says Clinton Textor, a director in the national multi-housing group in the San Francisco office of Marcus & Millichap. ‘Our inventory of properties available for sale has spiked considerably… it has doubled.'”

“Developers have delivered more than 2,000 new apartment units in the market annually since 2013, with over 4,000 units expected to open in 2019—the most in a single year since the 1960s, according to CoStar. These units are expected to rent quickly. ‘We don’t overbuild in San Francisco,’ adds Ramon.”

From KTVU Fox 2. “The Bay Area growth is evident with each new office building sporting a lease sign out front. This year alone, the region is projected to open 18.2 million square feet of office space. That’s a number greater than the cities of New York and Dallas, combined. Commercial openings in Santa Clara County are up 6.5% over last year.”

“This is also a place for the forgotten workers. The scores of low-income earners who have joined the homelessness on streets and in RVs, as the housing market continues skyrocketing.”

“‘This is the opposite of field of dreams. People lived here and they had their dreams and their dreams were coming true. And then people got greedy they priced them out. And now the original inhabitants of San Jose are living on the streets everywhere. And now they’re saying, ‘no no on we’ll build more, new people will come.’ But what’s gonna happen to the people that were here? they’re on the streets and they’re gonna get pushed out and pushed out. You can’t just do over and pretend all these people weren’t here to begin with,’ said South Bay affordable housing advocate Shaunn Cartright.”

This Post Has 27 Comments
  1. So how did the California media react to the UHS numbers yesterday? Crickets. I looked all morning and all I found was this:

    ‘San Diego Housing Marketing ‘Continued to Deteriorate’ in September’

      1. But while Realtors may be optimistic about the future, some economists disagree

        UHS have 0 credibility. I’ll side with the economists

  2. ‘Our inventory of properties available for sale has spiked considerably… it has doubled’

    What happened to my shortage?

    ‘Developers have delivered more than 2,000 new apartment units in the market annually since 2013, with over 4,000 units expected to open in 2019—the most in a single year since the 1960s’

    Wa? I thought they can’t build in California?

    ‘the region is projected to open 18.2 million square feet of office space. That’s a number greater than the cities of New York and Dallas, combined’

    Building more than Dallas and NY all together!! Somebody’s been a lion!

  3. ‘Investors are accepting cap rates that average around 3.5 percent for buildings in class-A locations…up from cap rates that were close to 3.0 percent a year ago’

    ‘The yield on investments on these properties has stayed low even as interest rates have risen, including the benchmark yield on 10-year Treasury bonds, which was higher than 3.0 percent for most of October’

    When I took RE finance in college, you factored in opportunity costs, like treasury yields. So basically these guys are “accepting” a return of 0.5%. And remember that cap rates don’t include the financing costs.

    You read that right – cash flow negative from day 1.

    1. The 3.5% cap rate was for a rent-controlled building. Maybe that’s why they’re buying these places. If the rent control is ever rescinded, the land value would zoom up in anticipation of tearing down a 100-year-old dump and replacing it with yet another luxe tower. And if the rent control stays… flip the property to the next fool who can also hope for the removal of rent control.

    2. “cash flow negative from day 1.”

      No different than every last SFR transaction in the last 20 years. You couldn’t rent it for half the monthly carrying cost.

  4. It wasn’t too long ago real estate pros said a lack of inventory was frustrating home seekers rushing to buy from limited options.

    So we’ve established beyond any doubt that those real estate pros were lying.

    1. “So we’ve established beyond any doubt that those real estate pros were lying.”

      Lying to profit, aka fraud. Millions of defective appraisals and mortgages. Millions.

  5. From an initial asking price of $9.5 million in 2014, the house where Presley and wife Priscilla honeymooned after their 1967 Las Vegas wedding has declined to an asking price of $3.26 million in a new listing touted this week.

    That’s a whole lotta slashing going on.

    1. If only there were a generally accepted accounting principle requiring the owners of properties to mark them to market.

  6. “How is the market accepting this surge in supply? It’s balking! Demand — or new escrows — was 10,579, off 3,066 sales contracts in 12 months or down 22 percent. It’s also down 16 percent vs. previous six years.”

    Try not to catch yourself a falling knife.

  7. Haven’t seen much discussion on the effect of the sales drops on the income loss to the real estate industry.

    I look at it as a 10% drop in sales prices reflects in a 10% drop in someone’s income, somewhere, somehow.

    1. a 10% drop in sales prices reflects in a 10% drop in someone’s income

      …and a likely 100%+ drop in someone’s equity. That also probably would have gone to some salesman somewhere had it continued to exist…which will put the Fed under tremendous pressure to make it exist again as salesmen and their bosses who make political contributions start to go hungry.

  8. Maybe the worst thing about booms is the horrible level of service everywhere as people find better jobs and leave customer service, and people leave town looking for more affordable housing.

    I suspect there is a strong correlation between home prices and the incidence of food poisoning.

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