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A Vicious Cycle, In Which Each Price Cut Increases The Chances Of Another Price Cut

It’s Friday desk clearing time for this blogger. “Buyers started returning to San Francisco’s downtown condo market in the fourth quarter of 2020. The resurgence in sales, however, didn’t bolster prices: They declined an average of 10.4% year over year to $1,056 per square foot, which Sandra Eaton, regional director West Coast at Compass Development Marketing Group said is the lowest they have been in the last five years.”

“A partner in HFZ Capital Partners’ Shore Club in South Beach filed a lawsuit against the hotel’s owners, as HFZ’s financial and legal troubles continue to mount. HFZ had originally planned to redevelop the historic 309-key hotel into a luxury condo development, but canceled plans for the project in 2017 as a result of the slow condo market.”

“A unique condo is up for sale in Jamaica Plain, but prospective buyers will need an open mind about its open concept. The main bathroom on the first floor at 302 South Street #2 does not have doors or walls around the toilet. The shower is enclosed, but in clear glass. According to the listing, the house went into foreclosure in late January.”

“As developers struggle to offload excess condo inventory in an oversaturated market, it is widely reported that investors and mezzanine lenders have swooped in with offers to buy units in bulk. Rutherford Place is an outlier among the projects involved in bulk deals, in that it is not one of the estimated 900 new or in-progress developments – mostly in Manhattan – that currently include the more than 15,000 unsold units across New York. The Real Deal notes that developers prefer to keep bulk sales like these quiet, lest they indicate distress to the rest of the market.”

“Pricing the property well above the averages will not only take longer to sell, it will also lead to deeper discounts after all, according to UrbanDigs, a New York real estate data provider. ‘We have been analyzing the market data and collecting information from agents over the years,’ John Walkup, co-founder of UrbanDigs continued. ‘They describe stale inventory as a vicious cycle, in which each price cut increases the chances of another price cut.'”

“Rent prices in Toronto have been plummeting during the pandemic, and a new report says Toronto neighbourhoods have seen the biggest drop in the country, with one neighbourhood’s rents falling as much as 29%. It was GTA’s neighbourhoods — largely dominated by Toronto — that led the country in the biggest year-over-year rent drops, securing every single one of the top 20 spots. The largest drops were seen in South Riverdale, where rent went down on average 29% to a new low of $2,002.”

“Today another of those fast-rising property magnates delivers the sector some very bad news. Tim Gurner drops a truth bomb at The Australian: The collapse in immigration and the flow of Chinese has trashed the market for 300-plus apartment skyscrapers. Salta Properties Sam Tarascio chimed to say he has masses of empty apartments with rents down 30-40%.”

“The growing appetite of people here to have housing property outside J&K attracted local property dealers and they too started expanding their real estate ventures outside the state, mostly in Delhi, Uttar Pradesh and Haryana. This combination of local property dealers and the local investors has become a convenient means of flight of capital from the state to other parts of the country. Initially, this looked prosperous for both. But over a period of time, the investment has lost sheen and many investors found their money locked in the troubled waters of the real estate sector in the country. Those who have invested in under-construction properties are the worst sufferers.”

“If a non-Londoner were to form an opinion of Nine Elms based only on carefully worded press releases and the area’s swish website , they would probably think it was the best thing to hit the city since the Night Tube. Nine Elms today feels something between a wannabe mini Dubai and a permanent building site. Cranes often outnumber real life pedestrians, because despite the strange Uncanny Valley images of Photoshopped Nine Elms residents gleefully walking the streets in various promotional photos, I’m not sure anyone actually lives here.”

“Expensive homes for the super rich, like a £15 million four-bedroom apartment in the 1 St. George Wharf tower overlooking the Thames, lay empty. This astoundingly expensive home in particular has been on the market since December 2019. This is no anomaly: several luxury flats with asking prices well into the millions have sat dormant since as early as 2018, and the construction of yet more identical million pound homes continues every day.”

“How much of a scandal could a company that rents desks really create? The rise and fall of WeWork was more of an amusingly bad business story than an example of dangerous fraud, but the new documentary WeWork: Or the Making and Breaking of a $47 Billion Unicorn asks if that’s all there was to it. The documentary explores ‘the rise and fall of one of the biggest corporate flameouts and venture capitalist bubbles in recent years – this is the story of WeWork and its hippie-messianic leader Adam Neumann who makes you beg the question, was he trying to create a cult?'”

“The trailer focuses on WeWork’s founder Adam Neumann and how he managed to convince everyone, including Japanese conglomerate SoftBank which invested $4 billion, that WeWork was going to change the world. His former employees are among the interviewees in the film, which also highlights how Neumann grew increasingly erratic over time, and how that all culminated in the infamous implosion of the company that ended in bankruptcy and suddenly shut-down offices.”

“As someone not familiar with the intricacies of the story, all the revelations in the trailer are new to me. The idea that Neumann cultivated an almost cult-like following and that mass expenditures and partying culture led to this extremely lucrative company going bankrupt overnight is all very fascinating. As is the beleaguered attitude of the talking heads, one of which exclaims in the trailer, ‘For God’s sake, they’re renting f—g desks.'”

“The WeWork documentary feels to me like something very much in the vein of Netflix and Hulu’s competing Fyre Fest documentaries — a look at the schadenfreude of start-ups so that regular people at us can laugh at rich people’s mistakes. Which I’m not complaining about.”

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This Post Has 72 Comments

  1. ‘They declined an average of 10.4% year over year to $1,056 per square foot, which…is the lowest they have been in the last five years’

    Wa? But this means prices have been sinking like a turd in a well for years?

    Eat yer crows Thornberg…

  2. ‘We have been analyzing the market data and collecting information from agents over the years’

    Turd, well, meet NYC.

    1. ‘canceled plans for the project in 2017 as a result of the slow condo market’

      Also sinking for years. Gosh, this might be a trend!

      1. ‘the 1 St. George Wharf tower overlooking the Thames, lay empty. This astoundingly expensive home in particular has been on the market since December 2019. This is no anomaly: several luxury flats with asking prices well into the millions have sat dormant since as early as 2018’

        Again, years! Oh for the days of the safe deposit box in the sky. The media dogs never mention it these days, but couldn’t shut up about it at the time.

        1. The Brits are getting serious about a 6PM curfew for all men.

          Yeah, I’d want to buy an airbox there.

  3. Similarly:

    ‘Rent prices in Toronto have been plummeting’

    Toronto red-hotcakes!

    ‘a truth bomb at The Australian: The collapse in immigration and the flow of Chinese has trashed the market for 300-plus apartment skyscrapers. Salta Properties Sam Tarascio chimed to say he has masses of empty apartments with rents down 30-40%’

    Wa? Australia is nothing but red-hotcakes? It’s almost like these media dogs are a lion!

    1. Canada has been trying to overcome the aging of its workforce by increasing the number of immigrants it accepts each year. The U.S. is likely headed for similar problems as gender issues normalize as birthrates continue to decline.

          2. There are plenty of men and women who never achieve the formal operations stage of cognitive development, and they’re unable to function productively or responsibly; the jails and prisons are full of them.

      2. The birthrate in America has been on the decline for decades–demographers have been predicting a big crash for years. Just like in Japan, Germany and all the developed nations in the world, all of them aren’t producing enough babies to sustain their populations. Even China is facing this disaster. The “One Child” policy was the biggest blunder ever, by certain criteria.

        With the progressives, left, liberals, Democrats and the sexual deviant crowd now declaring that sex/gender aren’t real, does anybody really expect men and women are going to get down to the dirty work of having kids and raising them responsibly? The biggest existential threat to MANkind (i.e., the Human RACE) is not Globull Warming, pollution or consuming all the resources, or the next big asteroid, it’s simply that he will stop reproducing in sufficient numbers and the species will die off.

        People are so stupid. As populations transition from dirt poor to affluence (e.g., potable water, sewers, electricity, microwaves, tv/internet), the birthrate of the population declines significantly. In dirt poor societies a couple needs to have 12 kids just to make sure that 4 of them survive long enough to take care of their parents. Have two kids and mom and dad will end up starving to death. So everyone should be encouraging development in all of the Third World countries.

        The West is screwed because the Karens and Kens of the world can’t have babies. It’s true, I read it in an encyclopedia.

  5. Rutherford Place is an outlier among the projects involved in bulk deals, in that it is not one of the estimated 900 new or in-progress developments – mostly in Manhattan – that currently include the more than 15,000 unsold units across New York’

    It’s actually an old building, and the rest of the loanowners there are fooked.

    ‘The Real Deal notes that developers prefer to keep bulk sales like these quiet, lest they indicate distress to the rest of the market’

    Ahem…

  6. “…WeWork’s founder Adam Neumann and how he managed to convince everyone, including Japanese conglomerate SoftBank which invested $4 billion, that WeWork was going to change the world….”

    https://www.rollingstone.com/movies/movie-news/wework-adam-neumann-documentary-trailer-hulu-1143313/

    Lots of very eerie similarities to Jim Jones, leader of the famous 1978 Jonestown cult, who commanded his followers to ‘drink the Koolaid”

    I hereby nominate Adam Neumann for the HBB REIConplex con man of the year award.

  7. From Bloomberg: House-Flipping Lenders Are Throwing Cash at a Red-Hot U.S. Market (link behind paywall)
    From Article
    Number of firms financing flips rises almost 50% this year
    ‘Banks are just throwing cash at you,’ one contractor says (My Note the average rate for Flipper money is 7.9%)
    A few quotes from the Article:
    “There are few easier ways to make a quick buck in America today than flipping houses.” “None of this is cause for panic about another looming housing bust. Experts say we’re far from that possibility at this point.”

    The article does note that most of the flips are done at the lower price points. Average price in Dec. $309,000. But it appears that flipping is still going strong, at least according to Bloomberg.

  8. “The main bathroom on the first floor at 302 South Street #2 does not have doors or walls around the toilet…. I’m still holding out hope there is one person out there, because all we need is one buyer who prefers it this way and is willing to put their money behind it and embrace the freedom that comes with being able to poop out in the open.””

    Quit your yammering and just build a damn wall.

  9. Central Bankers are starting to admit that they dont care about heated housing prices – they believed that they had to save off the economy. So housing prices when up in 2020 and will go up more in 2021.

    Common sense went out the window as people were able to make larger $ offers.


    Former Bank of Canada Governor Stephen Poloz thinks the heat in the domestic housing market is an acceptable trade-off to take after the Canadian central bank and its global counterparts slashed interest rates in a bid to stave off the worst of the potential pandemic-induced carnage.

    “We cut interest rates in order to boost the economy. Well, if we’re not going to have a hot housing market, we won’t have any reaction at all to [low rates], and so that’s all part of the side-effect of the job you’re there to do,” Poloz, now a special advisor at Osler, Hoskin & Harcourt, said in a television interview Thursday.

    “If the side-effect is a hot housing market, that’s one I’ll take every day.”

    Under Poloz’s watch, the Bank of Canada slashed its key interest rate three times in the early days of the pandemic, dropping the benchmark to 0.25 per cent from 1.75 per cent over the course of March 2020 alone.

    The Bank of Canada under current Governor Tiff Macklem has signaled it intends to keep the policy rate at that effective lower bound until at least 2023 as it looks for signs the economic recovery has taken root and inflation conditions are returning to normal.

    1. Also the integrity of the lending is a huge issue. There is enough anecdotal information on investor and real estate message boards that it is clear that there is a lot of ‘fudging’ or all out document manipulation. Yes, the documents show that the borrower can afford it – but the doc has been manipulated.


      While much has been made over the heat in some of Canada’s largest housing markets, with prices in Toronto up 15 per cent year-over-year and Vancouver benchmark prices up nearly seven per cent year-over-year, Poloz said he has faith the strong underwriting standards of domestic mortgage lenders will prevent the real estate market from becoming a significant financial vulnerability.

      “We have really good rules around mortgage lending, and we have excellent banks that know what they’re doing, and in the end that mortgage loan is between the borrower and the lender, I have a lot of confidence in that underwriting process,” he said.

      1. You are assume clear analysis and logical thinking from decision makers and bureaucrats in govt and financial institutions.

        At this point – I am now fully convinced that they are in the pretend and extend phase – and will do so until they are forced to change

  10. Another day, another spike higher in long-term Treasury yields and mortgage rates…

    I wonder how many months it will take for the chilling effect of this recent development on the U.S. housing market to show up in official statistics?

    1. Markets
      CNBC TV
      Bonds
      10-year yield hovers near 14-month high amid Fed bank capital decision
      Published Fri, Mar 19 2021 5:38 AM EDT
      Updated Fri, Mar 19 2021 9:46 AM EDT
      Maggie Fitzgerald
      Vicky McKeever
      Key Points
      – The 10-year yield topped 1.7% on Thursday, a 14-month high, while the 30-year yield briefly jumped above 2.5%.
      – Gary Pzegeo, head of fixed income at CIBC Private Wealth, said investor reaction to the Fed’s comments “indicate that markets either see longer-term risks to inflation, or near-term risks of the Fed wavering from this new approach.”
      …

    2. It’s getting ever tougher for the housing market’$ porcine beauticians to paint lipstick on this pig.

      A 3% mortgage rate may be the new norm
      But if home prices can’t cool many buyers may miss out regardless
      March 18, 2021, 10:20 am
      By Alex Roha

      For the third consecutive week, mortgage rates pushed past 3% – with the average mortgage rate for a 30-year fixed loan up four basis points last week to 3.09%, according to Freddie Mac’s Primary Mortgage Market Survey.

      Rising mortgage rates typically signify a recovering economy, and despite applications for mortgages dropping week-over-week, Freddie Mac’s chief economist Sam Khater expects a 3% rate to sustain market interest for many potential buyers.

      A number of economists say rising rates may just be what the industry needs to cool the insane housing demand the market has been struggling to maintain for months. Increased inventory was the initial hope. However, due to consistent materials supply shortages and lumber prices that are up about 200% since April 2020, builders’ confidence index dropped in March. Single-family housing starts declined last month.

      “The elevated price of lumber is adding approximately $24,000 to the price of a new home,” said NAHB Chairman Chuck Fowke. “Though builders continue to see strong buyer traffic, recent increases for material costs and delivery times, particularly for softwood lumber, have depressed builder sentiment this month. Policymakers must address building material supply chain issues to help the economy sustain solid growth in 2021.”
      …

      1. remember when 5% mortgage rates were deemed low. People have just forgotten when they now consider 3% high.

  11. Auto thefts in Dumver are up 145% so far this year.

    Buckle up, we ain’t seen nothing yet.

      1. I remember when the riots started last summer, the peaceful protestors tried to attack the state capitol. The Dumver police used tear gas and pepper bullets to hold them back and even drove them away.

        Not saying that the DPD is great, because it’s not. But I don’t think anything changed with them. I think the thefts being on the rise is a reflection of the economic depression, even though our lefty governor claims that we aren’t doing all that bad. The tsunami of panhandlers I’m seeing disagrees with his remarks.

        Auto thefts are up in my little burg, but from what I have read it’s usually because someone left the car running or the keys in it. I guess you used to be able to get away with that. Having lived in Mexico City I would never leave the keys in the car.

    3. Stealing cars has gotten much tougher with technology. You really need a tow truck to be effective. So we’re really talking about organized crime. Otherwise, it’s carjacking, which means a confrontation with a victim, and the courts don’t mess around with violent criminals.

  12. Stimulus check rage possibly driving COVID money violence (3/19/2021):

    “Alex Melkumian, founder of the Financial Psychology Center, told FOX Business that it is not uncommon for individuals to commit violent acts out of desperation when they are going through financial and emotional hardship, and that the impact of the COVID-19 pandemic over the past year has exacerbated the issue even further.

    “The year that we’ve had leading up to these stimulus checks and the reason for why we’re in a position of even being issued stimulus checks is a year that’s unlike any we’ve had in our lifetime. So there are always going to be people who are sort of down and out, so much so that psychologically they’re willing to cross a threshold that a lot of people are not,” Melkumian said. “When we’re struggling and we’re in pain, you know, for some people, either the ethical, moral or whatever bar gets dropped.”

    Melkumian explained that mental health or substance abuse issues could be a contributing factor in what drives individuals over that threshold towards violence related to financial hardship

    “A lot of times these things are correlated within one person,” Melkumian said. “Somebody could be experiencing mania, you know, treating that mania with drug use and then also the need for more money to continue that particular behavior will kind of have them act out through resorting to violence.”

    For these individuals, Melukiam says the idea of sharing the relief money with someone else could be viewed as taking away their only means of survival.

    “You’re taking sort of the last of the last of what people need that’s issued by the government,” Melukiam said. “So there’s a lot of sort of emotional attachment and meaning behind a stimulus check.”

    He emphasized that addressing mental health and substance abuse issues with the appropriate resources is a key element to reducing the chance of violence related to stimulus checks and finances in general. He also noted that families who have loved ones struggling due to finances, mental health, or substance abuse issues can extend their support by helping individuals look into other means of financial support besides stimulus checks.”

    https://www.foxbusiness.com/money/desperation-mental-health-substance-abuse-issues-may-be-driving-factors-in-stimulus-check-related-violence-financial-psychologist

    “other means of financial support besides stimulus checks”

    What, like a job?

    1. it is not uncommon for individuals to commit violent acts

      I just found out that a colleague in Ireland was assaulted in Dublin during their first lockdown. The thugs, who he did not wish to describe, broke one of his ribs.

      I told him about concealed carry rules in the US, and he said that he would never want to carry a weapon, not even after being beaten senseless and possibly being left for dead.

      I told him that more than half a million Coloradans have a concealed carry permit and that they don’t leave home without their gun. He was horrified. Then I told him about the Make My Day law, and he said that was too extreme.

      Some people just want to be victims, I guess.

        1. An armed society is a polite society.

          That concept is lost on them. They think that we use our guns to intimidate each other and that we settle all our disputes with shoot outs.

          Too bad there were no cops nearby to save him from the random beating he got.

          1. The idea behind nuclear deterrence, MAD or “Mutually Assured Destruction” kept the peace for a long time.

            The trick with guns and everyone being armed is if someone thinks it isn’t going to be mutual.

        2. “…An armed society is a polite society…”

          In other words, when you say: “Get off my lawn, punk”, people take you seriously.

    2. it is not uncommon for individuals to commit violent acts out of desperation when they are going through financial and emotional hardship
      Duh. Another self-promoter, stating the obvious like it’s news. The constant quest for “content” is the worst; so much space/time to fill, so little substance.

    3. the idea of sharing the relief money with someone else could be viewed as taking away their only means of survival.

      The Moneyist — Marketwatch’s Dear Abby column — is filling up with stories of spouses demanding stimulus checks, or spouses hiding their stimulus checks from each other, or stimulus checks getting lost in divorces and inheritances, etc.

      1. I just bought an expensive hang gliding instrument paying the Paypal fees so that I had recourse. When I suggested a wire transfer to his checking account he said that he didn’t want to argue with his wife over the proceeds.

        1. I once read an online comment from someone who worked at a check-deposit place. The men would deposit 40 hours worth of wages but they would pocket any overtime wages as cash to keep it from the wives. Thigh gaps too small I guess.

  14. Does the Fed plan to unwind the loose policies it put in place for pandemic relief purposes?

    1. The Financial Times
      US financial regulation
      Federal Reserve calls time on looser capital requirements for US banks
      Central bank announces that capital relief introduced at start of pandemic will expire at end of March
      While the Federal Reserve said it would let the measure expire as scheduled, it said it would explore a more permanent overhaul to the rules
      James Politi in Washington and Colby Smith in New York
      3 hours ago

      The Federal Reserve has announced that it will let looser capital rules for banks introduced at the start of the pandemic expire at the end of March.

      The US central bank’s decision could disappoint banks, which had been pushing for an extension of the capital relief.

      Capital rules were eased last year in a temporary change to the supplementary leverage ratio (SLR), and have been the focus of an intense political battle in recent weeks.

      While Democrats in Congress had argued that the relief from capital rules should be terminated at the end of this month, many Republicans sided with the banks to argue for an extension.

      The Fed said on Friday that the change to the SLR would expire as scheduled on March 31. However, the central bank said it would explore a more permanent overhaul to the rules.

      “The board will shortly seek comment on measures to adjust the SLR,” the Fed said on Friday. “The board will take appropriate actions to assure that any changes to the SLR do not erode the overall strength of bank capital requirements”, it added.
      …

  16. Joe Biden fell while walking up the stairs to Air Force One this morning:

    https://twitter.com/thehill/status/1372935931204927491

    The DNC nominating him (for an election that was stolen) was elder abuse. When Hillary almost face planted on the sidewalk (and lost a shoe!) in September 2016, nobody was sad because she is a murderer and her husband is a rapist.

    President Donald Trump was right when he said that Biden belongs in a rest home.

    2. And he tripped multiple times, while hold on to the railing.

      Meanwhile, half of the illegals he’s waiving through into the US are testing positive for Covid.

      1. If you’re a US citizen on vacation in Cancun, you have to be tested negative before being allowed to return to YOUR country. But diseased illegals? Bienvenidos a los Estados Unidos.

        1. We don’t want Pedo Joe to die because the country *might* survive one term of his stolen presidency, but it will be irretrievably destroyed if his babysitter ever ascends to the White House.

          It’s gonna take Ron DeSantis two full terms to even scratch the surface of reversing the damage from these unelected globalists.

      2. “And he tripped multiple times, while hold on to the railing.”

        To be fair his shoes probably have a leather sole, which is likely slippery on that red carpet thing covering the stairs. An airline would mandate deck grip on those steps.

        1. deck grip on those steps

          Stephen Miller, who’s boarded AF1 numerous times, addressed this on Hannity this evening. AF1 has deck grips.

          1. I always enjoyed Melania’s poise as her long legs climbed those steps, but simultaneously cringed as her husband walked in front of her; WTF? If I were on the security detail I’d make the climb right behind her in case she slipped, and she’d know that too.

    1. BRKB and GLD. They’re not really stonks more like a “store of value” that doesn’t pay dividends as a defense from hyperinflation.

      $6 gas is only a problem for the “little people”

    1. Wow, I didn’t think Marketwatch content merited a paywall. Anyway, I was also wondering if Powell will build a floor at 30k?

      1. Sometimes Marketwatch carries articles from their partners at Barron’s, which I think is where the paywall is. Meanwhile, when I switched my search engine to default to DuckDuckGo, the MW paywall dropped, and so did the YouTube ads. I have no idea how.

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