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Builders Are Crying The Blues In California

A report from Bisnow on California. “Speakers at Bisnow’s Silicon Valley Construction & Development Forecast event last week had differing opinions on just how dire the construction cost situation is. ‘We’re in a unique bubble in the Bay Area’ said Project Executive Preston Hoopes . ‘We’re all bullish on the economy. The real estate bubble in the Bay Area — something’s got to give — and I think we’re starting to see that at this point.'”

“Right now is the best of times for development in Silicon Valley, but construction is already starting to slow significantly, San Jose Deputy Director of Economic Development Chris Burton said. ‘Especially in the commercial space, we have lower rents, that’s a lower return as construction cost goes up,’ Burton said. ‘Going into the next year, we’re seeing probably a significant slowdown. We’re doing everything we can on the city side to try to address that.'”

The Union Tribune. “For the first nine months of the year, San Diego County has built about 8,519 housing units, up from 6,054 at the same time last year, said the third quarter report from the Real Estate Research Council of Southern California.”

“Alan Nevin, a real estate analyst with Xpera Group, said the lack of new single-family homes experienced this year could be worse at the end of 2018 and into 2019 because of a slowdown in the housing market. So far this year, Trulia Research said San Diego had the most reductions — 20.5 percent — of the 100 biggest metro areas in the United States. (It tied with Tampa, which also saw 20.5 percent of homes with a price cut.)”

“‘(Single-family) is not doing terribly well,’ Nevin said. ‘When I talk to builders, they are crying the blues.'”

The Daily Bulletin. “Little over a decade ago, the housing sector almost brought down not only the American but the world economy. Today the reprise of the housing decline will be playing a very different tune.”

“The biggest problems emerge at the upper-end market, particularly the 80-90 percent of all new multi-family construction that is considered ‘luxury.’ The first signs of diminished demand, and falling prices, can be seen in high-end markets such as Manhattan, San Francisco, London and Sydney, in part reflecting a fall in foreign investment, and shifting demographics.”

“The Southland, ground zero for the last housing bust, may well reprise this unwanted role. Inventories are at their highest levels in six years, and prices increasingly wobbly. Perhaps the most obvious candidate for a real estate haircut is downtown Los Angeles.”

“To be sure, the once desolate downtown has seen a considerable increase in housing units, with more than 70,000 additional units planned by 2040. Yet what it has not done is emerge as a major job center; in fact, since 2010 its share of total employment in the region is no larger than it was in 2010.”

“Projections of up to 30,000 new units over the next three years increasingly reflect wishful thinking, or even delusion. Mayor Eric Garcetti was warned by his own housing department chief that L.A.’s luxury-housing overkill had created a huge 12 percent vacancy rate (5 percent is considered healthy) in all housing built since 2005. “

“Now savvy Chinese real estate website Mingtiandi is warning investors that downtown L.A. is heading for ‘an imminent glut of luxury condos.’ Already landlords of luxury apartments in downtown are giving out free parking — and free rent, as vacancy rates have hit record levels.”

“Finally the great wave of investment from abroad, notably China, is clearly slowing, exacerbated both the emerging trade conflict and that country’s massive property indebtedness. This has already undermined the apartment market in Sydney and could also hit those parts of the Southland, like downtown, Irvine or the San Gabriel Valley, dependent on foreign buyers willing to pay high prices.”

The Elk Grove Citizen. “Elk Grove Mayor Steve Ly last week shared his desires for the city to continue adding amenities. He was sworn into his second term on Dec. 12. Ly addressed the jobs-to-housing ratio imbalance in which Elk Grove has an abundance of housing, but a relatively low number of workplaces.”

“‘We will continue to work hard to try to attract jobs to Elk Grove,’ he said. ‘We talked about (this issue) consistently. Every politician has talked about it, but what it means for me is doing the cold calls and sitting down with potential companies that would come into Elk Grove and bring jobs to Elk Grove.'”

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This Post Has 49 Comments

  1. ‘Mayor Eric Garcetti was warned by his own housing department chief that L.A.’s luxury-housing overkill had created a huge 12 percent vacancy rate (5 percent is considered healthy) in all housing built since 2005’

    That’s some shortage. BTW, this 12% number came out two maybe three years ago. Can’t say you weren’t warned.

    1. “department chief that L.A.’s luxury-housing overkill had created a huge 12 percent vacancy rate ”

      Someone here told us that vacancy rate was less than 3 percent.
      Demand was organic, no?

  2. ‘Elk Grove has an abundance of housing, but a relatively low number of workplaces’

    Open one of those bicycling museums?

      1. Thad would be tough…Elk Grove, the land of the living dead in their little Ecru colored, highly governed/HOA/long commute in every direction because there are no job developments – they walk around in the few minutes they have between the commute and grocery shopping like zombies afraid of the light. M.J. would either not be allowed by all those little governments or put them into a coma due to permanent exhaustion and sensory deprivation.

      1. I don’t know…the sensory deprivation from living a life of ecru and florescent lights in the cube makes it hard to imagine that any imagination what so ever could be born out of that area. I had to live their for a very brief period yeas a ago…shivers….or The Stepford village devoid of passion, flavor, life.

    3. Lots of people commute from Elk Grove to Folsom every day to work at Intel and the smaller tech facilities. They bought during the last crash when Elk Grove house prices almost went to zero. The other major buyers since then were Chinese. They have stopped buying now. It’s headed back toward zero there if nothing changes.

  3. ‘We’re all bullish on the economy’

    Well that was your first mistake Preston.

    ‘So far this year, Trulia Research said San Diego had the most reductions — 20.5 percent — of the 100 biggest metro areas in the United States’

    This means price reductions. You’re number one!

    1. Is it time to hide all your cash under a mattress again?

      Goldman warns a sharp US economic slowdown next year could see financial markets running ‘scared’
      – Fresh signs of slowing global growth, and emerging pockets of weakness in the U.S., rattled financial markets last week.
      – And the sell-off continued Monday, with weaker-than-anticipated data from the U.S., China and Japan adding to mounting worries about the global economic outlook for 2019.
      – “We expect the U.S. to slow down to less than 2 percent by the end of next year and as a result of that you could see the market getting quite scared,” Christian Mueller-Glissmann, senior multi-asset strategist at Goldman Sachs, told CNBC on Monday.
      Sam Meredith
      Published 8:44 AM ET Mon, 10 Dec 2018
      …

  4. Did you HODL so long, That your HODLings got schlonged?

    Bitcoin’s All-Time High Made This Guy a Millionaire: Then He Lost It All
    “There was this insanity.”
    By James Dennin on December 16, 2018
    Filed Under Blockchain & Money

    At the end of 2016, you could buy a bitcoin for the price of an iPod, and yet, it wasn’t exactly new, either. People were starting to come around on the decentralization revolution, including a former ad man named Peter McCormack. Sick of the advertising game, he folded his agency and poured what remained — about $32,000 — into bitcoin and Ethereum’s ether. By that summer, he was a wealthy man. And when bitcoin hit its all-time high one year later on December 17, 2017, he was a millionaire.

    “There was this insanity,” the trader turned podcast host tells Inverse. “It was like, ‘shit this is big and it’s going to move quickly.’”

    Since that all-time high, which was one year ago tomorrow, McCormack watched his holdings shrink in value from $1.2 million to almost nothing, after accounting for taxes. To recoup some of the losses, he set up a mining operation in January, which is still burning cash. It’s the kind of story that gives you whatever the opposite of FOMO is, and yet, for all that, he’s surprisingly upbeat about how the whole escapade turned out.

    “Of course I wish I’d sold at the peak, of course I regret that,” he says. “But it’s been such a wild ride for two years: I was out of work and then I suddenly went to traveling the world… It’s not like I lost money I earned.”
    …

      3. I’m going to buy 2,000 rolls of toilet paper. When the Fed debases the dollar into worthlessness and the economy collapses, I’ll be the King of Barter Town, Bitchez….

        1. That’s so funny. I always thought that would be a very popular barter item, along with baby wipes.

          2. Apparently sugar is a good thing to hoard since it stores relatively well.

            And almost everyone in the country is addicted to it.

  5. ‘‘So far this year, Trulia Research said San Diego had the most reductions — 20.5 percent’

    It will be every town usa shortly.

  6. “Manhattan, San Francisco, London and Sydney, in part reflecting a fall in foreign investment, and shifting demographics.”

    So in six months the foreign money dried, demographics shifted. All in six months, huh?

    What else? Black plague, earthquake and ebola?

    1. “Finally the great wave of investment from abroad, notably China, is clearly slowing, exacerbated both the emerging trade conflict and that country’s massive property indebtedness.”

      Whatever became of the wealthy all-cash investors from China, who only ever used their bottomless reserves of cash savings when they went on a real estate investment spending spree in U.S. west coast markets? How could this type of investing activity have possibly led to ‘massive property indebtedness’?

      Something about this story just doesn’t add up.

  7. “The biggest problems emerge at the upper-end market, particularly the 80-90 percent of all new multi-family construction that is considered ‘luxury.’

    Did builders not even look at median incomes in areas where they overbuilt all these “luxury” developments? Do they think tapped-out debt donkeys working in non-living-wage jobs want to be in over their heads even further?

  8. ‘Going into the next year, we’re seeing probably a significant slowdown. We’re doing everything we can on the city side to try to address that.’”

    Yeah, because it would be so tragic if housing costs and commercial rents became affordable again.

  9. “‘(Single-family) is not doing terribly well,’ Nevin said. ‘When I talk to builders, they are crying the blues.’”

    Well cry me a river. Nobody could have foreseen a problem with putting all the beans into the ‘From the $1 millions’ construction basket in a town where the vast majority of households don’t clear $100,000 in annual income.

    1. What is Affordable Housing?

      Affordable housing means different things to different people. … The U.S. Department of Housing and Urban Development (HUD) defines “affordable” as housing that costs no more than 30 percent of a household’s monthly income. That means rent and utilities in an apartment or the monthly mortgage payment and housing expenses for a homeowner should be less than 30 percent of a household’s monthly income to be considered affordable.

      Currently, the median income for a family of four in San Diego is $63,400. Utilizing HUD’s definition, affordable housing for a low-income family (household earning up to 80 percent of San Diego area median income) (AMI), would be an apartment renting for about $1,500 per month or a home priced under $225,000. The cost would vary depending on family and unit size.
      …

      1. The needs of a traditional family vs the modern family are diametrically opposed, mom busy at home raising children vs feminist mom professionally employed, i.e., one household has half the income and twice the expenses vs double the income and less than half the expenses, respectively. Taxes have been the popular solution to ameliorate the imbalance.

      2. Dumb question of the day: If $225,000 is the affordability limit for low income San Diego families in need of assistance, how come federal affordable housing lending programs are handing out loans north of $500,000 like candy to San Diego buyers? It’s almost like the federal government decided to deliberately drive up home prices to levels where impoverished San Diego households have no hope of home ownership.

        1. affordable housing lending

          Here’s your problem. It isn’t supposed to be affordable for the debt donkeys, it is supposed to be affordable for the banks doing the loans. They have needs.

      3. affordability =
        “can you make a monthly payment that bank/government has established for you? if you can’t we will loan you money”

        1. Is there some law I never heard of that authorizes the federal government to fix housing prices? It seems like something you’d expect a communistic government to do, but we supposedly have a free enterprise economy here in America.

  12. “Right now is the best of times for development in Silicon Valley, but construction is already starting to slow significantly,

    My imagination or does this sound like a contradiction? Must be something in the context I do not get. Same thing in the other comment about the shortage of houses getting worse because of a market slowdown. This is like an episode of the Twilight Zone.

    1. “This is like an episode of the Twilight Zone“

      Often how I feel when vetting real estate and hearing all the fluff from the MSM. One day they claim the sky is falling and the next we are back to a booming market. Maybe they just gave up and started mixing them together to see if the heard even notice…

    1. ” prices increasingly wobbly”

      Now what on earth does that mean? Is it like regular wobbly but more severe? Can they define “wobbly”. I guess this is my day to be easily confused.

      1. Business News
        December 16, 2018 / 5:28 AM / Updated 6 hours ago
        Will landing be soft or ‘chaotic’ as Fed begins to stop rate hike cycle
        Howard Schneider, Ann Saphir

        WASHINGTON/SAN FRANCISCO (Reuters) – In June 2006, the U.S. Federal Reserve raised interest rates for a 17th consecutive time but cushioned the increase with a strong signal that officials were ready to stop the tightening cycle.
        FILE PHOTO: FILE PHOTO: A cyclist passes the Federal Reserve building in Washington, DC, U.S., August 22, 2018. REUTERS/Chris Wattie/File Photo/File Photo

        Each rate increase in the previous two years had come with a cue that the U.S. central bank would continue to lift borrowing costs, but at that policy meeting the Fed said any additional hikes would “depend on the evolution” of the economy.

        Now, as 2018 winds down with three rate increases on the books and another expected at the end of the Dec. 18-19 policy meeting, the Fed may be similarly preparing to call time on a rate hike cycle that has proved remarkable for its tepid pace.

        Although the Fed had hoped to return its benchmark overnight lending rate to “normal” when it embarked on its tightening cycle three years ago, it may end up stranded at about half the 2006 level and well below the average from the 1950s to 2007. The Fed has raised rates eight times since 2015.

        Investors and leading Fed analysts have spent the last month adjusting their outlooks as a familiar set of risks took root.

        Oil prices have plunged. Stock markets are wobbly. There are fears slowing global growth will weigh on a U.S. economy already expected to decelerate. Inflation, watched closely by the Fed, may be weakening.
        …

          1. Actually should looked back to the childhood favorite: weebles!

            Remember the jingle? ” Weebles wobble but they don’t fall down….”

            Kind of like the RE analogy, except the “don’t fall down” part!

          2. Kind of like the RE analogy, except the “don’t fall down” part!

            Weebles were very stable because they were weighted low. Unlike our top heavy current system that can only stay upright as long as it keep spinning at a high rate of speed.

        2. “Although the Fed had hoped to return its benchmark overnight lending rate to “normal” when it embarked on its tightening cycle three years ago, it may end up stranded at about half the 2006 level and well below the average from the 1950s to 2007. The Fed has raised rates eight times since 2015.”

          Wow, all those trillions in Yellen/Bernankebucks and they didn’t even make it half way back to the 2006 level. That alone should tell them this sh!t don’t work.

    1. Is this the kindest, gentlest stock market crash on record?

      Markets
      Sharp Decline Puts Dow in Correction Territory
      Three major indexes close week lower, putting all three more than 10% below their peaks
      Trade, Tech and Tweets: Stock Markets May Get Even Bumpier in 2019
      Trade, Tech and Tweets: Stock Markets May Get Even Bumpier in 2019
      U.S. stock markets have gyrated this week with seemingly positive news on trade followed by President Trump tweeting he is still a “Tariff Man.” U.S.-China tensions, plus worries about economic growth and the tech sector, spell more volatility ahead for investors. Photo Composite: Crystal Tai
      By Corrie Driebusch and
      Riva Gold
      Updated Dec. 14, 2018 5:08 p.m. ET

      The Dow Jones Industrial Average tumbled into correction territory Friday as disappointing economic data from China and the eurozone sparked a retreat by investors and traders hesitant to enter the weekend with big bets.

      The blue-chip index declined nearly 500 points, putting all three major U.S. stock indexes simultaneously in correction territory—typically defined as a fall of at least 10% from a recent high—for the first time since March 2016.
      …
      To Read the Full Story
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