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Succumbing To The Global Property Slowdown

It’s Friday desk clearing time for this blogger. “‘Sellers celebrated in the first half of the year with a crazy blur of multiple offers and fast sales,’ said Jill Schafer, head of the Denver Metro Association of Realtors market trends committee. ‘It was buyers’ turn to celebrate when the housing inventory jumped up in May and June, causing a market adjustment in the second half of the year and finally giving them some choices.'”

“Seattle is building more apartments than just about anywhere, and now 1 in 10 units across the city are sitting empty. Seattle rents are dropping at the fourth-fastest rate in the country. Rents dropped at least 3 percent in the past quarter in Belltown, South Lake Union, Fremont/Wallingford, Kirkland, Redmond, Sammamish/Issaquah and Edmonds. Renters who shop around can take advantage of the new-supply glut to get some deals.”

“It’s been about a decade since the last housing crisis, and economists warn that another national housing crisis is upon us. ‘We’re seeing a lot of new developments to the north of Naples, and the east and the south,’ Premier Sotheby’s International Realty sales associate Joshua Eckert said.”

“In fact, realtors say more than 3,000 new homes have been built in the area in the last two years, making it a buyer’s market currently. But something Collier County is still working on is providing housing options for people in lower income brackets. ‘The workforce in Florida, in general, doesn’t get paid that much,’ said Jaimie Ross, CEO of the Florida Housing Coalition. ‘They’re priced out of the housing in the community.'”

“What’s your prediction for Bay Area real estate in 2019? John Solaegui, Compass: ‘Since the mid 2018, single family prices have decreased 2 to 10 percent. Smart sellers adjusted by lowering asking prices. More housing will come on the market in the first quarter of 2019, but there are still more buyers than sellers. Prices have already adjusted and rates are stable, thus there is no further downward pressure on prices.'”

“After more than 200 days on the market with declining price tags that started at nearly $8 million, Justin Timberlake and Jessica Biel have sold their former penthouse in New York City’s Soho neighborhood for its full asking price of $6.35 million. Unfortunately for the couple, the recorded sale price is almost $220,000 less than the not quite $6.568 million they paid for the crisply tailored condo in late 2010.”

“When John Lusk bought a condo in Chicago’s Uptown neighborhood, he thought it was his piece of the American dream. That was in 2005. ‘I got a loan I never should have been approved for, and was in over my head rather quickly,’ he said. ‘My old building was a money pit, and this seemed like a step up. I definitely drank the Kool-Aid.'”

“The average selling price for all property types in the Greater Toronto Area fell by 4.3 per cent to $787,300. The latest monthly data, for December, showed sales down 22.5 per cent from the same time a year earlier. It was the worst December for home sales since 2012, according to a client note from Bank of Montreal.”

“The average price of a detached home in the city of Toronto was down 8 per cent in a year, to $1.145 million, while in the suburban 905 region prices fell 2.2 per cent to $891,095.”

“Asia is finally succumbing to the global property slowdown that’s jolted homeowners and investors from Vancouver to London, with markets in Singapore, Hong Kong and Australia showing fresh signs of softening. ‘It’s not a surprise to see Beijing and Shanghai residential prices fall given the curbing policies currently on these two markets,’ said Henry Chin, head of research at CBRE Group Inc. Second-hand home prices in Beijing has been falling since September while Shanghai has been on the decline now for almost 12 months, he said.”

“After an almost 15-year bull run that made Hong Kong notorious for having the world’s least affordable property market, home prices have taken a battering. Values in the city have fallen for 13 weeks straight since August, the longest losing streak since 2008, figures from Centaline Property Agency Ltd. show.”

“Sydney-siders have begun to wonder — what sort of economic fallout will there be from the wealth destruction that comes with the worst slump in home values since the late 1980s?”

“Newcastle mortgage broker Margaret Godfrey cited the experience of one first home-buyer who had paid a deposit for a unit at Warners Bay off the plan, but the bank had later valued the apartment $35,000 below the sale price, forcing the woman to borrow money from relatives to bridge the gap in her finance.”

“‘That is the risk of off-the-plan at the moment, that those valuations when the properties are completed will come in short of purchase price,’ she said.”

“The London property market fell for the second year running in 2018 with more than £6,000 knocked off the average price of a home since its peak. Property experts blamed Brexit for a chronic lack of confidence among buyers that was forcing many sellers to slash their asking prices.”

“Nicholas Finn, executive director of home buyers Garrington Property Finders, said: ‘We’re seeing a surge in the numbers of opportunistic, frequently cash, buyers emerging to snap up homes at large discounts. This is particularly true in London, where prices fell consistently for much of the year – with the weakness even spreading to the suburbs and southeast England by the end of 2018.'”

“‘Sellers of homes who bought when the market was at its frothiest, or in areas without good transport links and schools, are often having to accept substantial reductions,’ Finn said.”

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This Post Has 86 Comments

  1. ‘the recorded sale price is almost $220,000 less than the not quite $6.568 million they paid for the crisply tailored condo in late 2010’

    You read that right: more than 8 years of mania gone.

    1. Ben, I was going to post the same thing. Normally, the high-end gets hit the hardest. There isn’t much demand for 6 million dollars apartment but supply can be added easily due to the profit margins. During the bubble years, everyone was going into the high-end…as they speculated that it will increase the most!

  2. Notice how Bloomberg quietly started reporting about a “global” housing bubble and slump in the past few months. The Financial Times did too.

    Weren’t we told there were only local shack markets? And if so, how could these solid fundamentals crack up, all over the world, at the exact same time?

    1. What I want to know was the timeline for this global “slowdown”. Miami around 2014? NYC around 2015? London maybe 2016? If these people were reading this blog, they would have known about this a long time ago. Also back then the interest rates were super low … however, those places had ultra-rich bubble prices so it didnt matter. Once the “safety deposit box in the sky” BS trend was over, the catering begins.

      2. In every city I can think of, it was the most expensive thus most speculative segments. For instance, the first market in London to fall was detached, super expensive neighborhoods – think 10 million pounds and up. Those fell 15-20% right away. It was the same in the US: Hamptons, Greenwich, Westchester, LA. The super luxury condos around the world were dead on arrival as soon as constructed. Nobody needs a $30 million condo. Why would you buy one? You expect to sell it for $40 million. And down the food chain it goes.

  3. ‘one first home-buyer who had paid a deposit for a unit at Warners Bay off the plan, but the bank had later valued the apartment $35,000 below the sale price, forcing the woman to borrow money from relatives to bridge the gap in her finance’

    Lost $35,000 before she spent the first night there. Oh well, it was cheaper than renting.

    1. If she was smart, she would have walked. Instead, she’s doubling down, throwing good money after bad. Some people will never learn until they’ve lost every penny.

      2. Traffic from the San Ramon/Dublin/Pleasanton (and now Livermore) corridor down to Silicon Valley or towards Oakland/San Francisco is a complete and total nightmare.

        1. When you consider these sorts of choke points which plague the highways and byways of every large metro in the country, and many ancillary ones as well, it appears that the personal vehicle should go the way of the buggy whip – at least in cities. When you can get out of your vehicle and walk faster, it’s a failed model.

          1. It’s a solvable problem, economically speaking. You have to charge an appropriate fee for drivers to access the freeway. Give freeway access credits to low-income peops that they can spend when they choose, in order to avoid the Lexus Lanes label. But California politicians, who love it when cars jam the freeways, spewing tons of greenhouse gases into the atmosphere while burning up the drivers’ meager finances in gasoline costs, are unmotivated to fix the problem.

          2. PS It was unfair of me to single out California, as recent travel experiences suggest that Seattle and Chicago are worse than LA, the Bay Area or San Diego.

        2. I’ve read that as many as 800,000 workers commute into the San Francisco bay area daily, many of them from the central valley. It’s difficult to imagine living that lifestyle.

          1. That commute is horrible pretty much 24/7. Got myself a ticket for sitting in traffic in the “carpool” lane on my way up to Tahoe. Turns out it’s a toll lane now… not sure converting a hov lane to a toll lane was that smart of an idea because it’s backed up in all lanes. I suppose they may have noticed that instead of carpoolers dominating the hov lanes, they where all Tesla’s and other zero emission vehicles and if you can afford those then you can afford to pay a toll…

  5. “Rents dropped at least 3 percent…Renters who shop around can take advantage of the new-supply glut to get some deals.”

    The notion that a few points off constitutes a “deal” is purely an REIC construct.

    1. Of course. It’s always a deal that could expire any moment so Act Now!(tm) or we won’t get paid.

  6. liars and stats.

    I live in Belltown and when it is not raining, ride my bike to my gym in SLU. In Nov, i cycled by Ascent (the luxury apt bld in the article photo). I went in and asked for a rental price list ‘to show my wife’. They gave me one – and then told me that i could get 2 months ‘free’ if we signed greater than a 12 month lease (i dont know whether 15 months or 18 months would surfice).

    So the 3% decrease does not cover the ‘free months’. It might be closer to a 10-15% decrease.
    ————————–
    In South Lake Union, where Amazon has spawned a new neighborhood with burgeoning apartment high-rises, 18 percent of units are empty. Vacancies hit 16 percent in the downtown Seattle core, 13 percent in First Hill, 11 percent in Queen Anne/Magnolia and 12 percent in Redmond, which is building the most apartments among King County suburbs. About 15 percent of units are empty in both Tukwila and Sammamish/Issaquah, which each just opened large new apartment buildings.

    1. “…then told me that i could get 2 months ‘free’ if we signed greater than a 12 month lease…”

      I would have laughed in their face. They’re trying desperately to hold onto prices which were never steeped in reality in the first place. You tell them it’s 2 free months on a 12 month lease or nothing.

      Every vacancy is somebody bleeding cash. With vacancy rates well over 12% in the whole area, there’s a lot of hemorrhaging going on.

    2. ‘the 3% decrease does not cover the ‘free months’. It might be closer to a 10-15% decrease’

      It’s actually a lot worse than that. Effective rents would include rents lost to vacancy. So you can see some of these guys are pushing 30% declines or more. They are fooked.

      1. It’s actually a lot worse than that. Effective rents would include rents lost to vacancy. So you can see some of these guys are pushing 30% declines or more. They are fooked.

        Unless they already flipped that building to a new Greater Fo.. I mean New Investor. It’s ‘Late to the Party Time’ for those new buildings, but nobody wants to be the first to admit it.

        1. the plan as i understand it (talked to an industry guy in a bar – so who knows 🙂 ).

          They need to get it to 90%+ occupancy and show the cash flow history. They can then sell it to pension funds / REITs etc.

          This is why they are doing wacky stuff here in the Seattle area.

          I should mention that the ‘leasing specialist’ at the Ascent was very good looking. Maybe some confused Amazon software engineers would get distracted and sign

          1. “They need to get it to 90%+ occupancy and show the cash flow history. They can then sell it to pension funds / REITs etc.”

            This makes no sense though. If I am a buyer, I want to see how much every tenant is paying, INCLUDING concessions. It’s called DUE DILIGENCE. You’re telling me people are going to pay tens of millions of dollars for a property without understanding the financials? I DON’T THINK SO.

          2. Chinbabwe, I think b was being sarcastic.

            https://www.zillow.com/homes/for_sale/Milpitas-CA/BJwyr8_bldg/37.412065,-121.899423_ll/39798_rid/37.416212,-121.887828,37.406054,-121.905123_rect/15_zm/1_fr/

            One month free and all those “available” for months. I live nearby the area and its been like this for a while. You think they drop the rent? $3500+ for 2 BR apartment is crazy, even for tech workers. I dont give a damn if its new. There is another apartments just now the street. Same story. At some point, this won’t end well.

          3. “If I am a buyer, I want to see how much every tenant is paying, INCLUDING concessions. It’s called DUE DILIGENCE.”

            Yeah, well this due diligence thingy is something one diligently performs when it involves investing his or her own money.

            The incentive for performing due diligence or any other type of diligence tends to fall off a cliff if/when it gets in the way of collecting hefty fees when the money involved belongs to somebody else.

          4. I talked about this four years ago on this blog. I dated a guy briefly who managed a brand new “luxury” building in Downtown LA. Once they got the occupancy up to a certain percentage, they sold the building.

            He also told me horror stories of going to court to get people evicted. They’ll move in and pay maybe a month’s rent and then stop paying. It takes months to get them out and then they’ll go somewhere else and do it again with another family member or friend. The leasing agents also let a lot slide because their job is to get the unit filled.

            I have another friend who lives in the Mid-Wilshire section in LA in a “luxury” building (maybe 2-3 years old). The amenities are breaking down already and the building has already been sold twice.

            He ends up moving every few years to a new building also because a lot of them have “affordable housing” requirements and that attracts riff-raff and their friends that end up trashing the building.

            It’s a sad way to live. These luxury buildings will be nothing more than run down tenements in 20 years.

          5. “going to pay tens of millions of dollars for a property without understanding the financials?”

            Don’t forget about the fraud documented here to fool the due diligence teams like turning on lights in empty units, parking bikes in the hallways, wet umbrellas outside doors, etc. And who knows how much of the illegal hotel business these rental buildings are operating on AirBnb goes towards rental revenue and occupancy numbers. Plus I don’t think these due diligence teams really mind being fooled as long as they have someone to sue for defrauding them after everything goes to heck.

    3. I wonder if there are any credible stats on the high turnover on those highly compensated, experienced hires that turn and burn quickly due to the brutal culture…and know they are going to do a fast turn to collect high comp in exchange for their experience, kick the tires to see if it’s really true, and go in knowing it will be a trade off and a year or two of pure hell. I know because I’be been recruited by AMZN many times (always turned them down due to the Militant Recruiting and interview process – lucky I have not needed the job at the time and had to laugh out loud at some of they hiring tactics once you get down to the final interviews on campus) and have quite a few friends who “go in” and say it’s pure hell, the bad is everything you heard and they hate it, say you will hate it, all the newbies that are experienced hires mostly hate it, and leave on schedule. Those I know leave precisely between 1.3-2 yrs, after they collect the first big bonus payout = to some stock plus a years salary for each year up to 2 yrs (at least when they signed on).

      None of them that came in from out side Seattle bought housing. They rented short term, knowing they would most likely not stay. Those already here suffered the hellish commute and expensive parking “their words.”

      I asked if it was worth it and all said…”no to a toss up” just for the opportunity to quick the tires and never wonder what might have been. Most went back to the companies they left or went on to do new things.

      It makes you wonder about an entire culture, trapped in an environment of their own making…within gilded boxes they overpaid for wondering how they will ever get out.

      1. For awhile I was jealous I wasn’t able to make it in to a “high-tech” company and have been stuck doing IT in traditional corporate settings.

        While free lunches and foozball tables sound great, this insistence on “fitting the company culture” and stories of monolithic thinking from the tech companies make it sound like soulless conforming masses of robots. They are lead by arrogant leaders who would be nothing without the easy money that’s been printed the last 10 years.

        With the punchbowl being taken away and the recent stock market weakness, it sounds like this round of tech giants is waning.

        In hindsight, maybe I got off lucky by avoiding those environments. These kids are going to be in trouble once the money dries up.

    1. I have to wonder how much of the market’s jerking around is the result of the HFT programs trying to slice a bit of profit.

      From my unrelated experience in complex simulations, when a big unusual external input happens, the combination of all the different algorithms trying to deal with a non-typical input at the same time usually produces some wild and usually unexpected emergent behavior.

      1. Sure, the computers are part of the problem, but humans “pressed a button” when they heard Powell’s speech. No computer is going to decipher that.

        Speaking of, Powell turned out to be a weakling. Trump pwned him.

        1. Just wait until tomorrow, when people realize that if the fed thinks the market can’t take > 3% 10 year treasury rates after 10 years of expansion then something must be terribly wrong.

          1. Or when people realize that the great jobs numbers just announced translate into increased certainty of further interest rate hikes… There are lots of reasons why the current wave of stock market euphoria may quickly evaporate.

      1. They do tend to show up on Fed speaking engagement days. They wouldn’t want to give the impression that markets are tanking on whatever the chairman is saying.

  8. How many NYC real estate investments has Justin Timberlake owned? Millions of dollars in celebrity entertainer earnings = match, real estate investment properties = kindling…

    Justin Timberlake shells out $20M for 443 Greenwich Street penthouse
    The multi-hyphenate performer and his wife, actress Jessica Biel, picked up a pricey penthouse
    By Amy Plitt
    May 31, 2017, 3:46pm EDT

    Looks like the rumors were true: multi-hyphenate performer/former boy-band heartthrob Justin Timberlake and his wife, actress/kid-friendly restaurateur Jessica Biel, have indeed purchased one of the pricey penthouses atop 443 Greenwich Street.

    The couple was reportedly checking out units in the building earlier this year, but according to city records, the deal is done. Timberlake bought the unit using an LLC that he previously used to purchase an apartment in—coincidence?—Tribeca’s Pearline Soap Factory.

    This isn’t the first time Timberlake has made real estate moves downtown: After ditching the Pearline Soap pad in 2010, he moved to a penthouse in Soho Mews. But as his star has risen, so too have his real estate tastes; the final price for the 443 Greenwich pad was $20,185,527.38, to be extremely precise.
    …
    For as expensive as this unit is, it’s still nowhere close to being 443 Greenwich’s priciest sale; that would be PHH, which sold for $44 million earlier this year.
    …

  9. They seem to be correct about Collier County, FL, south of Naples. There is very little inventory for under $200K, and a lot of that is 55+ communities. There are few SFH for for families and workers that service all those 55+ retirees. There’s a bit more condo inventory, but my guess is that HOA fees are high enough to cancel out the lower price.

    1. Hasn’t that been a long-term growing problem?

      I remember seeing something decades ago (20/20? 60 Minutes?) about the problem in the Colorado Ski resorts with most workers having to live 50 to 100+ miles away from where they work. I’ve been under the impression that since then, it’s been a slowly spreading problem. i.e. the Inequality divide as reflected in housing location didn’t happen overnight, though I’d say the last 2 bubbles increased the pace of growth. Just one more facet of the larger divides growing globally.

      1. How could somebody afford the fuel and wear and tear on a vehicle, doing a 100+ mile commute each day for minimum wage? I’d have to see the math to believe that’s even possible.

        2. It’s probably safe to assume those resort jobs paid better than minimum wage, though they also are mostly seasonal I would imagine.

          As for the commute, I would think there is some carpooling and bussing going on as well. As for 100+ miles, I could be very wrong that my memory is fuzzy, but it seemed like that was the number for outliers – and this was for resorts in the rocky mountains where I would assume geography would really get in the way as you go to to Colorado’s western border.

          Here’s one article: https://skift.com/2015/01/12/aspen-split-between-wealthy-visitors-and-the-working-poor-that-serve-them/

          “In New York City, you can house your resort workers in the Bronx or Queens. But in Aspen, they’re in Rifle, (about 70) miles down an icy mountain road,” Hettinger said. “That’s the problem any resort community faces. It has no middle-income base to build on.”

          1. I worked at a resort as a youth. A bunk was available in the rooms beneath the kitchen and meals were free.

  10. More First-Time Home Buyers are Turning to the Bank of Mom and Dad. Wall St. Journal, January 4, 2019

    “Among borrowers using FHA loans, which come with low down payments, more than 26% tap relatives for financial help. That’s up from 22% in 2011.”

    Heh, that’s pretty funny. These young buyers can’t even swing the $10K for an FHA down payment? Oh, and FHA loans are expensive. The down payment is low, but the PMI and other fees are sky high. You pay for that low down payment for decades.

  11. “The workforce in Florida, in general, doesn’t get paid that much,’ said Jaimie Ross, CEO of the Florida Housing Coalition. ‘They’re priced out of the housing in the community.”

    Heckuva job, Bernanke, Yellen and Obama. Well done. You succeeded in destroying the financial lives of hundreds of millions of people.

      2. Well, to be fair, shelter prices were on their way to reasonable until the Obama administration made it their sole goal to blow another massive housing bubble. This one’s on them.

  13. “Asia is finally succumbing to the global property slowdown that’s jolted homeowners and investors from Vancouver to London, with markets in Singapore, Hong Kong and Australia showing fresh signs of softening. ‘It’s not a surprise to see Beijing and Shanghai residential prices fall given the curbing policies currently on these two markets,’ said Henry Chin, head of research at CBRE Group Inc.”

    We’ve come a long way from All Real Estate is Local!

  15. I don’t get why everyone says Powell is a weakling. He has been the strongest fed head in decades. Everytime the market throws a tantrum, he throws out some soothing words then keeps right on raising rates and continuing QT even as the market and the president begs him not to. Until that time when they finally don’t raise rates anymore, you can’t call him weak.

    1. Powell is the figurehead of an organized crime syndicate. It matters not at all if we find comfort in his weak or strong character portrayal. His organization exists as a parasite on the American people. Just sayin.

      1. What do you suggest we do for money in the absence of Federal Reserve Notes? Gold? Bitcoin?

          1. But it comes with many of the problems of Bitcoin (e.g. it has to be mined, the value is unstable, etc) and some not present with Bitcoin (transport and storage costs).

          2. “the value is unstable”

            gold has an intrinsic value which is perfectly stable because the metal itself is stable. Its price, which is unstable, is controlled by other factors such as the strength of the USD, ETFs, naked shorting, etc.

            The fact that it has to be mined is not a problem. Money should not be creatable out of thin air.

            Transport is not a problem once it is represented digitally. Storage is the main issue I think, as is security – but what form of money is not subject to theft/hacking? In a doomsday scenario I doubt that any standard currency would hold up.

            Bitcoin may be finite, but one can create an infinite number of competitors and then it becomes about adoption and faith. Gold has few competitors (silver, other PMs) and it’s a finite enough set that exchange ratios can be established over time. Heck, they’ve been around for thousands of years!

            At the end of the day fiat currency (without any backing) will always collapse. That’s the definition of unstable.

    3. He’s not going to raise next time, you watch. But Trump has already beat him at the PR game even if he does. People love to hate Trump, but he’s brash, bold and clever. He’s going to pin any economic meltdown right on the Fed, and a more deserving target cannot be found.

      The Fed has painted themselves into a corner. They have to raise because they know they blew gigantic stock and housing bubbles, the economy is overheating almost entirely upon debt, and they know it’s all unsustainable. Normalizing rates to get away from the cheap money excesses is the only way out. But it can’t happen without a Wall St. taper tantrum and the associated blasting from Trump.

      At the same time, their goose is already cooked because another housing meltdown is in full swing. They’re going to be reliving part 2 of the economic collapse, but without the ammunition of lowering rates and the firehose of cheap money. If they don’t raise rates and let everything just run white hot, the eventual meltdown will be even worse. They have to choose between either salt or vinegar on the open wound, and if they don’t choose they get both.

      1. Whatever bad economics juju that happens from here on out will be Powell’s albatross to wear around his neck. Nobody wants to discuss how the Great Recession stimulus policy response set the low-rates trap in which the Fed now finds itself stuck and from which it cannot escape.

      2. I clearly remember when Paul Volcker drove interest rates north of 20%. Business activities that require credit ground to a halt as rates were steadily notched upward, but the fed pressed ahead.

        They’ll continue on their current path. Fingers crossed!

  17. Just for a laugh, I looked up an apartment I lived in Northern Manhattan/Inwood from 1980-1984ish. Paid $28K (as an insider – coop), subleased (?) it for 10+ years and sold in 2005 for $185K.
    Zillow’s estimate today is $496,136. It’s only 450 sq. ft.

    The rent when I first moved in was $201/mo. That was an amazing price, even then. It had a giant picture of a beach plastered all over one wall that it took me weeks to peel off and the only telephone jack was for a phone installed next to the toilet.

  19. Update on the opal tower crisis in Sydney, which resulted in Christmas eve evacuations:

    “More bad news for Sydney tower residents as subcontractors blame pricing pressure for faults such as cracks”

    https://www.theguardian.com/australia-news/2019/jan/05/residents-of-opal-tower-must-spend-another-week-away-from-their-homes

    An inherent and long running conflict of interest:

    “That the system of private certification of new buildings introduced in 1998 was a conflict of interest. Developers chose and paid their own private certifier. They still do.”

    https://www.smh.com.au/national/nsw/sydney-s-dodgy-buildings-due-to-17-years-of-inaction-20181227-p50odo.html

    1. The balance sheet reduction will affect asset prices much more than the rise in interest rates. QE is “floor under house prices” and high stock prices.

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