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Certain Neighborhoods, We’re Not Getting Any Traffic At All

A report from CNBC. “The government shutdown hasn’t completely stopped the flow of stunningly bad housing data. Sales of newly built homes fell 18 percent in December compared with December of 2017, according to John Burns Real Estate Consulting. Sales were also down a steep 19 percent annually in November. New home sales fell hardest in California. Sales dropped 40 percent annually in northern California and 49 percent in southern California.”

“The California numbers are in line with the latest quarterly earnings figures from Toll Brothers, the nation’s largest luxury homebuilder. It reported a 39 percent drop in new orders from California. ‘In November, we saw the market soften further, which we attribute to the cumulative impact of rising interest rates and the effect on buyer sentiment of well-publicized reports of a housing slowdown,’ said Toll’s CEO Douglas Yearley.”

“Just under one quarter of builders surveyed by JBRC said they reduced prices, and that may have helped sales in frothy markets such as Seattle and Portland, OR. Cancellations, however, rose compared to a year ago, with entry-level buyers pulling the plug most.”

“Their cancellation rate was 18 percent, compared with move-up buyers who cancelled 14 percent of deals and luxury buyers who pulled out of 11 percent of deals. The rate for luxury buyers was higher than a year ago, which may be due to heavy turbulence in the stock market at the end of the year.”

The Houston Chronicle in Texas. “The region’s housing market has proved itself remarkably resilient in recent years. But real estate analysts and agents say the record run may come to an end in 2019.”

“‘When I talk to other Realtors, I think the second half of the year was really slow,’ said real estate agent Shad Bogany. ‘Builders were telling us it was slow. Certain neighborhoods, we’re not getting any traffic at all, especially where you had resales and new homes in the same neighborhood.'”

The Chicago Tribune in Illinois. “The International College of Surgeons on Thursday made a $4 million price cut to its asking price for the college’s 10-bedroom, 12,000-square-foot French chateau-inspired mansion on the Gold Coast. The group now is seeking $9 million for the four-story mansion.”

“The new asking price is a far cry from the $17 million the group had sought when it listed the mansion in September 2015. The asking price was cut to $15.75 million in April 2016 and then to $13 million in July 2016 before the college took it off the market almost a year ago.”

From Mansion Global on New York. “Hedge fund king Steven Cohen bet a little too high when he first listed his Manhattan penthouse at One Beacon Court and is now offering the aerie for a $70 million discount.”

“The contemporary, 16-room duplex in Midtown East was once the most expensive home for sale in New York City when Mr. Cohen first listed it in 2013 for $115 million. He’s tried to sell it on and off ever since, lobbing millions off the price each time until this latest price cut. It hit the market again on Wednesday asking $45 million, according to StreetEasy.”

“Manhattan housing has nearly been through a full market cycle since he first put the home up for sale. He was unsuccessful at selling it during the frenzied peak in Midtown luxury deals from 2014-16, since which sales and prices have cooled significantly.”

The Press Democrat in California. “The historic Aetna Springs Resort, a Napa County resort that helped push Dallas’ troubled police pension system toward insolvency, has been sold for a fraction of the nearly $111 million the city sank into the property. The 3,100-acre Pope Valley resort was recently sold by the public pension fund for $22 million, the Dallas Morning News reported.”

“The pension system has spent nearly $111 million on the property, Executive Director Kelly Gottschalk said. Dallas City Councilman Lee Kleinman, who previously served on the pension board, called the resort the ‘low-light of the inappropriate purchases’ made by the fund.”

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This Post Has 66 Comments

  1. ‘Builders were telling us it was slow. Certain neighborhoods, we’re not getting any traffic at all, especially where you had resales and new homes in the same neighborhood.’

    When the builders start cutting prices, the whole shebang collapses. See, these shacks aren’t Rembrandt’s. They can actually be reproduced – and how! Mass produced. And the Toll Brothers will slit your throat to have a better quarter. Not even a year, a quarter. And when it dries up completely, it’s off to Hawaii.

    The bubble has burst and the MSM is still following the HBB around picking up crumbs.

    1. The MSM isn’t going to antagonize its corporate owners and advertisers by printing real news and real truth.

      Must.propagate.The.Narrative!

    2. “When the builders start cutting prices, the whole shebang collapses.”

      Out in my slice of flyover country we didn’t see metro bubble1 prices, but those WaMu 125% HELOC loans were very popular. After bubble popped the builders lowered their prices for new spec well below what people borrowed out of their worn-out 50’s homes. A number of these still stand empty today, ten years later, their pipes split open from being frozen solid.

  2. ‘Hedge fund king Steven Cohen bet a little too high when he first listed his Manhattan penthouse at One Beacon Court and is now offering the aerie for a $70 million discount’

    Pick any definition of a bubble and compare it to Manhattan. Ridiculous prices and similarly stupid assumptions? Gigantic losses? Supposedly smart people getting their heads handed to them? Take your pick. But does the media call it a bubble even after many billions in Yellen bucks have gone to money heaven? For years now.

  3. ‘Sales of newly built homes fell 18 percent in December compared with December of 2017, according to John Burns Real Estate Consulting. Sales were also down a steep 19 percent annually in November. New home sales fell hardest in California. Sales dropped 40 percent annually in northern California and 49 percent in southern California’

    Oh dear…

    Diane slipped this out kinda late on a Friday. That’s what the Feds do with bank failure notices.

    1. “New home sales fell hardest in California. Sales dropped 40 percent annually in northern California and 49 percent in southern California”

      YoY starting to look a bit bubbly… put on your seatbelts, this one is going down quick!

          1. What happened to those legions of credit-worthy buyers flush with cash that the NAR shills assured us were waiting impatiently on the sidelines to snap up any and all inventory that appeared? Cuz the inventory of unsold shacks is soaring, while realtor competition for the rapidly diminishing pool of knife catchers is turning downright Hunger Games.

        2. “What happened to my shortage?”

          It lives on in the rage-ravaged skulls of millions of DebtDonkeys and HousingHens.

          Kitchens! Lighting! Cluck cluck cluck!

  4. ‘In November, we saw the market soften further, which we attribute to the cumulative impact of rising interest rates and the effect on buyer sentiment of well-publicized reports of a housing slowdown,’ said Toll’s CEO Douglas Yearley.”

    That’s like saying the trees waving make the wind blow. It isn’t “well-publicized reports of a housing slowdown,” since the MSM has largely served as the parrot on the REIC’s shoulder. It’s the fact that the runaway speculation since 2009 due to the tsunami of FedBux made housing increasingly unaffordable for those struggling to make their way in our so-faux economic “recovery,” and now financially stressed buyers are finally balking at paying greedhead wish prices.

    1. “the runaway speculation since 2009 due to the tsunami of FedBux made housing increasingly unaffordable for those struggling to make their way in our so-faux economic “recovery,”

      +1

      Ran out of greater fools and foreign money launderers, now sales are dropping like a turd and the MSM seems puzzled, REICs are blaming interest rates, realtors blaming weather, holidays, and now the gov shutdown. Can’t we all agree that home values have shot to the moon and need to come back down to earth to meet a financial equilibrium for a normal buyer.

      1. a financial equilibrium for a normal buyer.

        Millions of people pledging two or more future decades worth of their entire gross income is mass financial suicide. The lenders and their guarantors committed mass financial genocide. What comes next will not be a gentle slide into anything resembling an “equilibrium”.

        1. They didn’t allow prices to reach anything near “fair market value” last time. What makes you so sure it will happen this time?

          1. In my opinion it is possible to reflate the bubble but much less likely than before. For one thing, it would take another unprecedented credit expansion along the lines of the China Miracle. I see that as unlikely , but I expected there to be a small fool’s rally or several before, not a bounce higher. I just have to watch with popcorn and not play on the train tracks.

          2. The Fed has just barely started the interest rate normalization process, and balance sheet shrinkage through Quantitative Tightening. I guess they could reverse course and drive rates back down to historically low levels, but it seems an unlikely course of action.

            On the other hand, there is no law of which I know preventing the Fed from doubling its balance sheet to $9 trillion with the stroke of an electronic signature. It’s all up to the discretion of the Fed, which can change on a whim.

            One thing we do know, based on MSM pundit reporting, is that Quantitative Tightening is presumptively harming the stock market. I’m having a hard time envisioning the Fed getting very far with Quantitative Tightening before political pressure from Wall Street stops them in their tracks. Once unleashed, the QE genie will prove very difficult to return to its bottle.

            The $4.5 trillion force that’s helping to fuel market swings
            Analysis by Matt Egan, CNN Business
            Updated 7:37 AM ET, Thu January 10, 2019

            New York (CNN Business)
            The Federal Reserve’s rate hikes steal all the headlines. But behind the scenes, the Fed is conducting a $4.5 trillion experiment. And it’s unsettling global financial markets.

            To revive the economy and the market, the Fed in 2008 took the unprecedented step of gobbling up vast amounts of government bonds and mortgage securities. The program, known as quantitative easing, was aimed at lowering long-term borrowing costs. Foreign central banks joined in as well.
            Although economists debate the impact on the real economy, QE acted like a turbo booster for the stock market.

            In October 2017, the Fed decided the economy was finally healthy enough to start shrinking its $4.5 trillion balance sheet. So-called quantitative tightening accelerated to $50 billion a month in the fourth quarter of 2018 — precisely when market volatility spiked.
            …

          3. If the arithmetic interests you, at a steady rate of $50 billion a month, it would take 90 months (7 1/2 years) to completely erase the Fed’s $4.5 trillion dollar balance sheet. I neither expect them to go all the way nor to continue at the current pace, given political blowback and moral hazard.

          4. “On the other hand, there is no law of which I know preventing the Fed from doubling its balance sheet to $9 trillion with the $troke of an electronic $ignature”

            Dear Professor, you must have an under$tanding of what “Trillion$” actually means, beside what i$ required to get a bubblegum from a machine.

    2. It’s interesting how Toll’s list of explanations omits tax law changes that take away financial advantages of luxury home ownership.

      1. More than luxury home ownership, I want tax changes and regulations which actually penalize 2nd home ownership. All these Airbnbs, flips, investments, etc. have really screwed up the market.

        1. More than luxury home ownership, I want tax changes and regulations which actually penalize 2nd home ownership.

          +1000

  5. The vast majority of my professional work is tied to new house construction.

    I can attest that the volume of work I am getting in housing developments has dwindled significantly. Too early to tell conclusively, because construction does slow around Christmas down here normally.

    Already have a “bad economy” business plan in place learned from experience in the last downturn. May be time to flip the switch for that one pretty soon.

    The numbers reported for California were shocking, but I am guessing we will see similar results in other regions soon.

    Time to go back and watch “the Big Short” again for a reminder, if you need one.

      1. Hopefully governments can tee up large-scale infrastructure projects to soak up the construction workers idled by the upcoming housing bust, as occurred in the 2007-2009 episode.

        1. governments can tee up

          Will there ever be an alternative to said governments spending large sums of money they don’t have to maintain what never should have been?

          1. We could have construction workers move into their parents’ basements when Toll Brothers fold shop and move to Hawaii.

        2. Are you talking about those “shovel-ready” projects which amount to nothing more than a photo op of a politician with a gold plated shovel and huge, cheesy smile, and insiders milking the govt (taxpayers) for billions of dollars?

          1. Here’s an example of how this is done:

            Home | Commentaries | Economy Watch
            China’s Economic Stimulus Spurs Climate Costs
            An analysis by Michael Lelyveld
            2019-01-07
            A passenger takes a selfie next to the first train of the Guangzhou-Shenzhen-Hong Kong Express Rail Link after it arrives in Shenzhen, southeastern China’s Guangdong province, Sept. 23, 2018.
            AFP

            China’s plan to revive its economy with new stimulus measures may spell trouble for energy forecasts and global efforts to control climate change.

            As the government tries to stop the slowdown in growth over the coming year, reports suggest that it will revert to familiar formulas, pumping up the economy with new infrastructure projects backed by credit and debt.

            A statement following last month’s annual Central Economic Work Conference made clear that the government will “channel more energy into weak areas, including infrastructure.”

            The National Development and Reform Commission (NDRC), the country’s top planning agency, has already sped up approvals of transportation sector projects, the official English-language China Daily reported on Dec. 18.

            The value of 147 projects approved in the third quarter reached 697.7 billion yuan (U.S. $101.1 billion), rising nearly fivefold over the previous period, the paper said.

            A provincial NDRC official was quoted as saying that local governments have prepared “a large number of projects that are able to play a role in stabilizing the economy.”

            Bloomberg News reported that the work conference statement “signals that China is ratcheting up the limited, targeted stimulus approach used during 2018,” while stopping short of spending that would weaken the currency and the debt-control campaign.

            Other reports raise concerns that the stimulus may not be so limited, renewing memories of the 4-trillion yuan (U.S. $579-billion) project binge in 2008-2009. The building boom buoyed the economy through the global recession but left it mired in pollution and debt.

            The push for new projects has raised similar concerns about rapid and wasteful investment.

            China is expected to build hundreds of new general aviation airports by 2020, the Chinese Communist Party’s flagship paper People’s Daily reported last month.

            And after a period of restraint in approving new subway projects, China’s “building binge is back on track,” the Financial Times said.

            The subway splurge includes 95 billion yuan (U.S. $13.8 billion) for four new lines in Suzhou city of eastern Jiangsu province, despite doubtful ridership, the FT reported.

            On Dec. 19, the NDRC also approved 298 billion yuan (U.S. $43.3 billion) worth of urban rail projects for nearby Shanghai, state media said.

            On Dec. 26, Transport Minister Li Xiaopeng said that 1.8 trillion yuan (U.S. $261.7 billion) is expected to be invested in road and rail infrastructure projects in 2019, China Daily reported.
            …

          2. ChiCom gubmint stimulators = Keynesians on crack. It’s gonna end badly for them, once the dust finally settles to the point where the economic wreckage is visible.

        3. “…large-scale infrastructure projects…”

          I wonder how big the US gubmint deficit will become during the next recession? We’re already sitting at about a trillion dollars per year…when the economy is allegedly booming.

  6. “The pension system has spent nearly $111 million on the property, Executive Director Kelly Gottschalk said. Dallas City Councilman Lee Kleinman, who previously served on the pension board, called the resort the ‘low-light of the inappropriate purchases’ made by the fund.”

    Sounds like a case of that good ole “buyers remorse”

    2. Just as a private sector employee loses it all when their pension goes up in smoke, so should these public employees. Just because something was promised doesn’t make it realistic when there’s no money.

      1. Imagine having your pension guaranteed by a Constitution?! Even military retirement benefits have not been protected nearly that well. The “lifetime free healthcare from the DOD”, that I was promised when I started my Air Force career, went away, replaced by Tricare. Now people starting military careers are no longer guaranteed lifetime defined pensions if they retire. They’re in a 401k type plan, the “Thrift Savings Plan.”

        1. The current administration is moving towards privatizing the Veterans Affairs department. David Shulkin stuck his neck out and warned against this and was promptly fired. Expect veterans benefits to get skimpier, and more expensive.

          1. Well duh! Part of the alleged 6 trillion dollar cost of the mid-east wars was aftercare for all the vets. I thought at the time that this would be easy to solve. Just cut the benefits. This is what is happening.

      2. It’s a bad time for musicians with pensions.

        Propelled by Pension Fears, a Musicians’ Union Elects Change
        Local 802 of the American Federation of Musicians endorsing Bill de Blasio for mayor of New York in 2013. The union elected new leadership this week.
        Credit: Ozier Muhammad for The New York Times
        By Michael Cooper
        Dec. 5, 2018

        The leadership team of the New York local of the musicians’ union — the union’s largest local in the nation — was voted out of office on Tuesday in a stunning upset, amid concerns over the underfunded musicians’ pension plan and broader changes facing music, the original gig economy.

        It was the first contested election in nine years at Local 802 of the American Federation of Musicians, and it could cause national ripples. Adam Krauthamer was elected president with 67 percent of the vote, beating Tino Gagliardi, who has held the post for nine years and played a key behind-the-scenes role in the city’s musical life.

        The insurgency began with musicians concerned about their pensions. The American Federation of Musicians and Employers’ Pension Fund, a multiemployer plan representing thousands of musicians around the country, has grown so underfunded that it may decide to reduce benefits in the future. The crisis has led to renewed activism by musicians.

        Some have sued the plan’s trustees, claiming mismanagement, which the trustees have denied. Others, including Mr. Krauthamer, formed a group called Musicians for Pension Security.
        …

  7. The new asking price is a far cry from the $17 million……I wonder how many “low ball” 14-15-16 million $$$$ offers they turned down

    1. Looks like these surgeon “investors” are going to be padding their patients’ bills for a long time to come to make up their gambling losses.

  9. From Diana / CNBC article:
    “The government shutdown hasn’t completely stopped the flow of stunningly bad housing data.
    Sales of newly built homes fell 18 percent in December compared with December of 2017, according to data compiled by John Burns Real Estate Consulting, a California-based housing research and analytics firm.
    Due to the partial government shutdown, official government figures on home sales for November and December have not been released.”

    – A couple of comments here:
    1) The Fed and global central banks are now withdrawing liquidity from the financial system after pumping it up for 10 years and more. This is reflected in now deflating global asset prices, including housing, stocks, corp. HY and “IG” bonds, etc. Many realtors are looking at this from their typically selfish, myopic lens of local RE prices, without really understanding root cause and effect, but only the here and now of lower commissions and sales. I think there’s some financial anxiety here on their part. For me, not so much. “Forewarned is forearmed.”

    “Recession is when your neighbor loses his job. Depression is when you lose yours.” – Ronald Reagan

    2) So it looks like there are numerous “nonessential” gov’t./public sector agencies/entities. The data is available in the private sector, and for the the well informed, on this blog, in one form or another. Ben’s HBB is a leading indicator for RRE.

    The Real Estate Industrial Complex (Finance Insurance Real Estate (FIRE)) has full access to these data. As in many cases, no need for public sector involvement. We’re getting along fine without you, thank you very much. Please make the shutdown permanent and build that wall with the $ saved. It’s a lot of $! It’s going to be a really nice wall. 🙂

    It looks like it’s getting harder and harder to maintain that “housing always goes up” narrative. What many don’t know is that it was the ending of New Deal policies and reduction of gov’t. by 50% after WWII that ended The Great Depression, not FDR. Check out the Rahn curve, showing GDP vs. size of gov’t. Hint: gov’t. needs to be much smaller for healthy economy. BTW we could do without the Fed too, which is just another agent of said gov’t., enabling all of this financial insanity!

    Thanks Ben for documenting housing bubbles 1.0, 2.0 for critical thinking individuals, those that care, and for posterity.

    1. “Many realtors are looking at this from their typically selfish, myopic lens of local RE prices, without really understanding root cause and effect, but only the here and now of lower commissions and sales.”

      Hence the saw, All Real Estate is Local, which captures the perspective of myopic real estate professionals with little minds and greedy motives. Ben has done a great job of documenting the simultaneous impact of global monetary policy shocks on housing markets across the developed world, even as realtors persistently strive to ascribe all market changes to local factors.

    2. ‘So it looks like there are numerous “nonessential” gov’t./public sector agencies/entities.’

      It’s pretty interesting to see what government services are deemed essential.

      After Treasury appeal, mortgage industry gets shutdown relief
      Critics described the move as an act of favoritism to ease the burden on a powerful industry.
      Al Drago/Bloomberg News
      A top mortgage banking official appealed to a senior adviser to Treasury Secretary Steven Mnuchin, in foreground, for assistance in restarting an IRS program that assists the lending industry.
      By The Washington Post |
      January 11, 2019 at 3:40 pm
      By Lisa Rein and Jeff Stein | Washington Post

      WASHINGTON – After an intense lobbying campaign by the mortgage industry, the Treasury Department this week restarted a program that had been sidelined by the partial government shutdown, allowing hundreds of Internal Revenue Service clerks to collect paychecks as they process forms vital to the lending industry.
      …

      1. “…allowing hundreds of Internal Revenue Service clerks to collect paychecks as they process forms vital to the lending industry.”

        Don’t overlook this detail. While Secret Service and TSA screeners are deemed essential, their jobs are not important enough to require paying them. By contrast, the government’s Housing Market Knifecatcher Enabler program is such a critical operation that the IRS workers who support it are authorized for an exception to the “no pay” shutdown provision.

        1. the government’s Housing Market Knifecatcher Enabler program

          That made me chuckle. Very nice professor.

      2. All these highly paid executive-class people sitting around discussing how to manipulate a free market economy.

        1. I’m wondering if Congress authorized this exception to their “no pay during shutdown” rule, or even played a role in determining that income verification services are an essential role of government? It seems like the mortgage banking industry’s private concern to verify whether or not their loan customers have an income.

          January 12, 2019 in
          Mortgages
          IRS restarts mortgage income verifications that were idled during government shutdown
          Natalie Campisi

          Mortgage lenders breathed a sigh of relief after the Internal Revenue Service announced that it would resume its income verification program called Income Verification Express Service, or IVES, which was suspended when the partial government shutdown began more than three weeks ago.
          …

      4. Which legal definition of “essential” do the IRS income verification service workers meet?

        Who is essential?

        Generally speaking, government workers in law enforcement and public safety continue to work — so air traffic control, medical care of veterans and federal criminal investigations are moving forward during the shutdown. But defining “essential” is more art than science, with individual departments — and the political appointees who run them — having a say over who comes to work and who stays home. In theory at least, a federal employee who works during a shutdown, but isn’t supposed to, could face fines or a prison term under what’s called the Antideficiency Act.
        …

  11. For the folks who were having issues with the JT Extension on Firefox, I have fix out for the issue where it wouldn’t jump to the next comment. Sorry for the issue and the delay in getting it fixed.

    version 4.9.1

    Let me know if you still see issues (please use the email on the extension home page, as I haven’t had the time to read here much lately).

  12. “The government shutdown hasn’t completely stopped the flow of stunningly bad housing data.”

    It should be interesting to see how this postponed data look when they are finally released. Even though the housing market started going down before the government shutdown began, there is a risk the coincidence of timing will lead many observers to retrospectively connect the start of the current real estate downturn to the shutdown.

  13. NYC Real Estate Market Reports
    Manhattan’s real estate market ends 2018 in ‘reset mode’
    Prices are cooling off, inventory is up, and buyers have the advantage
    By Amy Plitt
    Jan 3, 2019, 9:39am EST
    Max Touhey

    It’s official: New York’s real estate market is in a slump. (Or, if you’re a buyer, you could look at it this way: Now’s the time to strike if you’ve been waffling on whether to buy a place.)

    The latest batch of market reports, looking at Q4 sales in Manhattan, are here, and there are some commonalities among them; namely, the fact that median prices are falling (in the case of Douglas Elliman’s report, they’ve dipped below $1 million for the first time since 2015); the number of closed sales is decreasing, while inventory is up; and apartments are spending more time on the market.
    …

    1. “Now’s the time to strike if you’ve been waffling on whether to buy a place.”

      There’s no better time to catch yourself a falling knife than in the initial stages of bubble collapse.

    2. “…in the case of Douglas Elliman’s report, they’ve dipped below $1 million for the first time since 2015…”

      Assuming the typical parabola-shaped bubble top, this suggests the peak was reached at some point in 2016-2017.

    3. Real estate pimp: “Hurry up and buy now, before prices start going up again!”

      CBSN New York
      Watch Now
      Manhattan Real Estate Trends May Be Turning Around
      January 4, 2019 at 12:14 pm

      NEW YORK (CBSNewYork) – Manhattan real estate trends may be turning around.

      One company’s numbers show median sale prices dropped below the $1 million threshold for the first time in three years.

      So what does that mean? New York City Douglas Elliman CEO Steven James stopped by CBSN New York to explain.

      “I think the drop below $1 million probably shocked a lot of people,” he told Alex Denis. “The drop is actually a good thing. It means that we are closer to, if you will, a bottoming out and heading back up, because as it goes down it goes back up.”
      …

  16. I wonder if this stealtor even had his used home seller’s license?

    BLING RING REDUX?
    Los Angeles Man Posed as Realtor to Swipe ‘Millions’ in Luxury Goods From Stars’ Homes: Police
    Pilar Melendez
    01.02.19 5:17 PM ET

    A Los Angeles man posed as a prospective home buyer or a “slick” real-estate agent to break into over a dozen Los Angeles homes—many belonging to celebrities—and steal millions of dollars’ worth of luxury goods, police announced Wednesday.
    …

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