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What Is Happening Here Is Called A Reversion To Norm

A report from Mansion Global on New York. “We caught up with Cary Tamarkin, founder and chairman of Tamarkin Co, to discuss the challenges facing the luxury market. MG: What’s the biggest surprise in the luxury real estate market now? CT: Nothing’s selling. No one has a crystal ball, so there’s always a cycle at the end of the development. Sometimes you’re pleasantly surprised, sometimes you’re not. “

The Union Tribune on California. “If you are looking to buy a new single-family home this year, San Diego County might be a tough place to do it. Guesses at the start of the year, at least for the last four years, are typically much lower than what ends up being built because developers will increase their production based on how well sales are doing. However, a few things might be different this year. For starters, the end of last year was the first softening of the market in a while.”

“Home price reductions picked up, and sales hit their lowest points in years, which most analysts blamed on rising mortgage rates and local wages not keeping up with rising prices. Alan Nevin, industry analyst at Xpera Group, said it seemed like for much of last year that developers couldn’t keep buyers away.”

“‘They blew through their inventory in 2018,’ he said, ‘and things started to really slow down in the fourth quarter. Therefore, they just aren’t starting as many in each phase now.'”

“Nevin said housing costs for the builder make it unlikely a cheaper single-family home could come out even if they wanted to. ‘The reality is these guys are paying like $300,000 for a 5,000-square-foot lot, and upwards of $125 to $150 per square foot for construction,’ he said. ‘It’s not Las Vegas. It’s not Phoenix. Our costs here are substantially higher than most other places. You can’t put out a cheap house.'”

“New developments in San Diego County have not lowered prices to adjust to a weaker market, but have been offering more incentives. Some of the options include offering to buy points on a mortgage to lower the price for the first few years, and upgrades to the home or picking up closing costs.”

The Dallas Morning News in Texas. “Dallas-Fort Worth was the only major Texas metro area that saw a decline in home sales in 2018. The dip in home sales in the D-FW area is due in part to a shortage of listings of affordable homes, said Dr. James Gaines, chief economist with the Real Estate Center.”

“‘Are you guys starting a housing bust? I don’t think so,’ he told members of the Appraisal Institute of North Texas at their most recent meeting. ‘Your market is good, sustainable and normal.'”

“But don’t expect the big across the board home price increases North Texas has seen for several years, he said. ‘There are neighborhoods that are going to show double digit increases in sales and prices and also neighborhoods that are going to show negatives,’ Gaines said. ‘What is happening here in Dallas is what economists call a reversion to norm.'”

“In 2016 and 2017 many D-FW neighborhoods saw double-digit percentage home price hikes. ‘You can’t sustain that and don’t really want to over a long period of time,’ he said. A 4 percent increase in prices is about long-term average,’ Gaines said.”

“Statewide December was a markedly down month for the housing market. Along with D-FW’s 10 percent year-over-year decline in home purchases, sales were off by 12.7 percent in Austin and were 4.2 percent lower in Houston. ‘December was a bad month,’ Gaines said. ‘Texas sales were down almost 7 percent.

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  1. ‘Home price reductions picked up, and sales hit their lowest points in years, which most analysts blamed on rising mortgage rates and local wages not keeping up with rising prices. Alan Nevin, industry analyst at Xpera Group, said it seemed like for much of last year that developers couldn’t keep buyers away’

    Note that we aren’t reading that potential buyers can’t get loans. But ‘it seemed like for much of last year that developers couldn’t keep buyers away’. Sounds kinda emotional and bubbly, no? And the UT couldn’t help but throw this lady in:

    ‘Diana Virissimo, 35, and her husband spent two years looking for a home in south San Diego County to grow their family, which now includes a 3½-year-old son. They wanted something that wouldn’t break their budget. They looked at condos, town homes, houses — sometimes visiting 10 properties a day — that were a mix of new and old. Their search was extensive and disheartening at times.’

    ‘ They finally found a single-family, new home in the Indigo neighborhood at Otay Ranch for around $570,000 in July. She said they were thrilled to get a house with a yard, garage and the amenities that came with living in the village, such as a pool and gym.’

    “It is a feeling of, ‘I can’t believe this is our house,’” she said. “I walk into the door every day and I’m so grateful and feel so lucky.”

    ‘Some potential buyers might not find Otay Ranch as desirable as Virissimo does. For a normal 9-to-5 job in downtown San Diego, the commute ranges from 20 to 25 minutes in the morning and around 35 minutes in the evening. If a buyer worked anywhere in North County, it could make for a brutal commute.’

    ‘Most of Otay Ranch falls under a Mello-Roos tax district, where a special tax is levied in addition to property tax to pay for infrastructure. In Indigo, that means around $4,400 to $4,700 additional taxes a year.’

    1. Good article from the Union Tribune on Otay Ranch from Aug 2017 with some interesting tidbits. According to this it sounds like that special property tax has quadrupled in a year and half –

      “There are reasons why some potential buyers might not like Otay Ranch — proximity to the border and three jails, commute time and higher taxes in some cases.”

      “…a special tax is levied in addition to property tax to pay for infrastructure. It means a house costing $600,000 in Otay Ranch could run about $1,000 more a year in taxes. (The exact Mella-Roos fee could be higher depending on where a person buys in Otay Ranch.)”

      And –

      “The ZIP code that includes much of Otay Ranch was one of the hardest hit spots during the housing crash. Homes there hit a median price of $651,500 in October 2005 but dropped to $300,000 by September 2011, CoreLogic said.”

      “Both ZIP codes that cover Otay Ranch were the worst off in the entire county. By May 2012, the 91915 ZIP code had the most defaults (15.4 per 1,000 homes) and the 91913 ZIP code was second worst (11.6 per 1,000 homes).”

      https://www.sandiegouniontribune.com/business/real-estate/sd-fi-final-frontier-housing-20170805-story.html

  3. “….We caught up with Cary Tamarkin, founder and chairman…”

    “….No one has a crystal ball…”

    No, Cary. A crystal ball is not needed.

    What is needed is common Mr. Ed horse sense.

    Apparently, that is in short supply within your organization.

  4. ‘A 4 percent increase in prices is about long-term average,’ Gaines said’

    Well it depends. Have wages in Dallas gone up 4% a year, compounded of course? And it’s not relevant anyway, as:

    ‘In 2016 and 2017 many D-FW neighborhoods saw double-digit percentage home price hikes’

    So the question for Mr Crystal Ball is, are you going to get your face smashed in over these unsustainable price increases? Magic 8 Ball says, YES!

  5. MG: What’s the biggest surprise in the luxury real estate market now? CT: Nothing’s selling.

    Of course they’re not selling – they’re ridiculously overpriced. And this is a surprise why?

  6. “It is a feeling of, ‘I can’t believe this is our house,’” she said. “I walk into the door every day and I’m so grateful and feel so lucky.”

    Hate to rain on your parade, sweetie, but that isn’t “your” house until the last mortgage check clears.

    1. In concept even if you own outright, its still not your home. Between property taxes, hoa, and mello roos if you dont pay,you still lose. Renting is the wave of the future. Take the rest, invest in your future. Retire debt free!

      1. Nomadism and living in a vehicle is the way of the future, that way you avoid rent and a crippling mortgage. It’s just too much of a social stigma right now and associated with homelessness.

        1. I’m about to do that right now. Packing up most of my stuff (will easily fit into a 10×10 storage unit), a little bit will go with me. Looking forward to lots of hiking and free camping throughout the Southwest and (when it warms up) in higher terrain of CA, UT, and CO.

  7. “New developments in San Diego County have not lowered prices to adjust to a weaker market, but have been offering more incentives. Some of the options include offering to buy points on a mortgage to lower the price for the first few years, and upgrades to the home or picking up closing costs.”

    Translation: They have not lowered the price but instead they have lowered the cost.

    The cost to the buyer is the buyer’s main concern but it is the price that gives value to the comps. It is the stability of the price that offers up the illusion of stability to the market. Maintaining this illusion maintains the market; Allowing the illusion to erode will erode the market.

    1. Price and cost are two different things however price and value can actually become the same thing.

      If a buyer of an item uses a coupon of some sort, say 25 percent off, then the buyer feels he is getting a deal because he is getting a certain value, as represented by the price, at a discount. So, in this case, price and value are the exact same thing in the buyer’s mind but his cost is different than the price because he gets to use a coupon.

      Keeping the price the same but allowing a coupon go be used keeps the price intact while at the same time offering an incentive to the buyer. Without this incentive the sale may not occur.

      1. A retailer cannot blatently lower prices on a permanent basis because doing so will lower perceived values. But a retailer can TEMPORARILY lower prices (think sales) without disturbing perceived values. This is done all the time by retailers which sometimes causes fights in stores among shoppers who have lost their minds.

        I find this stupid behavior quite amusing, actually.

          3. Yup, I was thinking of those Black Friday stampedes. Nowadays I go to Wal-Mart and you can find the same TVs for cheap, plenty in stock, and few people are interested. I think TVs have pretty much maxed out their features, so no one needs to trade up.

    2. “…Maintaining this illusion maintains the market…”

      Very important.

      Illusions are very important not only to the REIC but even more so to your local property tax collector and other [local] taxing authorities who capture more revenue when comps are high.

      (Gotta fund those county pensions ‘ya know)

      Not to be left out on the gravy train is the insurance industry who can charge more for homeowners, fire coverage because the subject property “is worth more”..

      Everyone is slopin’ at the trough except the homeowner who has to pony up.

      What an utter and complete scam.

  8. Most modern development here in SW Florida have what are called CDD fees which are bond payments to cover the cost of development infrastructure and are generally part of property taxes. Like the example above, they can result in substantially higher property tax. This is probably common throughout the country and will have an impact once conditions deteriorate. Additionally, some of the more elaborate developments have mandatory club memberships whether or not the house is located on golf course. Furthermore they can also carry food or entertainment quotas amounting to a few hundred dollars a months and are included in HOA fees. Not necessarily a burden in good economic times, but when,things turn they can have a marked effect on house pricing.

    I have seen relatively inexpensive condos. I.e. 230k sale price range endure 5 to 6k in annual extra fees in HOA and CDD over and above typical property tax and HOA. Some are just crazy

    1. There was that WSJ article that I posted a couple of weeks ago about how houses on golf courses are getting whacked because of exorbitant fees and the fact that golf is pretty much a dying sport.

    1. $wiftly, before the Elmer.Dudd$ @ thee.Fed.CentralCa$ting Dept. … $peak their feather$!

      The Fed needs to get ‘out of the business’ of monetary policy: Ron Paul
      Keris Lahiff | CNBC. |Fri, 25 Jan 2019 |
      The Federal Reserve will meet this week to talk monetary policy.

      That has drawn the ire of major critic Dr. Ron Paul, former Texas congressman and advocate of $maller government, free trade and freer

      “I think it’s always a threat because just their meeting and saying a few words one way or the other has a big effect,” Paul said. “They’re in a hot spot. They don’t know what to do. …
      The Fed is already toying with the idea of holding a larger balance sheet than previously thought, according to The Wall Street Journal on Friday. The central bank has been reducing its $4.5 trillion balance sheet since October 2017. On Thursday, Paul predicted the Fed might halt shrinking the balance sheet to counter a downturn this year.

      “There’s too many unknowns and I think they’re going to have trouble [either tooling with interest rates or shrinking the balance sheet] and that’s just going to not only make the bubble persist, it’s going to make the bubble bigger and then when the final end of this comes it’s going to be that much worse,” said Paul.

      Previously, Paul forecast a 50 percent drop in the stock market which could strike this year. He also called the stock market one of the biggest bubbles “in the history of mankind.”

      The solution to this, says Paul, is for the arm of the Fed that controls monetary policy to stop doing just that.

      “I don’t suggest anything other than getting the government out of the business, getting the Fed out of it and getting over into market rates because you can’t manage this,” he explained. “This is the fallacy but it’s ingrained.”

      1. From the article:

        The company’s original forecast, issued back in November, also came in far below analysts’ expectations at the time, as Nvidia (NVDA, -14.39%) warned that the end of the crypto-currency boom was contributing to excess inventory levels for its older gaming chips.

        More Yellen bux have found a suitable toe-tag home.

          1. Very interesting. Same story with stadium-level artist tours and ticket price fatigue. People are refusing to/can’t pay huge prices to see Jay Z or Taylor Swift like they used to. No wonder –

            “According to Pollstar, average ticket prices have tripled over the last decade, while wage growth has slowed down.”

            Good article about it:
            https://www.bbc.com/news/entertainment-arts-44466046

          2. People are refusing to/can’t pay huge prices to see Jay Z or Taylor Swift like they used to.

            I’m waiting for them to have a hard time selling tickets, but as a person with a 9yo girl in the house who likes that sort of thing, so far in Sacramento I’m seeing it as difficult to get those tickets. I bought Pink as soon as they were available and paid too much. I didn’t even try with Arianna. TS I can’t imagine how fast you’d have to act to get tickets right now. She seems to be legitimately popular with everybody.

          3. I have an X that once flipped 4 Taylor Swift tickets for $600 a pop in profit. Shoulda married that girl.

          4. Wow you’re not kidding about Ariana Grande – min price $180, up to $900 for best seats! Who can afford that?

            In the Jay Z instance there were screenshots of seat maps close to show dates around the country with tons of tickets in the upper levels for $6.00-$10.00. Obviously different for the Ariana/Taylor Swift fans.

          5. Here’s an article from May ’18 about Swift tickets on the secondary market selling for less than face value ($60), whole rows being empty, and primary market tickets sold on discount sites and being given away free, despite shows being added to the tour due to “overwhelming demand.” Like housing, a phony shortage masking real oversupply.

            https://www.ticketnews.com/2018/05/free-taylor-swift-tickets-reputation-tour/

            Carl you may want to try those Ariana tickets again periodically before the show in case they release some inventory held off-market (which is also like housing).

      3. Unless you have access to free electric power, it now costs more to “mine” a bitcoin that it’s current market value.

        Gamer GPU chips were ideal to use to build bitcoin mining engines as they were fast enough to execute [hundreds of] millions of double precision floating point calculations required to mine a single coin.

        Of course, “no one” could of seen this coming.

        We are “astounded” says (fill in name of your favorite stock market / bitcoin / cyrpto hustler here)

  12. Are all losses on the Dow now contained to under 400 points? 500+ point losses are way more exciting!

    1. An organized decline is more stable. It took 10 years for the Dow to quadruple. I’m willing to wait 2 months for it to halve.

    2. Oh, it will bee wor$e than that, $udden, like the $trike of a 11 year$ old pi$$ed off rattler!

  13. Will this future development require further Fed balance sheet expansion?

    U.S. on track to add $12 trillion to national debt by 2029 unless Washington changes course
    By Jeffry Bartash
    Published: Jan 28, 2019 1:59 p.m. ET
    Higher federal spending, soft economy biggest culprits, CBO says
    Getty Images
    Is the U.S. government sinking under the weight of a huge and growing national debt?

    Washington has been drowning in red ink for years and it’s only going to get a lot worse over the next decade, a fresh government estimate shows.

    The U.S. is likely to add $12 trillion in public debt from 2020 to 2029 through a combination of higher government spending and slower economic growth, according to the Congressional Budget Office. That’s on top of the $16.6 trillion the government is expected to owe to the public at the end of 2019.
    …

  15. The reality is these guys are paying like $300,000 for a 5,000-square-foot lot…You can’t put out a cheap house.

    The reality is that if people won’t buy your insanely priced house, you won’t pay such a ridiculous price for a tiny lot. You also won’t pretend that the cookie-cutter shack you threw up on it is worth another $500,000.

    1. “The reality is these guys are paying like $300,000 for a 5,000-square-foot lot”

      Whose problem is that? You’re stuck.

      With a globe full of land where 95% of it goes undeveloped and land available in all 50 states at $500/acre, someone paid too much.

      1. Oh hon, the $500/acre land only works if people can Work From Home. At the moment, that appears to be somewhat of a non-starter.

        You would think that tech companies who preach about Connected Clouds could simply disperse their employees to wherever. But instead, they are building giant campuses to pack their employees into one space. Makes no sense to me at all. Maybe because the employees themselves want to live in the Vibrant City and walk to the Artisan Coffee Bars.

        1. I kind of see it as a form of extortion. If you want a good job, you’ve got to go to a thriving urban city. But you’re going to pay out the nose in either rent or even more if you decide to buy. So that good job is kind of a catch-22. Now throw kids in the mix and things get a lot more complicated as potential living situations, choices, and flexibility is greatly reduced.

        2. There are great tools like github and slack to keep projects and the team informed and organized. It really boils down to the employees on the team, and a strong manager who delegates rather than micro-manages. The huge campuses with their sterilized environment, diversity training, etc., are just so mind numbing. No thanks!

      2. Maybe because the employees themselves want to live in the Vibrant City and walk to the Artisan Coffee Bars.

        Most of them would live somewhere cheaper if they had the choice. It’s the managers that want to keep things centralized. My experience so far is that most of the managers got to where they are with the Peter Principle. They were once decent coder types themselves. Which is actually negatively correlated with being a good manager but at least they understand the problems so if all else fails they can kill themselves doing it themselves. They seem to need to stand in front of people to feel like communication has occurred.

        That and a significant subset of the jobs in my field need to be in the building for at least one reason or they would have already been outsourced to another country.

        1. It’s not up to the managers, the decision would have to be made by the higher ups who decide to jettison the expensive headquarters altogether and go to a model of disbursed employees.

          1. I moved 150 employees at a call center off site to work at home. Saved huge amount at the corporate office. The biggest battle wasn’t the employees (they loved me for it, well most of them), but the C-suite. They just love the feeling of being able to walk around the lower ranks. If they can’t see them, they assume they are not productive. It is also why IBM, a pioneer of remote workers, basically did a complete 180 in 2017:

            https://www.forbes.com/sites/carolkinseygoman/2017/10/12/why-ibm-brought-remote-workers-back-to-the-office-and-why-your-company-might-be-next/#498a7f8c16da

          2. “While remote workers might be highly efficient with individual efforts, nothing builds collaborative relationships better than being physically present.”

            But physical presents opens the door to sexual harassment, fat shaming, traffic jams, car repairs, chic clothing, etc., that teleworking averts.

          3. 1. the C-suite. They just love the feeling of being able to walk around the lower ranks.

            2. If they can’t see them, they assume they are not productive.

            2 matters but can be worked around. 1 is the key. Ego/validation.

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