Category Archives: Housing Market

Why Manhattan’s Skyscrapers Are Empty

Approximately half of the luxury-condo units that have come onto the market in the past five years remain unsold.

In Manhattan, the homeless shelters are full, and the luxury skyscrapers are vacant.

Such is the tale of two cities within America’s largest metro. Even as 80,000 people sleep in New York City’s shelters or on its streets, Manhattan residents have watched skinny condominium skyscrapers rise across the island. These colossal stalagmites initially transformed not only the city’s skyline but also the real-estate market for new homes. From 2011 to 2019, the average price of a newly listed condo in New York soared from $1.15 million to $3.77 million.

But the bust is upon us. Today, nearly half of the Manhattan luxury-condo units that have come onto the market in the past five years are still unsold, according to The New York Times.

What happened? While real estate might seem like the world’s most local industry, these luxury condos weren’t exclusively built for locals. They were also made for foreigners with tens of millions of dollars to spare. Developers bet huge on foreign plutocrats—Russian oligarchs, Chinese moguls, Saudi royalty—looking to buy second (or seventh) homes.

But the Chinese economy slowed, while declining oil prices dampened the demand for pieds-à-terre among Russian and Middle Eastern zillionaires. It didn’t help that the Treasury Department cracked down on attempts to launder money through fancy real estate. Despite pressure from nervous lenders, developers have been reluctant to slash prices too suddenly or dramatically, lest the market suddenly clear and they leave millions on the table.

The confluence of cosmopolitan capital and terrible timing has done the impossible: It’s created a vacancy problem in a city where thousands of people are desperate to find places to live.

From any rational perspective, what New York needs isn’t glistening three-bedroom units, but more simple one- and two-bedroom apartments for New York’s many singlesroommates, and small families. Mayor Bill De Blasio made affordable housing a centerpiece of his administration. But progress here has been stalled by onerous zoning regulations, limited federal subsidies, construction delays, and blocked pro-tenant bills.

In the past decade, New York City real-estate prices have gone from merely obscene to downright macabre. From 2010 to 2019, the average sale price of homes doubled in many Brooklyn neighborhoods, including Prospect Heights and Williamsburg, according to the Times. Buyers there could consider themselves lucky: In Cobble Hill, the typical sales price tripled to $2.5 million in nine years.

This is not normal. And for middle-class families, particularly for the immigrants who give New York City so much of its dynamism, it has made living in Manhattan or gentrified Brooklyn practically impossible. No wonder, then, that the New York City area is losing about 300 residents every day. It adds up to what Michael Greenberg, writing for The New York Review of Books, called a new shameful form of housing discrimination—“bluelining.”

We speak nowadays with contrition of redlining, the mid-twentieth-century practice by banks of starving black neighborhoods of mortgages, home improvement loans, and investment of almost any sort. We may soon look with equal shame on what might come to be known as bluelining: the transfiguration of those same neighborhoods with a deluge of investment aimed at a wealthier class.

New York’s example is extreme—the squeezed middle class, shrink-wrapped into tiny bedrooms, beneath a canopy of empty sky palaces. But Manhattan reflects America’s national housing market, in at least three ways.

First, the typical new American single-family home has become surprisingly luxurious, if not quite so swank as Manhattan’s glassy spires. Newly built houses in the U.S. are among the largest in the world, and their size-per-resident has nearly doubled in the past 50 years. And the bathrooms have multiplied. In the early ’70s, 40 percent of new single-family houses had 1.5 bathrooms or fewer; today, just 4 percent do. The mansions of the ’70s would be the typical new homes of the 2020s.

Second, as the new houses have become more luxurious, homeownership itself has become a luxury. Young adults today are one-third less likely to own a home at this point in their lives than previous generations. Among young black Americans, homeownership has fallen to its lowest rate in more than 60 years.

Third, and most important, the most expensive housing markets, such as San Francisco and Los Angeles, haven’t built nearly enough homes for the middle class. As urban living has become too expensive for workers, many of them have either stayed away from the richest, densest cities or moved to the south and west, where land is cheaper. This is a huge loss, not only for individual workers, but also for these metros, because denser cities offer better matches between companies and workers, and thus are richer and more productive overall. Instead of growing as they grow richer, New York City, Los Angeles, and the Bay Area are all shrinking.

Across the country, the supply of housing hasn’t kept up with population growth. Single-family-home sales are stuck at 1996 levels, even though the United States has added 60 million people—or two Texases—since the mid-’90s. The undersupply of housing has become one of the most important stories in economics in the past decade. It explains why Americans are less likely to movewhy social mobility has declinedwhy regional inequality has increasedwhy entrepreneurship continues to fallwhy wealth inequality has skyrocketed, and why certain neighborhoods have higher poverty and worse health.

In 2010, one might have thought that the defining housing story of the century would be the real-estate bubble that plunged the U.S. economy into a recession. But the past decade has been defined by the juxtaposition of rampant luxury-home building with the cratering of middle-class-home construction. The future might restore a measure of sanity, both to New York’s housing crisis and America’s. But for now, the nation is bluelining itself to death.

Source: by Derek Thompson | The Atlantic

Zombie NYC Developers Resort To Inventory Loans To Stay Afloat During Housing Slump

New York City’s housing market has been swamped with a historic mismatch involving a flood of luxury inventory and a shortage of buyers. 

Manhattan is facing one of the worst slumps since 2011, forcing developers to take out low-interest inventory loans, collateralized by unsold condos to stay afloat. 

These loans are lifelines for struggling developers and a boom for companies such as Silverstein Properties Inc., who is expected to double its inventory loan book to more than $1 billion in 2020, reported Bloomberg.

Silverstein’s inventory loan book is growing at an exponential rate as a housing bust across Manhattan gains momentum. 

Michael May, CEO of Silverstein, said inventory loan growth among developers is the fastest in Gramercy, Tribeca, and Midtown East. These areas have also been hit hard in the housing slump. 

“You’re seeing some projects that are completed that have just had very, very slow sales,” May said. “Given the amount of condo developers seeking debt, if we open the floodgates, we could probably load $1 billion of that product on within the next 60 days.”

Developers have been pulling inventory loans to avoid slashing listing prices that would spark a firesale and lead to further downside in the housing market.

“Our goal is not to lend to projects that fail: We’re in a position where if a project has a problem, we believe that we could execute the business plan, and we could finish the construction,” May said. “We think that there’s still demand for units that are priced well, but in many cases, the owners of these projects have not adjusted their expectations to where the price would sell in the market yet.”

Silverstein has completed $500 million in financing year-to-date. Inventory loans are expected to be a large portion of the firm’s book in 2020, as there’s no sign the Manhattan real estate market will see an upswing then, and developers will need cheap financing to weather the storm.

As a result, the rise of zombie developers across Manhattan is inevitable. Thank You Federal Reserve! 

Source: ZeroHedge

CAR on California October Housing: Sales Up 1.9% YoY, Inventory Down 18%

The CAR reported: California housing market holds steady in October, C.A.R. reports

(Bill McBride) Shrinking inventory subdued California home sales and held home sales and prices steady in October, the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) said today. 

Closed escrow sales of existing, single-family detached homes in California totaled a seasonally adjusted annualized rate of 404,240 units in October, according to information collected by C.A.R. from more than 90 local REALTOR® associations and MLSs statewide. The statewide annualized sales figure represents what would be the total number of homes sold during 2019 if sales maintained the October pace throughout the year. It is adjusted to account for seasonal factors that typically influence home sales.

October’s sales figure was up 0.1 percent from the 404,030 level in September and up 1.9 percent from home sales in October 2018 of a revised 396,720. 

“The California housing market continued to see gradual improvement in recent months as the current mortgage environment remains favorable to those who want to buy a home. With interest rates remaining historically low for the foreseeable future, motivated buyers finding that homes are slightly more affordable may seize the opportunity and resume their home search,” said 2020 C.A.R. President Jeanne Radsick, a second-generation REALTOR® from Bakersfield, Calif. “Additionally, the condominium loan policies that went into effect mid-October could help buyers for whom single-family homes are out of reach.” 

After 15 straight months of year-over-year increases, active listings fell for the fourth straight month, dropping 18.0 percent from year ago. The decline was the largest since May 2013.

The Unsold Inventory Index (UII), which is a ratio of inventory over sales, was 3.0 months in October, down from 3.6 in both September 2019 and October 2018. It was the lowest level since June 2018. The index measures the number of months it would take to sell the supply of homes on the market at the current sales rate.

Source: by Bill McBride | Calculated Risk

San Francisco Bay Area Home Prices Continue Slide, Peak Is likely In

Mainstream financial media drummed up a narrative in 1H19 about how this summer’s tech IPOs would lead to overnight millionaires across the Bay Area, and in return, would produce the next leg up in the region’s real estate market.

The economic narrative never gained traction, partly because of the IPO market imploded. New issues like Lyft and Uber have seen shares nearly halved in the last six months, leaving many investors underwater.

As for the IPO market pumping out overnight millionaires, well, that remains to be seen as the Bay Area real estate market continues to deteriorate, with expectations of a further plunge in 1H20.

The Bay Area median sales price in September for an existing home, across nine-counties including Alameda, Contra Costa, Marin, Napa, San Francisco, San Mateo, Santa Clara, Solano, and Sonoma, plunged 4.7% YoY to $810,000, according to real estate data firm CoreLogic.

Bay Area home prices are some of the most expensive in the country and might have put in a cyclical peak in 2019.

“I think the immediate trigger a year ago was the run-up in mortgage rates,” said Dr. Frank Nothaft, a chief economist at CoreLogic.

“Mortgage rates got posted about 5% a year ago, and that put up a chill on all potential buyers in the market place. When mortgage rates go up, that means the monthly mortgage payment is just taking that much bigger of a bite from family income.”

San Jose-based realtor Holly Barr told NBC Bay Area that prices have been slipping for more than a year. Barr noted that price growth has stalled in the last several years, likely marking the top of the market.

“If you look at the trend over the last two years, it’s definitely come down,” she said.

The region has seen YoY sale price declines in the last several months as the slowdown continues to worsen. This recent period of waning demand comes after seven years of rapid price growth.

Agents overwhelmingly said buyers have been on the sidelines waiting for the right deal. Many wanted to avoid a bidding war and needed prices to correct further before they entered offers.

Some buyers were concerned about a late 2020 recession, trade war uncertainties, and the threat of a corporate debt bubble implosion.

The S&P CoreLogic Case-Shiller San Francisco Home Price Index has likely peaked in a double top fashion.

The Federal Reserve usually embarks on an interest rate cut cycle in preparation for macroeconomic headwinds developing in the economy that eventually damages the housing market.

As shown below, the Case-Shiller San Francisco Home Price Index tends to fall in a cut cycle.

Bay Area home prices will continue to weaken through 1H20. At what point do millennial homeowners, most of whom bought the top of the market, panic sell into a down market? 

Source: ZeroHedge

Young First-Time Buyers Are Vanishing From US Housing Market

Seeing as most young Americans are saddled with student-loan debt, underemployment and other economic blights, few have any money left for important large purchases like a home. At this point, it’s beginning to look like millennials will be remembered as the first rentier generation in the country’s history.

To wit, according to data from the National Association of Realtors, the median age of first-time home buyers has increased to 33 in 2019, the highest median age since they started collecting the data back in 1981. Meanwhile, the median age for all buyers hit a fresh record high of 47, climbing for the third straight year, and well above the median age of 31 in 1981.

Though the median age for first timers only increased by one year, BBG reports that it reflects a variety of factors impacting those who are searching for a home.

For one, since the housing-market collapse ten years ago, construction of affordable housing has never recovered. Low housing stock, coupled with low interest rates, has stoked higher prices, especially in more affordable markets from the coasts to the middle of the country. This made circumstances ideal for older Americans with more assets to borrow against and cash on hand. But younger Americans who don’t have enough saved for a down payment lost out.

“Housing affordability is so difficult today, especially when coupled with rising rents and student loan debt, that they’re finding different ways to enter home ownership,” said Jessica Lautz, vice president of demographics and behavioral insights at the Realtors group in Washington.

That’s not all: the percentage of first-time buyers who are married has declined as more single people buy homes to share with girlfriends, boyfriends or roommates. As the average ages of home buyers increases, average incomes have also risen. The median income of purchasers rose to $93,200 in 2018 as the disappearance of affordable housing pushes low-income buyers out of the market.

Factoring in the expansion of economic inequality, young buyers who do manage to buy their own homes typically receive a small gift from their relatives to help cover the down payment first.

Source: ZeroHedge

U.S. Pending Home Sales Surprise, Biggest Annual Gain Since 2015

Despite disappointing slowdowns in sales of new- and existing-homes, pending home sales were expected to show a small positive gain in September but surprised with a 1.5% MoM pop (0.9% exp).

This is the strongest pending home sales index since Dec 2017…

The National Association of Realtors’ Index of pending home sales increased 6.3% in September from a year earlier on an unadjusted basis, the biggest gain since August 2015

“Even though home prices are rising faster than income, national buying power has increased” with lower interest rates, Lawrence Yun, NAR’s chief economist, said in a statement.

“But home prices are rising too fast because of insufficient inventory.”

The monthly gains in contracts were concentrated in the Midwest and South, while the West and Northeast recorded declines.

Source: ZeroHedge

Halt All New Home Construction In Dubai Or Face Economic Disaster, Builder Warns

Damac Properties, one of the largest property developers in Dubai, warned over the weekend about an imminent economic crisis, festering in Dubai’s real estate market. 

Damac Chairman Hussain Sajwani told Bloomberg that a collapse in the housing market is nearing unless new home construction is halted for several years. “Either we fix this problem, and we can grow from here, or we are going to see a disaster,” Sajwani said. 

Sajwani is the latest real estate executive to voice his concern that Dubai’s housing market is on the brink of disaster. 

The slump in the city’s housing market has been underway for the last five years. Prices have tumbled by more than 30% in the same timeframe.

Despite the requests to halt all new home sales, Sajwani said Damac would complete 4,000 homes in 2019 and another 6,000 in 2020. The developer is expected to reduce new builds and concentrate on selling inventory next year. 

“All we need is just to freeze the supply,” Sajwani said. “Reduce it for a year, maybe 18 months, maybe two years,” he said.

Sajwani predicted oversupplied markets would crash home prices.

He said if prices drop further, then it would trigger a tsunami in non-performing loans that would cause contagion in the banking industry. 

“The domino effect is ridiculous because Dubai’s economy relies on property heavily,” he said.

Standard and Poor’s warned last month that economic growth in Dubai will trend lower through 2022 due to depressed oil prices, a global synchronized slowdown, turmoil from the US and China trade war, and geopolitical uncertainties in the Middle East.

The international rating agency said deterioration in real estate and tourism sectors had weighed heavily on the domestic economy.

Housing data from Cavendish Maxwell’s Dubai House Price Index via Property Monitor showed home prices plunged to their lowest levels in June, not seen since the 2008 financial meltdown.

Damac’s shares have crashed more than 77% in the last 26 months, mirroring the downturn in the overall housing market. 

If oversupplied conditions aren’t corrected in the coming quarters, Sajwani’s prediction of a market crash could unfold in Dubai in 2H20.

Source: ZeroHedge