Category Archives: Housing Market

Desperate Vancouver Developers Woo Millennials With Avocado Toast And Wine

In yet another sign that Vancouver’s housing market has gone soft, desperate developers are resorting to all sorts of gimmicks to encourage young buyers to spring for a new place – such as a year’s supply of avocado toast, or a free glass of wine every day for a year.

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It’s a slower, more competitive market,” according to Vancounver-based Wesgroup Properties VP Brad Jones, adding “The onus is on us to show we have the most attractive offering.” 

As we noted in April, the decline of Vancouver’s housing market has become worldwide news – with sales plummeting 46% over the past year to levels not seen since 1986

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Buyers continue to have the strong upper hand after years of manipulated price appreciation due to Chinese tycoon “hot money” flooding the market. That panic buying is now quickly turning to panic selling.

Prior to the August 2016 implementation of the foreign buyers’ tax in Vancouver, condominiums in Metro Vancouver were firmly in seller’s market territory, defined by a sales-to-active-listings ratio of more than 20 per cent for several months in a row, according to data from the Real Estate Board of Greater Vancouver.

But even condos proved unable to remain impervious to multiple government intervention measures. The ratio dropped from peaks of over 80 per cent to below 22 per cent in September 2018, where it’s stayed since. If it dips below 12 per cent for several months, it becomes a buyer’s market and prices tend to come down. –The Globe and Mail

And as condos sat on the market longer and longer – some hitting 40 days or more on average between December 2018 and February 2019 – developers have had to get creative. 

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Condos at one Wesgroup’s newest developments, Mode in Vancouver’s southern Killarney neighbourhood, come with a promise of a free glass of wine a day for a year. That incentive comes as a $1,500 gift card to a neighbourhood wine and alcohol store, which equates to about $29 a week to spend on a bottle of wine. –The Globe and Mail

“Now is the time to be creative,” said Jones, who noted that the wine incentive generated a “massive amount of interest.” 

The wine promotion was launched after Woodbridge Homes Ltc. announced that anyone who bought one of their Kira condos in the West Coquitlam development would receive a year’s supply of avocado toast – in the form of a $500 gift card to a local eatery. 

After the announcement viral, the developer sold 60% of their initial offering according to MLA Canada president Ryan Lalonde. MLA provides real estate sales and project marketing services to developers, including Woodbridge. 

In the first three weeks of sales, Lalonde said nearly 85 per cent of purchasers referenced the sandwich campaign and four buyers became aware of the building solely because of the media coverage of the toast offering.

“We wanted to find a way to cut through that noise (in the marketplace),,” said Lalonde, who added that the flood of media attention they received was unexpected. 

What will they think of next? Lowering prices?

Source: ZeroHedge

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Profits Plunge As Home-Flipping Hits 9-Year-High

Luxury homes aren’t the only section of the American housing market that’s showing troubling signs of weakness. Increasingly, entrepreneurs who once saw the opportunity to make quick gains by investing in gentrifying markets before offloading their homes at a premium – a practice called ‘home flipping’ – are also heading for the exits.

Homes that were resold within 12 months after being purchased made up 7.2% of all transactions in the first quarter, the biggest share since the start of 2010.

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But while activity surged to new cycle highs, the average return on investment, not including renovations and other expenses, dropped to 39%, an almost eight-year low.

All told, profits slumped to their lowest level in eight years.

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Anybody who remembers the heady years ahead of the housing market crash will recall the role that unchecked speculation allowed unqualified investors, hairdressers, strippers and others, to secure adjustable rate ‘liar loans’ that helped them enter the speculation frenzy.

Speculators are on the housing market’s front lines, where softening price growth, waning demand and longer times to sell can turn quickly into shrinking profits, or even losses. Purchases of previously owned homes fell 4.4% in April, the 14th straight year-over-year decline, according to the National Association of Realtors.

“Investors may be getting out while the getting is good,” Todd Teta, chief product officer at Attom Data Solutions, said in the report. “If investors are seeing profit margins drop, they may be acting now and selling before price increases drop even more.”

The average gross flipping profit of $60,000 in Q1 2019 translated into an average 38.7% return on investment compared to the original acquisition price, down from a 42.5% average gross flipping ROI in Q4 2018 and down from an average gross flipping ROI of 48.6% in Q1 2018 to the lowest level since Q3 2011, a nearly eight-year low.

Source: ZeroHedge

Orange County California Q1 Home Sales Off To Coldest Start Since Great Recession

Welcome to the Land of… Jumbo mortgages and All-cash! Aka, Orange County, home of surfing legend (and Realtor) Bob “The Greek” Bolen.

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But Orange County has just experienced their slowest start to a year in terms of home sales since The Great Recession.

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And home prices in Orange County are falling despite mortgage rate declines.

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Now Ain’t that a kick in the head! 

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Source: Confounded Interest

Chicago’s Pension Nightmare Is Wreaking Havoc On The City’s Housing Market

As a result of high taxes and government debt, combined with a nightmarish looming pension liability, Chicago’s housing market continues to collapse, according to a new write-up in the City Journal.

Average home prices in Chicago have still not recovered from the downturn that started in 2009, despite the fact that property taxes continue to climb. This is part of the reason Illinois ranks highest among states losing people to other areas of the country. Chicago homeowners are also taking big losses when they sell their homes. 

Ball State economist Michael Hicks said last month: 

“Taxes are high, the services [that taxes] pay for are terrible, and the debt load is so high, so palpably unsustainable that people have no belief that the resources can be found to turn it all around.”

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“You won’t recruit a business, you won’t recruit a family to live here,” Chicago mayor Rahm Emanuel said in 2012, warning about the city’s pension problems. And that looks to be the case: Realtor.com predicted that Chicago would have the weakest housing activity this year among the nation’s top 100 markets.

But unions in Chicago continue to push for higher pension contributions, even while efforts to curb the problem have failed. This has resulted on the money having to come from somewhere – and that somewhere is taxes. According to the report, Chicago’s annual pension payments have doubled over the last few years, to nearly $1.2 billion, and are set to rise to $2 billion in 3 years.

In 2015, the city approved $543 million in property tax increases as a result. Chicago schools also raised local homeowner taxes by $224 million in 2017. “Every penny” of these taxes goes into the pension system and Chicago now bears the title of “highest residential property-tax rates of any American city.”

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And not surprisingly, residents are leaving Illinois and Chicago as a result. From 2011 to 2017, the state ranked second among states in outmigration, losing 640,000 more residents than it gained:

A recent Bloomberg study of metropolitan-area migration data found that the city had a net migration loss of 105,000 in 2014; it got worse in 2017, with the net loss totaling 155,000.

And while some governors, like New York’s Andrew Cuomo, acknowledge that taxes are driving people out, Illinois’ new governor Jay Pritzker has instead introduced legislation for more taxes on the wealthy, offering them a great excuse to leave Chicago, and the state. The city is losing its luster with millennials, too. Chicago now ranks as third-least attractive among the 53 largest metro areas in the U.S., losing an average of 19,000 young adults per year. Illinois ranks behind all but two states in trying to attract young adults. 

The city’s economy is also sputtering, averaging less than 1% growth in private sector jobs in each of the last 2 years. 

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And when residents flee the city, they put a home up for sale in the market without buying one in the same market. This has caused the price of housing to plunge – according to the report, the “average price of a single-family home in Chicago is lower than it was before prices began plunging back in 2009.”

The national average is a rise of 30% in home prices since the crash. Housing speculators in the city have been decimated:

Crain’s Chicago Business told the story of a Chicago-area executive who lost more than half a million on the sale of his home when he retired to move elsewhere. If he had invested the money in the stock market instead, he said, “I’d probably have $6 million now.”

This has led to a slew of underwater mortgages – the most in any major US market. It’s estimated that 135,000 mortgages may risk default during the next economic downturn.

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In early April, we noted that Chicago pension funds looked like a “collapsing ponzi scheme”. Back in December 2018, we noted that each Chicagoan owed $140,000 to bail out the city’s pensions. 

And we’d love to say, “Let this be a lesson to the rest of the nation” who believes that government financial problems and pension liabilities are simply “no big deal”, but we’re certain they’re not listening anyway.

Source: ZeroHedge

 

Young Real Estate Flippers Get Their First Taste of Losing

After piling in when the market was hot, investors are facing losses from homes that take too long to sell.

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(Bloomberg / Businessweek) Sean Pan wanted to be rich, and his day job as an aeronautical engineer wasn’t cutting it. So at 27 he started a side gig flipping houses in the booming San Francisco Bay Area. He was hooked after making $300,000 on his first deal. That was two years ago. Now home sales are plunging. One property in Sunnyvale, near Apple Inc.s headquarters, left Pan and his partners with a $400,000 loss. “I ate it so hard,” he says.

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US Home Price Gains Slump For 12th Straight Month, Weakest In 7 Years

Case-Shiller’s March home price index showed yet another deceleration in growth – the 12 months in a row of slowing equals the 2014 growth scare’s length but is the weakest growth since July 2012.

After February’s 20-City Composite 3.00% YoY print, expectations were for 2.55% growth in March and it surprised very modestly with a 2.68% YoY print (still the lowest in 7 years)…

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Nationally, home-price gains slowed to a 3.7% pace.

“Given the broader economic picture, housing should be doing better,” David Blitzer, chairman of the S&P index committee, said in a statement.

“Measures of household debt service do not reveal any problems and consumer sentiment surveys are upbeat. The difficulty facing housing may be too-high price increases,” which continue to outpace inflation, he said.

While all 20 cities in the index showed year-over-year gains, five were below 2%: Chicago, Los Angeles, San Diego, San Francisco and Seattle, which a year ago posted a 13% increase. Las Vegas led the nation in March with an 8.2% gain, followed by Phoenix.

Source: ZeroHedge

US Rents Climb To Fresh Record Highs Despite Slowest Price Increase In 11 Months

US existing home sales slumped for the 13th straight month in March, but the pressures on the national housing market have yet to translate into cheaper rents: To wit, average national rent climbed 3% YoY in April, and 0.3% from the prior month, according to Yardi Matrix data cited by RentCafe.

The national average rent hit $1,436 in April, climbing about $42 from the prior year to $1,436 – which, though still positive, marked the slowest pace of growth in 11 months.

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Across major US housing markets, rent in Wichita is the most affordable, averaging $646, followed by Tulsa, at $688. On the other end of the spectrum is the average rent in Manhattan, the world’s most expensive rental market, climbed to $4,130 in April. Behind Manhattan is – of course – San Francisco, with an average rent of $3,647, then Boston ($3,357) then Brooklyn ($2,878), then San Jose ($2,720) and Los Angeles ($2,471), in sixth place. Of the largest metropolitan rental hubs, Indianapolis had the lowest average rent ($861), followed by Columbus, Ohio ($924).

While rents tended to be highest in urban enclaves along the coasts, some large rental markets in the Sun Belt boasted surprisingly affordable prices, including Las Vegas ($1,061) or Phoenix ($1,046).

But in another sign of just how skewed rents are across the US, of the 253 cities examined as part of the study, only 64% have average rents below the $1,436 national average, while the other 36% have average rents above.

Source: ZeroHedge