Category Archive: ‘Market Conditions’
As money and affluence continue to invade the coasts, those not so fortunate will be making choices. Warning to all who are thinking about leaving California – it is virtually impossible to move back. But you can always visit!
As businesses look for cheaper places to expand, job growth in the middle of the country will begin attracting more residents, according to experts surveyed in the latest Zillow® Home Price Expectations (ZHPE) Survey.
That would reverse a trend over the last decade that drew many to the coasts following strong job markets, with more employment and income growth. Over half of experts surveyed said they don’t expect migration to the coasts to continue indefinitely. Of those, 56 percent pointed to jobs and 24 percent said high housing costs on the coasts will drive residents inland.
Recovery from the housing boom and bust has looked very different for Middle America and coastal America. While markets on the East and West coasts experience rapidly rising home values and strong job markets, markets in the Rust Belt and Midwest are moving more slowly; negative equity is still prevalent and job growth is minimal.
The quarterly ZHPE survey, sponsored by Zillow and conducted by Pulsenomics LLC, asked more than 100 housing experts about their expectations for the housing market.
The experts were also asked if they thought the distinct split between Middle America and the two coasts would reverse. Over half of the respondents said this trend has already begun to reverse, or expect it to in the future. A quarter of respondents believe this trend is a permanent shift, and 11 percent believe the migration to the coasts is an illusion.
Of the reasons experts predicted people would move back to the middle of the country, job growth was most popular. Just over 20 percent said people would migrate inland in search of more affordable housing, and 13 percent said Americans will start to seek the traditional lifestyle that the middle of the country has to offer. Only 2 percent said climate change will force residents away from the coasts.
“Since the Recession, employment has boomed in relatively expensive coastal areas, often attributed to a shift in preferences among workers – especially millennials – but also facilitated by soft labor markets that have resulted in a plentiful supply of available workers,” said Zillow Chief Economist Dr. Svenja Gudell. “Now, as labor markets tighten and the country approaches full employment, employers will have to look elsewhere to keep costs in check. For some businesses, this will mean relocating away from expensive coastal areas to more affordable interior communities. Sooner or later workers will follow the jobs, providing an impulse to local housing markets.”
Overall, the experts surveyed predict home price appreciation across the country will be up over 4 percent year-over-year by the end of 2016. They expect home prices to slow down over the next four years and by the end of 2020, they predict home prices will grow at an annual pace of just 2.9 percent.
Another look at new-home tracts and their success this year:
A year ago, when Bank of Canada Governor Stephen Poloz cut interest rates for the second time in six months, we knew we’d have to take the bad with the good. Slashing the bank’s overnight rate in half to 0.5 per cent would surely further inflate regional real estate bubbles. But that, we figured, was just the price to pay in order to fuel non-energy exports and a sustainable recovery.
A year later, we’re still waiting for the second half of the equation to kick in. The real estate sector keeps setting new records. Indeed, it’s now Canada’s biggest industry, leaving Alberta’s oil patch and Ontario’s manufacturing heartland in the dust. Ongoing weakness in those latter sectors is generating talk of yet another rate cut, no doubt to the delight of the friendly neighbourhood broker who keeps urging you to sell.
Hewers of wood and drawers of water, not. Canada is now a real estate nation, with little else to keep the economy from sinking into an even deeper funk. Gross domestic product shrank 0.1 per cent in May, and that’s after excluding the negative impact of Alberta’s wildfires on oil sands output. Yet, we’re still buying houses like there’s no tomorrow.
And there may not be a tomorrow for the suckers who buy in at the peak, whenever it comes.
The so-called economic rotation from oil to manufacturing exports that rate cuts (and the related decline in the Canadian dollar) were supposed to produce has not only failed to materialize but policy makers have pumped helium into an already overheated real estate sector that is masking structural weaknesses in the economy and setting us up for a bigger fall.
It’s “difficult to believe that any progress has been made in terms of economic rotation. Indeed, the opposite appears to be the case, given real estate’s increasingly large share of economic output,” TD Bank economist Brian DePratto noted in a Thursday report. “Rising home prices do have positive knock-on effects for consumer spending, but over-reliance on the real estate market is hardly the sign of a healthy economy.”
The real estate sector’s share of GDP has grown 0.4 percentage points in the past two years alone, TD noted, while the share of everything else (including oil and manufacturing) has shrunk. Going back 10 years, to May, 2006, manufacturing output is down 11 per cent in real terms and mining (including oil) extraction is flat.
But real estate’s contribution to GDP has surged 35 per cent since then.
When you tack on to all those real estate fees the financial services that are bought and sold as part of real estate transactions, and the home renovations undertaken by prospective sellers or those unable to trade up to bigger or better houses as a result of surging prices, and it’s not going out on a limb to suggest that the sector has grown too big for the country’s own good.
Who’s to blame? The very policy makers now trying to cool the market with demand-side measures that instead risk crashing the entire economy. Not only have low interest rates and restrictive land-use policies created an affordability crisis by driving prices for detached homes through the roof, any sudden reversal of those policies would take the floor out of the market.
Read full article here:
In spite of higher prices, our market stats look pretty good – and they don’t include most of the new-home sales either, which have been cooking. Here are a couple of examples:
Dogs are people too! A few examples of how dogs influence real estate decisions. H/T to daytrip:
“These are people who have a great deal of empathy,” Dr. Kagle said, “so they worry about their pets as they would worry about another human being — though some have been known to carry it to extremes.”
That group might well include the couple whose elderly dog had a pet peeve about being stuck in New York traffic. “They had a weekend house and they wanted their primary residence to be close to the F.D.R. so they could get out of town quickly for the sake of the dog, because otherwise he would get very stressed,” said Barbara J. Dervan, an associate broker at Fox Residential Group. The solution: an apartment on East End Avenue.
Three years ago, when Mr. Saville, 39, a marketing manager at Pernod Ricard U.S.A., the wine and spirits company, moved to New York from Miami, he knew what he wanted: a walk-up, preferably in a brownstone; failing that, an apartment on a high floor with a grand view of the city. Dreams, dreams, idle dreams. None of this was going to work for Wesley, Mr. Saville’s harlequin Great Dane. Climbing stairs would have been tough on Wesley’s legs, so an elevator building was a must. But an apartment high in the sky, Mr. Saville’s preference, wouldn’t have served Wesley’s needs, either.
“I wouldn’t say I’m ruled by my dog, but I have to give up a certain number of things because of him,” Mr. Saville said. Despite his own preferences for an eyeful of cityscape and sky, he looked for a vacancy on the lowest floor available.
“Elevators can stop at every floor and when there’s an emergency and Wesley’s got to go, being able to get out of the building quickly was important.” Also important: a bedroom large enough to accommodate a California king bed — another Wesley-driven necessity, because the dog bunks down with Mr. Saville. Oh, and the apartment had to have a washer and dryer. It seems that Wesley sheds.
Read full article here:
Zillow is the latest to suggest that the ‘market’ might be slowing.
But looking at their own graph, it looks like the monthly percent change begins to decline every year at the end of summer. The second graph also shows that sales are at a new peak – if it fell off a bit we should still be fine.
But all that matters is what readers glean from the headlines and a quick scan.
Maybe it’s just a seasonal thing. This guy was spewing doomer talk in 2014!
- Zillow expects existing home sales to fall 1.9 percent in July from June, to 5.46 million units at a seasonally adjusted annual rate (SAAR), ending a string of four consecutive monthly gains.
- New home sales should fall 6.65 percent to 553,000 units (SAAR) after a stronger than expected June.
- Given the recent string of home sales beating forecasts, we view risks to the upside and would not be surprised if results are slightly stronger than we expect.
Thus far, it has been a pretty sweet ‘16 for home sales. But according to our July home sales forecast, the party looks like it could be coming to an end, at least temporarily and especially for sales of existing homes that must eventually face the harsh reality of tight inventory and rising prices.
Despite tight inventory, existing home sales have been surprisingly buoyant lately, beating or meeting expectations in each of the four months from March to June. We expect that streak to end in July. If nothing else, the odds that home sales continue to rise are increasingly dim. Since the series began in February 1999, runs of five months or more of consecutive monthly gains have only occurred five times – and only one of those streaks lasted six consecutive months or more.
Shifting seasonal patterns may be behind some of this apparent resiliency. By some reports, the height of the home shopping season – historically most concentrated during the summer months – shifted earlier this year as buyers sought to get ahead of the competition. But sooner or later, tight supply and rising prices should take their toll.
Our forecast for existing home sales points to a 1.9 percent decline from June to 5.46 million units at a seasonally adjusted annual rate (SAAR) (figure 1). This would place existing home sales down 0.3 percent compared to a year earlier.
Read full report here:
In the previous post I mentioned that Carmel Valley has been red hot this year. It might get hotter!
One of my favorite clients sent me a blurb from UBS where their advisors think California could benefit greatly from Vancouver’s recent 15% transfer tax imposed on foreigners buying real estate there. The additional tax could cause buyers to look elsewhere – like around here!
Stewart told CKNW that his overseas clients are already backing away.
“A lot of them have decided to buy elsewhere because of the tax. A lot of people have put purchase plans on hold, pretty much indefinitely, because of the tax,” he said.
He is under scrutiny so he may have popped off in order to save himself. But 15% on a multi-million dollar purchase is a boatload of money!
Should foreign buyers purchase a home in San Diego County for more than $2,000,000, they will be reported to the Financial Crimes Enforcement Network – thanks Wendy for sending this in:
But the United States hasn’t imposed a transfer tax or even mentioned what they will do to foreigners who pay cash for homes costing more than $2,000,000. As long as it is a legit purchase, what can they do?
But I wouldn’t be surprised to see a bunch of homes around here worth $1,500,000 – $2,000,000 all of a sudden coming to market for $1,999,999!
Our favorite doomer went off again this week, focusing on how the high-end inventory has grown recently in the hot markets:
The graph above shows the inventory of Orange County homes listed for $1,300,000 or higher (San Diego wasn’t included but is similar to the OC).
Mark likes to believe that prices have to fall – his quote:
In other words, higher-end real estate prices have much more air underneath them than lower-end prices have air above them. The resulting house price compression will accelerate taking all price bands lower until the higher-end housing market can catch a macro bid.
Here is how inventory in our higher-end areas have changed since May 26, 2015:
|Del Mar & Solana Beach|
Yep, our inventory in the tonier parts of town is higher but it has been so low lately that an extra 20-40 or so houses on the market in each area isn’t going to hurt much. These are the only numbers I have for comparison, and May vs. August isn’t that great either – there is more build up of the unsuccessful sellers in every August.
Most importantly, the high-end sellers have more horsepower – they can hold out longer, and in most cases, will only sell if they get their price.
Rancho Santa Fe has been the harbinger of what we can expect elsewhere – lots of listings sitting around not selling, but few lowering their price – they are happy to wait.
Unless we get a surge of boomer liquidations, the worst thing that will happen is the whole high-end market will go stagnant.
If you have concerns, just buy in Carmel Valley. In the first 7 months of 2015, there were 276 houses sold in the 92130, and this year there were 321 – a 16% increase! And that doesn’t include the 100+ new CV homes sold this year.
Carmel Valley pricing statistics have been flat though. The average cost-per-sf only went up from $413/sf to $419/sf, and the median sales price actually went down from $1,178,000 to $1,124,000. It’s probably a reason why they’ve had so many sales!
All that matters is what home buyers take away from stories like this. The gist here is the same as what we’ve been seeing – the unique, well-located properties are holding up, but in areas where there are several regular homes for sale, the first one out wins.
It’s essential for real estate agents to understand the current marketplace so they can get the best deal for their clients. And after years of watching the market favor sellers, many agents say they’ve seen a recent shift that has affected luxury property sales across the globe: We’ve entered a buyer’s market.
Jed Garfield, president of Leslie J. Garfield & Co., a New York–based brokerage that focuses on town houses, said he saw signs of this trend in late 2015, when properties that were listed at a fair market price didn’t sell. But recently, the impact has been dramatic. For example, a town house on East 70th Street between Park and Lexington avenues that was bought for $31 million in 2013, re-listed for $32.5 million a year and a half ago—and then dropped down to $22 million three months ago.
“The market is not what it was,” Garfield said. There’s an expectation that real estate prices will rise 3% to 5% each year, he added, but buyers won’t stand for that anymore. “You’d be very hard-pressed to find anybody who would pay more than 2015 prices today,” he added.
In Brooklyn, Compass agent Jay Heiselmann said he’s seen this shift play out as buyers looking for a $3 million-to-$5 million multifamily home have become pickier and more interested in negotiating than in years past. “People used to go and see everything that was on the market,” he said, but that’s no longer the case.
Dolly Lenz, of Manhattan-based Dolly Lenz Real Estate, said she has seen this shift affect the way agents are treated. As recently as a year ago, new agents who tried to get clients an appointment to see a top-tier new development in Midtown would be turned away, Lenz said. But now, not only is everyone getting appointments, they’re also being enticed to bring clients in with promises of extra commissions, “Hamilton” tickets, trips or cars if they make the sale.
“That is a sure sign of a very big shift to a buyer’s market,” she said.
In these cases, interested buyers should negotiate hard, according to Lenz. And that advice holds not just for luxury real estate in the New York market but also for those also in other U.S. cities like Miami and San Francisco, where there’s an excess of high-end, new and often similar inventory.
When it comes to the global market, Dubai has definitely converted to a buyer’s market, despite having “gorgeous architecture and beautiful properties,” because developers built too much too quickly, according to Lenz.
In the U.K. and Europe, the situation also largely benefits buyers, though the landscape is a bit more complicated. While buyers—specifically dollar-based buyers—automatically get a post-Brexit currency advantage in prime London, many still expect an additional 8% to 12% discount, said Gary Hersham, principal at London-based Beauchamp Estates. In this case, many sellers are opting to wait rather than make a deal.
“They think the pound is going to strengthen,” Hersham said. “They’re waiting for their values.”
Amid this shift, “there are still pockets everywhere that are holding firm,” Lenz said.
Manhattan’s West Village is an example—a mini-market where inventory is scarce and there aren’t many new developments or conversion projects, according to Lenz. This has kept competition stiff and prices high.
Prime Beverly Hills has also been immune to big price cuts, Lenz added, as have cities like Melbourne and Sydney in Australia, where Chinese purchasers have been known to buy up an entire building in a day.
“It all comes down to this being a supply-and-demand story,” Lenz said. “If you have a prime property in a great location—something that’s irreplaceable or a trophy property—it is still a very strong market.”