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Category Archive: ‘Market Conditions’

Canada Real Estate

cflag

Sound familiar?

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:

http://www.theglobeandmail.com/report-on-business/rob-commentary/canadas-a-real-estate-country-just-waiting-for-a-crash/article31457558/

Posted by on Aug 25, 2016 in Jim's Take on the Market, Market Conditions | 2 comments

Dogs and Real Estate

dog

Dogs are people too! A few examples of how dogs influence real estate decisions. H/T to daytrip:

http://www.nytimes.com/2016/08/21/realestate/when-the-dog-decides-where-you-live.html?_r=0

Two excerpts:

“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:
http://www.nytimes.com/2016/08/21/realestate/when-the-dog-decides-where-you-live.html?_r=0

Posted by on Aug 23, 2016 in Jim's Take on the Market, Market Conditions | 2 comments

Zillow: “Is The Party Over?”

zzzz

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!

http://www.marketwatch.com/story/this-house-market-is-falling-apart-2014-08-26

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From Zillow:

http://www.zillow.com/research/2016-july-home-sales-forecast-13087/

z july 2016

  • 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.[1]

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:

http://www.zillow.com/research/2016-july-home-sales-forecast-13087/

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Posted by on Aug 22, 2016 in Forecasts, Jim's Take on the Market, Market Buzz, Market Conditions, Zillow | 2 comments

Who Could Benefit from Vancouver Tax

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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!

A Vancouver agent who got caught with his hand in the cookie jar said this:

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:

https://www.fincen.gov/news_room/nr/html/20160727.html

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!

Posted by on Aug 11, 2016 in Jim's Take on the Market, Market Conditions | 0 comments

Higher-End Inventory

orangeco

Our favorite doomer went off again this week, focusing on how the high-end inventory has grown recently in the hot markets:

http://mhanson.com/8-9-hanson-house-supply-surging-time-highs-toxic-trend-change-suddenly-focus/

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:

Area
5/26/15 Actives
Today’s Actives
Diff
Del Mar & Solana Beach
73
99
+36%
Encinitas
91
110
+21%
La Jolla
185
218
+18%
RSF
237
275
+16%
Carmel Vly
116
126
+9%

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.

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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!

Posted by on Aug 11, 2016 in Carmel Valley, Jim's Take on the Market, Market Conditions, North County Coastal | 0 comments

“The Market Is Not What It Was”

not

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.

http://www.marketwatch.com/story/top-end-real-estate-is-at-a-tipping-point-from-sellers-market-to-buyers-market-2016-07-30

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.”

Posted by on Jul 31, 2016 in Jim's Take on the Market, Market Buzz, Market Conditions | 2 comments

55+ Survey

move

Finally some real evidence on how the Bank of Mom and Dad has been influencing the real estate market – see the bold print:

http://www.freddiemac.com/finance/report/20160608_55ers_significant_impact_housing_market.html

With 55+ homeowners controlling almost two-thirds or $8 trillion of the nation’s home equity*, the housing decisions they make in the coming years will significantly reshape America’s housing market.

The first Freddie Mac 55+ Survey focuses on this 55+ generation of 67 million people because of the impact they are having, and will continue to have, on affordable housing inventories, home prices, and the transition of America’s housing stock from one generation to the next.

The overwhelming message in this first survey is that homeownership works and that 55+ers are confident as they head into retirement or are already there. Some of the key findings include the following.

Baby Boomer Homeowners Expect a Financially Comfortable Retirement

  • Overall, 76 percent of homeowners over the age of 55 are confident they will have a financially comfortable retirement, according to the Freddie Mac 55+ Survey. Majorities in every demographic group surveyed share this confidence to varying degrees: African-Americans (77 percent), Hispanics (64 percent), Asians (80 percent), homeowners who are currently working (74 percent), as well as homeowners earning less than $30,000 (55 percent).
  • The Freddie Mac 55+ Survey also shows consistently strong links between homeownership and a person’s satisfaction with their home, community and financial situation. Specifically, 59 percent of homeowners are “very satisfied” with their communities, 64 percent with their current home, and 54 percent with their quality of life.
  • A majority also believe homeownership makes financial sense for most Americans.  Specifically, 96 percent feel homeownership makes financial sense for people who are either married with children or between 35-49 years of age. Smaller majorities said homeownership makes sense for people over 55 (87 percent), married couples without children (85 percent), single people with children (79 percent), and single people without children (53 percent).
  • In terms of helping others become homeowners, nearly 25 percent of the respondents say they have already helped someone financially with a down payment.

Why Baby Boomers Drive the Housing Market for Millennials

  • The Freddie Mac 55+ Survey also identified a number of other opportunities and challenges for the housing industry that will stem from the decisions Baby Boomers and other older homeowners make over the next few years.
  • For example, 63 percent of the 55+ homeowners surveyed say they prefer to age in place if they had complete control over it. However, nearly 40 percent indicate they would prefer to move at least one more time. This suggests nearly 25 million homeowners over age 55 may move again. When asked when they expect to move next, 13 percent think they will move within four years.
  • Of those homeowners who would consider moving, 12 percent believe their next home will be more expensive than their current one, while 37 percent believe it will be in the same price range, and half believe it will be less expensive. At the same time, 23 percent of homeowners say they would have to make major renovations in order to age in place.
  • 55+ers cite cost and convenience as the top factors influencing whether to move and where to live: affordability of living in a particular community (46%); having the amenities needed to live there for many years after I retire (44%); Less maintenance (41%); proximity to other family members (31%); having a place where I was no longer responsible for caring for the property (e.g. yard work, snow removal) (30%); being in a walkable community (28%); having abundant services for adults my age (25%); access to public transportation (17%); warmer climate (19%); having a place that is smaller than my current home (e.g. downsizing) (19%).

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Posted by on Jul 22, 2016 in Boomer Liquidations, Boomers, Jim's Take on the Market, Market Conditions, One-Story | 1 comment

Micro-Housing

int

Here’s another guy who insists on ‘disrupting’ real estate.  While the mobile devices are handy, are people – especially the affluent baby-boomers who are making the real estate market, going to give up their more-traditional homestead to live in a 320sf tin can?

http://www.forbes.com/sites/petertaylor/2016/07/19/meet-kasita-the-micro-housing-start-up-thats-about-to-revolutionize-real-estate/

You can tell immediately that Jeff Wilson, the 42-year old founder of Kasita, an Austin-based micro-housing start-up, has been courting venture capital. He has his sales pitch nailed—which is pretty impressive for a former university dean and professor who used to live in a dumpster.

When I ask Wilson what fundamental problem his company is solving he tells me without flinching: “Kasita is on the verge of disrupting the urban housing market in ways not seen in real estate and development in 150 years.” Wilson’s confidence may just be spot on. And perfectly timed.

Over the past decade my wife and I have asked each other countless times why everything else we own is completely mobile with the glaring exception of real estate. It’s not an unreasonably philosophical question. Every current aspect of our personal and business lives—from banking and corporate communications to reading the news or planning a vacation—now runs entirely off of five mobile devices and a wireless hotspot. So why do we still sleep in a house every night with two-foot thick brick walls that hasn’t moved an inch in 128 years?

Seeing a massive, mobility-starved void in the dead center of one of the largest segments of the US economy (while living in a dumpster), Wilson is betting that his tech-stuffed, 320-square foot, portable living capsule (a.k.a. casita, or “small home”) is poised to transform the fundamental concept of what real estate means to a new generation of Millennials, empty nesters, and upwardly mobile creative types (e.g., us) who are looking to trade-in their 30-year mortgage for mobility, simplicity, and financial independence.

Read full article here:

http://www.forbes.com/sites/petertaylor/2016/07/19/meet-kasita-the-micro-housing-start-up-thats-about-to-revolutionize-real-estate/

Posted by on Jul 22, 2016 in Interesting Houses, Jim's Take on the Market, Market Conditions, Modular Homes, The Future | 4 comments

ASG and KK

kayla klinge 25

We’re wrapping up the celebration of Kayla’s 25th birthday! (yesterday)

She was born on the day of the 1991 All-Star Game.  I got to hold her in my arms and watch baseball on TV from Day One!  The game was in Toronto, and Benito Santiago and Tony Gwynn both started for the National League!

https://en.wikipedia.org/wiki/1991_Major_League_Baseball_All-Star_Game

We had some random thoughts:

  1. How many people have lived in their current residence longer than any other house in their life?  I’ll say most.  The novelty of moving has worn off, and appreciating what you have is the new orange.  Shall we say an equal impact on supply and demand – and drying up both?
  2. Every house on the market for more than 7 days is probably a fixer – sellers should do improvements in advance. Buyers are schooled by HGTV, and want perfection. If you have a superior home in a terrific location, you’ll get offers right away as long as your price is within reason.
  3.  The Joys of Homeownership.  Whether the home is owner-occupied or a rental, let’s expect to spend $1,000 per month, on average, for repairs and improvements. You can cruise for a few years, but eventually you can expect to replace the furnace, air conditioning, water-heater, dishwasher, and refrigerator every ten years.  Carpet, paint, and landscaping every five years.  Sure, if you or your tenants don’t mind living in squalor, it’s not a problem. But if you want to sell for top dollar, you need top-dollar improvements.
  4.  You can judge the listing agent’s experience by the MLS comments.  The market isn’t hot enough that you can bluff me into thinking that your listing is so great that you’ll have multiple offers by tomorrow. Just make it easy to show, would you?
  5. We are overdue for a media onslaught. Any disruption in the positive housing trends are sure to be exploited by national media types. Don’t listen to anybody who doesn’t have on-the-ground examples to back them up.
  6.  The ‘Sold before Processing’ listings are of great convenience. There is fantastic efficiency for a listing agent to quickly shuffle a deal into escrow and move on to the next sale, and avoid having to deal with those messy bidding wars.
  7.  It seems like Zillow is enthusiastically supporting their big-spending realtors.  Zillow needs to go next-level and just openly promote their favorite agents.  There will be more lines in the sand to be drawn.
  8.  The unstable current events should make you conscious of your home’s security.  Do you feel secure at home?  Make your home defensible, or consider moving!
  9.  Revolution is going to come, so we should take charge. Take the gun issue.  Both sides should submit their solution, and a compromise hammered out.  Something has to change.
  10.  If unrest continues, it is probably good for real estate.  More people will buy a house to hunker down – to “cocoon”, and drive demand.

Wondering what to do?  Either you can settle at today’s prices, or take your chances during the next spring selling season with the new president!

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Posted by on Jul 10, 2016 in About Kayla, Jim's Take on the Market, Kayla Training, Market Buzz, Market Conditions | 0 comments