A report from KPBS in California. “Norm Miller, a real estate finance expert at University of San Diego, said if you look at price per square foot, prices have only risen about 1% over the past year. In fact, Miller said home prices among the bigger, more expensive homes have actually dropped. He thinks this is due to new federal tax laws that limit the deduction of property taxes. That boosts the after-tax cost of owning a big home and, consequently, drives down the home price.”
The Orange County Register in California. “Southern California had 18,632 foreclosure filings last year. Well, bankers do make mistakes. And families do have financial catastrophes. So mortgages do go bad, even in the best of times.”
The Bay Area Newsgroup in California. “The price for the San Francisco Victorian made famous by the ’80s sitcom ‘Full House’ and the reboot ‘Fuller House’ has been reduced by $500,000, to $5.499 million. The shows’ creator, Jeff Franklin, purchased the home for $4 million in 2016.”
The National Herald on New York. “Prince Pavlos of Greece and his wife purchased a $16.5 million Southampton estate, according to the Real Deal, the New York Post reported. The 13,000-square-foot property is located at 385 Great Plains Road, the Post report continued, noting the ‘sale price marks a hefty discount — a nearly 40% drop from the listing’s original $27 million asking price in 2009. The following years saw a relisting in 2012 for $25.8 million. The price dropped to $19 million in 2017 before rising $3 million to $22 million in 2018.’”
The Real Deal on Florida. “After rising just before Super Bowl LIV, condo sales once again fumbled in Miami-Dade County. A total of 79 condos sold for $29 million last week, compared to 135 units that sold for $56 million the previous week. Condos last week sold for an average price of about $370,000 or $317 per square foot.”
The News Press in Florida. “After a decade of litigation, more than 1,800 Florida homeowners who bought homes made unlivable by drywall manufactured in China will be sharing in a $248 million settlement. Defective drywall that caused damage to property and health concerns hit people in 44 states, estimated at as many as 20,000 homes. Florida had the most. The settlement approved by a federal judge in New Orleans last month resolves two suits — and potentially more than 3,000 claims — filed against Taishan Gypsum Ltd., the China-owned company that sold much of the defective drywall in the United States, beginning in 2009.”
“As the housing boom was replaced by the Great Recession, homes that had lost much of their value were abandoned. Crashing property values made walking away the choice for many. Cape Coral resident Russell Moody, in an-email to The News-Press, was critical of the judge for approving the negotiated settlement. Moody argues that in his case, it will pay only a fraction of the estimated $163,000 it would cost to remove the offending drywall — and its effects — from his home. He is among the people who sued that have not removed the drywall.”
“‘It is a cleverly worded rationale, obfuscated in legalese and based on faulty and mischaracterized information, for approving a settlement that deprives over a hundred SW Florida residents of hundreds of thousands of settlement dollars that they are legally entitled to,’ Moody said.”
“Ultimately, the victims of the Chinese drywall will be paid pennies on the dollar for the damage to their homes and possibly to their health. The emotional strain of a decade lost will not be compensated.”
The Dallas Business Journal in Texas. “Home price increases in North Texas will likely continue to decelerate in 2020 and fewer homes will sell for above list price as the residential market here, like in much of the nation, cools. That’s the assessment of Cheryl Young, a senior economist with Zillow. How is the national housing market looking?”
“Nationally we’ve been seeing a transition in the housing market for the last almost two years now. Things have been slowing down quite a bit, especially in terms of home sales. Sellers are not quite in the driver’s seat anymore. We’re seeing house prices slow down. We haven’t really seen a drop (in prices) anywhere, except in really, really hot markets like San Francisco.”
“A couple of years ago, many homes were selling above list price. Is that no longer the case? That’s definitely what we’re seeing. That’s true nationally, but it’s dropped more here. Homes selling above listing price was really the norm back in 2016, 2017. In 2019, we saw the share of homes selling above listing price about 18 percent in the Dallas-Fort Worth area. That’s down from the peak in 2016, which was around 30 percent. In 2018, it was 24 percent, so it’s been declining since 2016. That’s a little lower than we’ve seen nationally, but the jump down hasn’t been as big nationally.”
“Is that healthy? It’s telling us things are normalizing.”
From Patch Massachusetts. “The most expensive home on the market in Waltham just had another price drop. The property was listed first in March last year for $2.2 million. Since then it’s had four price drops. Today, nearly a year on the market, the owner is asking $1.6 million.”
From Seattle PI in Washington. “The dark clouds and drizzle of winter parted ways for a warming Seattle condominium market. Seattle started the year with a jolt as sales spiked and inventory plummeted. Citywide, the median Seattle condo sales price reduced 4.26% year-over-year, and 7.7% from the prior month, to $449,975 in January. We had been flirting with a balanced real estate market over the last half of 2019, bringing some equilibrium and relief for prospective buyers.”
“However, that changed sharply as January’s 291 Seattle condo listings (listed in the MLS) reflected a one-year and one-month dropped of 32.5% and 14.2%, respectively. This was the fewest number of listings for sale since April 2018. Note, this figure does not contemplate the presale units that are currently under construction.”
From Senior Housing News. “Private equity investment in senior housing has gained momentum over the last several years and could reach new heights in 2020 — which might spell trouble for the industry down the road. Specifically, some private equity funds may be coming to the space for the first time with unrealistic expectations, which could result in a variety of unwelcome outcomes. In one scenario already playing out in some instances, PE owners are pressuring operators to drive short-term results at the expense of long-term viability, in order to generate returns on tight timelines that are standard in other types of PE real estate investment.”
“For instance, a number of private equity funds are struggling to generate returns in the multifamily space and are eyeing senior housing, according to Mike Gordon, senior managing director and head of transactions for Chicago-based PE firm Harrison Street. ‘There’s going to be a bit of a rude awakening when they realize that the three- to four-year hold period in the multifamily space just doesn’t translate in our sector,”’ he told Senior Housing News.”
“Going into 2020, private equity firms had a record-high $1.5 trillion in unspent capital, according to Preqin data. ‘I certainly don’t have any numbers on this, but I feel like every time I turn around, I read an article about new funds, new money,’ Julie Ferguson, senior vice president at Ryan Companies, told SHN. Communities that were built early in the recovery leased up quickly and were generating attractive returns in the high-20% range, she observed. As a result, many investors ‘chased this market,’ which became overbuilt.”
From Multi-Housing News. “How do you lend money into a market and an economy that may be heading into a decline? The answer: very carefully. The economy is still showing signs of strength and real estate capital is plentiful, but the risks—including weakness in manufacturing spreading to other sectors, trade policy uncertainties, a $23 trillion trade deficit, a forecasted $1 trillion federal deficit, constrained infrastructure spending, a stock market correction, a tech market bubble, geopolitical risks, the U.S. national election and low short-term interest rates—are mounting, noted moderator Kelly Wren, partner at the law firm of Ballard Spahr.”
“‘There is a lot more discussion around conditions than even a year ago,’ said UBS Managing Director Chris LaBianca during a panel discussion titled ‘Risky Business: Late Stage Cycle Conversation on Credit, Valuations and Underwriting’ at the Mortgage Bankers Association CREF 2020 Conference.”
“Some lenders have entertained more interest-only components, relaxed cash management requirements, extended terms, etc. As a balance sheet lender, Greg Gerken, executive vice president and head of U.S. Commercial Real Estate Lending said they are looking at loans today as if they are making an investment. ‘We have to think about this property with a lense that, frankly, as a banker I never thought I’d use,’ he said. ‘It’s not loan-to-own but loan-to-what-if and making sure we are not underestimating everything that has to go right.’”
“LaBianca said now is the time for lenders to return to basic principles like being market savvy so they can foresee the things that may signal trouble. Some of the new hot markets, like Nashville, may become overbuilt. Others—like New York—are dealing with regulatory challenges.”
“But haven’t the real estate capital markets generally been more cautious throughout this cycle?”
“They have and haven’t, noted LaBianca. When you look at the average leverage (58 percent today vs. 75 percent in 2007), debt yields (11 percent vs. 8.5 percent), and debt service coverage (1.2 vs. 2.7), the industry has learned the lessons of overleveraging. The percentage of IO loans (about 82 percent today) could be a sign that the industry has gone out of bounds, but the leverage on those loans is 75 percent on average.”
“Net operating income, however, has not risen with valuations. ‘Maybe what we thought was more conservative wasn’t,’ said LaBianca.”
“But, despite some trouble that may be on the horizon, commercial real estate still has a considerable cushion, said LaBianca: ‘This run has been so good for so long, and where property prices are, even if there is a 20 percent correction, you’d be back to 2016 and still above 2007.’ Romina Padhi , vice president and senior credit office for Moody’s Investor Services, noted that prices for some CMBS issues (smaller markets and student housing, for example) have already dropped.”