Amid all the epic financial bubbles that have emerged in the past few years, real estate has been a bit of an afterthought. Still, the action in hot market trophy properties has been pretty bubbly.
And now the run may be ending. London penthouses are sitting empty due to Brexit uncertainty. Vancouver condos aren’t selling because of recent taxes imposed on foreign buyers. And in the US some formerly red-hot markets are heading south. Consider:
Real-estate expert Andrew Stearns released a study yesterday that suggests, yet again, that demand for luxury condos in Miami could be hitting its breaking point. Though there were more than 700 post-2012 “preconstruction” condos on the market in August, Stearns reported that only eight of them had sold. And all but one lost money on the sale.
Sales of previously owned condominiums and co-ops fell 20 percent in the third quarter from a year earlier as potential buyers grew cautious amid more choices, according to a report Tuesday from appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. There were 5,290 resale apartments on the market at the end of September, 53 percent more than the number available in late 2013, the lowest point for listings.
The swelling inventory is providing an opportunity to New Yorkers shut out of a market in which construction has been dominated by ultra-luxury condos aimed at the wealthiest buyers. Resales, particularly those priced at less than $1 million, were in chronically short supply in recent years, and those that made it to the market sparked bidding wars. Now, more owners are listing apartments to profit from climbing values, and they’re finding lots of company.
“Rapidly rising prices over the years have pulled more sellers into the market hoping to cash out,” Jonathan Miller, president of Miller Samuel, said in an interview. “But buyers are more wary. There isn’t the same intensity of activity to burn through the new supply.”
Buyers agreed to pay more than the asking price in just 17 percent of all condo and co-op deals that closed in the third quarter, down from a record 31 percent a year earlier, according to Miller Samuel and Douglas Elliman. Consumers also are taking longer to make a decision. Previously owned properties that sold in the period spent an average of 72 days on the market, up from 67 days a year ago.
“We’re clearly seeing a slowdown,” Miller said. “This era of aspirational pricing is coming to an end. Buyers get the message first.”
Especially in the Bay Area, ground zero for jumbo-sized rent hikes.
But the latest research from Abodo, the apartment search website, shows something new: rents actually dropping between August and September in San Jose and San Francisco. In fact, those cities were on Abodo’s Top 10 list for the “Biggest Fall” in rents for one-bedroom apartments during that period.
The website’s National Apartment Report for September shows the average monthly rent for a one-bedroom apartment in San Jose dropping from $2,790 to $2,455, a 12 percent decline — and the second-largest decrease among U.S. cities. A one-bedroom in San Francisco fell 6 percent, from $3,952 to $3,698, the seventh-largest decline. Seattle scored the largest fall in rent: 13 percent, from $2,170 to $1,890.
This isn’t 2007 and these real estate markets aren’t collapsing. But the switch from strong growth to modest contraction is a big deal in the context of an economy where manufacturing remains weak, trade growth is slowing dramatically and corporate profits continue to fall. Combine a mild real estate recession with the bursting of the auto loan bubble and it’s not clear where the expected 3% growth as far as the eye can see will come from.
Actually, that’s not true. It’s been clear for some time that the next growth engine will be old reliable deficit spending. Whoever is in charge a year from now will almost certainly be ramping up a major tax cut/infrastructure spending/debt relief program, paid for with either borrowed funds or newly-created dollars. Helicopter money, in other words. And no way will this be combined with higher interest rates (since the two effects would cancel each other out), so the talk of Fed tightening will die a quiet death very shortly.