The Sale Sign is Gone and No Change in Ownership

Below is a blog in italics I posted back on September 24th 2018. It is close to four (4) months later. I walked by the residence again, the “For Sale” sign has been removed and based on public records I reviewed from the Denver Assessors Office there was not a change in ownership.

As you can see from the  prior blog post noted below the property was being listed by Rex Real Estate. The company has a unique business model; the use of social media to sell homes as noted excerpted from an article about the company: “A full-service brokerage that eschews the MLS, uses technology to displace traditional agents, and charges home sellers a set 2 percent listing fee.” As mentioned I was mystified as the listing did not show up in our local MLS service (and yes I know what eschews means) which is accessible by the general public at www.REColorado.com.

Long story short the house does not seem to be listed for sale anymore; the last asking was $650,000. I did a quick check in the immediate vicinity of what sold in the last 6 months for between $600,000 and $700,000 within the Congress Park neighborhood i.e. comp. properties:

Concerning 800 Jackson Street the Denver Assessors Office has the residence which is a charming tudor design measured at 1,229 SF above grade (281 SF larger then the comps) plus 1,184 SF basement which is considered fully finished. Based on the above comp. sales and being conservative let us use the $347 PSF total. The value of 800 Jackson Street should be approximately $837,000 (if based on the above grade PSF amount the home would be $852,926) and is over 500 SF larger than the median figures above.

I am the first to suggest some buyers may balk at being adjacent to 8th Avenue as well as across an alley from neighborhood serving retail (full disclosure my dry-cleaner is in the across the alley strip, The Cleaners which saved one of my favorite ties from a nasty and I assumed terminal grease stain) thus let us discount the value by 20% bringing the value down to $670,000. Yet the house was listed at $650,000 and did not sell or was taken off the market for other reasons.

With a 20% discount to comparable listings/sales there is a value play. Asking was $650,000; even if someone closed at the asking there seems to be value. Anything below $650,000 is even more attractive. I have no idea why the home did not sell yet my gut advises the following; I as a broker had challenges securing information about the listing; I would assume others did as well assuming they were even exposed to the listing beyond the sign and that was only visible if driving/walking west on 8th Avenue west of Colorado Boulevard.

Please note I am not disparaging any brokerage and I am intrguted with companies wishing to be disruptive including marketing, reduced commissions and so forth as I do believe comptition is healthy and produces innovation. However based on comparable properties this listing seems to be value priced and did not transact; why? I do not know and yes I am curious.

Below the original blog post including the response I received when I inquired about the listing with the agency marketing the home for sale: 

September 24th 2018: Last week I was walking to Trader Joes on Colorado Boulevard and detoured slightly seeing a For Sale sign on a home at the northeast corner of 8th Avenue and Jackson Street in Denver’s Congress Park neighborhood. So what do I immediately do; I pop the address into my Engel and Volkers App and nothing comes up!

Now I am mystified so I put the address within www.REColorado.com our MLS service, again nothing shows up!

Finally I took a picture of the sign, looked up the contact information for the firm and sent an inquiry concerning the listing as per traditional services not to be found.

I did receive the following via email the next morning.

Screen Shot 2018-09-17 at 6.42.12 PM

I am not going to opine on REX Real Estate which proudly boasts they purposely do not upload listings to the MLS as per the following from a trade periodical: a full-service brokerage that eschews the MLS, uses technology to displace traditional agents, and charges home sellers a set 2 percent listing fee. Now I understand why the listing did not show up in any of my go-to searches.

Again I am not disparaging any new firm or start-up. I actually encourage and am intrigued by such businesses; while the real estate trade is somewhat old-school and may need some disruption, how is an issue I prefer not to discuss at present..

Now concerning 800 Jackson Street, the asking is $650,000. Based on the condition and my comparable knowledge, I would put the correct valuation closer to $525-$535,000.

On their site if you scroll down there is an option for comparable’s and it lists three(3) as follows:

747 Cook St:              Sold for $815,000 or $245PSF

823 Monroe St:         Sold for $811,000 or $402 PSF

811 Cook St:              Sold for $781,000 or $311PSF

Thus based on their generated comparable’s this makes 800 Jackson Street look like an absolute bargain at $650,000 or $269 PSF. Yet…..

  • The three comps provided by Rex Real Estate are on better blocks with stronger housing stock and urban fabric
  • Their homes are south of the actual Congress Park.
  • All three homes are in better condition inside and out.
  • All three homes are mid-block where as 800 Jackson Street is on a corner abutting a one-way west-bound arterial and literally ½ block west of commercial development and Colorado Boulevard including a gas station less than 500 feet to the east.

So being a broker you may ask what would I use as a comparable?

I would use 601 Cook Street for the following reasons:

  • Similar neighborhood.
  • Adjacent to 6th Avenue, a one-way arterial east-bound.
  • Similar lot size and design.
  • In better overall condition.

The sales price on 601 Cook: $540,000 or $213 PSF within the last year.

My gut is if or when 800 Jackson Street does in fact sell I believe the sale price will be closer to the low to mid $500’s, this is just my prediction. Now someone may absolutely fall in love with the house, the location the layout and so forth and pay the asking however assuming they may be working with a full-service knowledgeable real estate broker, I assume that broker will provide comparable’s that are more alike and will of course assuming financing order an appraisal.

I will be keeping an eye on this one, just not via the MLS will use Assessors Records.

Of note, next Monday October 1, 2018 I will not be publishing as I will be in Asia. Will post the following week.

 

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Does the Manhattan NYC Real Estate Market Flash Warning Signs for other Urban Markets including Denver

It is no news that the borough of Manhattan within New York City is the most expensive housing market in the United States. It is also borough with a vast diversity of incomes, residents and employment. In addition it is the most attractive market for offshore money to invest in real estate.

Thus last week it was quite a shock to some that the median transaction price for an apartment in Manhattan was below $1,000,000 (barely at $999,000) during the 4thQuarter of 2018.

The concern is the $1,000,000 median was broken in the 4th Quarter of 2015 (the median was $1,150,000 at that time) and has stayed above $1,000,000 for three (3) years only to break below $1,000,000 during Q4 2018.

If one factors for inflation that same  $1,150,000 on December 2015 is worth $1,222,800. Thus the median in real inflation adjusted dollars has adjusted downward just shy of ($225,000).

Let’s look at another statistics:

  • Dec 30th, 2015: Dow Jones Industrials: 17,603
  • Dec 31st, 2018: Dow Jones Industrials:  23,327

Thus during the 3 years period the equities market was strong with a gain of over 25% and the Manhattan apartment market stayed above the $1M median.

Thus is Manhattan a precursor of what is to happen in Denver? My gut is yes. While inventory continues to be strained locally what is on the market seems to be languishing especially in the upper-end of the market i.e. $800K+. In addition we are witnessing more conservative pricing which some would argue is seasonal while others believe we peaked concerning home values 12-18 months ago and now are entering a new phase in the market moving towards a buyers market ever so slowly.

Some would argue comparing Manhattan to Denver is like comparing apples and oranges as the two cities have little in common. However Manhattan is historically the most in-demand housing market in the country. For this market to see a close to 25% reduction in the median (inflation adjusted) sales price in Q4 2018 from three years prior is concerning and may provide the caution sign we should all heed around the country.

 

 

 

2018 In the Books My Prediction for 2019 Follows

In Sunday’s Denver Post there was an interesting article titled: Is metro Denver’s hot streak in home prices at risk? Analysts disagree concerning the forecast for the Denver housing market and how those asked to opine are not in agreement; what a surprise.

While Denver continues to be placed in the same tier concerning price appreciation on a percentage basis as Seattle and San Francisco I am not sure these markets are truly comparable. Both those cities are on a coast thus you have a geography limitation (of note the most expensive cities in terms of cost of living in the United States are all along coastlines i.e. historic transportation/commerce hubs).  The reality is concerning those cities and others along coastlines is a simplistic supply and demand correlation concerning buildable land.

Yet cities such as Phoenix and Las Vegas are mentioned as a caution of past markets concerning exponential gains in values only to come crashing down. While in geographical terms Denver is more akin to those cities; again the comparison is flawed. Those cities experienced wide-spread speculation within their respective real estate markets and while similar population numbers the cities vastly greatly concerning socio-economic and business diversity demographics.

What I find interesting is Denver is rarely placed in the same category of cities in the Midwest including Minneapolis, St Louis, Kansas City and others.  These are cities which share geographic similarities, similar population numbers and other demographic traits. My gut is those cities are not as sexy concerning the attraction of readership numbers. Also never to forget our 300 days of sunshine!

So what do I see for Denver and the Metro area for 2019 (and yes I will be looking back to this blog and filling the TBD in December 2019):

Overall Slowing of Sales: My gut is we will see a continued slowdown in sales due to various factors including:

  • Continued mortgage interest rate pressures i.e. inverse to housing prices
  • A mild national recession
  • Slowing in-migration and increasing out-migration concerning the Metro Area
  • Stagnant job growth
  • Potential corporate relocations to locales with more affordable housing and larger  pool of labor

Yes I am well aware of VF Corporation relocating to Denver yet I am also aware of Chipotle relocating to the West Coast (more due to CEO desires versus labor and cost of living criteria).

While I do not see the Denver metro market cratering as mentioned I envision slowing concerning sales activity, a subsequent increase in inventory and by laws of economics stagnant to downward pricing to follow.

We have witnessed this already in the upper-tier of the market i.e. $500K and above and I believe we will see this trend trickle down to all price tiers and neighborhoods. On average I would suggest the overall 2019 across-the-board statistics at the end of the year will see prices 5% below 2018 and even more in real inflation adjusted Dollars.

In specific tiers of the market I believe closed prices will come down 10% of more based on a PSF basis especially in neighborhoods which witnessed exaggerated price appreciation since The Great Recession including areas where supply may be exceeding demand.

From a back of the napkin calculations and statistics gathered from REColorado:

Neighborhood               # Sold   2018 PSF     2019 Forecast  2019 Actual

  • Country Club*:      73         $535                $495   (-$40)             TBD
  • Cherry Creek**:    202       $425                $395   ($-30)             TBD
  • Wash Park***:       88         $609                $540   (-$69)             TBD
  • Highlands****:      386       $440                $405   (-35)               TBD
  • Cherry Hills*****: 87         $452                $410  (-$42)              TBD

Avg. PSF is based on Above Grade/Finished

  • *Country Club: 1st Ave. to 8th Ave., Downing St. to University Blvd.
  • **Cherry Creek: 1st Ave./Alameda Ave. to 6th Ave., University Blvd. to CO. Blvd.
  • ***Wash Park: Louisiana Ave. to Alameda Ave., Broadway to University Blvd.
  • ****Highlands: 28th Ave. to 38th Ave., Perry St. to I-25
  • *****Cherry Hills: Municipal Boundaries of Cherry Hills Village

I will be re-posting this blog on December 30, 2019 with the TBD to be replaced with actual numbers for a comparison.

Thank you for your readership and support and I forward to continuing to blog into 2019 and beyond. Have a Happy, Healthy and Prosperous 2019.

 

 

 

 

We are officially in a Bear Market Concerning Equities, what about Housing

Today’s abbreviated trading session on Wall Street brought us to a Bear Market.  While bears may be cute and cuddly concerning stocks not so much. Concerning a Bear Market here are some facts:

The term on Wall Street is synonymous with serious, long-lasting declines in stock markets. In numeric terms, a bear market is a 20 percent or more drop from a recent peak. This has happened, now the question is will the downturn in equity values continue?

Pessimism tends to prevail. When good news isn’t enough to hold off sellers and despite solid economic conditions, markets continue to tank — that’s a bear market.  Of note while the economy seems to be running full steam ahead in general equity markets look to the future and the earnings and continued expansion may have peaked, only time will tell.

Since World War II, bear markets on average have fallen 30.4 percent and have lasted 13 months. When that milestone has been hit, it took stocks an average of 21.9 months to recover.

Now the question is; if this Bear Market continues what can we expect on the housing front? This is a challenging question as housing is not liquid, reacts to trends beyond financial headlines and it can be a hedge against a falling equities market i.e. preservation of capital invested in one’s home.

The housing market is unlikely to hurt the stock market much this time around versus The Great Recession of 2008. However, continued stock market volatility or a cooling equities i.e. a Bear Market could have an effect on home-buying activity.

Historically, the stock market takes a hit when interest rates rise and we witnessed this last week when the Federal Reserve again increased rates. For housing, meanwhile, low interest rates have arguably allowed home prices to rise as quickly as they have — but that could soon change.

Mortgage rates have rebounded this year, and continue climbing. If rates were to continue to rise much higher, it could put a damper on the home price appreciation occurring in some markets, since prospective buyers would be less inclined or able to buy homes at such high prices as higher interest rates impact one’s monthly payment i.e. more $ allocated to interest and loan repayment versus equity appreciation.

However some analysts believe that the recent stock market turmoil could slow interest rates’ ascent. “The stock market adjustment can help bring mortgage rates down a bit which could help the housing and the mortgage markets. However for many prospective buyers witnessing their stock portfolio either in their retirement or saving for a down payment, the paper loss may curb one’s appetite due to the lessening of the wealth effect a Bull Market produces.

In Denver we have witnessed a cooling of the market, which has been a relief to buyers, and more challenging to sellers yet this comes after a 5+-year ascent in prices, which is not sustainable in a rational market.

Locally we need to watch the winter months and see what comes on the market, how it is priced and activity i.e. days on market before going under contract and price adjustments.

I am personally a proponent of not using one’s home as an investment vehicle. I have always believed one’s home is shelter and the benefits from tax deductions to hedging against inflation are bonuses. Yet with low interest rates and some purchasing a payment versus true equity appreciation; as with any market there will be winners and losers.

My advice with 20+ years as a real estate broker remains the same; if you find the correct house and it is affordable meaning within your budget and you plan to stay 3-5 years or more, go for it. Some would suggest and I tend to agree housing in a bear market can in fact be a safe haven. If you are in the market and speculating or fix/flipping and so forth I would strong suggest caution and/or an alternative option if your original strategy does not produce the profits you desire.

 

 

 

 

A Congress Park Bungalow Why I Always Look At Sales History

I am the first to admit sales history and chain of title may not tell the full story. Granted its records transaction prices as reported to the Clerk and Recorder office as we are a Deed of Trust state. Thus the following has always caught my curiosity as I drive by it daily.

The home, a small bungalow in Congress Park has as mentioned always attracted my attention. The main level per city records has 877 SF and the basement 432 SF of which 380 SF is finished. In addition the lot is small i.e. 2,970 SF. In addition no garage, a postage stamp sized yard and abuts a major thoroughfare thus no on-street parking and faces the major one-way thoroughfare.

I watched as the residence sold in 12/13 or 5 years ago for $210,000.

The buyers were fix and flippers and after a cosmetic renovation and some mechanical updates placed on the market for $409,000 3 months later. After a price decrease to $399,000 the home sold for $393,500 in April 2014, 5 months after the initial purchase. Again a fix and flip (and I am the first to admit a well-done cosmetic flip and the addition of egress from the basement). I was always curious as location abutting a major thoroughfare, no true yard or buffer from traffic, a curious home indeed.

The home was re-listed for sale in January 2017 for $549,000.

After a slight price reduction the home sold for $535,000 in March 2017. This seller probably hit the market just at the right time as in the 3 years of ownership enjoyed a gross gain of 30% before closing costs including commissions.

9 months later the house reappears on the market asking $575,000. Granted I would love to profit $40,000 however when one considers commissions and closing costs (let’s assume 6%, the net profit would be $40,000-$34,500 or $5,500. While not a great profit basically was able to live for free for the prior 9 months.

However this seller was not so fortunate! 4 months later a price reduction to $549,900 and subsequently the home sold for $540,000 in May 2018.

Of note the house sold to that seller for $535,000 14 months prior. Thus again assuming commissions and closing costs of 6% of $540,000 or $32,400 actually a loss of close to $30,000 during the 14 months or approximately $2,100/month not factoring in taxes, insurance and other homeowner associated costs.

The house again has come in the market 7 months after the last resale asking $585,000 or desiring to profit $45,000. Again assuming 6% closing costs at asking ($35,000) will net seller $550,000 or $10,000 profit in 7 months assuming it sells at asking price.

The reality is doubtful the home will sell at full asking and thus most likely this seller will also take a loss on the home when it sells.

As a broker on behalf of my clients I always do a look back concerning the sales history. On this particular home I would actually steer my client away due to size, inferior location i.e. on a busy street, no garage and so forth. Granted I believe it would make a great rental property however at asking even if cash the return would be minimal AND the potential equity upside I believe is limited as we are on the downside of the market.

Here is the history in an east to review table:

  • 12/13: Sold for $210,000
  • 4/14: Sold for $393,500
  • 3/17: Sold for $535,000
  • 5/18: Sold for $540,000 – Also known as the year of NO PROFIT
  • 12/18: Asking $585,000

I wish these sellers the best of success. Yet any home that has gone through 5 owners in 5 years would make me question “what is going on with this home?”

Month over Month showing Weakness

Late last week I posted a screenshot of the November 2018 sales statistics for Metro Denver. While the state economists today suggested 2019 should be a positive year for Colorado’s economy concerning job and wage growth across all sectors with a mild slowing;  the housing market may be advising differently.

Let me preface we have headwinds. While Denver may trail Seattle, San Francisco and Las Vegas concerning year-over-year price appreciation in percentage terms let us face the following realities locally and regionally:

  • Our housing market did not go into a free-fall unlike Las Vegas and Phoenix.
  • We have been in a 5+-year expansion concerning housing prices.
  • Wages are not keeping up with housing costs in Metro Denver.
  • New construction did not keep up with demand over the last 5 years.
  • Our economy is not Seattle and San Francisco nor is our population as noted below or geography i.e. available hinterlands versus coastal (Statistics from varied sources including Federal and Regional Census Data):

San Francisco:

  • Metro Population: San Francisco–Oakland–Hayward MSA: 4,335,400
  • San Jose–Sunnyvale–Santa Clara MSA: 1,837,000
  • Average Income: $96,600 / $110,000

Seattle:

  • Metro Population: Seattle–Tacoma–Bellevue, WA MSA: 3,867,000
  • Average Income: $78,612

Denver:

  • The 12-county Denver-Aurora-Boulder Combined SA: .3,150,000
  • Average Income: $71,926

In general housing costs in San Francisco and Seattle are more expensive then Denver HOWEVER their average incomes are higher and by geography their ability to expand and build outward is limited.

While housing prices in metro Denver were on what seemed like an exponential trajectory I have suggested prior and statistics may be validating we peaked a few months back. While sales prices continue to climb, inventory is increasing, days on market are increasing and eventually prices may begin to adjust downward or keep with inflation and not show oversized gains.

The November 2018 #’s are interesting and showing an impressive gain on a year-to-year basis and while month-over-month does not show a trend I suggest the real estate market is looking outward and showing some hesitation similar to how the stock market projects out 6-12 months.

What will be interesting in to see what November 2019 stats show. My gut is we will see prices either static or lower. Inventory will be higher and days on market will also increase.

This is not necessarily negative, as markets should over time trend back towards normalcy. For too many years we have been in a seller market and it is time to move back to equilibrium of sorts.  In high-end neighborhoods there seems to be a glut of expensive homes waiting a buyer or rental signs as owners wait our the market conditions. While there continues to be some blockbuster sales they are more of an anomaly versus weekly updates. Two recent high profiles sales in Cherry Creek North and Belcaro were to out-of-state buyers relocating as part of VF Corp. relocation to Denver.

My concern is for our local and regional population of move up and move down buyers. At present 1sttime homebuyers continue to be challenged in the market and even as prices may be stabilizing; interest rate increases negate the opportunity of lower pricing.

Move-up buyers are being challenged in finding suitable inventory. This is worrisome as families outgrow their first home or desire more space find inventory challenged in central Denver and will migrate to the suburbs/exurbs or worse leave the state. Move-down buyers those who may be downsizing can take advantage of the sellers market HOWEVER again their inventory for replacement is challenged and thus may consider regional relocation or out of state.

As a 20+year broker in Denver as mentioned prior I have been through these cycles including:

  • 1987-89: Downturn
  • 1991-1995: Upswing
  • 1996-2001: Pricing matching inflation
  • 2002-2006: Irrational Exuberance
  • 2007-2012: Downturn, depths of Great Recession and Foreclosure Crisis
  • 2013-Present: Upswing potential leveling off

While I am not predicting a severe downtown I would not be surprised to see a 5%-10% correct concerning housing prices over the next year across Metro Denver. I believe there are segments i.e. the luxury housing niche i.e. $750K and above that will see more severe adjustments.

Let’s just use this blog posting as an opportunity to revisit in one year.

Is the slowdown in the housing market predicting an overall downturn for the economy?

In general we believe the stock market looks outward in the 6-12 month range concerning the economy and has priced in that forecast; however what about housing?

Granted housing is far from liquid. It is also in some respects a regional commodity based in supply and demand concerning micro and macro inputs. Like stocks housing and specifically mortgages are definitely impacted by interest rates presented in the equities market, which in turn impact mortgages, and credit card rates.

The news from the housing front seems to have gone from a seasonal pattern to one showing a trend. Some recent headlines from the housing front:

Pending home sales tumble to 4-year low in latest sign the housing-market correction has arrived

GOLDMAN: 3 reasons why the US housing market is slowing down

House price growth slows to nearly two-year low as Case-Shiller makes the slowdown official

Peers have suggested part of the issue is interest rates year over year are up one full percentage point. Coupled with somewhat inflated housing process nationally the 1% increase does in-fact impact affordability especially at the first-time home ownership market, which has been literally priced out of the market since the end of The Great Recession.

The paradox is the equities market continues to be at elevated levels leading to the overall “wealth effect”. Also the economy has the lowest unemployment rate that goes back multiple generations. Thus based on the above positive statistics the housing market should continue to be on an upward trajectory yet its not.

I went back a to the early 2000’s to see how the housing market reacted before The Great Recession reviewing notes from the Federal Reserve; some take-aways include:

  • U.S. house prices began to rise more rapidly in the late 1990s.
  • Prices grew at a 7 to 8 percent annual rate in 1998 and 1999
  • In the 9 to 11 percent range from 2000 to 2003
  • In 2004 and 2005, when the annual rate of house price appreciation was between 15 and 17 percent

Thus prior to The Great Recession there was a massive run up in housing values around the country. Part of the run-up was due to Adjustable Rate Mortgages i.e. ARM’s, which provided lower interest rates and thus lower PITI. Also there was rampant speculation in markets including Phoenix, Las Vegas and others where underlying economic statistics i.e. in-migration, average incomes and others were not in tandem with the rise in the underlying housing market. Thus a bubble formed and subsequently burst.

Personally I remember having a client purchasing a home with a 125 Loan to Value Mortgage meaning their loan was literally 25% higher than the underlying value of the home. Their i.e. buyers rationale as well as that of the lending institution was real estate values can only keep going up.

Are we witnessing a similar pattern in housing as seen in the early to mid 2000’s? The answer is yes and no. We have witnessed a serious run-up in values however the baseline from The Great Recession was historically low. Also we are not witnessing the frenzied pent-up demand for housing with buyers lining up for first opportunity to purchase spec. homes. Also lending requirements have become more stringent however I am seeing a return of no-document loans, low down payments i.e. 3% and other loan products that may be challenging in a downward cycle.

Is the housing market due for a bust? I do not believe so as we are not necessarily in a bubble. However are lower prices on the horizon? I believe so. Locally in Denver we have seen the revision in values from the luxury market all the way to the first-time ownership segment.

On the high-end a house in the Denver Country Club came on the market one year ago at $2.3M and sold within the last month for $1.7M. On the lower-end units in Monaco Place, a large condo complex at Hampden Monaco has 2BD units trading between $210-215 in the spring of 2018, more recently similar units are selling below $200 and some in the $180-$190 range.

My sage advice coupled with a historic perspective is as follows:

If purchasing for the longer-term i.e. more than 3-5 years should be OK. There may be continued softening in the market however interest rates are still below 5%, coupled with potential tax advantages ownership may be a positive.

If looking to fix and flip or rental may need to be a little more cautious. Unless the residence is quite underpriced to the overall market and/or there is upside due to renovation and/or location, again would proceed with caution.

If looking to buy and sell within the next 1-3 years I would probably suggest holding off. Between a softening of prices, rising interest rates coupled with costs associated with selling i.e. commissions, Title Insurance and so forth gain if any may be minimal.

If a seller, may be consider selling now as historically when the market softens we may witness increased inventory, which in turn will depress prices. At present inventory is still challenged and thus may be propping up short-term pricing.

Overall am I concerned? Not at all. Like all markets there are corrections. We have been in a seller’s market since The Great Recession and the markets are now moving more towards equilibrium, which is actually a positive for sellers and buyers. In general until this last generation housing was viewed as a solid investment to match or exceed inflation. It was not until the generation of easy access to money that housing becomes a commodity and home equity loans also known, as HELOC’s became the ATM of choice.

As we may remember the housing market started to show concern many months before The Great Recession hit full-force. While the underlying economy seems to be humming along are we on the later-side of the bell curve concerning economic activity? While we can collectively discuss stimulus, tax-cuts and so forth for every action there is a reaction. My gut and I hope I am wrong we have traded short-term growth versus longer-term health as I do not believe business cycles have not in fact ended.

The millenials may have the right idea concerning holding off purchasing homes. This generation witnessed the carnage between 2008 and 2012 and is proceeding with caution; maybe a good lesson for all of us.

 

 

 

 

 

Just Returned from Madrid, a Tale of Two Housing Markets

Spain was not immune to the worldwide Great Recession. Similar to the United States Spain’s real estate was also affected with banks lending sans oversight and subsequent defaults. When I was in Barcelona two years ago there were signs of a real estate market in recovery coupled with in-migration of younger entrepreneurs attracted to the city with its affordable housing and commercial space.

Visiting Madrid this past weekend I was impressed with the vibrancy of the housing market. Of note Madrid is enjoying its most robust year of home construction since 2008 with an average of 2,151 new residential licenses awarded per month in the first 7 months of the year. City-centric real estate seems to have strong demand from flats to even garage parking where a space cost can rival the cost of condos in the suburbs of Denver. Even in the northern Madrid suburbs development continues with demand fueled by affordability when compared to the center of the city.

Yet just beyond the major cities the carnage resulting from The Great Recession is still visible. According to a local broker and statistician the real estate sector’s recovery in Spain is developing at two clearly different speeds. While one part of the country is consolidating the recovery of the sector and even expanding, another part of the country is stagnating and is showing few signs of returning to pre-crisis levels in the medium- and long-term.

The major cities and tourism centric areas are booming fuelled by interest rates that are still near historic lows, an economic recovery, demand from other European residents and a banking system that has been stabilized. Like in the United States private equity firms including Blackstone Group LP ($25B Euros invested in Spain) is purchasing once-toxic assets and similar to their MO in the United States is converting properties into rentals as home ownership has yet to rebound in Spain which once had a quite high rate of home-ownership.

Yet beyond the city centers and tourism hot spots the market is struggling. Travel to the outskirts of smaller villages and ghost towns still litter the landscape – once ambitious developments, often started on agricultural land that was converted into building lots just before the Great Recession started.

An example and known by some urban planners like myself is the unfinished Bioclimatic designed development known as City La Encina. Situated on the edge of the village of Bernuy de Porreros, about 6 miles from Segovia, it promised to be Spain’s first environmentally-friendly town, providing solar energy and recycled water for 267 homes, two-, three-, and four-bedroom chalets and apartments. At present only about a dozen of the homes are occupied.

Related and what statisticans like myself look at is the mortgage market as an excellent indicator of the status of the overall real estate market. The volume of residential mortgages sold in Spain peaked in late 2005 before hitting a low in 2013. In the 5 years since the bottom the mortgage market has gradually recovered with 28,755 sold in August 2018, a 7% annual increase. The recovery of Spain’s real-estate is truly uneven and reinforces the oldest axiom of real estate it’s about Location, Location, Location.

 

 

 

Is Ikea Orienting New Development to the Inner City

We all have seen the big box Ikea in suburban locations rising from the landscape like a sculpture in Yves Klein Blue yet an actual color scheme of the flag of Sweden. Possibly following the trend set by Target and Wal-Mart, Ikea may be looking closer to the inner-city which would make sense offering furnishings and products oriented to smaller residences.

A year after the parent company of Ikea said it was rethinking its business model and focusing on city centers rather than out-of-town warehouses, the furniture giant’s property division, Ingka Centres (formerly Ikea Centres), is taking the same tact.

As part of its plan to invest €5.8 billion (or $6.6 billion) to create new Ikea store-anchored developments around the world, Ingka Centres—a subsidiary of Ingka Group, which is the parent company of Ikea—is looking in the next two years to open six mixed-use developments with retail and entertainment areas, health education services and of course, an Ikea. But in the case of these city centers, the Ikea stores will have a smaller footprint (70,000 to 150,000 square feet rather than the more typical 400,000 square feet), Word on the streets is there will be at least 15 such centers opening within the next three years.

Ingka Centres is targeting 30 major cities in North America, Europe, Asia and Russia, with New York City (Ikea has full-format locations within Brooklyn and across the Hudson River in Elizabeth NJ) and San Francisco (a location in Emeryville) at the forefront. The company wants to purchase sites and redevelop them, and has already started visiting some properties in both cities. Other cities on the shortlist include Los Angles and Chicago, no mention of Denver, not surprising as our density is low compared to the other cities yet our average age and educational attainment would be a good match.

  • Average density of Los Angeles City not County is: 12,500 persons per sq. mile
  • Average density of San Francisco is: 15,000 persons per sq. mile
  • Average density of Chicago is: 11,900 persons per sq. mile
  • Average density of Denver is: 4,300 persons per sq. mile

In Shanghai, China construction is underway on the €1 billion ($1.1 billion) mixed-use Livat shopping center, which will include a smaller 200,000-square-foot Ikea store, 300 other stores, public space, a roof garden, a Scandinavian-styled street and five office towers. The project is slated for completion in 2022.

Last November, Ingka Group (formerly Ikea Group) launched a new strategy to focus on city-center stores as it sought to rethink its business model amid urbanization and the shift to e-commerce, per the Financial Times. That shift included trying different store formats, including smaller stores. For example, there is a small-format 70,000-square-foot Ikea store opening this spring in Paris although Ingka Centres is not involved.

Even Entertainers Can Lose Money in Real Estate

In the upper-echelons of real-estate we brokers may mention a property’s provenance. Such properties may secure an inflated value due to past or present ownership. The Bob Hope Residence in Palm Springs had his ownership as provenance and being designed by John Lautner an addition premium due to the design and demand for Lautner designed residences with one of his most famous being The Chemosphere and used in multiple moves including Charlie’s Angels and Body Double.

Thus it was a surprise when bold-faced names Keith Richards and his wife Patti Hansen took a loss on their well-pedigreed co-op at One Fifth Avenue in New York City’s Greenwich Village.

First the building; in addition to the address having tone in a city where such matters it is truly a beautiful and striking pre-WWII building. Located on the southern end of 5th Avenue and adjacent to Washington Square Park, One Fifth Avenue is a building that is always in demand and desirable.

The apartment, a duplex i.e. 2-floors features a large open dining/entertainment space, a leather and bronze open staircase and three private terraces — including two that overlook Fifth Avenue and Washington Square Park. The unit was purchased in 2014 for $10.5M and listed at $12.32M. The apartment recently sold for $9M; a substantial discount from the asking and a $1.5M loss from the purchase price 4 years earlier.

Concerning the provenance; not only owned by Keith Richards, a previous owner was art curator/collector Sam Wagstaff, photographer Robert Mapplethorpe’s former lover. Thus while one can place a value on location, ownership, provenance, history and so forth the reality is the market will provide true guidance.

I hope Keith Richards did not say at the closing “I can’t get no satisfaction“.