Tag Archives: housing market

Uptick in $100+ million residential properties with several more in LA

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The luxury residential market continues to see higher and higher prices:

“There’s a shortage of trophy properties that are available for sale in this pocket of Los Angeles,” Barry Watts, president of Domvs London, said in a telephone interview. “You’ve got high-net-worth people who want to own multiple homes across the world, and Los Angeles offers something different. If you want to drive your convertible car 12 months a year, it’s a city where you can do that.

Homes priced at more than $100 million are becoming increasingly common as billionaires, seeking places to put cash, shatter sales records from Los Angeles to London. Around the world, five properties sold for $100 million or more last year, and at least 23 others have nine-figure asking prices, according to Christie’s International Real Estate.

In the Los Angeles area, the Bel Air homes add to multiple trophy mansions being built, including several on a speculative basis, or without a buyer in place. In December, video-game designer Markus Persson bought an eight-bedroom, 15-bath spec mansion in Beverly Hills for $70 million. The developer of a four-house compound being built in Bel Air hopes to sell it for $500 million…

The Bel Air project that spec developer and film producer Nile Niami wants to sell for $500 million will have a 74,000-square-foot main residence, three smaller houses, a 30-car garage and a “Monaco-style casino.” The most expensive home ever sold worldwide with a confirmed price was a London penthouse purchased in 2011 for $221 million, according to Christie’s.

After a certain point, it doesn’t seem to really matter what is in the unit or how it is built. Instead, two other things matter. Where exactly it is located – typically among other expensive and limited properties. A place where the wealthy can sort of gather together (in their separate compounds) near a cultural and economic center. Second, how much of a status symbol it is because of its high price. How does it compare to other luxury properties? Such an expensive home is a trophy to have until others push past the price point.

Chicago with several new supertall building proposals

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In a city known for its architecture, several proposals for new skyscrapers stand out:

Not only is Helmut Jahn the architect behind a new tower planned for 1000 S. Michigan Avenue in the South Loop, but this new building is expected to stand at a whopping 86 stories — a height that would make this one of the tallest buildings in Chicago. Of course, the news comes literally just hours after a 76-story tower proposal designed by architect Rafael Viñoly made its public debut. According to drawings uncovered by the development watchers at Skyscraper Page, the tower would stand at a height of 1030′, which would make it the fifth tallest tower in Chicago, or sixth if the 93-story Wanda Vista is completed before it. The tower would stand two hundred feet over the 76-story Viñoly-designed tower for 113 E. Roosevelt Road and would consist of 506 residential units, 598 parking spaces and retail offerings.

Several thoughts regarding these plans:

  1. Big cities like skyscrapers for the image they project and the commercial and residential space they can provide in a small footprint. Chicago has always liked tall buildings – this is a place that may be near having three high observation decks – and the quest to add more continues.
  2. Who exactly can buy or lease all the new space? Chicago is an attractive city but given its population plateau/decline, these are probably more evidence for an ongoing divided housing market where wealthier residents can afford such things but the majority couldn’t dream of such buildings.
  3. With the recent anniversary of 9/11, I remember some of the predictions that there wouldn’t be as much interest in supertall buildings after the events of that day. This does not seem to be much of an issue today.

Rise in church-to-residence conversions in Chicago?

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The Chicago Tribune suggests there is a trend toward more residences created out of church buildings:

The popular trend of church-to-condo conversions began in the 1980s, said Carrie Georgitsis, the Redfin real estate agent who worked with Buera and Babus on their house hunt. Over time, the appeal became more popular, especially in the Lakeview and Lincoln Park neighborhoods…

Church-to-home conversions mirror the ever-changing needs of the community. Very often, a congregation will sell its church building because the congregation dwindled, forcing remaining members to consolidate into a smaller space since they can no longer maintain the large structure, Georgitsis said.Chicago’s increase in church conversions over the years reflects the religious direction of the United States in general. According to a 2014 Pew Research survey, the percentage of adults who described themselves as Christians dropped nearly 8 points from 78.4 percent to 70.6 percent in just seven years. Over the same period, the percentage of Americans who identified as religiously unaffiliated (describing themselves as agnostic, atheist or “nothing in particular”) jumped more than 6 points from 16.1 percent in 2007 to 22.8 percent in 2014.

“Studies show that the long-term church attendance in America is on the decline,” said Bill Skubik, president of Religious Real Estate, a Waterford, Mich.-based real estate agency that specializes in religious properties. “I tell pastors all the time, ‘You may be able to afford to buy the building, but who is going to pay the utility bills? You’ve got maintenance and utilities that are expensive.'” The decline of churchgoers reflects the changing needs of communities, Skubik said. And, as a result, church buildings are left abandoned or sold.

In Chicago, churches in residential areas can be converted into homes without any zoning ramifications. “Generally, many older churches were zoned for residential use, so it’s a relatively seamless process,” said Peter Strazzabosco, a deputy commissioner for Chicago’s Department of Planning and Development. Developers only need to worry about zoning codes in terms of the number of units and parking lots they plan to build, he said.

I find two things interesting about this story. First, this is presented as a story of supply and demand. In neighborhoods with tighter housing markets, developers and buyers are willing to pursue residences made out of former churches. Yet, the opening story in the article presents a couple who like the unique features of the unit. What if church buildings become desirable now just because there are not enough units available but because of their aesthetic charm and/or sacred architecture?

Second, the journalist suggests there is a trend toward more church conversions. But, are there any numbers to back this up? Do we know how many times this has been done? In the past, would developers bulldoze the unused church buildings rather than convert them?

Perhaps we will know if this is really a trend when new condos and single-family residences deliberately incorporate church-like features into their architecture and design.

Homeownership continues to drop, housing costs rise

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Twin trends in American housing: homeownership is down while housing costs increase. First, on homeownership:

Only about a decade ago, in 2004, 69.2 percent of all homes were occupied by their owners; the home ownership rate has since fallen to 63.4 percent, the lowest in almost fifty years despite some of the most attractive mortgage interest rates on record. In part this is due to the difficulty young couples have in qualifying for a mortgage, as once-burned, twice-fined and increasingly risk-averse banks, looking over their shoulders at their regulators, raise their lending standards.

But even a further loosening of credit standards that have already been relaxed for “jumbo” loans (in excess of $417,000 and $625,500, depending on the region) is unlikely to change the trend towards renting rather than owning, last month’s increase in construction of single-family homes notwithstanding. Jordan Rappaport and Daniel Molling, economists at the Federal Reserve Bank of Kansas, find that adults in their 20s and early 30s, so called millennials, are not alone in preferring to rent rather than buy. Ageing baby boomers, now in their 50s and 60s, have tired of mowing, hunting for plumbers, fixing leaky roofs and coping with the nightmares that accompany realization of the one-time American dream of home ownership. They have accounted for the bulk of new renters, and are likely to continue to “be the main drivers of multifamily [apartment] construction as they age through their senior years,” conclude the Bank’s economists.

Second, on housing costs:

Consumer prices rose modestly in July, and according to the U.S. Labor Department those gains were largely due to a 0.4 percent increase in the cost of shelter—the government’s measure of housing costs. This was the largest increase in the shelter index since 2007.

While inflation for other Consumer Price Index (CPI) basket items has been decelerating, the inflation of shelter has only been going up since 2010. Compared with July of last year, shelter prices are up by 3.1 percent. In the coming months, shelter inflation is expected to continue…

Rising housing costs, paired with stagnant wages, are a big concern for most Americans because not only is rent often already the largest part of monthly expenses—it is increasingly becoming more expensive. One study found that half of all renters spend more than 30 percent of their income on rent and utilities.

Interestingly, this is getting very little attention from politicians. Let’s say a politician wanted to appeal to the masses in the United States. One traditional way of doing this has been to push homeownership, a strategy pursued from Presidents since the 1920s. Owning a home might be the modern equivalent of a chicken in every pot for Americans. Since owning a home has been viewed as an essential part of the American Dream, most politicians want to be viewed as in favor of expanding this opportunity. (Of course, there are other reasons for pushing homeownership including boosting the economy and fighting communism.)

Perhaps other issues are more pressing at the moment. Or, I suspect few leaders really know what to do about reviving housing given the efforts in the early 2000s to expand homeownership that contributed to a big economic bust. Yet, since most major politicians today want to appeal to the middle class (and they don’t pay much attention to the poor – another story for another day), this would be one easy way to go if they could just figure some sort of plan.

Making housing activism attractive on-screen

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Fighting housing issues may be necessary but it is probably not the first topic viewers, producers, and networks think of for a good product. Until Show Me A Hero:

At its heart, Show Me a Hero is a wonk procedural, exploring all the seemingly impossible and impassable hurdles that policy has to traverse to become reality. But it’s brought to life by Nick Wasicsko (Oscar Isaac), the titular hero. In 1987, when the show begins, Nick, a former cop and lawyer, and current Springsteen superfan, is an eager and ambitious new member of the Yonkers City Council, which is already being roiled by a court ruling. A long-gestating lawsuit has finally found Yonkers, a working-class city just north of the New York City border, guilty of intentionally segregating its housing. The judge presiding over the case has ruled that 200 units of low-income housing must be built on the east, and white, side of the city. That is, more precisely, 200 units of housing, to be spread out over eight different locations, in the white part of a city of a couple hundred thousand people that has spent 40 years practicing systematic housing discrimination and segregation. That is, also, 200 units of housing greeted by white homeowners as an existential threat to their property values and way of life, visited upon them by liberal outsiders, to be fought viciously and rancorously, lest any of the “public housing people” come to live next door.

Nick is soon tapped to run against the Republican mayor in what is supposed to be a slam-dunk election for the incumbent but turns into an upset when the virulently anti-housing voters elect Nick simply because he is not the mayor, who has assented to the judge’s ruling in the case. Nick is happily swept into power by an incensed and racist cohort who expects Nick to fight the housing order, even though it is legal and will never be overturned, and disobeying it will bankrupt the city. Nick is not a simple, straightforward hero: He doesn’t come into office intent on doing the right thing, damn the consequences. He’s a cocky kid, tickled to be the county’s youngest big city mayor, who has to choose between being reasonable, responsible, and righteous or a recalcitrant, unrealistic bigot—when it is the latter choice that will let him keep his job. Nick does what is right. How he does this, and at what personal and professional expense, is the meat of Show Me a Hero, which, tellingly, gets its title from the F. Scott Fitzgerald quote, “Show me a hero, and I’ll write you a tragedy.” (A piece of advice: Don’t Wikipedia Nick Wasicsko if you want to avoid spoilers.)

Plenty of critics and viewers have echoed Newton Minnow’s claim that television will become a “vast wasteland” when it is bad. Yet, couldn’t a show like this be entertaining and provide a public good?

While I noted above that housing activism is an unlikely television topic, it is also an underdiscussed topic overall as many prefer to talk about the promises (and occasional perils, particularly after 2006) of the housing market without acknowledging the influence of residential segregation and the need for interventions to make affordable housing possible as well as to break down persistent clusters by race and class.

Homes going off the market at a record pace

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Given the reduced supply of homes for sale, Redfin reports that houses for sale are going fast:

New research suggests that not only are typical selling times declining in the current bull market for housing, but they also may have hit record lows. According to realty brokerage Redfin, the median time on market dipped to just 26 days during June — the shortest time on record for its database — with houses in some markets moving from listing to contract in 11 days or less. Denver homes sold in six days or less, according to Redfin; Seattle’s median was nine days; Portland, Ore., 10 days; and Boston, 11 days.

That’s hot. But there are dozens of cities around the country where selling speeds are nowhere near that quick. According to June data from real estate Web portal realtor.com, which uses information from local multiple-listing services nationwide, the median time on market for homes in Chicago was 54 days. In the Washington, D.C., area it was 45 days; Miami, 75 days; metropolitan New York, 68 days; Oklahoma City, 53 days. At the laggard end of the spectrum, the median house in Brownsville, Texas, took 122 days to sell; Myrtle Beach, S.C., 105 days.

Why such apparently wide variations from area to area, and what can a typical seller expect? Some basics: Part of selling speed depends on matters that you can control. But there are factors you can’t control — the strength of your local economy, employment and income growth. If the economy is on fire and there’s a low inventory of homes for sale to serve market demand, you’re going to see houses rapidly zipping from listing to contract.

Regional variation is to be expected but it may also suggest that certain housing markets are getting overheated again – not necessarily by high prices and a lot of new construction (like the mid 2000s sprawl of Las Vegas) but by having high demand yet few homes for sale.

The article goes on to talk about how sellers can slow down the process by pricing their homes a bit higher and leaving room for negotiation. But, there is little discussion about who benefits or is hurt by these quick sales times. Doesn’t this suggest that more housing is needed in the market, particularly in the lower ends of the market, either through some new construction or through continuing to help people get out from underneath their mortgages?

The American rental market continues to get more expensive

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A report shows the rental market continued to tighten in the United States in recent years:

And it’s probably getting rougher. “Rental markets tightened again in 2014 as the national vacancy rate fell by nearly a full percentage point to 7.6 percent—its lowest point in two decades,” Harvard’s researchers tell us. Meanwhile, rents rose at twice the rate of inflation, and faster than wages. However bad 2013 was when it comes to the country’s collective rent burden, it seems likely last year will look worse when the final numbers are in.

Rents are rising for the simple reason that, thanks to the never-ending hangover of the housing bust, a larger share of Americans are renting their living places now than they have in 20 years. And while developers have responded by building apartment buildings like mad—last year, there were the most multifamily housing starts for rent since 1987—it hasn’t quite been enough to keep up with demand. (Moreover, new construction is largely catering to wealthier buyers, while the families most burdened by rent tend to be lower-income.) Old, unwanted single-family homes from the boom days of the 1990s and early 2000s are relieving some of the pressure on the market, but not quite enough to keep prices from jumping.

Meanwhile, demand for rentals is probably going to keep rising. First, the Federal Reserve would really, really like to raise interest rates in the near future, which will make mortgages less affordable. But more importantly, millennials are getting older. Thus far, most of the growth in renting has been driven by middle-aged and older Americans. But even if young adults continue living with their parents at the same rate as today, there are simply so many twenty- and thirtysomethings that the rate of new household formation is bound to jump in the coming years, which is going to create much more appetite for rentals.

If expensive renting becomes the new normal, it would have widespread effects. Spending more money on rent means that people have less money to spend elsewhere, a problem in an economy driven by consumer spending. It could change how Americans view renters, which has negative connotations in a lot of wealthier suburban communities. Developers could continue to pursue different building options if they see a lot of money in multifamily housing. Lower-class residents may have a harder and harder time finding affordable housing, already a problem in many major housing markets. Denser development could shift ideas about homeownership and suburban life.

All that said, it remains to be seen whether this an economic stage or blip or whether the housing market will turn away from rental units and back toward single-family homes. Housing prices may be close to their 2006 peak but clearly fewer homes are being built and demand is down.

 

 

Teardowns increase

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Demonstrating again that people with means are doing fine in the housing market, the number of teardowns is on the rise:

Home teardowns are becoming common in U.S. suburbs such as Pimmit Hills, a 65-year-old neighborhood just beyond the borders of the growing Tysons Corner area near Washington. Builders, lured to locations where land is more valuable than the aging housing stock, are transforming communities outside of major employment hubs to take advantage of demand for real estate where schools are decent and commutes are short.

Knockdowns across the country are increasing, said Robert Dietz, an economist with the National Association of Home Builders. The trade group estimates that builders tore down and reconstructed about 32,000 homes last year, representing 5 percent of all single-family housing starts. Beyond the nation’s capital, the trend can be found in suburbs of cities from Boston to Minneapolis and Los Angeles.

“It’s all about traffic jams — people can have nice houses far out in outer suburbs but the commute time is impossible,” Lawrence Yun, chief economist of the National Association of Realtors, said in a telephone interview. “This is an ongoing process because older-built homes happen to be closer to job centers and may not meet the needs of modern homebuyers.”…

More builders are ripping down existing homes because well-located vacant lots are becoming difficult to find and structures in communities close to urban areas are among the oldest. In 2013, about 47 percent of owner-occupied homes in the U.S. were at least 40 years old, up from 27 percent in 1991, according to an analysis of Census Bureau data by the homebuilder group.

If you have the resources, you can get the bigger home with the shorter commute in a desirable suburb. The figure cited above about a dated housing stock is intriguing; many people today seem to want new and turnkey construction but many older suburbs – even ones founded right after World War II – could have primarily older homes.

I like the picture they chose to accompany this story as it highlights why many communities have fierce debates over large teardowns:

Northern Virginia’s Pimmit Hills

That is quite a difference in size and shape.

Seeing the return of McMansions as a statistical blip

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New American homes were bigger than ever in early 2015 but some see this as an anomaly:

The median size of a home built in the U.S. in the first quarter registered 2,521 square feet, up 76 square feet, or 3%, from the fourth quarter, according to Commerce Department data released Tuesday. It was the first increase for that measure after three consecutive quarters of decline.

Robert Dietz, an economist with the National Association of Home Builders, suggests that last quarter’s increase is due more to a smaller amount of housing construction in the first quarter relative to previous quarters than to a return to a market focused on megahomes…

The market has slowly shifted in the past year to allow for the gradual return of entry-level buyers, who tend to buy smaller, less expensive homes. Hiring and wages have improved, and federal regulators have moved to slightly loosen mortgage-qualification standards and reduce some costs of Federal Housing Administration-backed loans.

That contributed to a 7.6% increase in the number of construction starts for single-family homes in the first four months of this year in comparison to the same period a year earlier. It is likely that expanded volume included an increasing number of smaller, less-pricey homes.

It will take some time to sort this out. There is nothing that says smaller homes have to become a bigger slice of the market – but it is also not inevitable that the average home will get larger. Homes were bigger than ever starting in 2013 and a number of commentators, including developers themselves, have noted the lagging lower/smaller end of the new housing market. Unless the broader economy does significantly better in coming quarters, I suspect big homes (and luxury housing units) will continue to drive the housing market.

Around 25% of Chicago area mortgages still underwater

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The numbers aren’t as bad as two years ago but the sizable number of underwater mortgages in the Chicago region still present a problem for the housing market.

One-quarter of homes with a mortgage in the Chicago area, and almost 24 percent in Illinois, are “seriously” underwater, meaning homeowners owe at least 25 percent more on the loans than the property’s value, according to data released Thursday.

The report from RealtyTrac, which shows the percentage of underwater homeowners growing in most parts of the nation, helps explain why more homes are not coming on the market, despite the desires of would-be sellers. They simply don’t have the equity in their properties to be able to sell them unless they bring cash to the closing table or get approval from their lender for a short sale.

Also driving up the percentage of underwater borrowers is the slowing rate of appreciation that many housing markets are seeing, a trend that economists say is a return to more normalized boosts in housing prices. In the Chicago market, median prices of home sales in March posted a dramatic year-over-year spike after eight months of flat or declining prices.

Outside of the booming housing markets, these underwater mortgages are going to take a long time to clean up. In other words, that big drop in housing values with the economic crisis has long-lasting consequences.

I know this isn’t going to happen but I would love to see numbers on whether it might be possible that the new housing industry could receive a jumpstart through a mass mortgage reduction plan. If enough people could get out from under the underwater mortgages and sell their own homes and move (maybe this would be a requirement for getting a mortgage reduction), could this be a net economic gain in the end?