Tag Archives: real estate

Predicting the “great senior sell-off” to come

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Here is an update on one event that might be coming down the road: the time when the Baby Boomers decide to sell their homes.

Nelson pointed to the affordability issue as well as the fact that about a quarter of Millennials prefer urban housing, such as condos or townhouses, over the detached suburban homes that were the Boomers’ preferred habitat. Younger buyers, he said, will also be looking for starter homes—smaller than the big Colonials and split-levels that line America’s cul-de-sacs. “We can predict the next housing crash,” he said at the time. “That’ll be in about 2020.”

Four years later, Nelson tells CityLab that that he believes the sell-off will still occur—but later, in the mid- to late 2020s. This has to do with people deciding to defer selling their homes, hoping to get a better price later than settling for a lower price now. “Home values in much of the country are still less than those before the Great Recession of 2007 to 2009,” he says. Prior to the recession, the typical homeowner would sell a house about every six years. “It was like clockwork,” says Nelson. “This drove a lot of planning and development projections.”…

Nelson predicts that the fringe areas surrounding cities will bring the biggest headaches for Boomers looking to unload their houses. Because Millennials will be looking for small homes when they finally start to buy in larger numbers, the sprawling McMansions of the exurbs won’t be desirable to many of them. “The Boomers in the exurbs are going to be in a real pickle,” says Nelson. “Even in a dynamic market like Washington, D.C. or other booming cities, the market for those homes is going to be soft.”…

But many analysts do agree on one thing: More housing will need to be built for Millennials—and it needs to be scaled to their desires, not their parents’s. “Millennials are likely to prioritize different features in their homes, such as greener materials or in-law suites,” says Molinsky. And according to the Harvard Joint Center’s projections, nearly 90 percent of those looking for homes in 2035 will be under 35 or 70 and over—and both groups tend to buy less square footage.

I suppose we’ll see what happens. I tend to think that Millennials might not be as transformative as some have suggested in regards to where they want to live or in what kinds of houses they inhabit. At the same time, there may be fewer Millennials than Baby Boomers in the market for housing – both due to different sizes of the various cohorts as well as the limited purchasing power of some Millennials  which means it could take some time for those Baby Boomer dwellings to find buyers.

It is also interesting to consider what might happen if these homes, particularly those on the metropolitan fringes, can’t be sold. Would they be demolished? Converted? The community retrofitted? Drop to a low enough price that they become very attractive to certain groups? We have plenty of history as a country of people spreading out but not much experience with any serious contraction.

Relatively few houses to buy

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The supply of homes for sale is low:

The national supply of homes for sale hasn’t been this thin in nearly 20 years. And over the past year, the steepest drop in supply has occurred among homes that are typically most affordable for first-time buyers and in markets where prices have risen sharply.

In markets like San Diego, Boston and Seattle, competition for a dwindling supply has escalated along with pressure to offer more money and accept less favorable terms…

About 1.75 million homes were for sale nationally at the end of February, according to the National Association of Realtors. That’s down 6.4 percent from a year earlier and only slightly up from January, when listings reached their lowest point since the association began tracking them in 1999. All told, the supply of homes for sale has fallen on an annual basis for the past 21 months….

Despite the scant supply, U.S. home sales are expected to rise this year, economists say. Fueled by job growth, pay raises and still-low loan rates — and perhaps fearful of being left out as more homes are snapped up and prices rise further — many people are looking to buy.

There are certainly downsides to a low supply of homes, particularly for those with fewer resources. At the same time, the opposite end of the market – a lot of homes on the market – negatively influences sellers. This leads me to a question: (1) how often do we reach an equilibrium in the housing market and (2) how long can such a relatively good balance last once it does occur? In all three cases there is something report on as the pendulum swings between buyers and sellers.

Arms race among new luxury apartments includes live-in musicians

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If you have the resources, you have some options in shopping for a nice new apartment including a building musician:

Amenities for high rise buildings are generally culled from a well-honed list of known popular offerings—a lounge, gym, a pool, an outdoor deck, and grilling stations wouldn’t really lead anyone to blink an eyelash. Being LEED certified is often expected.

At the 34-story, 298-unit Exhibit on Superior, amenities for the studio, convertible, and 1 to 3-bedroom units include those, as well as keyless entry with smartphone integration, stainless steel appliances, in-unit washer and dryer and more. Quite nice—but the downtown luxury apartment market glut has led to an arms race to attract new residents and keep rents from being slashed.

And even though the price point is comparably lower (and the floor plans are comparably smaller) than other neighborhood offerings to attract a younger demographic, developer Magellan Development Group and MAC Management wanted to bring some artistry and magic to their building (and to their other properties, if this catches on). Here’s the idea.

A contest is open for the best acoustic guitarist and vocalist to live and play for one year at Exhibit on Superior. The winning musician gets free rent at an unfurnished studio for a year, the title of Musician in Residence, and the chance to hone their skills while playing against any number of cool nooks and spaces in the bKL Architecture-designed building. The residents get in-house live entertainment and bragging rights to live in a building with the first so-called Exhibit A-Lister.

My first thought was that sounds like the arms race among colleges to provide amenities for prospective students ranging from excellent food, state of the art gyms, and private and luxurious dorms. Then it hit me: these luxury apartment buildings may be going after that same demographic: college graduates who want the excitement of the city. If we could narrow it even more, perhaps they are employed in a creative industry or field.

After thinking this through a bit, it is clever to pair residential real estate with music. We might expect something like this in commercial spaces or privately-owned property that is trying to operate like public space (perhaps a park like area outside a major office building). But, this continues the trend of some of the other “weapons” in this residential arms race: providing building amenities that encourage sociability while simultaneously offering well-appointed private units. Let’s hope all the residents like the acoustic guitar scene…

Selling “wellness real estate”

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Connect health and real estate in nice locations and you have a joint product to sell:

Chopra has been selling our body antidotes to life for two decades, and he has taken on most ingestible platforms. Now he is striking out into the booming domain of “wellness real estate”—building living spaces ostensibly designed to optimize bodily functioning. In collaboration with the design firm Delos and real-estate firm Property Markets Group (PMG), he is finishing construction of a 68-unit luxury tower in Sunny Isles Beach, on the barrier island abutting North Miami Beach. Two angular penthouse units resembling white glass-marble sky mausoleums are listed for $18.5 and $19.5 million…

The trend in Florida real estate, Maloney continued, is pairing with lifestyle brands. “We couldn’t figure out what we were going to do with our new project. When someone brought up Chopra, my ears perked up,” he said. “We’re not going with a car company or a clothing designer. When this concept came up, we thought, ‘wow, wellness.’”…

The Delos press release for these new “exclusive wellness residences” explains that they “will focus on three core wellness principles: air, water, light and sleep.” My guess there is light and sleep are meant to count as one. The Delos building in Manhattan where Chopra lives also features a “posture-supportive flooring system” and a surface coating “which destroys bacteria,” but I don’t know if these are wellness principles.

It then takes the author a while to figure out exactly what Chopra and his company will be doing to promote wellness. Additionally, an academic expert in this field offers a different approach:

The key to these technologies is that unlike the multimillion-dollar properties of Delos, Colistra and his colleagues are primarily concerned with scale—how to deploy mass-produced housing units that are equipped without creating huge disparities in who has access. “This is probably the antithesis of what they’re doing,” he said of Chopra and company. “What we’re looking at are population-health strategies in which health and wellness is accessible to everyone. When you’re talking about $15 million condos, it very quickly devolves into social inequities. Health is divided between the haves and have-nots.”

And that same expert suggests the answer is not really technology but social connectivity. So how about selling small town northern Minnesota as the ultimate wellness property?

If only wellness were not just a tagline that could sell more products…

Once a home is labeled a McMansion, can it be redeemed?

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McMansionHell recently examined a home in Flower Mound, Texas. A real estate insider asks what the listing agent is now supposed to do:

I post this not to be mean, because obviously this home has people who love it and it is someone’s home, no matter how much of a “mound” it is. There are some very pretty parts. I post it because I truly want your opinion: what would you do with a listing like this to make it more appealing?

A good question for either a real estate agent or a homeowner. With McMansion almost never serving as a positive term, I assume having a home labeled a McMansion is not going to (1) help with the selling price or (2) entice buyers. Even when such homes were really popular, I don’t think too many people would label the homes McMansions to help their cause.

Crazy idea: could you shame people and damage their lives by outing McMansion owners and agents who sell such homes? If you don’t like suburbs – and there are plenty of people who can’t stand them, including a number in academia – this could be an individual level strategy to discourage people from living there. Or perhaps some wealthy McMansion critic could buy up such homes and redevelop the property (presumably with structures they liked better or they could provide a memorial garden).

When realtors dislike McMansions

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Realtors sell homes. So how do they feel about McMansions? A piece at Realtor.com offers some hints:

We’ve struggled to cover McMansions. For starters, they’re not pleasing to the eye. And, more importantly, we can’t put our finger on exactly what it is about these sad but pricey structures that inspires such a visceral negative reaction…

Q: We’ve grappled with this one for a long time here at realtor.com®. McMansions are like the classic definition of obscenity—”I know when I see it”—but we’ve never come up with a concrete definition for them…

All of the mail from realtors I’ve gotten has been really positive as well. I think that realtors are generally tired of McMansions, especially since they’re so difficult to sell. They find a lot of catharsis in reading McMansionHell.

Does this mean that realtors wouldn’t help sell or buy a McMansion because of their refined architectural sensibilities or because McMansions use of a lot of resources? While McMansions could generate profits for builders, they could also be good for realtors who could make larger commissions.

Based on this, I would enjoy seeing some realtors discuss their approach to McMansions. If I had to guess, I would imagine fewer realtors would be openly critical of such homes because it might limit their business. Perhaps some want to sell such homes while others avoid them like the plague. If they have strong feelings either way, would they openly share these opinions with buyers and/or guide them in certain directions? How many realtors live in homes that could be considered McMansions?

Illegal wealth funneled through luxury urban housing?

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The higher end of the real estate market is booming in many American cities but it may involve tainted money:

It is the first time the federal government has required real estate companies to disclose names behind cash transactions, and it is likely to send shudders through the real estate industry, which has benefited enormously in recent years from a building boom increasingly dependent on wealthy, secretive buyers.

The initiative is part of a broader federal effort to increase the focus on money laundering in real estate. Treasury and federal law enforcement officials said they were putting greater resources into investigating luxury real estate sales that involve shell companies like limited liability companies, often known as L.L.C.s; partnerships; and other entities…

Officials said the new government efforts were inspired in part by a series last year in The New York Times that examined the rising use of shell companies as foreign buyers increasingly sought safe havens for their money in the United States. The investigation found that real estate professionals, especially in the luxury market, often do not know much about buyers. Until now, none of them have been legally required to.

The use of shell companies in real estate is legal, and L.L.C.s have a range of uses unrelated to secrecy. But a top Treasury official, Jennifer Shasky Calvery, said her agency had seen instances in which multimillion-dollar homes were being used as safe deposit boxes for ill-gotten gains, in transactions made more opaque by the use of anonymous shell companies.

It would be fascinating to hear what local officials, developers, and real estate professionals have to say about this in private. I imagine few would be willing to appear to publicly condone illegal uses of money, yet such a move could threaten status and profits. If there are indeed numerous cases of this, does this taint particular developments or cities? Or is the wave of luxury building simply too strong (and advantageous) to be derailed by a few negative instances?

Trying to revive “obsolete” suburban office parks

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Declining interest in space in suburban office parks means a number of people are looking for ways to use that same space:

A report from the real-estate-service firm NGKF released late last year provides new numbers on an ongoing phenomenon: the slow, agonizing death of the American office park. The report looks at five far-flung office-tenancy submarkets—Santa Clara, in the San Francisco Bay Area; Denver; the O’Hare area of Chicago; Reston and Herndon, outside of Washington, D.C.; and Parsippany, New Jersey—and finds a general aura of decline.

Between 14 and 22 percent of the suburban-office inventory in these areas is, the report found, “in some stage of obsolescence,” suggesting that between 600 million and 1 billion square feet of office space are unnecessary for the modern company and worker. That’s about 7.5 percent of the country’s entire office inventory…

There are models that developers are using to transform older office parks throughout the country, to measured success. They mostly involve turning definitely-suburban office parks into urban-like, albeit still isolated, office “cities.” (It is worth noting that many of these projects involve extensive rezoning efforts.) A facility in the community of Edina, Minnesota, is in the midst of transforming from a sprawling office center into what one local developer called “not your father’s or mother’s office park.” In practice, that means linking the park to 15 miles of bike trails, big-box-store-free retail, and green space. Other developers managing struggling office parks are considering adding farmers’ markets, hotels, and housing.

Such efforts have been going on for a while now whether from New Urbanists trying to introduce mixed uses (office parks are notoriously empty for much of the day outside of business hours) or edge cities trying to diversify their portfolio of uses and revenues (see an example like Tysons Corner). Of course, such efforts require funds and demand for the new or renovated space and it can often be easier for developers and investors to move on to new hot locations or construct all new buildings and properties.

One other idea for these office parks: why not seriously look at converting them into housing? A good amount of the infrastructure would already be present – major roads, utilities, parking lots – and many metropolitan regions are in desperate need of more housing units (particularly affordable ones). Many of these office parks are located in existing job centers so the housing would be convenient for a number of workers. I don’t know what it would cost to renovate office space to residential space but it would be interesting to see some proposals.

NYT on wealthy suburbanites moving back to the city

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Who is buying those expensive downtown condos in places like New York or Chicago? One article suggests it is wealthy suburbanites:

Like Dr. Fader, who lives in Bryn Mawr, west of Philadelphia, most of these new high-end buyers are coming from the suburbs, developers say. This is a group that loves its mansions and large homes but is finally, not so reluctantly, trading them in for high-end city adventure.

“Things just lined up in the last few years,” said Patrick L. Phillips, the global chief executive of the Urban Land Institute, a research organization in Washington. “The peak of the baby boom is right around 60 and these wealthy folks have a lot of embedded equity in their homes. They have the wherewithal to move into something with space in the city.”

And cities have prepared for people with money, at least in their downtowns, Mr. Phillips said. They have concentrated theaters, arenas, upscale shopping and refurbished or new parks and museums there.

Two questions come to mind:

  1. Just how many people are doing this? How many people could afford such a move? The key here is that these people are already living in expensive suburbs and have all sorts of housing options.
  2. What happens to other parts of the city where there is less money to be made for developers and builders? Cities like to trumpet new buildings in their downtowns and the growth of cultural and entertainment options. But, these are not necessarily available to everyone.

Subjective decisions can affect home appraisals

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The final appraisal price for a home can be influenced by numerous subjective factors:

A massive, first-of-its-kind study of 1.3 million individual appraisal reports from 2012 through this year conducted by real estate analytics firm CoreLogic offers a suggestion: You should look at what are called adjustments to appraisals that involve relatively subjective estimations — the appraiser’s opinions on the overall quality level of your house, its condition, location and view — rather than more objectively determinable items such as living space square footage, lot size, number of baths and bedrooms, etc…

Adjustments are made in 99.8 percent of all appraisals, according to the CoreLogic study. The most frequent adjustments involve objective features of houses: Living area, rooms, car storage, porch and deck were all adjusted in more than 50 percent of the study’s 1.3 million appraisals, according to CoreLogic. (As a rule, the adjustments on objective features were not large in dollar terms. For example, room adjustments were made in nearly three-quarters of all appraisals but averaged only $2,246 and did not affect the final appraised value dramatically.)

Adjustments involving more-subjective matters — the overall quality or condition of the house — were less common, but they typically triggered much bigger dollar changes. The average adjustment based on quality was nearly $15,000, which is more than enough to complicate a home sale. Some subjective adjustments on the view or location of high-cost homes ran into the hundreds of thousands or even millions of dollars…

Research released last week by Platinum Data Solutions, which reviewed 300,000 appraisals made between July and September, found that fully 39 percent of “quality” or “condition” ratings conflicted with previous ratings on the same property. That inevitably invites controversy.

In other words, appraisals are an inexact science. What makes it particularly frustrating is that the stakes can be big as sellers and buyers are dealing with one of the biggest financial investments of their lives.

Two more thoughts about these findings:

  1. In order to cut down on the variation in findings, would it be better to regularly have multiple appraisers for the same property or some sort of blinded review?
  2. Here is how an example of big data can help reveal patterns across numerous properties and appraisers. But it would be particularly interesting – and perhaps some money could be made – if research identified individual appraisers who consistently had high or low findings.