The trajectory may have flattened because how much more can it rise?

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1 Existing Home Sales Brokers: As Prices Continue to Escalate, Fissures Form for Home Resales in October Similar Story Almost Everywhere: Unit Sales Drop as Average Sales Prices Rise Strong Dollar, High Prices Chase Off Foreign Money; Market Plateauing at Highs Developers Throw Incentives at Brokers; Sellers Continue to Overreach By Gary Rosenberger NEW YORK (EconoPlay) Nov. 19 Home resales saw the typical signs of seasonal slowing in October but the market as a whole appears to be plateauing at highs as sellers overreach, buyers push back, and foreign money exits the scene, brokers say. The international element is vanishing in gateway cities like New York and Miami, where high prices and the strong dollar make real estate a less appealing investment for foreigners, who once saw bargains everywhere when their currency was ascendant. Prospects of a rate hike are eliciting a big yawn, even as cash buyers slink away and more people finance their home purchase. Offsetting potentially higher rates are looser credit terms (including a new FHA zero down payment program shades of 2007). This remains an extreme seller s market. Prices are being reduced but only because asking prices are too ambitious. Even in troubled Houston, prices are still up over The trajectory may have flattened because how much more can it rise? Sales this October were nearly identical to sales in October last year, said Shaun White, spokesman for Denver- based Re/Max. His monthly report on 53 metro areas showed a 0.8% drop in October sales from prior year, the first such decline since January, when weather played a role. Yet median prices were 6.5% higher than one year ago owing to continuing pressure from low inventories, which are down around 11% from a year ago. Inventories appear especially tight in the lower price ranges and in Dallas, Denver, San Francisco, and Seattle, White said. However, higher sales prices and new home construction should slowly improve the inventory outlook. Rich Morin, an agent for Seven Gables Real Estate in California s Orange County, still sees his market moving nicely but for one important pocket exposed to foreign money.

2 Irvine has cooled down but the rest of the area is doing fine, he said, noting that Irvine is a heavily Asian area and the tap may have slowed out of China. A lot of houses are being built there and maybe production is beginning to outpace demand, he said. Everywhere else if it s priced properly it should be off the market in a few weeks. Orange County is still on pace for one of our best years for home sales. Pricing continues to slowly move up, even as 30% to 40% of local listings showed price reductions in October. Buyers are pushing back even on small increases. But prices are still up 2 or 3 percent from where they were a year ago. So if you look at the price reductions it s because sellers were unrealistic about pricing, Morin said. Months supply is somewhere between two and three months, well below the six months that many consider a balanced market. It s weird. It s a supply- constrained market but buyers are still pushing back. Typically, with supply constraints, prices should be going up more than they are, he said. Looser lending terms should offset imminent mortgage rate increases. There s one program no one seems to even know about that will help when word gets out, he said. FHA now gifts you the down payment. You can get into housing with no money down. The limit is $600,000. I just started introducing it to my clients. The trade off is a higher monthly interest rate payment. While that does expand the universe of buyers we seem to be going back to where we were 10 years ago when you didn t have to put any skin in the game, Morin said. Foreign Buyers Beg Off We re still seeing good activity, said Dick Dohack of the Dohack Group of Absync Realty in Fort Myers, Florida. Our season really begins in February. But our number of transactions is on par with last year and prices are still creeping up. Pending sales are good, but he has spotted signs of retraction (as have others at a real- estate event he recently attended). Buyers aren t as aggressive anymore. Part of it is that prices are back to where they are starting to be more cautious again, he said. Also foreign money is vanishing. Canadians are in retreat because the dollar is stronger and real estate prices are up. They were big players when their currency was high and prices were low, he said. Even as cash buyers disappear and more people finance their home purchases, the prospect of a Fed rate hike is not a topic of concern. The FHA has also eased rules on condominium purchases, now allowing for the same 3.5% down payment that had been

3 reserved exclusively for single- family homes. That s a big deal because a lot of our seasonal residents purchase condominiums, Dohack said. We have more inventory, but that s also because we have more new construction. We re seeing incentives and we haven t seen that in a while. So I m just waiting to see what the season brings, he added. An agent serving the New York suburb of Larchmont also sees her market in flux. It was a slow fall. Units sold are way down but the median sales price is up, she said. I think it is important to point out that millennials and builders are both a big factor in our business right now, she said. Millennials have no vision and are reluctant to buy a house that needs work. I can barely get them in the front door. But they will overpay for a freshly painted house that is staged in a Pottery Barn look. Builders are bidding against each other and are buying to flip, she added. Low inventory is a problem fewer listings mean fewer sales. And with average days supply still low at 81 days, sellers continue to overreach. When I price a house, I tell my client that they are doing well if they get within 10 percent of the asking price, she said. The average transaction ended up at 93% of the asking price in October, lower than year ago but prices are also higher this year. No Comfort for Gazillionaires The incredibly heady world of Manhattan real estate is also seeing cracks as foreign money pulls out. All the high- end properties are overpriced and prices have to come down, said JoAnne Douglas, senior vice president at the Corcoran Group in Manhattan. As international buyers recoil from Manhattan real estate, just about everything priced above $3 million is being reduced. For anything under $3 million there are still bidding wars, she said. We just can t get enough one and two bedrooms listed. Sales above $10 million that used to make daily headlines are now just sitting there, Douglas noted. Prices have come down and I m seeing incentives again, like 4 percent commissions to the selling broker. Developers are attuned to this and are beginning to split full- floor units, she added. It might be more than just a strong dollar turning off foreign buyers. New disclosure rules instituted in July have made it more difficult for foreigners to use shell companies to hide tainted assets. So couple [the dollar] with total transparency for LLCs and you have fewer sales because a lot of buyers bought using those, she said.

4 Another issue re- emerged last week to refresh people s memories of the city s vulnerability to terrorism. I don t know how Paris will affect our market, she said. Douglas has heard talk that Miami developers are now requiring no down payments when they were demanding 50% down last year. That s worrisome because we look to Miami as a barometer of what will happen in New York, she said. So we asked a Miami real estate executive to get to the bottom of that. The only reductions are in closing out the final units in a development here in Miami, said John Charles, a realtor associate at The Keyes Company. Yet traffic has slowed. Keep in mind that this is the slowest quarter of the year, he said. I have had a lot of showings with Brazilians and French in the past four months. I understand that Canadians are way down though. Some of that slack is being picked up by Northeasterners looking to exit high- tax states. But even if things do slow down in the coming quarters, he doesn t foresee price declines ahead. Buyers are taking longer to make a decision, and sellers are still asking big numbers. The inventory of nice, well- priced properties is low. I can see asking prices decrease, but the final sale price stays flat at worst. Miami is definitely not overbuilt, he added. During the last boom, it was middle- class people trying to make a killing and buying units with 10 percent down. All of the current buyers are wealthy individuals. Charles insists there still is an appetite for moving money out of Latin America and Europe. They are just being more careful and looking at more properties before making a decision, he said. The Energy Fallout October sales this year versus last year were down 10.2 percent no surprise, said Howard Kanelakos at Coldwell Banker United Realtors- Greenway in Houston. New home sales for the same period were off a steeper 15%, also no surprise as builders have reduced their footprint in that once- blazing market. Yet despite less volume production, inventory is up 19% over last year with months supply at 3.5 months versus 2.8 months a year ago. They are still laying off oil and energy related people, he said. But jobs are still up for the year. The medical center is booming, but everything else is either flat or down.

5 For all that, October still had the highest average prices ever in Houston, up 3.7% over last year when oil was at $100 plus a barrel. It could be the mix of homes being sold. But the upper end is slower, he said. I m seeing some neighborhoods having flat prices or a little bit of decline. But the average is up, which kind of surprises me a bit. But this is straight from MLS [multiple listing service]. He does see a lot of price reductions, particularly at the higher end. I m selling a lot of lower end stuff this year. Last year I had a lot of upper end stuff, and that s what s really hurting, Kanelakos said. Anything priced below $350,000 will still get multiple offers. But he thinks spring will be slower if oil prices stay low. Oil is almost down to $40 again. People thought by the end of the year it would start going up again, but it hasn t, he said. A Problem With Overreach After a flurry of sales this fall, Martha s Vineyard is shutting down for the winter. We have settled back to what I would consider realistic averages this year of $1.393 million average sale and $750,000 median price, said Fred Roven, owner of Martha s Vineyard Buyer Agents. Days supply was slashed to just 131 in the last six weeks from 208 in the same period last year, leaving just 334 homes on the market and many of those will be delisted for the winter. Last year I thought 450 listings was as low as we could go, he said. Low inventories are a concern because he represents buyers who may be priced out and he does see the remaining supply as top heavy with the average price at around $2,250,000 and the median at near $1,150,000, so many of those homes will languish. The price increases seem to continue with sales at 96% of asked compared to 90% last year, and the ratio of sold price to assessed jumping from 115% to 130%, he said. So unless there is a dramatic increase in new listings at more traditional median prices or there are more high- end sales, the number and dollar value of sales should show a decline next spring, Roven predicts. Investors are selling here and looking toward growth in Southern markets, he said. The aging population, with children too far and wide to make use of Vineyard property, are freeing up funds for luxury travel in retirement. John Wyszynski, president of Gerretson Realty in Denver, saw a seasonal drop in sales from September to October yet his remains an extreme seller s market.

6 The average sold price in the seven metro counties showed a slight increase to $400,156 for single- family detached homes, and attached single family came in with an average price of $263,108, setting a new record for Denver. Some 4,995 homes were under contract in October, where a balanced market would be closer to 30,000. Average days also remain at record lows, at 25 and 22 days for detached and attached, respectively. And bidding wars are still the norm, with 63% of closed homes selling at or above asking price. I've not seen any impact from the energy slowdown in the Denver market. This is certainly a change from the 1980s when the town was thrown into a recession from a decline in the energy sector, Wyszynski said. Perhaps growth in tech and healthcare is offsetting the energy sector s decline. He also sees no concern in his market over a Fed rate hike, which most think will not be substantial enough to deter the underlying strength in the market. In fact, he already is getting buyers who have started their spring search. This is the earliest I have ever seen the New Year s resolution lookers, he said, adding he expects more reasonable appreciation next year in a range of 3% to 5%. Terri Pontzious, a Century 21 Award agent in San Diego, also noted a seasonal slowdown not unusual for this time of year. Inventory is falling in most areas of San Diego County and prices are increasing, but more slowly. We are seeing more price reductions, even with low inventory, she said. Pontzious does expect a good spring market, although perhaps not as strong as 2015, she said. I have given up trying to even guess what is going to happen! The National Association of Realtors is scheduled to release existing home sales data for October on Monday, Nov. 23 at 10 a.m. ET. For real- time subscription information or newsroom, please contact: info@econoplay.com, or go to and click the free- trial icon. Copyright EconoPlay, Inc. All rights reserved