These Cities Have The Biggest Housing Bubbles [See the list]

The S&P CoreLogic Case-Shiller National Home Price Index for October, released this morning, jumped 6.2% year-over-year (not-seasonally-adjusted), up from 6.1% in September. The index has now surpassed by 6.0% the crazy peak in July 2006 of Housing Bubble 1 and is up 46% from the trough of Housing Bust 1:

  1. Real estate prices are subject to local dynamics but are impacted by national  and even global factors, such as the consequences of monetary policies, particularly in places where this liquidity washes ashore. This creates local housing bubbles. And they operate each on their schedules. When enough of these local bubbles occur simultaneously, it becomes a national housing bubble as depicted by the chart above.

    The Case-Shiller Index is based on a rolling-three month average; today’s release was for August, September, and October data. Instead of median prices, the index uses “home price sales pairs.” For instance, it takes sales data from a house that sold in 2011 and then again in 2017, incorporates other factors, and uses algorithms to adjust the price movement into an index data point. The index was set at 100 for January 2000. An index value of 200 means prices as figured by the algorithm have doubled since then.

    Here are the standouts among the housing bubbles in major metro areas:

    Boston:

    The index for the Boston metro area ticked down on a monthly basis, the first decline after 22 months in a row of increases. It’s still up 6.9% year-over-year, a slightly slower pace then the 7.2% year-over-year surge in the prior month. During Housing Bubble 1, it soared 82% from January 2000 to October 2005, before the plunge set in. Now, after six years of relentless price increases, the index exceeds the peak of Housing Bubble 1 by 12.7%:

    Seattle:

    The Case-Shiller home price index for the Seattle metro declined again by a tad on a month-to-month basis — first back-to-back declines since the end of 2014! However, the index is not seasonally adjusted, and a slight downturn this time of the year was not unusual before 2015. So this may be a sign that the housing market in Seattle is returning to some seasonal patterns, rather than just spiking no matter what. The index is up a breath-taking 12.7% year-over-year, 20% from the peak of Housing Bubble 1 (July 2007), and 79% from the trough of Housing Bust 1 in February 2011:

    Denver:

    The index for the Denver metro rose again on a monthly basis, the 24th monthly increase in a row. It is up 6.6% year-over-year and has surged 44% above the prior peak in the summer of 2006. Note that Housing Bubble 1 and subsequently Housing Bust 1 mostly spared Denver. But in 2012, Housing Bubble 2 erupted with a vengeance:

    Dallas-Fort Worth:

    The index for the Dallas-Fort Worth metro rose again on a monthly basis — the 45th month in a row of increases. It is up 7.1% year-over-year and 43% from the prior peak in June 2007. Similar to Denver, Housing Bubble 1 and Housing Bust 1 mostly spared North Texas. But prices began to surge in 2012:

    Atlanta:

    Home prices in Atlanta actually ticked down a smidgen from the prior month, but are still up 5.1% year-over-year and are 2.6% above the peak of Housing Bubble 1 in July 2007. From that peak, the index plunged 37%. It’s now up 70% since February 2012:

    Portland:

    The Case-Shiller index for Portland declined a tad, and is now back where it had been three months ago — the first monthly decline since September 2016, and in line with seasonal price patterns. The index is up 7.1% year-over-year and 73% in five years. It is now 20% above the crazy peak of Housing Bubble 1 and has ballooned 123% since 2000:

    San Francisco Bay Area:

    The index, which covers the county of San Francisco plus four Bay Area counties — Alameda, Contra Costa, Marin, and San Mateo (the northern part of Silicon Valley) —  jumped 1.2% for the month. It had however ticked down in August. It’s up 7.7% year-over-year, up 29.5% from the crazy peak of Housing Bubble 1, and up 84% from the end of Housing Bust 1. The index has surged 148% since 2000:

    Los Angeles:

    The index for the Los Angeles metro ticked up again for the month and is up 6.5% year-over-year. The sugar-loaf Housing Bubble 1 was in a category of its own, with home prices skyrocketing 174% from January 2000 to July 2006, before collapsing and surrendering much of the gains. The index has skyrocketed since the end of Housing Bust 1 and is getting closer to beating the prior insane peak, but is still 2.0% shy:

    These charts are visual depictions of asset price inflation. A house whose price jumps 20% in three years hasn’t gotten 20% bigger. What happened is that the purchasing power of the dollar with regards to these assets — since “homes” have become a global asset class — has been demolished by the Fed’s monetary policies that generated little or no wage inflation, moderate consumer price inflation, and extraordinary asset price inflation. In other words, the value of labor (wages earned) with regards to assets, such as homes, has been crushed, and housing costs in general, including rents, are consuming an ever larger slice of wages. This has turned into the “affordability crisis” now gripping many of the big urban areas in the US. Which can hardly be the foundation of a healthy economy.

Originally published HERE.

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Most Expensive Zip Codes In The US [FULL LIST]

The annual list of America’s Most Expensive ZIP Codes is compiled by Altos Research, which looks at median home price data for more than 29,500 ZIPs covering 95% of the U.S. population. Here we highlight the 20 priciest postal codes.

  1. 94027ATHERTON CA

    Median Price: $9,686,154

    Days on Market: 190

    Inventory: 27

    2016 rank: 3

  2. 33462MANALAPAN FL

    Median Price: $8,368,431

    Days on Market: 262

    Inventory: 25

    2016 rank: 1

  3. 94022LOS ALTOS HILLS CA

    Median Price: $7,755,000

    Days on Market: 105

    Inventory: 25

    2016 rank: 8

  4. 94301PALO ALTO CA

    Median Price: $7,016,631

    Days on Market: 67

    Inventory: 14

    2016 rank: 48

  5. 94957ROSS CA

    Median Price: $6,939,423

    Days on Market: 123

    Inventory: 10

    2016 rank: n/a

  6. 11962SAGAPONACK NY

    Median Price: $6,852,692

    Days on Market: 128

    Inventory: 52

    2016 rank: 4

  7. 81656WOODY CREEK CO

    Median Price: $6,651,269

    Days on Market: 528

    Inventory: 16

    2016 rank: 22

  8. 90210BEVERLY HILLS CA

    Median Price: $6,442,914

    Days on Market: 148

    Inventory: 226

    2016 rank: 15

  9. 10065NEW YORK NY

    Median Price: $6,415,146

    Days on Market: 115

    Inventory: 105

    2016 rank: 5

  10. 10013NEW YORK NY

    Median Price: $6,289,099

    Days on Market: 121

    Inventory: 188

    2016 rank: 12

  11. 94010HILLSBOROUGH CA

    Median Price: $5,903,192

    Days on Market: 115

    Inventory: 34

    2016 rank: 16

  12. 81611ASPEN CO

    Median Price: $5,849,184

    Days on Market: 251

    Inventory: 277

    2016 rank: 17

  13. 91302HIDDEN HILLS CA

    Median Price: $5,760,923

    Days on Market: 310

    Inventory: 23

    2016 rank: 10

  14. 10012NEW YORK NY

    Median Price: $5,334,290

    Days on Market: 129

    Inventory: 72

    2016 rank: 7

  15. 94062WOODSIDE CA

    Median Price: $5,255,384

    Days on Market: 150

    Inventory: 37

    2016 rank: 20

  16. 10014NEW YORK NY

    Median Price: $5,162,425

    Days on Market: 107

    Inventory: 106

    2016 rank: 9

  17. 10021NEW YORK NY

    Median Price: $4,804,802

    Days on Market: 117

    Inventory: 159

    2016 rank: 14

  18. 07620ALPINE NJ

    Median Price: $4,763,577

    Days on Market: 279

    Inventory: 62

    2016 rank: 18

  19. 98039MEDINA WA

    Median Price: $4,736,015

    Days on Market: 81

    Inventory: 16

    2016 rank: 27

  20. 90077LOS ANGELES CA

    Median Price: $4,707,568

    Days on Market: 129

    Inventory: 105

    2016 rank: 56

Originally published HERE.

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Experts Say 2018 Set To Be Best Year Since Housing Crisis

Although December’s job report numbers disappointed experts’ expectations, many explained that the end-of-year increase in construction jobs is just what the housing market needed. Total nonfarm payroll employment increased by 148,000 in December, the report showed. This is down from November’s upwardly revised increase of 252,000 jobs.

This number is far below experts’ expectations for December. Experts predicted the month would show an increase of 190,000, 210,000 or even 250,000.

“The December jobs report was modestly positive, as employment gains were below expectations but still strong enough to keep the unemployment rate steady,” said Curt Long, National Association of Federally Insured Credit Unions chief economist.

“Wage growth remains low, but did tick up slightly to 2.5%,” Long said. “Overall, the job market performed well in 2017 and is a key reason why the economy is poised for its best year since the crisis in 2018.”

And despite the lower-than-expected overall numbers, experts were still optimistic due to the 30,000 increase in construction jobs.

“December’s increase in construction labor is a hopeful reminder that things will eventually get better for our severely depleted housing market,” realtor.com Senior Economist Joseph Kirchner said. “In fact, if this trend gains momentum, it could address one of the largest issues holding back inventory – a lack of construction labor.”

shutterstock_566483920“Let’s hope it does, because the report also shows no end in sight for the insatiable demand we’re seeing in the market,” Kirchner said. “Jobs drive housing demand and with the unemployment rate remaining at its lowest level of the millennium, it’s only going to pick up.”

Another expert agreed, saying the increase in construction jobs was the one bright spot in Friday’s employment report.

“One bright spot we saw in the report is the biggest monthly rise in residential construction employment in 2017, raising hopes for some supply relief for housing this year,” Fannie Mae Chief Economist Doug Duncan said.

One expert explained this increase marked the highest point in construction jobs in seven years.

“Residential construction jobs rose to the highest since 2008 as builders work to add supply given the tight inventory and rising home prices,” LendingTree Chief Economist Tendayi Kapfidze said. “Construction employment increased by 210,000 in 2017, compared with a gain of 155,000 in 2016.”

And while one expert said it’s important not to read too much into economic activity in December, the construction jobs increase, she said, is worth highlighting.

“It’s important not to read too much into a year-end job report as there typically isn’t much economic activity in December,” Redfin Chief Economist Nela Richardson said. “However, the late-year surge in construction jobs is worth highlighting.”

Screen Shot 2017-06-15 at 5.57.54 PM“Construction jobs increased by 30,000 last month, ending 2017 with a total of 35% more jobs added than in the year before,” Richardson said. “This is exactly the type of construction-labor boost the housing market needs to continue to see in 2018 to feed inventory-starved cities that are seeing strong jobs growth like San Antonio, Orlando, Nashville and Salt Lake City.”

But one expert pointed out the construction industry still needs to add many more jobs before it can keep up with growing homebuyer demand, and even suggested solutions such as offering temporary immigration visas.

“As to the supply of homes, construction workers are needed,” said Lawrence Yun, National Association of Realtors chief economist. “In 2017, a net 190,000 new workers were employed in the construction industry, and that also marks a decelerating trend, as the prior three years averaged 284,000 annual additions.”

“With the unemployment rate in the construction industry having fallen from over 20% in 2010 to 5.9% at the year-end of 2017, there could be a little growth to home construction despite the on-going housing shortage,” Yun said. “There needs to be serious consideration in allowing temporary work visas until American trade schools can adequately crank out much needed, domestic skilled construction workers.”

Originally published HERE.

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How Real Estate Investors Profit From Trump Tax Plan

Lawmakers scrambling to lock up Republican support for the tax reform bill added a complicated provision late in the process — that provides a multimillion-dollar windfall to real estate investors such as President Donald Trump.

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The change, which would allow real estate businesses to take advantage of a new tax break that’s planned for partnerships, limited liability companies and other so-called “pass-through” businesses, combined elements of House and Senate legislation in a new way. Its beneficiaries are clear, tax experts say, and they include a president who’s said that the tax legislation wouldn’t help him financially.

“This last-minute provision will significantly benefit the ultra-wealthy real estate investor, including the president and lawmakers on both sides of the aisle, resulting in a timely tax-reduction gift for the holidays,” said Harvey Bezozi, a certified public accountant and the founder of YourFinancialWizard.com. “Ordinary people who invest in rental real estate will also benefit.”

James Repetti, a tax law professor at Boston College Law School, said: “This is a windfall for real estate developers like Trump.”

The revision might also bring tax benefits to several members of Congress, according to financial disclosures they’ve filed that reflect ownership of pass-through firms with real estate holdings. One such lawmaker, Republican Senator Bob Corker of Tennessee, who’d voted against an earlier version of the legislation, said on Friday that he would support the revised legislation.

Corker said in an interview on Saturday that his change of heart had nothing to do with the added benefit for real estate investors. On Sunday he wrote to Senate Finance Committee Chairman Orrin Hatch seeking an explanation for how the provision came to be included in the final bill after being asked about it by a reporter.

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‘Categorically False’

“The suggestion was that it was airdropped into the conference without prior consideration by either the House or the Senate,” Corker said, addingthat he’d been informed over the weekend that a similar provision had been in the House version.

Hatch responded in a letter to Corker Monday that the change resulted after “the House secured a version of their proposal that was consistent with the overall structure of the compromise.” He also said any assertion that Corker had sought the change — or that it was included to benefit real estate developers — was “categorically false.”

Hatch also said he was “disgusted by press reports” that he said had distorted the provision. Senate Majority Whip John Cornyn called initial press reports about the change “completely false and invented” and criticized follow-up coverage.

“The way this phony news story broke and was picked up on social media and in the mainstream media would make a Russian intelligence officer proud,” Cornyn said.

‘Cost Me a Fortune’

Last month, during a speech in St. Charles, Missouri, Trump took pains to tell his audience that the tax-overhaul bill would hurt him personally. “This is going to cost me a fortune, this thing,” he said. “Believe me.”

On Sunday, White House Deputy Press Secretary Lindsay Walters didn’t directly address questions about how the added provision would affect Trump or his son-in-law and adviser Jared Kushner, whose family business also has extensive real estate holdings.

“The president’s goal in tax reform was to create a bill that gives middle-income families a big tax cut and stimulates economic growth so they can continue to feel that relief for years to come,” Walters said in an emailed statement.

It’s impossible to gauge precise effects on Trump, who has departed from roughly 40 years of tradition for presidential candidates by refusing to release his tax returns, saying they’re under audit. Nonetheless, his financial disclosures show he’s used an array of pass-through businesses, including in his real estate ventures.

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Trump’s Businesses

Many of Trump’s most lucrative businesses generate income from rents and leases. Trump Tower in Manhattan, with offices and retail stores as well as condominiums, generated $14.1 million of net operating income on $33.6 million of revenue in 2016, according to financials disclosed to Trump’s lenders at the property. Another office tower, 40 Wall Street in New York’s financial district, had $17.4 million of net operating income on $36.9 million of revenue that year, similar filings for that building show.

Trump’s building at 1290 Avenue of the Americas had $77.7 million of net operating income on $137.9 million of revenue in 2016, the lender filings show. Trump owns 30 percent of it. He has a similar arrangement with the building’s majority owner, Vornado Realty Trust, for an office complex in San Francisco.

Kushner’s family owns Kushner Cos., which could also benefit from the revision. Through various LLCs and partnerships, the family collects tens of millions in rent from apartment complexes and office properties in New York, New Jersey and Maryland.

Last-Minute Change

The last-minute change to the tax bill — which combined a capital-investment approach that the House favored with the Senate’s tax-cut mechanism — would, in effect, free up a 20 percent deduction on pass-through business income that would have been off-limits to many real estate firms under the Senate bill. The change would still leave some investment partnerships out: those that have few employees and invest in tangible property like land or artwork, said Michael Kosnitzky, a tax partner at Pillsbury Winthrop Shaw Pittman LLP.

The distinction centers on whether tangible property held by a business is “depreciable” — meaning it can be reflected as declining in value over time under accounting rules — even though it may rise in market value. Depreciable property includes apartment buildings, housing complexes, office towers and shopping centers.

Deciding how to tax pass-through entities, which form the backbone of American business, has been one of the most contentious debates among Republican tax writers in their rush to rewrite the tax code and notch a major policy win by the end of this year. Such businesses, which also include sole proprietorships and “S corporations,” don’t pay taxes themselves, but pass their income to their owners, who then pay tax at their individual rates.

20% Deduction

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Because their tax bill would slash the tax rate for “C corporations” — a business type that includes major, publicly traded companies like Exxon Mobil and General Electric Co. — to 21 percent from 35 percent, the Republican tax writers have been under pressure to deliver comparable tax relief to pass-through businesses.

The bill seeks to do that by setting up a 20 percent deduction on pass-through business income — and making it available to both local pizza shop owners and major, nationwide businesses, all while setting up guardrails to prevent owners from mischaracterizing high-taxed wage income as lower-taxed business income.

The deduction is broadly available to owners of pass-through entities up to an income threshold of $207,500 for singles and $415,000 for couples. After that, limits begin to kick in that would prevent various kinds of “service” providers — including doctors, lawyers, investment advisers and brokers, and professional athletes — from receiving its benefit at higher income amounts.

The Senate approved legislation on Dec. 2 that included a way for owners of large firms with lots of employees to avoid certain income limitations on the deduction: They’d be allowed to deduct half of their share of the W-2 employee wages their companies paid out annually.

New Option

That approach would have left out real estate firms, which typically have relatively few employees but large capital investments. For them, the compromise bill offers an additional method: deduct 25 percent of wages paid, plus 2.5 percent of the purchase price — or “unadjusted basis” of their tangible, depreciable property.

But no matter the method, owners would be limited to no more than an overall 20 percent deduction.

Offering the 20 percent deduction to businesses that don’t tend to employ many people is “in a sense contrary to the Administration’s job creation policy initiatives,” said Pillsbury Winthrop’s Kosnitzky.

But “many capital-intensive industries are indirect job creators — putting contractors, subcontractors, tradesmen and other to work,” said Ryan McCormick, senior vice president and counsel at the Real Estate Roundtable, a trade group.

Details of how lawmakers decided on their final approach are sketchy. On Sunday, Senate Majority Whip John Cornyn suggested the change was made as part of a process to “cobble together the votes we needed to get this bill passed.”

“We were working very hard,” he said during an appearance on ABC’s “This Week.” “It was a very intense process.”

The International Business Times, which first reported on the revision’s potential effects on various elected officials, noted that it could benefit several members of Congress who have real estate investments via pass-through businesses. That includes Corker, who was the only Republican senator to vote “no” on earlier Senate legislation. The Senate approved that measure nonetheless on a 51-49 vote, which set the stage for reaching last week’s final compromise with House leaders.

Corker’s Switch

Corker said Friday that he would vote “yes” on the new version — a reversal that could be meaningful for the bill’s chances. Republicans hold a slim, 52-seat majority in the 100-seat Senate, and Republican Senator John McCain of Arizona, who’s being treated for brain cancer, is not expected to vote this week. Corker’s switch gave GOP leaders an extra measure of certainty.

Corker told Bloomberg News Saturday that he wasn’t aware of the new benefit for real estate investors when he decided on Thursday to back the final bill based on a two-page summary he’d seen. The bill text was released Friday.

Screen Shot 2017-05-06 at 10.20.53 AM“I have no earthly idea of how that provision — or, candidly, any other provision — made it in,” Corker said. He also said he didn’t know how the change would affect him financially, adding that “there’s just no way a provision like that would affect me on a big decision like this.”

Corker filed a financial disclosure earlier this year showing that among other interests, he had ownership in Corker Properties X LP, a partnership that owns a building in Chattanooga, Tennessee, according to local property records. Corker listed income from the property between $1 million and $5 million in 2016. Still, it’s not clear how much benefit he might receive from the bill.

Corker cited concerns about the deficit for his previous opposition, and tax writers have done nothing to alleviate the deficit impact. The Congressional Budget Office estimated late Friday that the revised measure would increase federal deficits by $1.455 trillion over 10 years, a projection that’s slightly higher than for the version Corker opposed previously.

The senator acknowledged that his deficit argument was unsuccessful, but said he had concluded that the bill’s overall effect would stimulate economic growth for both corporations and small businesses.

“All of that seems worth the risk,” Corker said.

Originally published HERE.

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