America's Ultra Luxury Housing Bubble Has Burst: "Deals Have Slowed To A Trickle"

Tyler Durden's picture

It was over two years ago when, as everyone was praising the US housing recovery which has since stalled dramatically in the latest dead cat bounce for everyone but the very richest, that we exposed the biggest component of demand for the ultra-luxury segment: money laundering.

Specifically, in August 2012, when isolating one of the various reasons for the latest housing bubble, we suggested that a primary catalyst for the price surge in the ultra-luxury housing segment and the seemingly endless supply of "all cash" buyers (then standing at an unprecedented 60% of all buyers lately as reported by Goldman) is a very simple one: crime. Or rather, the use of US real estate as a means to launder illegal offshore-procured money. We also identified the one key permissive feature which allowed this: the National Association of Realtors' exemption from Anti-Money Laundering provisions. In other words, all a foreign oligarch - who may or may not have used chemical weapons in their past: all depends on how recently they took their picture with the Secretary of State - had to do to buy a $47 million Florida house, was to get the actual cash to the US. Well good thing there are private jets whose cargo is never checked.

As we further showed, the bulk of foreign demand for New York's most expensive properties, originated in China, Russia and various other oligarch-controlled nations, where the impetus to launder illegally obtained hot money meant an impulse to buy US real estate sight unseen and virtually at any price. And all of it, of course, all cash. No mortgages. 

That onslaught of foreign oligarch demand is ending, and with it so is the bubble that luxurious New York real estate found itself in on the back of some $12 trillion in central bank liquidity created out of thin air in the past 6 years. Business Week cites Manhattan real estate agent Lisa Gustin who listed a four-bedroom Tribeca loft for $7.45 million in October, expecting a quick sale. Instead, she cut the price this month by $550,000.

“I thought for sure a foreign buyer would come in,” said Gustin, a broker at Brown Harris Stevens who is still marketing the 3,800-square-foot (353-square-meter) apartment at 195 Hudson St. That's ok: the foreign buyers thought the Swiss National Bank would never end the CHF floor either. And now they can no longer afford to flip four-bedrooms going for the paltry sum of just $8 million.

“So many new condos are coming up right now. They’ve been building them for the past few years and now they’re really hurting the resales.”

And it isn't just the end of hot money laundering. Another culprit has emerged: the soaring US Dollar:

A flood of new high-priced condominiums and mansions are coming to market in New York, Miami and Los Angeles just as international buyers, who helped fuel demand in the three cities, are seeing their purchasing power wane with the strengthening dollar. Signs of a pullback may already be showing in Manhattan, where luxury-home sales have slowed amid a surge in construction of towers aimed at U.S. millionaires and foreign investors.

 

This year, 2,386 newly built Manhattan luxury condos will be listed for sale, the most on record, data compiled by Corcoran Sunshine Marketing Group show. The brokerage defines luxury as units priced at more than $2,300 a square foot.

 

“We’re building a very narrowly defined super-luxury product with a fairly deep pool of buyers, but the challenge is going to be the mere fact that it’s all coming at the same time,” said Jonathan Miller, president of New York-based appraiser Miller Samuel Inc. and a Bloomberg View contributor.

The result: inventory and supply are both soaring, which means it is suddenly a buyer's market all over again: "With the increased supply, buyers are taking longer to make deals. New and resale apartments that went into contract in the fourth quarter for $10 million or more spent an average of 147 days on the market, almost twice as long as a year earlier, according to real estate website StreetEasy.com."

And the biggest reason for the slump in demand: the one was have been warning about for the past year - the global recession has finally hit home. "Weakness in economies outside of America, a plunge in oil prices and surging dollar may be hurting demand from international buyers, who have set records in their hunt for trophy American real estate as a haven for their money. The U.S. dollar has strengthened against all of its 16 major peers except for the Swiss franc in the past 12 months."

While foreigners account for about 15 percent of total Manhattan sales, they make up about 30 percent of high-end condo purchases, according to Miller. Developers of the ultra-luxury Midtown skyscrapers One57 and 432 Park Ave. have touted their sales to buyers from around the world, including South America, the Middle East, China and Russia.

The worst news that any real estate agent could hear: “The trajectory right now is of a softening demand of $5 million-plus dollar apartments due to the lack of foreign buyers,” said Brian Meier, a broker at Douglas Elliman Real Estate. “If the global market doesn’t increase its demand on Manhattan residential real estate, we could see a sluggish super-luxury market going into the second and third quarter.”

And what comes next are liquidation sales, as the sellers suddenly rush to find any bid before the next seller does. This in many ways mirror what is going on with the global crude market, as lower prices force even more supply, leading to even lower prices, until finally the source itself is taken out back and quietly put of their misery.

It's not just New York. Here is LA:

In the Los Angeles area, the number of homes sold for more than $2 million climbed 15.5 percent last year to 3,927, compared with a 41 percent growth rate in 2013, CoreLogic DataQuick said.

 

Across the U.S., the luxury-home market has been healthier than lower-end segments, where buyers of lesser means may struggle to get mortgages. That has enticed developers to build more high-priced residences.

 

On the Los Angeles Multiple Listing Service, there were 3,198 homes with asking prices greater than $2 million at the end of 2014, up 17 percent from a year earlier, according to Partners Trust, a Beverly Hills, California-based brokerage. The number of homes priced at more than $5 million, including new and existing properties, jumped 27 percent to 546.

And Miami:

In Florida’s Miami-Dade County, which skews heavily toward Latin American buyers, almost 30,000 new condos are proposed, on the drawing board or under construction east of Interstate 95, according to CraneSpotters, a Miami-based consulting firm. There have been 71 new towers with 19,158 units proposed in greater downtown Miami since the latest boom began in 2011, compared with 84 properties with 22,200 condos built from 2003 to 2010.

The spot-on soundbite:

“Foreign buyers are the purchasers who saved the South Florida condo market during last dramatic downturn,” said Peter Zalewski, principal of CraneSpotters. “Ironically, foreign buyers are going to be the ones to push condo prices back in a tailspin because of the drop in commodity prices and weakening foreign currencies.”

It is so bad even the eternally cheerful Larry Yun took a break from cooking the NAR books to provide a statement or two:

“We may begin to see some dent in foreign purchases” as overseas economies slow, Lawrence Yun, the Realtors group’s chief economist, said in a phone interview. “The strength in the dollar makes it pricier to purchase in the U.S.”

Without doubt the biggest source of lost demand is Russians, who have lost about half of their purchasing power in just the past several months:

In February 2012, a penthouse at New York’s 15 Central Park West was purchased for the daughter of Russian billionaire Dmitry Rybolovlev for $88 million, a record at the time. The condo, which would have cost about 2.6 billion rubles at the time of the closing, would cost more than 5.7 billion rubles at today’s rate.

 

“There’s no question the ruble falling as precipitously as it has put a damper on things,” Marlen Kruzhkov, an attorney with New York-based Gusrae Kaplan Nusbaum PLLC, who represents foreign buyers in U.S. real estate deals. “But it works two ways. There are those people it’s going to prevent from buying. And at the end of the day, there are those people it just reinforces for them the reasons they’re moving their money out of the country in the first place.”

There is only one bright spot left: Chinese buyers, who continue to find ways to find money laundering loopholes out of China and to park their illegal cash in the US...

Chinese buyers -- who spent $22 billion on U.S. homes in the year through March, up 72 percent from a year earlier, according to the National Association of Realtors -- may be an exception to the pullback. Their purchases in Manhattan are “increasing significantly,” said Pamela Liebman, president of brokerage Corcoran Group.

... but that too will change as the Chinese economy slows down dramatically, and as the consequences of the domestic Chinese housing bust spread through the remaining sectors of the economy. And while for now only the stock market appears immune, soaring on the back of indirect central bank liquidity injections and the government's explicit green light to get all the habitual gamblers involved, the days of 5% daily Shanghai Composite gains are also numbered. The only question is when the Chinese stock bubble follows its housing bubble.

But back to New York, where as Bloomberg reports, "deals have slowed to a trickle":

At One57, the Extell Development Co. project that set off the construction boom, deals slowed to a trickle amid competition from newer properties reaching the market. Just one contract was signed in each of the first three quarters of 2014, Extell said in a filing on the Tel Aviv Stock Exchange, where the company sells debt to investors. As of the end of September, 24 of the project’s 94 condos were unsold.

 

It wasn’t like that when sales began in 2011. Deals at One57 totaled $1 billion in the first six months, including a contract for a duplex penthouse for $100.5 million, which set a New York price record when it was completed last month.

The conclusion:

Some people will get a little panicky because things are not selling as fast,” Steinberg said. “But what we experienced over the past two years was not reality. That was a moment in a century.”

Indeed, and we will add that what we experienced in the global capital markets, and not just in housing in the past five years was not reality. It was a central-bank driven bubble of epic proportions. A bubble that is now ending.

The best news, however, is that the days of obnoxious TV shows catering to pampered billionaire oligarchs and their spoiled trust-funded children, such as "Million Dollar Listing" are finally numbered.

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JustObserving's picture

The Russians are not buying? The Chinese are worried that the pivot to Asia makes them the next Russians?

The Nobel Prize Winner brings so much peace and prosperity everywhere.

jcaz's picture

"I thought for sure there would be a bigger sucker coming along..."

Why did the music stop?

El Vaquero's picture

Yup.  It seems as though we have identified one of those whom we may label "A greatest fool."

 

“I thought for sure a foreign buyer would come in,” said Gustin, a broker at Brown Harris Stevens who is still marketing the 3,800-square-foot (353-square-meter) apartment at 195 Hudson St.

Timmay's picture

When does buying fast in cash turn to selling fast in cash?

Save_America1st's picture

Keep stackin' that phyzz, folks.

One of these days a monster box of ASE's will buy a place like that. 

Yes We Can. But Lets Not.'s picture

As of today, that condo unit listed by Ms. Gustin is still available for $6.9MM.  Here is the listing:

http://www.bhsusa.com/manhattan/downtown/195-hudson-street/condo/11334394

migra's picture

When does buying fast in cash turn to selling fast in cash?

 

About 15 months from now is when the tail end of this one goes over the cliff.

quintago's picture

ah...the strong dollar is going to slow things down? They forgot about the effect that people cashing out of a strong dollar assets will have too when they need money back home

Chad_the_short_seller's picture
Chad_the_short_seller (not verified) jcaz Jan 21, 2015 3:05 PM

Hold your horses bro, the Cubans will be buying up tons of real estate over here in amerisrael.

Jack Burton's picture

Both Russian and Chinese buyers now know that their money would never be safe in the USA. Obama and the next president will continue the declared wars on Russia and China, using financial sanctions as their first weapon, using King Dollar, This has to sink in to the foreign rich that America is not a free market or free country, all market actioon must clear through the US government dictatorship. Thus their wealth can be taken at any time and on any reason.

Handful of Dust's picture

Didn't Barry already freeze some of those Russian holdings in NYC and Florida?

 

With the new treaty between China and USA to extradite corrupt gubmint officials money laundering here in merika, I'm surprised any of them would continue.

1stepcloser's picture

I bet those guys smoke each others pole

Bunghole's picture

I was about to say the same thing.

Cockgobblers, every one of them.

Romney Wordsworth's picture
Romney Wordsworth (not verified) Bunghole Jan 21, 2015 2:26 PM

The one in the middle with the Skyfall suit is seriously blowing his coiffeur [& the favor is apparently not being returned].

Romney Wordsworth's picture
Romney Wordsworth (not verified) Consuelo Jan 21, 2015 6:49 PM

putts from the rough

El Vaquero's picture

I was going to say that they looked like the tried and true douchebags, but cockgobblers works.

Chupacabra-322's picture

Nah, more along the lines of the one in the middle getting Double Penetrated by the other two. Then, getting forced to go ATM. IN THE Porn industry referred to as: Ass to mouth with a good forced Throat Fucking / Gagging.

That's more like it.

BGO's picture

A $100M residential property sale in NYC was in the news just last week.

Callz d Ballz's picture

Until this morning's ECB leak, now back to full retard.

SmittyinLA's picture

Hey what's with all the gay realtor shows on TV? 

Should I expect a BJ everytime I buy a property? 

madcows's picture

seriously, you'd think homos make up 97% of the population and heteros are the anomaly.

pelican's picture

LOL... first laugh of the day

nuubee's picture

Why are you watching television?

A Lunatic's picture

I usually get an ass raping, so blowjobs would be a nice divergence.......

madcows's picture

is it just me, or do every one of the "listing" "guys" look like absolute fags?

FreedomGuy's picture

They make the best ass-kissers. They LIKE it.

Farmer Joe in Brooklyn's picture

I hope these little twats put all their money from the show into real estate.  I want to see each of these little sissies financially ruined.

tecno242's picture

Easy to explain..   the US dollar is up a large percentage vs. most foreign currency.  That will drive the relative cost of US real estate up for most foreign buyers that don't have their currency pegged to the dollar.  Really only leaving wealthy Chinese... but competition will obviously plummet with the exit of most foreign buyer and with it, prices.

disabledvet's picture

If you bought after the dollar collapsed in 2008 you're probably darn happy right.

 

 

Most other currencies have collapsed (now the Canadian dollar which is in free fall) PLUS that property might sell for a million DOLARES.

 

So yeah...darn tootin folks will keep buying. "As long as their banks keep printing.". I still believe the Fed will raise rates too.

 

 

We'll see how much longer the US mint can keep coining silver and gold coins too.  There have been years when the mint simply stopped.

Greenspazm's picture

The prices are still obscene, "burst bubble" or no...just like in the UK

FreedomGuy's picture

I do not know how many foreign buyers my city gets but I cannot believe all the condos going up followed by homes out towards the periphery. Unless about 100,000 new upper middle class to weatlhy are moving here very soon I cannot imagine there is really that much organic demand for homes. Given that there is no real recovery and I do not believe newly prosperous middle class people are going to move up and out of rental units.

This is the problem of fake manipulated economies. Everything is smoke and mirrors.

I have to believe it will be 2008 all over again.

Farmer Joe in Brooklyn's picture

For what it's worth... here's my recent experience in Brooklyn real estate (if anyone cares)...

2010:  I buy a 850sf 2-bed condo in williamsburg, brooklyn for $665k (with a 3.5% down FHA loan)

2012:  I sell said condo for $1.06mln (listed at $995k).  The three competing CASH buyers were, 1.) unnamed Russian buyer, 2.) unnamed Chinese buyer, and 3.) a rich lady from Colorado buying it for her 21yo daughter.  I had ONE showing and was in contract within a week.

2012:  I buy a 750sf 1.5-bed condo in prospect heights, brooklyn for $650k (20% down and I paid $30k over the $620k listing price).

2014 (Sept-Nov):  I listed second condo at $745k (comps in building had recently gone for $730-745k).  It took about 7-8 showings and I ended up punting it for $715k (spec investor buyer). 

The real estate market here is very much slowing down / rolling over.  And there are a FUCKING TON of new condos springing up all over Brooklyn.  There is going to be a monstrous glut of inventory by this summer. 

There is going to be a fucking BLOODBATH in real estate by the end of this year (or early 2016, at the very latest). 

I'll have my down 60% bid ready to scoop up a desperate seller...

Cheers!

weburke's picture

just go to westchester where you can get a real mansion with acres of land, and.....well, go to katonah, look at the numerous real estate retail shops, and look at all the "recently reduced" signs on -all- the photos of properties. Looks like everyone assumed ! All those that had that kind of money already bought, and now, who do they all sell to? Million dollar condos all over westchester are facing the same problem. I am not there, ct, and just sold, but even in my family freindly town, with great schools, there are 300 foreclosed properties. wow.

Omen IV's picture

same in Chappaqua: bought for $745k - 3300 sq ft with pond -  2 acres - sold for $1.375 - recently resold for $1.400 - so the guy lost

Mike Honcho's picture

Almost Million Dollar Listing: New York.

 

Not as Robin Leachish, but still starring three pansies.

Jack Burton's picture

Okay, I admit, I watch "Million Dollar Listing LA and NY". I have since it first appeared. I like watching the successful people buy homes! What can I say.

One small point, I always credit the rich with being very smart folks, after all, they got rich, I didn't. Yet I would never let these so called brokers step inbetween me and real estate to where they are simply stealing hundreds of thousands in commission, which in most cases is off the charts beyond what a real market would price their services. I wonder, why don't agents undercut eachother. Come on, these guys have contacts, yes, but are those contacts worth that much? Maybe yes, but shit, when they clean up 250K for selling one NY apartment, well? Where are market forces, they should be driving those commissions down? For someone in the top end of real estate "How come these aren't driven down by agent competition?" Is is the same as plumbers and dentists, they all charge the exact same fees?"

kevinearick's picture

Energy, Money & Labor

All the critters understand is fighting over the distribution of natural resource exploitation, the politics of accounting make-believe work, in which oil, relatively free energy, excluding politics and reality, has played a critical role for several generations, normalizing genetic reproduction accordingly. And now that the planet is reacting, their basic response is to de-populate, blowing up all the nation/state demographic financial ponzies.

In the meantime, they hope to be dead and gone before things get really serious, while they simultaneously hunt down anyone that could provide a better energy source. And because public education teaches economic development exactly backwards, from the top down, feudal politics, they keep assuming that increasing the pressure of arbitrary laws, with increasingly covert infrastructure, on a decelerating population, titration, will either produce that energy source or mitigate the problem, which isn’t happening, surprise, because the planet has other expectations.

Labor employs gravity, time, against itself, instead of training wheels, so weaning the kids off training wheels in never an issue. Only a moron trades wealth, or its integral, for an arbitrary derivative, the ability to confiscate wealth, which all forms of money represent. From that perspective, the one and only utility of money is discovery, the transaction specific discount rate.

Both labor and capital are now discounting the middle class. The Republicans like oil to directly profit on artificial scarcity. The Democrats like oil to indirectly profit on artificial scarcity. In any and all cases, capital is inflated, consuming the middle class, which mistakes inflation for wealth, as it is ‘educated’ to do.

Shift the baseline to find the feudal contract price and all the market variability quickly explains itself. This country does not suffer from resource scarcity. It is simply following the path of least resistance, like all before it. According to Obama, all is well, so carry on as usual. Saudi Arabia has seen this show many times, which is why it’s a desert, and Canada is lowering its interest rate.

San Francisco and New York are pyramids, empire in a different dress, like the landlord calling the police to sweep away the homeless, while giving the homeless shelter toilet paper. And like Frank Sinatra said, ghettos create the greatest system accounting profit. Money making money is a joke, played on the middle class by capital, which confiscates what labor leaves behind, but that never stops the critters from trying to prove otherwise, that misdirection is really work.

kevinearick's picture

if you liked Snowden, you're going to love the revelations about what they are doing with that cloud...

mind_imminst's picture

Next up "Billion Dollar Listing". You guys don't think the central bankers will allow this bubble to burst...do you?

gmak's picture

That's another great picture for my rogues gallery desktop picture random 5 min rotation.  heh.

Dekyus's picture

"various other oligarch-controlled nations" like USA and western world ?

Chad_the_short_seller's picture
Chad_the_short_seller (not verified) Jan 21, 2015 3:06 PM

Puts on the homebuilders!!

Farmer Joe in Brooklyn's picture

Btw, I'd really like to kick that smug little one with the pompodour right square in what is no doubt a miniature version of cock and balls...

new game's picture

dumped my macmansion in 07 for 720 and bought exactly at 1/3, 240 and haven't looked back. i was an idiot but learned a valuable lesson and dodged a bullet. homes in that neighborhood dropped 100-200 by the bottom. have come back 50 % of the drop. it is all bling bullshit and your neighbors are "special snobs". minmalism rules my day. my 5 spd corolla has never let me down...

Mayer Amschel Rothschild's picture

Luxury items are often some of the last segments to turnover before a big bear market.  Coincidentally, Rolls Royce for the first time broke 4000 autos sold in a year (2014).  Along with a strengthening buck maybe things are starting to finally line up.

quasimodo's picture

Oh.my.gosh.

I wipe my ass with that picture of those three muskateers. Privilaged wearers of panties would not last a day in the real world. 

I don't give a flying f-k how they make thier money. I have the luxury of laughing my ass off when I see fags like this who have no clue what real life actually consists of.