Potential pullback from US purchasers

Overseas Property | BLOOMBERG 30 Jan 2020

Sales of new U.S. homes cooled for a third month in December, signaling a potential pullback after purchases climbed to some of the best levels in more than a decade amid lower borrowing costs and a solid labor market.

Single-family home sales fell 0.4 percent to a 694,000 annualized pace, the weakest since July and below all economist estimates in a Bloomberg survey, while the November figure was revised down to 697,000, government data showed on Monday.

The median sales price edged up 0.5 percent from a year earlier to US$331,400 (HK$2.58 million).

Key insights

Despite signs of softening, new-home sales remain near post-recession highs amid lower borrowing costs following three Federal Reserve interest-rate cuts last year. Recent strength, however, has boosted residential construction, and in turn helped contribute more to gross domestic product.

Other recent reports have indicated fresh strength in housing.

Existing home sales, which account for about 90 percent of US housing, jumped in December to the best pace in nearly two years amid the leanest inventories on record. Pending home sales also have remained resilient.

Purchases of new homes fell in the South, the largest region, and the Northeast, while they climbed in the Midwest and West.

Economists projected an annualized pace of 730,000 new-home sales for November. Estimates ranged from 700,000 to 764,000.

There were signs that the inventory squeeze may get some relief. The supply of homes at the current sales rose to 5.7 months from 5.5 months in the prior month, while the number of properties sold for which construction hadn't yet started increased to a six-month high of 214,000.

New-home purchases account for about 10 percent of the market. As they are calculated when contracts are signed, they are considered a timelier barometer than secondary market purchases,which are calculated when contracts close. The figures are published by the US Census Bureau and the Department of Housing and Urban Development.

Jitters in New York

In New York City, sales of apartment buildings tumbled to near-decade lows last year, after new rent rules scared investors away from properties with regulated units.

By every measure, it was a terrible 2019 for those in the business of owning and selling multi-family properties.

The dollar value of purchases across all boroughs fell 40 percent from the prior year to US$6.91 billion, the lowest total since 2011, according Ariel Property Advisors.

There were 290 multi-family deals - a 36 percent decline, and the first year with fewer than 300 transactions in records dating to 2010.

Apartments fell out of favor with investors last year as they digested New York's new rent law, which governs about one million apartments in the city. The overhaul took direct aim at landlords' income by making it almost impossible to raise rents, remove units from state regulation or even recoup the costs of capital improvements.

In doing so, it upended a basic tenet of apartment investing: that spending on renovations could bring higher returns.

"The fact that there's no correlation between the amount you put into a building and the amount of rent you can charge has completely shifted investment interest in rent-stabilized buildings," said Shimon Shkury, president of Ariel.

In Manhattan, south of East 96th Street and West 110th, investors steered toward non-regulated units, and paid up for them. More than 60 percent of the units that changed hands last year were market rate, according to the report.

Buyers paid an average of US$758,217 per apartment, up 14 percent from 2018.

Investors who did acquire rent-regulated properties demanded lower prices. In Queens, where about 67 percent of the units sold were under rent regulation, prices fell 7.7 percent to US$276,261 per apartment.

And in the Bronx, the average sale price per unit was US$171,855, down from US$185,006 in 2018.

Buyers of properties subject to the new rules "expect to get a higher yield on day one," Shkury said.

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