Developers are seeking approval for two 50-storey towers in the same block where Surrey city council recently gave the greenlight for what will be its tallest building at 67 storeys.
For more than two years house prices have been increasing faster in metro Phoenix than in any other city in the S&P/CoreLogic Case-Shiller Home Price Index. The median single-family house price in metro Phoenix increased $100,000 in 2021 and is continuing to increase crazy fast in 2022, according to Phoenix MLS data.
#1 Reason For Skyrocketing House Prices
Almost everyone agrees the main culprit for our skyrocketing house prices in Phoenix and the United States is the extremely low number of houses for sale. What we don’t agree on is what’s causing the low supply of houses for sale.
In metro Phoenix at the end of 2019 (before Covid), 9,700 single-family houses were for sale. At the end of 2021, only 4,500 single-family houses were for sale in the Phoenix MLS.
The real estate industry loves to say the only solution is to build more houses in the future. Their unspoken point is we can’t stop house prices from soaring today.
What The Real Estate Industry Won’t Tell You
The industry conveniently ignores the other part of the supply equation: the number of houses sold. The number of houses for sale is equal to the number of houses put up for sale, minus the number of houses sold. (Very few houses have been pulled off the market unsold.)
The supply of houses for sale is so low today because investors bought up so many houses that they pulled down the supply of houses for sale. Mathematically, when investors buy more houses, fewer houses are for sale.
Let’s compare 2021 to the last year before the pandemic, 2019. At the end of 2021 we had 5,200 fewer single-family houses for sale in the Phoenix MLS than at the end of 2019. But in 2021 investors bought 5,900 more single-family houses than in 2019.
If investors had bought the same number of houses in 2021 as they did in 2019, by the end of 2021 the number of houses for sale would have gone up to pre-Covid levels, and the size of the median house price increase would have gone down to pre-Covid levels.
Much Higher Landlord Purchases Caused Home Prices To Skyrocket
In the hottest real estate market in the country, Phoenix, the supply of single-family houses for sale would have been back to pre-Covid levels by the end of 2021–except that investors bought a lot more houses in 2021 than they did before.
Investors bought more than twice as many houses than in 2019. Live-in buyers, however, actually bought fewer homes in 2021 than in 2019.
Why did landlords buy so many more houses in 2021? There are a lot of reasons, including the rise of short-term rentals which has taken thousands of houses out of the Phoenix housing supply and put them into the Phoenix lodging supply.
One national, long-term, systemic cause is that real estate investors get huge tax breaks that live-in owners don’t get. Landlords naturally buy a lot more houses because of those tax breaks.
Those government incentives also make real estate booms (and busts) a lot larger than they would be if the government didn’t, essentially, pay landlords to buy single-family houses.
We have more investor-owned houses to begin with because of those tax breaks. Then when the market gets hot, even more investors jump in and buy than would if we didn’t have those tax breaks. House prices increase a lot more because of those tax breaks.
Why Increased Demand Increases House Prices So Much
In economics jargon, for single-family houses, both the price elasticity of supply and the price elasticity of demand are incredibly inelastic. That means house prices are super sensitive to unexpected increases in demand.
When the number of houses sold jumps up for any reason, house prices jump up an unusually large amount because it will take so long for the supply of houses to increase enough to match the increase in sales.
In addition, the demand for single family houses is also incredibly inelastic which means those higher prices don’t reduce the number of houses sold very much. Prices have to increase an unusually large amount to reduce sales.
Together, the two extreme inelasticities mean small increases in demand for houses can lead to house price increases that seem totally out of proportion. That is, relative to other goods, an increase in demand for houses causes an extreme increase in prices.
There’s more. Because houses are partially an investment good for live-in homeowners and are 100% an investment good for landlords, house prices can act more like stock prices than consumer goods prices. Like with stocks, fast price increases cause optimistic buyers to buy expecting prices to go even higher. Unfortunately, the most optimistic buyers set the prices for both stocks and houses.
Rapidly increasing house prices make buying houses more attractive to those momentum traders which causes house prices to increase even more in a feedback loop. In addition, if you start with a given amount of money, you can borrow a lot more money to buy houses than you can to buy stocks. That enables house prices to increase even faster in a hot market.
Quickest Way To Increase The Supply Of Houses For Sale
A quick solution to the low Phoenix and U.S. supply of houses for sale is to level the playing field and to stop giving any tax breaks to landlords that live-in owners don’t get. Make it so everyone gets tax breaks on one house, if they own it and live in it, but that’s it–no tax breaks at all related to any other single-family houses or condos they buy in the future. Then watch U.S. house prices become less crazy in both good times and bad.
Economically, if we had done this a year ago, the U.S. would be well on its way back to normal levels of supply now and, in addition, we would greatly reduce the size of future housing booms and busts. Far greater economic stability for households would create far greater economic growth in the future–with no out-of-pocket cost to the government. The homeownership rate would also increase–with no out-of-pocket cost to the government.
We have a lot of other economic knobs we could turn to stabilize U.S. housing supply and prices–if needed–but first, the government should at least stop making things worse with its huge, landlord tax breaks.
Here’s one crazy example. Last year the typical house in metro Phoenix appreciated $100,000 but, if it’s owned by a landlord, our genius government pretends the house depreciated in value and gives the landlord a tax deduction for the imaginary fall in value! No wonder investors have been buying more and more single-family houses for decades and U.S. house prices have become more and more unstable.
Real estate agents are turning to ChatGPT AI to describe listings – USA TODAY
Century 21 Beggins Enterprises on its website lists a “beautiful” three-bedroom condo in Madeira Beach, Florida with “large spacious balconies to enjoy the warm, beautiful views.”
“This is one of the only properties available on the Gulf Beach islands that’s totally pet friendly,” the listing reads. “Secure your piece of paradise at The Residences at Madeira Beach Town Center. Welcome home.”
If you’re tempted to buy the listing, thank ChatGPT. The text above was written by the free artificial intelligence computer program.
Real estate agents across the country are turning to the program to help write up listing descriptions and content scripts, as first reported by CNN.
“We’re using it every day,” said Mike Puma, chief marketing officer at Century 21 Beggins, who uses ChatGPT to write content like social media posts or video scripts for real estate agents. “(This allows) them to spend more time on what they do best.”
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How are real estate agents using ChatGPT?
Tony Angelos, a Chicago-based broker, said he started using ChatGPT soon after OpenAI launched the program in November 2022.
“It’s a total game changer,” he said. For most real estate agents, “marketing and prospecting is really most of the jobs’ core functions. And this is a very cost-effective way to completely eliminate one of those things.”
Angelos uses the program regularly to come up with scripts for social media videos and listing descriptions.
Earlier this week, he had the AI program write a script about things to do in Chicago in February. He said what would have taken him 20 minutes to write took ChatGPT five seconds.
“I said make it a little funnier, and it made it funnier for me,” he said. “It’s not perfect by any means. But it is an amazing starting point.”
Paige Hewitt, a realtor based in Indianapolis, has used ChatGPT to help write listing descriptions and marketing newsletters. She said the program’s capabilities far exceeded her expectations, and she’s excited that the time it saves her means she can spend more time with clients.
“It’s going to make my job easier, which is going to make me stronger at my job,” she said.
While the technology is a growing trend in the industry, the National Association of Realtors’ director of emerging technology, David Conroy, says business usage among realtors has so far been limited.
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How much does ChatGPT cost?
While ChatGPT is free for now, OpenAI’s official Discord server in January said the company was “starting to think about how to monetize ChatGPT” to “continue improving and maintaining the service.”
Real estate agents told USA TODAY they believe the tool would be well worth the money.
“We’ve been playing around with different AI platforms for years now and none of them have been very good,” Puma said. With ChatGPT, “we can now build really unique things on top of this that make the agents’ life even easier.”
Schools nationwide are banning ChatGPT: What we know about the future of AI in education.
What are ChatGPT’s limits?
ChatGPT has proven to be useful, but it’s not perfect.
Its popularity means it regularly reaches full capacity, forcing users to wait their turn to use the program. And because it was trained with writing from the internet up to 2021, some of its information is outdated.
Conroy from NAR warned that anything generated with AI should be thoroughly reviewed by licensed professionals. That includes listing descriptions; he notes that NAR’s code of ethics prohibits the exaggeration or misrepresentation of pertinent facts.
“There could be scenarios where listing descriptions created by using AI could unintentionally include language or descriptions that are not intended or even violate fair housing laws,” Conroy said in an emailed statement. “It is important to remember that real estate professionals have a responsibility to their clients to be honest and truthful.”
You can follow USA TODAY reporter Bailey Schulz on Twitter @bailey_schulz and subscribe to our free Daily Money newsletter here for personal finance tips and business news every Monday through Friday.
In Toronto real estate, a small bounce amid uncertainty – The Globe and Mail
Canada’s housing market will slowly grind lower in 2023 before finding a bottom later this year, predicts Randall Bartlett, senior director of Canadian Economics at Desjardins Group.
“We think the worst is behind us,” he says of the correction in real estate so far.
Still, buyers are likely to remain cautious as some price discovery takes place, Mr. Bartlett added in an interview.
“Nobody wants to catch a falling knife.”
By the end of December, the national average house price had dropped 20 per cent from its early 2022 peak, and Mr. Bartlett figures it will slip up to five per cent from that level.
Debt-burdened homeowners – particularly those with variable rate mortgages – are likely to find the first quarter the most challenging, says the economist, following the eighth interest rate hike by the Bank of Canada as it strives to bring down inflation.
The central bank also signalled its intention to pause at the latest meeting after moving the policy rate from 0.25 per cent in early 2022 to 4.5 per cent.
Mr. Bartlett is not expecting a wave of distressed homeowners to sell their properties this year, but they will likely rein in spending, he says.
That decrease in consumption will likely contribute to a short and shallow economic recession, according to Mr. Bartlett.
He cautions, though, that the risks to his forecast are tilted to the downside, partly because of the prevalence of people taking out variable rate mortgages during the pandemic.
If the recession turns out to be more severe than he expects, more workers are likely to lose their jobs and another leg down in the housing market is a real possibility, he warns.
His base case is that real estate prices will find a floor in the third or fourth quarter, he says, and Desjardins has pencilled in a rate cut by the Bank of Canada for October or December.
Looking farther ahead, Mr. Bartlett is concerned that slow sales in the current market for pre-construction condo units will lead to a shortage of units in the coming years. While a rush of supply will come on this year and next after a sales boom during the pandemic, that segment is currently in a slump and immigration is expected to increase.
In Toronto, meanwhile, the end of one year and start of the next has brought a sudden flurry of sales, agents say.
Christopher Bibby, broker with Re/Max Hallmark Bibby Group Realty, says some properties that had been lingering on the market all through the fall sold at the end of December or beginning of January.
“I never would have predicted January would be our opportunity,” he says of selling the various properties that were first listed in April, July and August.
Mr. Bibby says the opening salvo of many buyers is an offer well below the asking price, but some back-and-forth usually leads to an agreement.
“Frequently people will call just to gauge the motivation or how desperate we are.”
In one case, a unit at 55 Stewart St. was listed with an asking price of $2.595-million. The buyer chiseled that figure down to a sale price of $2,478,600.
In another case, sellers had actually taken their one-bedroom unit at 301 Markham St. off the market with a plan to relist in the spring. A downsizing couple who had looked at the unit when Mr. Bibby had it listed for $629,900 in the fall contacted him in early January and asked to see it again.
They struck a deal for $600,000.
Typically, condo units sold for between 3 and 6 per cent below the asking price, he says.
“People feel they need some cushioning if prices go down a bit.”
That’s a significant change from the fall when many properties did not even have showings, he says.
Long closings in the 120-day range are increasingly common these days, he adds.
Some agents have reported spirited bidding wars in the Greater Toronto Area – particularly when properties are listed with an asking price far below market value.
In the east end of Toronto, for example, a rundown two-bedroom house was listed with an asking price of $349,000 and drew more than 30 offers. It sold just above $600,000.
In Mr. Bibby’s opinion, most market participants are in no mood for the strategy of attracting eyeballs with an unrealistically low asking price. Listing agents report registered offers, he notes, and often just one offer is enough to discourage others who had viewed the property.
He says an effort to drum up a bidding war can backfire for the seller because they may not get the price they were hoping for and all other potential buyers will know it.
“The minute we say we have an offer, no one wants to compete downtown,” he says. “Once that notice goes out, all eyes are on you.”
With some confidence returning to the market, Mr. Bibby has six properties lined up to list in the coming weeks, but he points out that activity remains very unpredictable. He is not seeing any signs that suggest prices will skyrocket and recommends that potential sellers gauge their own comfort level.
“If the timing doesn’t feel right, don’t do it,” he advises sellers.
Elli Davis, real estate agent with Sotheby’s International Realty Canada, was surprised when two buyers submitted offers for different Bay Street condo units at 9 p.m. on a Saturday night.
Both condos were listed around the $1-million mark and deals firmed up within a few days.
A two-bedroom unit at Granite Place in midtown Toronto received two offers after Ms. Davis launched it during the first week of January.
The 1,312-square-foot unit was listed with an asking price of $1.195-million and sold for $1.3-million.
Ms. Davis says buyers and sellers continue to move for the usual reasons: They are leaving Toronto, expanding their family or downsizing.
“Not everyone is so affected by the economy and interest rates.”
Ms. Davis encourages potential sellers to list when there is so little inventory available, but she stresses that they also need to be realistic about the asking price. Some are dismayed about the tumble from the heights of early 2022.
“‘I don’t want to give my place away,’” is a common refrain, she says, as sellers adjust their mindsets to lower prices.
Her usual response to that is, “let’s look at what you made,” she says, pointing out the gains to sellers who have owned their properties for many years.
Manu Singh, real estate agent with Right at Home Realty Inc., says January was unexpectedly busy for him after a moribund final quarter to the year.
He saw a discernible shift in the segment below $749,000 while he was working with a first-time buyer who purchased a loft in a boutique building near Queen Street W. and Dovercourt Road.
Mr. Singh advised the young professional to take her time looking because units were languishing on the market. Suddenly 25 showings had been booked for the one-bedroom-plus-den unit on Dovercourt Road listed with an asking price of $707,900.
“I hadn’t seen this for months,” he says.
The sellers had already rejected one bid below the asking price when Mr. Singh’s client struck a deal with an offer of $715,500.
Mr. Singh believes pent-up demand from buyers who sat out the fourth quarter is one reason for the spurt. Many have preapproved financing lined up and they wanted to take advantage of the rate they were offered before the Bank of Canada’s January meeting.
In the months ahead, Mr. Singh expects the market to remain fairly flat. Investors are still reluctant to buy, he adds.
“I think rates have actually scared them.”
More tall towers being proposed, approved and completed in Vancouver, Burnaby, Surrey and Coquitlam
There are 20 development projects with towers over 45 storeys that are selling condo units, under construction or near completion.
He added that with increased land and construction costs, developers are motivated to use all the density they can get and build taller towers. However, there is also a point where it stops making sense to push higher “because things like the cost of structural systems increase as you go higher.”
Across Metro Vancouver, there are more than 20 towers over 45 storeys that have been approved by municipal governments, according to data from Zonda Urban market analyst Justin Lee. More than half of these are in Burnaby. Five are in Coquitlam and Port Moody, while Downtown Vancouver, New Westminster and Surrey have one each.
After these, there are 40 more tall-tower projects that have been publicly presented to city councils and are in some stage of seeking approval. Most are in Burnaby and Surrey, followed by Downtown Vancouver and Coquitlam.
“We’ll see if economic conditions allow for them to be built,” said Dikeakos, whose firm is working on the new tall tower approved in Surrey and other projects.
In late 2019, Pinnacle International Development made a proposal for a site near the Lougheed SkyTrain Station. It had three towers including one that would be 80 storeys and 250 metres tall. They would be the tallest buildings in Western Canada. Some more details were presented to Burnaby city council in May 2022 for towers of 80, 76 and 73 storeys, but the project has not progressed further with the city.
Metro King by Anthem Properties is a proposal for a 66-storey tower between Kingsway and Hazel streets across from Metrotown that is nearing a final decision by the City of Burnaby.
This pipeline of potential projects is happening as cities have focused on adding density to sites near transit stations and town centres, according to Dikeakos.
“The taller buildings in these types of developments that you are going to be seeing tend to be real, mixed-use ones, meaning they have a commercial base with significant office or hotel use where the first 15 to 20 storeys are commercial even before you get to the residential portion,” he said.
“One of the interesting changes that we’re seeing is that because these developments are being done near transit sites, cities are requiring less parking,” said Dikeakos. “If we had to do the same amount of parking required a few years ago, the depth of these excavations would make them completely unfeasible. (When) we’re not required to do as much parking, it allows us to do these taller towers and still make some financial sense.”
Even though developers are motivated to deal with increasing land and construction costs by building higher, there is a turning point. It will obviously be different for each project, but Dikeakos said that for the Station Square project, it was somewhere at the 52- to 55-storey height.
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