A chill in American real estate

You know things are starting to get hectic there, even if a multi-million penthouse in Manhattan can't be sold.

It seems that a developer at SoHo, who just recently completed primary construction for his high-rise condominium tower, has realized that the focal point of the project – a $ 45 million, 8,400-square-foot penthouse – is just too big.

"The air is very thin out there in the customer pool," was the way it was put by builder Kevin Maloney Bloomberg .

You will like the Solomon solution Maloney came up with.

Penthouse has a wonderfully grandiose name: The Summit of SoHo.

Of course, it has its own indoor pool. And yes, it has ceilings for the 23-foot living room. In addition, there are not one, but two private lifts. One goes to the lobby; the second is, so you don't have to climb the stairs to the upper level of the penthouse (for entertainment, spa, kitchen and rooftop barbecue).

But the stock market crashed strongly at the beginning of the year, the S&P 500 fell 11% to its lowest point in 2016, while Hong Kong's Hang Seng dropped about 17%. In recent months, Chinese real estate buyers have pulled a missing rank from real estate offices across the US. After years of ultra-low interest rates and simple lending policies, there is now a surplus of iconic luxury housing on Manhattan Island,

A solution for developers? Divide your spacious space into two smaller penthouses – a 3,000 million square foot unit (although at that size, it's hardly big enough for one collection of ordered suits) and another, 5,400 square feet of unit for a relatively inexpensive $ 29.5 million.

I'll keep an eye on it and let you know if it gets it or not.

Red Hot Real Estate No more

These days, even bond rating agencies, which are late with calls to any market, are jumping on board …

Fitch Ratings noted last month that home prices in San Francisco had "risen to levels ineligible for area income." According to Fitch, this makes the local market overvalued by about 16% – which probably means you will need to double that value to estimate the true "fair value" for this once white hot luxury market.

In the last few days alone, the National Real Estate Association has seen weakening demand among foreign buyers, blaming the strong dollar and rising US house prices for pushing US real estate beyond the affordable prices of even wealthy foreigners.

The collision of the Chinese stock index Shanghai Composite (a decline of almost 22% only since the beginning of 2016 with a sharp decline) has forced many wealthy elites in the country to withdraw to buy property. You can see the impact in regional news around the country:

In San Francisco: "Bottom line, the SF housing market has finally cooled down."

From The Boston Globe : "Exclusion of the high-end housing market."

In Fort Lauderdale: "The housing market in southern Florida is gone."

Will it get worse for premium real estate? I think we are still in our early arrivals.

Uncle Sam against the cash war (property buyers)

The story did not reach media coverage in January, but it was when the U.S. Treasury and its Financial Crime Enforcement Network (FinCEN) announced the issuance of a "geo-targeting order" for New York City and Miami.

"The GTO," according to a statement to FinCEN, requires "certain U.S. title insurance companies to identify the individuals behind the companies that paid all cash for upper-class residential real estate."

Basically, people at the box office worry whether corrupt foreign officials or "transnational criminals" can launder loads of dirty money through these multi-million dollar property purchases.

Or is Uncle Sam just worried about the flood of Chinese money into the US real estate market? "All the money" is virtually synonymous with wealthy buyers of Chinese real estate.

At least, that's how it was. As we have seen in "cold" headlines across the country, the absence of this class of homebuyers is beginning to be felt in markets across the country.

Article in The New York Times at the end of last year, it really brought into focus the influence of Chinese real estate buyers. When it comes to buying a home in America, they pay an average price of $ 831,000 – almost double what international buyers from India ($ 460,000), Britain ($ 455,000) and Canada ($ 380,000) pay for their homes in the US -in.

In the coming quarters, I believe that FinCEN's "targeting orders" are likely to signal the end of the insane speculation of assets among Chinese buyers. Government action may be restricted to New York City and Miami only, but it will have a deep cooling effect everywhere. After all, it just takes one more announcement from FinCEN to announce the expansion into other US cities of an investigation into the identities of those big money, anonymous buyers of all the money.

The trend will continue and the data will bump into economists & # 39; spreadsheets. But as Chinese elites continue to withdraw from American real estate, prepare well for the "Wile E. Coyote" moment in luxury home prices – and more pressure on the Federal Reserve to reverse its stance on interest rates.