I  made  this  San  Fran  “plunge”  note  -­‐-­‐  with  housing  demand  data  out  today  -­‐-­‐  as  a   follow-­‐up  to  my  Miami  condo  crash  note  because  it’s  all  the  same  trade.       …excerpt  from  my  3-­‐16  Miami  note  that  applies  to  San  Francisco  as  well.       There  is  no  doubt  that  “something  happened”  to  momo  market  condo  demand   beginning  in  Q4’14.      Demand  in  many  of  the  hottest  regions  has  literally  fell  of  the   proverbial  “cliff”  while  supply  under  construction,  pre-­‐construction,  and  proposed   is  greater  than  in  2006.       In  fact,  in  Miami/Dade,  in  recent  quarters,  there  has  been  a  “plunge  in  demand”   married  with  a  ten-­‐fold  increase  in  current  construction  from  the  previous   four-­‐year  period.    Miami  Beach  demand  has  been  hit  especially  violently.       The  “condo  canary”  was  a  key  feature  at  the  end  of  Bubble  1.0.       How  I  see  it…       the  2003  to  2007  era  was  all  about  unorthodox  demand  (every  mom  &  pa  in   America)  with  unorthodox  capital  (exotic  loans)  creating  a  wave  of  incremental,   speculative  liquidity  that  went  away  suddenly.      The  2012  –  2014  era  is  no   different,  just  different  players;    “unorthodox  demand  (insti’s  and  foreigners)   with  unorthodox  capital  (Fed,  oil,  and  weak  dollar)  creating  a  wave  of   incremental,  speculative  liquidity”  that  is  showing  signs  of  going  away  as  suddenly   as  it  arrived  due  to  the  surging  US  dollar,  oil  market  crash,  and  economic   slowdown  /  corruption  crackdown  in  China.       As  such,  why  should  we  expect  a  different  outcome?           In  the  Bay  Area,  it’s  not  just  San  Fran  prop,  but  “tech  heavy”  Silicon  Valley  as   well.    Demand  volatility  is  exactly  what  we  saw  at  peak-­‐bubble  2007  as  well  and   demand  always  precedes  price.      

   

Data  from  DataQuick          

 

Please  see  below…”3-­‐16  Hanson...Miami  Condo  Demand  Crash  Update”.       Thank  you,       Mark  Hanson   [email protected]  

 

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Subject:  3-­‐16  Hanson...Miami  Condo  Demand   Crash  Update      

I  am  still  trying  to  get  a  handle  how  hard  the  oil  and  currency  volatility  will  hit   “national”  housing,  especially  considering  the  “Southern”  region  comprises  60%  of   all  permits,  starts  and  new  home  sales.         It  takes  a  while  for  macro  events  to  feed  into  housing.    But,  over  the  past  couple   of  months  data  are  coming  in  and  at  early  blush,  it  looks  like  about  as  hard  as  the   loss  of  unorthodox  credit  hit  housing  demand  in  2007/8.      

February  Miami  Beach  sales  down  29%  YoY  with  supply  up  11%  -­‐-­‐  17.8   MONTHS  SUPPLY!  -­‐-­‐  can  qualify  as  a  “sudden  demand  collapse”.       The  big  problem  here  is  the  same  as  in  2007…unorthodox  demand/capital  drives   the  market  through  the  roof;    10s  of  thousands  of  units  are  under  construction,   about  ready  to  break  ground,  or  approved;    and  demand  evaporates  as  quickly  as   it  came.       Of  note,  Vegas  is  having  the  same  problem  -­‐-­‐  supply  surging/demand  plunging  -­‐-­‐   which  is  not  surprising,  as  the  same  “currency  traders”  are  involved  with  both   cities  and  in  2007  both  crashed  at  the  same  time.           Condo  Canary  Update  

    There  is  no  doubt  that  “something  happened”  to  momo  market  condo  demand   beginning  in  Q4’14.      Demand  in  many  of  the  hottest  regions  has  literally  fell  of  the   proverbial  “cliff”  while  supply  under  construction,  pre-­‐construction,  and  proposed   is  greater  than  in  2006.       In  fact,  in  Miami/Dade,  in  recent  quarters,  there  has  been  a  “plunge  in  demand”   married  with  a  ten-­‐fold  increase  in  current  construction  from  the  previous  four-­‐ year  period.    Miami  Beach  demand  has  been  hit  especially  violently.       The  “condo  canary”  was  a  key  feature  at  the  end  of  Bubble  1.0.           How  I  see  it…       the  2003  to  2007  era  was  all  about  unorthodox  demand  (every  mom  &  pa  in   America)  with  unorthodox  capital  (exotic  loans)  creating  a  wave  of  incremental,   speculative  liquidity  that  went  away  suddenly.      The  2012  –  2014  era  is  no   different,  just  different  players;    “unorthodox  demand  (insti’s  and  foreigners)   with  unorthodox  capital  (Fed,  oil,  and  weak  dollar)  creating  a  wave  of   incremental,  speculative  liquidity”  that  is  showing  signs  of  going  away  as  suddenly   as  it  arrived  due  to  the  surging  US  dollar,  oil  market  crash,  and  economic   slowdown  /  corruption  crackdown  in  China.       As  such,  why  should  we  expect  a  different  outcome?           Miami  Condo  Demand  Collapse       1) In  Miami/Dade  area  there  are  over  40k  units  underway  or  planned,  greater   than  in  2006.  This  represents  “years”  of  supply  at  present  demand  levels.       325  new  condo  towers  proposed,  with  just  more  than  41k  units.  Of  that,  roughly  

13,000  are  in  the  planning  stages,  15,000  are  planned  and  approved,  and   more  than  13,000  are  under  construction.       “The  vast  majority  of  condominium  demand  comes  from  foreign  buyers.  Some  of   them,  especially  Russians,  are  seeing  the  value  of  their  money  drop   precipitously  against  the  U.S.  dollar.  South  Americans  are  still  very  strong  in   the  Miami  market,  but  Europeans  aren't  far  behind,  and  as  the  dollar  gains   strength,  they  too,  lose  purchasing  power.”       http://www.cnbc.com/id/102416571       At  the  height  of  the  housing  bubble  in  2006,  there  were  nearly  32,000  condo   units  underway  in  Miami-­‐Dade  County  and  Palm  Beach  County  alone,  per  CBRE.       In  the  past  couple  of  years  Miami/Dade  absorption  has  been  running  around  20k-­‐ 22k  condo  units  per  year.    But,  now  has  down-­‐ticked  to