It’s Friday desk clearing time for this blogger. “A sudden rise in mortgage rates pushed the average 30-year rate to 4.42% this week. It’s a stunning jump that harks back to the sharp loss in borrowing power during the infamous rate spike of 1980. Now before you say, ‘quarter-point, that’s not so bad,’ consider what that means to a potential borrower who can pay $2,500 a month for a mortgage. This week, the bank would lend $498,000 for that payment at these rates — that’s down $15,600 or 3% in just seven days. On a scale of zero bubbles (no bubble here) to five bubbles (five-alarm warning) … SIX BUBBLES!“
“Average mortgage rates are higher for all loan types today with the 30-year mortgage rate crossing above 5%. The latest rate on a 30-year fixed-rate mortgage is 5.17%. That’s a one-day increase of 0.219 percentage points. Money’s daily mortgage rates reflect what a borrower with a 20% down payment and a 700 credit score — roughly the national average score — might pay if he or she applied for a home loan right now.”
“Already, a family buying a median-priced home will be spending over $300 more per month on their monthly mortgage payments than they would have if they had purchased a home a year ago, according to Realtor.com, reflecting both the run-up in mortgage rates and home prices. ‘For buyers and sellers, this spring will offer a period of transition, in which high prices will combine with rising interest rates to challenge budgets already contending with high inflation,’ George Ratiu, manager of economic research at Realtor.com said, adding that there are already ‘early signs of market adjustment, with sales of both new and existing homes down.’”
“Instead of creeping upward early this year, rates jumped like a startled cat. ‘While house prices may move up easily, by ‘downside sticky’ we mean that prices won’t easily move down,’ said Odeta Kushi, deputy chief economist for First American Financial Corp, explaining that ‘home sellers would rather withdraw from the market than sell at lower prices.’”
“Opendoor Technologies stock deserves to fall. With interest rates rising, its prospects look even bleaker moving forward. Even the most fundamental analysis would soon uncover the greater truth. As it turns out, all Opendoor did was dig itself deep into a hole despite rapidly improving top-line results. 2021 net losses increased by 161%, reaching $662 million overall. That speaks very poorly to the iBuyer business model and seems to justify Zillow’s move out of the business.”
“Toronto realtor Nasma Ali has noted a marked slowdown in housing demand in the red-hot Greater Toronto Area over the past few weeks, which she sees as a likely precursor to a reckoning in the suburbs and surrounding towns that have seen blistering price growth over the past two years. ‘I had listings that, in January, would have had a 100+ showings,’ Ali said. ‘All of a sudden, we’re only getting five to six in four days. This is a transition period and it’s not for all markets or price points. But we’re seeing it.’”
“‘This is the most dramatic increase in five-year fixed rates that I can remember, and I’ve been in this business for two decades,’ said David Larock, a mortgage agent at Integrated Mortgage Planners. ‘I’m starting to see purchase and sale agreements come in with financing conditions, which has been unheard of in the last couple of years,’ he said. ‘It’s still a seller’s market,’ said Toronto realtor Lisa Bednarski. ‘But what we’re going to stop seeing are the homes that sell for inexplicable amounts above their market values.’”
“Market headwinds, such as the tougher lending environment and affordability constraints, were biting and had led to ‘animal spirits evolving from FOMO (fear of missing out) to INPT (I’m not paying that),’said ANZ’s chief economist, Sharon Zollner. ‘We now expect house prices to fall 10 per cent in the year to December 2022. That’s a similar-sized contraction as the one following the global financial crisis. But given the very strong starting point, we’d still call this a soft landing.’”
“Don’t believe suggestions that China’s housing and property crisis is easing – if anything this week has shown it to be a black hole that is only getting wider and deeper. There is simply no good news – not from official statistics, prices, demand, lending, share prices and credit. In the past week, six Chinese developers, including the major international borrowers, China Evergrande Group and Kaisa Group Holdings have revealed that they can’t publish audited annual results by Hong Kong’s March 31 deadline.”
“All excuses (including the shock news at a subsidiary of China Evergrande that unnamed ‘banks’ had taken $US2.8 billion from its property services subsidiary without telling anyone) designed to delay the inevitable bad news that these companies have incurred losses that will total billions of dollars. The latest situation follows plunging sales, a string of defaults, broken promises to investors and revelations of previously hidden debt at numerous real-estate companies.”
“One unnamed western analyst reckons there are a string of ‘going-concern warnings’ from auditors just waiting in the wings for Chinese property companies – not all, but quite a few and enough to rattle confidence and the entire Chinese financial system. Jizhou Dong head of China property research at Japanese investment banking giant, Nomura summed up the situation best of all: ‘Developers who changed auditors have lost their credibility to the capital markets’… and “Even if they manage to announce annual results after the auditor change, the markets will still question the trustworthiness of their financials.’”