A report from the Idaho Statesman. “A one-bedroom apartment in downtown Boise costs about $350,000 to build, and one elsewhere in the Treasure Valley costs about $270,000, said Clay Carley, a developer. Outside of downtown, Jim Tomlinson, a developer with Tomlinson & Associates, estimates that it costs twice as much to build apartments as it did a dozen years ago. Carley said the cost of land alone has increased 250% in Boise over the last 10 years, and construction costs have risen by 40%.”
The Fresno Bee in California. “When you think about million-dollar homes in and around Fresno and Clovis, certain images come to mind. What you don’t picture are tract houses built on 7,700-square foot lots. Yet here we are. ‘In Fresno you would never see a tract home to be about a million dollars,’ said Danyelle Conner, a real estate agent for London Properties who specializes in the luxury market. ‘But we’re seeing it now, and they’re selling like hotcakes.’”
The Orange County Register. “Guess what else is soaring alongside 40-year high inflation rates? Credit card debt. Credit card balances increased $52 billion in Q4, 2021, according to the Federal Reserve Bank of New York. That’s the largest quarterly increase observed in 22 years of the data. At 5.11%, this week’s average Freddie Mac 30-year fixed mortgage rate is nearly double its 2.65% all-time low 14 short months ago. As mortgage rates climb toward 5.3%, this may become the fastest ever that rates have doubled in Freddie’s 51-year tracking history.”
“The number of consumers earning more than $100,000 per year who are living paycheck to paycheck was up 42% in January 2022 compared with December 2021, according to Lending Club. Qualified borrowers typically can cash out 75% to 80% of their equity on jumbo, conventional and Federal Housing Administration (FHA) financing. Veterans Affairs, or VA, loans allow up to 100% cash-out refinances in most cases. For example, 80% of a $1 million home value means a maximum loan amount of $800,000.”
“I’ve seen this movie too many times in my career. As household debt rises, the monthly payments can get so overwhelming for some, and those financial struggles can turn into late payments that show up on their credit reports. If you’ve recently tried to pull out cash and you were turned down, now may be a better time to revisit this. Mortgage lenders have gone from being red hot busy to cold as ice. The low hanging fruit is gone.”
From National Mortgage News. “Wells Fargo confirmed Friday it’s laying off an undisclosed number of home lending employees due to mortgage market conditions, one week after reporting a major decline in origination volume.”
From Housing Wire. “The mortgage market is facing a crisis today, and it’s being fueled by fast-rising interest rates. The rate escalation started at the beginning of this year and is continuing to play out. It’s a crisis that one industry executive describes as ‘a situation where we have to get the pig through the belly of the python.’ The lenders originating in the non-QM space make use of alternative-income documentation because borrowers cannot rely on conventional payroll records or otherwise fall outside agency credit guidelines.”
“Thomas Yoon, CEO of Excelerate Capital, another non-QM lender, offered this anecdote to illustrate what his company and his fellow non-QM lenders are facing: ‘On January 3 of this year, we put out a bulk loan offering of $150 million, and we found that that it was worth more than 50% less than what it was just a week or two earlier. …It was slightly above par [in early January] and just a few weeks earlier, I’m talking in the fourth quarter, we could have probably executed north of 103 [above par]. So, overnight, the bottom dropped out on us.’”
From CTV News in Canada. “In the community of Glace Bay, N.S., it’s hard to find a house for sale. Those who already own a home, particularly anyone holding a variable-rate mortgage, can expect to see a direct impact on how much they’re paying. ‘That will affect them because interest rates going up means higher mortgage payments and people will have to postpone those big purchases,’ said Cape Breton University business professor George Karaphillis.”
“He says paying down loans faster should be a priority for many right now. ‘People went out and bought a lot of assets because the interest rates were low. People borrowed a lot to buy houses and that’s one of the reasons the housing market is out of control, because the mortgage rates were so low for so long,’ he said.”
The Guardian on New Zealand. “‘Almost daily junk mail advertising houses for sale,’ said Greg, who lives in the central North Island city of New Plymouth. Then he noticed things changing on the street. ‘Every house on our road that has sold since we moved in three years ago has sold within a week,’ he said. ‘But now the house down the road has been on the market for about a month with no signs of moving.’”
“The same trickle of symptoms are becoming visible in many cities across New Zealand: for-sale signs staying up as the lawns grow around them, auctions passing by with no bids, listing pages mounting up on real estate websites. ‘Frankly, it’s a relief,’ said Will, a public servant in his late 20s, ‘I do worry for friends who have really stretched themselves to buy a house who will now face massively increased payments.’”
The Free Lance Star in Virginia. “On my daughter’s street in an upscale development outside of Lynchburg, houses are going up so fast it seems that one is finished every day. These homes are selling for $600,000-plus, and a new owner moves in within a few days after final inspection. In a subdivision near me there are eight houses in various stages of completion with prices in the mid-to-upper $500,000s. Adjacent to one of the golf courses I play, site work for a 400-home subdivision has been going on for six months. This project was first approved in 2003 amid much controversy but bit the dust when the real estate market tanked in 2008. Now, a new developer is racing against time to grow houses before the market slows again.”
“The housing market today is like the used vehicle market that John Steinbeck described in ‘The Grapes of Wrath.’ Real estate agents could sell a million houses if they were available. Get me some listings! I’ve got the buyers! How long can this last? I have several friends who are high-profile agents and they seem to think—or hope—that the hot real estate market will go on forever.”
“That’s what they thought before the 1989 recession and before the beginning of the Great Recession in 2008.But like the used automobile market in the Dust Bowl during the 1930s, this market, like all others, will end. The only question is when. At this point, nothing seems to be slowing sales. Well, that’s not exactly true. One real estate agent said last week that now she is only getting 10 buyers bidding on a home, while six months ago she may have had 25.”
“Four-dollar-a-gallon gas has had little effect. Families with SUVs, large pickups and vans seem unfazed at spending $80 for a fill-up. They’re still fighting for houses 60 miles from their jobs. Rising interest rates? Nobody seems to care that the monthly mortgage payment on a $350,000 home (the national average) has jumped from $1,200 to about $1,800 as rates rose from 3 percent to 5 percent. Mortgage rates at 5 percent would make monthly payments on a 30-year loan for a $650,000 home about $3,000. That’s a hunk of change for many folks.”
“The strange thing, according to one of my real estate buddies who works primarily in Northern Virginia, is that most of his clients are not financing. They’re paying cash, presumably from the sale of their old house. Sound familiar? That’s what was happening before the 2008 crash. People in Northern Virginia were selling their homes in Fairfax and Arlington for $600,000 and buying a bigger and newer house in Fredericksburg, Culpeper and Front Royal (all an hour’s drive from work) for $400,000. But when the well dried up in Northern Virginia the housing market went bust in the 60-mile suburbs.”
“Between 2005 and 2008, I had a couple of friends who were buying the first houses in subdivisions (the first usually sell cheaper) and then reselling six months later at a higher price. When the market collapsed, they got caught with three or four investment homes they could not sell. They also couldn’t afford the monthly mortgage payments, so they were up the creek without a financial paddle.”
“I know people who are doing that right now, people who could not afford four $3,000-a-month mortgage payments if things hit the fan. If you recall, many houses went ‘under water’ following the crash in 2008. In other words, their value dropped below the price the owners paid for them. It could happen again.”
“But no one wants to exercise caution. Just gimme the contract and show me where to sign. I want that house before someone else gets it! Everyone wants to beat the clock and get the last great deal. Whenever a market crashes, some people always get caught with their pants down.”