A weekend topic starting with the Los Angeles Times in California. “You’d be forgiven for passing this utterly unimpressive 1,800-square-foot house without a second look, but for decades it was everything to a large family headed by two immigrants who bought it fresh off the boat from Norway (and yes, it was a boat) for $8,500 in 1954. Today, that house — the one that reeked of cigarette smoke and stiff coffee, with a linoleum kitchen floor, earth-toned walls (or maybe the lighting was just awful) and a shoebox-like addition that heated up to low-oven temperature in the summer — would sell for $1.4 million.”
“The absurdity of the situation should be clear: Two generations ago, a (white) immigrant couple could arrive in Los Angeles and soon after owned a single-family home in Glendale for about the price of two first-class airline tickets today. My grandparents, who came from Norway not long after my great-grandparents, would go on to raise their four children in that house on the earnings of a furniture mover.”
“Yes, I’ve heard of inflation. I know that $8,500 in 1954 equates to a lot more today, and the supply of housing in Southern California has not kept pace with demand. But adjusted for inflation, the 1954 sale price would be about $91,000 today, and good luck trying to find a house even costing five times that in L.A. County.”
The New Yorker. “As tens of millions of American households watch the values of their more conservatively invested 401(k)s and other retirement accounts decline month after month, many of them are asking what is causing this slow crash and when it will end. The second question is harder to answer; the first one can be answered in three words: the Federal Reserve.”
From Bloomberg. “A mass exodus of money, an $11 trillion wipeout, and the worst losing streak for global stocks since the 2008 financial crisis. The bad news is that it may not be over yet.”
The Guardian. “For years the tech industry has led the stock market with bust-out profits, fueled by a pandemic that moved much of the world online. Now all that has changed, with trillions in market value lost in recent weeks. Once-hot startups are being ditched by investors, and even the tech giants seen as stable investments have faltered. Rumors have been roiling that big cuts are on the horizon for smaller firms. ‘The next 6-8 weeks is going to be a bloodbath,’ said JD Ross, co-founder of the music investment platform Royal. ‘I’m hearing rumors about a ton of companies preparing to lay off 20-40% of their team.’”
From Summit Daily in Colorado. “In the summer months and fall months — the busy seasons for many agents — there could be a few hundred transactions within a 30-day timespan. But Land Title Guarantee Co.’s reports for January, February and March show a lot fewer than that. Anne Skinner, owner of The Skinner Team, said short-term rental regulations, particularly the county’s 135-day cap for its Type 2 licenses, don’t affect all buyers in the same way.”
“”For us, it was a pretty mixed bag to be honest,’ Skinner said. ‘I would say when it comes to short-term rentals, we certainly had some buyers that said, ‘If I can’t do what I’m planning to do, then this just isn’t going to be the market for me to buy in, and it makes more sense for me to just come out and rent when I want to rent.’ We definitely had a handful of those people.’”
“Rising interest rates don’t help local buyers either. Again, all three agents agreed that rising costs will edge out locals hoping to purchase a home in Summit County. ‘I would say half of the people who thought about borrowing money may not,’ said Ray Brueggemeier, owner of Cornerstone Real Estate. ‘Their buying power has just gone down so far that they can’t buy what they want any longer.’”
The Long Island Business News in New York. “Andrew Russell, owner of RCG Mortgage in Hauppauge, says the combination of bidding wars and rising rates is causing some prospective homebuyers to have second thoughts. ‘Rates in November were in the high twos and now they’re well into the fives,’ Russell said. ‘You know a $500,000 mortgage over the last few months has gotten $500 a month more expensive, with those things together a lot of people are just giving up and choosing to rent for a year or two instead.’”
“‘People who I approved five or six months ago, we now have to reevaluate everything because they might have been approved at a very low rate and we’re not there anymore, so it makes things much more difficult with some buyers,’ said Dan Jacoby, senior loan officer with Embrace Home Loans in Melville. ‘There are people who were qualified months ago, but they may not qualify for that level now. Sometimes we need to lower their expectations and lower the amount they’ll qualify for to make it work.’”
“Mark Walsh, a principal at Select Real Equity Advisors in Huntington Station, says the fast-rising rate environment is already having a chilling effect. ‘Sellers are going to have to get a little more realistic in the marketplace and buyers, while still aggressive, are definitely going to be more cautious, because their returns will be greatly impacted by the rising rates,’ Walsh said.”
“Jonathan Schwartz, senior managing director and co-head of New York Capital Markets for Manhattan-based Walker & Dunlop, said the new rising rate environment has yet to fully reverberate through the system. ‘There are certainly investors that have gone back on deals they’re under contract on and said, ‘I’m not paying the price that I agreed to before the Fed’s increase because the price has changed.’”
The Globe and Mail. “On paper, Canada’s housing market is still firmly in sellers’ territory. But in some areas of the country, slowing home-price growth and soaring mortgage rates are tilting the power balance toward buyers faster than the statistics would suggest. In some particularly overheated areas, like the Greater Toronto Area, even the moderate market slowdown seen so far has already caught out some sellers. These are often homeowners who bought a new property near the peak of the market and now can’t sell their old home for as much as they expected, said Daniel Foch, a broker and real estate analyst at Foch Family Real Estate.”
“Another source of stress for some who are closing purchase deals now: Appraisals commissioned by lenders are coming in far below the contract price buyers committed to earlier this year, according to Mr. Foch. Low appraisal values usually mean buyers won’t be able to borrow as much as they need from the bank they had lined up for the mortgage. The options, then, are to pony up a larger down payment, borrow from friends and family or line up a private mortgage to bridge the gap, Mr. Foch said. As the market cools, though, it’s getting harder to find lenders for such deals, he cautioned. Buyers who walk away from a purchase agreement typically forfeit their deposit and may face a lawsuit, he added.”
“In Toronto, outlier bids helped propel home prices upward during the pandemic housing boom, said Ben Rabidoux, founder of North Cove Advisors, a market research firm. Buyers could put in firm offers above market price and count on home valuations catching up by the time an appraisal would be done several weeks later, he added. At the same time, that property’s closing price would become a benchmark for similar listings in the same area.”
“But now that the market has turned, those aggressive bids are accelerating the price adjustment downward, according to Mr. Rabidoux. That’s because low appraisal values can force sales at significantly lower prices, which will also weigh on the valuation of nearby comparable properties, he said.”
“‘You’re gonna get this this period of turbulence this spring as we work through these distressed sales and you’re not really going to get a sense of the real direction of the market until later in the summer,’ Mr. Rabidoux said, speaking about Toronto.”
From ABC News. “A week ago, barely anyone was talking about a pre-election interest rate hike. Now, there’s a tsunami of professional opinion pointing to a lift in the official target cash rate, following last week’s dramatic rise in inflation. During the past 30 years, the RBA — in association with the banking regulator, the Australian Prudential Regulatory Authority — has helped create one of the globe’s biggest asset price bubbles. And if it unravelled, it would wreak havoc with the financial system and the economy.”
“Australia now finally is captive to real estate. We aren’t the only country to have allowed this to happen. But we are one of the most egregious examples. Our banking system, which for decades has prospered on the back of soaring property prices, has become hostage to a $9 trillion monster. And while our politicians for years berated each other over relatively insignificant levels of government debt, they conveniently ignored Australia’s real economic Achilles heel: household debt.”
“That’s now hobbled our central bank. It can’t raise rates to anywhere near the level it may require without causing utter chaos. Perverse as it may seem, our perilous personal debt situation could be the saving grace for those who recently geared themselves up to the eyeballs. We simply can’t afford to have so many go broke!”
“All that easy cash fuelled extra demand which initially stabilised property markets before sparking a frenzy. Rather than hefty price falls, real estate prices surged to their strongest levels in history. It was a deliberate strategy. Given real estate is our biggest household asset, higher prices make home owners feel richer, which encourages them to spend more. That helps boost economic growth. It’s what’s known as the ‘wealth effect.’ But it works in reverse as well.”
From Stuff New Zealand. “Rising living costs, rising house prices and wages that are failing to keep up with other countries have left the young and even middle-aged members of the workforce vulnerable to the promise of an easier life overseas. Couple that with labour force shortages in specialist areas and falling immigration, and New Zealand is looking at a long road to recovery from the Covid hangover.”
“Economist Cameron Bagrie says there are two forces pulling at New Zealand right now. ‘One, we’ve got a very divided society. And a divided society is unhealthy, both socially and economically. How we mend society, on so many levels, is the million-dollar question. You’ve got the gap between the haves and the have-nots. The whole debate over Three Waters and ownership control etc. It is just a recipe for division. And decision-making that polarises.”
“The second force pulling at New Zealand was ‘the reality check of sugarcane economics’ starting to hit home. ‘And it’s hit home in the form of a cost of living crisis. You cannot spend and print money as a way to economic prosperity and wealth creation. You need to have some substance. And what we’re now starting to see is that more and more variables are starting to pop. And basically tell us, ‘we’re not on the right path.’”
“New Zealand was now in a period of ‘the three R’s,’ Bagrie said. ‘Reality is sinking in. we’re going through what’s called a reset, because we’re now starting to see asset prices have fallen, and we’ve got some real hard work ahead of us.’ That was going to require a big pivot away from seeing spending money as the answer to New Zealand’s problems, Bagrie warned – and that would cause pain for many.”
“Economist Anthony Byett, a former ASB Bank chief economist, says Covid gave us the chance for a breather, and a rethink about where New Zealand was headed, and where it wanted to go. ”It’s pushed the economy along and house prices along for the last couple of decades, in particular in the last couple of years but we need to wean ourselves off that drug, and get back to a situation where house prices and the volume of houses is more in line with the number of people and the incomes of people.’”