It’s Friday desk clearing time for this blogger. “On Thursday, Freddie Mac deputy chief economist Len Kiefer tweeted about what this downward shift means: ‘The U.S. housing market is at the beginning stages of the most significant contraction in activity since 2006.’”
“The MBA’s index which measures applications for new purchases tumbled to 208.2 from 224.1 a week earlier, according to Bloomberg data. It has dropped by more than a third since January, when it stood above 310. ‘In the three months to May, applications fell at a 52% annualized rate, compared to the previous three months,’ Pantheon’s chief economist Ian Shepherdson said in a note. ‘A meltdown, in other words.’”
“‘We’ve seen a lot more cancellations recently than we’ve had in years prior,’ Lizy Hoeffer, mortgage broker at CrossCountry Mortgage in Arizona. ‘I’ve been in the lending industry for 25 years and when you have periods of time where people walk away from transactions, that’s usually a very bad sign,’ Jeffrey Ruben, president of WSFS Mortgage.”
“More layoffs are coming in the mortgage industry, as Wyndham Capital Mortgage expects to reduce staff for a Charlotte office, according to a required notice. ‘That reduction-in-force may result in a mass layoff,’ the statement reads. More layoffs in the mortgage industry could be coming, too, a North Carolina-based licensed mortgage broker told WRAL TechWire this week, on the condition of anonymity. ‘This is the slowest I have been since 2008,’ the broker said. ‘Our business is cyclical, booms and busts.’ Some companies may believe they’re now overstaffed, the broker noted. ‘Too much staff and have to reduce overhead,’ the broker told WRAL TechWire.”
“In Spokane County, 633 single-family homes and condos on less than 1 acre sold in May, a 10.8% decrease compared to 710 homes in May 2021. However, inventory last month was up 93.1% when compared to May 2021. The local market is transitioning from a place where buyers had little to no power in negotiating prices to now having a seat at the table, broker Taelor Fayette said. ‘I’m having conversations with clients and industry peers daily,’ she said. ‘I’m reassuring them that their fear of a fall ought to shift to awareness of a leveling of the playing field.’”
“Several signs indicate that the red-hot market in Northeast Florida is cooling, according to the Realtors association. Association President Mark Rosener noted that Realtors have seen more homes with price reductions, an indication that sellers had set their sights too high. With more homes available, ‘it is very important that sellers be realistic in their pricing strategy,’ he said.”
“By the end of May, Las Vegas REALTORS® reported 3,570 single-family homes listed for sale without any sort of offer. That’s up 75.8% from the same time last year. Likewise, the 797 condos and townhomes listed without offers in May represent a 50.7% jump from one year earlier. ‘The slowdown in sales and increase in our housing supply are signs that things may be starting to calm down a bit,’ said LVR President Brandon Roberts. ‘Even though prices are still going up, it’s welcome news for potential buyers to see more homes on the market. As we’ve been saying for months, the rate of appreciation we’ve seen over the past year or two seems unstainable.’”
“Darra Norgaard, president of the Montana Regional MLS, noted that the monthly home sales average of 567 this year is down from 668 last year and 2020’s rate of 578 sales per month. ‘The number of days on market has for the most part normalized this year, averaging at approximately 88 days,’ she said. ‘This is a sharp contrast to last summer for example where this figure was in the low 30s.’ ‘Anecdotally, realtors in our Kalispell area are feeling a slight cooling of the market,’ said Erica Wirtala, public affairs director for the Northwest Montana Association of Realtors. ‘Some of this may be related to the longer cooler spring weather we are experiencing, the end of the school year and a flood of new multifamily units that are coming onto the market.’”
“Some of Canada’s priciest markets, Toronto, Vancouver, Montreal, Ottawa and Hamilton, saw sales drop significantly in May, for many the third month of decline. ‘Clearly the Bank of Canada’s interest rate hikes since March — and the prospects for more in the months ahead — are changing the game in a big way,’ wrote RBC’s assistant chief economist Robert Hogue. Now Canada’s housing markets are rebalancing — fast, said Hogue. That was especially evident in Toronto, where ‘demand-supply conditions swung from close to the tightest on records to nearly as loose as they were during the 2017 correction,’ he said.”
“The Fraser Valley and Metro Vancouver’s eastern and southern suburban communities will see the deepest housing downturn in British Columbia, according to Central 1’s new BC economic forecast. ‘Home values in areas such as the Fraser Valley have turned lower amidst higher fixed rates and Bank of Canada hikes on variable rates. Early May data for the Lower Mainland markets pointed to a sharp sales decline and downward pressure in prices in the Fraser Valley region,’ continues the forecast. ‘While sales-to-inventory ratios currently trend in range conducive to a sellers’ pace, downside momentum in transactions and temporary pressures from collapsed sales and re-listing activity, in addition to sentiment could tip markets into buyers’ conditions this year. A wildcard will be the proportion of investor-owned properties and whether more will come to market.’”
“The average house price rose 1pc, or £2,857, in May. This was the slowest rate of growth in 2022, according to mortgage lender Halifax. Alice Haine, of analyst Bestinvest said: ‘Borrowing the maximum possible on a two-year fixed-rate deal to secure a larger home and garden might have seemed like a good idea in the summer of 2020 when interest rates were at the record low of 0.1pc, but with those deals now expiring, homeowners are emerging into a very different mortgage landscape.’ Those who made purchases during the Covid crisis could come to regret their decision to move, she added.”
“Graham Cox of Self Employed Mortgage Hub, a broker, said he expected house prices to fall by 5pc this year and possibly further in 2023. ‘Property prices are already coming off their record highs and transaction levels are falling. Mortgage costs, fuel, food and energy prices continue to soar with no end in sight. Throw in National Insurance and tax rise, the terrible events unfolding in Ukraine and the autumn energy cap increase and it’s a recipe for economic disaster that we won’t see the full effects of until the winter,’ he said. ‘There is nowhere for house prices to go but down.’”
“Danish homeowners are increasingly opting for more risky loans, the central bank warned on Thursday as it repeated earlier recommendations for tighter lending rules. ‘The many loans with deferred amortisation are a structural problem because they make homeowners more vulnerable to a later drop in house prices,’ the central bank said in its biannual financial stability report.”
“Property prices in most Australian cities are expected to fall by double-digit figures after the Reserve Bank of Australiahit the interest rate brakes harder and faster than earlier forecast, crimping the size of loans households can borrow, economists say. Some falls are already under way, with Melbourne posting a slide lasting six months so far and Sydney four. Sally Tindall, research director at RateCity, said that demand for housing was already being sapped by the two rate rises as banks reduced the maximum amounts they would lend.”
“‘Borrowing capacity does have an impact on property prices,’ Tindall said. ‘When interest rates were on the way down, people would go to the bank [and] they would find that they could actually borrow more than they potentially expected, which meant that they could bid more at auctions. Now the reverse is happening,’ she said. ‘It’s going to affect he people that were planning to borrow at capacity or near capacity as those interest rates rises kick in.’”
“Many years ago, a builder told me they remembered the exact moment the property market turned during the global financial crisis (GFC) – it was the day their phone stopped ringing. They even called their provider to check something hadn’t happened to the phone line, but it wasn’t the cabling that was the problem, it was the economy itself. But for people who bought those houses, the situation was largely different, provided they could afford to hold on to their home.”
“In the years after the GFC, many people took away the lesson that the housing market was different to others. It was not an investment like any other – bringing both risk and reward – but a ‘risk free’ one, provided you could make the repayments and hold on to your asset long enough. They weren’t wrong. House prices roared back after the GFC, and it is probably why so many buyers post-pandemic feared they might miss out and leapt into the market with both feet.”
“They may regret it, depending on how late they jumped in, according to Christina Leung, principal economist at the New Zealand Institute of Economic Research. ‘The risk would be most acute for those that have recently taken on mortgages, particularly those that have bought at the peak of the market.’ “
“Fisher Funds head of fixed interest David McLeish agrees there is an element of ‘payback’ in what is happening in the housing market right now. He draws attention to the fact debt levels in our economy are much higher than they have been when the RBNZ raised rates aggressively in the past. ‘The last time we went through a hiking cycle, which was 2014, we only managed to hike interest rates 1% from the lows to the highest of that cycle, and we had a slowdown on our hands at that point,’ McLeish says. ‘The environment is different this time around, and we have to be aware of how sensitive households are to interest rates.’”
“But the rudest shock may come not from the sudden drop of confidence brought on by the interest rate rises, but what happens when homeowners come out the other side of this downturn. Sense Partners economist Kirdan Lees notes many regulations that kept the price of housing high are being whittled away. Which means buyers lured in by the promise of ever-increasing asset prices might well find a different reality on the other side.
This might not be the worst lesson to learn.”