A weekend topic starting with Everything Lubbock in Texas. “Mortgage rates are at a 14-year high, which could delay first-time home buyers, the Lubbock Association of Realtors said. ‘What has had an effect on [the housing] market is rising interest rates. In the spring, we were in the 3’s. Right now, we’re breaking into the 7’s. So, what that has done is make homes a lot less attractive to investors,’ said LAR President Rich Eberhardt.”
“Last spring, Lubbock realtors saw 10-15 offers on homes within 48 hours or less. ‘We’re not seeing that anymore. So, that’s good news for buyers. You have a much better chance at getting in something,’ Eberhardt said.”
WKSU in Ohio. “Hammock Investments LLC is part of a wave of property investors, including a contingent based out of state. On paper, Hammock Investments is based in Sheridan, Wyoming, at a corporate office that serves as a mailing address for other companies. But one contact for Hammock, and two other people connected to the company in public records, live in Southern California. A Southern California native, Aaron Berryman, whose name appears on Hammock’s business registration, now works as a broker for real estate, mortgages, investments and financial services, according to a biography on the website of his investment firm.”
“‘Because of the home prices in California, it’s very difficult to get a positive return on your investment on rental properties out here. The return on investment, or what they call the capitalization rate, is just too low out here for it to justify,’ he said. ‘In Ohio, obviously, prices are much cheaper, the cost of entry is cheaper and return on investment is much higher When we bought the properties, we only had access to a handful of them for inspection,’ he said. ‘The balance of them, because of COVID, and because of the nature of the transaction, we did not inspect. We didn’t know what we were inheriting…We ended up, actually, inheriting some pretty bad properties.’”
“Shirley Woodson moved into her house in the West Boulevard neighborhood about three years ago, she said. ‘They told me once they fixed this property up, of course, the rent would go up,’ she said. ‘And I told them paying rent is not a problem, it’s just your property is a piece of sh–, and I’m not paying rent for anything that’s like this.’”
The Arizona Republic. “A shooting in Scottsdale at a short-term rental earlier this month has residents and elected officials doubling down on their opposition to Airbnb-style vacation rentals. Scottsdale Mayor David Ortega called the shooting ‘a tragic illustration of the problems that vacation rental homes are bringing to our neighborhoods,’ adding that ‘the sense of safety in this neighborhood is shattered.’ Kate Bauer, co-founder of the Arizona Neighborhood Alliance, said constructing more housing won’t solve Arizona’s housing shortage until the short-term rental market is under control. ‘If you don’t fix this problem, you’re never going to fix the housing problem,’ Bauer said. ‘You can’t keep building what will essentially be investments for people and not homes for people.’”
The Steamboat Pilot in Colorado. “Jill Limberg, managing broker at Steamboat Sotheby’s International Realty, described a real estate climate in which properties listed in the areas where short-term rentals are restricted or not allowed aren’t receiving as many offers as the ones where short-term rentals are allowed without restrictions. ‘The properties that are in the section of the overlay map that don’t allow nightly rentals that don’t have the potential to be grandfathered in, those properties are sitting on the market,’ Limberg said. ‘Because they’re sitting on the market, we’re starting to see some price reductions with those properties.’”
“After the influx of buyers who come to Steamboat during the pandemic, Limberg explained, it became routine to receive floods of offers within 24-48 hours of listing a property. ‘There was really no rhyme or reason to why people were pricing their houses where they were,’ Limberg said. ‘They were totally taking advantage of the market because they could, and there were enough cash buyers in the market. When somebody pays cash, it doesn’t matter if that house appraises or not because they’re paying cash. They don’t need to have an appraisal.’ But Limberg says those days seem to be in the rearview mirror as properties are receiving fewer offers and buyers have more leverage.”
Bay Area Newsgroup in California. “A Santa Clara County housing agency has sold an office building at a choice north San Jose site — at a loss from what it paid just two years ago. At one point, the Santa Clara County Housing Authority had intended to establish its headquarters in the office building, located at 3553 N. First St. in San Jose at a key location next to the light rail tracks. In 2020, the Housing Authority paid $37.35 million for the office building, a staff memo issued around the time of the purchase by the agency disclosed. On Sept. 28, the Housing Authority sold the building for $24.5 million, documents filed with the Santa Clara County Recorder’s Office show.”
“That represents a 34.4% decline in the building’s value over the approximately 21 months that the housing agency owned the building.”
The Los Angeles Times. “The California Public Employees’ Retirement System, or CalPERS, the nation’s largest state pension fund, experienced a 6.1% investment loss in the fiscal year that ended June 30. It was the first annual loss since the Great Recession for the fund that provides pension benefits to employees of the state and nearly 2,900 counties, cities, special districts and other public employers. Assets fell to $440 billion after topping $500 billion last year. The California State Teachers’ Retirement System, or CalSTRS, the nation’s largest teachers’ pension plan, lost 1.3% last fiscal year, its first decline too in more than a decade. And things may not get better anytime soon.”
“In California, the cumulative assets of 18 of the largest pension funds are expected to drop this year from $1.37 trillion to $1.09 trillion, lowering the funding ratio from 86.8% to 79.6%. A pension fund’s ideal target is full funding, or a 100% ratio, which the plans last reached cumulatively in 2007 just before the financial crisis.Indeed, the financial crisis proved to be a pivotal event for the state’s pension systems, some of which had bestowed lavish benefits to employees due to the run-up in tech stocks in the 1990s. The good times didn’t last.”
“First came the tech bust and then the bottom fell out of the market during the housing and financial crises, causing big losses.”
The Globe and Mail in Canada. “Rocketing interest rates, a spiralling cost of living, larger-than-ever mortgages and rising unemployment are a bad combination for creditors. It’s largely why consumer insolvencies are surging. About 100,000 more consumers missed a credit payment last quarter, compared with a year ago, reports Equifax. And the total number of consumer insolvencies in August jumped 27.6 per cent over the same month a year ago. Add plunging home values to the mix and you’ve got a recipe for mortgage defaults.”
“We’re already seeing a small minority of homebuyers underwater on their mortgages – owing more to their lender than their home is worth. That boosts the probability of default materially. For negative-equity homeowners who can no longer make their mortgage payments and have tried all other options – it often leaves a fundamental question: File for bankruptcy or file a consumer proposal?”
“In the real estate heydays – which were about seven months ago – it was common to see income property investors borrowing against their rental properties to buy more rental properties. It was leverage upon leverage – which is fine if you’re well qualified and know what you’re doing. In the months to come, we’re going to hear more about such folks. Namely, we’ll hear anecdotes about how their rental income didn’t cover their expenses, forcing them to sell their properties. Unfortunately, home values will have fallen so much – in some markets – that even selling won’t bail them out.”
The Telegraph in the UK. “Property sales are collapsing as mortgage market chaos makes home moves impossible for hundreds of thousands of buyers. Purchasers are pulling out of transactions and sellers are accepting price cuts as experts warn that the number of sales collapsing will surge in response to rocketing rates. Jenny Batchelor, 28, accepted an offer on her one-bedroom flat in Surrey in August. On Tuesday the deal disintegrated. Her buyer pulled out because of the mortgage market turmoil.”
“‘They were an elderly couple, they were retired, and they wanted a buy-to-let to supplement their income. But then they said they were no longer proceeding. Their solicitor said it was because of the mortgage market chaos. All of my equity is stuck in that flat. My entire life is on hold,’ Ms Batchelor said.”
From Slate. “This year and last year might as well be in different decades. Nationally, the monthly mortgage payment on the median-price U.S. home has doubled in just two-and-a-half years. The other component is that sellers are locked in. Many sellers are also buyers, moving from one home to the next, and will be comparing available mortgage rates unfavorably with what they’re paying now, and available prices unfavorably with what they paid five years ago. They may choose to postpone a move for as long as they can.”
“About two in three outstanding mortgages have an interest rate below 4 percent; one in four are below three. Homeowners with such low mortgage interest rates are in ‘golden handcuffs’ Odeta Kushi, chief economist at First American Financial Corp., told the Wall Street Journal. ‘Congrats to my starter home on its promotion to my death home,’ observes one Slate colleague.”
From Bloomberg. “Credit markets are starting to buckle under pressure from soaring yields and fund outflows, leaving strategists fearing a rupture as the economy slows. Banks this week had to pull a $4 billion leveraged buyout financing, while investors pushed back on a risky bankruptcy exit deal and buyers of repacked loans went on strike. But the pain was not confined to junk — investment-grade debt funds saw one of the biggest cash withdrawals ever and spreads flared to the widest since 2020, following the worst third quarter returns since 2008.”
“And the pain is spreading to all corners of credit, including structured products. Collateralized loan obligation prices are dropping as Wall Street banks retreat from buying the securities, pressured by regulators. That will likely dent issuance of CLOs, the biggest buyers of leveraged loans. The average price for the floating-rate loans dropped to about 92 cents on the dollar and investors don’t see calm returning to markets anytime soon. A key spread on mortgage-backed securities meanwhile hit a two-year high after the Fed stepped back from the market.”
From Reuters. “In the month since Federal Reserve Chair Jerome Powell laid down a hard line on inflation, stocks have suffered double-digit losses, chasms have opened in global currency markets, and yields on the safest U.S. government debt have surged to their highest levels since the dark days of the financial crisis nearly a decade and a half ago. U.S. central bank officials have been clear, however, just as Powell was in his remarks at the Jackson Hole economic conference in Wyoming and following the central bank’s policy meeting last week: There’s no rescue coming.”
“Fed officials have never accepted the argument that their interest rate or other policy decisions are meant to support financial markets beyond ensuring that those markets retain enough public confidence to function, as they did with liquidity and other backstops during the COVID-19 pandemic. Far from encouraging any thought that they will ease up, the same officials that once advocated for rates to stay ‘lower for longer’ to encourage employment, now preach ‘higher for longer’ to fix inflation.”