A weekend topic starting with the LA Daily News. “Q. Am I wrong to suggest that prices are already falling sharply, we just can’t see it? Wolf: I don’t think falling home prices are widespread yet, but there are absolutely pockets of Orange, Los Angeles, Riverside and San Bernardino counties where we have seen a drop in overall values. But I do agree with your assessment that pricing data that is looking at closing transactions vs. contract sales are missing how quickly the market has shifted and that home prices have started to come down in parts of Southern California.”
The Express News in Texas. “‘The rental market has been on an upswing,’ said Austin Investor Interests LLC founder Robin Davis. ‘This has generated investor interest as San Antonio has been assumed to be the next boom town.’ But the market has begun cooling off. ‘Occupancy is now slowing, new inventory is rising and in-migration is tapering,’ Davis said. Transactions across San Antonio’s multifamily market have ebbed in recent months because of rising interest rates, higher financing costs, funding constraints and concerns about economic headwinds. ‘The market has seen a significant slowdown,’ Davis said. ‘Many investors have taken their assets off the market or are willing to negotiate a price reduction.’”
Real Estate Business Online. “Dallas-Fort Worth (DFW) has been one of the hottest multifamily markets in the country over the past five years. And as the area’s growth pushes further north, developers and investors are finding plenty of liquidity to support transactions. Multifamily developers have seized on the growing demand, and they are following the Dallas North Tollway and U.S. Highway 75 north in pursuit of new projects. Merchant builders are constructing these projects in 18 to 24 months, stabilizing rent rolls and then selling after 36 months.”
“Despite recent upticks in interest rates, borrowers are still finding plenty of liquidity. Banks are providing financing, as are life insurance companies and debt funds. In particular, Fannie Mae, Freddie Mac and FHA/HUD represent the most efficient and lowest-cost sources of capital. We are seeing some transactions in the market occur at negative leverage, or at cap rates that are beneath the all-in borrowing cost. Investors still see this value proposition with multifamily investments, especially if those assets are in markets such as North Dallas or other parts of the Sun Belt.”
Nevada Business. “A report released this week by the Nevada State Apartment Association shows apartment rents in Southern Nevada declining during the past quarter while vacancy rates are rising from the all-time low set last year. There are now more than 13,500 vacant apartment units in Southern Nevada, according to the report. As of the third quarter, about 8,600 local apartment units were under construction, which will expand existing apartment inventory by 4.9% once complete. The bulk of the new developments are in Henderson and Summerlin.”
Islander News in Florida. “Real estate prices continue their cooling off trend across Miami-Dade County as this week’s list reveals. During the period of Oct. 3 to 7, a Brickell one-bedroom unit with short-term rental capabilities (Hello, AirBnB cash flow!) sold for $95,000 under the listed sales price. As you read through this list, you’ll see that properties selling in the seven-figure range are closing for substantially less than the original asking price. And single-family homes, which were selling for well-above the asking price just a year ago, are no exception.”
The San Francisco Chronicle. “A real estate tech ‘unicorn’ headquartered in San Francisco has laid off nearly a third of its staff, about 100 employees. Pacaso, a property tech (or ‘proptech’) startup that promises ‘second home ownership’ at a fraction of the cost in a model not entirely dissimilar to timeshares (and fellow real estate startup unicorn Sonder), has cut its staff by 30%, attributing the layoffs to larger economic headwinds. CEO Austin Allison expressed concerns over broader economic issues, including the risk of a possible recession, affecting Pacaso’s business model.”
“In a press release published last Friday, Oct. 7, Allison described the demand for ‘luxury second homes’ — Pacaso’s core product — as ‘unprecedented, unsustainable,’ but said that he remains ‘bullish’ on second homes.”
From Market Watch. “Taylor Marr, deputy chief economist at Redfin, added that looking over a bigger time period, i.e. a month, the company’s data shows that a quarter of homes right now are dropping prices. ‘We have never been this high,’ Marr told MarketWatch. ‘It doesn’t hurt to make a low ball offer,’ Marr added. ‘Some sellers are desperate, and that can be a good strategy … we’ve heard from some of our own agents that some buyers are getting incredible deals right now.’”
From CBC News in Canada. “An undercover investigation by CBC Marketplace has exposed some networks of real estate agents, mortgage brokers and bank employees facilitating mortgage fraud for a fee. They are recorded on hidden camera offering to connect buyers with fabricated documents showing fake employment, salaries and tax filings, so buyers can obtain loans they would not otherwise qualify for. This crime also has repercussions for Canadians as a whole, says Dan Eisner, CEO of True North Mortgage. ‘As interest rates rise and house prices drop, these buyers are most likely to default on their payments and that can put further downward pressure on the housing market through panic sales,’ he said.”
“As home prices continue to plummet, these buyers are at greater risk, Eisner says. ‘If people obtain mortgages fraudulently and they thought their backup plan was to sell the house if I can’t afford it, that backup plan’s disappearing. It also keeps honest people out of the market as they compete for various homes.’”
“‘Income is not an issue,’ said one real estate agent while showing documents he was working on for other clients. ‘This is what we turn into their income. Even if you are making zero dollars, even if you are a housewife, we can make the income. The only thing we cannot make is credit.’”
“‘You know, by books, you will not qualify,’ said another agent, who went on to describe how his contacts could help. ‘They will do some documentation showing that you guys are making more and they will get you what you want. But they cannot openly say it out in public because that’s not true. They will make a T4, they will make like she is on the payroll, they will use any company’s payroll and put their name onto that, right,’ said a third.”
“To test how often mortgage agents will provide false documents without a referral from a real estate agent, Marketplace producers also cold-called 25 mortgage brokers or agents in five hot real estate markets across the country including the Greater Vancouver area, Calgary, Edmonton, the Greater Toronto Area and Montreal. The majority of mortgage agents said they would not help with a fraudulent mortgage application, but one in five said they would. ‘My team will ask for $3,000 and I charge one per cent of the mortgage amount,’ said one mortgage agent, offering to help with the fraud.”
“Marketplace‘s investigation has also found that fraudulent mortgage applications supported by fake employment and tax documents are being pushed through by individuals working at Canada’s biggest banks. ‘You will get the bank rate, you will get everything from the bank,’ said one real estate agent in response to a question about where the fraudulent mortgage would come from. ‘There are three or four who are my own guys, right? This is not their first time or their third time doing this. They are in with the banks. They find some alternatives for even the underwriters.’”
“Eisner of True North Mortgage says his company calls every employer on the applications but many other lenders don’t. ‘I guess they look at their portfolio and say, ‘Well OK, maybe some percentage is fraudulent,’ and they’re OK with that.’”
The Canadian Press. “The Canadian Real Estate Association says the country’s housing market continued to slow in September – a stark contrast from the flurried pace of sales the fall usually delivers. Instead of the frenzy, they found few bidding wars and many sellers discouraged from listing their properties because they feared they wouldn’t fetch as much money as their neighbours did at the start of the year, when the market was moving at a torrid pace.”
“Robert Kavcic, a senior economist with BMO Capital Markets, said the conditions are causing a ‘standoff in the market.’ ‘Buyers can’t qualify for, or afford, early-year prices, and probably don’t want to catch falling knives anyway (how quickly the sentiment turned),’ he wrote. ‘But, sellers are able to hold out for better market conditions or, in the case of investors, put units on the rental market. In other words, the market is just not clearing right now – hence the lack of transaction volumes.’”
The New York Post. “The decision to award the Nobel Memorial Prize in Economics to former Fed Chair Ben Bernanke was widely panned on social media as critics blamed the then-central bank chief for contributing to the 2008 global financial crisis. The news was met with disbelief on social media. Journalist Matt Taibbi, a harsh critic of the bailouts given to financial institutions as a result of the 2008 crisis, tweeted: Giving Ben Bernanke the Nobel Prize in Economics may be the drunkest decision of all time.”
“Irina Tsukerman, a business analyst who heads Scarab Rising, told The Post that Bernanke’s critics have a point. ‘The 2008 global financial crisis came about as a result of a ‘perfect storm’ [of] predatory lending of low-income homebuyers … which encouraged borrowing and mortgages for people who could not afford them’ as well as ‘excessive risk-taking by banks and other global financial institutions,’ Tsukerman told The Post.”
“She said the Fed under Bernanke ‘contributed to all three factors’ due to its ‘failure to take necessary steps to avoid the catastrophe by raising the interest rates in a timely manner, which would have encouraged savings and would have moderated excessive spending and other risky practices.’ Tsukerman faulted Bernanke for proposing a ‘quantitative easing’ program that ‘involved the unconventional purchase of Treasury bond securities and mortgage-backed securities to increase the money supply in the economy.’”
“‘Now Bernanke is getting a Nobel Prize for encouraging irresponsible fiscal behavior at a time of global inflation and after many years of US government following his example by printing Monopoly money,’ Tsukerman said.”
Real Clear Markets. “Bernanke believes economic growth causes prices to rise. As he told Cato Institute co-founder Ed Crane in 2005 during a one-on-one lunch, growth is ‘inherently inflationary.’ Actually, it’s the opposite. Economic growth is a consequence of investment, and investment is all about producing exponentially more at prices that continue to fall. All goods that we covet, from cars, to computers, to radios, start out nosebleed expensive only to decline in price as investment in production efficiencies pushes their prices down. Rest assured that in Bernanke’s lifetime, private flight will become common.”
“That’s the way of things in a real world that Bernanke is only vaguely in touch with. Imagine one of the modern faces of economics believing growth causes inflation. Worse, consider the bigger meaning of all this. Bernanke is wedded to the false notion that country economies are limited by the supply of labor and production capacity within their borders, and as a result, Bernanke believes it’s the job of central bankers to centrally plan job loss and economic sluggishness so that economies don’t ‘overheat.’ Look it up. Yes, he believes this stuff. In reality, every market good and service is the consequence of global labor and capacity inputs, such that there’s never a scenario of the ‘gap’ in ‘output’ being filled.”
“If we ignore that the Fed’s power to manage the economy toward growth or decline is vastly overstated, we can’t ignore that economists like Bernanke believe that central banks can and should put people out of work to keep inflation in check. Yet Bernanke is now a Nobel Prize winner. How embarrassing for economists, and how embarrassing for the Prize.”