A weekend topic starting with Business Insider. “‘This is a welcomed refresher to catch up on things and regroup, but there is a fearful tinge to the air as the market is shifting,’ realtor Abbey Pontius said to the Colorado Association of Realtors. The spike in inventory has caused home prices in Denver to come down from the record-highs that were recorded in April 2022. The median price of a single-family home in Denver has dropped by 10% to over $595,000 since April, the report indicates, while multifamily homes have seen their median prices drop by 9% to $550,000.”
From Vail Daily. “‘My advice to sellers is that they need to recognize that the market has shifted when pricing their homes. Homes that are priced based on today’s market value are more likely to attract more buyers, sell more quickly and maximize the sales price, even as demand changes and mortgage rates rise,’ added Kira Taylor, a broker associate with Berkshire Hathaway HomeServices Colorado Properties’ Edwards office.”
KEZI in Oregon. “Broker Katie Spurlock said sellers are in shock with the housing market right now because they can’t get the prices that Redfin and Zillow were telling them their house was worth, just a few months ago. Spurlock said she is seeing sales fall through more and more, but buyers from out of state are still moving here, and are taking their time with decisions. ‘So certainly, we have more inventory on the market and less demand for that inventory,’ said Spurlock. ‘There are just fewer buyers that are willing to move forward with all this uncertainty, or that can afford to move forward with this uncertainty.’ Spurlock anticipates housing prices to continue to drop or pause during the holidays.”
“Janet Loughrey also took to Facebook and said, ‘Houses on my street are selling for 9 times what I paid for my house back in the late 1980s. I could never afford to buy a house now.’”
The Orlando Business Journal in Florida. “Jerome Henin is close to declaring the rest of the year a vacation for his real estate company. That’s because business has slowed so much in the last six months for Winter Park-based Henin Group Inc., a residential developer where Henin is the president. Henin Group this year has witnessed slowing demand while development costs have climbed upwards of 25%, Henin told Orlando Business Journal.”
“Christian Swann, president of Winter Park-based Surrey Homes LLC, told OBJ the housing industry is in ‘a bit of a nosedive.’ At Surrey Homes, sales have been ‘nearly nonexistent’ for several months, Swann said. Swann said the slowing housing market means land deals are less competitive, though sellers haven’t adjusted their prices to the new market. ‘We’re seeing a lot more land opportunities as a result, but I don’t think any of those sellers have gotten the memo. It’s kind of comical. We laugh at the sellers on the phone about it.’”
The Real Deal. “Once harboring a near-mythic status in New York City, storied co-ops are being spurned by luxury buyers. Trophy co-ops are languishing on the market and selling for deep discounts, Curbed reported. Sales at 740 Park Avenue exemplify the trend. Julia Koch has been trying in vain to sell her apartment for $60 million. Steve Mnuchin, the former treasury secretary, sold his place for $22.5 million after 12 years of shopping it and a $15 million discount from its original listing.”
“Former Merill Lynch executive John Thain has spent four years trying to sell his duplex and now has it listed at the same price he bought it for 16 years ago. The building is not alone in its struggles, though. Other co-ops on Park, Fifth, Sutton and Beekman Places are seeing similar trends working against them. ‘In the past, big money needed co-ops to be accepted and established,’ Sotheby’s International Realty broker Nikki Field told the publication. ‘But no one needs 740 anymore.’”
The LA Daily News in California. “High inflation and a pending avalanche of job losses are going to squeeze the cash reserves from many homeowners who could soon be scrambling to make house payments. Can you say: Equity rich, financially distressed? For the purpose of this column, ERFD is our new acronym. Remember it. Set aside for a minute that mortgage delinquencies (at least one payment past due) are at 3.45%, their lowest level since the Mortgage Bankers Association started tracking them in 1979. That’s rearview mirror stuff if you listen to mortgage insiders. ‘The delinquency rate will likely increase in upcoming quarters from its record low (in part) because of the anticipated uptick in unemployment,’ said Marina Walsh, MBA’s vice president of industry analysis.”
“Business has all but stopped for mortgage lenders. And, yes, it’s much worse than the mortgage volume collapse I remember from the Great Recession. I’ve laid off two-thirds of my staff this year. Many mortgage professionals and many realty agents are scrambling to cut expenses and find ways to tap into their home equity.”
“Let’s go through a financial exam of sorts to see if you are on the edge of becoming an ERFD (equity-rich financially distressed) homeowner. 1) Are you worried about losing your job, getting work hours cut or anticipating a reduced revenue stream if you are self-employed? 2) Do you have less than six months of household cash reserves? For example, if your house payment, utilities, groceries, medical bills, food, and entertainment come to $8,000 monthly and you have $40,000 of accessible money, then you are short $8,000 needed to cover six months of expenses.”
“3) Do you have a burn rate? That is, more expenses going out monthly than are being replenished by income? 4) Do you have at least 25% tappable equity? (For example: Your home value is $800,000 and the loan balance is $600,000 which means you have 25% tappable equity). 5) Are you close to being late on an upcoming mortgage payment? A single, 30-day mortgage late payment can drop a FICO score 50 to 150 points, potentially ruining any chance of new mortgage credit, according to Mindy Leisure, director of rescoring services at Advantage Credit. (Full disclosure: Advantage Credit is my firm’s credit vendor.) If you answered yes to three or more of the questions, consider yourself an ERFD.”
From Bloomberg. “Sweden’s beleaguered real-estate companies may have to resort to fire sales and new share issues as the sector faces risks of rising vacancies and a projected 15% slump in property valuations. That’s the view of economists at lender Svenska Handelsbanken AB, including Christina Nyman, who says in a sector report that larger commercial landlords in the country could be forced to offload properties under ‘a more adverse scenario.’ The catalyst for such a scenario would be the industry’s looming ‘wall of maturities,’ according to the economists.”
“While most companies should be able to secure financing through bond markets or banks, as much as a third of maturing bond volumes come from firms that may have to resort to asset sales to refinance. The bank estimates as much as 120 billion kronor of bonds fall due in each of the next three years. The development in the sector has raised the spectre of a crisis similar to the one Sweden experienced in the 1990s, when a property market crash reverberated throughout the Nordic nation’s financial system.”
“In a separate report published Wednesday, the country’s central bank spelled out a worst-case scenario in which developments in the property sector could threaten stability. If falling property values make real-estate owners breach financial covenants, lenders may request additional collateral, which can ‘quickly create a negative spiral,’ the Riksbank says.”
“The jump in borrowing costs is also pressuring the residential housing market where Swedish home prices have declined steadily since March. Handelsbanken – among the biggest mortgage lenders in the country – now expects the drop to continue, reaching 19% from the peak, which is a deeper slump than the 15% it had previously forecast.”
The Sydney Morning Herald. “The luxury property market has slowed as well-heeled buyers start to worry about looming economic headwinds, new figures show. Prime property prices – the most expensive 5 per cent of homes in a market – have fallen or are barely rising across major Australian cities, Knight Frank research found. In Melbourne, buyer’s advocate David Morrell said the $5 million to $10 million bracket had an influx of new listings late in spring that would enable buyers to be more choosy.”
“Several properties in that price range in South Yarra and Toorak have recently hit the market, along with some more expensive offerings in the same neighbourhoods, and in Brighton and on the Mornington Peninsula. Some had been offered quietly off-market earlier, did not sell, and were now listed publicly to try to get a result before Christmas, he said. ‘There is so much choice for the limited buyers there,’ he said. ‘They are not all going to sell.’ ‘This time last year everything was going nuts, people were trying to buy things before auction,’ he said. ‘It is a complete 180 this year.’”
The Globe and Mail. “Call it the end of an era. The past couple of years have torn holes in three ideas that investors once considered indisputable. First is the notion that China is the long-term driver of global economic growth. Second is the belief that interest rates are destined to stay ‘lower for longer.’ Third is the conviction that big U.S. technology companies are a good investment at just about any price. This not-so-holy trinity of ideas dominated financial markets during the decade leading up to the COVID-19 pandemic. And why not? They seemed to sum up the state of the world.”
“What went wrong? One big problem is China’s faltering property sector. Years of frantic building have helped drive the country’s total debt to towering levels and resulted in a glut of apartments. ‘Real estate constitutes such a large share of China’s economy that a sustained slowdown could cause years-long stagnation akin to Japan’s lost decades since 1990,’ writes Harvard economist Kenneth Rogoff.”
“Small wonder that analysts at JP Morgan Chase earlier this year declared a broad swath of China’s tech sector to be ‘uninvestible.’ The Nasdaq Golden Dragon China Index, which tracks Chinese stocks listed on U.S. stock exchanges, is now back to 2007 levels. Rather than being an unstoppable giant, the Chinese economy now looks increasingly fragile. If China’s fall from grace has been a shock, so has an even more fundamental shift. For the first time in four decades, inflation has soared around the globe. So have interest rates. This is a brutal surprise for a world that for more than a generation saw inflation and interest rates both tick relentlessly lower.”
“But whatever the precise cause of ultralow interest rates, the trend was clear. After the global financial crisis of 2008-09, households and businesses operated on the assumption that money was more or less free. For the next decade, interest rates remained stuck at levels that were the lowest in 5,000 years, according to Bank of England chief economist Andy Haldane. In the early stages of the pandemic, central banks reinforced this trend, slashing their key rates to zero in North America and to sub-zero levels in Europe.”
“The abrupt reversal of those ultralow rate policies over the past year is having a shattering effect. Soaring mortgage rates are eating away at home prices around the world. Higher borrowing costs are discouraging companies from investing in new factories and offices. Simultaneously, rising interest rates are punishing bond prices (which move in the opposite direction to interest rates) and stocks (because higher bond yields are making fixed income an attractive alternative for the first time in years).”