A weekend topic starting with the Atlantic. “This coming recession, if it does come, will largely be an artifact of policy, with a handful of unelected bureaucrats based in Washington choosing to increase unemployment and bankrupt businesses in order to cool off the country’s high inflation rates. ‘We’re never going to say that there are too many people working, but the real point is this: inflation. What we hear from people when we meet with them is that they really are suffering from inflation,’ Jerome Powell, the chair of the Federal Reserve, said in September. ‘If we want to set ourselves up, really light the way to another period of a very strong labor market, we have got to get inflation behind us. I wish there were a painless way to do that. There isn’t.’”
“If it triggers a recession without getting inflation under control, that would be something known as stagflation. It is a ‘central bank’s worst nightmare,’ said Ryan Sweet, the chief U.S. economist at Oxford Economics. ‘The global economy is slowing down,’ Sweet told me, pointing to data showing that the United Kingdom and the euro zone are slipping into a contraction, and that China is already in a “growth recession” because GDP is expanding too slowly to stop unemployment from rising. ‘This could be the first recession in recent memory where the rest of the world goes down and pulls the U.S. economy down with it.’”
From Fox Business. “‘The time for moderating the pace of rate increases may come as soon as the December meeting,’ Powell said during a speech. ‘Given our progress in tightening policy, the timing of that moderation is far less significant than the questions of how much further we will need to raise rates to control inflation, and the length of time it will be necessary to hold policy at a restrictive level.’ Although he acknowledged that inflation has shown early signs of cooling – consumer prices rose 7.7% in October from the previous year, the slowest pace since January – Powell pushed back against any assumptions that inflation will continue to moderate.”
“‘It will take substantially more evidence to give comfort that inflation is actually declining. The truth is that the path ahead for inflation remains highly uncertain,’ he said, adding: ‘Despite the tighter policy and slower growth over the past year, we have not seen clear progress on slowing inflation.’”
From Bloomberg. “Fed policymakers appear determined to see their tightening campaign through to peak of about 5%, after being caught out by the intensity and staying power of price pressures. That’s bad news for an economy that looks set to contract at some point next year. ‘There’s a lot more pain that has to come through,’ said Justin Burgin, director of equity research at Ameriprise Financial. ‘We’ve barely seen the lag effect of the fastest rate hike in history.’”
From CBS News. “Some 250,000 people who took out a mortgage this year to buy a home are now underwater, meaning they owe more on their loan than the home is worth, Black Knight, a mortgage software provider, found. Another million have less than 10% equity. ‘A clear bifurcation of risk has emerged between mortgaged homes purchased relatively recently versus those bought early in or before the pandemic,’ Black Knight said. All told, 8% of mortgages taken out this year are underwater — about one in 12 homes purchased in 2022.”
“The situation is much worse for homebuyers who purchased with government-backed mortgages, with 25% of those buyers this year now underwater, according to the report. In Colorado Springs and Honolulu, more than 30% of mortgaged homes bought this year are underwater. In Virginia Beach, about 22% are worth less than what is owed. The figure is 20% in the California cities of Bakersfield, Riverside, San Diego and Stockton — cities with a large military presence where many people buy homes with government-backed mortgages.”
“‘It’s not actually markets that are seeing prices come down the most — it’s markets that are using more of this low down payment types of lending’ that are most affected, said Andy Walden, Black Knight’s president of enterprise research. The portion of underwater borrowers tripled in October, he noted. ‘Unfortunately the folks who first get hit when home values go down are those who couldn’t put down a lot,’ said Selma Hepp, lead economist at CoreLogic.”
From WAVY. “Foreclosures in Virginia are up 175% from this time last year, according to Better Homes and Garden Real Estate Broker Susan Jenkins, as pandemic-era loan forgiveness programs come to an end and purse strings tighten. ‘What’s occurring is the current owner of the property has defaulted on the payments. We understand is there is a lot that’s going on in our current economy that’s causing that. Inflation is a big part of it people are really running up credit card debts and dipping into their 401k’s just to make ends meet,’ Jenkins said. ‘Even though we have seen historic lows in interest rates, it’s still becoming difficult for some people to make those house payments.’”
“Jenkins recommends that people facing foreclosure should take advantage of resources such as those available through HUD, Fannie Mae, Freddie Mac. She said realtors can also mediate discussions with lenders, and assist in preparing your home for the market. ‘There are so many options that are available to them but its coming past that fear and lack of knowledge and asking the tough questions,’ she said.”
CBS Bay Area in California. “The pendulum is shifting in what many have described as a ‘roller coaster’ real estate market. Sellers are no longer in the driver’s seat and buyers have an edge. In San Mateo, Tommy Yang is in the process of selling his home. He’s had the house on the market for about a month and has yet to receive a full price offer. His real estate agent translated for us. ‘He believes it is a challenge to sell right now,’ his agent said. ‘Compared to a year or two years ago, houses like this could get 10 offers, plus. The average house would sell like a hot cake. Right now, even the good houses, probably just get one or two offers – solid ones.’”
“Yang hopes he gets the right offer. Bigger picture, he’d like to see interest rates go down. ‘He hopes that the housing market will recover,’ his agent said. ‘He hopes that the interest from the Fed will not go so fast and so high and hopes it will come down at some time.’”
Coastal Illustrated on Georgia. “The previous year was a banner on for real estate in the Golden Isles, but it didn’t go as expected, said Realtor Chandra C. Kendall. ‘The expectations were not met,’ she said. ‘We saw the market start to cool during the summer, due to the reduction of inventory and the increase in the mortgage rate.’ ‘The influx of buyers we had in 2021 was unprecedented,’ she said. ‘The first part of this year, the most active price range was $500,000–$600,000,’ she said. ‘Now it is $300,000–$400,000. The market has been and will continue to change subject to the economy and mortgage rate changes.’”
“While it was a strong seller’s market, that has changed. ‘Price reductions are happening more often and less homes are selling for full price,’ she said. The inventory of available homes is also an issue. ‘The first six months of 2022 we had 1,104 residential units sold,’ she said. ‘The last six months of the year so far we have seen 693 sales. This is a substantial drop in sales, almost 50%.’”
“Realtor Ann Dempsey said 2021 was the busiest year in her more than 40 years as a Realtor in this area, and her expectations were high coming into 2022. ‘Last year and the first part of this year we saw properties go under contract within an hour of being listed,’ she said. ‘We saw many properties have multiple offers as soon as they were listed.’ Homes were selling for more than their listed prices, and this was during a housing shortage. ‘There were showings using FaceTime and videos, and sales without the buyers ever physically seeing the properties,’ Dempsey said. ‘My real estate year has actually been even better than last year until several months ago. Then it changed.’”
From Yahoo Finance. “Even as higher borrowing rates take a toll on the real estate market, Canada’s biggest banks appear to be brushing off any signs of housing-related stress on their balance sheets. Many Canadians with variable-rate mortgages have seen their amortization periods lengthen beyond the 25-year maximum as rates increased. At ome of the banks, including Bank of Montreal and Royal Bank of Canada, nearly a third of their residential mortgage loans now have an amortization of longer than 30 years. It’s unclear if there are any legal restraints against these longer amortizations.”
“‘Ideally, they want you to stick to that initial amortization commitment. But what I took from that commentary was, ‘absolutely, we are very flexible, and we will make sure that we help our clients get through it,’ Mike Rizvanovic, a research analyst at KBW, told Yahoo Finance Canada. ‘It’s a function of the risk management process. They don’t want to obviously take possession of homes. And so as long as the person can carry that debt, there’s no reason to go to the extreme. And it sounds like what they’ll do is they’ll just extend amortizations to the point that’s necessary.’”
The Leader Post in Canada. “Jennifer Fuller spent this fall navigating an unexpected move, after being evicted suddenly due to a landlord defaulting on her rental property’s mortgage. ‘We felt like the rug had been pulled out from under us,’ Fuller said. Cameron Choquette, CEO of the Saskatchewan Landlord Association, hasn’t heard concerns from members regarding mortgage arrears but said continued cost-of-living increases could put specifically small- to medium-sized landlords at risk of such financial strain.”
“Non-payment and eviction rates are increasing, Choquette said, noting that rental arrears can situationally lead to mortgage arrears. ‘A mortgage is one of the biggest expenses a landlord will face,’ he said. ‘And if those costs are passed onto the tenants, and there’s insufficient revenue to pay those bills, then the cost of living crisis hits the landlord there as well.’”
From NBC News. “A dire and potentially deadly humanitarian emergency is endangering millions across Britain. More than 200 miles north of London, in seaside Morecambe, Dusty Thomas says he spends many of his days quietly starving. He is 60, a veteran of the 1982 Falklands war and the sectarian “Troubles” in Northern Ireland. ‘Sometimes I’ve gone two or three days without food,’ he said, huddled under a cartoon-themed blanket in his chilly first floor-floor home just outside of town, where the heat hasn’t been switched on in three years. ‘A few times I’ve used tricks like drinking quite a lot of vinegar, which shrinks the sides of your stomach and takes your appetite away.’”
“Thomas is not alone. Britain is the world’s sixth-largest economy, a top-tier industrialized power that still sees itself as a cradle of the postwar welfare state. But its stagnant economy has likely just entered what the Bank of England says could be the longest recession and sharpest drop in living standards on record, and it’s the only G-7 nation whose GDP is still lower than before the pandemic. Britain once compared itself to giants like France and Germany; today many of its metrics more closely resemble Eastern Europe’s weaker economies. The financial calamity enveloping the U.K. is so widespread that there are few escaping its pull.”
“One in 6 British households are on social security checks, and almost a third of British children live in poverty, government figures show. One in 4 are facing financial difficulty or are already mired in it, and almost 1 in 10 have missed paying bills, according to the Financial Conduct Authority regulator.”
“This nationwide crisis is driven by spiraling food and energy prices, plummeting wages and crumbling public services. Coupled with months of industrial strikes that have often crippled institutions from the railroads to the courthouses, Britain in 2022 is a place where, for millions of people, everything feels like it’s broken — and is about to get worse this winter.”
“Few places illustrate this crisis as starkly as parts of Morecambe, a former bustling seaside town nestled on England’s northwest coast, which today contains some of the country’s most deprived streets in terms of jobs, wages and education. Here and across the country, millions of working families with cars and mortgages are struggling to stay afloat; teachers worry more about feeding students than educating them; and proud but desperate people are taking extreme action simply to stay alive — let alone with dignity.”
“In the 1990s, said Joanna Young, service development director for Citizens Advice North Lancashire, people would seek advice from her organization about faulty toasters and vacation mix-ups. Now they mostly arrive on the brink of destitution. They are ‘using credit to pay for basics like food, heating and hygiene, with no earthly way to pay off their debts,’ said Young.”
The Sydney Morning Herald in Australia. “The Reserve Bank has lifted interest rates eight times this year – the most aggressive cycle of rate rises since 1994. The following six graphs help explain why and what it means for mortgage holders.When the RBA lifts the cash rate target, commercial banks soon follow suit. According to RateCity calculations, this means someone who took out a $500,000, 25-year mortgage in April on a variable rate of 2.86 per cent will go from paying $2335 a month to $3169 if their lender passes on the rate rises in full. That’s an $834 difference on their monthly payment. Someone with a $750,000 mortgage will be paying an extra $1251.”
The South China Morning Post. “Four years ago in Shenzhen’s Nanshan district, home to the headquarters of tech giants Tencent and Baidu, nearly 1,000 applicants braved long queues in hot weather for a chance to buy one of 167 flats. Each hopeful had deposited 5 million yuan (US$715,000) to participate in the city’s first public housing lottery – a scheme specially designed for situations where demand from interested buyers far exceeded supply. Today in the same neighbourhood, the queues are gone, and surplus homes abound. The One Bay development by state-backed Tagen Group recently managed to woo only 387 buyers for 416 units on offer, despite an average price of 96,000 yuan per square metre.”
“‘You cannot imagine how poor sales are in other cities in China if the hottest market dipped into a freeze like this,’ said Tommy Wu, senior China economist with Commerzbank. Now observers hope the property sector – teetering on piles of unpaid debts, unfinished homes and stagnant sales – can bottom out sometime next year with support from the central government’s rescue measures.”
“‘The golden era where long queues and lucky draws were needed for home sales is gone, and I do not see that there is a way of it coming back,’ said Michael Zhang, a veteran property agent in Zhongshan, in Guangdong province. Zhang has not brokered a single deal, new or lived-in, in November, and managed only three in October. A property agent for 11 years, Zhang recalls bringing in a record 21 deals in the month of September 2018, when Zhongshan was first named as one of the cities in the new Greater Bay Area concept outlined by President Xi Jinping. At the time, home seekers from Macau, Hong Kong and Shenzhen were coming to the city in organised house-shopping groups.”
“‘Now sales centres are full of discounts and promotion gimmicks,’ Zhang said. ‘But none of these are luring them back. After all, why do you want to buy something that you expect to become cheaper?’”
“In other words, China will see its first price crunch for homes in more than a decade. That translates to paper losses for homebuyers who bought in the past couple of years. But for Zeng Xiaolu, a distressed home auction broker, it translates to more business. ‘Recently, it is not possible to find a buyer without a sharp discount as people are expecting home prices will continue to fall,’ Zeng said. ‘Thus, people who had debts to clear would just choose to give up their homes to the creditors through distressed auctions.’”
“Zeng expects his business to double by the end of next year. ‘In rosy days, people who need money at short notice can always dump their homes on the secondary market quickly for a rather decent price,’ he said. ‘But it is a different market now.’”