A report from Reuters. “U.S. single-family homebuilding tumbled to a 2-1/2-year low in November and permits for future construction plunged. It put residential investment on track to contract for the seventh consecutive quarter, which would be the longest such stretch since the collapse of the housing bubble. ‘There’s nowhere for homebuilders to hide. We don’t know about the rest of the economy, but the housing market is clearly in recession,’ said Christopher Rupkey, chief economist at FWDBONDS in New York.”
Yahoo Finance. “National Association of Home Builders CEO Jerry Howard joins Yahoo Finance. HOWARD: I think we’re in a housing recession right now. I do think that it’s going to be different from ’08. I don’t think people should panic here. And the big difference is, in ’08 we had a glut of supply. Here, we do not have a glut of supply. In fact, we have a supply shortage. And that’s going to limit how low prices can drop.”
Dallas Morning News. “North Texas homebuilders are hitting the brakes at a pace not seen since the Great Recession. Ted Wilson, principal of Residential Strategies, said homebuilders are focusing now on selling unsold inventory. Builders who built a large number of homes speculatively when the market was busier have been discounting prices over the last few months, he said. ‘There’s no sense of starting extra units if you have a bunch of unsold units that you have to move,’ Wilson said. ‘We hear that a lot of consumers are waiting for prices to come down; well, they’ve come down a lot already. And they’re likely to come down a little bit more.’”
From MoneyWise. “Now we can add mortgage lender financial troubles — and the rise (and fall) of “non-qualified mortgages” — to the factors aggravating an already uncertain market. NQMs use non-traditional methods of income verification. With First Guaranty Mortgage Corp. and Sprout Mortgage — a pair of firms that specialized in non-traditional loans not eligible for government backing — running aground this year, real estate experts are beginning to question their value. First Guaranty filed for bankruptcy protection in the spring while Sprout Mortgage simply shut down early this summer.”
“In documents tied to its bankruptcy filing, First Guaranty leaders said once interest rates started to climb, lending volume dropped and left the company with more than $473 million owed to creditors. Meanwhile, Sprout Mortgage, which leaned heavily on NQMs, abruptly shut down in July. And real-estate tech startup Reali has shuttered as well. Other non-bank lenders are being forced to streamline to stay afloat.”
The Boston Globe in Massachusetts. “It was another month of declines in Greater Boston’s housing market, except for the one measure that matters most to buyers: Price. The median-priced single-family home sold for $760,000 last month, up from $749,000 in October, according to GBAR, and that’s 1.3 percent higher than in the same month last year. But the underlying point, that our housing market is in decline, still stands. While the median price was up month-to-month, it was still down significantly from June, when it peaked at just under $900,000. ‘It’s quite likely we’ve hit the ceiling on prices, at least for now,’ said GBAR president Melvin A. Vieira Jr.”
From Geekwire on Washington. “A recent spate of layoffs combined with tumbling tech stock valuations now may be putting downward pressure on the Seattle real estate market, which has seen some of the nation’s steepest price drops and a sizable increase in housing supply. Seattle’s median sale price has dropped from $891,000 in May to $810,000 in November, according to data from Redfin. That’s a 9% decrease, the largest drop between May and November in five years.”
“The layoffs could spark more outflow of people from the region and add supply to the market, said tyler Gardner, a broker at Windermere Real Estate. ‘If some laid off tech workers were to sell and relocate, that influx of inventory would be helpful in providing prospective buyers more options, which could help bring some of the steep prices down further,’ he said.”
The Nevada Independent. “The incoming Las Vegas Realtors Association president, Lee Barrett, dismissed fears surrounding falling prices. ‘The interest rate adjustment going up caused a contraction, but it’s a natural contraction. There always has to be change in the real-estate business,’ Barrett said. ‘The sky is not falling. It’s just adjusting.’ The median sales price for a single-family home in the Las Vegas area reached $430,990 in November, up only 2.6 percent from the previous year and down almost 11 percent from the all-time record of $482,000 set in May. Meanwhile, Northern Nevada’s median sales price hit $550,000 in October, the same as last year.”
From Bisnow. “Castles, gold mines, decommissioned missile silos and entire brands like Polaroid and Tommy Bahama’s. Hilco Real Estate Senior Vice President Steve Madura, whose firm specializes in distressed assets, has sold it all, but soon he expects an onslaught of a much more common type of property: CRE. ‘The process is the process, and it works for any asset class,’ Madura said. And increasingly, he sees this process put to work for commercial real estate.”
“The next couple of years, when roughly $500B in commercial mortgage loans will require repayment or refinance, per the Mortgage Bankers Association, will ‘dwarf the 2008 financial collapse,’ Madura said. Refinancing with rising rates will lead to ‘a reckoning,’ with borrowers in a ‘world of hurt,’ and whereas the financial mess of 2008-2009 was caused by bad decisions around the financing of needed assets like single-family homes, the question about the long-term utilization of certain commercial real estate assets may lead to more trouble. ‘There are huge rows of office buildings in Chicago with 50% vacancy rates,’ Madura said. ‘You want to convert so many office buildings to residential? That only goes so far.’”
The Los Angeles Times in California. “A Beverly Hills developer was sentenced Thursday to four years in prison for bribing a Los Angeles County official in what prosecutors described as one of the biggest corruption cases in L.A. history. Arman Gabaee, 61, admitted giving a county official dozens of cash payoffs during furtive meetings in cars, restaurants and men’s rooms while reaping lucrative real-estate leases in return. The developer also offered to buy the official, Thomas J. Shepos, a $1-million home in return for the county spending $45 million to lease office space at a Gabaee property in Hawthorne.”
“U.S. District Judge George H. Wu rejected the government’s request for a nine-year prison term but agreed to its recommendation of a $1.1-million fine that Gabaee must pay by the end of March. Wu called the case an example of ‘systemic’ public corruption. ‘There is so much of it going around,’ the judge said. ‘His seven-year spree of monthly cash bribes, culminating in a massive million-dollar bribe, was not [born] of financial or emotional desperation — but immense, deliberate, and almost unfathomable greed,’ Greer Dotson and Assistant U.S. Atty. Thomas F. Rybarczyk wrote in a memo to the court. ‘He had everything, and yet it was never enough.’”
“Gabaee was recorded offering to buy Shepos a million-dollar house in Northern California wine country in return for a 10-year lease that would make L.A. County the anchor tenant of his Hawthorne Mall property. Gabaee quickly moved to sell the property, saying the long-term $45-million lease from a reliable tenant made the property’s market value soar overnight from $17 million to $500 million, according to the government.”
The Langley Advance Times in Canada. “An assignment sale, if you’ve forgotten, is when someone signs up for a pre-sale contract to buy a condo or townhouse (usually when the site is still a big muddy hole in the ground), but instead of moving in, they wait until just before the project is finished and flip it to another buyer, an actual prospective homeowner. This became a particularly popular move in Langley, where the boom in condos and townhouses under construction has been pronounced.”
“In 2019, there were 103 assignment sales in Langley, 177 in 2020, and then 854 in 2021, as real estate sales in general were going absolutely ballistic. I wrote that this was making homes more expensive for residents. This seemed obvious to me – with investors and would-be homeowners competing for pre-sales, that would drive prices higher, right? A couple of people told me I am an idiot who doesn’t understand economics. Well, maybe that’s true.”
“However, a recent Bloomberg article found that assignment holders are now worried about losing their shirts, since the price of housing has been dropping. If they bought their assignment on a big building back in 2019, they’re probably still fine. They won’t make an astronomical amount of money, but they won’t be in the hole. But if they bought in late 2021 or early this year, they bought at the peak of the market. The value of their assignment is now edging into the negative. And as the Bloomberg piece pointed out, that could mean a rush to unload those future condos, which would drive the price down still further by creating a glut in the market.”
From This Is Money. “A calm is descending on Britain’s property market. After two and half years of soaring prices and frantic bidding wars, for sale signs are staying up longer and estate agents’ phones are quieter. In 2020 and 2021, there wasn’t the usual pre-Christmas slump. Buyers were keen to take advantage of the stamp duty holiday and rock-bottom home loan rates, even during the December festivities. But this year is different. Money Mail has spoken to estate agents across the country and many of them say the housing bubble has burst, with soaring mortgage costs putting buyers off moving.”
“‘I have never seen the market go from so warm to so cold in such a short space of time,’ says North Wales estate agent Ian Wyn-Jones. ‘Properties are being put on the market for £250,000 and selling for £180,000.’”
From Bloomberg. “The declines in Swedish housing prices extended to the eighth straight month, as the worst slump in three decades deepens. Prices have now declined by 15% since a March peak, according to the HOX housing index from Valueguard, which compiles the data. The rapid slide has made Sweden emblematic of a development that is playing out in countries around the world. Most forecasters predict a 20% slump from the highest levels, which would erase outsized price gains during the pandemic. In a more adverse scenario, with rapidly rising unemployment and larger-than-expected interest-rate increases by the Riksbank, Sweden’s central bank, the slide could be deeper and more protracted.”
“‘We notice that the worst distress has abated in many areas, and that is most obvious in Stockholm,’ Marcus Svanberg, chief executive of Lansforsakringar Fastighetsformedling, said in a statement. ‘However, it remains hard for sellers to get used to the fact that the value of their homes has declined and that means sales take longer and supply remains high.’”
The Daily Telegraph. “An alarming share of recent homebuyers have admitted they got a little carried away in the frenzy of the recent housing boom and borrowed too much money. More than one in five homeowners across the country said they’ve now realised they should have borrowed less from the bank, according to the Finder.com.au polling. It’s the latest sign that the climate of FOMO, or fear of missing out, that governed the market during the early pandemic in 2020 and 2021 has swiftly turned to regret now that interest rates are rising and real estate values are falling.”
“A worrying 693,000 households have too much mortgage debt, the Finder research estimated. This could climb if interest rates continue to rise in early 2023 as widely expected by economists. Sarah Megginson, home loans expert at Finder, said it was a precarious situation for many. ‘Many Australians bought property during a record low interest rates environment and didn’t plan for what they’d do if rates went up,’ she said. ‘Now as interest rates skyrocket – many have been pushed to their financial limit. Buying a property when interest rates were low made many people feel like they were getting a good deal. But if you didn’t stress test your budget to see how much you’d be paying when rates increased, you could be feeling a lot of financial pressure now.’”
From Bloomberg. “Negative yields R.I.P. The global pile of bonds with sub-zero yields shrank on Wednesday as Japan’s two-year sovereign yield briefly climbed into positive territory for the first time since 2015. The worldwide stock of negative-yielding debt stood at about $686 billion on Tuesday, down from a peak of $18.4 trillion reached two years ago. The jump in Japan’s yields was triggered by the central bank’s policy adjustment, a move which may signal that the world’s last uber-dovish monetary authority is inching toward normalization. The European Central Bank exited its negative-rate policy in July, followed by its counterparts in Switzerland and Denmark in September.”
“‘What we are looking at is a reexamination of the efficacy of ultra loose monetary policy, and the BOJ is the last skittle to fall in all of this,’ said Stephen Miller, a former head of fixed income at BlackRock Inc. in Australia, who’s now at GSFM Pty. ‘I hope this is the end for negative rates because it might mean we’re going to stop relying on central banks to do everything. We now know that negative rates don’t work, full stop.’”
“‘The current growth and inflation settings globally no longer justify keeping sub-zero interest rates,’ said Winson Phoon, head of fixed income research at Maybank Securities Pte in Singapore. ‘Negative yielding debts are set to disappear as global major central banks are withdrawing from the negative interest rate regime one by one, with the BOJ probably the last man standing.’”