A report from The New Orleans Advocate in Louisiana. “When Roxanna Campos and her husband put their 40-year-old Bucktown house on the market in January, they thought the three-bedroom brick Ranch would be a quick sell. As a local real estate agent, Campos had a front-row seat to the bidding wars and buying frenzy that pushed up home prices across the metro area by more than 25%, on average, since 2019. But it’s been two weeks since her listing, and despite positive signals at the open house for agents and brokers, Campos hasn’t gotten a single offer. ‘I would have thought we’d have multiple offers by now,’ said Campos, who is selling because of an upcoming move to Florida. ‘If we haven’t had any movement in the next week, we might have to rethink things.’”
“Sellers and their agents are also being creative about helping buyers shoulder the cost of higher interest rates. Broker Joyce Delery, who co-owns Engels and Völker New Orleans, said she has seen some sellers offer $10,000 to help ‘buy down’ interest rates. ‘We’re also seeing them be a little more realistic about their pricing,’ Delery said.”
The Crozet Gazette in Virginia. “The national real estate market has been anything but normal over the past few years. But mortgage money is no longer cheap. These factors started weighing on the market from the second quarter on, leading to dramatically lower sales in Crozet in 2022. Now we are stuck in limbo: mortgage costs have more than doubled, seriously crippling consumer ability to pay elevated prices. Meanwhile, builders don’t want to reduce prices and thus ‘devalue’ neighborhoods, and many current home owners can’t or don’t want to sell and potentially take on a much higher mortgage cost when they repurchase. How this will turn out only time will tell, but if Elon Musk is right, everyone who needs to or wants to sell may need to start cutting prices now.”
The Real Deal. “The Agency is the latest residential brokerage resorting to layoffs. The California-based firm confirmed to The Real Deal it had let go of 15 people, or about 4 percent of its staff. ‘We are not immune to the economic environment that all companies, especially real estate companies are facing right now,’ company CEO Mauricio Umansky said. ‘The Agency continues to make efforts to be fiscally responsible and is fundamentally committed to profitability and long-term, sustainable growth.’”
“The cuts place it in line with other residential players that have responded with layoffs after a historically strong 2021 gave way to a downturn stemming in large part from historically high mortgage rates.Compass, which laid off roughly 800 tech employees last year, did a third round of layoffs last month and put space in its global headquarters up for sublease. Anywhere, the conglomerate that owns brands like Corcoran, Coldwell Banker and Sotheby’s International Realty, has laid off roughly 11 percent of its staff since August, after a second round of layoffs in January. The market’s ripple effect set off waves in the proptech world, with giants Zillow and Redfin also cutting sizable chunks of their staff.”
D Magazine in Texas. “S2 Capital’s Scott Everett, who surpassed Blackstone as Dallas’ most active multifamily buyer in 2022, says he put a third of his portfolio on the market in July of that year and sold it by December. ‘We’re sitting in an excellent position right now with a clean balance sheet. I’d say today you’re going to have a tough time getting rid of anything that you haven’t owned for many years or aren’t willing to take a significant price cut on,’ he says.”
“Everett notes that some multifamily REITs are down by 25 percent in 2022. ‘There’s still a massive pipeline of multifamily deals under construction, and I don’t see any signs of developers not being able to complete those developments that are already financed,’ Everett says. ‘But I think rent growth has slowed a bit, and many people had to forecast aggressive numbers to get deals done. So, you’ll have a tough time during lease-up when those units come onto the market, and in obtaining financing on future deals and getting deals done next year as rent growth begins to cool.’”
Multi-Housing News. “Multifamily construction boomed last year. There are currently 943,000 apartments under construction, up 24.9 percent compared to a year ago (755,000). This is the highest count of apartments under construction since 1974, according to NAHB. Multifamily markets took a hit in the second half of 2022, said Selma Hepp, chief economist of CoreLogic. ‘2021 was a banner year for multifamily property sales,’ she added, ‘but since then we have seen a pull back. In the first three quarters of 2022, multifamily sales were down about 15 percent. The question is how much sales went down in the fourth quarter. By some accounts they were down in the four quarter year-over-year about 60 percent.’”
“‘Demand for homes (to buy or rent) has weakened considerably,’ said Hepp. Rents are slowing across the markets; however, rents in pandemic boomtown markets are now cooling the most rapidly. ‘Interestingly, mortgage rates has had a much worse impact—or been more evident—on the single family purchase market because mortgage rates have impacted affordability so much,’ said Hepp. ‘The impact on multifamily is a little bit more nuanced for a number of reasons. One is that folks now can’t afford homes, so they are staying in rental properties a little bit longer. The other thing is because the demand for single family homes has gone down so much, the folks that are going to sell their homes can now potentially be renting them—and this adds to the rental inventory.’”
The Seattle Times in Washington. “Despite serial predictions of an imminent Office Return, most remote workers still haven’t come back. Offices in downtown Seattle remain at around 40% of their pre-COVID worker occupancy, according to the Downtown Seattle Association. (In downtown Bellevue, offices are up to 65% full, based on estimates using cellphone data.) Lack of office workers hasn’t stopped new office construction across the region. Projects underway in Seattle and Bellevue will lift the cities’ combined inventory by 6.5 million square feet, or around 8%, by the end of 2024, according to Colliers.”
“But there are mounting questions over who, exactly, is going to work in all those new offices and when they’ll show up. ‘This is a new equilibrium,’ says Margaret O’Mara, a University of Washington historian who studies the tech sector and its influence on urban development. After years of rapid office expansion, ‘things are coming down to Earth and resetting.’”
“With vacancy rates so high, rent cuts are just around the corner, brokers say. Trevor Youngren, a senior director at Cushman is already getting calls from landlord brokers saying, ‘We have a lot of flexibility there, and you can tell us what we need to do to get the deal,’ he says. ‘That kind of narrative hasn’t happened in 10 plus years.’”
“But such responses sidestep larger questions about the office market. One is whether, or when, high vacancy rates will start to threaten landlords’ abilities to pay or refinance their construction debt or to flip the properties. Some industry insiders think that risk, which became an issue during the Great Recession, is likely to resurface. Debt issues aside, the office market still faces a more basic question: what’s the future of the office? Certainly, some of the decline in office leasing is driven by broader economic uncertainties and by tech executives ‘trying to signal to the market that the days of irrational exuberance are over and we’re slowing down or right-sizing,’ says the UW’s O’Mara.”
The Toronto Star in Canada. “Dozens of buyers who thought they were buying their dream homes in two Oakville housing projects early last year when the real estate market was still riding high, say they never expected home values would fall so low or that interest rates would rise so fast. Now their builder, Mattamy Homes, is selling the same kind of pre-construction houses in the same communities for as much as hundreds of thousands of dollars less — a move the purchasers say is undermining their already impossible financial situation.”
“They say they are facing financial devastation because their bank appraisals are coming up far short of the amount they agreed last year to pay for their homes, leaving a huge gap in the financing they will get when it comes time to close on their houses later this year. ‘We are in the soup,’ says Brampton lawyer Ajit Soroha, who, with his wife, purchased two homes for their family in Mattamy’s Preserve West development last February. The houses cost $2.46 million each and they have paid about $800,000 in deposits for the two.”
“Now Soroha is wondering about walking away from that money but, like other buyers, fears the company will sue him if he doesn’t live up to the agreement to purchase. ‘Mattamy is undercutting us. They are making it impossible for us to close the deal,’ he said. ‘We are in a desperate situation. We are prepared to lose what we have to lose but it will be a big, big financial devastation for most families in that community.’”
“Milton resident Ivalina Petrov said she bought a Preserve West house last March for $1.9 million with a view to more space for herself, her husband and their two young children. She said Mattamy is now selling the same house for $400,000 less. ‘I know that they have the right to sell to whoever they want and for as much money as they want. But offering the same house, three houses down the street for half a million less than I am buying and closing it at the same time — they’re putting me in risk. I’m their customer and they’re only benefiting the other customer,’ said Petrov.”
“She said Mattamy bought the land for the lower priced house at the same time as it purchased the land for her house. ‘How is this fair?’ she said.”
The Globe and Mail. “One by one, the myths of houses as magical financial assets are being blown apart. Correction-proof? Nope. A surefire wealth builder, even if you pay top dollar? Wince. A hedge against inflation? Uh, inflation is high and home prices are falling. Housing did have a fantastic run until it reached the peak of irrational overexuberance last February. House prices barely acknowledged the global financial crisis of 2008-09, then went ballistic during the pandemic. The average annual gain in national resale house prices from 2008 through 2022 was a pretty great 6.1 per cent, according to Canadian Real Estate Association data.”
“The average resale price in December, 2022, was $626,318, which is 23 per cent lower than the $816,720 reached last February. More downside seems likely, given that higher mortgage rates are offsetting the benefit of lower prices. It’s easier to save for a down payment amid falling prices but still expensive to carry a mortgage. One of the foundational myths of the housing boom was that mortgage rates would remain low indefinitely. Frankly, this was sound thinking right up until the pandemic began.”
“When prices kept pushing higher every month, it was easy to rationalize the financial discomfort of paying too much for a house. Soaring prices are proof you made a sound decision, right? Now we have a market in which house prices are falling in many cities while owners face higher payments upon renewal. If you came down to Earth from another planet and examined the financials of housing right now, you’d wonder why people bothered.”
News.co..au in Australia. “A top NSW judge is bracing for courtrooms in the Supreme Court to be clogged with home repossession cases as interest rates rise and homeowners fall behind repayments. On Wednesday night, NSW Chief Justice Andrew Bell issued the sobering warning in a grim sign of what’s to come for cash-strapped Aussies stuck in mortgage prisons. Justice Bell said the workload for fellow lawyers was set to increase to a ‘significant’ extent because repossession claims are set to explode.”
“‘We unfortunately anticipate a very significant growth of work in the possession list this year with the likely continued rise in interest rates likely to be productive of extreme mortgage stress,’ he said, per the Australian Financial Review. Just a few days before Justice Bell aired his concerns, new research also found things could be going to get worse, not better, for mortgage holders struggling amid the cost of living crisis. Based on historical interest rates in the past 33 years – the average rate has been 4.6 per cent – which is 1.5 per cent higher than the current cash rate of 3.1 per cent, the Canstar research found.”
“This could signal more rate pain on the way with the equivalent of six more 0.25 per cent rate rises meaning mortgage holders would be slugged with an extra $498 on monthly repayments for a $500,000 loan. That would mean a total of $1386 added to repayments since April 2022. Those homeowners with a $750,000 loan would see $2080 added to repayments after rates rose eight consecutive times alongside another six more hikes on top. For a $1 million loan, this would add up to $2773 extra in repayments if interest rates were to reach 4.6 per cent.”