A report from DS News. “Auction.com, a real estate auction site offering existing and aspiring investors access to (mostly) distressed assets, generated very revealing information about the state of real estate assets throughout 2022. Over the year, buyer behavior began a subtle but dramatic shift. Between the first and third quarters, bidding became much more muted and conservative; buyers set their bids at around an 11% discount on foreclosures in Q1. That discount fell to 23% below the as-is value by Q3. This sign of things to come shows that if the trend continues and the aftershocks of rate hikes extend to the real estate market in toto, we may see a complete slowdown by March 2023.”
Pro Builder. “We are currently in a housing downturn that will likely be followed by a recession. There are a lot of people who feel the housing market will be OK because we’ve been undersupplying the market for so long. While I agree that we’ve undersupplied the market, that viewpoint misses one important point: Look at all of the completed spec homes that don’t have a buyer. If it was as simple as undersupply in the market, why aren’t these finished homes sold? The reason is affordability.”
The Express News in Texas. “Inventory in the local housing market is starting to back up as fewer would-be homebuyers are looking — many sidelined by rising mortgage rates and prices — and homes spend more time on the market. In the San Antonio-New Braunfels metropolitan area, active listings were up 150.4 percent and new listings were up 10.2 percent in February year over year, according to Realtor.com. Among the 50 largest U.S. metros, San Antonio, Austin and Las Vegas were the only ones that saw higher levels of supply compared with typical pre-pandemic levels for February, Realtor.com’s report shows. Nationally, active listings were up a record 67.8 percent.”
“‘The number of homes for sale on the market is up significantly from a year ago, even though fewer homeowners have listed their home for sale in recent months,’ Danielle Hale, chief economist at Realtor.com, said in the report. The median listing price was down 8 percent to $533,000 in the Austin metro. Austin saw the biggest decline in listing prices and the greatest increase in the time homes spent on the market — a median of 72 days, 52 days more than last year — one of the biggest such jumps among metros nationwide.”
KTVB in Idaho. “For the fourth month in a row, the median price of homes sold in Ada County declined year-over-year in February. The February 2023 median sales price was $492,115, according to statistics from Intermountain MLS. The median price in January 2023 was $487,495. In February 2022, it was $549,900. In Canyon County, the median home sales price this past February was $389,945, down almost $6,000 month-to-month. A year earlier, the median price in Canyon County was $434,900. There were 1,039 homes available on the market at the end of February in Ada County, compared to 493 a year ago.”
ABC 30 Fresno in California. “Many sellers have had to reduce their initial asking price because home buyers are being extremely patient. Steve Flach is president of the Fresno Association of Realtors. He’s seeing a return to normalcy with more negotiating. ‘We do see some people waiting on the sideline and the market’s not going to crash so the people that are waiting for the market to crash to make a move, I think they’re going to be missing out on it,’ Flach said.”
From Vizaca. “The Barney Frank scandal is the most accurate example of unthinkable irony. The former Congressman who came up with the Dodd-Frank Act was sitting on the board of the failed Signature Bank. The man who was the scourge of Wall Street, co-author of the Dodd-Frank Act that was supposed to keep the banking system safe, couldn’t prevent his bank from becoming one of the first casualties of the latest bank panic. On Monday, Frank, who had been a board member since 2015, said that he was disappointed in the decision of regulators to shut down Signature Bank.”
“Regulators, he believed, took control of Signature to send a message to other banks to stay away from cryptocurrencies. ‘They shoot one man to encourage the others,’ Mr. Frank said, referring to a saying about using a single military execution to incentivize the subject’s peers to behave differently. He said the same motto applied to the regulators’ handling of Signature. ‘I think we were shot to encourage the others to stay away from crypto,’ said the former Congressman.”
The Detroit Free Press. “You don’t know what you don’t know when Wall Street hits a pothole like this one, especially one involving banking. Comerica had fallen by 40.55% in trading at one point Monday morning but it regained some ground. Comerica closed at $42.54 a share, down 27.67% or $16.27 a share. Huntington Bancshares saw its stock fall 16.83% Monday to close at $11.12 a share, down $2.25 a share. Ally Financial fell 10.73% on Monday and closed at $23.05 a share, down $2.77 a share.”
“Daniil Manaenkov, U.S. forecasting specialist for the U-M Research Seminar in Quantitative Economics, said that some numbers peg potential banking debt portfolio losses from sharply higher rates at around $620 billion, based on FDIC data. He blamed much of the problem on economic policy during the COVID-19 pandemic. ‘Too much money injected into the economy simultaneously increased deposits, drove short-term rates to zero, and reduced demand for loans. So, banks just did a ton more of the ‘maturity transformation’ — borrowing short, investing long,’ Manaenkov said.”
Yahoo Finance. “First Republic Bank shares fell a record 62% on Monday to close at $31.21 each, despite measures by U.S. regulators to shore up confidence in the banking system following the collapse of Silicon Valley Bank. First Republic and other regional lenders’ stocks were repeatedly halted for volatility during the trading session amid fears of a bank contagion. Western Alliance’s shares fell 47%, while PacWest Bancorp and Zions Bank Corporation close off their session lows, down 21% and 25% respectively.”
“‘Risk and fear are still very much alive in this marketplace,’ David Ellison of Hennessy Large Cap Financial told Yahoo Finance Live. ‘The electronic nature of the banking system now, people can move money out very rapidly. This isn’t people lined outside looking to get 20 dollars out. This is people calling, going on the Internet, and pulling out millions of dollars very quickly. So this liquidity issue is bigger than the Fed ever expected.’”
From Bloomberg. “First Horizon Corp. fell by the most since September 2008 as the crisis in regional banks cast doubt on whether Toronto-Dominion Bank will follow through with its planned $13.4 billion takeover of the lender. First Horizon declined as much as 33% Monday morning and was briefly halted due to volatility. The stock pared losses but still ended the day down 20% at $16.04. That’s about 36% below TD’s takeover offer. ‘With a walk date in May looming and bank stocks imploding, the question is will TD walk away or ask for a massive cut?’ said Cabot Henderson, who focuses on merger arbitrage and special situations at JonesTrading. ‘Things are so fluid and with downside seemingly getting scarier by the minute, it’s extremely hard to have any conviction.’”
“Adding to the complexity is the slump in Toronto-Dominion shares and in Charles Schwab Corp., which has fallen 32% since Wednesday. The Canadian bank owns about 10% of Schwab’s voting stock, according to data compiled by Bloomberg, and it has sold Schwab shares in the past as an easy way to raise capital.”
KING in Washington. “‘There’s a bit of reckoning happening at the business level with the tech industry,’ said Hanson Hosein, who has spent years consulting and also serves as the president of HRH Media. ‘They got too confident and now there’s a lot of pull back and it’s affecting this specific industry. Because we live in Seattle and the West Coast, we’re disproportionately impacted as they employ so many of our people here.’ ‘About 50% of all venture capital is financed by, one way or another, by the SVB,’ said Seattle University Economist, Vladimir Dashkeev.”
The Washington Examiner. “Shares of San Francisco-based First Republic Bank plunged by more than 73% after opening but have pared those losses a bit. At the heart of Silicon Valley Bank’s demise are the Federal Reserve’s policy actions. Desmond Lachman, a senior fellow at American Enterprise Institute, said the Fed created a ‘huge mess’ by being too easy with its monetary policy in the wake of the pandemic. During that time, the Fed slashed interest rates to near-zero levels and kept them that low until the beginning of last year. Since then, rates have soared as Fed officials grew ever more concerned about inflation proving stubbornly high.”
“‘When money was very easy, everybody thought that this was going to last forever so they did stupid things. Now what is going on is the Fed is having to raise interest rates because it’s got to fight the inflation,’ Lachman told the Washington Examiner.”
The Los Angeles Times. “The fact that SVB’s problems were hiding in plain sight, right up to the point Friday when the bank was taken over and shut down by California and federal authorities, is certain to be near the top of the agenda as lawmakers, shareholders, customers and regulators examine the disaster. As the bank’s primary regulator, it was the Federal Reserve’s responsibility to recognize its growing problems and ensure it continued to meet standards of safety and soundness and financial stability, says Dennis Kelleher, chief executive of Better Markets, a Washington-based watchdog over financial institutions and government regulators.”
“The bank’s operations bristled with ‘screaming red flags,’ Kelleher told me. These included a ‘hyperconcentration’ of uninsured depositors from a narrow business sector — chiefly high-tech and biotech startups — as well as a dramatic mismatch between assets (that is, loans and investments) and liabilities (deposits) and the mounting tide of unrealized losses on its books. ‘These were visible to anyone who wanted to look,’ Kelleher told me. ‘But apparently, the Fed was AWOL.’”
“Kelleher observes that the Fed’s policy of pegging interest rates near zero during the pandemic ‘was causing bubbles all over the place and reckless lending.’ The Fed staged an unprecedented about-face on interest rates starting in March 2022 — raising rates by 4.5 percentage points in the space of nine months. ‘Banks were not going to be able to reposition their portfolios anywhere near as quickly as the Fed is changing policy.’”
“That behooved the Fed to take a close look at all the banks. Kelleher says that Fed examiners should have demanded a plan last year from SVB’s management or board for unwinding its large and growing impairment. It did not do so. Another red flag for regulators should have been the bank’s rapid growth, which almost certainly placed pressure on management skills in the corporate suite.”
“The Fed wasn’t the only entity that allowed the scale of SVB’s problems to go unremarked. Questions are sure to be raised about the performance of the bank’s auditing firm, KPMG. The firm issued a clean bill of health for the bank, known as an ‘unqualified’ opinion, with the bank’s annual report, released on Feb. 24. KPMG hinted that it was concerned about the bank’s method for projecting credit losses on some of its loans, but didn’t rule them as improper. Instead, it designated the method a ‘critical audit matter,’ which typically refers to issues that are “especially challenging, subjective, or complex” but don’t warrant a warning about a company’s prospects for failure.”
Market Insider. “The Fed will investigate its oversight of Silicon Valley Bank, Chairman Jerome Powell said Monday. ‘The events surrounding Silicon Valley Bank demand a thorough, transparent, and swift review by the Federal Reserve.’ Tim Gramatovich, chief investment officer at Gateway Capital, told Insider that even though the Fed has been raising interest rates for a year, it was as if a higher-interest-rate landscape came as a surprise for SVB. ‘For a $200 billion bank to have no interest rate risk controls is staggering,’ he said. ‘And of course the regulators and rating agencies are allegedly engaged here too. Doing what, we aren’t sure.’”