A report from Bloomberg on California. “The collapse of Silicon Valley Bank has dealt yet another blow to San Francisco’s depressed housing market, dashing agents’ optimism that conditions would finally start to improve. ‘Not a single buyer has expressed interest in going out,’ Nina Hatvany of Compass said on Saturday, before it was clear that Silicon Valley’s depositors would be able to access all their assets. ‘Sellers are like, ‘I better sell before it gets worse,’ and buyers are not engaging.’ People across the Bay Area were afraid of what would come next, likening it to the Great Recession of 15 years ago, this time with SVB’s troubles spreading to other banks and potentially tanking startups. ‘It’s scary,’ Hatvany said. ‘People are worried about whether or not we’ll have another 2008.’”
“The median sale price in the nine-county Bay Area was $1 million in January, down 35% from the peak of $1.54 million in April 2022, according to the California Association of Realtors. ‘This might be the punctuation point for the correction of the unsustainable growth that we’ve had for the last decade,’ said Redfin agent Josh Felder. ‘Silicon Valley Bank put the nail in the coffin for the gold rush.’”
KOMO in Washington. “For years, buyers have had to waive inspections and contingencies, offer quick closing dates or all cash just to compete in the hot housing market. Now, the pressure is on sellers. According to Redfin, more than 45% of people trying to sell their homes over the last three months offered buyers some sort of concession. Seattle tops the list for major cities with more than 51% of sellers trying to sweeten the deal. Many are offering to pay for home repairs, cover closing costs or buy down the mortgage rate. Those alone are typically worth thousands of dollars. ‘On average, homes are selling for about 3% less than asking price,’ Redfin Chief Economist Daryl Fairweather said. ‘Once you factor in these concessions, it might look more like a 5% discount on a home For the first time in a long time, home sellers can expect one or zero offers instead of multiple offers.’”
From Market Watch. “Silicon Valley Bank’s collapse last Friday has exposed a big problem with ‘safe’ securities bought with government guarantees during the pandemic. Worries about European banking giant Credit Suisse, which has lost money for five quarters in a row, intensified on Wednesday after Bloomberg reported that that its top shareholder said it couldn’t invest more in the bank above its 10% threshold. SVB Financial a week ago disclosed a sudden sale of about $21 billion of high-quality, rate-sensitive mortgage and Treasury securities at a $1.8 billion loss, which caused customers to flee with their deposits and ultimately led to the bank’s failure on Friday.”
“‘When yields rise, of course, it gets more difficult to get out of those positions,’ said Robin Marshall, director of fixed-income and multiasset research at FTSE Russell. While assets held at big banks have been heavily scrutinized by regulators since the subprime days that fueled the global financial crisis, Marshall said risks at some regional banks seem to have ‘slipped under the radar.’”
From Bisnow. “Until late last week, the biggest concern for most commercial real estate investors was the prospect of a higher-than-expected interest rate hike. That changed in the blink of an eye when two of the 30 largest U.S. banks collapsed in a 72-hour window, triggering extraordinary steps by the federal government and the Federal Reserve to stabilize the financial system. Now, there is an epic new cloud of uncertainty for real estate finance as lenders try to contain the fallout of the second- and third-largest bank failures in American history.”
“As other lenders pulled back on commercial real estate activity last year, regional banks stepped in to fill the void, Bisnow previously reported. Those days are likely over for now. ‘Super-regional, regional and community banks, they are going to be much more reluctant to make loans right now,’ Origin Investments co-CEO David Scherer said. ‘I think you’re gonna see a lot less lending, certainly for the next quarter as this is digested. I don’t think in a week everything’s forgotten, because it won’t be forgotten. The banks, all of them now see how precarious the situation really is.’”
The Globe and Mail in Canada. “In Barrie, Ont., the market is reaching balanced territory as buyers begin to move off the sidelines, says Shawna Toole, a real estate agent with Right at Home Realty. The city about one hour north of Toronto also saw one of the most dramatic run-ups in prices during the pandemic as people from around Ontario migrated to the shore of Lake Simcoe. Barrie was especially popular because it offers plenty of opportunity for outdoor recreation and easy access to cottage country. ‘I feared for people,’ Ms. Toole says of the buying spree during the pandemic. ‘You’re going to spend $150,000 over ask for this already over-priced house? Things were just getting way out of hand.’”
“The average price for a three-bedroom detached house was $680,000 in February, she notes. That’s up from $650,000 in January and $640,000 in December. In February of last year, a typical three-bedroom detached was trading hands for $875,000. In a balanced market, sales are picking up but bidding contests are still in the distant past, adds Ms. Toole. Properties languish when sellers are unrealistic about current prices. ‘The ones that are sitting are the ones who think it’s worth what it was one year ago.’”
“As for sellers, some homeowners who purchased at lofty prices during the pandemic would have to sell for a lower price today. To avoid locking in a loss, some are renting out properties instead or leaving them vacant. Others are people who purchased a condo townhouse or detached house in a new sub-division with the intention of selling it upon completion. ‘They’re not going to make what they bought it for,’ she says.”
“Anita Springate-Renaud, broker with Engel & Volkers, says agents are receiving calls for evaluations from homeowners in parts of Ontario such as Collingwood, Owen Sound and Muskoka. Many are considering selling as the weather improves. Ms. Springate-Renaud says Collingwood in particular saw a strong run-up in prices. Many times, she saw fierce bidding by people who sold their property in Toronto and then used the funds to buy in smaller cities. If they decide to sell now, they are likely looking at a loss, she says. ‘They way overbid everybody else. If it was listed at $999,000, they would offer $1.4-million. They’re not going to get that back.’”
From Reuters. “For years, Sweden has been warned that its dysfunctional housing market, plagued by under-supply and kept aloft by low rates and generous tax benefits, was a risk to the wider economy. Now those risks are becoming reality. Households with big mortgages are reining in spending as interest rates rise, and house-builders are pulling the plug on investment, tipping Sweden into recession. The structural problems rooted in its housing market are magnifying the effects.”
“House prices in Sweden have almost quadrupled in the last 20 years, easily outstripping wage growth, boosted by generous mortgage tax relief, almost non-existent real estate taxes and a rental market with limited supply because of tight regulations. Debt levels are among the highest in the European Union at around 200% of disposable incomes, much of which is mortgage debt. And around 60% of Swedes have floating-rate mortgages, meaning rate increases have an immediate impact on the majority of households.”
“Philippa Logan, a single mother of two, bought her 89 square meter (958 square feet) apartment in Ostberga in the south of Stockholm in 2017 and paid off some of the mortgage after getting divorced in 2020. ‘However, in the last few months, the interest rate has almost tripled making it almost unaffordable to survive,’ Logan said. ‘The stress has been indescribable,’ she said, adding she had been forced to take on extra work to make ends meet.”
“House prices are down around 15% since their peak in spring last year, a bigger drop than during the global financial crisis. Some regions have experienced a fall of as much as 40%, the real estate division of insurer Lansforsakringar said.”
Channel News Asia. “Shanghai-based Yuzhou Group Holdings on Wednesday forecast a massive annual loss, as a severe slowdown in China’s real estate sector hurt its operations. Yuzhou is the latest in a series of Chinese property developers that have flagged hefty losses for 2022, hurt by a combination of plummeting demand for new homes, steep cost jumps and repeated COVID-19 lockdowns.”
“Chinese developers are also facing an unprecedented liquidity squeeze due to years of regulatory curbs on borrowing, leading to a string of offshore debt defaults, credit-rating downgrades and sell-offs in developers’ shares and bonds. For the year ended Dec 31, 2022, Yuzhou is expected to record an attributable loss of 12 billion yuan (US$1.74 billion), compared with a profit of 862 million yuan posted a year earlier.”