A report from Reuters. “A ‘bull case’ scenario for the shares of beleaguered First Republic Bank as it considers its options became more difficult on Wednesday after Treasury Secretary Janet Yellen said there is no discussion on insurance for all bank deposits without approval from the U.S. Congress. ‘I have not considered or discussed anything having to do with blanket insurance or guarantees of deposits,’ she said. Her latest remarks affected all regional bank stocks, said R.J. Grant, head of trading at Keefe, Bruyette & Woods. ‘Yellen struck a different tone for sure. There was this feeling that there was behind-the-scenes talks in Washington that depositors would be protected,’ Grant said.”
“Even if it clinches a cash infusion, the lender will probably need to take losses on securities in its so-called held-to-maturity portfolio, the Morgan Stanley analysts wrote. A potential buyer would need to absorb $26.8 billion in mark-to-market losses from First Republic’s loan and securities portfolios, while an extra $9.5 billion is needed to recapitalize the bank, the Morgan Stanley analysts estimated.”
From Bloomberg. “‘It’s astounding that Yellen and Powell would have given contradictory messages on bank deposits at the same time,’ said Steve Chiavarone, senior portfolio manager and head of multi-asset solutions at Federated Hermes. ‘Powell essentially said that all deposits are safe, Yellen said, ‘Hold my beer.’ You would have thought that they would have coordinated.’”
Yahoo Finance. “Shares of PacWest Bancorp fell Wednesday morning after the company said it had $1.4 billion in new cash from a firm backed by Apollo, its deposits were down 20% since the start of the year and it had abandoned an effort to raise capital. The regional lender, based in Beverly Hills, Calif., came under intense investor pressure following the failures of Silicon Valley Bank and Signature Bank. Shares have dropped 49% since Silicon Valley Bank’s seizure by regulators on March 10, and were trading down more than 17% Wednesday as of 4:40 pm ET. PacWest’s bank was the nation’s 53rd largest as of Dec. 31, with $41 billion in assets.”
“PacWest added that it has drawn $3.7 billion in loans from the Federal Home Loan Bank, $10.5 billion from the Federal Reserve’s discount window and $2.1 billion from a new Fed program that offers one-year loans to banks holding assets that are now worth less as a result of rising interest rates.”
Business Insider. “Nick Sullivan was facing a sudden squeeze. For the past few years, his two Airbnb properties around Charlotte, North Carolina, had generated as much as $7,000 a month in revenue, which he and his wife stashed away for retirement. But this past fall, that income was slashed in half: Bookings dropped, his homes were empty more often than not, and his monthly revenue sank to $3,000. His cleaner was actually the first to point out the slowdown in bookings — she told Sullivan the same thing was happening with various rentals all over town. ‘We started panicking and started connecting with other folks who we know have short-term rentals,’ Sullivan told Insider. ‘We don’t know what’s going on.’”
“Sullivan is not alone. Whispers of an apocalyptic ‘Airbnbust‘ have spread online among short-term-rental hosts facing empty booking calendars, stiff competition for guests, and tumbling earnings. The shift has sparked fears of an irreversible slide in the business and a broader economic slowdown. Big Bear Lake, another popular vacation spot in Southern California, represents the flip side of La Quinta. The city has a permitting process for STRs but doesn’t limit the number of rentals allowed to operate there. From 2020 to 2021, the number of nights available at short-term rentals there increased by 17.3%, but demand grew by only 7.2%.”
“Evan Engle, general manager of Destination Big Bear, which manages more than 400 rentals on behalf of homeowners in the area, said business has returned to its pre-pandemic pace. But the outlook might not be so sunny for an investor who bought a home there when prices were at record highs. ‘People who purchased homes within the last two years paid 30% or 40% more than the previous owner, expecting to have 30% or 40% more revenue, and that’s just not happening,’ Engle said.”
The Orange County Register. “The median price of a Southern California home — or the price at the midpoint of all sales — was $690,000 in February, CoreLogic reported Wednesday, March 22. That’s down $2,000 from a year ago and down $70,000 from last April and May when home prices went into an eight-month nose dive. Sales, meanwhile, fell 37.6% to 11,068 transactions in the 12 months ending in February, CoreLogic reported. That’s the second-lowest tally for a February and the fourth lowest for any month in records dating back 35 years.”
“Homes are taking longer to sell and are going for a lot less. Just a third of Southern California’s homes sold above the seller’s asking price, compared with two-thirds a year ago, Redfin figures show. Time on the market averaged about eight weeks vs. 3 ½ weeks last year.”
From Cal Matters. “In this economy, who has enough money for a down payment on a house? Despite a projected $25 billion budget deficit, the state of California does. At least for now. The California Housing Finance Agency is poised to launch a scaled-down version of its new shared equity home loan program on March 27. With the Dream for All program, the state plans to provide $300 million worth of down payments for an estimated 2,300 first-time homebuyers.”
“The median price of a previously-owned, single-family home in California, as tracked by the California Association of Realtors, increased 47% from March 2020 to May 2022, when it peaked at $900,170. Since May 2022, the state’s median home price has fallen 16.5% to hit $751,330 in January. Jake Lawrence, a 41-year-old cannabis entrepreneur in Willits who also runs a nonprofit, said he liked what he heard. ‘I’m very interested. The problem we face is that there’s such a flux in what’s going on,’ Lawrence said. ‘We’re in the middle of a housing market bust, so we’re gonna watch prices tumble for a minute.’”
From Bisnow. “Commercial real estate valuations have been dropping this year, and some industry leaders are worried they are locked on a path toward disaster in the absence of government intervention. Of the $5.5T in debt tied to multifamily and commercial properties in the U.S., a shade over 50% was originated by banks, according to Trepp and Federal Reserve data cited by Real Estate Roundtable CEO Jeffrey DeBoer. Of that debt, $936B is scheduled to mature this year or next. ‘A deflationary spiral must be avoided at all costs,’ DeBoer said. ‘As recent events are only amplifying the contraction of credit, it is important for the agencies to take measures to maintain sufficient liquidity levels and support positive economic activity.’”
The Real Deal on Illinois. “Appraisers are still drilling Chicago offices, yet may have changed their tune on a prominent but troubled Central Loop hotel. New evaluations performed on 300 West Adams Street in the West Loop and a Lincoln Property Group-owned office complex in the western suburbs punished their owners in recent weeks as neither asset has generated much momentum leasing space that tenants dropped in recent years. It’s a massive loss in valuation from the time the loan against the hotel was issued in 2018, when the property was appraised at $560 million, loan data shows. A Cook County judge issued an order of foreclosure against the property’s owner, New York-based Thor Equities, for defaulting on its mortgage last summer, setting the hotel up to be auctioned.”
“Meanwhile for offices, the size of losses keeps growing. At 300 West Adams, a 12-story, 254,000-square-foot building across the street from the Willis Tower, the property value has fallen 47 percent to a $20 million appraisal as of February, down from $38 million in 2012 when its former owner, Pennsylvania-based Alliance HSP, obtained a $25 million loan against the property, Morningstar shows. And the Central Park of Lisle office complex had its value fall to $68.3 million this month, down nearly 50 percent from an appraisal of $135 million when its $79.5 million loan was issued in 2017. The Lisle asset’s loan has been in special servicing since September, and matured in January without being paid off, according to Morningstar.”
“Its value has slid enormously. Its appraisal fell to $130 million when its loan was sent into special servicing earlier during the pandemic, and it’s plummeted yet again, to $90 million, or $69 per square foot, down from $330 million when the $100 million loan on the property was issued in April 2015, Morningstar data from this month shows.”
Battlefords Now in Canada. “The head of the Saskatchewan Realtors Association called fraud charges laid against two now-former realtors in Saskatoon ‘unfortunate’ and ‘surprising.’ Chris Guerette, CEO of the association, said she’s only been learning the same limited information as the public from police about the investigation. ‘We don’t even know how such things are possible,’ she said on Gormley on Wednesday, calling it a ‘really unfortunate case.’”
“The confusion over how eight mortgage applications with false documents were discovered at a financial institution — with police searches eventually turning up more, linked to further banks — comes as a result of knowing the intricacy of real estate transactions. Guerette said a significant number of people are involved in every transaction, including the bank, realtors, appraisers and lawyers. ‘It’s a bit surprising that it did take this long to have such an unacceptable situation brought to light,’ she said.”
The Globe and Mail in Canada. “Long-time financial advisor Keith Brown heard from a young father who’d seen the payments on his $3.2-million mortgage soar in the last few months. He purchased the expensive house a couple of years ago and took out a $2.2-million mortgage at a low variable rate, with a $1-million down payment. Because his current payments are now at more than $14,000 a month – an extra $57,000 a year – he had come to Mr. Brown for advice. Mr. Brown, who’s been in the business for 40 years, usually works with high-income families on tax and estate planning. The man was not a client, but he was struck by his predicament.”
“‘You are going from 1.7 per cent or 2 per cent to 6.5 per cent in a period of months,’ he says. ‘People can sustain that for awhile, but eventually they run out of their cash or have to go into savings like RRSPs to pay their bills. We are in this market where people have been buying property and they’re over their heads because it’s so expensive. It’s not that unusual to see people paying over 50 per cent of their income on housing – and that’s too high.’”