A report from the Orange County Register. “California’s latest homebuying debacle is a pumped-up storyline we’ve seen before — even if each housing bubble has its own shape and size. The median price of an existing, single-family home in California in February 2023 was $735,000, 18% off May 2022’s $900,000 high. That’s the third-biggest drop on record over these 10 months. Oddly, the nation’s central bank that’s also a bank regulator was the pump for this bubble. This bubble’s pop came in early 2022 when the Fed’s pump ended. Oh, and a collection of banks collapsed — notably California’s Silicon Valley Bank — as their wrong-way bets on interest rates blew up.”
The New York Post on California. “Sellers have been throwing in brand new Bentleys and McLarens and drastically slashing prices in order to incentivize a quick close. That’s because a so-called ‘mansion tax’ goes into effect Saturday in Los Angeles. ‘People need to get as creative as possible to motivate the buyer to close before this [tax goes into effect],’ said Josh Altman, a luxury broker in Los Angeles. ‘A lot of times it’s … a cut-your-losses type of approach.’”
The Salt Lake Tribune. “The sandy hole where the historic Utah Theater once stood along Salt Lake City’s Main Street wasn’t supposed to be quiet Friday. Under contracts with the city’s Redevelopment Agency, global developer Hines was to start construction of a luxury 31-story residential tower. The Texas-based firm now says it has run into financial difficulties after a key equity partner ‘recently pulled out of the project due to the unprecedented market changes over the last several months,’ forcing the developer to miss its legal benchmark to start building. Hines is one the largest privately held real estate investors and managers in the world, making Friday’s hiccup another sign of a slowdown in the city’s recent commercial real estate boom amid the effects of market swings, a deflated office sector and rising interest rate rises.”
Bisnow New York. “The Chetrit Organization has sold its 850 Third Ave. office tower to its lender for less than the value of the mortgage it took out on the Midtown East property less than two years ago. The firm closed on a sale of the 21-story property to its lender for $266M this month. The deal works out at a price of roughly $431 per SF for the 617K SF building. The price tag on the most recent sale of the building is a steep discount from what Chetrit bought it for — which was already a haircut for its predecessor. The New York landlord run by Jacob Chetrit paid $422M for the building in 2019.”
“Both the Chetrit Group and the Chetrit Organization — the two firms formed after the Chetrit brothers split the family business in two — have had trouble with debt on some of their more recent purchases since interest rates started spiking. The Chetrit Group, run by Joseph Chetrit, was looking to offload 8,000 multifamily units across several U.S. states in January, with the portfolio’s occupancy hovering at 76% in spite of demand for apartments. The Chetrit Group also found itself in trouble a month later, when it defaulted on a pre-development loan in Hudson Yards and its lender set about looking for a buyer for the debt who might foreclose on the site.”
From Storeys in Canada. “Real estate in Richmond Hill is holding its value better than the rest. Brock, not so much. Last week, Toronto real estate expert John Pasalis released a comprehensive chart outlining the drop in sale prices of low-rise homes in various regions of the Greater Toronto Area, comparing February 2023 sales to those one year prior. Places like Brock, Caledon, and Pickering — cities that saw prices surge not long after the onset of the pandemic — all experienced the greatest price drops between February 2022 and February 2023, at -37%, -36%, and -33%, respectively. During the February 2022 peak, average low-rise home prices in Brock reached a shocking $1,124,119. By February 2023, they had dropped to $713,042. Similarly, in the once red-hot Caledon region, home prices fell from $1,864,257 in February 2022 to $1,120,252 in February 2023.”
“Never one to hold back, Toronto mortgage broker Ron Butler expresses his thoughts on Brock’s price drops. ‘The idea that a house 1 hour and 15 minute drive from downtown Toronto in Brock Region could be worth $1.1M is peak Batshit Crazy,’ he wrote. He’s not wrong. But those were different times.”
“Meanwhile, Richmond Hill, Toronto, and Vaughan saw the smallest drops in that time frame, at -14%, -15%, and -17%, respectively. Richmond Hill saw a minor price drop relative to some of its big suburbia counterparts. At the February peak, the average low-rise home price hit $1,914,379; by February 2023, prices were $1,644,146. In Toronto, prices in February 2022 had reached $1,889,178 before dropping to $1,606,591 in February 2023. Vaughan saw the third-smallest price drop, from $1,970,730 in February 2022 to $1,643,499 in February 2022.”
The Telegraph. “The arrival of the pandemic sparked a ‘race for space’ as homeowners looked to flee crowded cities for the sanctuary of suburbs and the countryside. But three years on from the first lockdown, owners in these areas are suffering the biggest price falls amid soaring mortgage rates. House prices across the UK have fallen by 3.1pc in the last year, the biggest annual decline since July 2009, according to mortgage lender Nationwide. These buyers are in for a rude awakening when they come to the end of their fixed-rate deals, experts warned.”
“Many economists believe the era of cheap debt during the past few years is over. Those who cannot afford to pay their increased mortgage costs will be forced to sell, and these distressed sales will further push down prices. Philip Harvey, of buying agents Property Vision, says buyers were prepared to overpay while the market was booming, expecting to ‘recoup their losses through natural house price rises.’”
“‘As soon as you’re looking at prices flattening at best or falling, people are going to factor that in and think, ‘how much less is the house that I’m buying today going to be worth in four years’ time if the price drops 4pc or 5pc a year?’ he says. ‘They want to be very cautious about how much they spend. Everyone wants to pay tomorrow’s price.’”
“Guildford, Salisbury and Watford are among the areas where agreed sales prices have fallen the most from their peak last summer, according to TwentyCi. Agreed sales prices dropped 12pc in Salisbury and Guildford between June and February. The average house was sold for £374,932 in Salisbury in February, and £550,921 in Guildford. In Watford, prices were down 11pc during the same period, reaching £536,700.”
“Bill Spreckley, of Stacks buying agents, says buyers in Guildford have lowered their bids, but some sellers are still expecting the same prices their neighbours were receiving a year ago. Homeowners who bought expensive properties further away from city centres may now be in for a shock when they come to sell. ‘People have stopped paying too much for properties in a bit of a panic,’ he says. ‘They won’t be doing that anymore.’”
The Sydney Morning Herald in Australia. “Collapsed home builder Porter Davis drastically slashed prices of new homes – some by $50,000 – until the day it went into liquidation, luring in buyers who are unlikely to get their money back. The company, which left 1700 homes unfinished when it abruptly halted work last Friday, dropped the price of its signature Grange-style houses by $50,000 at the start of February in a bid to drum up sales ahead of a financial crisis that has brought insolvency specialists through the doors two months later.”
“John Goddard from Subbies United said Porter Davis’ sales tactics ‘smack of desperation’ and the company’s directors should be questioned about taking deposits while the business was financially struggling and not paying subcontractors.”
“Victorian Premier Daniel Andrews said on Sunday that the government would not act as financial backstop for buyers.’There may be a role for the VMIA [Victorian Managed Insurance Authority] in providing advice, but we’re not the financier of last resort,’ the premier said. ‘We know, and acknowledge, that this is a really tough time for those people who’ve got a house that hasn’t been finished or indeed some that haven’t even started.’”
“The state-backed VMIA is set to be swamped by claims from 1500 hard-hit Victorians caught up in the Porter Davis collapse and potentially faces a bill of up to $80 million. Another 200 home owners in Queensland will need to chase claims in that state. John Murray, who conducted a review of security-of-payment laws for the Turnbull government in 2017, said 85 per cent of construction work in Australia was carried out by subcontractors – small businesses that rely on cash to survive.”
“Under the current system, builders retain progress payments and use the money, which in effect should be paid to subcontractors for work done, as security for bank loans. If the builder becomes insolvent, the bank, usually the largest secured creditor, gets any remaining funds, Murray said. ‘Subcontractors are left whistling in the wind.’”
“Porter Davis’ collapse adds to a growing list of major builders suffering from rising costs of products and labour, as well as less funding appetite from banks and investors in a slowing market. Another civil construction firm, Lloyd Group, was also placed in voluntary administration last Friday, upending 59 projects in Victoria and NSW, and putting 200 staff in limbo.”